Colwell v. Mullen

Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/09/2018 08:11 AM CST
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
COLWELL v. MULLEN
Cite as 301 Neb. 408
Dr. Robert F. Colwell, Jr., D.D.S., and Dr. Robert F.
Colwell, DDS, P.C., appellants, v. Sean Mullen, J.D.,
and H ancock & Dana, P.C., appellees.
___ N.W.2d ___
Filed October 26, 2018. No. S-17-889.
1. Limitations of Actions: Appeal and Error. The point at which a statute
of limitations begins to run must be determined from the facts of each
case, and the decision of the district court on the issue of the statute of
limitations normally will not be set aside by an appellate court unless
clearly wrong.
2. Summary Judgment. Summary judgment is proper when the pleadings
and evidence admitted at the hearing disclose no genuine issue regard-
ing any material fact or the ultimate inferences that may be drawn from
those facts and that the moving party is entitled to judgment as a matter
of law.
3. Summary Judgment: Appeal and Error. In reviewing a summary judg-
ment, an appellate court views the evidence in the light most favorable
to the party against whom the judgment is granted and gives such party
the benefit of all reasonable inferences deducible from the evidence.
4. Limitations of Actions: Negligence. The period of limitations begins to
run upon the violation of a legal right, that is, when an aggrieved party
has the right to institute and maintain suit. If a claim for professional
negligence is not to be considered time barred, the plaintiff must either
file within 2 years of the alleged act or omission or show that its action
falls within an exception to Neb. Rev. Stat. § 25-222 (Reissue 2016).
5. Limitations of Actions. The 1-year discovery exception of Neb. Rev.
Stat. § 25-222 (Reissue 2016) is a tolling provision, but it applies only
in those cases in which the plaintiff did not discover and could not have
reasonably discovered the existence of the cause of action within the
applicable statute of limitations.
6. Limitations of Actions: Malpractice. In order for a continuous rela-
tionship to toll the statute of limitations regarding a claim for malprac-
tice, there must be a continuity of the relationship and services for the
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
COLWELL v. MULLEN
Cite as 301 Neb. 408
same or related subject matter after the alleged professional negligence.
Continuity does not mean the mere continuity of the general profes-
sional relationship.
7. ____: ____. Even where a continuous relationship exists, the continuous
relationship rule is inapplicable when the claimant discovers the alleged
negligence prior to the termination of the professional relationship.
8. Limitations of Actions: Torts. It is well accepted that when an indi-
vidual is subject to a continuing, cumulative pattern of tortious conduct,
capable of being terminated and involving continuing or repeated injury,
the statute of limitations does not run until the date of the last injury or
cessation of the wrongful action.
9. ____: ____. The continuing tort doctrine requires that a tortious act—
not simply the continuing ill effects of prior tortious acts—fall within
the limitation period.
10. Appeal and Error. Claims not presented to or decided by the district
court need not be addressed on appeal.
Appeal from the District Court for Douglas County: Peter
C. Bataillon, Judge. Affirmed.
John A. Svoboda and Adam J. Wachal, of Gross & Welch,
P.C., L.L.O., for appellants.
William F. Hargens and Lauren R. Goodman, of McGrath,
North, Mullin & Kratz, P.C., L.L.O., for appellees.
Heavican, C.J., Miller-Lerman, Cassel, Stacy, Funke, and
Freudenberg, JJ.
Heavican, C.J.
INTRODUCTION
Dr. Robert F. Colwell, Jr., D.D.S., and his self-named pro-
fessional corporation (collectively Colwell), filed suit alleg-
ing malpractice against Sean Mullen and against Hancock
& Dana, P.C. (collectively Mullen). Sean Mullen is an attor-
ney licensed to practice law and works as a tax attorney
at Hancock & Dana, an accounting firm. The district court
granted Mullen’s motion for summary judgment, concluding
that Colwell’s malpractice claims were barred by the statute
of limitations set forth in Neb. Rev. Stat. § 25-222 (Reissue
2016). We affirm.
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
COLWELL v. MULLEN
Cite as 301 Neb. 408
FACTUAL BACKGROUND
Dr. Colwell was a dentist practicing primarily in Douglas
County, Nebraska. In 2004, he agreed to purchase 50 per-
cent of a dental practice currently being operated by Jeffrey
Garvey. The purchase agreement envisioned that Dr. Colwell
and Garvey would form separate professional corporations in
their respective names and that those professional corporations
would each own half of the practice. The practice would be
operated as Midlands Oral Health, LLC (Midlands).
