Moving Targets: Determining the Date of Default in a Breach of Contract case isn’t as easy as you’d think

The court cases where attorneys sue clients for unpaid legal fees always get my attention.

As an attorney who bills clients for my work and expects every client to pay every penny, I’m generally curious about what went wrong.

There are unhappy clients. Unhappy attorneys. Bills that are too high, or too late, or for work that made the client unhappy. When attorney-client relationships go bad, there’s always a lesson to be learned.

The Tennessee Court of Appeals issued an opinion yesterday that has a dozen of these lessons, at Luna Law Group, PLLC v. Richardson M. Roberts, M2021-00699-COA-R3-CV (Tenn. Ct. App. July 28, 2022).

I won’t cover them all, but I will discuss one creditor’s rights high-point: When does a breach of contract occur?

Per this opinion, the six-year statute of limitations at Tenn. Code Ann. 28-3-109(a)(3) is calculated from the “termination of the attorney-client relationship,” and not from the date of the unpaid individual invoices.

The Court wrote that contracts can be “severable” or “entire,” with the relevant statute of limitation depending on the nature of the contract. Since the work at issue related to the same general engagement and the attorney’s work “would be continuously rendered over a period of time,” then, the attorney’s work was “entire.” As a result, “the statute of limitations begins to run only on the completion of such legal services” (or upon termination of the attorney’s work).

Here, the attorney filed the lawsuit (barely) within 6 years from the termination, but only after $136,283 in unpaid invoices had accumulated in the preceding 10 months (with many or most of those invoices coming due and unpaid longer than 6 years prior).

Honestly, I’d have thought that the statute would have run on some of those early invoices, but that the creditor would have had valid claims on the invoices that had gone into default within 6 years. Under this case, I would have been wrong.

Breaches, defaults, and calculating the statute of limitations isn’t as easy as you’d think. Remember this 2019 post about a debtor who didn’t make a payment for 8.5 years, but the Court found that each installment missed was an independent cause of action, resulting in a new, later statute of limitations for each new installment? I was also wrong about that one, because (as I wrote back then) “you’d think a six year old, long defaulted debt would have expired, well, six years from the default.”

To refresh your memory, debtor entered into a mortgage (final maturity date: February 1, 2021), and defaulted in 2008, but bank waited until 2016 to declare default and until 2017 to file the lawsuit.

Using the reasoning of this new case, could the Bank simply have argued that: (i) the 15 year mortgage is one, continuous debt; (ii) thus, the individual installment payments are payments on that debt and not severable obligations; (iii) and, as a result, the real statute of limitations on the failure to pay the 2008 installment payments didn’t start to run until the final maturity date on February 1, 2021?

The answer is, most likely, that the attorney’s future performance of services is indefinite and any invoices are merely progress billings toward that larger “entire” engagement, which is unlike a bank debt, which has definite and exact terms for the repayment. Having said that, though, a smart lawyer will have ample case citations to argue either direction.

In the end, I have two take-aways: (a) determining the date of breach is harder than you’d think; and (b) when in doubt, file your lawsuit sooner, rather than later.