John Howard Story v. Nicholas D. Bunstein ( 2016 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
May 25, 2016 Session
JOHN HOWARD STORY, ET AL. v. NICHOLAS D. BUNSTEIN, ET AL.
Appeal from the Circuit Court for Knox County
No. 1-572-14 Kristi M. Davis, Judge
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No. E2015-02211-COA-R3-CV-FILED-JUNE 9, 2016
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This is a legal malpractice case. Appellees, who are licensed attorneys, represented
Appellants in the underlying lender‟s liability lawsuit. Following dismissal of all
defendants in the underlying litigation, Appellants‟ filed a complaint for legal malpractice
against Appellees. The trial court dismissed the legal malpractice case, inter alia, on the
ground that the one-year statute of limitations for legal malpractice claims had expired.
Tenn. Code Ann. §28-3-104(c)(1). Affirmed and remanded.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Circuit Court
Affirmed and Remanded
KENNY ARMSTRONG, J., delivered the opinion of the court, in which JOHN W.
MCCLARTY and THOMAS R. FRIERSON, II, JJ., joined.
David A. Stuart, Clinton, Tennessee, for the appellants, John Howard Story, and Bruce
Coffey.
Darryl G. Lowe, Knoxville, Tennessee, for the appellees, Nicholas D. Bunstine, Brent R.
Watson, and Jerrold Lance Becker.
OPINION
I. Background
Appellees are Nicholas D. Bunstein, Brent R. Watson, Jerrold L. Becker,
individually and d/b/a Bunstein, Watson, McElroy & Becker. Appellees, who are all
licensed attorneys in the State of Tennessee, represented Appellants John Howard Story
and Bruce Coffey in their lender‟s liability lawsuit against the underlying defendants,
Scott Thompson, First National Bank of Oneida, and People‟s Bank of the South. In the
underlying litigation, on May 7, 2013, the trial court granted summary judgment in favor
of First National Bank of Oneida and Scott Thompson. In response to the grant of
summary judgment, Mr. Becker allegedly advised Appellants that he would file a motion
to correct what he perceived was the erroneous grant of the motion for summary
judgment. Mr. Becker filed the motion to alter or amend the trial court‟s judgment;
however, the motion was never heard. Shortly before trial on the remaining claims, Mr.
Becker allegedly informed the Appellants that their damages evidence was not ready for
trial; accordingly, Mr. Becker advised the Appellants to voluntarily dismiss their
remaining claims and to re-file the lawsuit within one year. On November 13, 2013, and
upon Appellants‟ notice of voluntary dismissal, the trial court entered an order of
dismissal as to Appellants‟ remaining claims.
Appellants did not re-file their non-suited claims. Rather,
on September 3, 2014, Appellants filed suit for legal malpractice against the Appellees.
In their complaint, Appellants asserted, in relevant part that:
3. Prior to the filing of the lender‟s liability action . . . [Mr.] Becker
represented to [Appellants] that they had a strong case of liability and
damages and that there was a high likelihood the case would ultimately
result in a settlement in excess of six figures. He continued to represent . . .
that the case was strong and that a substantial settlement would be the
ultimate result throughout the entire time the case was pending, until the
day he appeared with [Mr.] Watson to explain that they had concluded that
the case needed to be voluntarily dismissed.
4. In reality, if [Appellants] had any valid claim at all, it was their claim
against Scott Thompson as an individual. The claims against the banks
were extremely weak and were subject to a statutory defense that a signed
written agreement is required to establish a fiduciary relationship with a
bank. The claims against the banks were also virtually precluded to the
express written terms of the loan documents and other instruments in
question and[,] as to one of the bank defendants, barred by the statute of
limitations.
5. [Appellants] initially agreed to pay [Mr.] Becker $500.00 per hour for
his professional services, but later, after becoming aware that such an
hourly rate was excessive, [Appellants] and [Mr.] Becker agreed to reduce
the hourly rate to $375.00. In reliance on the representations of [Mr.]
