Court Opinion

ID: 9792946
Source: CourtListenerOpinion
Date Created: 2023-08-31 02:39:49.315745+00
Date Added: 2024-06-11T08:02:01.932303
License: Public Domain

KENNARD, J., Dissenting.
How long after a client discovers the facts constituting an attorney’s wrongful act or omission can the client wait to bring a malpractice action? Code of Civil Procedure section 340.6 (hereafter section 340.6) states that the statute of limitations time period is tolled until the client suffers “actual injury.”1
The majority holds that when an attorney’s negligent preparation of documents results in litigation between the client and a third party, the client does not sustain “actual injury” until the litigation terminates by judgment, *259settlement, or dismissal adverse to the client. (Maj. opn., ante, at p. 258.) In the majority’s view, a client who prevails in an action caused by the attorney’s malpractice never suffers “actual injury.” {Id. at pp. 250-251, 257.)
The majority is wrong. Section 340.6 codifies this court’s decisions in Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176 [98 Cal.Rptr. 837, 491 P.2d 421] (hereafter Neel), and Budd v. Nixen (1971) 6 Cal.3d 195 [98 Cal.Rptr. 849, 491 P.2d 433] (hereafter Budd). (Laird v. Blacker (1992) 2 Cal.4th 606, 611 [7 Cal.Rptr.2d 550, 828 P.2d 691] (hereafter Laird)). In Budd, this court held that the statutory limitations period during which a client must assert a claim for legal malpractice commences when the client suffers “any appreciable and actual harm,” and that the client’s payment of attorney fees may constitute such harm. (Budd, at p. 201; id. at pp. 198, 201-202.) Because Budd was codified by the Legislature in section 340.6, the holding of the majority in this case cannot be reconciled with section 340.6. In addition, it defies common sense to hold, as the majority does, that a client has not sustained “actual injury” even though the client has paid thousands, perhaps hundreds of thousands, of dollars because the attorney’s malpractice has compelled the client to prosecute or defend third party litigation. Accordingly, I dissent.
I
In December 1984, plaintiff ITT Small Business Finance Corporation (hereafter ITT) retained an attorney, Niles, to prepare a note and loan documents for a $200,000 loan from ITT to California Solution, Inc. (hereafter debtor). The documents were intended to grant ITT a first security interest in the debtor’s machinery, fixtures, accounts receivable, and other valuables.
In February 1990, ITT learned of possible deficiencies in the loan documents. At that time, the debtor, seeking to avoid ITT’s lien on its property, challenged the sufficiency of the documents in an adversary proceeding in the United States Bankruptcy Court. ITT retained independent counsel to represent it in the adversary proceeding, informed Niles that it expected him to indemnify ITT for any losses resulting from negligence in preparing the loan documentation, and advised Niles to contact his malpractice insurer. ITT incurred attorney fees and other litigation costs in defending its rights under the loan. On January 28, 1992, ITT settled the adversary proceeding by agreeing to accept an amount less than the $200,000 full value of the security.
On March 16, 1992, more than six years after Niles had prepared the loan documents and more than two years after ITT learned of potential deficiencies in these loan documents, ITT sued Niles for legal malpractice.
*260The majority holds that the lawsuit was timely filed because ITT did not sustain actual injury until it settled with the debtor on January 28,1992. But, as I shall explain, actual injury may be sustained well before the resolution of a third party action by adverse judgment or settlement.
II
Subdivision (a)(1) of section 340.6 provides that the statute of limitations for legal malpractice is tolled during the time that “[t]he plaintiff has not sustained actual injury.” As this court recently stated in Laird, supra, 2 Cal.4th at page 611: “[W]hen the Legislature adopted section 340.6 in 1977, it implicitly . . . codified the discovery rule of Neel v. Magana, Olney, Levy, Cathcart & Gelfand[, supra,] 6 Cal.3d 176 [98 Cal.Rptr. 837, 491 P.2d 421] (hereafter Neel), and Budd v. Nixen[, supra,] 6 Cal.3d 195, 198 [98 Cal.Rptr. 849, 491 P.2d 433] (hereafter Budd). These cases hold that a cause of action for legal malpractice accrues when the client discovers or should discover the facts essential to the malpractice claim, and suffers appreciable and actual harm from the malpractice. Discovery of any appreciable and actual harm from the attorney’s negligent conduct establishes a cause of action and begins the running of the limitations period. (Budd, supra, 6 Cal.3d at p. 201.)”
The phrase “actual injury” in section 340.6 had its origin in this court’s decision in Budd, supra, 6 Cal.3d 195.2 In Budd, an attorney engaged to represent a defendant in a lawsuit committed malpractice by failing to allege a crucial defense in the answer to the complaint. The client discovered the attorney’s malpractice on September 14, 1964, but did not file the malpractice action until September 11,1967, almost three years later. (Id. at p. 197.) A judgment in the underlying lawsuit was entered against the client on November 4, 1965. (Id. at p. 199.) Thus, the client learned of the facts constituting the malpractice more than two years before he filed the malpractice action, but the adverse judgment was entered against the client less than two years before the malpractice action was filed. When this court decided Budd, the applicable statute of limitations period was two years. (Ibid.) If, as the majority now asserts, actual injury is not sustained until adverse judgment is entered (maj. opn., ante, at pp. 250, 258), the decision in Budd would have held that the action in that case was timely filed as a matter of law because the malpractice action was filed within the two-year statutory period.
*261Instead, Budd held “that a cause of action for legal malpractice does not accrue until the client suffers damage and that the determination of that date raises an issue of fact." (6 Cal.3d at p. 198.) Budd noted that the statutory time would start to run “before the client sustains all, or even the greater part, of the damages occasioned by [the] attorney’s negligence” (id. at p. 201, italics added), and that “[a]ny appreciable and actual harm flowing from the attorney’s negligent conduct” would trigger the statutory period in which to bring the malpractice action. (Ibid., italics added.)
Indeed, this court in Budd expressly rejected the very rule the majority adopts here. The client in Budd argued that the malpractice action was timely filed because “damage did not occur until entry of final judgment in the trial court on November 4, 1965.” (6 Cal.3d at p. 203.) This court did not accept the client’s argument, however. Instead, it remanded the case so that the trial court could determine, in further proceedings, when the client sustained actual injury. (Id. at pp. 203-204.)
Because, as discussed above, section 340.6 codifies Budd, supra, 6 Cal.3d 195, and because Budd rejected the very rule now promulgated by the majority, the majority’s decision cannot be reconciled with the statute it purports to construe.
Nor can this court’s recent decision in Laird, supra, 2 Cal.4th 606, be construed as overruling Budd, supra, 6 Cal.3d 195. In Laird, this court expressly recognized that section 340.6 codified the rule of Budd, and relied on Budd to support its holding (2 Cal.4th at pp. 611-615, 620). Thus, to construe Laird as holding that “actual injury” does not occur until the entry of an adverse judgment would render Laird internally inconsistent and contrary to Budd, the case Laird purported to follow.3 And because section 340.6 codified the rule of Budd, such a construction would also mean that Laird was wrongly decided and must be overruled. This construction of Laird, however, may be avoided. In Laird, the issue was whether the statute of limitations for legal malpractice was tolled while the client was appealing an adverse judgment, not whether “actual injury” was sustained before the entry of the adverse judgment.4 Accordingly, Laird should be read as deciding only the issue there presented—that the statutory limitations period *262is not tolled under section 340.6 during an appeal from a judgment—not as authority for a rule inconsistent with section 340.6 and with Budd, supra, 6 Cal.3d 195.
The majority’s construction of section 340.6 ignores the statute’s plain meaning. A client engaged in litigation arising from his or her attorney’s acts of malpractice may incur thousands of dollars in attorney fees or other legal expenses long before an adverse judgment, settlement, or dismissal occurs. Yet, according to the majority, the client has suffered no “actual injury” under section 340.6 until the case is finally resolved. The majority’s conclusion that these expenses are not “actual injury” flies in the face of reality.
More significantly, the majority’s decision is harmful to injured clients because it eliminates any legal recourse for a client whose lawyer’s negligence embroiled the client in costly litigation in which the client was able to prevail. In such a case, the majority holds that the client has suffered no injury. (Maj. opn., ante, at pp. 250-251, 257.) Thus, under the majority’s decision, clients who have incurred these expenses may well be left with no recourse.
The majority opinion is inconsistent with this court’s decision in Budd, supra, 6 Cal.3d 195. It misconstrues this court’s recent decision in Laird, supra, 2 Cal.4th 606. It ignores the plain meaning of the governing statute, section 340.6. And clients who have expended large sums of money to defend against the consequences of the negligence of their attorneys are now without a legal remedy for their loss.
Accordingly, I dissent.

