Appeal
from the Superior Court No. 3PA-14-01350 CI of the State of
Alaska, Third Judicial District, Palmer, Gregory Heath,
Judge.
Paul
D. Kelly, Kelly & Patterson, Anchorage, for Appellant.
Patricia R. Hefferan, Wasilla, for Appellee.
Before: Stowers, Chief Justice, Winfree, Maassen, and Bolger,
Justices. [Fabe, Justice, not participating.]
OPINION
MAASSEN, Justice.
I.
INTRODUCTION
A
client personally financed the sale of his business
corporation. His attorney drafted documents that secured the
buyer's debt with corporate stock and an interest in the
buyer's home. Over seven years later the government
imposed tax liens on the corporation's assets; according
to the client, it was only then he learned for the first time
that his attorney had not provided for a recorded security
interest in the physical assets. The client sued the attorney
for legal malpractice and violation of the Alaska Unfair
Trade Practice and Consumer Protection Act (UTPA).
The
superior court held that the statute of limitations barred
the client's claims and granted summary judgment to the
attorney. But we conclude that it was not until the tax liens
were filed that the client suffered the actual damage
necessary for his cause of action to be complete. We
therefore reverse the judgment of the superior court and
remand the case for further proceedings.
II.
FACTS AND PROCEEDINGS
A.
Facts
Timothy
Jones owned Northern Heating & Air Conditioning, Inc.,
which did business under that name. In 2003 he retained
attorney Randall Westbrook, who had done work for him in the
past, to represent him in the sale of the corporation.
According to Jones, Westbrook told him that he had been
involved in a number of similar transactions and was
confident he could handle this one.
Jones
decided to sell Northern Heating to his service manager, Mike
Grunwald. Grunwald was unable to secure outside financing, so
Jones decided to finance the sale himself. Westbrook prepared
a stock purchase agreement, deed of trust, promissory note,
and security agreement. The stock purchase agreement conveyed
Northern Heating's 1, 000 shares of issued stock to
Grunwald for $280, 000. Grunwald gave Jones a $ 10, 000 down
payment and executed a promissory note for the remaining
$270, 000 at 8% interest with monthly payments of $3, 816.90.
The security agreement secured Grunwald's payment of the
promissory note with the "1, 000 shares of common stock,
" while the deed of trust gave Jones additional security
in the home owned by Grunwald and his wife. Jones and the
Grunwalds signed the documents on July 13, 2004.
Jones
and Westbrook both agree that they discussed "the perils
of owner financing, " but they remember the conversation
differently. According to Jones, he believed Westbrook would
ensure that "the business assets [were] tied up in the
sale" and that he would have "everything tied up,
the stock, inventory, equipment, the assets of Northern
Heating" as security. But according to Westbrook, Jones
instructed him not to take a security interest in the
physical assets because another creditor already had an
interest in them. Westbrook also testified that he
"would have encouraged [Jones] to take a security
interest in those assets" if he had known that in fact
no other security interest existed.
Grunwald
made payments on his debt to Jones, but he "was
short" on some payments and requested extensions on
others. Jones testified that when Grunwald missed payments
the two men would meet, talk about the business, and work out
a partial payment. Jones testified that the first time
Grunwald came up short, in "mid[-]2005, " Jones
"walked through the warehouse and offices, and noted the
inventory and equipment, and knowing that the assets were
secure, [he] felt comfortable with [the parties']
agreement." On October 18, 2005, the manager of the
escrow account through which Grunwald made his payments sent
Jones his first official notice that Grunwald had missed one.
But Grunwald continued to make payments of varying amounts
through February 2012.
In
August 2008 the Internal Revenue Service filed a tax lien
against Northern Heating, but it released the lien in October
of that year. According to Grunwald, he learned in 2009 that
his bookkeeper had not been paying withholding taxes. He
negotiated with the IRS and eventually thought he was
"making . . . good headway on paying the back taxes,
" but the IRS placed two more liens on the
corporation's assets in October and November 2011. In
February 2012 the IRS notified Grunwald it was closing
Northern Heating and selling its assets. Grunwald informed
Jones, who later attested that this "was the first time
I heard that Northern Heating had any tax problems."