Becker that they had a strong lender‟s liability case, [Appellants] together
paid [Mr. Becker] several hundred thousand dollars in attorney fees and
expenses.
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6. During the course of the proceedings, the question arose as to whether
[Appellants] should continue to pay the underlying indebtedness that gave
rise to their lender‟s liability claims. [Mr.] Becker, negligently, carelessly
and recklessly advised the [Appellants] that they should discontinue
making their payments, and as a result, [Appellants] were declared in
default and have incurred substantial penalties, interest, attorney‟s fees,
expenses, and injury to their credit ratings and reputations.
7. Contrary to the representations of [Mr.] Becker, the lender‟s liability
case was not a strong case at all . . . . After a hearing, in which the judge
agreed with the contentions of the defendants in the lender‟s liability action,
[Mr.] Becker continued to assure [Appellants] that they had a strong case
which would ultimately settle and stated that the judge did not know what
he was talking about. [Mr.] Becker assured [Appellants] that he would file
motions to force the chancery court to correct its erroneous rulings. After
one of the banks and the individual defendant, Scott Thomas, were
dismissed from the case . . . [Mr.] Becker did not inform [Appellants] that
the dismissal purported to be a final judgment as to those defendants, and
indicated he would file a motion to correct the error. Although such motion
was filed, it was never brought on for hearing, and with the ultimate
voluntary dismissal of the remaining defendant occurring thereafter, any
claims against those defendants became forever barred. As a result, upon
voluntary dismissal of the action, [Messrs.] Becker and Watson took action
which permanently precluded [Appellants] from maintaining their claims
against the only viable defendant in the chancery court lawsuit, the
individual defendant, Scott Thompson.
8. [Appellants] allege that a reasonable attorney would have warned them
prior to filing the lender‟s liability case that their chances of prevailing in
such claims were slim to none, especially against the banks, that there
would be significant defenses based upon the statute of limitations and the
absence of a written agreement establishing a fiduciary relationship, and
that as legally competent individuals, [Appellants] would probably be held
to the terms of the loan documents they had executed, and prohibited from
relying upon any false promises or representations as inducements to
persuade them to enter into the transactions. [Appellants] further allege
that a reasonable attorney would have advised them to continue making
payments on the indebtedness pending the resolution of the lender‟s
liability claims, and would have explained that since those claims had little
or no likelihood of success, defaulting on the indebtedness would have
devastating economic consequences and inflict grievous harm upon the
credit rating and reputations of [Appellants].
On October 2, 2014, Appellees filed a Tennessee Rule of Civil Procedure 12.02(6)
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motion to dismiss the complaint on the grounds that the complaint lacked sufficient
specificity and that Appellants‟ claims were barred by the one-year statute of limitations
for legal malpractice cases. Tenn. Code Ann. §28-3-104(c)(1). Appellants opposed the
motion to dismiss, inter alia, on the ground that the statute of limitations did not run from
the May 7, 2013 entry of the “interlocutory” order dismissing one of the banks and Mr.
Thompson from the underlying lawsuit. Rather, Appellants asserted that the statute of
limitations did not begin to run until the order of dismissal as to Appellants‟ remaining
claims was entered on November 13, 2013. Following a hearing, the trial court entered
an order on December 10, 2014 granting, in part, the motion to dismiss. Specifically, the
trial court held that Appellants‟
claims . . . are barred by the statute of limitations, §28-3-104(c), with one
exception. [Appellants] sustained legally cognizable injury on or about
May 7, 2013, when the trial court in the underlying case dismissed their
case against two of the three Defendants; and [Appellants] knew or should
have known they had a cause of action when Mr. Becker advised he would
file a motion in order to “correct the error.” The Court determined that
[Appellants‟] allegations with respect to the November 2013 voluntary
dismissal of their remaining claim in the underlying case is a discrete
allegation of alleged legal malpractice which is not barred by the statute of
limitations . . . .
