Appellate Court Reinforces When the Attorney-Client Relationship Ends for Purposes of “Continuous Representation” Tolling Provision of Legal Malpractice Statute of Limitations

In Gotek Energy, Inc. v. Socal IP Law Group, LLP (No. B26668, October 12, 2016), the Second District Court of Appeal held that rather than the date on which a client file is transferred to new counsel, the attorney-client relationship ends for statute of limitations purposes when, using an objective standard, there is no “ongoing mutual relationship” nor evidence of “activities in furtherance of the relationship.” (Emphasis in opinion.)

The law firm (“Socal”) had acted as Gotek’s patent counsel. Socal failed to timely file patent applications in two foreign countries, disclosed such failure to Gotek and admitted its failure to do so had been negligent. In September, 2012, Gotek retained other counsel to investigate whether Socal’s failure to timely file the patents amounted to actionable legal malpractice. On November 5, 2012, new counsel faxed a letter to Socal stating that Gotek was making a malpractice claim against it. On November 7, 2012, Socal advised Gotek that in light of the malpractice claim, Socal “must withdraw” as its counsel. Socal’s letter also stated, “Consequently, the firm’s attorney-client relationship with [Gotek] is terminated forthwith, and we no longer represent [Gotek] with regard to any matters.” Socal then asked for immediate direction as to where Gotek wished its files to be transmitted and recommended that it retain new patent counsel.

The next day, November 8, 2012, Gotek communicated with Socal to ask that its files be sent to a new patent firm within two weeks; its letter concluded, “[Gotek] sincerely appreciates the services provided by [Socal].” Later that day, Gotek emailed Socal an executed copy of a document entitled “Request for Transfer of Files” to new patent counsel. On November 15, 2012, Socal sent a letter to Gotek acknowledging the transfer request and stated that “we have terminated the attorney-client relationship with you…. [W]e are no longer representing you with regard to your patent matters.” It also sent a CD to new patent counsel containing all pertinent Gotek files. Gotek filed a malpractice action against Socal on November 14, 2013.

Socal brought a motion for summary judgment under the one-year statute of limitations of Code of Civil Procedure section 340.6. Socal argued that the statute began to run on November 8, 2012, when Gotek consented to the termination of the attorney-client relationship. The trial court granted the motion, holding that the relationship may have ended on November 7, 2012 but had clearly ended by the next day when Gotek responded to Socal’s letter with directions where to send its files. It reasoned that upon receipt of Socal’s letter, “a reasonable client would no longer entertain the belief that [Socal] would provide further legal services. The administrative functions [i.e., the transfer of client files to replacement counsel] that took place after November 8, 2012, were not legal services and therefore do not change the result.”

On appeal, Gotek argued that there was a triable issue of fact as to whether the limitations period had been tolled until Socal actually transferred its files to new counsel, on November 15, 2012 and that, therefore, its filing of the complaint on November 14, 2013 was timely under the “continuous representation” tolling provision of Section 340.6(a)(2). The appellate court disagreed, concluding that Socal’s representation ended on November 8, 2012 when Gotek requested its files. It explained, “By requesting that its files be immediately delivered to replacement counsel, [Gotek] consented to [Socal’s] express withdrawal the previous day.” However, the appellate court further explained that Socal did not require Gotek’s consent for the withdrawal to be effective. Instead, Socal’s representation of Gotek ended when Socal sent the November 7, 2012 letter, stating that it “must withdraw” as counsel, that its attorney-client relationship had terminated, and that it no longer represented Gotek with regard to any matters.

The appellate court also rejected Gotek’s argument that it reasonably believed that Socal would continue to provide legal services by transferring the files to the successor attorney. It explained that any such belief was unreasonable as a matter of law. To determine if the attorney continues to represent the client, the court conducts an objective analysis of whether there is evidence of an “ongoing mutual relationship” and of “activities in furtherance of the relationship.” Neither the possession nor transfer of the client’s files was evidence of a relationship sufficient to toll the statute. Lastly, the appellate court rejected Gotek’s argument that Socal’s representation did not terminate until it completed its “ethical obligations” to Gotek under Rule of Professional Conduct 3-700(A)(2), which requires attorneys to take “reasonable steps to avoid reasonably foreseeable prejudice” to clients in connection with withdrawal, including giving due notice to client and allowing time for employment of other counsel. It explained that Socal did not violate this rule because Gotek consented to the withdrawal and requested the file transfer.

The significance of the case is its reaffirmation of the objective standard for determining when the attorney-client relationship terminated for purposes of Section 340.6. It also establishes that provided there is no evidence of an “ongoing mutual relationship,” the limitations period is not tolled until the attorney transfers the file. To avoid the tolling argument that Gotek advanced, at the conclusion of the matter or relationship, attorneys should make clear that there are no further legal services for them to perform on the client’s behalf for the subject representation.

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October 19, 2016