Professional Liability Alert: California Appellate Courts In Conflict Regarding Statute of Limitations for Malicious Prosecution Suits Against Attorneys

In conflict with an earlier decision by a different division within the same District, and with a prior decision of another District which followed the earlier case, Division Three of the Second Appellate District has concluded, contrary to established precedent, that the general two-year limitations period set forth in Code of Civil Procedure section 335.1 (“Section 335.1”) applies to malicious prosecution claims against attorneys, rather than the specific one-year statute of limitations for claims against attorneys codified in Code of Civil Procedure section 340.6 (“Section 340.6”).

In Roger Cleveland Golf Co., Inc. v. Krane & Smith, APC (filed April 15, 2014, Case No. B237424, consolidated with Case No. B239375), Roger Cleveland Golf Co., Inc. (“Cleveland Golf”), filed a malicious prosecution action against Krane & Smith (“the Attorneys”), who had unsuccessfully prosecuted the underlying breach of contract matter for their client against Cleveland Golf. In that action, on April 26, 2010, the trial court entered its order granting a motion for nonsuit and dismissing the complaint in favor of Cleveland Golf. On May 24, 2011, or approximately 13 months after the trial court had dismissed the underlying complaint, Cleveland Golf commenced a malicious prosecution action against the Attorneys. In the interim, the Attorneys initiated an appeal of the underlying judgment, which was eventually dismissed approximately seven months later. In response to the complaint, the Attorneys filed a special motion to strike, commonly referred to as an anti-SLAPP motion, which included the argument that the malicious prosecution claim was time-barred under the one-year limitations period of Section 340.6. The trial court granted the Attorneys’ motion based on the statute of limitations (and Cleveland Golf’s failure to demonstrate a probability of success on the merits) and dismissed the case. Cleveland Golf’s appeal followed.

The court explained that a malicious prosecution cause of action accrues when the underlying litigation is favorably terminated in favor of the defendant (usually the date judgment is entered), but that a subsequent appeal of such a “favorable termination” renders any malicious prosecution claim “premature” in that one of the necessary elements is missing. As a result, the court described an “accrual rule” for malicious prosecution claims under which the limitations period runs from the entry of judgment until the notice of appeal is filed, and then recommences when the appellate process concludes and the remittitur is issued.

The Attorneys argued that under Vafi v. McCloskey (Second Appellate District, Division 8, 2011) 193 Cal.App.4th 874, and Yee v. Cheung (Fourth Appellate District, October 4, 2013) 220 Cal.App.4th 184, Section 340.6 applies to all actions against attorneys, except those for actual fraud, which involve any “wrongful act or omission” that arises in the performance of professional services, including conduct giving rise to an action for malicious prosecution by the successful third party. They further reasoned that Cleveland Golf’s claim was time-barred because Section 340.6 does not expressly provide for tolling during the pendency of an appeal, which would otherwise have occurred for seven of the thirteen months between the entry of the underlying judgment and Cleveland Golf’s commencement of its malicious prosecution action. The appellate court disagreed.

In applying the two-year limitations period of Section 335.1, the court rejected both Vafi and Yee. It opined that applying Section 340.6, which it characterized as a “professional negligence statute,” to attorney defendants in malicious prosecution suits, without the “accrual rule” applying to the duration of an appeal, would lead to “absurd results,” permitting the losing party in the prior action to “file a notice of appeal to run out the statute of limitations, or requiring a malicious prosecution plaintiff to bring a premature action during the pendency of the appeal.” Based on its examination of the legislative history of Section 340.6, the court in Cleveland Golf then concluded that the Legislature must have intended the phrase “wrongful act or omission” to “include any legal theory related to a claim by a client or former client against his or her attorney, not a claim by a third party, alleging the attorney maliciously prosecuted an action against the plaintiff.” (emphasis added) It also asserted that the legislative history revealed an intention that Section 340.6, which was enacted in 1977, should apply solely to “legal malpractice” actions. The court rejected the argument that malicious prosecution claims are disfavored, as well as the Legislature’s expressly stated purpose behind the enactment of Section 340.6, i.e., to reduce the costs of errors and omissions insurance, and expressed its disapproval for the potential of an attorney benefiting from a shorter limitations period than one imposed on a malicious prosecution claim against his or her client. The court nevertheless affirmed the Attorneys’ successful anti-SLAPP motion on the grounds that Cleveland Golf had failed to establish a likelihood of success on the merits.

This result appears to be technically correct but for the wrong reason. The statute of limitations should not have barred the malicious prosecution claim because the pending appeal clearly rendered the “favorable termination” element of the malicious prosecution claim premature. However, by also holding that Section 335.1 should apply and recharacterizing Section 340.6 as a “legal malpractice statute” applicable only to claims by clients, the court needlessly and erroneously rejected well-settled California law. Section 340.6 does enumerate specific circumstances under which tolling may apply; however, a pending appeal of the underlying “favorable termination” renders any malicious prosecution claim “premature” and does not implicate “tolling” per se. As such, the Cleveland Golf case actually turns on the issue of the timing of the accrual of the malicious prosecution cause of action, not whether tolling occurred. The purported “absurd results” the court divined do not pose material risks of unfairness. As the opinion acknowledged in a footnote, a litigant could always move the court to stay or abate a “premature” malicious prosecution claim pending resolution of an appeal. In any event, while the facts of this case may not be ideal for review, this split among the Districts, and between separate Divisions of the same District, renders the issue of the proper statute of limitations for malicious prosecution claims against attorneys ripe for Supreme Court intervention.

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April 17, 2014