Story v. Bunstine

         Session May 9, 2017

         Appeal by Permission from the Court of Appeals Circuit Court for Knox County No. 1-572-14 Kristi M. Davis, Judge

         The defendant attorneys in the instant legal malpractice case, Nicholas D. Bunstine, Brent R. Watson, and Jerrold L. Becker, individually and d/b/a Bunstine, Watson, McElroy & Becker, represented the plaintiffs, John Howard Story and David Bruce Coffey, in a lender liability lawsuit. In the underlying lender liability lawsuit, the trial court ultimately dismissed the case against two of the lender defendants, and the claims against the remaining lender defendant were later voluntarily dismissed. Thereafter, the plaintiffs filed the instant lawsuit against the defendant attorneys alleging legal malpractice. The trial court partially dismissed the case based on the expiration of the one-year statute of limitations for filing a complaint for legal malpractice. See Tenn. Code Ann. § 28-3-104(c)(1). Later, in response to the defendant attorneys' motion for summary judgment, the trial court dismissed the plaintiffs' remaining claim, determining that the claim was also barred by the statute of limitations. The Court of Appeals affirmed. We granted this appeal to address: (1) whether this Court's opinion in Carvell v. Bottoms, 900 S.W.2d 23 (Tenn. 1995), in which we set forth a discovery rule for when the statute of limitations begins to run in a legal malpractice action, should be overruled; (2) whether an interlocutory ruling in underlying litigation constitutes a legally cognizable injury; (3) whether this Court should adopt either the continuous representation rule or the appeal-tolling doctrine for tolling the statute of limitations in legal malpractice actions; and (4) whether a subsequent action of an attorney that renders an interlocutory order final amounts to a separate and discrete act of malpractice such that the statute of limitations for that action does not begin until said action is taken. Following our review, we conclude that Carvell v. Bottoms is the accurate analysis for determining when a claim of legal malpractice accrues. In addition, we decline to adopt the two tolling doctrines proposed by the plaintiffs, and we further decline to hold that the trial court's final judgment in the underlying case is required before there is an actual injury for purposes of the accrual of a claim for litigation malpractice. Nevertheless, we conclude that, in the case before us, the complaint fails to establish an actual injury prior to the date of the trial court's final judgment in the underlying case. Consequently, the trial court erred in granting the motion to dismiss and in determining that the plaintiffs' legal malpractice claims were time barred. Finally, we conclude that the trial court also erred in granting the defendants' motion for summary judgment. In this case, the defendant attorneys' alleged negligence, which purportedly rendered the interlocutory order in the underlying case final, constituted a distinct act of malpractice, and as such, the statute of limitations had not run on that claim at the time the plaintiffs filed this legal malpractice action. Therefore, we reverse the judgments of the trial court and the Court of Appeals and remand this case to the trial court for further proceedings consistent with this opinion.

         Tenn. R. App. P. 11 Appeal by Permission; Judgments of the Trial Court and the Court of Appeals Reversed; Remanded to Trial Court

          David A. Stuart, Clinton, Tennessee, and Mark N. Foster, Madisonville, Kentucky, for the appellants, John Howard Story and David Bruce Coffey.

          Darryl G. Lowe, Knoxville, Tennessee, for the appellees, Nicholas D. Bunstine, Brent R. Watson, and Jerrold Lance Becker.

          Roger A. Page, J., delivered the opinion of the court, in which Jeffrey S. Bivins, C.J., and Cornelia A. Clark, Sharon G. Lee, and Holly Kirby, JJ., joined.

          OPINION

          ROGER A. PAGE, JUSTICE.

         In this legal malpractice action, John Howard Story and David Bruce Coffey (collectively, "Plaintiffs") appeal from the intermediate appellate court's decision to affirm the trial court's dismissal of their case against their former attorneys Nicholas D. Bunstine, Brent R. Watson, and Jerrold L. Becker, individually and d/b/a Bunstine, Watson, McElroy & Becker (collectively, "Defendants"). The issue before us is whether the legal malpractice action is barred by the applicable statute of limitations under the facts of this case. For the following reasons, we reverse the judgments of the Court of Appeals and the trial court and remand for further proceedings.

         I. Facts and Procedural History

         A.

         From 2011 to 2013, Defendants represented Plaintiffs in their lender liability suit against Scott Thompson, First National Bank of Oneida, and People's Bank of the South. According to Plaintiffs, prior to filing the underlying suit, one of the defendant attorneys, Mr. Becker, represented that Plaintiffs had a strong case with a high likelihood of a six-figure settlement. Nevertheless, on May 7, 2013, the Chancery Court of Scott County, Tennessee, granted summary judgment in favor of two of the underlying defendants, Scott Thompson and First National Bank of Oneida.

