Stanley L. and Carolyn M. Watkins Trust v. Lacosta

No. 02-567

IN THE SUPREME COURT OF THE STATE OF MONTANA

2004 MT 144

THE STANLEY L. AND CAROLYN M.
WATKINS TRUST; STEVEN B. WILLIAMSON,
individually and as Personal Representative of THE
ESTATE OF STANLEY L. WATKINS, Deceased,

Plaintiffs and Appellants,

v.

SUSAN M. LACOSTA, ESQ., and HEDMAN,
HILEMAN & LACOSTA, Attorneys at Law,

Defendants and Respondents.

APPEAL FROM: District Court of the Eleventh Judicial District,
In and for the County of Flathead, Cause No. DV 2000-401(A)
The Honorable Ted O. Lympus, Judge presiding.

COUNSEL OF RECORD:

For Appellants:

Kenneth R. Dyrud, Church, Harris, Johnson & Williams, P.C., Missoula,
Montana

For Respondents:

George D. Goodrich, William Evan Jones, Garlington, Lohn & Robinson,
PLLP, Missoula, Montana

Submitted on Briefs: January 16, 2003

Decided: June 8, 2004
Filed:

__________________________________________
Clerk
Justice James C. Nelson delivered the Opinion of the Court.

¶1 The Stanley L. and Carolyn M. Watkins Trust, and Steven B. Williamson,

individually and as Personal Representative of the Estate of Stanley L. Watkins, deceased

(collectively, “Appellants”), brought a legal malpractice action in the District Court for the

Eleventh Judicial District, Flathead County, to recover damages allegedly sustained as a

result of attorney Susan Lacosta’s negligence in drafting the Trust documents and Stanley’s

will. The District Court granted Respondent’s motion for summary judgment concluding that

Appellant’s action was time-barred under the three-year statute of limitations for legal

malpractice actions and that the doctrines of res judicata, equitable estoppel and judicial

estoppel barred Appellants’ claim. We reverse and remand for further proceedings consistent

with this Opinion.

¶2 We address the following issues on appeal:

¶3 1. Whether Appellants have standing to bring a legal malpractice action against

Respondents.

¶4 2. Whether the doctrines of res judicata, collateral estoppel, equitable estoppel and

judicial estoppel bar Appellants’ claims against Respondents.

¶5 3. Whether Appellants’ claims against Respondents are barred by the three-year

statute of limitations for legal malpractice.

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 Factual and Procedural Background

¶6 Steve Williamson and his stepfather, Stanley Watkins, each owned interests in a

trucking operation they had built together. In late 1991 or early 1992, Stanley’s wife,

Carolyn, retained Susan Lacosta, an attorney whose emphasis was in estate and tax planning,

to draft an estate plan for Stanley and Carolyn along with partnership and shareholder

agreements related to the trucking operation. At Stanley’s and Carolyn’s request, Lacosta

included in the Trust agreement a direct bequest of Stanley’s interest in the trucking

operation to Steve upon the death of the survivor of Stanley and Carolyn.

¶7 In January 1992, Stanley and Carolyn signed their wills and a Trust agreement entitled

“The Stanley L. and Carolyn M. Watkins Revocable Trust Agreement” (the Trust). At the

same time, they each signed an assignment of virtually all of their property to the Trust, over

which they both were Trustees. Stanley suffered from a heart condition and he was legally

blind. Because of Stanley’s ill health, Lacosta never met with him, nor did she discuss the

estate plan with him. Instead, Lacosta sent the wills and Trust documents home with

Carolyn and, contrary to the attestations appearing in the wills, they were signed outside of

the presence of the purported witnesses (including Lacosta) and outside of the presence of

a notary public.

¶8 Stanley died on April 7, 1992, and his will, prepared only a few months earlier, was

admitted to probate. Although Stanley’s 1992 will was admitted to probate with Lacosta’s

knowledge, Lacosta did not disclose to Carolyn or to the court that the will had been

improperly executed because it was not signed in the presence of witnesses as required by

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§ 72-2-522, MCA. Lacosta also did not disclose to Carolyn that when Stanley died, the

Trust became irrevocable.

