Brunetti v. Regency Affiliates ( 1996 )

UNITED STATES COURT OF APPEALS
Filed 8/26/96
FOR THE TENTH CIRCUIT
JOSEPH R. BRUNETTI and
FLORENCE BRUNETTI,
Plaintiffs, No. 95-4160
(D.C. No. 90-CV-200-W)
v. (D. Utah)
(152 B.R. 320)
THE REGENCY AFFILIATES, a
Nevada nonprofit organization;
REGENCY GROUP, INC., a Nevada
corporation; SUN TREE
CORPORATION, d/b/a Clearbrook
Apartment Village; 9TH & 9TH
MARKET & CAFE, a Utah
corporation; R.G. UTAH, INC., a Utah
corporation; 2ND AVENUE MARKET
& CAFE, a Utah corporation; WHOLE
EARTH ENTERPRISES, a Utah
corporation, d/b/a The John Henry-
Mackay Company; NEW FRONTIERS
NATURAL FOODS I, a Nevada
corporation; NEW FRONTIERS
NATURAL FOODS II, a Nevada
corporation; NEW FRONTIERS
NATURAL FOODS III, a Nevada
corporation; A.J. MACKAY & SONS,
a Utah corporation; NORTHERN
NEVADA CONSTRUCTION, INC., a
Nevada corporation; THREE J
ENTERPRISES, a Utah corporation;
ASBESTOS TRANSPORT SYSTEMS,
a Nevada corporation;
LUMBERLAND, INC., a Utah
corporation; PORTER-
KNOLLWOOD ESTATES, a Utah
corporation; NATURAL ABILITIES,
INC., a Utah corporation; GENESIS I
BUILDERS, a California nonprofit
organization; BUILDERS
CONSTRUCTION COMPANY, INC.,
a Nevada corporation; NORMAN
PAULSEN; JOHN H. MCCAUGHEY;
JONATHAN KING; JOSEPH
BELTON; and DAVID EDDY,
Defendants-Third-Party
Plaintiffs,
v.
JONES, WALDO, HOLBROOK &
MCDONOUGH, a Utah professional
corporation,
Third-Party Defendant,
_______________________________
FLYING S LAND & CATTLE CO., a
Nevada corporation; REGENCY
GROUP, INC., a Nevada corporation;
THE REGENCY AFFILIATES, a
Nevada nonprofit organization;
BUILDERS LAND &
CONSTRUCTION COMPANY; a
Nevada corporation; OASIS ENERGY
CORPORATION, a Nevada
corporation; INTERNATIONAL
RESERVE INVESTMENTS &
CONSTRUCTION COMPANY, a
Hawaii corporation; and GENESIS I
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BUILDERS, a California nonprofit
organization,
Plaintiffs-Appellants,
v.
JONES, WALDO, HOLBROOK &
MCDONOUGH, a Utah professional
corporation,
Defendant-Appellee.
-----------------------------------------
JONES, WALDO, HOLBROOK &
MCDONOUGH, a Utah professional
corporation,
Counterclaimant-
Appellee,
v.
FLYING S LAND & CATTLE CO., a
Nevada corporation; REGENCY
GROUP, INC., a Nevada corporation;
THE REGENCY AFFILIATES, a
Nevada nonprofit organization;
BUILDERS LAND &
CONSTRUCTION COMPANY; a
Nevada corporation; OASIS ENERGY
CORPORATION, a Nevada
corporation; and GENESIS I
BUILDERS, a California nonprofit
organization,
Counterclaim-Defendants-
Appellants,
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and
NORTHERN HOLDINGS UTAH,
INC., a Nevada corporation;
BUILDERS CONSTRUCTION
COMPANY, INC., a Nevada
corporation; PORTER-KNOLLWOOD
ESTATES, a Utah corporation; SUN
TREE CORPORATION, d/b/a
Clearbrook Apartment Village; NEW
FRONTIERS NATURAL FOODS I, a
Nevada corporation; NEW
FRONTIERS NATURAL FOODS II, a
Nevada corporation; NEW
FRONTIERS NATURAL FOODS III,
a Nevada corporation; NEW
FRONTIERS NATURAL FOODS IV,
a Nevada corporation; NEW
FRONTIERS NATURAL FOODS V, a
Nevada corporation; NORTHERN
NEVADA CONSTRUCTION, INC., a
Nevada corporation; WASTE
CONTROL MANAGEMENT
NEVADA, INC., a Nevada
corporation; PATRICIA
DECATALDO; NORMAN PAULSEN;
JOSEPH BELTON; and JONATHAN
KING,
Counterclaim-Defendants.
