Court Opinion

ID: 9843729
Source: CourtListenerOpinion
Date Created: 2023-09-24 02:42:34.702611+00
Date Added: 2024-06-11T09:16:53.691902
License: Public Domain

MARING, Justice,
concurring specially.
[¶ 18] This appeal requires our Court to decide when the statute of limitations begins to run in a legal malpractice action. I concur specially because I am of the opinion that legally cognizable damages must have occurred before the statute of limitations begins to run and not merely nominal damages. I also am of the opinion the damages must be caused by the negligence of the attorney, here allegedly, the attorney’s failure to include an indemnification provision in the asset purchase agreement.
[¶ 19] In 1992 and 1993, Mark Larson, an attorney at the time with the law firm of McGee, Hankla, Backes & Wheeler, P.C. (“McGee”) represented James Page (“Page”) and Norkot Manufacturing, Inc. (“Norkot”) in negotiations with Rexworks, Inc. (“Rexworks”) for the purchase of all intangible and tangible assets owned by Page, who was the sole shareholder of Norkot. The negotiations resulted in an asset purchase agreement between Norkot and Page, as seller, and Rexworks, as purchaser, on February 2, 1993. Section 14.01 of the agreement provided that Norkot and Page were jointly and severally liable to Rexworks for indemnification of claims made by a third party for damages caused by maxigrinders manufactured by Norkot prior to the closing date of the asset purchase agreement. The asset purchase agreement, however, did not contain an indemnification provision indemnifying Norkot and Page for all claims arising out of the manufacture of maxigrinders by Rexworks after the closing date of the asset purchase agreement.
[¶20] Rexworks served a third-party complaint dated January 2, 1996, on Nor-kot alleging that Norkot designed and manufactured a maxigrinder purchased by Rexworks for resale, which was the subject of a suit brought by the City of Rapid City against Rexworks and alleging Rex-works was entitled to indemnity from Nor-kot for any damages sustained by Rapid City because of the maxigrinder. Norkot in its counterclaim against Rexworks dated February 20, 1996, claimed it was entitled “to indemnity and/or contribution from Rexworks and/or Carlson, and Plaintiff City of Rapid City’s damages, if any, were solely caused by Rexworks and/or Carlson.” This case was venued in South Dakota (“the South Dakota case”).
*38[¶ 21] Subsequently, Texas Dirt Works (“the Texas case”) sued Rexworks in Texas for damages it claimed resulted from a maxigrinder manufactured by Rexworks. Rexworks served a third-party petition on Norkot on April 20, 1996. Norkot served an answer to Rexworks’ third-party petition which was dated May 10, 1996, generally denying all allegations.
[¶ 22] On June 26, 1996, Norkot and Page entered into a prepayment agreement with Rexworks. Under the agreement, Rexworks agreed to pay Page $860,000 as full payment for all amounts due under the purchase agreement and the consulting agreement. In addition, Page and Norkot agreed to jointly and severally indemnify and hold harmless Rexworks relating to any product manufactured by Norkot and sold by Rexworks. This indemnification applied specifically to the defense of the South Dakota action. Rexworks agreed to indemnify and hold harmless Norkot and Page against any claim relating to maxigrinders manufactured by Rexworks subsequent to the date of the closing of the purchase agreement. This specifically applied to the Texas Dirt Works lawsuit. Page alleged that this agreement resulted in his foregoing $379,318 that he was owed under the original purchase agreement and consulting agreement.
[¶ 23] On June 5, 1998, a verdict was rendered in favor of Norkot and Rexworks in the South Dakota case.
[¶ 24] On January 12, 1998, Mark Larson sued Norkot and Page for legal services provided to Norkot and Page while Larson was an employee of McGee. On February 6, 1998, Norkot and Page served by mail an answer and counterclaim alleging Larson “failed to include any provision in the contract to protect Norkot and Page from liability to parties who may be injured, physically or financially, as a consequence of the use of any of the assets transferred from Norkot to Rexworks.” Norkot and Page also served a third-party complaint on February 9, 1998, on McGee alleging the same legal malpractice.