¶9 Upon Stanley’s death, Carolyn became the sole Trustee under the Trust. For the next

three years, Carolyn, as Trustee, facilitated the administration of the Trust and Stanley’s

estate.

¶10 In early January 1995, Steve met with John Hagman, an insurance agent, to discuss

Steve’s own life insurance and estate planning needs. They reviewed the Trust agreement,

but because neither of them were able to decipher what the Trust agreement meant or

accomplished, they met with Lacosta on January 13, 1995, to clarify the disposition of the

trucking operation stock through the Trust. Lacosta told them that the Trust was revocable

and that Carolyn could do whatever she wanted with the assets. However, a few months

later, Lacosta informed Carolyn that the Trust was a Qualified Terminable Interest Property

(QTIP) trust and that Carolyn could not revoke the provisions of the Trust that left Stanley’s

interest in the trucking operation to Steve.

¶11 In August 1995, Carolyn, Lacosta, Steve and the other Watkins’ children attended a

meeting for the specific purpose of discussing the Trust and other related financial matters.

At the meeting, Lacosta summarized the Trust, but at no time did she or anyone else give any

indication that there were questions about the validity of the Trust or Stanley’s will.

¶12 Sometime prior to this meeting, Carolyn had contacted Neil McKay, an estate and tax

planning attorney, to inquire about the Trust. McKay testified in his deposition that the Trust

would be very difficult for the average layperson to understand. In fact, he testified that

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even as an estate and tax planning expert, he had to spend many hours reading the Trust

agreement before he could understand it.

¶13 In December 1995, McKay wrote to Steve and the other Trust beneficiaries on

Carolyn’s behalf, disclosing that there were defects in the estate plan. He sought their

agreement to declare void an attempted transfer to the Trust. Thereafter, Carolyn attempted

to invalidate Stanley’s 1992 will and the Trust. This resulted in acrimonious and protracted

litigation between Carolyn and the Trust beneficiaries. In those cases (hereafter collectively

referred to as the “Beneficiary Suits”), the District Court found Carolyn’s claims to be time

barred.

¶14 Carolyn died on February 23, 1997. On April 3, 1997, Appellants brought this legal

malpractice action to recover damages allegedly caused by Lacosta. Appellants alleged that

Lacosta committed malpractice in connection with the estate plan enabling an attack on the

Trust and Stanley’s will thereby damaging each of them. Because Lacosta’s alleged

malpractice created conflicting expectations among the survivors, the Estate of Carolyn M.

Watkins brought a separate malpractice action wherein Carolyn’s estate asserted that in

addition to the problems regarding the witnessing of Stanley’s will, Lacosta failed to draft

the Trust according to Stanley’s and Carolyn’s wishes. Estate of Carolyn Watkins v.

Hedman, Hileman & Lacosta, 2004 MT 143, ___ Mont. ___, ___ P.3d ___.

¶15 In the instant case, Respondents moved for summary judgment. The District Court

granted Respondents’ motion concluding that the statute of limitations on Lacosta’s alleged

malpractice began to run by the time Stanley’s will was admitted to probate in April 1992,

5
and that this action is therefore untimely. The court further held that Appellants did not have

standing because they were not clients of Lacosta and that the action was barred by res

judicata, equitable estoppel and judicial estoppel. Thereafter, Appellants filed a Motion for

Relief from Judgment that was not ruled upon. Appellants also filed a Motion to Alter or

Amend that was denied. From this judgment and these orders, Appellants appeal.

Standard of Review

¶16 Summary judgment is proper only when no genuine issue of material fact exists and

the moving party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. Our

standard in reviewing a district court’s summary judgment ruling is de novo. Johnson v.

Barrett, 1999 MT 176, ¶ 9, 295 Mont. 254, ¶ 9, 983 P.2d 925, ¶ 9 (citing Stutzman v. Safeco

Ins. Co. of America (1997), 284 Mont. 372, 376, 945 P.2d 32, 34). We use the same Rule

56, M.R.Civ.P., criteria applied by the district court. Johnson, ¶ 9. Moreover, all reasonable

inferences which may be drawn from the offered proof must be drawn in favor of the party

opposing summary judgment. Johnson, ¶ 8 (citing Schmidt v. Washington Contractors

Group, 1998 MT 194, ¶ 7, 290 Mont. 276, ¶ 7, 964 P.2d 34, ¶ 7).

