129 Nev., Advance Opinion 54,
IN THE SUPREME COURT OF THE STATE OF NEVADA
JOON S. MOON; AND PATTERSON No. 58720
LABORATORIES, INC., A MICHIGAN
CORPORATION,
Appellants, FILED
vs.
MCDONALD, CARANO & WILSON
AUG 0 1 2013
LLP, A NEVADA LIMITED LIABILITY
PARTNERSHIP, BY..2-ra
DEPUTY CLERK
Respondent.
Appeal from a district court judgment dismissing appellants'
complaint in a legal malpractice action. Second Judicial District Court,
Washoe County; Steven P. Elliott, Judge.
Affirmed.
Carl M. Hebert, Reno,
for Appellants.
Piscevich & Fenner and Margo Piscevich and Mark J. Lenz, Reno,
for Respondent.
BEFORE PICKERING, C.J., HARDESTY and SAITTA, JJ.
OPINION
By the Court, HARDESTY, J.:
The statute of limitations for a professional malpractice claim
against an attorney commences on the date the plaintiff discovers, or
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through due diligence should have discovered, the material facts that
constitute the cause of action. NRS 11.207(1). The statutory limitation
period for a claim of legal malpractice involving the representation of a
client during litigation does not commence until the underlying litigation
is concluded. Hewitt v. Allen, 118 Nev. 216, 221, 43 P.3d 345, 348 (2002).
In this appeal, we must determine whether an attorney's alleged
negligence in representing a creditor in the non-adversarial parts of a
bankruptcy proceeding constitutes litigation malpractice causing the so-
called Hewitt litigation tolling rule to apply. We conclude that it does not.
FACTS AND PROCEDURAL HISTORY
Appellant Patterson Laboratories, Inc. (PL), operated a
manufacturing facility in Phoenix, Arizona, and expanded its operations
with the purchase of land and a building in Goodyear, Arizona. PUT later
conveyed the Goodyear building and real property to its president and
principal shareholder, appellant Joon S. Moon. Patterson West, Inc.
(West), purchased PLI's Goodyear operations; however, Moon retained
ownership of the facility and real property, and West agreed to lease the
Goodyear facility from Moon.
West executed a promissory note for $1,410,000, secured by
certain equipment, inventory, and other personal property sold to West
and located at the Goodyear facility. West, which changed its name to
Sierra International, Inc. (Sierra), later defaulted on the promissory note
and the lease with Moon. Sierra filed a Chapter 7 voluntary petition in
bankruptcy court in 2001, and appellants hired respondent McDonald
Carano Wilson LLP (MCW) in July 2002 to represent them in Sierra's
bankruptcy action.
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In the bankruptcy case, appellants instructed MCW to have
the collateral removed from the Goodyear facility so that the facility and
real property could be sold without the equipment on the premises.
Allegedly, unbeknownst to appellants, MCW negotiated with the
bankruptcy trustee and counsel for Sierra to permit PLI to take possession
of the personal property secured as collateral. Later, in November 2002,
pursuant to a stipulation by the attorneys and trustee, the lease of the
Goodyear facility was terminated, and PLI was permitted to take
possession of the collateral. MCW's representation of appellants ended in
February 2003, and on October 21, 2008, the bankruptcy court entered its
final decree and Sierra's bankruptcy case was closed.
Moon also filed a district court action seeking relief for breach
of the promissory note executed by West and indemnity for an action filed
by the City of Goodyear against Moon based on a chemical spill that
occurred while Sierra was operating the Goodyear facility. Sierra and the
other defendants in that action filed a motion for partial summary
judgment, requesting that the amount owed on the promissory note and
guarantee be offset by the value of the collateral located at the Goodyear
facility that had been returned to PUT. Subsequently, on April 27, 2006,
the district court issued an order stating that upon appellants' possession
of the collateral, they were required to dispose of the collateral in a
commercially reasonable manner, and all related proceeds were to offset
the remainder of the debt owed on the note. The district court ultimately
awarded damages to appellants, less the offset for the value of the
collateral returned to PUT. Appellants appealed, and this court dismissed
the matter pursuant to the parties' stipulation on February 17, 2009.
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Meanwhile, on November 3, 2006, appellants filed an action
against MCW, alleging professional negligence, breach of contract, and
vicarious liability (first complaint) arising from its representation of
appellants in Sierra's bankruptcy action. In 2008, the district court
dismissed the lawsuit without prejudice because appellants had failed to
comply with the requirements of NRCP 16.1(e)(2). Appellants appealed
that decision, and this court affirmed.
On October 20, 2010, appellants filed a second action against
MCW (second complaint), reasserting the claims in their first complaint.
In March 2011, MCW filed a motion to dismiss the second complaint
pursuant to NRCP 12(b)(5), arguing that the case was time-barred under
the applicable statute of limitations, NRS 11.207(1). MCW argued that
NRS 11.207(1) governs appellants' professional malpractice claim, and,
based on the record, the appropriate accrual date is November 3, 2006, the
date of the filing of the first complaint. In their opposition, appellants
argued that Hewitt governs the claim, and the appropriate accrual date is
either February 17, 2009, the date of the dismissal of the appeal in the
district court case, or October 21, 2008, the date of the final decree in the
bankruptcy case.
