Ex-Client May Seek Punitive Damages for Fraudulent Silence About Blown Deadline

By Joan C. Rogers  

Sept. 20 --A client who can't prove any actual damages from his lawyer's alleged fraudulent concealment that he missed the statute of limitations for filing the client's claim is still entitled to sue the lawyer for punitive damages, the New Mexico Supreme Court decided Sept. 12 (Encinias v. Whitener Law Firm, P.A., N.M., No. 33,874, 9/12/13).

An inability to prove actual damages is not fatal to a fraudulent misrepresentation claim because actual damages are not an element of that tort, Justice Edward L. Chávez said in his opinion for the court.

Too Late

Joe Robert Encinias and his parents hired Russell Whitener and the Whitener Law Firm in January 2006 to sue his high school and a school district after he allegedly was beaten in September 2004 by classmates during school hours in a place outside school property that had been cordoned off so that students could patronize food vendors there.

The law firm never filed a complaint in the case, the court said. In April 2006 the Encinias family contacted the firm to check on the status of the case, and they were asked to resubmit paperwork. In the fall of 2006, the Encinias family again approached the law firm over concern that the statute of limitations would run out.

In fact, the court said, the limitation period ran out two years after the incident, in late September or early October 2006. An attorney in the Whitener firm testified that he and his colleagues allowed the statute to run because they were concerned about the strength of the case and thought they could get around the statute.

In August 2007 the firm realized the case was time-barred, but it waited until the spring of 2008 to tell the family that it had missed the statute of limitations, the court said.

If the law firm knowingly or recklessly led the client to believe his suit was still viable, the client may be entitled to punitive damages even without actual damages.


New Mexico Supreme Court

Encinias sued Whitener and the firm alleging a variety of claims. The court of appeals dismissed his claim that the firm violated the state's Unfair Practices Act by not living up to claims it made in its advertisements. This point was not addressed in the supreme court's opinion.

The court of appeals upheld summary judgment against Encinias on the remaining claims for malpractice and misrepresentation.

The supreme court reinstated those two claims. On the negligence claim, the court decided that the evidence might establish a dangerous condition on the school premises so that the underlying suit against the school district would not be barred by sovereign immunity.

Fraudulent Omission

Encinias asserted claims for both fraudulent misrepresentation and negligent misrepresentation. He contended that the firm failed to inform him that no work had been done on the case, and failed to tell him when it became clear that the statute of limitations had expired.

The appellate court said that the firm might have improperly withheld information from Encinias, but it found that he failed to prove he suffered damages as a result.

The supreme court reversed, saying that damages are not an element of fraudulent misrepresentation and that Encinias can seek both nominal and punitive damages on that claim.

In New Mexico, Chávez said, misrepresentation can take place either by commission or omission. The plaintiff must demonstrate that

• a representation of fact was made, either by commission or omission;

• the defendant made the representation knowingly or recklessly;

• the representation was made with the intent to induce the plaintiff to rely upon it; and

• the plaintiff relied on it.


In this case, the court said, the law firm realized in the summer of 2007 that the case was barred but did not disclose this fact to Encinias until the spring of 2008. Encinias produced evidence that this delay made it more difficult for him to collect information supporting his malpractice claim, Chávez said.

“If the Whitener law firm knowingly or recklessly led Encinias to believe that his suit was still viable, then Encinias might be entitled to nominal or punitive damages,” the court said.

Reasonable Reliance

Although the firm claimed the family could not have been misled because they already knew about the deadline, the court said the firm specifically assured them in October 2006 that the statute of limitations had not run out. It is reasonable for clients to assume they can rely on their attorneys' legal advice, Chávez said.

The firm's alleged failure to inform Encinias that it had done no work on the case for three months could also constitute fraudulent misrepresentation, if that omission was done knowingly or recklessly, the court said. It concluded that Encinias had raised a genuine factual issue about whether the firm fraudulently misrepresented the viability of the underlying tort claim.

The court also ruled that Encinias could pursue his negligent misrepresentation claim and seek damages from the firm for the loss of the underlying case.

Encinias was represented by David M. Houliston of Will Ferguson& Associates; Roger V. Eaton; Maureen A. Sanders of Sanders & Westbrook, P.C.; and Katherine Wray of Wray & Girard, P.C.; all of Albuquerque, N.M.

Barry D. Williams and James Reist of Tax, Estate & Business Law, Ltd., Albuquerque, represented Russell Whitener and the Whitener firm.

To contact the reporter on this story: Joan C. Rogers in Washington at jrogers@bna.com

To contact the editor responsible for this story: Kirk Swanson at kswanson@bna.com

Full text at http://www.nmcompcomm.us/nmcases/nmsc/slips/SC33,874.pdf.

The ABA/BNA Lawyers’ Manual on Professional Conduct is a joint publication of the American Bar Association Center for Professional Responsibility and Bloomberg BNA.

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