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In Legal Malpractice Action, Application of Discovery Rule, For Purposes of Statute of Limitation, Is Affected By Fiduciary RelationshipRay v. Queen, No. 98-CV-1497 (D.C. March 16, 2000) The D.C. Court of Appeals reversed the trial court’s grant of summary judgment to a defendant attorney in a legal malpractice case, holding that a genuine issue of material fact existed as to whether the client reasonably should have known or suspected at the time that the attorney’s conduct was wrongful. The attorney had been hired by a widow and one of her adult children to represent them in a wrongful death action arising from motor vehicle accident in which her husband died. The adult child was the personal representative of the decedent’s estate. In 1990, the case was settled for a lump sum payment of $225,000 to the personal representative, and monthly payments of $1,551.42 over a ten-year period to the widow. The personal representative endorsed the $225,000 check, and returned it to the attorney, who placed it in his escrow account. The attorney then disbursed the proceeds, after deduction of his fee, entirely to the decedent’s widow, except for $5,000 to each of the adult children. The personal representative and other adult children were allegedly not informed of the intestacy laws, which were applicable here, and which entitled the widow to only a third of the estate. The attorney had received a written authorization from the widow, instructing the attorney to disburse the funds contrary to the laws of intestacy, and indemnifying the attorney if any of the adult children attempted to obtain payment of the amount due as the intestate portion of the estate. The personal representative and the other adult children were not apprised of this authorization. The widow purchased a house, and her children understood that she could only have bought it with the settlement proceeds. The widow died in 1996, at which point the "authorization" was discovered. At the same time, the widow had left the house and most of her other assets to her youngest son, who had been living with her and looking after her. Thereafter, the personal representatives, and three of his siblings, filed suit against the attorney, alleging that the attorney breached his professional obligation to them by concealing his arrangement with their mother and by distributing the settlement proceeds to her, when the children were entitled to receive two thirds of the proceeds under the intestacy laws. The trial court granted summary judgment to the attorney based on the expiration of the statute of limitations. The personal representative appealed. Although a legal malpractice action must be filed no later than three years after the right to maintain the action accrues, the personal representative argued that the wrongful conduct was not discovered until 1996. In addition, the personal representative argued that the attorney’s concealment of the proper application of the intestacy laws was in violation of the attorney’s obligations as a fiduciary and tolled the running of the statute of limitations. Under the discovery rule, a plaintiff’s right of action does not accrue until the plaintiff has knowledge of, or by the exercise of reasonable diligence should have knowledge of (1) the existence of the injury; (2) its cause in fact; and (3) some evidence of wrongdoing. In order for the statute of limitations to begin to run, it is only necessary that the plaintiff have inquiry notice of the existence of a cause of action. Inquiry notice is the applicable standard even where there are allegations of wrongful concealment or nondisclosure. The critical question for inquiry notice is whether the plaintiff exercised reasonable diligence under the circumstances in acting or failing to act on whatever information was available to him. However, the nature of the relationship between the attorney and the family was highly relevant to whether inquiry notice existed, i.e., whether reasonable diligence required the personal representative to suspect wrongdoing on the attorney’s part. In evaluating the reasonableness of the plaintiff’s diligence, D.C. law takes into account the confidential or fiducial relationship between the plaintiff and the defendant. The D.C. Court of Appeals held that here, there was insufficient evidence of "knowledge of some wrongdoing". There was ample evidence to permit a reasonable trier of fact to conclude that the attorney owed the personal representative a fiduciary duty with respect to the distribution of the settlement proceeds. Further, the personal representative had the right to assume that the attorney knew the law and would carry out his responsibilities in accordance with the law. Under these circumstances, the personal representative was entitled to rely on the attorney’s representations, whether explicit or implicit. Accordingly, there was a disputed issue of material fact for the jury, and summary judgment was not warranted. Judge Reid wrote a strong dissent, reasoning that the personal representative was on inquiry notice, after signing a settlement check for $225,000, but only receiving $5,000 of the proceeds, and after having received evasive answers to his questions from his mother. He failed to take the simple step of asking the attorney how and why the funds were distributed in that manner. |
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