[¶ 25] Third-party defendant, McGee, brought a motion for summary judgment dated July 13, 2000, based on the statute of limitations. In its brief in support of the motion for summary judgment, McGee took the position that the two-year statute of limitations began to run when Page read, signed, and received copies of the sales contracts between Rexworks and Page/Norkot in February 1993. In the alternative, McGee took the position that if the statute of limitations did not start to run in February 1993, it began to run in January 1996, when Norkot was sued by Rexworks in the South Dakota case. McGee contended that upon receiving Rex-works’ third-party complaint in the South Dakota case, a reasonable person in Page’s position would have been placed on inquiry in regard to whether or not the purchase agreement prepared in 1993 required Rex-works to indemnify Page and Norkot. It contended the actual outcome of the South Dakota litigation was not relevant and the importance of the South Dakota litigation was that it placed Page on notice of indemnification issues between Rexworks and Page. McGee claimed that Page’s differentiation between the South Dakota litigation and the Texas litigation for statute of limitations purposes was “inscrutable.” McGee, however, noted that Page ultimately concluded he had the obligation to assume responsibility for the South Dakota litigation under the terms of the 1993 purchase agreement and that Page was claiming that he had no such obligation for the Texas litigation and, therefore, had to negotiate the 1996 prepayment agreement with Rexworks in order to be freed from further exposure in the Texas litigation. *39McGee relied also on a November 20,1997, letter written to Larson claiming that it indicated an intention to sue Larson for damages in regard to the South Dakota lawsuit. The letter from Page states:
While we intended to handle a matter in South Dakota that we are defending against and then commence an action against you [Larson] and McGee we certainly can be enticed to file our action sooner than that.
By November 20,1997, however, the Texas Dirt Works case had also been commenced and Rexworks had brought Norkot and Page in on a third-party petition. In addition, the prepayment agreement, which settled the indemnification issues between Norkot and Rexworks, had been signed on June 26,1996.
[¶ 26] Larson in his response to the motion for summary judgment dated July 28, 2000, joined McGee’s arguments.
[¶ 27] On July 28, 2000, all parties submitted a joint pretrial statement to the court which included a stipulation of facts. Those stipulated undisputed facts included:
7. Prior to Norkot, James Page, and Rexworks entering into the Prepayment Agreement, Rexworks had third-partied Norkot into two lawsuits. One related to a maxigrinder unit that was destroyed in a fire in South Dakota. Norkot was brought into this lawsuit as a third-party in January 1996, with Rexworks claiming indemnification pursuant to the Asset Purchase Agreement. The second lawsuit was a lawsuit brought against Rexworks by Texas Dirt Works, Inc. in Texas. Norkot was third partied into this lawsuit in April 1996, with Rex-works claiming indemnification for a faulty design. The Prepayment Agreement provided Norkot and Page would be responsible for the South Dakota lawsuit, provided that Page’s maximum responsibility was $250,000. Under the agreed-upon terms in the Asset Purchase Agreement, Norkot and Page now acknowledge that this lawsuit would have been their responsibility even without the Prepayment Agreement. The Prepayment Agreement further provided that the third party action brought in Texas would be the responsibility of Rexworks, and that Rexworks would indemnify Norkot and Page for any future lawsuits that might be brought against them, if any, on account of the units manufactured by Rexworks on account of units manufactured after February 2, 1993.
[¶ 28] It is clear that at the time the counterclaim and third-party complaint were served alleging legal malpractice that the alleged malpractice was a failure to include an indemnification clause to protect Norkot and Page from liability for maxigrinders manufactured by Rexworks. As a result of the failure to include this indemnification clause, Norkot and Page purchased indemnification for claims arising out of maxigrinders manufactured by Rexworks by foregoing the sum of $379,318 in the settlement prepayment agreement of June 26,1996.
