Sep 29, 2015

Steps taken by an attorney to cover-up malpractice constitute fraud, barring the application of Louisiana's peremptive period for actions against lawyers

A recent ruling by the Louisiana Supreme Court has irrevocably changed the application of peremption1 in the context of a legal malpractice claim. Attorney peremption, governed by La. R.S. 9:5605, provides that a claim made against a lawyer is extinguished if not filed within one year of the date of discovery of the act, error or omission giving rise to the legal malpractice claim, but no more than three years from the date of the act, error or omission. Subsection E of the statute provides that the three year peremptive period will not run in the case of fraud. Peremption cannot be interrupted or suspended for any reason, including by continuous representation rule or the doctrine of contra non valentum.

By way of background, past Louisiana jurisprudence has only found fraud within the meaning of Section E when the fraud occurred in the act forming the basis for the legal malpractice claim, e.g. forging a signature on a settlement agreement. Louisiana courts have declined to find Section E applicable to actions or inactions after the malpractice (sometimes referred to as "cover-up").2

The Lomont case reverses past jurisprudence on this issue and moreover, finds that the peremptive periods outlined in 9:5605 are not applicable in the case of cover-up. Rather, the cover-up is considered fraud; thus, negating the benefits of the one and three year peremptive periods. Instead, such claims are now governed by the standard one year prescriptive3 period set forth in Louisiana Civil Code Art. 3492, which can be interrupted or suspended by contra non valentum or the lawyer's continued representation of a client. Thus, attempts by a lawyer to fix a mistake, once made, may effectively result in the tolling of the prescriptive period until the representation is terminated.

The original error in the Lomont case arose out of a lawyer's failure to record a Community Property Agreement entered into between her client and the client's ex-husband. By the time the mistake was discovered, a lien had been placed on what would have been her client's separate property. The lawyer led her client to believe that she would take steps to resolve the problem. The client was not told the problem could not be resolved until more than one year later. After being sued, the lawyer took the position that the legal malpractice claim was untimely.

The lower court held that the lawyer's actions were not fraudulent. The Court of Appeal affirmed. The Louisiana Supreme Court reviewed the facts and determined that the lawyer's conduct after discovery constituted fraud; thus, the one and three year provisions of 9:5605 were not applicable. Instead, the timeliness of the suit was to be determined by the "standard" one year prescriptive period of La. C.C. Art. 3492, which ,unlike peremption, may be interrupted or suspended. Further, the Court held that lawyer's continued representation of the client after the error suspended the running of the prescriptive period and as such, the legal malpractice suit was timely filed.

Additionally, also noteworthy in the Court's decision was its determination that the burden shifts to the defendant to put forth evidence of a lack of fraud when the plaintiff alleges fraud with particularity as required by the Louisiana Code of Civil Procedure.

Practice Note: Although time will tell, it is anticipated that this ruling will greatly increase the allegations of fraud plead in an attempt to avoid the peremptive period in Louisiana. The Court has now placed the burden on the attorney defendant to disprove fraud or otherwise risk being stripped from the protections that 9:5605 offers. The effect of this is potentially a seemingly never-ending tolling of the statute of limitations if the lawyer continues to represent the client after the error or tries to correct the problem. As a practical matter, because fraud is considered to be an "intentional act" within many professional liability policies, the coverage implications of this ruling may be significant, though it begs the question whether the action triggering the potential liability is the original act of legal malpractice or the cover-up.

Peremption is the Louisiana civilian term for a statute of repose.

See, e.g., Brumfield v. McElwee, 976 So. 2d 234, 240 (La. App. 4th Cir., 2008).

Prescription is the civilian term for a statute of limitation.

written by:
William E. Wright, Jr.

Melissa M. Lessell