Brunetti v. Regency Affiliates

UNITED STATES COURT OF APPEALS
Filed 8/26/96
FOR THE TENTH CIRCUIT

JOSEPH R. BRUNETTI and
FLORENCE BRUNETTI,

Plaintiffs, No. 95-4160
(D.C. No. 90-CV-200-W)
v. (D. Utah)
(152 B.R. 320)
THE REGENCY AFFILIATES, a
Nevada nonprofit organization;
REGENCY GROUP, INC., a Nevada
corporation; SUN TREE
CORPORATION, d/b/a Clearbrook
Apartment Village; 9TH & 9TH
MARKET & CAFE, a Utah
corporation; R.G. UTAH, INC., a Utah
corporation; 2ND AVENUE MARKET
& CAFE, a Utah corporation; WHOLE
EARTH ENTERPRISES, a Utah
corporation, d/b/a The John Henry-
Mackay Company; NEW FRONTIERS
NATURAL FOODS I, a Nevada
corporation; NEW FRONTIERS
NATURAL FOODS II, a Nevada
corporation; NEW FRONTIERS
NATURAL FOODS III, a Nevada
corporation; A.J. MACKAY & SONS,
a Utah corporation; NORTHERN
NEVADA CONSTRUCTION, INC., a
Nevada corporation; THREE J
ENTERPRISES, a Utah corporation;
ASBESTOS TRANSPORT SYSTEMS,
a Nevada corporation;
LUMBERLAND, INC., a Utah
corporation; PORTER-
KNOLLWOOD ESTATES, a Utah
corporation; NATURAL ABILITIES,
INC., a Utah corporation; GENESIS I
BUILDERS, a California nonprofit
organization; BUILDERS
CONSTRUCTION COMPANY, INC.,
a Nevada corporation; NORMAN
PAULSEN; JOHN H. MCCAUGHEY;
JONATHAN KING; JOSEPH
BELTON; and DAVID EDDY,

Defendants-Third-Party
Plaintiffs,

v.

JONES, WALDO, HOLBROOK &
MCDONOUGH, a Utah professional
corporation,

Third-Party Defendant,

_______________________________

FLYING S LAND & CATTLE CO., a
Nevada corporation; REGENCY
GROUP, INC., a Nevada corporation;
THE REGENCY AFFILIATES, a
Nevada nonprofit organization;
BUILDERS LAND &
CONSTRUCTION COMPANY; a
Nevada corporation; OASIS ENERGY
CORPORATION, a Nevada
corporation; INTERNATIONAL
RESERVE INVESTMENTS &
CONSTRUCTION COMPANY, a
Hawaii corporation; and GENESIS I

-2-
BUILDERS, a California nonprofit
organization,

Plaintiffs-Appellants,

v.

JONES, WALDO, HOLBROOK &
MCDONOUGH, a Utah professional
corporation,

Defendant-Appellee.

-----------------------------------------

JONES, WALDO, HOLBROOK &
MCDONOUGH, a Utah professional
corporation,

Counterclaimant-
Appellee,

v.

FLYING S LAND & CATTLE CO., a
Nevada corporation; REGENCY
GROUP, INC., a Nevada corporation;
THE REGENCY AFFILIATES, a
Nevada nonprofit organization;
BUILDERS LAND &
CONSTRUCTION COMPANY; a
Nevada corporation; OASIS ENERGY
CORPORATION, a Nevada
corporation; and GENESIS I
BUILDERS, a California nonprofit
organization,

Counterclaim-Defendants-
Appellants,

-3-
 and

NORTHERN HOLDINGS UTAH,
INC., a Nevada corporation;
BUILDERS CONSTRUCTION
COMPANY, INC., a Nevada
corporation; PORTER-KNOLLWOOD
ESTATES, a Utah corporation; SUN
TREE CORPORATION, d/b/a
Clearbrook Apartment Village; NEW
FRONTIERS NATURAL FOODS I, a
Nevada corporation; NEW
FRONTIERS NATURAL FOODS II, a
Nevada corporation; NEW
FRONTIERS NATURAL FOODS III,
a Nevada corporation; NEW
FRONTIERS NATURAL FOODS IV,
a Nevada corporation; NEW
FRONTIERS NATURAL FOODS V, a
Nevada corporation; NORTHERN
NEVADA CONSTRUCTION, INC., a
Nevada corporation; WASTE
CONTROL MANAGEMENT
NEVADA, INC., a Nevada
corporation; PATRICIA
DECATALDO; NORMAN PAULSEN;
JOSEPH BELTON; and JONATHAN
KING,

Counterclaim-Defendants.