[¶ 29] On appeal in Larson I, Norkot and Page argued in their brief on appeal that “it was in the Texas Dirt Works case where, for the very first time, that any liability for maxigrinders manufactured by Rexworks manifested itself,” and “this Texas case involved for the first time an issue concerning a maxigrinder manufactured by Rexworks in which Rexworks contended that Norkot and Page were liable for damages caused by a maxigrinder manufactured by Rexworks after the February 2, 1993.” Norkot and Page have continually asserted it was the failure to include an indemnification clause to protect Norkot and Page that is the alleged legal malpractice against Larson and *40McGee. In its brief on the first appeal, Norkot. and Page also argued “Page did not discover any damages caused by Larson’s malpractice until after April 20, 1996 when Page signed the return receipt on the third-party petition by Rexworks in the Texas'Dirt Works case.” Page also asserted: “The first time Page actually discovered his. damages of $379,318 (appendix citation omitted) that.were caused by Larson’s negligence was when Page signed the settlement agreement with Rexworks on June 26, 1996 relative to the Texas Dirt Works case (appendix citation omitted).” Page and Norkot took the position that the statute of limitations could not start running until Page and Norkot had sustained damages.
[¶ 30] In determining when the statute of limitations begins to run on a legal malpractice claim, courts have applied different rules:
The general rule that the statute of limitations begins to run against a cause of action only after the right to prosecute such cause of action to a successful conclusion has accrued applies to an action against an attorney for malpractice ....
Some cases hold that a cause of action against an attorney for malpractice accrues from the time the client has sustained damages....
In some cases, the statute of limitations does not begin to run until the plaintiff knows or should know of the attorney’s negligence and the plaintiff suffers actual and appreciable harm.
7 Am.Jur.2d Attorneys at Law § 241 (1997).
Under the view that the statute of limitations on a legal malpractice action does not begin to run until the plaintiff knows or should know of the attorney’s negligence and the plaintiff suffers actual and appreciable harm, the statute is tolled during the time the plaintiff has not sustained actual injury.
7 Am.Jur.2d Attorney at Law § 243 (1997).
[¶ 31] This Court adopted the following rule regarding the time at which a cause of action accrues for the purposes of section 28-01-18(3), N.D.C.C.:
the best rule is that the limitation period commences to run against a malpractice action from the time the act of malpractice with resulting injury is, or by reasonable diligence could be, discovered.
Johnson v. Haugland, 303 N.W.2d 533, 539 (N.D.1981) (quoting Iverson v. Lancaster, 158 N.W.2d 507, 510 (N.D.1968)). “The elements of a legal malpractice action for professional negligence are the existence of an attorney-client relationship, a duty by the attorney to the client, a breach of that duty by the attorney, and damages to the client proximately caused by the breach of that duty.” Larson v. Norkot Mfg., Inc., 2001 ND 103, ¶ 9, 627 N.W.2d 386 (citing Dan Nelson Constr., Inc. v. Nodland & Dickson, 2000 ND 61, ¶ 14, 608 N.W.2d 267). Our Court has addressed the issue of when the injury occurred in a legal malpractice action in several cases.
[¶ 32] Binstock v. Tschider involved a malpractice action based on the attorney’s erroneous inclusion of an option to purchase in land sale transaction documents. Our Court determined that the earliest date which it could be said that the Bin-stocks were injured was when the option was created, “thereby giving Kilzer the right to purchase the property. The option was an encumbrance that reduced the value of the property, limited the right of disposition, and prevented Binstock or Terry Binstock from making further improvements to the property because of their fear that they would loose their investments in improvements.” 374 N.W.2d *4181, 85 (N.D.1985). In reaching this decision, our Court stated:
In determining when an action for legal malpractice is barred by the passage of time, we recently said in Wall v. Lewis, 366 N.W.2d 471, 473 (N.D.1985):
The two-year statute of limitations under Section 28-01-18(3), NDCC, is applicable to an action brought against an attorney for professional malpractice. Johnson v. Haugland, 303 N.W.2d 533 (N.D.1981). The statute commences to run when, “plaintiff knows, or with reasonable diligence should know, (1) of the injury, (2) its cause, and (3) defendant’s possible negligence.” Phillips Fur and Wool Co. v. Bailey, 340 N.W.2d 448, 449 (N.D.1983).