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ORDER AND JUDGMENT *
Before TACHA, ALDISERT, ** and BALDOCK, Circuit Judges.
After examining the briefs and appellate record, this panel has determined
unanimously to grant the parties’ request for a decision on the briefs without oral
argument. See Fed. R. App. P. 34(f) and 10th Cir. R. 34.1.9. The case is
therefore ordered submitted without oral argument.
Appellants Flying S Land & Cattle Co., Regency Group, Builders Land &
Construction Co., Oasis Energy Corp., The Regency Affiliates, Genesis I
Builders, and International Reserve Investments & Construction Co. (collectively
referred to as Flying S) appeal the district court’s entry of summary judgment
against them on their legal malpractice claims against the law firm of Jones,
*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
**
Honorable Ruggero J. Aldisert, Senior Circuit Judge, United States Court
of Appeals for the Third Circuit, sitting by designation.
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Waldo, Holbrook & McDonough. 1 The district court determined that appellants’
malpractice claims, which were filed on March 1, 1991, were barred by Utah’s
four-year statute of limitations. See Utah Code Ann. § 78-12-25. This case
requires us to determine when appellants’ malpractice claims accrued and the
statute of limitations began to run. We review both the district court’s grant of
summary judgment and its interpretation of Utah law de novo. See Wolf v.
Prudential Ins. Co. of Am., 50 F.3d 793, 796 (10th Cir. 1995)(summary
judgment); Salve Regina College v. Russell, 499 U.S. 225, 231 (1991)(state law).
The general rule in Utah is that a cause of action accrues, and the statute of
limitations begins to run, “upon the happening of the last event necessary to
complete the cause of action.” Myers v. McDonald, 635 P.2d 84, 86 (Utah 1981).
Under this general “occurrence” rule, “mere ignorance of the existence of a cause
of action does not prevent the running of the statute of limitations.” Id. In some
instances, however, the Utah courts will apply a “discovery” rule, rather than the
occurrence rule. Under the discovery rule, the limitations period does not begin
to run “until the discovery of facts forming the basis for the cause of action.” Id.
The Utah courts have applied the discovery rule in three types of situations: 1)
1
The district court disposed of appellants’ claims in two summary judgment
orders, the first of which disposed of all but two of appellants’ claims and the
second of which disposed of the remaining claims. The district court published
its first order, Brunetti v. Regency Affiliates, 152 B.R. 320 (D. Utah 1993), but it
did not publish the second order.
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when the legislature has incorporated the discovery rule into the particular statute
of limitations; 2) when the defendant has concealed the facts from the plaintiff or
misled the plaintiff as to the true facts; and 3) when application of the general
rule to the particular circumstances or the particular cause of action would
produce an irrational or unjust result, even in the absence of any wrongdoing by
the defendant. E.g., id.; Warren v. Provo City Corp., 838 P.2d 1125, 1129 (Utah
1992).
In Merkley v. Beaslin, 778 P.2d 16, 19 (Utah Ct. App. 1989), the court held
that the discovery rule should apply to causes of action for legal malpractice.
The court determined that fundamental fairness required application of the
discovery rule to malpractice claims “because the attorney-client relationship is
based upon trust, and is a situation in which one less knowledgeable must rely on
another, who has special expertise, for advice and assistance.” Id. The court
further noted that much of an attorney’s work is done outside the view of the
client, and that “[t]he nature of the attorney-client relationship is such that, often,
attorney negligence would not be discovered until years after the act had
occurred.” Id. Therefore, rather than apply the general occurrence rule, the court
held that “a cause of action for legal malpractice accrues, and the four-year
statute of limitations commences to run, when the act complained of is discovered
or, in the exercise of reasonable care, should have been discovered.” Id.