Issue 1.

¶17 Whether Appellants have standing to bring a legal malpractice action against
Respondents.

¶18 Appellants contend that the District Court’s orders should be reversed and remanded

because the court’s rationale on this issue is unclear. In their motion for summary judgment,

Respondents did not raise any issues as to Appellants’ standing to bring this action. Rather,

6
the standing issue was raised by the District Court at the close of the hearing on the motion

for summary judgment, based on an inquiry to Respondents’ counsel regarding the existence

of a fiduciary relationship between Lacosta and Appellants.

¶19 With regard to the Estate of Stanley L. Watkins (the Estate), Lacosta admits that

Stanley was a client. Because the Estate stands in the shoes of the decedent, it is considered

to be in privity with the attorney, and the personal representative has standing to prosecute

a malpractice claim. Espinosa v. Sparber, Shevin, Shapo, Rosen & Heilbronner (Fla. 1993),

612 So.2d 1378, 1380.

¶20 A fact issue exists as to whether the Trust is a client or a nonclient beneficiary. The

Trust may be considered a client based upon the legal services provided by Lacosta to the

Trust and its Trustees, services which involved Trust assets and transactions. Because

Lacosta did not raise the issue of standing in her motion for summary judgment, she

presented no facts as to whether the Trust was or was not a client. And, in its order, the

District Court failed to cite to any cases and made no conclusions as to whether a duty exists

to nonclients, or the extent of that duty if it does exist. However,

[t]he courts agree that the existence of the attorney-client relationship, the
contractual scope of duty, the causation of damages and the extent of damages
usually are issues for the trier of fact . . . . A common factual dispute is
whether there was an attorney-client relationship.

Ronald E. Mallen & Jeffrey M. Smith, Legal Malpractice, Vol. 5, § 33.11 (5th ed. 2000)

(hereafter, Mallen).

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¶21 Steve claims standing as a nonclient beneficiary of the estate plan. The duty owed

to a nonclient beneficiary is a matter of first impression in Montana. See Rhode v. Adams,

1998 MT 73, ¶¶ 12-13, 288 Mont. 278, ¶¶ 12-13, 957 P.2d 1124, ¶¶ 12-13. However, the

majority rule in other jurisdictions supports standing in cases involving actions by named

beneficiaries against drafting attorneys. Cf., Blair v. Ing (Haw. 2001), 21 P.3d 452; Mallen,

Vol. 4, § 32.4 (“Despite statements that strict privity is the prevailing or majority rule, just

the opposite is true of actions brought by beneficiaries of wills. A duty to a third party is

implied because that is the mutual intent of the attorney and client.”)

¶22 Moreover, a finding of duty is consistent with existing Montana law. This Court has

noted that a multi-factor balancing test adopted in other jurisdictions may be appropriate in

deciding the duty owed by attorneys to nonclients in estate planning. Rhode, ¶ 17.

Additionally, we have recognized liability to nonclients in other professional contexts. See,

e.g., Thayer v. Hicks (1990), 243 Mont. 138, 793 P.2d 784 (accounting firm liable to

nonclient); Jim’s Excavating Serv. v. HKM Assoc. (1994), 265 Mont. 494, 878 P.2d 248

(professional engineer liable to nonclient); Turner v. Kerin & Assoc. (1997), 283 Mont. 117,

938 P.2d 1368 (professional engineer liable to nonclient).

¶23 Accordingly, we hold that the Estate does have standing to bring a legal malpractice

action against Respondents. We further hold that whether the Trust and Steve have standing

to bring a legal malpractice action against Respondents is a factual issue that must be

determined at trial, thus precluding summary judgment.

Issue 2.

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¶24 Whether the doctrines of res judicata, collateral estoppel, equitable estoppel and
judicial estoppel bar Appellants’ claims against Respondents.

¶25 Appellants contend that the District Court erred in concluding that the doctrines of res

judicata, equitable estoppel and judicial estoppel barred Appellants’ claims. Instead,

Appellants argue that when an attorney’s estate planning causes loss or injury to estate and

trust assets and requires clients and beneficiaries to resort to litigation as the only means of

resolving the disposition of assets, a subsequent malpractice action is not barred under the

doctrines of res judicata, equitable estoppel or judicial estoppel as the elements necessary

to establish those defenses are absent.