In April 2011, the district court granted MCW's motion. In its
order, the district court rejected February 17, 2009, as the accrual date
because the alleged action constituting malpractice did not occur as part of
the state court case. It also rejected October 21, 2008, as the accrual date,
citing Cannon v. Hirsch Law Office, P.C., 213 P.3d 320, 328 (Ariz. Ct. App.
2009), and holding that Hewitt was inapplicable because a bankruptcy
proceeding does not constitute litigation. It then held that November 3,
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2006, was the appropriate accrual date because NRS 11.207(1) governed
the claim and appellants were cognizant of the material facts that made
up their current malpractice action as early as that date. Because
appellants filed their second complaint on October 20, 2010, the district
court concluded that the complaint was untimely and the statute of
limitations barred its consideration. This appeal followed.
DISCUSSION
"This court reviews de novo a district court's order granting a
motion to dismiss, and such an order will not be upheld unless it appears
beyond a doubt that the plaintiff could prove no set of facts. . . [that]
would entitle him [or her] to relief." Munda v. Summerlin Life & Health
Ins. Co., 127 Nev. , 267 P.3d 771, 774 (2011) (alterations in
original) (internal quotations omitted).
The district court did not err by granting MCW's motion to dismiss based
upon NRS 11.207(1)
NRS 11.207(1) sets forth the statute of limitations for a
professional malpractice claim and contains a so-called "discovery rule":
"[a]n action against an attorney. . . to recover damages for
malpractice . . . must be commenced. . . within 2 years after the plaintiff
discovers or through the use of reasonable diligence should have
discovered the material facts which constitute the cause of action." The
timely filing of a professional malpractice claim may be subject to the
litigation malpractice tolling rule. In Hewitt v. Allen, this court held that
[i]n the context of litigation malpractice, that is,
legal malpractice committed in the representation
of a party to a lawsuit, damages do not begin to
accrue until the underlying legal action has been
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resolved. Thus, when the malpractice is alleged to
have caused an adverse ruling in an underlying
action, the malpractice action does not accrue
while an appeal from the adverse ruling is
pending.
118 Nev. at 221, 43 P.3d at 348 (footnote omitted).
On appeal, appellants argue that the district court erred by
holding that a bankruptcy proceeding does not constitute litigation. They
rely on Guillot v. Smith, 998 S.W.2d 630 (Tex. App. 1999), in support of
their argument." MCW contends that, based on Cannon, the district court
properly ruled that bankruptcy proceedings do not constitute litigation.
Alternatively, it argues that appellants' reliance on Guillot is misplaced.
Non-adversarial bankruptcy proceedings do not constitute litigation
for purposes of the litigation malpractice tolling rule
Whether bankruptcy proceedings constitute litigation for
purposes of the litigation malpractice tolling rule is an issue of first
impression for this court, and we thus examine how other jurisdictions
have addressed the issue.
In Cannon, an attorney was retained to protect a creditor's
interests in a Chapter 13 bankruptcy action. 213 P.3d at 322. After the
'Appellants also cite to two other cases to support their argument
that other jurisdictions have virtually all held that bankruptcy
proceedings constitute litigation. However, our review of those cases
reveals that only one of the cited cases supports their argument. See
Kellogg v. Fowler, White, Burnett, Hurley, Banick & Strickroot, P.A., 807
So. 2d 669, 672 (Fla. Dist. Ct. App. 2001) (applying the litigation
malpractice rule to a professional malpractice claim arising from
bankruptcy proceedings).
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bankruptcy action ended, the creditor filed a complaint against the
attorney, asserting a claim of professional malpractice based on the
attorney's allegedly improper representation in the bankruptcy
proceedings. Id. at 323. Like Nevada, Arizona has a general discovery
rule and a litigation malpractice tolling rule. Id. at 323-24. The trial
court applied the discovery rule and dismissed the creditor's complaint as
untimely. Id. at 323.
On appeal, the Cannon court recognized that bankruptcy
proceedings may contain both adversarial and non-adversarial portions
and held that "an attorney's alleged negligence while representing a
creditor in the non-adversarial portions of bankruptcy proceedings does
not occur in the course of 'litigation,' as that term is used for purposes of
the accrual of an attorney malpractice action." Id. at 325, 327-28
(emphasis added). It further held that "[t]here is a bright-line test to
distinguish between the non-adversarial and adversarial portions of a
bankruptcy proceeding: adversarial proceedings begin when a creditor
files a complaint in a bankruptcy action." Id. at 328 (citing Fed. R. Bankr.
P. 7003 ("Commencement of Adversary Proceeding")). It then affirmed the
trial court's decision to apply the discovery rule because, although the
bankruptcy action was converted into a Chapter 7 proceeding, the creditor
never filed a complaint in the bankruptcy proceeding. Id. at 322-23, 328.