Colwell hired Mullen to assist him in forming his profes-
sional corporation. Mullen had apparently worked for Garvey
in the past and was again retained by Garvey to form Garvey’s
professional corporation. In addition, Mullen was retained by
Dr. Colwell’s professional corporation, Garvey’s professional
corporation, and Midlands as an accountant and tax attorney.
Midlands was formed as a going concern complete with var-
ious assets, including dental and office equipment and employ-
ees. In 2005, Midlands transferred control of its employees to a
new corporation, Grobell, P.C. Grobell was owned by Garvey;
apparently, Mullen assisted Garvey in the creation of Grobell
and the transfer of the employees. Employees from a different
dental practice that had been purchased by Midlands in 2004
were also transferred to Grobell. All employees were then
leased by Grobell to Midlands, apparently at an 18-percent
leasing fee. Colwell claims that this was all done without his
knowledge and that he was damaged because as a 50-percent
owner of Midlands, he had to pay half of the lease fee. Colwell
alleges that he learned of the transfer of employees in mid-
March 2011 and of the leaseback fee in August 2011.
In addition, with Mullen’s assistance, Garvey also formed
Vanguard Dental Solutions, Inc. (Vanguard). Vanguard was a
service which charged a membership fee to participate, with
members receiving a discount on dental services from par-
ticipating care providers. Midlands was a participating provider
with Vanguard, and Vanguard members paid less for dental
services at Midlands. Colwell denies that he was ever informed
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COLWELL v. MULLEN
Cite as 301 Neb. 408
of Garvey’s interest in Vanguard or of Mullen’s assistance in
the formation of Vanguard. It is not clear from the record when
Vanguard was created; Colwell apparently learned of its cre-
ation in August 2011.
In October 2010, Colwell formed RMR Enterprises, L.L.C.
(RMR), for the purpose of constructing a new office build-
ing for Midlands. RMR expended over $100,000 to buy land
and pay fees associated with the purchase. In February 2011,
Mullen reviewed certain provisions of an operating agreement
for RMR and billed Colwell for those services.
In April 2011, Colwell terminated his professional relation-
ship with Mullen. He later engaged counsel to file suit against
Garvey. Colwell and Garvey eventually settled in December
2011. This current action for professional malpractice was
filed on March 4, 2013. As amended, Colwell’s complaint
alleged six acts of legal and accounting malpractice: that
Mullen (1) failed to advise Colwell of Mullen’s conflict of
interest; (2) transferred Midlands employees to Grobell without
Colwell’s knowledge; (3) caused Colwell to pay 50 percent
of an 18-­percent administrative leaseback fee for the Grobell
employees; (4) prepared and filed an erroneous Schedule K-1
(K-1) for 2010 (alleged as legal malpractice) and for 2011
(alleged as both legal and accounting malpractice), causing
Colwell to pay income tax of $150,000 on income never real-
ized; (5) allowed certain overpayments to Garvey; and (6)
billed Colwell for work not performed.
Mullen filed several motions to dismiss and motions for
summary judgment. One motion for summary judgment was
partially granted on August 11, 2015. In that order, the district
court granted summary judgment on Colwell’s claims that
Mullen failed to disclose his conflict of interest, that Mullen
transferred employees of Midlands to Grobell without Colwell’s
knowledge, that Mullen prepared and filed an erroneous 2010
K-1, and that Mullen allowed certain overpayments to be made
to Garvey. As to each, the district court concluded that the
claims were barred by the statute of limitations as set forth in
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COLWELL v. MULLEN
Cite as 301 Neb. 408
§ 25-222. A later motion for summary judgment addressed the
remaining claims, specifically the leaseback fee, the erroneous
2011 K-1, and the billing for work not performed. In an order
dated September 16, 2015, the district court also found those
claims to be barred by the applicable statute of limitations.
Colwell appeals.
ASSIGNMENTS OF ERROR
Colwell assigns, restated and consolidated, that the district
court erred in (1) granting Mullen’s motion for summary
judgment, (2) finding that his action was barred by § 25-222,
(3) failing to find that Mullen’s actions constituted a continu-
ing tort, (4) failing to find that the continuous representation
applied to toll § 25-222, and (5) failing to find that there were
numerous separate acts of malpractice which were timely
brought under § 25-222.