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A cause of action for legal malpractice does not accrue, and the statute of limitations does not commence to run, until the client has incurred some damage. (Citations omitted.) The proposition is succinctly stated by the California Supreme Court in Budd v. Nixen, 6 Cal.3d 195, 98 Cal.Rptr. 849, 491 P.2d 433 (1971):
... until the client suffers appreciable harm as a consequence of his attorney’s negligence, the client cannot establish a cause of action for malpractice ...
The cause of action arises, however, before the client sustains all, or even the greater part, of the damages occasioned by his attorney’s negligence .... Any appreciable and actual harm flowing from the attorney’s negligent conduct establishes a cause of action upon which the client may sue.
Id. at 84 (emphasis added).
[¶ 33] Wall v. Lewis, 366 N.W.2d 471 (N.D.1985), involved doctors’ malpractice actions against an attorney, who was re-táined to prepare trust agreements sheltering them from personal tax liability on the partnership income. The doctors asserted that as a result of the attorney’s negligent preparation of the trust agreements they incurred personal tax liability on their medical partnership income. The trial court struck the attorney’s statute of limitations defense, concluding as a matter of law, the doctors had commenced a timely action because there was no injury incurred and consequently no actionable claim until the federal district court issued its summary judgment in favor of the IRS on December 9, 1981. Our Court stated:
... until the client suffers an appreciable harm as a consequence of his attorney’s negligence, the client cannot establish a cause of action for malpractice. Prosser states the proposition succinctly, “It follows that the statute of limitations does not begin to run against a negligence action until some damage has occurred.” (Prosser, Law of Torts (4th ed.1971), § 30 at p. 144.)
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Indeed, once having discovered his attorney’s negligence and having suffered some damage, the client must institute his action within the time prescribed in the statute of limitations or he will be barred from thereafter complaining of his attorney’s conduct. [Footnote omitted.]
Wall I, 366 N.W.2d at 473 (quoting Budd, 98 Cal.Rptr. 849, 491 P.2d at 436-37). We concluded: “Where, as in this case, the attorney’s act of negligence has allegedly caused the client to incur additional tax liability, actual damage has been incurred no later than when the IRS has imposed a tax assessment thereby creating an enforceable obligation against the client.” Id. at 473, 98 Cal.Rptr. 849, 491 P.2d 433 (citations omitted). We then concluded that *42although the doctors sustained their injury at least by September 29, 1977, which was the date the IRS issued its tax deficiency notices, and which was more than two years prior to the time that the doctors filed their malpractice actions against the attorney, “the statute of limitations did not commence to run until, in addition to sustaining actionable injury, the Doctors knew, or with reasonable diligence should have known, of the injury, of its cause, and of Lewis’ possible negligence.” Id. at 474, 98 Cal.Rptr. 849, 491 P.2d 433. We re-, versed and remanded concluding that “[w]hen the Doctors should have discovered Lewis’ possible negligence is a question of fact to be determined at a trial on the merits.” Id.