-4-
 ORDER AND JUDGMENT *

Before TACHA, ALDISERT, ** and BALDOCK, Circuit Judges.

After examining the briefs and appellate record, this panel has determined

unanimously to grant the parties’ request for a decision on the briefs without oral

argument. See Fed. R. App. P. 34(f) and 10th Cir. R. 34.1.9. The case is

therefore ordered submitted without oral argument.

Appellants Flying S Land & Cattle Co., Regency Group, Builders Land &

Construction Co., Oasis Energy Corp., The Regency Affiliates, Genesis I

Builders, and International Reserve Investments & Construction Co. (collectively

referred to as Flying S) appeal the district court’s entry of summary judgment

against them on their legal malpractice claims against the law firm of Jones,

*
This order and judgment is not binding precedent, except under the
doctrines of law of the case, res judicata, and collateral estoppel. The court
generally disfavors the citation of orders and judgments; nevertheless, an order
and judgment may be cited under the terms and conditions of 10th Cir. R. 36.3.
**
Honorable Ruggero J. Aldisert, Senior Circuit Judge, United States Court
of Appeals for the Third Circuit, sitting by designation.

-5-
Waldo, Holbrook & McDonough. 1 The district court determined that appellants’

malpractice claims, which were filed on March 1, 1991, were barred by Utah’s

four-year statute of limitations. See Utah Code Ann. § 78-12-25. This case

requires us to determine when appellants’ malpractice claims accrued and the

statute of limitations began to run. We review both the district court’s grant of

summary judgment and its interpretation of Utah law de novo. See Wolf v.

Prudential Ins. Co. of Am., 50 F.3d 793, 796 (10th Cir. 1995)(summary

judgment); Salve Regina College v. Russell, 499 U.S. 225, 231 (1991)(state law).

The general rule in Utah is that a cause of action accrues, and the statute of

limitations begins to run, “upon the happening of the last event necessary to

complete the cause of action.” Myers v. McDonald, 635 P.2d 84, 86 (Utah 1981).

Under this general “occurrence” rule, “mere ignorance of the existence of a cause

of action does not prevent the running of the statute of limitations.” Id. In some

instances, however, the Utah courts will apply a “discovery” rule, rather than the

occurrence rule. Under the discovery rule, the limitations period does not begin

to run “until the discovery of facts forming the basis for the cause of action.” Id.

The Utah courts have applied the discovery rule in three types of situations: 1)

1
The district court disposed of appellants’ claims in two summary judgment
orders, the first of which disposed of all but two of appellants’ claims and the
second of which disposed of the remaining claims. The district court published
its first order, Brunetti v. Regency Affiliates, 152 B.R. 320 (D. Utah 1993), but it
did not publish the second order.

-6-
when the legislature has incorporated the discovery rule into the particular statute

of limitations; 2) when the defendant has concealed the facts from the plaintiff or

misled the plaintiff as to the true facts; and 3) when application of the general

rule to the particular circumstances or the particular cause of action would

produce an irrational or unjust result, even in the absence of any wrongdoing by

the defendant. E.g., id.; Warren v. Provo City Corp., 838 P.2d 1125, 1129 (Utah

1992).

In Merkley v. Beaslin, 778 P.2d 16, 19 (Utah Ct. App. 1989), the court held

that the discovery rule should apply to causes of action for legal malpractice.

The court determined that fundamental fairness required application of the

discovery rule to malpractice claims “because the attorney-client relationship is

based upon trust, and is a situation in which one less knowledgeable must rely on

another, who has special expertise, for advice and assistance.” Id. The court

further noted that much of an attorney’s work is done outside the view of the

client, and that “[t]he nature of the attorney-client relationship is such that, often,

attorney negligence would not be discovered until years after the act had

occurred.” Id. Therefore, rather than apply the general occurrence rule, the court

held that “a cause of action for legal malpractice accrues, and the four-year

statute of limitations commences to run, when the act complained of is discovered

or, in the exercise of reasonable care, should have been discovered.” Id.