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Here, Flying S retained the Jones, Waldo firm in late 1983 or early 1984 to
assist it in removing a lien from the Big Springs Ranch, which Flying S purchased
from Robert Beaumont in 1981. When these efforts proved unsuccessful, Jones,
Waldo recommended that Flying S file for reorganization in bankruptcy under
Chapter 11. Jones, Waldo filed the bankruptcy petition on behalf of Flying S on
May 24, 1984, and represented Flying S in the ensuing bankruptcy proceedings
until March 26, 1986, when the firm withdrew. Flying S contends that Jones,
Waldo committed various acts of malpractice during the course of this
representation.
At the time the bankruptcy petition was filed, Flying S owed Jones, Waldo
approximately $100,000 in attorney fees. In an effort to obtain payment of pre-
and post-petition fees, Jones, Waldo allegedly entered into various agreements
whereby it obtained security interests in property of Flying S and its affiliates. In
the summer of 1985, an associate at Jones, Waldo also structured several loans to
Flying S from other clients of the firm that contained terms and conditions
unfavorable to Flying S. The proceeds of these loans were paid to Jones, Waldo
for legal fees. Appellants contend that Jones, Waldo did not reveal to the
bankruptcy court that the firm had an interest in property of Flying S and its
affiliates, which property was necessary for the reorganization. Nor, according to
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appellants, did Jones, Waldo seek bankruptcy court approval to act as counsel for
Flying S.
Flying S also contends that Jones, Waldo delayed the reorganization effort
by filing unrealistic reorganization plans and by failing to pursue other
reorganization efforts, which would have conflicted with Jones, Waldo’s own
interests. Further, appellants allege that Jones, Waldo charged excessive fees and
that it abandoned Flying S in the bankruptcy proceedings by abruptly withdrawing
in March 1986.
Finally, Flying S alleges that Jones, Waldo was negligent in handling a
fraud claim against Beaumont. First, Jones, Waldo allegedly refused to bring a
claim against Beaumont despite repeated requests from Flying S to do so.
Appellants contend that once Jones, Waldo finally did draft a complaint against
Beaumont in August 1985, it was frivolous. Finally, Jones, Waldo allegedly
represented to Flying S that the fraud claim had merit and could be used as a tool
in negotiating with Beaumont when, in fact, Jones, Waldo believed the claim to
be without merit.
The district court concluded that the undisputed facts established that
Flying S knew or should have known of each of the alleged acts of negligence
more than four years before it commenced suit against Jones, Waldo on March 1,
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1991. 2 Appellants do not challenge the district court’s conclusions concerning the
dates of their knowledge. Appellants’ sole challenge on appeal is to the district
court’s conclusion that, pursuant to Merkley, “the statutory period for attorney
malpractice begins to run on the date a plaintiff discovers, or reasonably should
discover, the act complained of, regardless of the existence of an actionable
injury.” Brunetti v. Regency Affiliates, 152 B.R. 320, 323 (D. Utah
1993)(emphasis added). Appellants argue that the decision in Merkley constitutes
“an unexplainable departure“ from the line of Utah Supreme Court cases applying
the discovery rule, and that both the district court’s interpretation of the Merkley
decision and its reliance on the decision are in error. Br. of Appellants at 18.
Among other things, appellants contend that Merkley’s accrual rule for
legal malpractice claims fails to take into account situations in which the client
learns of the attorney’s negligent act or omission before the act or omission has
caused any actionable injury. We need not consider how the Merkley rule might
apply in such a situation, however, because the record here reflects that appellants
had suffered actionable injury by the time they either discovered, or should have
2
As to the allegation that Jones, Waldo misrepresented to Flying S the merits
and usefulness of the fraud claim against Beaumont, the district court concluded
that, because Flying S hired new counsel to pursue the claim in October 1986,
which resulted in some success, no reasonable jury could find appellants suffered
any injury as a result of Jones, Waldo’s alleged misrepresentation. Appellants do
not challenge this determination on appeal.
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discovered, their counsel’s alleged acts of malpractice. Therefore, appellants’
claims for malpractice accrued, and the statute of limitations began to run, more
than four years before they filed suit. That appellants may have suffered
additional damages after March 1, 1987, including the loss of the Big Springs
Ranch, does not affect the date(s) on which their claims for malpractice accrued.
Because appellants failed to bring suit within four years of the accrual of their
malpractice claims, the district court properly entered summary judgment in favor
of Jones, Waldo on those claims.
The judgment of the United States District Court for the District of Utah is
AFFIRMED.
Entered for the Court
Ruggero J. Aldisert
Senior Circuit Judge
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