Key Points

  • The Alabama Supreme Court held that the two-year limitations period under the Alabama Legal Services Liability Act begins to run when the act, omission, or failure giving rise to the claim occurs, and it overruled conflicting authority.
  • Cadence Bank's negligence-based malpractice claim against Maynard Nexsen accrued at the November 2020 loan closing, and the court said the claim would be time-barred even under the damage approach because legal injury occurred at closing.
  • The six-month discovery extension did not apply because March 2022 emails showed Cadence knew within the two-year period that its security interest was challenged for lack of regulatory approval.
  • Cadence's fraudulent-suppression claim was not saved by Ala. Code § 6-2-3 because the amended complaint made only generalized allegations about concealment and discovery.
  • Justice Bryan, joined by Chief Justice Stewart, concurred in the result but would not have overruled precedent that neither party asked the court to overrule.

The Alabama Supreme Court on Nov. 6 threw out Cadence Bank's legal-malpractice suit against the law firm Maynard Nexsen, holding that the state's two-year deadline for suing lawyers starts to run when the lawyer's alleged mistake occurs, not when the client later suffers a loss.

Justice Sellers wrote for the court, joined by Justices Mendheim, McCool and Parker. Justice Bryan, joined by Chief Justice Stewart, concurred only in the result, and Justices Shaw, Wise and Cook recused themselves. The decision reverses a Jefferson Circuit Court order that had refused to dismiss the bank's suit, and it directs that court to enter judgment for the firm.

The ruling resolves a long-running conflict in Alabama law. The Alabama Legal Services Liability Act, the statute that governs malpractice claims against lawyers, requires suit "within two years after the act or omission or failure giving rise to the claim." The court's earlier decisions had applied two competing readings: an "occurrence" approach, which starts the clock at the lawyer's act, and a "damage" approach, which starts it when the client is first injured. The majority adopted the occurrence approach and wrote, "Authority conflicting with this holding is overruled."

The dispute grew out of an $8 million loan. In October 2020, Cadence hired Maynard to represent it in lending to Assure Holding Company, and the loan closed on November 18, 2020. The borrower and its subsidiaries pledged bank accounts and other assets as security, including assets of American Insurance Company, a property and casualty insurer.

After a hurricane caused substantial property damage in Louisiana in August 2021, the Louisiana Insurance Commissioner concluded that the insurer lacked the capital to pay claims. In January 2022, a Louisiana court placed the insurer into receivership and barred creditors, including Cadence, from enforcing liens on its assets. The commissioner took the position that Cadence's security interest was invalid, or at least not entitled to priority, because government authorities had not approved the loan.

According to the opinion, emails from a Cadence representative dated March 16, 2022, show the bank knew of that position by then. Cadence intervened in the receivership and sued the commissioner, and a June 2022 consent decree set aside about $6.2 million of the insurer's assets pending resolution of the dispute. In January 2023, the commissioner filed a counterclaim asserting that Cadence lacked regulatory approval and should be held responsible for insurance claims the insurer could not pay.

Cadence sued Maynard on July 16, 2024, alleging that the firm should have advised it to seek regulatory approval of the loan. The trial court denied Maynard's motion to dismiss or for summary judgment and certified the limitations questions for a permissive interlocutory appeal.

Justice Sellers grounded the holding in the statute's text. "Because the statutory language in § 6-5-574(a) is clear, and because it is not this Court's responsibility to rewrite that language," Justice Sellers wrote, the clock starts with the act or omission itself. The opinion acknowledged a warning from a special writing in a 2023 case, Fox v. Hughston, that the occurrence rule "may have seemingly harsh or unfair results" in some cases, but quoted that writing's conclusion that correcting such results belongs to the legislature.

Applying the rule, the court looked to a November 2020 legal opinion on the loan. Adams and Reese, the borrower's counsel, drafted it with what Cadence described as "Maynard's review and approval." The opinion addressed only Alabama law and did not advise seeking regulatory approval. The firm's alleged omission, Justice Sellers wrote, "necessarily occurred when the issuance of the opinion letter facilitated the loan closing in November 2020." The parties acknowledge a tolling agreement that paused the limitations clock from March 3, 2023, but by then the period had already expired.

The court added that the result would be the same under the damage approach. Under its precedent, Justice Sellers wrote, "there are cases involving transactions that close in reliance on allegedly faulty legal advice, that suggest that legal injury first occurs upon the closing of the transaction."

The court also rejected Cadence's reliance on the statute's six-month extension, which applies when a claim could not reasonably have been discovered within the two-year period. Cadence argued that it learned of its claim no earlier than the January 2023 counterclaim. The court disagreed, noting that the March 2022 emails specifically referenced the commissioner's position that the security interest was "invalid." "Since Cadence became aware of that defect in the loan within the two-year limitations period, Cadence's claims are not saved by the six-month ameliorative provision," Justice Sellers wrote.

A fraud claim fared no better. The day before the trial court's hearing, Cadence amended its complaint to allege that Maynard concealed that its lawyers "lacked the requisite insurance experience to handle a loan to an insurance holding company and its subsidiaries." Alabama law delays the start of the limitations clock for fraud until the victim discovers it, but the court held that the plaintiff must plead how and when the fraud was discovered. Cadence offered only "generalized allegations" of suppression, the court found.

Concurring in the result, Justice Bryan objected that neither side had asked the court to overrule anything. Maynard's brief argued that "Under either the damages test or the occurrence test, the … two-year limitations period expired on November 18, 2022." Cadence argued that the damage approach was the correct one, and the majority found its claims barred even under that test. "[T]his Court has long recognized a disinclination to overrule existing caselaw in the absence of either a specific request to do so or an adequate argument asking that we do so," Justice Bryan wrote, quoting a 2011 decision. "Because we have not been asked to overrule any of this Court's prior decisions, I would decline to do so in this case."

The case now returns to the Jefferson Circuit Court, which the Supreme Court directed to enter judgment in Maynard's favor. The opinion remains subject to formal revision before publication in the Southern Reporter.