According
to Jones, he met with Grunwald's accountant the next day,
and the two of them called the IRS. The IRS told Jones the
amount of the tax lien and informed him it had no record that
he had a security interest in Northern Heating's physical
assets. Jones contacted Westbrook, who confirmed the absence
of a security interest. Jones asserts that this was when he
first learned that Grunwald's debt was not secured by the
corporation's physical assets. In August 2012, after
Northern Heating was liquidated by the IRS, Jones terminated
the escrow account. Grunwald still owed him $330, 316.69,
including interest.
After
Jones filed a complaint against Westbrook for legal
malpractice, Westbrook admitted that he probably did not have
malpractice insurance while representing Jones. Jones
asserted that he would have found a different lawyer had he
known Westbrook was uninsured but that Westbrook never gave
him notice of that fact. Westbrook testified in a deposition
that he could not find a written fee agreement signed by
Jones and that he could not say whether he had provided his
client with written notice that he lacked malpractice
insurance, as required by the attorney ethics
rules.[1]
B.
Proceedings
Jones
filed his complaint against Westbrook on December 19, 2013,
alleging: (1) legal malpractice and violation of the Unfair
Trade Practices and Consumer Protection Act (UTPA) based on
Westbrook's alleged failure to properly document the sale
of Northern Heating; and (2) violation of the UTPA based on
Westbrook's alleged deception in holding himself out as
experienced in selling businesses. Westbrook raised the
statute of limitations as a defense. Jones later amended his
complaint to claim that Westbrook also violated the UTPA when
he failed to disclose his lack of malpractice insurance. The
parties cross-moved for summary judgment; Jones requested an
evidentiary hearing on the statute of
limitations.[2]
The
superior court conducted an evidentiary hearing on the
statute of limitations over two days in February and March
2015; both Jones and Westbrook testified. The court then
granted Westbrook's motion for summary judgment, holding
that Jones's claims had been filed too late. The court
found that the date of injury for Jones's UTPA and legal
malpractice claims was July 13, 2004, the date he and
Grunwald signed the sale documents. The court further found
that the discovery rule tolled the statute of limitations
until October 18, 2005 - the date the escrow manager first
notified Jones of a late payment. At that point, the court
reasoned, a "prudent businessman ... would have reread
the terms of the transaction to assure the assets were
secured" and, finding that they were not, would have
contacted his attorney. The court concluded that Jones's
claims accrued once he was on inquiry notice that
Grunwald's payments were not secured by the
corporation's physical assets. The court therefore held
that Jones's UTPA claim expired on October 18, 2007
(because of the two-year statute of limitations for UTPA
claims[3]) and his legal malpractice claim expired
on October 18, 2008 (because of the three-year statute of
limitations for professional malpractice claims[4]).
Jones
appeals from the superior court's grant of summary
judgment, arguing that his claims did not accrue until he
learned in February 2012 that the IRS was asserting a
security interest in Northern Heating's assets. He also
appeals the superior court's denial of summary judgment
in his favor.
III.
STANDARDS OF REVIEW
We
review a grant of summary judgment de novo.[5] A claim's
accrual date "is a factual question, which we review for
clear error."[6] "When the superior court holds an
evidentiary hearing to resolve factual disputes about when a
statute of limitations began to run, " we review those
findings for clear error.[7] Clear error exists when the record as a
whole "leaves us with 'a definite and firm
conviction that a mistake has been made.'
"[8] But "we review de novo the legal
standard used to determine accrual dates."[9]
IV.
DISCUSSION
A.
Jones's Legal Malpractice Claim Did Not Accrue Until He
Suffered An Appreciable Injury.
A legal
malpractice claim has four elements: duty, breach, causation,
and damages.[10] A plaintiff bringing such a claim must
show:
(1) that the defendant has a duty "to use such skill,
prudence, and diligence as other members of the profession
commonly possess and exercise, " (2) that the defendant
breached that duty, (3) that the breach proximately caused
the injury, and (4) that ...