-7-
 Here, Flying S retained the Jones, Waldo firm in late 1983 or early 1984 to

assist it in removing a lien from the Big Springs Ranch, which Flying S purchased

from Robert Beaumont in 1981. When these efforts proved unsuccessful, Jones,

Waldo recommended that Flying S file for reorganization in bankruptcy under

Chapter 11. Jones, Waldo filed the bankruptcy petition on behalf of Flying S on

May 24, 1984, and represented Flying S in the ensuing bankruptcy proceedings

until March 26, 1986, when the firm withdrew. Flying S contends that Jones,

Waldo committed various acts of malpractice during the course of this

representation.

At the time the bankruptcy petition was filed, Flying S owed Jones, Waldo

approximately $100,000 in attorney fees. In an effort to obtain payment of pre-

and post-petition fees, Jones, Waldo allegedly entered into various agreements

whereby it obtained security interests in property of Flying S and its affiliates. In

the summer of 1985, an associate at Jones, Waldo also structured several loans to

Flying S from other clients of the firm that contained terms and conditions

unfavorable to Flying S. The proceeds of these loans were paid to Jones, Waldo

for legal fees. Appellants contend that Jones, Waldo did not reveal to the

bankruptcy court that the firm had an interest in property of Flying S and its

affiliates, which property was necessary for the reorganization. Nor, according to

-8-
appellants, did Jones, Waldo seek bankruptcy court approval to act as counsel for

Flying S.

Flying S also contends that Jones, Waldo delayed the reorganization effort

by filing unrealistic reorganization plans and by failing to pursue other

reorganization efforts, which would have conflicted with Jones, Waldo’s own

interests. Further, appellants allege that Jones, Waldo charged excessive fees and

that it abandoned Flying S in the bankruptcy proceedings by abruptly withdrawing

in March 1986.

Finally, Flying S alleges that Jones, Waldo was negligent in handling a

fraud claim against Beaumont. First, Jones, Waldo allegedly refused to bring a

claim against Beaumont despite repeated requests from Flying S to do so.

Appellants contend that once Jones, Waldo finally did draft a complaint against

Beaumont in August 1985, it was frivolous. Finally, Jones, Waldo allegedly

represented to Flying S that the fraud claim had merit and could be used as a tool

in negotiating with Beaumont when, in fact, Jones, Waldo believed the claim to

be without merit.

The district court concluded that the undisputed facts established that

Flying S knew or should have known of each of the alleged acts of negligence

more than four years before it commenced suit against Jones, Waldo on March 1,

-9-
1991. 2 Appellants do not challenge the district court’s conclusions concerning the

dates of their knowledge. Appellants’ sole challenge on appeal is to the district

court’s conclusion that, pursuant to Merkley, “the statutory period for attorney

malpractice begins to run on the date a plaintiff discovers, or reasonably should

discover, the act complained of, regardless of the existence of an actionable

injury.” Brunetti v. Regency Affiliates, 152 B.R. 320, 323 (D. Utah

1993)(emphasis added). Appellants argue that the decision in Merkley constitutes

“an unexplainable departure“ from the line of Utah Supreme Court cases applying

the discovery rule, and that both the district court’s interpretation of the Merkley

decision and its reliance on the decision are in error. Br. of Appellants at 18.

Among other things, appellants contend that Merkley’s accrual rule for

legal malpractice claims fails to take into account situations in which the client

learns of the attorney’s negligent act or omission before the act or omission has

caused any actionable injury. We need not consider how the Merkley rule might

apply in such a situation, however, because the record here reflects that appellants

had suffered actionable injury by the time they either discovered, or should have

2
As to the allegation that Jones, Waldo misrepresented to Flying S the merits
and usefulness of the fraud claim against Beaumont, the district court concluded
that, because Flying S hired new counsel to pursue the claim in October 1986,
which resulted in some success, no reasonable jury could find appellants suffered
any injury as a result of Jones, Waldo’s alleged misrepresentation. Appellants do
not challenge this determination on appeal.

-10-
discovered, their counsel’s alleged acts of malpractice. Therefore, appellants’

claims for malpractice accrued, and the statute of limitations began to run, more

than four years before they filed suit. That appellants may have suffered

additional damages after March 1, 1987, including the loss of the Big Springs

Ranch, does not affect the date(s) on which their claims for malpractice accrued.

Because appellants failed to bring suit within four years of the accrual of their

malpractice claims, the district court properly entered summary judgment in favor

of Jones, Waldo on those claims.

The judgment of the United States District Court for the District of Utah is

AFFIRMED.

Entered for the Court

Ruggero J. Aldisert
Senior Circuit Judge

-11-