Professional Liability Client Alert: New One Year Limitations Period for Malicious Prosecution Actions Against Attorneys Not Retroactive

In affirming a malicious prosecution judgment against an attorney arising from a failed legal malpractice case, the Second Appellate District in Silas v. Arden (filed 12/31/2012; pub. order 1/28/2013; DCA no. B235835) addressed the appropriate statute of limitations for malicious prosecution actions against attorneys and described the standards applicable to claims against plaintiffs’ lawyers for failing to investigate every legal theory pursued against a defendant or to appropriately evaluate evidence that affects the merits of the client’s case. The opinion contains a useful compendium of the evolution of the limitations period for malicious prosecution claims as well as the substantive elements of probable cause and malice, particularly establishing the latter based on inferences drawn from the absence of the former.

In the initial matter, Silas represented Gunnell in a personal injury action against Gunnell’s employer where the trial court overturned the jury’s verdict based on the exclusivity of Gunnell’s worker’s compensation remedy. With Arden as his counsel, Gunnell then prosecuted a legal malpractice claim against Silas, contending that Silas should have pursued the “fraudulent concealment” exception to permit the personal injury claim to proceed. Silas prevailed on summary judgment on the ground that this exception did not apply as a matter of law. The appellate court affirmed.

A bit less than two years later, in January 2008, Silas filed a malicious prosecution suit against Arden, arguing that Arden continued to pursue the underlying action in the face of conclusive evidence undermining both theories that Arden had asserted against Silas. When the matter was tried three years later, after closing arguments and while the jury was deliberating, Arden amended his answer, asserting a statute of limitations defense for the first time. The apparent catalyst for this amendment was the Second Appellate District’s opinion two weeks earlier in Vafi v. McCloskey (2011) 193 Cal.App.4th 874, holding that the one-year statute of limitations in Code of Civil Procedure section 340.6 applies to malicious prosecution claims against attorneys. After the jury found in favor of Silas and awarded $175,000 in compensatory damages and $125,000 in punitive damages, the trial court reversed its order permitting the amended answer and denied Arden’s post-trial JNOV motion on the grounds that Vafi should not be given retroactive effect given the facts of the case.

On appeal, while confirming the holding in Vafi, the verdict for Silas was affirmed. Although judicial decisions generally operate retroactively to pending cases, there is a recognized public policy exception “when a judicial decision changes a settled rule on which the parties below have relied,” which requires only prospective application of such a decision (citing Claxton v. Waters (2004) 34 Cal.4th 367, 378). The Court explained that the former two-year statute of limitations for malicious prosecution claims was the prevailing view when Silas filed the action against Arden. Given the unforeseen change rendered by the Vafi decision, Silas reasonably relied on this longer limitations period. Moreover, Arden effectively waived the defense of the statute of limitations by waiting more than three years to seek to assert it.

With respect to the substance of Silas’ malicious prosecution claim, Silas had argued at trial that Arden lacked probable cause in light of his stubborn adherence to the clearly inapplicable exception to the exclusivity of Gunnell’s worker’s compensation remedy and Gunnell’s signature on notarized settlement documents and endorsed checks, which effectively voided Gunnell’s misappropriation claims. In finding that sufficient evidence supported the jury’s verdict, the Court held that the exception was not available as a matter of law due to Gunnell’s testimony in the first action that he was aware of his condition and its cause and Gunnell’s admission that he had not shared certain facts with Silas, an omission of which Arden was aware. Moreover, the Court noted that Arden continued to prosecute the misappropriation claim despite receiving documents bearing Gunnell’s signature. Finally, the Court reasoned that Arden’s failure to investigate the merits of the fraudulent exception theory, and his failure to withdraw the misappropriation theory when confronted with unequivocal contrary evidence was sufficient to infer the presence of malice.

There are two principal lessons from this decision. First, despite the Vafi decision applying the one-year limitations period to malicious prosecution claims against attorneys, the Court applied the former two-year statute of limitations solely for public policy reasons. As a result, this decision likely has only limited application to those matters filed before Vafi. However, it will perhaps result in the statute of limitations being asserted as an affirmative defense in every answer. And second, to avoid a subsequent malicious prosecution claim, the decision underscores the importance of an attorney fully investigating every theory of relief and cause of action before filing and prosecuting an action for a client; moreover, attorneys also need to appreciate and evaluate the effect of evidence developed during discovery which undermines his or her client’s case. Of course, attorneys are entitled to resolve doubts in favor of the client and may pursue claims which seem unlikely to prevail provided such claims are not objectively frivolous. This is nothing new. However, the Silas case is a cautionary tale for any plaintiffs’ attorney – the appellate courts will look with disfavor on bogus claims determined after-the-fact to have been all about the prospect of a “nuisance value” monetary settlement irrespective of the merits.

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January 31, 2013