STANDARD OF REVIEW
[1] The point at which a statute of limitations begins to run
must be determined from the facts of each case, and the deci-
sion of the district court on the issue of the statute of limita-
tions normally will not be set aside by an appellate court unless
clearly wrong.1
[2,3] Summary judgment is proper when the pleadings and
evidence admitted at the hearing disclose no genuine issue
regarding any material fact or the ultimate inferences that may
be drawn from those facts and that the moving party is entitled
to judgment as a matter of law.2 In reviewing a summary judg-
ment, an appellate court views the evidence in the light most
favorable to the party against whom the judgment is granted
and gives such party the benefit of all reasonable inferences
deducible from the evidence.3
1
Behrens v. Blunk, 284 Neb. 454, 822 N.W.2d 344 (2012).
2
Jordan v. LSF8 Master Participation Trust, 300 Neb. 523, 915 N.W.2d 399
(2018).
3
Id.
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Nebraska Supreme Court A dvance Sheets
301 Nebraska R eports
COLWELL v. MULLEN
Cite as 301 Neb. 408
ANALYSIS
On appeal, Colwell argues that a variety of Mullen’s actions
were malpractice and that the district court erred in dismissing
the claims for being time-barred by the statute of limitations
set forth in § 25-222. Colwell contends that the statute of limi-
tations on these claims was tolled, either because the claims
alleged continuing torts or because there was a continuous
representation between him and Mullen. Colwell further asserts
that additional acts of malpractice occurred within 2 years prior
to the filing of the malpractice action. Because these matters
were disposed of by summary judgment, we view the evidence
in the light most favorable to Colwell.
Statute of Limitations for
Professional Malpractice.
Section 25-222 sets forth the statute of limitations applicable
to actions for professional malpractice and provides:
Any action to recover damages based on alleged pro-
fessional negligence or upon alleged breach of warranty
in rendering or failure to render professional services shall
be commenced within two years next after the alleged act
or omission in rendering or failure to render professional
services providing the basis for such action; Provided,
if the cause of action is not discovered and could not be
reasonably discovered within such two-year period, then
the action may be commenced within one year from the
date of such discovery or from the date of discovery of
facts which would reasonably lead to such discovery,
whichever is earlier; and provided further, that in no
event may any action be commenced to recover damages
for professional negligence or breach of warranty in ren-
dering or failure to render professional services more than
ten years after the date of rendering or failure to render
such professional service which provides the basis for the
cause of action.
[4] The period of limitations begins to run upon the violation
of a legal right, that is, when an aggrieved party has the right
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COLWELL v. MULLEN
Cite as 301 Neb. 408
to institute and maintain suit.4 If a claim for professional neg-
ligence is not to be considered time barred, the plaintiff must
either file within 2 years of the alleged act or omission or show
that its action falls within an exception to § 25-222.5
Discovery Exception.
[5] This court has said that the 1-year discovery exception
of § 25-222 is a tolling provision, but that it applies only in
those cases in which the plaintiff did not discover and could
not have reasonably discovered the existence of the cause of
action within the applicable statute of limitations.6 Under the
discovery principle,
“a cause of action accrues and the . . . discovery provi-
sion . . . begins to run, when there has been discovery of
facts constituting the basis of the cause of action or the
existence of facts sufficient to put a person of ordinary
intelligence and prudence on inquiry which, if pursued,
would lead to the discovery. . . . It is not necessary
that the plaintiff have knowledge of the exact nature or
source of the problem, but only knowledge that the prob-
lem existed.”7
Continuous Relationship Exception.
[6,7] This court has also, upon occasion, considered
whether a continuous relationship might operate to toll the
statute of limitations set forth in § 25-222. In order for such
a relationship to toll the statute of limitations regarding a
claim for malpractice, there must be a continuity of the rela-
tionship and services for the same or related subject matter
after the alleged professional negligence.8 Continuity does
not mean the mere continuity of the general professional
4
Behrens v. Blunk, supra note 1.
5
Id.
6
Id.
7
Id. at 460, 822 N.W.2d at 349.
8
Behrens v. Blunk, supra.
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COLWELL v. MULLEN
Cite as 301 Neb. 408
relationship.9 But even where a continuous relationship exists,
this rule is inapplicable when the claimant discovers the
alleged negligence prior to the termination of the professional
relationship.10
Continuing Tort.