On January 5, 2015, Appellants filed an amendment to their original complaint,
wherein they alleged, in relevant part, “that all of their claims for litigation malpractice
and fraud, misrepresentation, and deceit against the [Appellees] in this cause are timely
filed for purpose of the one year statute of limitations.” Appellants also averred a claim
for breach of “confidential and fiduciary relationship.”
On January 21, 2015, Appellees filed a Tennessee Rule of Civil Procedure 12.03
motion for judgment on the pleadings arguing that Appellants did not sustain any
damages from any act or omission by Appellees vis-à-vis the voluntarily dismissed
claims. Specifically, Appellees stated that the trial court had not awarded attorney‟s fees
to any of the defendants in the underlying lender‟s liability lawsuit and that Appellants
had not accrued additional attorney‟s fees related to the voluntary dismissal. Appellees
also moved for dismissal of the breach of “confidential and fiduciary relationship” claim
on the ground that this claim relied on the same operative facts as Appellants‟ claim for
legal malpractice. Following a hearing, on February 20, 2015, the trial court entered an
order, wherein it: (1) reaffirmed its previous dismissal of all claims except those that
were voluntarily dismissed; (2) denied Appellees‟ motion based on the absence of
damages (specifically, the court stated that this issue was better suited to summary
judgment); and (3) granted Appellees‟ motion as to Paragraphs 10 and 11 of the amended
complaint, which paragraphs asserted that all claims were timely filed and that Appellees
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were liable for breach of confidentiality and breach of fiduciary duty.
On February 29, 2015, Appellants filed a motion to revise the previous order and
to reinstate previously dismissed claims. Therein, Appellants argued, inter alia, that the
trial court should reconsider its dismissal of Appellants‟ legal malpractice claims based
on the filing of the amendment to the original complaint and Appellants‟ contention that
the statute of limitations had not run on their malpractice claims.
On April 17, 2015, Appellees filed a motion for summary judgment, asserting that
Appellants did not sustain any damages stemming from the voluntary dismissal. On
October 19, 2015, the trial court entered an order granting the motion for summary
judgment. Specifically, the court held that Appellees had affirmatively established that
Appellants suffered no harm as a result of the voluntary dismissal because they were
allowed to re-file their claims within one year. The court further held that Appellants had
sustained no out-of-pocket damages as a result of the non-suit because they did not have
to pay attorney‟s fees or costs associated with the voluntary dismissal. Appellants
appeal.
II. Issues
1. Whether the trial court erred when it partially granted Appellees‟ motion
to dismiss for failure to state a claim upon which relief can be granted
based upon the one year statute of limitations for malpractice actions
against attorneys.
2. Whether the trial court was in error when it partially granted Appellees‟
motion for judgment on the pleadings.
3. Whether the trial court was in error when it denied Appellants‟ motion
to revise previous order and to reinstate previously dismissed claims.
4. Whether the trial court was in error when it granted Appellees‟ motion
for summary judgment, thereby dismissing what remained of Appellants‟
case in its entirety, on the basis of the statute of limitations affirmative
defense.
III. Standard of Review
As set out above, the trial court dismissed Appellants‟ claims on several grounds.
First, the trial court dismissed the legal malpractice claims arising from the May 7, 2013,
judgment entered in the underlying lender‟s liability lawsuit in favor of National Bank of
Oneida and Scott Thompson. The ground for the trial court‟s dismissal of the legal
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malpractice claims was that the one-year statute of limitations had run. Next, the trial
court granted Appellees‟ Tennessee Rule of Civil Procedure 12.03 motion for judgment
on the pleadings, thereby dismissing Appellants‟ additional claims for breach of
confidentiality and breach of fiduciary duty, which were set out in the amendment to the
original complaint. Finally, on the ground that Appellants had sustained no damages, the
trial court granted Appellees‟ motion for summary judgment as to Appellants‟ claim for
legal malpractice arising from the voluntary dismissal of People‟s Bank of the South.
