Malpractice Claim Untimely Based on Out-of-State Limitations Period Under Borrowing Statute

On October 17, 2017, the First Department issued a decision in Centre Lane Partners, LLC v. Skadden, Arps, Slate, Meagher, & Flom LLP, 2017 NY Slip Op. 07221, affirming the dismissal of an action as time-barred under New York's borrowing statute, explaining:

Where the alleged injury is economic in nature, the cause of action is generally deemed to accrue in the state where the plaintiff resides and sustains the economic impact of the loss. Here, the debtors' principal places of business are in Oregon, and their financial losses were allegedly incurred in that state. Contrary to plaintiffs' claim, the motion court's application of Oregon's two-year statute of limitations via New York's borrowing statute (CPLR 202) in light of, inter alia, the situs of debtors' Oregon-based businesses, the legal relationships existing between plaintiffs, debtors and defendants, and the nature of the instant action, was proper and the result would not be absurd, notwithstanding defendants' place of business being located in New York.

The two challenged asset transfers were completed in April 2013 and May 2013 whereas plaintiffs' malpractice action was not commenced until March 31, 2016. Plaintiffs, as well as the debtors, were in a position to know of the alleged adverse impact of the asset transfers upon the debtors, as well as the alleged conflict in legal representation provided by defendants. Plaintiffs were not only significant holders of unsecured debt in one of the primary debtors, but they were also the controlling shareholder in the company that purchased the largest of the two asset transfers in question. Moreover, the amended complaint alleged that the person who was the controlling principal of the debtor entities, and whose personal interests defendants had sought to promote in their handling of the debtor entities' legal affairs, had, in May 2013, strong-armed one of the debtors into purchasing assets that it did not want from another unrelated entity controlled by the individual, all for purposes of including those assets in one of the challenged asset-transfers. The amended complaint further alleged that for nearly 20 years defendants had represented the interests of the debtors and the debtors' controlling owner, and that in the two transactions in question, defendants represented parties with adverse interests.

Given such factual pleadings, the motion court properly rejected plaintiffs' argument that Oregon's discovery/tolling rule for legal malpractice claims rendered this malpractice action timely commenced. The court properly concluded that a reasonable person, knowing the facts that the debtors had available to them at the time of the two challenged transfers, should have been aware of a substantial possibility of defendants' conflicted representation, as well as the harm that such negligent representation had caused, and such knowledge could not have been gained later than when the debtors filed for Chapter 7 bankruptcy on December 31, 2013.

(Internal quotations and citations omitted).

We both bring and defend professional malpractice claims and other claims relating to the duties of professionals such as lawyers, accountants and architects to their clients. Contact Schlam Stone & Dolan partner Erik Groothuis at egroothuis@schlamstone.com if you have questions regarding such claims or appeals of such claims.