[8,9] It is well accepted that when an individual is subject to
a continuing, cumulative pattern of tortious conduct, capable
of being terminated and involving continuing or repeated
injury, the statute of limitations does not run until the date of
the last injury or cessation of the wrongful action.11 This “con-
tinuing tort doctrine” requires that a tortious act—not simply
the continuing ill effects of prior tortious acts—fall within the
limitation period.12 Nor can the necessary tortious act merely
be the failure to right a wrong committed outside the statute of
limitations, because if it were, the statute of limitations would
never run because a tort-feasor can undo all or part of the
harm.13 Rather, when a tort is continuing, although the initial
tortious act may have occurred longer than the statutory period
prior to the filing of an action, an action will not be barred
if it can be based upon the continuance of that tort within
that period.14
Mullen’s Actions Were
Not Continuing Torts.
Colwell argues that some of the actions made by Mullen
were continuing torts and that to the extent the actions contin-
ued within the 2 years prior to the filing of his complaint, his
claims are not barred by the statute of limitations. On appeal,
Colwell specifically references (1) the transfer of employees
9
Id.
10
See Reinke Mfg. Co. v. Hayes, 256 Neb. 442, 590 N.W.2d 380 (1999).
11
Alston v. Hormel Foods Corp., 273 Neb. 422, 730 N.W.2d 376 (2007).
12
Id.
13
Id.
14
Id.
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COLWELL v. MULLEN
Cite as 301 Neb. 408
from Midlands to Grobell, which required Midlands to pay
an 18-percent leaseback fee; (2) the loss of income due to the
formation of Vanguard; (3) damages from conflict of interest
to dissolve Midlands without Colwell’s knowledge, occurring
on or after March 9, 2011, and including June 30; (4) damages
incurred by RMR in expending funds in preparation for build-
ing a new building for Midlands; (5) damages incurred as a
result of falsification of a 2010 Form 1065 tax return and the
accompanying K-1, which Colwell alleges Mullen continued
to prepare from and after March 2011; (6) losses incurred as
a result of preparation of the falsified 2011 Form 1065 and
K-1; and (7) damages sustained as a result of Mullen’s provid-
ing personal accounting and legal services to Garvey, done to
conceal Mullen’s and Garvey’s misconduct or to advocate for
positions in conflict with Colwell’s interests.
[10] As an initial matter, we observe that while Colwell
pled facts regarding Vanguard, RMR, and the dissolution of
Midlands, as set forth in claims (2) through (4) above, he did
not specifically allege any cause of action with regard to any
alleged malpractice on these issues. Nor were these claims pre-
sented to or decided by the district court. As such, we need not
address them on appeal.15
Moreover, Colwell’s complaint failed to allege that Mullen
committed malpractice by working with Garvey to provide
personal legal and accounting services to conceal their wrong-
doing, as set forth in claim (7) above. As such, we also need
not address those claims. Finally, the record establishes that
the receiver for Midlands at the time of its dissolution, and
not Mullen, filed the 2011 Form 1065 and associated K-1.
As such, there is no merit to this claim, set forth as claim
(6) above.
On these facts, the key time period this court is concerned
with is between March 3, 2011, which was 2 years prior to the
15
See American Fam. Mut. Ins. Co. v. Hadley, 264 Neb. 435, 648 N.W.2d
769 (2002).
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COLWELL v. MULLEN
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filing of this action, and April 23, the day Colwell terminated
his professional relationship with Mullen. Prior to that time,
any claim would be barred by the statute of limitations; any
subsequent action would not be malpractice for purposes of
§ 25-222 because Mullen was no longer authorized to provide
professional services for Colwell.
With this background, we turn to Colwell’s claim regard-
ing Grobell, set forth above as claim (1). As the district court
found, Mullen created Grobell on Garvey’s behalf in 2001 and
Midlands employees were transferred at about that same time.
Colwell contends that he continues to be injured by this trans-
fer because Grobell charged Midlands an 18-percent leaseback
fee on those employees, of which he paid 9 percent as a part
owner of Midlands.
The record shows that the transfer of employees from
Midlands to Grobell occurred in 2005, with no indication
from the record that Mullen did anything further with respect
to Grobell after that point. Colwell merely alleges that he lost
money in the form of the 18-percent leaseback fee. Such is an
ill effect of an earlier act, and not in itself a tortious act that
occurred within the statute of limitations.16 There is no merit to
this claim.