Although the trial court employed various procedure in adjudicating Appellants‟ claims,
because all of Appellants‟ claims stem from the same underlying facts, and because these
claims were brought under one complaint (and an amendment thereto), we conclude that
the trial court should have addressed all of the claims under the Tennessee Rule of Civil
Procedure 12.02(6) motion. Accordingly, we will apply the standard of review
applicable to Rule 12.02(6) motions.
The resolution of a 12.02(6) motion to dismiss is determined by an examination of
the pleadings alone. Leggett v. Duke Energy Corp., 308 S.W.3d 843, 851 (Tenn. 2010);
Trau-Med of Am., Inc. v. Allstate Ins. Co., 71 S.W.3d 691, 696 (Tenn. 2002). A
defendant who files a motion to dismiss “„admits the truth of all of the relevant and
material allegations contained in the complaint, but . . . asserts that the allegations fail to
establish a cause of action.‟” Brown v. Tenn. Title Loans, Inc., 328 S.W.3d 850, 854
(Tenn. 2010) (quoting Freeman Indus., LLC v. Eastman Chem. Co., 172 S.W.3d 512,
516 (Tenn. 2005)).
In considering a motion to dismiss, courts “must construe the complaint liberally,
presuming all factual allegations to be true and giving the plaintiff the benefit of all
reasonable inferences.” Tigg v. Pirelli Tire Corp., 232 S.W.3d 28, 31-32 (Tenn. 2007)
(citing Trau–Med., 71 S.W.3d at 696). A trial court should grant a motion to dismiss
“only when it appears that the plaintiff can prove no set of facts in support of the claim
that would entitle the plaintiff to relief.” Crews v. Buckman Labs Int'l, Inc., 78 S.W.3d
852, 857 (Tenn. 2002); see also Lanier v. Rains, 229 S.W.3d 656, 660 (Tenn. 2007). We
review the trial court‟s legal conclusions regarding the adequacy of the complaint de
novo with no presumption that the trial court‟s decision was correct. Webb v. Nashville
Area Habitat for Humanity, Inc., 346 S.W.3d 422, 429 (Tenn. 2011).
IV. Analysis
The basis for the trial court‟s grant of Appellees‟ Tennessee Rule of Civil
Procedure 12.02(6) motion was that the statute of limitations for legal malpractice had
run. Specifically, the trial court concluded that the one-year statute of limitations began
to run on May 7, 2013 with the entry of the order dismissing National Bank of Oneida
and Scott Thompson from the underlying lender‟s liability lawsuit. At both the trial level
and on appeal, Appellants assert that the statute of limitations did not begin to run until
November 13, 2013, when the trial court entered the order of voluntary dismissal as to
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the remaining defendant, People‟s Bank of the South.
In John Kohl & Co., P.C. v. Dearborn & Ewing, 977 S.W.2d 528 (Tenn. 1998),
the Tennessee Supreme Court instructed:
The statute of limitations for legal malpractice is one year from the
time the cause of action accrues. Tenn. Code Ann. § 28-3-104(a)(2). When
the cause of action accrues is determined by applying the discovery rule.
Under this rule, a cause of action accrues when the plaintiff knows or in the
exercise of reasonable care and diligence should know that an injury has
been sustained as a result of wrongful or tortious conduct by the defendant.
Shadrick v. Coker, 963 S.W.2d 726, 733 (Tenn. 1998); Stanbury v.
Bacardi, 953 S.W.2d 671, 677 (Tenn. 1997).
