Malpractice Suit Against Bankruptcy Lawyer Dismissed

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A former client’s legal malpractice action against his bankruptcy lawyer is time-barred because the alleged act – persuading the client to sell his home to the lawyer, who later sold it at a profit – occurred after termination of the representation on July 7, 2005, and the Fauquier County Circuit Court dismisses the suit.

Plaintiff’s claims for breach of loyalty and breach of contract allege defendant breached his fiduciary duties as an attorney to his clients by unfairly engaging in a business transaction with his clients to his benefit and their detriment. Both attorneys argued the applicable malpractice statute of limitations to both counts. The court will approach this issue in the same fashion.

Defendant was engaged to represent plaintiffs in a bankruptcy proceeding and the parties executed a written contract to that effect. Thus, the five-year statute of limitations of Va. Code § 8.01-246(2) applies.

There were no allegations that defendant committed any malpractice with reference to the bankruptcy service he performed. The alleged breach occurred with reference to his profit from the real estate transaction he engaged in with his own client.

There is no indication defendant performed any more legal services after he filed a July 7, 2005 motion to dismiss the bankruptcy petition, or that his representation otherwise continued beyond that point. Prior to that date, defendant allegedly tried to convince plaintiffs to sell their home to him and they agreed. The conveyance occurred on July 22, 2005, and was recorded on July 26, 2005. Thereafter, at some stated date, defendants sold plaintiffs’ home to a third party for approximately $500,000, plaintiffs allege.

It can be argued that the breach of fiduciary duty occurred prior to July 7, but there was no damage or loss until July 22 when the property was conveyed to the defendants. The fact that the profit was realized later does not serve to extend the statute of limitations. While such an event may have served to inform plaintiffs of their loss, discovery of the existence of the cause of action does not serve to extend the statute. The tort was completed at the time of the conveyance of the deed to defendants on July 22, 2005. Title passed at that time, not at recording.

The proceeding was instituted on July 26, 2010; five years and four days after conveying the deed. The applicable statute of limitation is five years. The late recording of the deed as between the parties does nothing to extend the statute of limitations. Recording only serves to place third parties on notice of the transaction. The facts as alleged suggest the breach of fiduciary duty occurred during the period of representation, but the suit was filed after the statute had run.

Plea in bar sustained and suit dismissed.

Bailey v. Donovan (Parker) No. CL 11-732, April 12, 2013; Terry M. Grimes, Eric F. Schell for the parties. VLW 013-8-056, 3 pp.