James Joyce v. Armstrong Teasdale (8th Cir. 2011)
Joyce invented a heuristic computer firewall system and exclusively licensed the patent rights (“royalty free”) to his newly formed company, TechGuard. TechGuard was primarily owned by Joyce and his wife Suzanne Magee. Actually, Magee held more shares than anyone else — an arrangement designed to allow the company to qualify for grants and contracts designated for women and minority owned businesses.
Teasdale represented both Joyce and the new company and drafted the license agreement. According to Joyce's malpractice complaint, Teasdale advised Joyce to sign the agreement and also that it was “not necessary for him to have separate legal counsel” and that Joyce's rights were fully protected because he and his wife were the majority shareholders in the new company.
Joyce & Magee then divorced. In the divorce decree, Magee was awarded 50% of ownership rights of the patent and has seemingly taken full control of TechGuard. Magee is the CEO of TechGuard (now a multi-million dollar company) and Joyce is not even listed in the company history.
Malpractice Allegations: Now, Joyce has sued Teasdale for malpractice — alleging that the firm breached a fiduciary duty by acting in conflict with Joyce's interests in representing TechGuard.
Statute of Limitations: The present appeal focuses on the five-year Missouri statute of limitations. The district court had dismissed the case on the pleadings after finding that the alleged malpractice and potential damages would have been ascertainable in 2001 when the agreements were signed and that the complaint was not filed until 2008. On appeal, the 8th Circuit reversed — holding that in Missouri, the statute of limitations does not begin to run until a "reasonably prudent person is on notice of a potentially actionable injury,” quoting Powel v. Chaminade Coll. Preparatory, Inc., 197 S.W.3d 576, 582 (Mo. 2006), and that “Missouri does not impose upon a layperson the duty to double-check the attorney's work or to understand that an attorney's conduct caused harm unless a source external to the attorney-client relationship reasonably puts the layperson on notice the attorney has caused harm.”
In the complaint, Joyce alleged that the firm had advised him against obtaining separate counsel. Based at least partially on that allegation, the appellate court held that the signed agreements by themselves do not serve as “notice of a potentially actionable injury under the circumstances pleaded in Joyce's complaint.”
On remand, the firm may still win the statute of limitations argument, but it must first provide evidence that “a reasonably prudent person in Joyce's position would not only know the effect of the agreements, but would also know the effect of the agreements would give rise to a potentially actionable injury.”)