Moon v. McDonald, Carano & Wilson, L.L.P. , 129 Nev. 547 ( 2013 )


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  •                                   129 Nev., Advance Opinion 54,
    IN THE SUPREME COURT OF THE STATE OF NEVADA
    JOON S. MOON; AND PATTERSON                          No. 58720
    LABORATORIES, INC., A MICHIGAN
    CORPORATION,
    Appellants,                                             FILED
    vs.
    MCDONALD, CARANO & WILSON
    AUG 0 1 2013
    LLP, A NEVADA LIMITED LIABILITY
    PARTNERSHIP,                                        BY..2-ra
    DEPUTY CLERK
    Respondent.
    Appeal from a district court judgment dismissing appellants'
    complaint in a legal malpractice action. Second Judicial District Court,
    Washoe County; Steven P. Elliott, Judge.
    Affirmed.
    Carl M. Hebert, Reno,
    for Appellants.
    Piscevich & Fenner and Margo Piscevich and Mark J. Lenz, Reno,
    for Respondent.
    BEFORE PICKERING, C.J., HARDESTY and SAITTA, JJ.
    OPINION
    By the Court, HARDESTY, J.:
    The statute of limitations for a professional malpractice claim
    against an attorney commences on the date the plaintiff discovers, or
    Ih-AL594
    through due diligence should have discovered, the material facts that
    constitute the cause of action. NRS 11.207(1). The statutory limitation
    period for a claim of legal malpractice involving the representation of a
    client during litigation does not commence until the underlying litigation
    is concluded. Hewitt v. Allen, 
    118 Nev. 216
    , 221, 
    43 P.3d 345
    , 348 (2002).
    In this appeal, we must determine whether an attorney's alleged
    negligence in representing a creditor in the non-adversarial parts of a
    bankruptcy proceeding constitutes litigation malpractice causing the so-
    called Hewitt litigation tolling rule to apply. We conclude that it does not.
    FACTS AND PROCEDURAL HISTORY
    Appellant Patterson Laboratories, Inc. (PL), operated a
    manufacturing facility in Phoenix, Arizona, and expanded its operations
    with the purchase of land and a building in Goodyear, Arizona. PUT later
    conveyed the Goodyear building and real property to its president and
    principal shareholder, appellant Joon S. Moon. Patterson West, Inc.
    (West), purchased PLI's Goodyear operations; however, Moon retained
    ownership of the facility and real property, and West agreed to lease the
    Goodyear facility from Moon.
    West executed a promissory note for $1,410,000, secured by
    certain equipment, inventory, and other personal property sold to West
    and located at the Goodyear facility. West, which changed its name to
    Sierra International, Inc. (Sierra), later defaulted on the promissory note
    and the lease with Moon. Sierra filed a Chapter 7 voluntary petition in
    bankruptcy court in 2001, and appellants hired respondent McDonald
    Carano Wilson LLP (MCW) in July 2002 to represent them in Sierra's
    bankruptcy action.
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    In the bankruptcy case, appellants instructed MCW to have
    the collateral removed from the Goodyear facility so that the facility and
    real property could be sold without the equipment on the premises.
    Allegedly, unbeknownst to appellants, MCW negotiated with the
    bankruptcy trustee and counsel for Sierra to permit PLI to take possession
    of the personal property secured as collateral. Later, in November 2002,
    pursuant to a stipulation by the attorneys and trustee, the lease of the
    Goodyear facility was terminated, and PLI was permitted to take
    possession of the collateral. MCW's representation of appellants ended in
    February 2003, and on October 21, 2008, the bankruptcy court entered its
    final decree and Sierra's bankruptcy case was closed.
    Moon also filed a district court action seeking relief for breach
    of the promissory note executed by West and indemnity for an action filed
    by the City of Goodyear against Moon based on a chemical spill that
    occurred while Sierra was operating the Goodyear facility. Sierra and the
    other defendants in that action filed a motion for partial summary
    judgment, requesting that the amount owed on the promissory note and
    guarantee be offset by the value of the collateral located at the Goodyear
    facility that had been returned to PUT. Subsequently, on April 27, 2006,
