May 17 (Westlaw Journals) - Clients who accused a law firm of drafting faulty family partnership documents can sue the firm for malpractice because the lack of a succession plan led to litigation 16 years later, a California appeals court has ruled. 

Reversing summary judgment in favor of law firm Gibson, Dunn & Crutcher, a 2nd District Court of Appeal panel said the clients were not injured when they paid the firm’s legal fees or when the partnership agreement was drafted in 1988. 

However, the panel said, they suffered actual injury early in 2004 when the general partner had a stroke and a bank sued to dissolve the partnership.  The court said the lack of a succession plan made such litigation possible, and the claim fell within the four-year limitations period for legal malpractice. 

The limited partnership was created in 1988 when brothers Robert and Oliver Inge sought ways to minimize tax liabilities and establish a succession plan for their real estate business, Inge Realty Co, the opinion says.  

They retained Gibson, Dunn & Crutcher to draft the agreement, which the firm structured as a family limited partnership.  

The agreement provided a succession plan for the death of one or both of the brothers, but specified that in the event of incapacity of all the general partners, “the partnership shall be dissolved,” according to the panel. 

When Oliver died in 2003, Robert took over until he suffered a disabling stroke shortly thereafter. 

In 2004 Bank of the West sued Inge Realty in a probate action to recover partnership income distributions on behalf of Oliver’s trust.  Robert’s family members were named respondents. 

The bank sought dissolution of the partnership under the state’s corporation code and under the partnership agreement because Robert was “incompetent to act in the business of Inge Realty,” the panel noted, quoting an underlying probate court filing. 

The probate action went on until 2005, when the parties settled their disputes. 

Robert’s family filed a malpractice action against Gibson Dunn for professional negligence, breach of fiduciary duty and negligent infliction of emotional distress in 2007.  

The complaint sought damages for the firm’s failure to provide a mechanism by which the partnership could continue if the sole remaining partner was “incompetent, disabled and/or retired.” 

The Los Angeles County Superior Court granted the law firm’s motion for summary judgment, concluding the suit was barred by the statute of limitations and that the family had failed to show there was a triable issue on tolling due to lack of actual injury until later than 1992. 

The Court of Appeal reversed and remanded. 

The panel agreed with the family that neither execution of the partnership agreement nor payment of fees to Gibson Dunn to prepare the agreement amounted to actual injury that would trigger the limitations period.  

The drafting of the partnership agreement “caused only speculative or contingent harm” before Robert Inge became disabled, the panel explained.  Even if Robert had not become disabled, the family suffered actual injury when Bank of the West attempted to force dissolution of the partnership, the court said. 

Payment of the firm’s fees is also insufficient to trigger the limitations period, the panel said.  The trial court had determined that payment of Gibson Dunn’s fees amounted to actual injury because, as a result of the firm’s alleged negligence, the fees exceeded the value of the legal services provided. 

Callahan et al. v. Gibson, Dunn & Crutcher, No. B221338, 2011 WL 1467947 (Cal. Ct. App., 2d Dist. Apr. 19, 2011). 

(Reporting by Linda Coady, Westlaw Journal Professional Liability)