In legal malpractice cases, the discovery rule is composed of two
distinct elements: (1) the plaintiff must suffer legally cognizable damage—
an actual injury—as a result of the defendant‟s wrongful or negligent
conduct, and (2) the plaintiff must have known or in the exercise of
reasonable diligence should have known that this injury was caused by the
defendant‟s wrongful or negligent conduct. Carvell v. Bottoms, 900 S.W.2d
23, 28-30 (Tenn. 1995). An actual injury occurs when there is the loss of a
legal right, remedy or interest, or the imposition of a liability. See LaMure
v. Peters, 122 N.M. 367, 924 P.2d 1379, 1382 (1996). An actual injury may
also take the form of the plaintiff being forced to take some action or
otherwise suffer “some actual inconvenience,” such as incurring an
expense, as a result of the defendant‟s negligent or wrongful act. See State
v. McClellan, 113 Tenn. 616, 85 S.W. 267, 270 (Tenn. 1905) (“[A
negligent act] may not inflict any immediate wrong on an individual, but ...
his right to a remedy ... will [not] commence until he has suffered some
actual inconvenience.... [I]t may be stated as an invariable rule that when
the injury, however slight, is complete at the time of the act, the statutory
period then commences, but, when the act is not legally injurious until
certain consequences occur, the time commences to run from the
consequential damage....”). However, the injury element is not met if it is
contingent upon a third party‟s actions or amounts to a mere possibility. See
Caledonia Leasing v. Armstrong, Allen, 865 S.W.2d 10, 17 (Tenn. App.
1992).
The knowledge component of the discovery rule may be established
by evidence of actual or constructive knowledge of the injury. Carvell, 900
S.W.2d at 29. Accordingly, the statute of limitations begins to run when the
plaintiff has actual knowledge of the injury as where, for example, the
defendant admits to having committed malpractice or the plaintiff is
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informed by another attorney of the malpractice. Under the theory of
constructive knowledge, however, the statute may begin to run at an earlier
date-whenever the plaintiff becomes aware or reasonably should have
become aware of facts sufficient to put a reasonable person on notice that
an injury has been sustained as a result of the defendant‟s negligent or
wrongful conduct. Id. We have stressed, however, that there is no
requirement that the plaintiff actually know the specific type of legal claim
he or she has, or that the injury constituted a breach of the appropriate legal
standard. Shadrick, 963 S.W.2d at 733. Rather, “the plaintiff is deemed to
have discovered the right of action if he is aware of facts sufficient to put a
reasonable person on notice that he has suffered an injury as a result of
wrongful conduct.” Carvell, 900 S.W.2d at 29 (quoting Roe v. Jefferson,
875 S.W.2d 653, 657 (Tenn.1994)). “It is knowledge of facts sufficient to
put a plaintiff on notice that an injury has been sustained which is crucial.”
Stanbury, 953 S.W.2d at 678. A plaintiff may not, of course, delay filing
suit until all the injurious effects or consequences of the alleged wrong are
actually known to the plaintiff. Shadrick, 963 S.W.2d at 733; Wyatt v. A–
Best Company, 910 S.W.2d 851, 855 (Tenn. 1995). Allowing suit to be
filed once all the injurious effects and consequences are known would
defeat the rationale for the existence of statutes of limitations, which is to
avoid the uncertainties and burdens inherent in pursuing and defending
stale claims. Wyatt, 910 S.W.2d at 855.
Id. at 532-33
In reaching its decision that the statute of limitations had run on the Appellants‟
legal malpractice case, the trial court relied on this Court‟s opinion in Cherry v.
Williams, 36 S.W.3d 78 (Tenn. Ct. App. 2000), perm. app. denied (Tenn. Dec. 11, 2000).
On appeal, Appellants‟ contend that the Cherry case is not applicable to the instant
appeal. We disagree. While the facts of the Cherry case differ from those presented in
this case, the law outlined in Cherry is, nonetheless, applicable. In Cherry, this Court
explained:
In litigation, the most easily identifiable time when rights, interests,
and liabilities become fixed is when a court enters judgment. A judgment,
after all, is “an adjudication of the rights of the parties in respect to the
claim [s] involved.” Ward v. Kenner, 37 S.W. 707, 709 (Tenn. Ch. App.