    the district court issued an order stating that upon appellants' possession
    of the collateral, they were required to dispose of the collateral in a
    commercially reasonable manner, and all related proceeds were to offset
    the remainder of the debt owed on the note. The district court ultimately
    awarded damages to appellants, less the offset for the value of the
    collateral returned to PUT. Appellants appealed, and this court dismissed
    the matter pursuant to the parties' stipulation on February 17, 2009.
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    Meanwhile, on November 3, 2006, appellants filed an action
    against MCW, alleging professional negligence, breach of contract, and
    vicarious liability (first complaint) arising from its representation of
    appellants in Sierra's bankruptcy action. In 2008, the district court
    dismissed the lawsuit without prejudice because appellants had failed to
    comply with the requirements of NRCP 16.1(e)(2). Appellants appealed
    that decision, and this court affirmed.
    On October 20, 2010, appellants filed a second action against
    MCW (second complaint), reasserting the claims in their first complaint.
    In March 2011, MCW filed a motion to dismiss the second complaint
    pursuant to NRCP 12(b)(5), arguing that the case was time-barred under
    the applicable statute of limitations, NRS 11.207(1). MCW argued that
    NRS 11.207(1) governs appellants' professional malpractice claim, and,
    based on the record, the appropriate accrual date is November 3, 2006, the
    date of the filing of the first complaint. In their opposition, appellants
    argued that Hewitt governs the claim, and the appropriate accrual date is
    either February 17, 2009, the date of the dismissal of the appeal in the
    district court case, or October 21, 2008, the date of the final decree in the
    bankruptcy case.
    In April 2011, the district court granted MCW's motion. In its
    order, the district court rejected February 17, 2009, as the accrual date
    because the alleged action constituting malpractice did not occur as part of
    the state court case. It also rejected October 21, 2008, as the accrual date,
    citing Cannon v. Hirsch Law Office, P.C., 
    213 P.3d 320
    , 328 (Ariz. Ct. App.
    2009), and holding that Hewitt was inapplicable because a bankruptcy
    proceeding does not constitute litigation. It then held that November 3,
    4
    2006, was the appropriate accrual date because NRS 11.207(1) governed
    the claim and appellants were cognizant of the material facts that made
    up their current malpractice action as early as that date. Because
    appellants filed their second complaint on October 20, 2010, the district
    court concluded that the complaint was untimely and the statute of
    limitations barred its consideration. This appeal followed.
    DISCUSSION
    "This court reviews de novo a district court's order granting a
    motion to dismiss, and such an order will not be upheld unless it appears
    beyond a doubt that the plaintiff could prove no set of facts. . . [that]
    would entitle him [or her] to relief." Munda v. Summerlin Life & Health
    Ins. Co., 127 Nev.       , 
    267 P.3d 771
    , 774 (2011) (alterations in
    original) (internal quotations omitted).
    The district court did not err by granting MCW's motion to dismiss based
    upon NRS 11.207(1)
    NRS 11.207(1) sets forth the statute of limitations for a
    professional malpractice claim and contains a so-called "discovery rule":
    "[a]n action against an attorney. . . to recover damages for
    malpractice . . . must be commenced. . . within 2 years after the plaintiff
    discovers or through the use of reasonable diligence should have
    discovered the material facts which constitute the cause of action." The
    timely filing of a professional malpractice claim may be subject to the
    litigation malpractice tolling rule. In Hewitt v. Allen, this court held that
    [i]n the context of litigation malpractice, that is,
    legal malpractice committed in the representation
    of a party to a lawsuit, damages do not begin to
    accrue until the underlying legal action has been
    5
    resolved. Thus, when the malpractice is alleged to
    have caused an adverse ruling in an underlying
    action, the malpractice action does not accrue
    while an appeal from the adverse ruling is
    