[¶ 34] In Jacobsen v. Haugen, 529 N.W.2d 882 (N.D.1995), the Jacobsens brought a malpractice legal action against their former attorney, Jean Haugen. The trial court granted the attorney’s motion for judgment as a matter of law. A bank sued the Jacobsens in 1987 to recover ón various notes and personal guarantees. The Jacobsens were represented by Hau-gen, and the trial court granted the bank’s motion for summary judgment on January 18, 1988, and judgment was entered on January 21,1988. The Jacobsens engaged other .counsel to appeal the summary judgment entered against them. On appeal, our Court concluded the Jacobsens could not raise defenses that had not been raised at the trial court. Our decision was issued on November 8, 1988. The Jacobsens commenced their legal malpractice action against Haugen on September 25, 1990. At the trial of the malpractice action, the trial court- concluded that, as a matter of law, there was no legally sufficient basis for a damage award because the Jacobsens had paid nothing on the judgment against them and because the Jacobsens were aware in January 1988 of Haugen’s negligence. Therefore, the statute of limitations had run before the action was commenced. The Jacobsens argued that entry of an adverse judgment is sufficient injury for & malpractice action whether or not anything had been paid on the judgment. Our Court agreed stating:
We, however, agree with the judgment rule announced in decisions holding that one against whom a judgment has been entered should be able to sue for relief, even if the judgment has not been paid, (citations omitted) ... Such cases are also consistent with prior decisions of this court in ' legal malpractice cases. See, e.g., Wall v. Lewis, 366 N.W.2d 471, 473 (N.D.1985) (“Where ... the attorney’s act of negligence has allegedly caused the client to incur additional tax liability, actual damage has been incurred no later than when the IRS has imposed a tax assessment thereby creating an enforceable obligation against the client.”); Binstock v. Tschider, 374 N.W.2d 81 (N.D.1985) (injury occurred upon creation of an unauthorized option to purchase land, which reduced the value of the property, limited the right of disposition, and prevented further improvements to the property, rather than when the option was exercised).
We conclude that entry of a money judgment against the Jacobsens was sufficient injury to sustain a legal malpractice action (although it does not necessarily define the measure of damages).
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[T]he statute of limitations begins to run when the cause of action accrues.... It is the conjunction of damage and wrongful act that creates a cause of action for tort or contract.
Id. at 884-85 (quoting Keller v. Clark Equip. Co., 474 F.Supp. 966, 969 (D.N.D.1979), aff'd, 715 F.2d 1280 (8th Cir.1983), cert. denied, 464 U.S. 1044, 104 S.Ct. 713, *4379 L.Ed.2d 176 (1984)). We concluded, applying the discovery rule to the circumstances presented, that the cause of action accrued when the judgment was entered against them on January 21, 1988, when the Jacobsens knew of their injury, its cause, and Haugen’s possiblé negligence. Id. at 885.
[¶ 35] In Wall v. Lewis, 393 N.W.2d 758 (N.D.1986), we noted that in the first appeal, Wall I, we were presented with the question of when the doctors had incurred damage and we concluded it was the date the IRS issued its tax deficiency notices. We then remanded for a determination of when the statute of limitations began to run under the discovery rule. In Wall I, we noted that “the focus is upon whether the plaintiff has been apprised of facts which would place a reasonable person on notice that a potential claim exists” and that “the issue becomes one of law if the evidence is such that reasonable minds could draw but one conclusion.” Wall II, at 761. On remand, depositions were taken and from the undisputed testimony it was clear that in October of 1977 attorney, Douglas Christensen, suggested the possibility of a malpractice action against Lewis. Id.
[¶ 36] Other jurisdictions have followed the rule that the statute of limitations on a legal malpractice action does not begin to run until the plaintiff knows or should know of the attorney’s negligence and the plaintiff suffers actual and appreciable harm. See Francis M. Dougherty, J.D., Annotation, When Statute of Limitations Begins to Run Upon Action Against Attorney for Malpractice, 32 A.L.R.4th 260, §§ 6 and 8 (1984 & Supp.2001).
[¶ 37] The New Jersey Supreme Court has held:
Therefore, we conclude that the discovery rule applies in legal-malpractice actions: the statute of limitations begins to run only when the client suffers actual damage and discovers, or through the use of reasonable diligence should discover, the facts essential to the malpractice claim.
Grunwald v. Bronkesh, 131 N.J. 483, 621 A.2d 459, 494 (1993) (citing several other states that have followed this approach).