Although MCW, as counsel for appellants, rejected the
unexpired lease, the record here indicates that the rejection of the
unexpired lease was resolved by stipulation of the parties and no
adversarial proceeding was filed. By definition, the proceedings are non-
adversarial. Thus, the proceeding constitutes an uncontested matter
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because MCW and the appellants resolved the rejection without the filing
of a complaint in the bankruptcy action. 2
We conclude that the lease rejection did not constitute an
adversarial proceeding. Thus, applying the Cannon court's analysis we
adopt today to the facts of this case, we conclude that Sierra's bankruptcy
action did not constitute an adversarial proceeding. The district court
therefore properly granted MCW's motion to dismiss pursuant to the
discovery rule articulated in NRS 11.207(1). See Cannon, 213 P.3d at 322-
23, 328 (upholding application of the discovery rule in the absence of a
complaint).
Appellants rely on Guillot, arguing that the district court
erred by holding that a bankruptcy proceeding does not constitute
litigation. In Guillot, the Texas Court of Appeals was not presented with
the question of whether a bankruptcy proceeding constituted "litigation"
for purposes of the litigation malpractice tolling rule. 998 S.W.2d at 632
n.2. Nevertheless, it noted that
2Additionally, appellants argue that under the Federal Rules of
Bankruptcy Procedure (FRBP) Sierra's bankruptcy action was adversarial
in nature, and thus constituted litigation. Appellants refer to the rejection
of the lease and specifically contend that under FRBP 6006, "[a]
proceeding to assume, reject, or assign an executory contract or unexpired
lease, other than as part of a plan, is governed by Rule 9014," and Rule
9014 sets forth the procedures for seeking relief "[i]n a contested matter."
We determine that these rules that appellant relies on address the
procedure for bankruptcy proceedings that are contested. However,
because we determine that the rejection of the lease was not a contested
matter and thus this was not a contested bankruptcy proceeding, this
argument lacks merit.
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a bankruptcy proceeding is 'litigation'
[because] . . . [t]he client would still be forced to
assert inconsistent positions in the bankruptcy
and malpractice action, and be left to either hire
new counsel or continue to allow an attorney who
may have committed malpractice to represent him
in the underlying action.
Id. The court held that "the statute of limitations on [the client's]
malpractice claim against [the attorney] was tolled during the pendency of
[the attorney's] representation of [the client] in an ongoing bankruptcy
proceeding." Id. at 633.
Appellants contend that Guillot supports their argument that
their malpractice claims were tolled until the February 17, 2009, dismissal
of the appeal in the district court case or the October 21, 2008, final decree
in the bankruptcy case. We determine that appellants' reliance upon
Guillot is misplaced. The Guillot court's discussion of the potential
application of the litigation malpractice tolling rule in that case was based
on a presumption of the attorney's continued representation of the client.
It is undisputed by the parties that MCW only represented appellants in
Sierra's bankruptcy action from July 2002 to February 2003, when it was
disqualified from representing appellants by the bankruptcy court.
Appellants' professional malpractice claim would therefore not be tolled by
the litigation malpractice tolling rule after February 2003, even if this
court were to conclude that the bankruptcy proceeding in this case
qualified as litigation.
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=MI
For the foregoing reasons, we conclude that the district court
did not err by granting MCW's motion to dismiss pursuant to NRS
11.207(1), and we thus affirm the district court's judgment. 3
, J.
Hardesty
We concur:
Piek&t 7 , C.J.
g
iiL
Sraitta
3 0n appeal, appellants also argue that the district court abused its
discretion by granting MCW's motion to dismiss based upon the doctrine of
judicial estoppel. Appellants assert that MCW waived the argument of
judicial estoppel below by raising it for the first time in its reply in support
of its motion to dismiss. See Francis v. Wynn Las Vegas, LLC, 127 Nev. ,
n.7, 262 P.3d 705, 715 n.7 (2011) ("[A]rguments raised for the first time
in [a] reply brief need not be considered."). However, we determine that
MCW did not waive the argument of judicial estoppel. Based on the record,
MCW's judicial estoppel argument was made in response to an argument
made by appellants in their opposition to MCW's motion to dismiss.
Regardless, we conclude that the doctrine of judicial estoppel is
inapplicable to this matter because the record indicates that the district
court dismissed appellants' first complaint on procedural grounds, and,
therefore, appellants never successfully asserted their first position. See
S. Cal. Edison v. First Judicial Dist. Court, 127 Nev. „ 255 P.3d
231, 237 (2011) (holding that judicial estoppel may apply only if a party
was successful in asserting its first position). Thus, we determine that the
district court abused its discretion by granting MCW's motion to dismiss
based upon the doctrine of judicial estoppel. Nevertheless, because the
district court properly granted MCW's motion to dismiss based on NRS
11.207(1), such abuse was harmless error. See Wyeth v. Rowatt, 126 Nev.
„ 244 P.3d 765, 769 (2010) (an error is harmless if the party cannot
"demonstrate that their substantial rights were affected so that, but for
the error, a different result may have been reached").
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