    pending. 118 Nev. at 221
    , 43 P.3d at 348 (footnote omitted).
    On appeal, appellants argue that the district court erred by
    holding that a bankruptcy proceeding does not constitute litigation. They
    rely on Guillot v. Smith, 
    998 S.W.2d 630
    (Tex. App. 1999), in support of
    their argument." MCW contends that, based on Cannon, the district court
    properly ruled that bankruptcy proceedings do not constitute litigation.
    Alternatively, it argues that appellants' reliance on Guillot is misplaced.
    Non-adversarial bankruptcy proceedings do not constitute litigation
    for purposes of the litigation malpractice tolling rule
    Whether bankruptcy proceedings constitute litigation for
    purposes of the litigation malpractice tolling rule is an issue of first
    impression for this court, and we thus examine how other jurisdictions
    have addressed the issue.
    In Cannon, an attorney was retained to protect a creditor's
    interests in a Chapter 13 bankruptcy 
    action. 213 P.3d at 322
    . After the
    'Appellants also cite to two other cases to support their argument
    that other jurisdictions have virtually all held that bankruptcy
    proceedings constitute litigation. However, our review of those cases
    reveals that only one of the cited cases supports their argument.     See
    Kellogg v. Fowler, White, Burnett, Hurley, Banick & Strickroot, P.A., 
    807 So. 2d 669
    , 672 (Fla. Dist. Ct. App. 2001) (applying the litigation
    malpractice rule to a professional malpractice claim arising from
    bankruptcy proceedings).
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    bankruptcy action ended, the creditor filed a complaint against the
    attorney, asserting a claim of professional malpractice based on the
    attorney's allegedly improper representation in the bankruptcy
    proceedings.   
    Id. at 323. Like
    Nevada, Arizona has a general discovery
    rule and a litigation malpractice tolling rule.   
    Id. at 323-24. The
    trial
    court applied the discovery rule and dismissed the creditor's complaint as
    untimely. 
    Id. at 323. On
    appeal, the Cannon court recognized that bankruptcy
    proceedings may contain both adversarial and non-adversarial portions
    and held that "an attorney's alleged negligence while representing a
    creditor in the non-adversarial portions of bankruptcy proceedings does
    not occur in the course of 'litigation,' as that term is used for purposes of
    the accrual of an attorney malpractice action."         
    Id. at 325, 327-28
    (emphasis added). It further held that "[t]here is a bright-line test to
    distinguish between the non-adversarial and adversarial portions of a
    bankruptcy proceeding: adversarial proceedings begin when a creditor
    files a complaint in a bankruptcy action." 
    Id. at 328 (citing
    Fed. R. Bankr.
    P. 7003 ("Commencement of Adversary Proceeding")). It then affirmed the
    trial court's decision to apply the discovery rule because, although the
    bankruptcy action was converted into a Chapter 7 proceeding, the creditor
    never filed a complaint in the bankruptcy proceeding. 
    Id. at 322-23, 328.
                Although MCW, as counsel for appellants, rejected the
    unexpired lease, the record here indicates that the rejection of the
    unexpired lease was resolved by stipulation of the parties and no
    adversarial proceeding was filed. By definition, the proceedings are non-
    adversarial. Thus, the proceeding constitutes an uncontested matter
    7
    because MCW and the appellants resolved the rejection without the filing
    of a complaint in the bankruptcy action. 2
    We conclude that the lease rejection did not constitute an
    adversarial proceeding. Thus, applying the Cannon court's analysis we
    adopt today to the facts of this case, we conclude that Sierra's bankruptcy
    action did not constitute an adversarial proceeding. The district court
    therefore properly granted MCW's motion to dismiss pursuant to the
    discovery rule articulated in NRS 11.207(1). See 
    Cannon, 213 P.3d at 322-
                    23, 328 (upholding application of the discovery rule in the absence of a
    complaint).
    Appellants rely on Guillot, arguing that the district court
    erred by holding that a bankruptcy proceeding does not constitute
    litigation. In Guillot, the Texas Court of Appeals was not presented with
    the question of whether a bankruptcy proceeding constituted "litigation"
    for purposes of the litigation malpractice tolling 
    rule. 998 S.W.2d at 632
                    n.2. Nevertheless, it noted that
    2Additionally,  appellants argue that under the Federal Rules of
    Bankruptcy Procedure (FRBP) Sierra's bankruptcy action was adversarial
    in nature, and thus constituted litigation. Appellants refer to the rejection
    of the lease and specifically contend that under FRBP 6006, "[a]
    proceeding to assume, reject, or assign an executory contract or unexpired
    lease, other than as part of a plan, is governed by Rule 9014," and Rule
    9014 sets forth the procedures for seeking relief "[i]n a contested matter."
    We determine that these rules that appellant relies on address the
    procedure for bankruptcy proceedings that are contested. However,
    because we determine that the rejection of the lease was not a contested
    matter and thus this was not a contested bankruptcy proceeding, this
    argument lacks merit.
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    a     bankruptcy      proceeding     is     'litigation'
    [because] . . . [t]he client would still be forced to
    assert inconsistent positions in the bankruptcy
    and malpractice action, and be left to either hire
    new counsel or continue to allow an attorney who
    may have committed malpractice to represent him
    in the underlying action.
    
