Continuous Representation Rule Defines Accrual Date for Legal Malpractice Claims

Introduction

In Holly Sheldon-Lee v. Birch Horton Bittner, Inc., the Alaska Supreme Court addressed two interrelated issues in a legal malpractice action against a former law firm and its attorneys: (1) the statute of limitations accrual date for legal malpractice claims and (2) the availability of amendment to plead fee disgorgement based on alleged conflicts of interest. The appellant, Holly Sheldon-Lee, sued her former counsel after an unfavorable settlement in mediation bound both her and her closely held business, Sheldon Air Service LLC (SAS). The superior court granted summary judgment in favor of the attorneys, concluding the malpractice suit was time-barred and that her conflict-based fee–disgorgement claims were futile. On appeal, the Alaska Supreme Court reversed, adopting the continuous representation rule to determine when a legal malpractice cause of action accrues, declining to apply equitable estoppel, and remanding for further proceedings and leave to amend.

Summary of the Judgment

The Supreme Court held:

Statute of limitations: The three-year limitations period for legal malpractice begins to run when the cause of action accrues. Under the newly adopted continuous representation rule, accrual is postponed until the attorney’s representation in the matter in which the malpractice occurred is terminated. A genuine factual dispute remained as to when the representation ceased.
Discovery rule: Even applying the discovery rule, Holly was on inquiry notice by late 2015 or mid-2016, so her suit filed in 2020 would have been time-barred absent continuous representation tolling.
Equitable estoppel: The attorneys were not estopped from pleading the statute of limitations because Holly failed to show justifiable reliance on any nondisclosure of conflicts of interest.
Leave to amend: The superior court abused its discretion by refusing to allow amendment to add disgorgement claims based on conflicts with K2 Aviation and related “PT entities.” Those claims were not futile on their face.

Analysis

1. Precedents Cited

Statute of Limitations (AS 09.10.053): Three-year period for malpractice.
Discovery Rule: Delay accrual until a reasonable person knows of actionable injury (John’s Heating Serv. v. Lamb; Beesley v. Van Doren).
Exhaustion of Appeals Rule: Rejected in Alaska (Beesley), because appeal finality is not required to know one has been harmed.
Continuous Representation Rule: Endorsed in other jurisdictions (Weisberg v. Connolly & Califano; Janicki Logging; Muller v. Sturman), and now adopted in Alaska to govern accrual in legal malpractice matters.
Equitable Estoppel: Tolling bars statute-of-limitations defense when defendant fraudulently conceals the claim and plaintiff justifiably relies (Sharrow v. Archer; Chiei v. Stern).
Disqualification and Fee Disgorgement: An attorney barred by conflict may be required to forfeit fees (Moses v. McGarvey).

2. Legal Reasoning

(a) Accrual Date and Continuous Representation:
The Court recognized two accrual doctrines: the discovery rule and the continuous representation rule. Under the discovery rule, accrual occurs when a client knows she has suffered injury. Under the continuous representation rule—now expressly adopted in Alaska— accrual is postponed while the attorney continues to represent the client concerning the matter in which malpractice is alleged. The Court found strong policy reasons for tolling: maintaining client trust, allowing the attorney to cure errors, and avoiding conflict between malpractice suits and ongoing representation. Because BHBC continued handling related matters for Holly and her co-owned business into early 2017, a genuine factual dispute exists as to when representation ended and the limitations period began.

(b) Equitable Estoppel:
To estop a statute-of-limitations defense, the plaintiff must show (1) fraudulent concealment of the cause of action, (2) reasonable reliance on that concealment, and (3) resulting delay. Although Holly alleged undisclosed conflicts with K2 Aviation and various “PT entities,” she did not show that she delayed filing her suit because she trusted the attorneys’ silence. There was no proof that she would have filed earlier had she known those details.

(c) Amendment and Conflict-Based Disgorgement:
Rule 15 requires that leave to amend be freely given unless futile. BHBC failed to establish as a matter of law that no conflict existed. Factual disputes remain on whether BHBC was materially limited by its work for closely affiliated corporate clients of Holly’s brother or by its work for K2 Aviation. These allegations—if proven—could require forfeiture of professional fees under Moses v. McGarvey.

3. Potential Impact on Future Cases

Accrual in Malpractice Actions: Alaska practitioners must now apply the continuous representation rule to malpractice accrual questions; courts will evaluate whether representation ended before suit.
Tolling Doctrines: Equitable estoppel remains narrowly confined to cases of actual fraudulent concealment and reliance.
Conflicts and Fee Disgorgement: Firms that continue to represent related entities or former clients may face factual scrutiny over material limitation conflicts.
Motion Practice: Summary judgment on accrual will hinge on evidence of ongoing representation; motions to amend will be judged under Rule 15’s futility standard rather than summary judgment standards alone.

Complex Concepts Simplified

Discovery Rule vs. Accrual: Under discovery, a lawyer’s mistake yields a malpractice claim once the client knows she was harmed—even if appeals are pending.
Continuous Representation Rule: If your lawyer keeps handling your case (or related matters) after the bad act, the clock on malpractice doesn’t start until they finish representing you in that specific matter.
Equitable Estoppel: If your lawyer lied or hid facts and you relied on that to delay a lawsuit, they can’t later plead the statute of limitations—so long as your delay was caused by their deception.
Fee Disgorgement for Conflicted Counsel: If a lawyer secretly had divided loyalties and that hurt you, you may recover the fees you paid instead of damages.

Conclusion

The Supreme Court’s decision in Sheldon-Lee v. Birch Horton Bittner establishes a clear rule for malpractice accrual in Alaska by embracing the continuous representation doctrine. Clients and attorneys alike must examine the full scope and duration of representation when evaluating the timeliness of malpractice claims. The decision also reinforces the narrow scope of equitable estoppel and reaffirms the right to amend pleadings to assert fee disgorgement when conflicts of interest are adequately alleged. Practitioners should review current and former client relationships, communications concerning scope of work, and conflict checks to anticipate accrual, tolling, and fee-forfeiture issues in future legal malpractice disputes.