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Current Developments in the Commercial Divisions of the
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Posted: November 16, 2016

Malpractice Claim Arises When Malpractice Occurs Not When Malpractice Becomes Apparent

On October 31, 2016, Justice Ostrager of the New York County Commercial Division issued a decision in BLDG Christopher LLC v. Herrick Feinstein LLP, 2016 NY Slip Op. 32242(U), holding that a legal malpractice claim accrued when the malpractice occurred, not when it became apparent, explaining:

Pursuant to CPLR § 214(6), the statute of limitations for legal malpractice is three years, regardless of whether the underlying theory is based in contract or tort. Similarly, the statute of limitations for the breach of fiduciary duty claim is three years, as it is based on some of the same facts as the malpractice claim and, like the malpractice claim, seeks monetary damages rather than equitable relief. According to Herrick, the law firm’s representation of plaintiffs in connection with the matters at issue ended in May of 2005 when it issued Opinion Letters regarding the tax status of the Easement donations, and the commencement of this action seven years later in May of 2012 is untimely.

Plaintiffs first argue in opposition that the action is timely because the malpractice cause of action did not accrue until in or about 2011 at the earliest, when the IRS determined to disallow the tax deductions plaintiffs had claimed on their 2004 returns and plaintiffs discovered Herrick’s alleged malpractice for the first time. As recently as this month, in Hahn v The Dewey & LeBoeuf Liquidation Trust, 2016 WL 6078932, a case directly on point, the Appellate Division, First Department, rejected such a “discovery” argument, stating that: Although plaintiffs claim not to have discovered that this advice was incorrect until years later, what is important is when the malpractice was committed, not when the client discovered it . . .

Plaintiffs latch onto certain language by the Court of Appeals in McCoy and Ackerman, supra, also quoted in Hahn, that a legal malpractice claim accrues when all the facts necessary to the cause of action have occurred and an injured party can obtain relief in court. They argue that since they could not prove Herrick’s error until the IRS disallowed the Easement tax deduction in or about 2011, they could not prove injury and obtain relief in court. Such a reading is inconsistent with the facts and holding in Hahn discussed above. It is also contrary to other clarifying language in McCoy, where the Court of Appeals expressly found that: Because the defendant lawyer was negligent in failing to assert plaintiff’s claim to preretirement death benefits in the settlement stipulation or judgment, we conclude that plaintiff suffered actionable injury on the day of the stipulation, or at the latest, on the day the judgment incorporating the stipulation was filed in the county clerk’s office even though plaintiff did not discover the negligence until she sought to access the death benefits years later.

Similarly, the Court of Appeals in Ackerman found that the cause of action for accountant malpractice accrued upon the accountant’s issuance of an erroneous tax return and not years later when the IRS assessed the deficiency. In so holding, the court explained that the claim accrues upon the client’s receipt of the accountant’s work product since this is the point that a client reasonably relies on the accountant’s skill and advice and, as a consequence of such reliance, can become liable for tax deficiencies. This is the time when all the facts necessary to the cause of action have occurred and an injured party can obtain relief in court.

(Internal quotations and citations omitted) (emphasis added).

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