A16-1810 June 14, 2017 ________________________________________________________________________ STATE OF MINNESOTA IN SUPREME COURT ________________________________________________________________________ Security Bank & Trust Company, Respondent, vs. Larkin, Hoffman, Daly & Lindgren, Ltd., Petitioner. ________________________________________________________________________ PETITIONER LARKIN, HOFFMAN, DALY & LINDGREN, LTD.’S PETITION FOR REVIEW ________________________________________________________________________ Sally J. Ferguson (#131829) Stephen M. Warner (#0271275) ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A. 500 Young Quinlan Building 81 South Ninth Street Minneapolis, MN 55402 (612) 339-3500

Paul A. Sortland (#103573) SORTLAND LAW OFFICES, PLLC 431 South Seventh Street Suite 2415 Minneapolis, MN 55415 (612) 375-0400

Attorneys for Petitioner

Attorneys for Respondent

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THE SUPREME COURT OF THE STATE OF MINNESOTA: Petitioner Larkin, Hoffman, Daly & Lindgren, Ltd. (“Larkin”) respectfully

petitions this Court to review a published May 15, 2017, decision of the Minnesota Court of Appeals.

The decision holds that a claim alleging that legal malpractice in the

preparation of testamentary instruments caused adverse tax consequences to the estate accrues when the testator signs the testamentary instruments. This in effect gives the personal representative standing to pursue a legal malpractice action after the death of the testator. STATEMENT OF THE LEGAL ISSUE When does a cause of action accrue for a claim of legal malpractice alleging that the preparation of testamentary instruments allegedly resulted in adverse tax consequences to the estate? Does the claim accrue during the testator’s life, as the court of appeals held, so that the personal representative has standing to pursue the claim? ADD. 00010 - 00011. Or does the claim accrue at the time of the testator’s death, when the consequences of alleged legal malpractice become both immediate and irremediable? STATEMENT OF THE CASE This is an action for legal malpractice.

Respondent Security Bank & Trust

Company commenced the action in its dual capacities as Personal Representative of the Estate of Gordon P. Savoie and as Trustee of the Restated Gordon P. Savoie Revocable Trust (“the Trust”). Respondent alleged that negligence on the part of Larkin in the preparation of a will and the Trust agreement for Mr. Savoie resulted in adverse tax consequences to the Estate and the Trust upon Mr. Savoie’s death.

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Specifically,

Respondent asserted that Larkin failed to consider, and to recommend alternatives to avoid, a $1.654 million generation-skipping transfer tax imposed due to the fact that one of the beneficiaries of the Estate and Trust was more than 37.5 years younger than Mr. Savoie. ADD. 00028-00029, ¶¶ 9-15. 1 Larkin answered the Complaint and moved for judgment on the pleadings. In its motion, Larkin argued that Respondent lacked standing to bring the action for the following three reasons: (1)

the cause of action did not accrue before Mr. Savoie’s death and therefore Respondent had no authority to sue as Personal Representative under the Minnesota Probate Code, Minn. Stat. § 524.3-703(c) 2;

(2)

there was no attorney-client relationship between Larkin and Respondent as Trustee of the Trust; and

(3)

Respondent had suffered no injury in fact in either of its representative capacities.

The Hennepin County District Court, the Honorable Francis J. Magill presiding, dismissed the Complaint, holding that Respondent had no standing as Personal Representative because the cause of action did not accrue during Savoie’s life, and that

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Larkin denies negligence and further denies that any negligence was a cause of damage to Respondent in either of its representative capacities. ADD. 00036-0037. 2

Minn. Stat. § 524.3-703(c) provides: Except as to proceedings which do not survive the death of a decedent, a personal representative of a decedent domiciled in this state at death has the same standing to sue and be sued in the courts of this state and the courts of any other jurisdiction as the decedent had immediately prior to death.

(emphasis added).