         Prior to trial on the claims against the remaining bank, Mr. Becker advised that the damages evidence necessary to prosecute the case was not ready and that Plaintiffs should, therefore, voluntarily dismiss the case. According to Plaintiffs, Mr. Becker advised that the case could be refiled within one year but failed to inform Plaintiffs that the voluntary dismissal would render the prior summary judgment order final. Thus, the remaining claims were dismissed by Defendants, on Plaintiffs' behalf, and the trial court entered an order reflecting the voluntary dismissal on November 13, 2013.

         Plaintiffs failed to appeal the order granting summary judgment in favor of Mr. Thompson and First National Bank of Oneida, and therefore, Plaintiffs' claims against those underlying defendants were permanently barred.^[1] Plaintiffs did not refile their voluntarily dismissed claims against the remaining bank.

         B.

         Rather than refiling their nonsuited claims in the underlying lender liability suit, on September 3, 2014, Plaintiffs filed this legal malpractice action against Defendants in the Circuit Court for Knox County, Tennessee. In their legal malpractice complaint, Plaintiffs alleged, in relevant part:

3. Prior to the filing of the lender's liability action . . . [Mr.] Becker, represented to plaintiffs 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 . . . 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 plaintiffs 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 . . . . The claims against the banks were also virtually precluded [by] the express written terms of the loan documents . . . and[, ] as to one of the bank[s], barred by the statute of limitations.

5. Plaintiffs initially agreed to pay [Mr.] Becker $500.00 per hour . . ., but later, after becoming aware that such an hourly rate was excessive, plaintiffs and [Mr.] Becker agreed to reduce the hourly rate to $375.00. In reliance on the representations . . . that they had a strong lender's liability case, plaintiffs together paid [Mr.] Becker several hundred thousand dollars in attorney fees and expenses.

6. During the course of the proceedings, the question arose as to whether plaintiffs should continue to pay the underlying indebtedness that gave rise to their lender's liability claims. [Mr.] Becker, negligently, carelessly and recklessly advised [] plaintiffs that they should discontinue making their payments, and as a result, plaintiffs 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 plaintiffs 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 plaintiffs 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 Thompson, were dismissed from the case, . . . [Mr.] Becker did not inform plaintiffs 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, [Mr.] Becker and [Mr.] Watson took action which permanently precluded plaintiffs from maintaining their claims against the only viable defendant . . ., the individual defendant, Scott Thompson.

8. Plaintiffs 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 . . . . Plaintiffs 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 . . . defaulting on the indebtedness would have devastating economic consequences and inflict grievous harm upon the credit rating and reputations of plaintiffs.

         Plaintiffs alleged that these and other actions of Defendants amounted to violations of the standard of care of a licensed attorney in the State of Tennessee. As a result, Plaintiffs claimed to have suffered damages in excess of two million dollars. Notably, paragraph 11 of Plaintiffs' complaint stated:

11. In explaining in November, 2013, that they had decided plaintiffs' only option was to voluntarily dismiss their lender's liability action, [Mr.] Watson and [Mr.] Becker, acknowledged that [Mr.] Becker had mishandled the case and was not prepared for trial[.] . . . [Mr.] Becker apologized and stated that he had professional liability coverage if plaintiffs decided to make a professional liability claim.

         C.

         In response to the instant legal malpractice claim, Defendants filed a series of dispositive motions. On October 2, 2014, Defendants filed a motion to dismiss pursuant to Rule 12.02 of the Tennessee Rules of Civil Procedure, asserting that the complaint failed to allege facts sufficient to establish Plaintiffs' causes of action and lacked sufficient specificity and that Plaintiffs' claims were barred by the applicable one-year statute of limitations. See Tenn. Code Ann. § 28-3-104(c)(1) ("Actions and suits against . . . attorneys for malpractice shall be commenced within one (1) year after the cause of action accrued, whether the action or suit is grounded or based in contract or tort."). Defendants argued that the statute of limitations began to run on May 7, 2013, the date a judgment was entered dismissing one of the defendant banks and the individual defendant in the underlying case.

         Plaintiffs, however, argued in their response to Defendants' motion that the statute of limitations did not begin to run until November 13, 2013, the date on which the order was entered reflecting Plaintiffs' voluntary dismissal as to the remaining claims. In support of their argument, Plaintiffs characterized the May 7, 2013 order granting summary judgment in favor of two of the underlying defendants as an "interlocutory" order, which did not constitute a final judgment and, according to Plaintiffs, could not have triggered the running of the statute.

         The circuit court, on December 10, 2014, partially granted Defendants' motion to dismiss, holding that all of Plaintiffs' claims, with the exception of one, accrued on May 7, 2013, and were barred by the one-year statute of limitations. However, the court further stated that "Plaintiffs' 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 and which states a claim upon which relief may be granted."

         Following the court's order, Plaintiffs filed an amendment to their complaint in which they alleged that "all of their claims for litigation malpractice and fraud, misrepresentation and deceit against the defendants in this cause are timely filed for purposes of the one year statute of limitations for legal malpractice actions." Seemingly for clarification, Plaintiffs also alleged that on May 31, 2013, Defendants filed a motion to alter or amend the order granting summary judgment in favor of two of the defendants in the underlying lender liability suit but never set the motion for a hearing. Plaintiffs further alleged a claim for "breach of the confidential and fiduciary relationship between plaintiffs and defendants."