    Id. The court held
    that "the statute of limitations on [the client's]
    malpractice claim against [the attorney] was tolled during the pendency of
    [the attorney's] representation of [the client] in an ongoing bankruptcy
    proceeding." 
    Id. at 633. Appellants
    contend that Guillot supports their argument that
    their malpractice claims were tolled until the February 17, 2009, dismissal
    of the appeal in the district court case or the October 21, 2008, final decree
    in the bankruptcy case. We determine that appellants' reliance upon
    Guillot is misplaced. The Guillot court's discussion of the potential
    application of the litigation malpractice tolling rule in that case was based
    on a presumption of the attorney's continued representation of the client.
    It is undisputed by the parties that MCW only represented appellants in
    Sierra's bankruptcy action from July 2002 to February 2003, when it was
    disqualified from representing appellants by the bankruptcy court.
    Appellants' professional malpractice claim would therefore not be tolled by
    the litigation malpractice tolling rule after February 2003, even if this
    court were to conclude that the bankruptcy proceeding in this case
    qualified as litigation.
    9
    =MI
    For the foregoing reasons, we conclude that the district court
    did not err by granting MCW's motion to dismiss pursuant to NRS
    11.207(1), and we thus affirm the district court's judgment. 3
    ,   J.
    Hardesty
    We concur:
    Piek&t 7          ,   C.J.
    g
    iiL
    Sraitta
    3 0n appeal, appellants also argue that the district court abused its
    discretion by granting MCW's motion to dismiss based upon the doctrine of
    judicial estoppel. Appellants assert that MCW waived the argument of
    judicial estoppel below by raising it for the first time in its reply in support
    of its motion to dismiss. See Francis v. Wynn Las Vegas, LLC, 127 Nev. ,
    n.7, 
    262 P.3d 705
    , 715 n.7 (2011) ("[A]rguments raised for the first time
    in [a] reply brief need not be considered."). However, we determine that
    MCW did not waive the argument of judicial estoppel. Based on the record,
    MCW's judicial estoppel argument was made in response to an argument
    made by appellants in their opposition to MCW's motion to dismiss.
    Regardless, we conclude that the doctrine of judicial estoppel is
    inapplicable to this matter because the record indicates that the district
    court dismissed appellants' first complaint on procedural grounds, and,
    therefore, appellants never successfully asserted their first position. See
    S. Cal. Edison v. First Judicial Dist. Court, 127 Nev. „ 
    255 P.3d 231
    , 237 (2011) (holding that judicial estoppel may apply only if a party
    was successful in asserting its first position). Thus, we determine that the
    district court abused its discretion by granting MCW's motion to dismiss
    based upon the doctrine of judicial estoppel. Nevertheless, because the
    district court properly granted MCW's motion to dismiss based on NRS
    11.207(1), such abuse was harmless error. See Wyeth v. Rowatt, 126 Nev.
    „ 
    244 P.3d 765
    , 769 (2010) (an error is harmless if the party cannot
    "demonstrate that their substantial rights were affected so that, but for
    the error, a different result may have been reached").
    10
    

Document Info

Docket Number: 58720

Citation Numbers: 129 Nev. 547, 306 P.3d 406, 129 Nev. Adv. Rep. 56, 2013 Nev. LEXIS 66, 2013 WL 3963424

Judges: Pickering, Hardesty, Saitta

Filed Date: 8/1/2013

Precedential Status: Precedential

Modified Date: 11/12/2024