Thursday, August 15, 2019

It Ain't Over Till...

The Utah Supreme Court has held that the statute of limitations had not run on a legal malpractice claim against an attorney who had failed to protect a judgment in a bankruptcy 

Kelly and Monty Moshier lost their opportunity to collect $874,805.68 owed to them in a bankruptcy proceeding when their attorney, Darwin C. Fisher, failed to file their nondischargeability claim before the statute of limitations expired. Several years later, the Moshiers sued Mr. Fisher for malpractice. The district court dismissed their malpractice claim as untimely. Because we find that the malpractice claim did not accrue until the bankruptcy court confirmed the final distribution plan, the Moshiers’ claim was timely. Accordingly, we reverse.

At issue in the underlying case was a judgment that the attorney had secured

In September 2010, the Cottams filed for bankruptcy. The Moshiers again hired Mr. Fisher to represent them in the bankruptcy proceedings. He timely filed the Moshiers’ proof of claim. Because the Moshiers’ claim was based on a judgment for money obtained by fraud, their claim was exempt from discharge under section 523 of the Bankruptcy Code.  Creditors claiming this exemption from discharge must commence an independent action by filing a complaint alleging nondischargeability.  But Mr. Fisher failed to file
the Moshiers’ claim for nondischargeability by the deadline, December 29, 2010.  Instead, he filed the claim almost a year after the deadline, which the bankruptcy court dismissed as untimely. On January 31, 2012, the bankruptcy court confirmed the Cottams’ bankruptcy plan for distribution.

Shortly thereafter the attorney advised the clients of the error and notified his malpractice insurer.

The Moshiers assert they did not believe they needed to initiate any legal action against Mr. Fisher, because they believed his claim with his malpractice insurer was the equivalent of them initiating a legal proceeding. They also argue that they believed their claim was fully secured and that they would still receive the full value of their claim. By 2013, the bankruptcy trustee informed the Moshiers they would not receive payment of their full claim.

Not SOL on SOL grounds when the plaintiffs sued in October 2015

The Moshiers argue that their legal malpractice claim did not accrue until they learned that the bankruptcy trustee “would not pay all of their claims,” on or about July 31, 2014.  Mr. Fisher asserts that the claim accrued when he missed the deadline to file their nondischargeability claim—December 29, 2010. We find that the Moshiers’ malpractice claim accrued when the bankruptcy court confirmed the final bankruptcy plan—January 31, 2012. Based on that accrual date, the Moshiers’ malpractice claim was timely filed. Accordingly, we reverse.

Because

In the case now before us, we conclude that the damages and harm were sufficiently final when the bankruptcy court confirmed the final bankruptcy plan, and that the claim therefor accrued on that date.  Until that stage of the bankruptcy concluded, the Moshiers could not be certain whether Mr. Fisher’s alleged malpractice had resulted in damages, or whether they could expect to be made whole despite his error. Mr. Fisher missed a filing deadline, which precluded the Moshiers from litigating their nondischargeability claim. But the harm was not sufficiently final until the bankruptcy plan was finalized.  It was at that point that the Moshiers knew, with certainty, that they would not receive the full value of their claim, and that Mr. Fisher’s actions had, in fact, prejudiced them. And based on that accrual date, the Moshiers’ October 6, 2015 malpractice claim was timely.

The Court of Appeals opinion is linked here. (Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2019/08/it-aint-over.html

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