[¶ 38] The rationale for requiring actual damage before the statute of limitations for legal malpractice commences is persuasive. The analysis first asks: When does a cause of action for malpractice accrue? To establish a cause of action in a typical tort case, the plaintiff must prove tortious conduct, injury and proxdmate cause. A prima facie case of legal malpractice consists of the existence of an attorney-client relationship, a duty owed by the attorney to the' client, breach of that duty, and damages to the client proximately caused by the attorney’s breach of that duty. Larson v. Norkot Mfg., Inc., 2001 ND 103, ¶ 9, 627 N.W.2d 386. The critical elements are negligence and damage. The plaintiff has no cause of action in tort if the allegedly negligent conduct does not cause damage. The California Supreme Court explained: “If the allegedly negligent conduct does not cause damage, it generates no cause of action in tort. [Citation.] The mere breach of a professional duty, causing only nominal damages, speculative harm, or the threat of future harm — not yet realized— does not suffice to create a cause of action for negligence. [Citations.] Hence, until the client suffers appreciable harm as a consequence of his attorney’s negligence, the client cannot establish a cause of action for malpractice.” Sirott v. Latts, 6 Cal.App.4th 923, 8 Cal.Rptr.2d 206, 209 (1992) (quoting Budd, 98 Cal.Rptr. 849, 491 P.2d at 436).
[¶ 39] We have applied the discovery rule in legal malpractice actions and held that it tolls the statute of limitations in *44such actions until “the plaintiff knows, or with reasonable diligence should know, of the injury, its cause, and the defendant’s possible negligence.” Larson, 2001 ND 103, ¶ 9, 627 N.W.2d 386. We have specifically required that, until the client has incurred some damage, the action for legal malpractice does not accrue and the statute of limitations does not commence to run. Wall I, 366 N.W.2d at 473 (quoting and citing to the California Supreme Court in Budd, 491 P.2d at 436). If we were to merely apply the discovery rule without the prerequisite of legally ascertainable damages, we would undermine our well-established principles that (1) damages are an essential element of a legal malpractice action and (2) the discovery rule mandates both an injury and negligence. Just establishing negligence is not enough. A statute of limitations cannot commence to run before the injury has occurred. If the element of damages is not plead or established, a cause of action for malpractice is not actionable and is subject to dismissal.
[¶ 40] In the present case, the alleged malpractice is the failure to include an indemnification clause in the purchase agreement to protect Norkot and Page from liability for damages caused by maxi-grinders manufactured by Rexworks after the closing date. Larson and McGee contend that once the third-party complaint was served on Norkot and Page in the South Dakota case, Norkot and Page had notice of the lack of indemnification provisions in the purchase agreement and, thereupon, the statute of limitations commenced running. However, at that point in time, no injury or damage had yet been sustained by Norkot and Page as a result of the alleged legal negligence. The third-party complaint served in the South Dakota case clearly alleged that the maxigrin-der involved had been manufactured by Norkot. It is also clear, under the terms of the purchase agreement, Norkot and Page agreed to indemnify and hold harmless Rexworks for all claims arising out of the maxigrinders manufactured by Norkot and transferred to Rexworks at the closing date. The record reveals there were only three such maxigrinders. In addition, Norkot and Page in the prepayment settlement agreement dated June 26, 1996, acknowledged Rexworks’ right of indemnification in the South Dakota case and assumed the defense of that action. The South Dakota action was ultimately resolved by a verdict on June 5, 1998, in favor of Norkot and Rexworks. The inclusion of an indemnification provision requiring Norkot and Page to indemnify and hold harmless Rexworks for maxigrinders manufactured by Norkot prior to the closing date of the purchase agreement was not the legal negligence claimed by Norkot and Page against Larson and McGee. It is interesting that Larson and McGee insist that there exists a potential claim for legal malpractice against them because they included the indemnity agreement provisions of section 14.01, et seq., in the purchase agreement and insist on framing Page’s action for him.
