California Court of Appeal Rules Against Gibson, Dunn & Crutcher

Beware, California lawyers! Malpractice lawsuits just became a bit easier.

In April, the California appellate court case of Callahan v. Gibson, Dunn & Crutcher found against Gibson, Dunn & Crutcher in a result that should raise red flags for all California attorneys, particularly those who draft documents for client consumption. According to Thomson Reuters News & Insight, the 2nd District California Court of Appeal held that the law firm's clients had a malpractice claim against the firm, based on a faulty family limited partnership-- over a decade after the documents had been drafted.

The key issue at appeal was the statute of limitations on such a claim. The statute of limitations on the malpractice suit, states the court in its opinion, began to run after injury was sustained as opposed to when the allegedly faulty documents were drafted. The injury occurred in 2004, nearly sixteen years after the documents had been drafted.

According to the opinion, the family limited partnership had been drafted in 1988 for brothers Oliver and Robert Inge. At the time, the two brothers were looking for ways to minimize their tax liability in planning for the succession of their real estate business, Inge Realty Co. The contract term that eventually led to the "injury" related to the dissolution of the partnership in the event of incapacity of all the general partners.

In 2004, following the death of Oliver Inge the year before, Robert Inge suffered a stroke. At this time, according to the 2nd District Court opinion, Bank of the West sought to dissolve the partnership in a probate action to recover partnership income distributions on behalf of Oliver's trust.

In rendering its opinion, the California Court of Appeal overturned the Los Angeles County Superior Court's decision to grant a motion for summary judgment, a motion based on the assertion that no triable issue existed as the claim was barred under the statute of limitations. "Actual injury," the Court of Appeals found, occurred not at the execution of the agreement nor at the payment of legal fees to the law firm but rather, at the moment when the client was sued by Bank of the West.

This serves as a cautionary tale to all California attorneys. Draft carefully and make provisions for the worst case scenario, as it could very well become a reality years, or even more than a decade, later.

Related Resources

• Sample Business Contracts (FindLaw Corporate Counsel Center)
• Legal Malpractice Lawsuit FAQs (FindLaw's Learn About the Law)
• Family Limited Partnerships: Having Your Cake and Eating it Too (FindLaw Library)