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Legal malpractice case raises exposure fears

The fallout over a bungled prenuptial agreement could make it easier for clients to get around Minnesota’s statute of limitations for legal malpractice claims and sue their lawyers.

That’s a possibility if the Minnesota Supreme Court rules in favor of an affluent restaurant owner whose lawsuit against his former lawyer was tossed out of court as time-barred under Minnesota’s six-year statute of limitations for legal malpractice claims.

On Tuesday, the high court took oral arguments in the case, Frederick v. Wallerich.

The appellant’s main contention: While the lawyer’s original blunder lay outside the six-year limit, her subsequent reaffirmations of that error created new damages, and a new cause of action, that are not.

How high are the stakes?

In the view of the Minnesota Chapter of the American Academy of Matrimonial Lawyers — one of three organizations that weighed in with amicus briefs — the court’s decision could fundamentally alter the lawyer-client relationship by creating “a system of perverse incentives” that would make lawyers reluctant to offer any advice to returning clients because to do so would increase their exposure to possible malpractice claims.

Such an outcome, the matrimonial lawyers warned, would ultimately hurt clients more than their lawyers.

The Minnesota State Bar Association, one of the other amici, did not cast the possible consequences in such dire terms. But the state’s largest association of lawyers did ask that the high court clarify how the statute of limitations applies in cases where a lawyer is alleged to have committed multiple acts of negligence.

In the case at hand, it is undisputed that attorney, Kay Wallerich, made at least one serious blunder. In 2006, after drawing up a prenuptial agreement for Joseph Frederick, a wealthy Mankato restaurant owner, and his then-fiancee, Cynthia Gatliff, in 2006, she failed to obtain the requisite witness signatures. Under Minnesota law, that rendered the agreement invalid.

Frederick didn’t become aware of the defect until January 2013 when Gatliff filed for divorce. That put the error outside the statute of limitations under Minnesota’s “some damages” accrual rule, which started the clock on the day the couple married and Frederick suffered demonstrable harm.

While the divorce was still pending, Frederick nonetheless sued Wallerich and her former firm, Farrish Johnson Law Office, and asserted claims for breach of fiduciary duty and negligent misrepresentation that, he argued, occurred over the course of five subsequent consultations with Wallerich which were within the six-year limit.

During one of those visits, Frederick sought Wallerich’s assistance in amending his will. He claims he asked Wallerich whether the prenup was still valid and she assured him that it was.

Citing the Minnesota Supreme Court’s 2006 decision in a legal malpractice lawsuit that also revolved around an invalid prenup, Antone v. Marviss, however, Blue Earth County District Court Judge Kurt Johnson dismissed the lawsuit as time-barred.

Last August, the Court of Appeals affirmed the ruling. Much as was the case in Antone, the appeals court concluded that the breach-of-fiduciary duty and negligent misrepresentation claims were also time-barred because they fell “within the penumbra” of the original negligence that gave rise to the legal-malpractice suit.

At oral arguments on Tuesday, Frederick’s lawyer — Patrick O’Neill, Jr. of the St. Paul Firm Larson King — urged the justices to draw a distinction.

In Antone, O’Neill said, the statute of limitations shielded the lawyer from a negligence claim arising from a single act. In contrast, he argued, Frederick had new cause of action — and suffered additional damages — when Wallerich amended the will and assured him his prenuptial agreement was valid.

“So every time a client asks a lawyer a question, there’s new cause of action that arises if the lawyer gives bad advice?” asked Chief Justice Lorie Gildea.

“I think it’s a good message for this court to send,” answered O’Neill.

That prompted several members of the court to press further. “Aren’t you effectively arguing for a continuous representation rule? It sure looks that way to me,” said Justice G. Barry Anderson. “Why am I wrong about that?”

O’Neill said he wasn’t seeking a strict application of continuous representation doctrine because the plaintiff would still need to show “some damages” arising from the new advice. Frederick can show those new damages, he said. Why? Had Wallerich properly reviewed the prenuptial agreement in 2007 and informed him Frederick it was invalid, O’Neill said, then Frederick could have reduced his financial exposure via divorce or a postnuptial agreement.

Justice Natalie Hudson wanted to know whether Frederick was really just asserting multiple causes of action for the same error.

No, said O’Neill. But he also cautioned the court about the prospect of a ruling that effectively immunizes lawyers who make mistakes, and then repeat those mistakes, until the statute of limitations kicks in.

Kay Nord Hunt, the lawyer for Wallerich and Farrish Johnson, argued that a lawyer’s reaffirmation of negligent advice does not create a new cause of action.

That prompted Justice Anne McKeig to pose a hypothetical. What if Frederick went to a new lawyer for help with his estate planning and asked whether his prenuptial agreement was valid? If the new lawyer failed to recognize the defect in the prenup, could Fredrick sue his new lawyer?

No, replied Nord Hunt, because the defects in the will could be repaired as long as Frederick is alive and thus there are no compensable damages.

But wouldn’t Frederick have had realized a better result if the hypothetical second lawyer realized the prenuptial agreement was invalid, asked Justice Margaret Chutich. Maybe he would have divorced his wife in 2007 and been spared financial losses.

Mitigation does not create a new cause of action, Nord Hunt answered. “This idea that the inability to mitigate creates a new cause of action is contrary to fundamental principles of tort law,” she added.

As a matter of public policy, Justice Hudson asked, shouldn’t the court seek to discourage attorneys from “continuing their malpractice?”

“I don’t think any lawyers are encouraged to commit malpractice,” said Nord Hunt, who added that Minnesota’s six-year statute of limitations is already longer than in many other jurisdictions.

On rebuttal, Justice David Lillehaug pressed O’Neill on the implications for other practitioners should his argument prevail: Will savvy clients preserve their right to bring malpractice claims — and effectively extend the statute of limitations — by regularly asking their lawyers to affirm that their past advice was “valid and perfect and complies with Minnesota law?”

“I don’t think clients will be that manipulative,” O’Neill answered. But, he added, the court could always limit the viability of such claims by fashioning a test for scope and duty of representation.

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