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Respondent lacked standing as Trustee because it had no attorney-client relationship with Larkin in that capacity. 3 ADD. 00014-00025. Respondent appealed. The Minnesota Court of Appeals reversed, holding that Respondent had standing as Personal Representative because the cause of action for legal malpractice accrued prior to Mr. Savoie’s death. ADD. 00010-12. In particular, the court of appeals held that Mr. Savoie sustained some damage, and the cause of action therefore accrued, when he signed the will and Trust documents in 2009. Id. The court reasoned that, by signing the testamentary instruments, Savoie changed position to the detriment of his legal rights, and that his estate thereby became less valuable at that time, even though Mr. Savoie could have changed the will and Trust at any time in the several years before his death. 4 Id. ARGUMENT AND CRITERIA SUPPORTING THE PETITION MINN. R. CIV. APP. P. 117, SUBD. 2(A) AND (D)(1),(2), AND (3) Larkin respectfully petitions this Court to take review of this case, because the court of appeals erred in applying what is essentially an “occurrence” rule, instead of the “damages” rule of accrual, for a claim for legal malpractice in the preparation of testamentary instruments.

This Court has previously adopted the “damage” rule,

concluding that a cause of action for legal malpractice does not accrue until the consequences to the client become both immediate and irremediable. Antone v. Mirviss, 720 N.W.2d 331, 337 (Minn. 2006). 3

The district court did not address the third issue raised by Larkin.

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The court of appeals did not address the second issue raised by Larkin. ADD.

00013.

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Here, applying the “damages” rule, Respondent’s claim against Larkin did not accrue until Mr. Savoie’s death, at which time the damages became both immediate and irremediable. The court of appeals thus disregarded long-standing precedent that applies the “damage” rule to determine the accrual of a cause of action for legal malpractice. If not reversed, the court of appeals’ opinion will open a back door for claims on behalf of frustrated beneficiaries, which have previously been appropriately limited due to public policy concerns over frivolous litigation. The decision will also have profound implications for the statute of limitations in legal malpractice cases, because the accrual date begins much earlier, and the statute of limitations may run even before the testator dies, and before any legal consequences of the alleged malpractice have manifested. I.

THE COURT OF APPEALS DEPARTED FROM PRECEDENT REGARDING WHEN A CLAIM MALPRACTICE ACCRUES.

ESTABLISHED FOR LEGAL

The question presented is an important one upon which this Court should rule, because the court of appeals misapplied the law to an issue which has broad implications for legal malpractice litigation generally, and for estate planning malpractice cases in particular. The question of when a cause of action accrues most often arises in the context of whether a statute of limitations has run.

However, accrual is also important to

determining whether the personal representative of an estate may pursue claims, because Minn. Stat. § 524.3-703(c) only gives the personal representative the same standing to sue as the decedent had immediately before death. Id. If a cause of action does not accrue during the decedent’s life, the personal representative lacks standing to pursue it

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after death. Id. Of importance to this case, application of Minn. Stat. § 524.3-703(c) means that a personal representative only has standing to pursue a legal malpractice claim that accrued during the decedent’s life. 5 In legal malpractice claims, Minnesota applies the “damage” rule of accrual, under which the cause of action accrues when “some damage has occurred as a result of the alleged malpractice.” Antone, 720 N.W.2d at 335-36 (quoting Hermann v. McMenomy & Severson, 590 N.W.2d 641, 643 (Minn. 1999)). In Antone, this Court clarified that some damage occurs, and the cause of action for legal malpractice accrues, when the client reaches the “point of no return” at which the consequences of the attorney’s negligence are both immediate and irremediable. Id. at 337. Thus, in Antone, the cause of action for legal malpractice in the preparation of an antenuptial agreement accrued when the client got married, because it was at that point that his spouse was legally entitled to make a claim upon the assets the attorney had failed to protect. Id. at 337-38. While no Minnesota court has considered accrual as it specifically relates to application of § 524.3-703(c), and the preparation of testamentary instruments allegedly causing adverse tax consequences to the estate after the testator dies, there is no support for the court of appeal’s departure from the “damages” rule that the Minnesota Supreme Court has applied to legal malpractice claims. In adopting the “damages” rule of accrual, 5

See e.g. Johnson v. Taylor, 435 N.W.2d 127, 129 (Minn. App. 1989), review denied (Minn. Apr. 19, 1980) (attorney failed to commence action within applicable statute of limitations; client died after he was deprived of cause of action); Professional Fiduciary, Inc. v. Silverman, 713 N.W.2d 67 (Minn. App. 2006) (personal representative could pursue legal malpractice claim after client’s death where claim arose from adverse judgment against client while alive).