         Thereafter, Defendants filed a motion for judgment on the pleadings under Tennessee Rule of Civil Procedure 12.03 with respect to Plaintiffs' remaining claim. Defendants contended that Plaintiffs had failed to allege that they suffered any damages as a result of the November 2013 voluntary dismissal and also requested that the circuit court dismiss the claim for "breach of fiduciary duty and confidentiality" because such claim relied on the same operative facts as Plaintiffs' legal malpractice claims.

         By order entered February 20, 2015, the court denied Defendants' Rule 12.03 motion in part and granted it in part. Notably, the court reaffirmed its December 10, 2014 order dismissing all of Plaintiffs' claims "with the exception of any cause of action which may exist related to the Order of Voluntary Dismissal entered in the Underlying Case on November 12, 2013." It denied Defendants' motion with respect to Plaintiffs' remaining claim and the alleged absence of pleaded damages, finding the matter better suited to a motion for summary judgment. Conversely, the court granted Defendants' motion as to the portion of Plaintiffs' amended complaint asserting a claim for breach of confidentiality and breach of fiduciary duty.

         Following the direction of the circuit court, Defendants next filed a motion for summary judgment in which they again contended that Plaintiffs did not sustain any damages stemming from the voluntary dismissal. On October 19, 2015, the court granted Defendants' motion for summary judgment. The court reasoned that Plaintiffs' assertion that Defendants had misrepresented that the case could be re-filed, particularly against Mr. Thompson, following the voluntary dismissal was a newly asserted claim that had not previously been pleaded and so was barred by the statute of limitations. The court also determined that Plaintiffs' claim that the pending motion to alter or amend the partial summary judgment in the underlying case had been negligently abandoned or lost as a consequence of the voluntary dismissal also was time-barred. It explained that this claim actually arose from the initial May 7, 2013 interlocutory partial summary judgment and so accrued on that date.

         D.

         In the legal malpractice case, Plaintiffs appealed the circuit court's orders partially granting Defendants' motion to dismiss, partially granting Defendants' motion for judgment on the pleadings, and granting Defendants' motion for summary judgment. The Court of Appeals affirmed the circuit court's decision to grant Defendants' motion to dismiss; however, it concluded that, upon Defendants' October 2, 2014 motion to dismiss, the circuit court should have dismissed the legal malpractice complaint in its entirety. Story v. Bunstein, No. E2015-02211-COA-R3-CV, 2016 WL 3344795, at *7 (Tenn. Ct. App. June 9, 2016), perm. app. granted (Tenn. Nov. 17, 2016).^[2]

         The court explained that Plaintiffs "had sufficient knowledge of an injury, 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." Id. As such, the appellate court held, the statute of limitations on the legal malpractice claims began to run on that date. Id. Because the Court of Appeals determined that Plaintiffs' complaint should have been dismissed "in toto, upon the running of the statute of limitations, " it found the remaining issues to be pretermitted. Id.

         We granted Plaintiffs' application for permission to appeal.

         II. Standard of Review

         This is an appeal from both the circuit court's grant of a motion to dismiss for failure to state a claim and its grant of a motion for summary judgment.^[3] Our review of a dismissal for failure to state a claim under Rule 12.02 of the Tennessee Rules of Civil Procedure requires us to take the allegations in the complaint as true. Crews v. Buckman Labs. Int'l, Inc., 78 S.W.3d 852, 857 (Tenn. 2002). This is because a motion filed under Rule 12.02(6) tests "the legal sufficiency of the complaint, not the strength of the plaintiff's proof or evidence." Webb v. Nashville Area Habitat for Humanity, Inc., 346 S.W.3d 422, 426 (Tenn. 2011). By filing their motion to dismiss, Defendants effectively "admit[ted] the truth of all of the relevant and material allegations contained in the complaint, but . . . assert[ed] that the allegations fail to establish a cause of action." Freeman Indus., LLC v. Eastman Chem. Co., 172 S.W.3d 512, 516 (Tenn. 2005). As such, courts "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, 78 S.W.3d at 857. On appeal, we review the "trial court's decision to dismiss a petition for failure to state a claim . . . de novo with no presumption of correctness." Metro. Gov't of Nashville v. Bd. of Zoning Appeals of Nashville, 477 S.W.3d 750, 754 (Tenn. 2015).

         Likewise, we review the grant of a motion for summary judgment de novo with no presumption of correctness. Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997). Under Rule 56.04 of the Tennessee Rules of Civil Procedure, summary judgment is appropriate "if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Tenn. R. Civ. P. 56.04. On appeal, we must determine whether the moving party satisfied its burden of production "(1) by affirmatively negating an essential element of the nonmoving party's claim or (2) by demonstrating that the nonmoving party's evidence ...