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Writer's pictureSamuel A. Mullman

When A Statute of Limitations Begins to Run Must be Analyzed Separately For Each Claim Asserted

The Supreme Court of Georgia has clarified that when a statute of limitations begins to run is contingent on the underlying elements of the claims asserted, and therefore, must be analyzed on a claim by claim basis since the clock can begin running on different dates. Coe v. Proskauer Rose, LLP, S21G1250, 2022 WL 4086420 (Sept. 7, 2022).


FACTS:


The Coes, the collective plaintiffs, were involved in the sale of a company that they held a substantial interest in. Id. at *1. BDO Seidman, LLP, the accountants involved in the deal, proposed a tax strategy where the Coes would offset tax obligations. Id. BDO advised the Coes to obtain a legal opinion from Proskauer Rose, LLP. Id. The Coes followed BDO's advise, retained Proskauer Rose, received a legal opinion stating there was a high chance that the tax treatment of the strategy would be upheld if challenged by the IRS and they would not be subject to a penalty. Id. at *2. Ultimately, the IRS did perform an audit of the Coes. Id. Further, in 2009, several BDO partners entered guilty pleas to counts of conspiracy to defraud the United States and to tax evasion in connection with the tax shelters that they performed for the Coes and other similar clients. Id. Further, it became known that Proskauer Rose represented BDO and advised them in 2002 that any taxpayer claiming losses form the strategy would face a 100% chance of an IRS audit. Id. at *3. Proskauer Rose did not inform the Coes of the same information. Id. In 2015, the Coes brought suit against Proskauer Rose for legal malpractice, breach of fiduciary duty, negligent misrepresentation, and fraud. Id. The trial court granted summary judgment in favor or Proskauer Rose finding that the statute of limitations barred the Coe's claims. Id. at *1.


LAW:

It is well settled that the statute of limitation for fraud and negligent misrepresentation claims is found in O.C.G.A. § 9-3-31,12 while the statute of limitation for legal malpractice claims is set out in O.C.G.A. § 9-3-25.13. Specifically, a cause of action for legal malpractice, alleging negligence or unskillfulness, is subject to the four-year statute of limitation. Armstrong v. Cuffie, 311 Ga. 791, 793 (1) n.4, 860 S.E.2d 504 (2021). Similarly, a four-year statute of limitations is applied to fraud arising from economic loss and negligent misrepresentation claiming injury to presonalty. Anthony v. American Gen. Financial Svcs., 287 Ga. 448, 461 (4), 697 S.E.2d 166 (2010); Hardaway Co. v. Parsons, Brinckerhoff, Quade & Douglas, 267 Ga. 424, 426 (1), 479 S.E.2d 727 (1997).


Despite all the claims having a four-year statute of limitations, the Supreme Court held that each claim must be analyzed independently because [v]arious causes of action in tort arising from the same set of facts may commence running at different times depending on the nature of the several causes of action involved, and the fact that the statute has run as to one does not necessarily mean that the statute has run as to all.” Daniel v. Ga. R. Bank & Trust Co., 255 Ga. 29, 30, 334 S.E.2d 659 (1985); Green v. White, 229 Ga. App. 776, 494 S.E.2d 681 (1997). “The true test to determine when a cause of action accrues is to ascertain the time when the plaintiff could have first maintained his or her action to a successful result.” Colormatch Exteriors v. Hickey, 275 Ga. 249, 251 (1), 569 S.E.2d 495 (2002).


Regarding the negligent misrepresentation claim, the Supreme Court stated the statute of limitation runs from the point that the resulting loss occurs after the negligent act and reliance takes place. Hardaway Co., 267 Ga. at 427, 479 S.E.2d 727. Accordingly, until economic loss is actually sustained by a plaintiff, he does not have a cause of action, and the statute of limitation “cannot commence until such loss is sustained with certainty.” Id. at 427-28, 479 S.E.2d 727. Likewise, in a fraud claim, “[t]o establish a cause of action for fraud, a plaintiff must show that actual damages, not simply nominal damages, flowed from the fraud alleged.” Glynn County Fed. Employees Credit Union v. Peagler, 256 Ga. 342, 344 (2), 348 S.E.2d 628 (1986).