[¶ 41] Even if Norkot and Page’s cause of action against Larson and McGee could be construed to include any claim for malpractice for including section 14.01, et seq., in the purchase agreement, the only injury or damage which Norkot or Page could claim as a result would be their attorney’s fees and costs incurred in defending the South Dakota action. A verdict in favor of Norkot, Page, and Rexworks was ultimately entered in the South Dakota case. Assuming arguendo, that Page’s cause of action against Larson and McGee includes a claim for including the indemnification provisions, injury did not occur until February 20, 1996, when Page filed his answer and counterclaim to the third-party complaint in the South Dakota case. It would be at *45that point Page would have incurred attorney’s fees that would be significant and not merely nominal. We do not know from this record if at any point from the initial contact to the filing of the answer, the fees became significant. See Sirott, 8 Cal.Rptr.2d at 209 (holding plaintiff incurred attorney’s fees not later than when his counsel filed a demurrer on his behalf); see also Grunwald, 621 A.2d at 465 (holding “actual damages are those that are real and substantial as opposed to speculative”). Accordingly, that claim of legal malpractice would not be barred by the statute of limitations.
[¶ 42] However, Norkot and Page allege a very different claim of malpractice, which is the failure of- Larson and McGee to include in the purchase agreement indemnification for Norkot' and Page for all claims arising out of the sale of maxigrin-ders manufactured by Rexworks after the close date of the purchase agreement. After Page received a copy of the third-party complaint in the South Dakota case on January 9, 1996, Page may have known, upon consulting with his attorneys, the status of the indemnification provisions in the purchase agreement and of Larson’s negligence. However, the statute of limitations on this claim of malpractice, failure to include an indemnification provision protecting Norkot and Page for. claims based on maxigrinders manufactured by Rexworks after the closing date, would not have begun to run either on January 9, 1996, or on February 20, 1996, because Norkot and Page had not sustained any injury or damage as a result of that negligence yet.
[¶ 43] The New Jersey Supreme Court has held:
Legally-cognizable damages occur when a plaintiff detrimentally relies on the negligent advice of an attorney. (Citation omitted.) Actual damages are those that are real and substantial as opposed to speculative. (Citation omitted.) In the legal-malpractice context, actual damages may exist in the form of an adverse judgment. (Citation omitted.) However, a client may suffer damages, in the form of attorney’s fees, before a court has announced its decision in the underlying action. (Citation omitted.)
Grunwald, 621 A.2d at 464-65.
[¶ 44] In Sirott v. Latts, 6 Cal.App.4th 923, 8 Cal.Rptr.2d 206 (1992), the Court of Appeal of California was presented with the issue of when the client suffered actual injury from the attorney’s alleged negligence. The facts of the case are similar in many respects to the facts of the present case. In Sirott, the doctor-client decided to retire from the practice of medicine and sought advice from the attorney-defendant regarding the purchase of “tail” coverage for medical malpractice. The attorneys advised the doctor that the doctor need not pay the premium. Subsequently, the doctor was sued for medical malpractice. The doctor alleged that had he purchased the insurance which was the subject of the legal advice given by the attorneys, he would have had full coverage for both the defense and any damages assessed against him in the medial malpractice action. The attorneys attempted, without success, to reinstate the doctor’s tail coverage. The doctor was required to retain counsel to defend the medical malpractice action at his own expense. On January 11, 1990, the doctor paid the sum of $230,000 to settle the medical malpractice action. The doctor claimed that as a result of the attorney’s negligence he sustained damages of $230,000. The insurer commenced an arbitration proceeding against the doctor, and a response was filed on behalf of the doctor on January 20, 1987. In the arbitration proceeding, an award was rendered concluding the doctor was not entitled to *46rescind his decision with regard to his tail coverage and that the insurer had no obligation to defend or indemnify the doctor in the medical malpractice action. Judgment was entered confirming the arbitration award on January 7, 1988. It should be noted that the California Code of Civil Procedure provides that the discovery rule applies, but that the statute of limitations is tolled during the time that the plaintiff