Citicorp Mortgage, Inc. v. John P. Roberts

IN THE SUPREME COURT OF TENNESSEE
AT JACKSON
FILED
October 5, 1998
Cecil Crowson, Jr.
Appellate C ourt Clerk
CITICORP MORTGAGE, INC., ) NOT FOR PUBLICATION
) Filed: October 5, 1998
Plaintiff/Appellee, )
) Shelby Chancery
v. )
) Hon. Neal Small, Chancellor
)
JOHN P. ROBERTS, ) Trial Ct. No. 101815-1 R.D.
)
Defendant/Appellant. ) Sup. Ct. No. 02S01-9712-CH-00109
For Plaintiff-Appellee: For Defendant-Appellant:
R. Mark Glover Tim Edwards
Michael C. Patton James F. Horner
Baker, Donelson, Bearman, Glassman, Jeter, Edwards
& Caldwell, P.C. & Wade, P.C.
Memphis, Tennessee Memphis, Tennessee
OPINION
JUDGMENT OF COURT OF APPEALS DROWOTA, J.
REVERSED
In this legal malpractice action, the defendant, John P. Roberts, appeals
from the Court of Appeals’ reversal of summary judgment entered by the trial court
in his favor based on the expiration of the statute of limitations. The issue for our
determination is whether the present action is barred by the one-year statute of
limitations applicable to legal malpractice actions, Tenn. Code Ann. § 28-3-104.1
After carefully examining the record before us and considering the relevant
authorities, we conclude that the instant suit is time-barred. Accordingly, for the
reasons explained hereafter, the decision of the Court of Appeals to reverse the trial
court’s grant of summary judgment to the defendant is reversed.
BACKGROUND
Wilbur Johns (“Johns”) was the owner of a parcel of real property
located in a subdivision in Memphis. Johns sought the services of the plaintiff,
Citicorp Mortgage, Inc., (“Citicorp”), in refinancing debt secured by the property. The
plaintiff hired attorney Michael G. Maddox to handle the closing of the loan.
One of three existing liens on Johns’s property was a lien held by
Shelby Bank. As part of the closing of the loan, the plaintiff instructed Maddox to
obtain and record a release of the lien held by Shelby Bank, so that the plaintiff would
be the senior lien holder on the property. Contrary to these instructions, however,
Maddox never filed a release of the Shelby Bank lien. Thus, after the loan was
closed on January 10, 1990, Shelby Bank continued to hold the first lien on the
property, superior to the plaintiff’s lien.
Subsequent to the closing, Johns defaulted on his indebtedness to
Shelby Bank and to the plaintiff. The plaintiff initiated foreclosure proceedings on the
1
Tenn. Code Ann. § 28-3-104(a) provides in pertinent part: “The following actions shall be
commenced within one (1) year after the cause of action accrued: . . . (2) Actions and
suits against attorneys . . . for malpractice, whether the actions are grounded or based in
contract or tort . . . .”
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property in September 1991. In October 1991, the plaintiff’s new counsel discovered
that a release of the Shelby Bank lien had never been filed.
In December 1991, Shelby Bank foreclosed on its deed of trust and sold
the property to satisfy its lien, thereby extinguishing the plaintiff’s lien. The plaintiff
then filed the instant legal malpractice claim against Roberts, who was Maddox’s law
partner, on August 14, 1992.2 Thus, suit was filed approximately two and a half years
after the closing and less than one year after Shelby Bank foreclosed on the property.
The complaint alleged that Maddox committed legal malpractice when he did not
ensure that all existing liens on the property were paid or released at closing so that
the plaintiff would be the senior lien holder on the property. The sole basis for the
plaintiff’s claim against Roberts is his vicarious liability for the malpractice of Maddox,
as Roberts was not involved in the transaction at issue.
The trial court granted summary judgment in favor of the defendant,
holding that the plaintiff’s malpractice action was barred by the one-year statute of
limitations in Tenn. Code Ann. § 28-3-104(a)(2). The trial court explained the basis
for its holding as follows:
The real estate closing which is the subject of this
litigation was conducted in January of 199[0]. Within 30
days after said closing, plaintiff knew or should have
known that the closing had not been conducted in
accordance with closing instructions, specifically that
plaintiff was not in a first lien priority position. Further,
because plaintiff did not receive a first lien position at the
time of closing, it had sustained legally cognizable
damages at that point in time. Accordingly, the present
action is barred by the applicable statute of limitations,
T.C.A. § 28-3-104.
2
Plaintiff filed suit against Johns, Maddox, Roberts, their law firm, Maddox and Roberts, and
Shelby Bank. A default judgment was entered against Maddox. Johns declared bankruptcy,
and the claims against Shelby Bank remain pending. The present appeal focuses only on
the plaintiff’s claim of malpractice against Roberts.
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The plaintiff appealed to the Court of Appeals, which reversed the trial
court. The Court of Appeals held that the plaintiff’s action was not barred by the
statute of limitations since no actual injury was sustained by the plaintiff until Shelby
Bank foreclosed on the property in December 1991. The Court of Appeals explained
the basis for its holding as follows:
Plaintiff. . . did not suffer an actual injury until
Shelby Bank foreclosed upon its lien, thereby wiping out
all other liens, including the Plaintiff’s lien. Before Shelby
Bank’s foreclosure, Plaintiff had not suffered an injury as
a result of Maddox’s negligent failure to [obtain] a release
of the Shelby Bank lien. Although Maddox committed the
negligent act in January 1990, this act did not become
legally injurious until certain consequences, i.e., when
Shelby Bank foreclosed upon its lien in December 1991.