1896) (defining judgment). Accordingly, most courts have made the entry
of an adverse judgment the starter pistol for the running of the statute of
limitations on litigation malpractice. See Laird v. Blacker, 2 Cal. 4th 606, 7
Cal.Rptr.2d, 550, 828 P.2d 691, 696 (1992); Jason v. Brown, 637 So. 2d
749, 752 (La. Ct. App. 1994); see also Tyler T. Ochoa & Andrew Wistrich,
Limitation of Legal Malpractice Actions: Defining Actual Injury and the
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Problem of Simultaneous Litigation, 24 Sw. U .L. Rev. 1, 27-29 (1994). It
is a court‟s judgment that decrees the loss of a right or remedy or imposes a
legal liability. Thus, when a judgment is entered, a “legally cognizable
injury” occurs.
Id. at 84-85.
Here, Appellants suffered an actual injury in the underlying lender‟s liability
action when the trial court granted summary judgment in favor of First National Bank of
Oneida and Scott Thompson on May 7, 2013. At that point, Appellants had lost their
case as to these defendants. Nonetheless, Appellants argue that Mr. Becker continued to
assure them that the May 7, 2013 order was erroneous and that he would take measures to
correct it. Based upon Mr. Becker‟s continued assurances, Appellants contend that the
entry of the May 7, 2013 order did not start the running of the statute of limitations on
their legal malpractice claim. We disagree. As this Court explained in Cherry:
A lawyer‟s rosy characterization of an order adverse to the client
does not amount to fraudulent concealment of malpractice. See Riddle v.
Driebe, 153 Ga.App. 276, 265 S.E.2d 92, 95 (1980). As long as the client is
aware of the fact that the court has ruled against his or her rights or
interests, arguably due to the lawyer‟s mishandling of the case, then it
matters not how counsel may try to downplay or “spin” the bad result. At
that point the client is aware of the fact of injury. For statute of limitations
purposes, that awareness is not negated by the lawyer‟s assurances that the
court rendering the adverse order got the law wrong. Nor does it matter that
the lawyer states that he or she believes that an appellate court will reverse
the adverse order. As we have previously said, “[W]e do not believe that
reliance upon erroneous legal advice can operate to toll the statute of
limitations,” inasmuch as the discovery rule relating to injury only applies
to matters of fact unknown to a prospective plaintiff, not to matters of law.
Spar Gas, Inc. v. McCune, 908 S.W.2d 400, 404 (Tenn. Ct. App. 1995).
Cherry, 36 S.W.3d at 86.
Appellants contend that the statute of limitation on their legal malpractice case did
not begin to run until People‟s Bank of the South, the last defendant in the underlying
lawsuit, was dismissed by order of November 13, 2013. Although, with the dismissal of
the People‟s Bank of the South, Appellants‟ underlying lawsuit was ostensibly lost, from
the foregoing authority, finality and exhaustion of all remedy is not the gravamen of
discovery in legal malpractice cases. Rather, “[i]t is knowledge of facts sufficient to put
a plaintiff on notice that an injury has been sustained which is crucial.” Stanbury, 953
S.W.2d at 678. Here, we conclude that Appellants had sufficient knowledge of an injury,
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which was likely based on some legal malpractice, on May 7, 2013, when their claims
against National Bank of Oneida and Scott Thompson were dismissed. Accordingly, the
statute of limitation on Appellants‟ legal malpractice case began to run on May 7, 2013.
Therefore, Appellants‟ September 3, 2014, legal malpractice complaint was untimely,
and the trial court did not err in dismissing the complaint against Appellees. Having
concluded that the trial court should have dismissed the legal malpractice complaint, in
toto, upon the running of the statute of limitations, we pretermit Appellants‟ remaining
issues.
V. Conclusion
For the foregoing reasons, we affirm the trial court‟s orders. The case is remanded
for such further proceedings as may be necessary and are consistent with this opinion.
Costs of the appeal are assessed against the Appellants, John Howard Story, Bruce
Coffey, and their surety, for all of which execution may issue if necessary.
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KENNY ARMSTRONG, JUDGE
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