 As relevant here, section 340.6, subdivision (a) provides: “An action against an attorney for a wrongful act or omission . . . arising in the performance of professional services shall be commenced within one year after the plaintiff discovers ... the facts constituting the wrongful act or omission . . . .” Subdivision (a)(1) of the statute tolls the running of the statute of limitations if “[t]he plaintiff has not sustained actual injury.”

 In Neel, supra, 6 Cal.3d 176, 190, this court addressed a statute of limitations issue as to when the plaintiff knew, or should have known, of all material facts essential to the elements of a cause of action for legal malpractice. Here, the issue of when ITT discovered the facts constituting the wrongful act or omission is not before us.

 Curiously, the majority states that this court’s recent decision in Laird, supra, 2 Cal.4th 606, warned litigants against “literal interpretation" of Budd, supra, 6 Cal.3d 195. (Maj. opn, ante, at p. 250.) I find no such warning in Laird. Indeed, on the page the majority cites (2 Cal.4th at p. 612), Laird reiterates Budd’s holding (6 Cal.3d at p. 201) that a client’s cause of action for legal malpractice may arise before the client sustains all or even the greater part of the damages from the malpractice.

 The facts of Laird presented no issue of whether actual injury may be sustained before the entry of an adverse judgment. (2 Cal.4th at p. 610 & fn. 3.) The defendant attorneys in Laird *262agreed that they had continued to represent the client until December 7, 1981, a date after the entry of the adverse judgment on October 20, 1981, and that therefore the limitations period was tolled until December 7, 1981, based on the statutory provision for tolling during continued representation (§ 340.6, subd. (a)(2)).