ANALYSIS:


Ultimately, the Supreme Court found that the negligent misrepresentation and fraud claims began accruing not when the IRS imposed penalties but at the time that they paid Proskauer Rose's bill for the opinion letter since they claim that as a segment of damages based on the misrepresentations. Id. at *6. The Coes also alleged later damages (i.e., the actual penalty imposed by the IRS), however, the test is when the claim could first be brought and if the Coes maintained that the legal fees were damages from the same misrepresentation the claim could have bene brought at that point.


Proskauer Rose, relying on Anderson v. Jones, 323 Ga. App. 311, 318 (2), 745 S.E.2d 787 (2013) and Griffin v. Fowler, 260 Ga. App. 443, 450 (2), 579 S.E.2d 848 (2003), also argued that the Coes should not be able to circumvent the malpractice limitation period by asserting fraud and negligent misrepresentation claims where “the duties arose from the same source (that is, the attorney-client relationship), were allegedly breached by the same conduct, and allegedly caused the same damages.” Id. at *7. The Supreme Court disapproved of those cases "to the extent that the language in these cases can be construed to support that fraud and negligent misrepresentation claims are always duplicative of legal malpractice claims if based on the same facts and that those fraud and negligent misrepresentation claims will fail on statute of limitation grounds in the same way as the legal malpractice claim..." Id.


Lastly, because the statue of limitation had run by the time the Coes brought their claims in 2015, the Supreme Court also inquired as to whether the fraud that deterred or debarred the Coes from bringing an action allows for the tolling of the statute of limitations.


O.C.G.A. § 9-3-96 provides that when a defendant is “guilty of a fraud by which the plaintiff has been debarred or deterred from bringing an action, the period of limitation shall run only from the time of the plaintiff's discovery of the fraud.” As the Supreme Court recently explained, in order to toll a limitation period under this statute, a plaintiff must make three showings:

"first, that the defendant committed actual fraud; second, that the fraud concealed the cause of action from the plaintiff, such that the plaintiff was debarred or deterred from bringing an action; and third, that the plaintiff exercised reasonable diligence to discover his cause of action despite his failure to do so within the statute of limitation." Doe v. St. Joseph's Catholic Church, 313 Ga. 558, 561 (2), 870 S.E.2d 365 (2022) (citation and punctuation omitted).


“Fraud will toll the limitation period only until the fraud is discovered or by reasonable diligence should have been discovered.” Doe, 313 Ga. at 568 (2), 870 S.E.2d 365. “Reasonable diligence cannot be measured by a subjective standard, but, rather, must be measured by the prudent man standard, which is an objective one.” Id. However, “[w]here a confidential relationship exists, a plaintiff does not have to exercise the degree of care to discover fraud that would otherwise be required, and a defendant is under a heightened duty to reveal fraud where it is known to exist.” Hunter, Maclean, Exley & Dunn, P.C. v. Frame, 269 Ga. 844, 848 (1), 507 S.E.2d 411 (1998). “Put another way, a confidential relationship imposes a greater duty on a defendant to reveal what should be revealed, and a lessened duty on the part of a plaintiff to discover what should be discoverable through the exercise of ordinary care.” Id.


Douglas Coe, one of the Coe plaintiffs, submitted an affidavit that he was unaware that Proskauer advised BDO on the Strategy and thus was not an independent law firm. Coe, 2022 WL 4086420 at *8. Moreover, the engagement letter between the parties "only vaguely referred to matters in which Proskauer represented BDO and did not disclose Proskauer's role in crafting the Strategy and sharing in fees earned." Id. Further, Proskauer Rose attempted to show constructive notice of the widespread knowledge of the misrepresentations via 98 selected sources mentioning the strategy. Id. The Court was not persuaded that as a matter of law the Coes should have discovered the claims based on news reports that briefly mentioned Proskauer Rose or the strategy. The Supreme Court held that their were material questions of fact remaining as to what the Coes knew and therefore a question for the jury remined as to the tolling and the summary judgment ruling was reversed.

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