Colwell also alleges, set forth above as claim (5), that
Mullen committed malpractice by filing a falsified 2010 Form
1065 and associated K-1 for Midlands. Assuming that Colwell
can maintain this cause of action, we conclude that it is barred
by the statute of limitations. While Colwell now argues that
Mullen’s billing records suggest that the 2010 forms were
prepared in April 2011, in an interrogatory answered during
discovery, Colwell indicated that he was aware in “January,
2011 [or p]ossibly early February, 2011” that the 2010 K-1 was
erroneous. This is supported by Mullen’s affidavit testimony
that he filed the 2010 Form 1065 and K-1 “[i]n early 2011.”
We find no error in the district court’s factual finding that the
16
See Alston v. Hormel Foods Corp., supra note 11.
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COLWELL v. MULLEN
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2010 K-1 was prepared in January 2011. This date is prior to
the March 3 date relevant to this analysis and is outside the
limitations period.
There is no merit to Colwell’s assertion that the statute of
limitations was tolled by the continuing tort doctrine.
Continuous Representation
Doctrine Is Inapplicable.
Colwell also argues that the continuous representation doc-
trine applies to toll the statute of limitations as to Mullen’s
alleged malpractice claim in assisting Garvey in the forma-
tion and organization of Vanguard. As noted above, Vanguard
was the discounted dental fee arrangement in which members
paid a fee to belong to a corporation owned by Garvey, then
paid a reduced rate for dental services to Midlands, of which
Colwell was half owner. Colwell argues that he was damaged
because he earned half of a reduced fee, while Garvey earned
the other half, as well as income from his ownership interest
in Vanguard.
We again observe that while Colwell set forth some facts
as to Vanguard in his first amended complaint, he did not set
forth a cause of action specific to Mullen’s role in creating
Vanguard. But in any case, we find the continuous representa-
tion doctrine inapplicable. The continuous representation doc-
trine requires “a continuity of the relationship and services for
the same or related subject matter after the alleged professional
negligence.”17 Continuity does not mean the mere continuity
of the general professional relationship. Colwell claims that he
was not aware of Vanguard’s existence. Colwell and Mullen
could not have had a continuous relationship over a matter
Colwell did not know existed and in which Mullen most decid-
edly did not represent Colwell. Rather, any continuity would
have to be based on only the general professional relationship;
we have held that this is insufficient to support the application
17
Behrens v. Blunk, supra note 1, 284 Neb. at 462, 822 N.W.2d at 350.
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of this doctrine. Colwell’s argument regarding the continuous
representation doctrine’s applicability to Vanguard is with-
out merit.
Remaining Allegations of Malpractice Either
Were Not Pled or Are Without Merit.
Colwell also argues that several of his claims allege sepa-
rate acts of malpractice that occurred in the 2 years preceding
the filing of his complaint. Specifically, Colwell alleges that
Mullen (1) had a conflict of interest when he advised Garvey
to dissolve Midlands; (2) billed Midlands for matters notwith-
standing the pendency of the receivership, in violation of an
ongoing conflict of interest; (3) knew that Midlands would
likely be dissolved yet allowed Colwell to expend funds in
connection with RMR; (4) falsified the 2010 Form 1065 and
associated K-1; (5) falsified the 2011 Form 1065 and associ-
ated K-1; (6) failed to return Colwell’s file upon request; and
(7) billed Midlands for personal work done for Garvey.
Most of these claims were not pled. Colwell did not plead
that Mullen had a conflict of interest in advising Garvey to dis-
solve Midlands or that Mullen billed Midlands for work done
during the pendency of the receivership. Nor did Colwell spe-
cifically plead any cause of action relating to RMR, the refusal
to return his file, or any work on Garvey’s behalf billed to
Midlands. In addition, as is noted above, the 2011 Form 1065
and associated K-1 were not prepared by Mullen.
The only remaining claim regards the 2010 Form 1065 and
associated K-1, which claim, as noted above, was barred by
the statute of limitations. As such, there is no merit to any of
Colwell’s arguments on his separate claims of malpractice.
CONCLUSION
The order of the district court granting Mullen’s motion for
summary judgment is affirmed.
A ffirmed.
Papik, J., not participating.