Securities Regulation Daily Wrap Up, MERGERS AND ACQUISITIONS—2d Cir.: Second Circuit affirms dismissal of legal malpractice suit, (Sep 17, 2024)

By John Filar Atwood

The judges determined that the district court properly concluded that the complaint was time-barred and that the continuous legal representation doctrine did not toll the time to bring a suit.

A Second Circuit panel issued a summary order affirming a district court’s dismissal as time-barred of a suit against a securities law firm for legal malpractice and other state contract and torts claims stemming from the firm’s representation of RocketFuel Blockchain Co. in connection with a 2018 reverse merger. The panel also affirmed the district court’s denial of leave to amend where the plaintiff cannot cure the deficiencies in the complaint (Page v. Ellenoff Grossman & Schole LLP, No. 23-1199 (2d Cir. Sept. 16, 2024)).

The plaintiff was an officer at RocketFuel Blockchain Co. at the time of the reverse merger. He sued Ellenoff Grossman & Schole for legal malpractice in connection with its representation of RocketFuel in the transaction. Adopting a magistrate judge’s report and recommendation, the district court ruled that the claims were untimely and otherwise defective, denied further leave to amend as futile, and dismissed the complaint.

Statute of limitations. On appeal, the Second Circuit noted that in diversity cases, state statutes of limitations and tolling rules govern the timeliness of state law claims. New York has a three-year statute of limitations for legal malpractice claims that begins when the malpractice is committed, not when the lawsuit is filed. All of the alleged misconduct occurred in 2018, more than three years before the plaintiff brought the lawsuit in May 2022, the panel stated.

The plaintiff argued that his claims are not time-barred because the continuous legal representation doctrine tolled the statute of limitations, because Ellenoff Grossman represented RocketFuel in other matters until August 2019, and because the law firm engaged in post-merger misconduct related to the merger itself.

Citing McCoy v. Feinman, the panel said that the continuous representation doctrine tolls the statute of limitations only where there is a mutual understanding of the need for further representation on the specific subject matter underlying the malpractice claim, not when the relationship involves only routine contact for miscellaneous legal representation not related to the matter on which the allegations of malpractice are based.

The plaintiff’s claims arose solely from Ellenoff Grossman’s actions in connection with the reverse merger, which closed in June 2018. The panel stated that while the plaintiff argued that the law firm engaged in post-merger misconduct by failing to disclose necessary materials to all parties until August 2019, this alleged failure to disclose also formed part of the alleged malpractice misconduct before the merger. Further, the panel said, an attorney’s failure to fix alleged legal errors cannot toll the statute of limitations because New York law does not permit a limitations period to depend on a continuing omission that can go on indefinitely.

Other claims also time-barred. The Second Circuit panel ruled that the plaintiff’s remaining claims were also time-barred because they arose from substantially the same conduct as the malpractice claim. The three-year malpractice limitations period applies “regardless of whether the underlying theory is based in contract or tort,” the panel said. Accordingly, related claims that arise out of the same alleged malpractice misconduct are governed by the malpractice limitations period, the panel concluded.

The case is No. 23-1199.

Judge: Chin, D.

Attorneys: Joseph Page, pro se. Philip Touitou (Akerman LLP) for Ellenoff Grossman & Schole LLP.

Companies: Ellenoff Grossman & Schole LLP; RocketFuel Blockchain Co.

LitigationEnforcement: DirectorsOfficers FiduciaryDuties GCNNews MergersAcquisitions ConnecticutNews NewYorkNews VermontNews