has not sustained actual injury. Cal.Code Civ. Proc. § 340.6 (2001); Sirott, 8 Cal.Rptr.2d at 209 n. 2. The Court of Appeal of California concluded the doctor suffered damage when he incurred attorney’s fees in defending the medical malpractice action not later than January 20, 1987, when his attorney filed a response on his behalf. Id. at 209. The court stated: “[a] client suffers damage when he is compelled, as a result of the attorney’s error, to incur or pay attorney fees.” Id. (citing Budd, 98 Cal.Rptr. 849, 491 P.2d at 436). The Court of Appeal of California also concluded the doctor sustained actual damage upon entry of the judgment confirming the arbitration award on January 7, 1988. It was at that point that it was judicially determined that the doctor was not entitled to tail malpractice insurance coverage and he was compelled to pay the expenses of defending the medical malpractice action. In addition, the court determined that the fact that the doctor suffered additional damage from the attorney’s negligence when he paid $230,000 to settle the medical malpractice action on January 11, 1990, did not change the result because “[a]ny appreciable and actual harm flowing from the attorney’s negligent conduct establishes a cause of action upon which the client may sue.” Id. at 210. The court ultimately concluded that the statute of limitations for the legal malpractice commenced to run on January 7, 1988, the date the judgment was entered confirming the arbitration award.
[¶ 45] In the present case, the element of damage resulting from the alleged legal malpractice, failure to include an indemnification provision protecting Norkot and Page from claims arising out of Rexworks manufacturing of maxigrinders after the purchase agreement close date, remained speculative and remote until the third-party petition in the Texas Dirt Works case was received by Page on April 20, 1996. At that point in time, Norkot and Page knew or should have known of the failure of Larson to include an indemnification provision in the purchase agreement covering the allegations made by Rexworks against Norkot and Page in the third-party petition. The actual injury to Norkot and Page, however, occurred on May 10, 1996, the date of Page’s answer to the third-party petition. Again, the record does not reflect if significant attorney fees were incurred before the service of the answer. Norkot and Page’s counterclaim and third-party complaint for legal malpractice, served February 6, 1998, and February 9, 1998, respectively, would not be barred by the statute of limitations if it commenced to run on that date. Norkot and Page had to incur attorney’s fees and costs in defending against the third-party petition. Substantial fees were incurred no later than when the answer to the third-party petition was filed in the Texas case. Under the facts of this case, I am of the opinion that Norkot and Page suffered actual damage when they were compelled to incur attorney’s fees and costs to defend and answer this action. The reason that they had to do so was the failure of Larson to include an indemnification and hold-harmless provision in the purchase agreement. The very essence of an indemnification and hold-harmless agreement is to avoid attorney’s fees, costs of litigation, and ultimately, liability for a judgment of damages. The necessity of incurring at*47torney’s fees and costs in defending the Texas lawsuit was directly a result of the alleged legal malpractice and, therefore, constituted legally-recoverable damages. I am not of the opinion that incurring attorney’s fees will always satisfy the actual injury or damage requirement when analyzing when the statute of limitations begins to run in a legal malpractice case. The injury may occur by the entry of an adverse judgment, by having to. defend an action, by being compelled to enter a settlement agreement, or by incurring any other legally cognizable damages. Damages, however, cannot be based on pure speculation. A mere possibility, or even probability, that damages will result from wrongful conduct does not render that conduct actionable.
[¶ 46] Although Page was additionally damaged when he forwent $379,318 of the contract amount due to him, I am of the opinion that he already had sustained damages as of May 10, 1996, the date of Page and Norkot’s answer to the third-party petition in the Texas litigation. It would have been on that date that substantial, not merely nominal, attorney’s fees would have been incurred in this case.
[¶ 47] There are genuine issues of material fact about when legally cognizable damages occurred and when Page knew or should have known of Larson’s negligence. Therefore, I concur in the reversal of the summary judgment and the remand to the trial court.
[¶ 48] Mary Muehlen Maring