If Johns had paid Shelby Bank, as he agreed to do,
Plaintiff would not have suffered any injury from
Maddox’s negligent act. Thus, because Plaintiff filed this
cause of action within one year of the date of [the] injury,
Plaintiff’s present action for legal malpractice is not
barred by the applicable one-year statute of limitations.
We granted review to decide whether the intermediate court erred in
holding that the plaintiff did not suffer an actual injury for statute of limitations
purposes until its junior lien upon the property had been extinguished by the
foreclosure of the senior lien.
ANALYSIS
I.
The standards governing an appellate court’s review of a motion for
summary judgment are well-settled. Summary judgment is appropriate only if there
are no genuine issues of material fact and the moving party is entitled to judgment
as a matter of law. Tenn. R. Civ. P. 56.03. The party moving for summary judgment
has the burden of demonstrating that no genuine issue of material fact exists, Byrd
v. Hall, 847 S.W.2d 208, 211 (Tenn. 1993), and must either affirmatively negate an
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essential element of the nonmoving party’s claim or conclusively establish an
affirmative defense, McCarley v. West Quality Food Service, 948 S.W.2d 477, 478
(Tenn. 1997). If the movant does not negate an essential element of the plaintiff’s
claim or conclusively establish an affirmative defense, then the motion for summary
judgment must be denied. Id. at 478-79.
Further, appellate courts must review the record before them without
attaching any presumption of correctness to the trial court’s judgment to determine
whether the absence of genuine issues of material fact entitle the movant to
judgment as a matter of law. Robinson v. Omer, 952 S.W.2d 423, 426 (Tenn. 1997);
Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997). Courts are also required to view
the evidence in the light most favorable to the nonmoving party, draw all reasonable
inferences in that party’s favor, and discard all countervailing evidence. Byrd, 847
S.W.2d at 210-11. If both the facts and conclusions to be drawn from the facts
permit a reasonable person to reach only one conclusion, summary judgment should
be granted. Robinson, 952 S.W.2d at 426; Bain, 936 S.W.2d at 622; McClung v.
Delta Square Ltd. Partnership, 937 S.W.2d 891, 894 (Tenn. 1996).
II.
The statute of limitations for legal malpractice is one year from
when 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. In our recent
decision in John Kohl & Company P.C. v. Dearborn & Ewing, ___ S.W.2d ___ (Tenn.
1998), we explained that
[i]n 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. An actual injury occurs when there is
the loss of a legal right, remedy or interest, or the
imposition of a liability. An actual injury may also take
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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. . . .
The knowledge component of the discovery rule
may be established by evidence of actual or constructive
knowledge of the injury. 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 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. 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.
John Kohl & Company P.C., ___ S.W.2d at ___ (citations omitted).
Applying these principles to the record before us, we are persuaded
that an actual injury was sustained by the plaintiff at the time of the closing on
January 10, 1990. It was on that date that the plaintiff lost its legal position with
regard to the security interest which was to be used to secure the loan. In other
words, the plaintiff’s lien was rendered subordinate to Shelby Bank’s interest in the
property as of the date of closing. Also, the plaintiff’s loan was worth less as of the
day of closing due to its junior position. Accordingly, we find that the actual injury
occurred when Shelby Bank’s senior position was established at the closing on
January 10, 1990.
Regarding the discovery rule’s knowledge requirement, the record
reflects, and the plaintiff concedes in its brief, that its auditors should have discovered
the absence of a recorded release of Shelby Bank’s lien in its files by March 1990.
Thus, the plaintiff should have reasonably known by March 1990 that Maddox had
failed to obtain the release of the Shelby Bank lien as he was instructed to do. Again,
it was unnecessary for the plaintiff to have been aware that there had been a breach
of the appropriate legal standard in order to be deemed to have discovered its right
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of action, but needed only to be aware or through the exercise of reasonable
diligence should have been aware of facts sufficient to put it on notice that an injury
had been sustained as a result of Maddox’s negligence. See John Kohl & Company
P.C., ___ S.W.2d at ___. It follows that because the plaintiff filed its cause of action
more than one year after March 1990, the plaintiff’s claim is barred by the one-year
statute of limitations.
Finally, we must reject the plaintiff’s fraudulent concealment argument
that the statute of limitations was tolled because of representations made by Maddox
to the plaintiff that the release in question did in fact exist. The tolling doctrine of
fraudulent concealment is not applicable to this case because the plaintiff, through
the exercise of reasonable diligence, should have discovered the release missing by
March 1990. See Shadrick v. Coker, 963 S.W.2d 726, 736 (Tenn. 1998)(holding that
a plaintiff relying upon the doctrine of fraudulent concealment must show, among
other things, that it could not have discovered the wrong despite exercising
reasonable care and diligence). In any event, the plaintiff’s claim of fraudulent
concealment must fail because the statute of limitations had already expired prior to
the conversations between Maddox and agents of the plaintiff which form the basis
of the plaintiff’s fraudulent concealment argument.
CONCLUSION
In view of the foregoing discussion, we conclude that the plaintiff’s suit
was not timely filed. Accordingly, the decision of the Court of Appeals is reversed.
Costs of this appeal are taxed to the plaintiff-appellee.
____________________________________
FRANK F. DROWOTA, III
JUSTICE
Concur:
Anderson, C.J.,
Birch and Holder, J. J.
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