Division II of the Washington Court of Appeals recently underscored the subtle, but important, difference between “injury” and “damages” in assessing whether a legal malpractice claim is timely.
In Gill v. Hillier, Scheibmeir, Kelly & Satterfield, P.S., 2024 WL 334235 (Wn. App. Jan. 30, 2024) (unpublished), the plaintiff used the defendant law firm to handle the sale of his business. The law firm structured the sale so that the seller could foreclose on the stock of the business in the event of nonpayment to quickly regain control of the business as a whole. As a result, the individual assets of the business were not secured. Later, the buyer was engulfed in financial problems, including a series of federal tax liens totaling $1.2 million starting in 2015, and eventually stopped making payments on the purchase in 2019. The seller did not wish to pursue foreclosure on the stock because that would include all the accumulated liabilities. The seller instead sued the purchaser for nonpayment, but the seller went into bankruptcy in 2022. At that point, the seller sued the law firm for malpractice—arguing that it should have reserved a separate ability to foreclose on individual equipment.
The statute of limitation for legal malpractice in Washington is three years. The law firm argued that the seller knew, or reasonably should have known, that it had been injured when the federal tax liens surfaced starting in 2015 and, therefore, the three-year limitation period had run. The seller contended that it could not have known its ultimate damages until the bankruptcy in 2022. The trial court agreed with the law firm and dismissed the lawsuit.
The Court of Appeals affirmed. In doing so, the Court of Appeals noted that Washington law draws a distinction between “injury” and “damages” when examining whether a legal malpractice claim is time-barred—essentially holding that the clock begins to run when a party is injured even if they do know yet know the full extent of their claimed damages.
Although the limitation period is tolled under the “continuous representation rule” while a law firm continues to represent the client in the matter involved, the Court of Appeals held that it would not consider that argument in this instance because it had not been made in the trial court.
While not plowing any new legal ground, Gill includes a useful summary of the law in this area and is an important reminder that clients need to act with reasonable speed if they believe they have been injured through a lawyer’s negligence.