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the Minnesota Supreme Court has also rejected the “occurrence” rule, which holds that a cause of action accrues when the alleged negligence occurs. Id. at 335. Nonetheless, the court of appeals departed from the “damages” rule and applied something more akin to the “occurrence” rule. The court of appeals misapplied Antone and its predecessors in holding that some damage occurs, and a cause of action accrues, when the client changes his legal position based on allegedly negligent legal advice, regardless of when that change in position becomes irremediable. ADD. 00010-00011. In fact, the court of appeals rejected the notion that having the consequences of the malpractice “locked in” was a requirement for accrual of the cause of action. Id. Case law from other jurisdictions supports a conclusion that the court of appeals misapplied the “damages” rule. While the Minnesota Supreme Court has not considered the specific issue of when a claim for legal malpractice in the context of preparation of a testamentary instrument accrues, other jurisdictions applying the “damages” rule of accrual have considered this specific issue. These courts generally conclude that the cause of action does not accrue during a testator’s life. 6

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See e.g. Rutter v. Blechman, Woltz & Kelly, P.C., 568 S.E.2d 693, 695 (Va. 2002) (under “damage” rule of accrual, executor lacked standing to bring claim for malpractice in preparation of testamentary instruments because claim did not accrue during testator’s life); Jeanes b. Bank of Amer., N.A., 295 P.3d 1045 (Kan. 2013) (same); McDonald v. Pettus, 988 S.W.2d 9 (1999) (same); In re Estate of Drwenski, 83 P.3d 457 (Wyo. 2004) (same); 1 Mallen & Smith, Legal Malpractice § 7:10, p. 813 (2012) (legal malpractice claim survives client’s death only if “the elements of the cause of action pre-existed death”).

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II.

REVIEW BY THIS COURT WILL HELP TO DEVELOP AND HARMONIZE THE LAW ON AN ISSUE OF STATEWIDE IMPACT THAT IS LIKELY TO RECUR IF NOT ADDRESSED. The court of appeals’ decision departs from this Court’s precedent on accrual of a

legal malpractice claim and creates what is, in practical effect, a new rule of accrual in that context. If this Court does not address the issue now, the decision will have broad implications for all legal malpractice claimants and also for defendants in estate planning malpractice cases statewide. For claimants, the decision will potentially create a much earlier trigger for the running of the statute of limitations on their claims. Indeed, by the court of appeals’ reasoning, any legal malpractice cause of action will accrue, and the statute of limitations will begin to run, as soon as the client takes any action or changes legal position in reliance on the allegedly negligent legal advice, even if that action can be reversed or undone before any adverse consequence occurs. 7 For estate planning lawyers, frustrated beneficiaries with no valid claim themselves will be encouraged to pressure personal representatives to pursue frivolous legal malpractice claims after the testator’s death, when his or her testamentary intent is nearly impossible to ascertain. Absent review, the issue is virtually certain to recur as lower courts wrestle with how to reconcile the Court of Appeals’ ruling with this Court’s prior precedent on accrual of a legal malpractice cause of action. 7

Applying this reasoning to Antone, the cause of action would have accrued when Antone and his future wife signed the antenuptial agreement, not when they exchanged their wedding vows, even though the antenuptial agreement had no legal effect until the marriage occurred. Similarly, the cause of action in Hermann v. McMenomy & Severson, 590 N.W.2d 641 (Minn. 1999), would have accrued when the employee benefit plan and trust were put in place, and not when the clients engaged in prohibited transactions more than a year later.

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For the foregoing reasons, Petitioner respectfully asks this Court to grant review.

ARTHUR, CHAPMAN, KETTERING, SMETAK & PIKALA, P.A.

Dated: June 14, 2017 Sally J. Ferguson (#131829) Stephen M. Warner (#0271275) 500 Young Quinlan Building 81 South Ninth Street Minneapolis, MN 55402-3214 P: (612) 339-3500 F: (612) 339-7655 [email protected] [email protected] Attorneys for Petitioner Larkin, Hoffman, Daly & Lindgren, Ltd.

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