¶26 The doctrines of res judicata and collateral estoppel are based on a judicial policy

favoring a definite end to litigation. Kullick v. Skyline Homeowners Ass’n, 2003 MT 137,

¶ 17, 316 Mont. 146, ¶ 17, 69 P.3d 225, ¶ 17 (citing Rausch v. Hogan, 2001 MT 123, ¶ 14,

305 Mont. 382, ¶ 14, 28 P.3d 460, ¶ 14). Res judicata bars a party from relitigating a matter

that the party has already had an opportunity to litigate. Kullick, ¶ 17 (citing Olson v.

Daughenbaugh, 2001 MT 284, ¶ 22, 307 Mont. 371, ¶ 22, 38 P.3d 154, ¶ 22). Collateral

estoppel is a form of res judicata and bars the reopening of an issue that has been litigated

and resolved in a prior suit. Kullick, ¶ 18 (citing Finstad v. W.R. Grace & Co., 2000 MT

228, ¶ 28, 301 Mont. 240, ¶ 28, 8 P.3d 778, ¶ 28).

¶27 The doctrine of res judicata applies if the following four elements have been satisfied:

(1) the parties or their privies are the same; (2) the subject matter of the present and past

actions is the same; (3) the issues are the same and relate to the same subject matter; and

9
(4) the capacities of the persons are the same in reference to the subject matter and to the

issues between them. Kullick, ¶ 17 (citing Hall v. Heckerman, 2000 MT 300, ¶ 13, 302

Mont. 345, ¶ 13, 15 P.3d 869, ¶ 13). Here, the Beneficiary Suits were not malpractice

actions and it is undisputed that Respondents were not parties to that litigation. Thus, res

judicata is not applicable in this case.

¶28 The same is true as to the doctrine of collateral estoppel. Collateral estoppel only

applies if the following three elements have been satisfied: (1) the identical issue raised was

previously decided in a prior adjudication; (2) a final judgment on the merits was issued in

the prior adjudication; and (3) the party against whom the plea is now asserted was a party

or in privity with a party to the prior adjudication. Kullick, ¶ 18. As Appellants point out

in their brief on appeal, this Court has recognized that parties who are drawn into litigation

as a result of a professional’s malpractice have a right to bring a subsequent and separate suit

against the professional. See Fadness v. Cody (1997), 287 Mont. 89, 951 P.2d 584 (sellers

who were awarded damages against purchasers as a result of fraud in real estate action have

a subsequent and separate action against real estate agent and closing agent for their breaches

of duty). The reason behind allowing a subsequent and separate action is that the later action

raises different issues.

Identity of issues is the most crucial element of collateral estoppel. In
order to satisfy this element, the identical issue or “precise question” must
have been litigated in the prior action.
....
. . . The fact that each action arises from the same transaction does not
mean that each involve the same issues.

10
Fadness, 287 Mont. at 96-97, 951 P.2d at 588-89 (citations omitted). We noted in Fadness

that “[t]he duties owed by [the professionals] to the [plaintiff] were not decided, nor even

considered by the jury in the first case.” Fadness, 287 Mont. at 97, 951 P.2d at 589.

Similarly, in the case sub judice, the duties owed by Respondents were not considered or

decided in the prior Beneficiary Suits. See In the Matter of Stanley L. and Carolyn M.

Watkins Revocable Trust Agreement (Toole County Cause No. DV 96-016); In the Matter

of the Estate of Stanley L. Watkins (Toole County Cause No. 92-DP-020).

¶29 Nor is equitable estoppel applicable in this case. Equitable estoppel is based upon the

principle that “a party cannot, through his intentional ‘conduct, actions, language, or silence,’

induce another party to unknowingly and detrimentally alter his position and then

subsequently deny the just and legal consequences of his intentional acts.” Kelly v. Wallace,

1998 MT 307, ¶ 43, 292 Mont. 129, ¶ 43, 972 P.2d 1117, ¶ 43.

¶30 The following elements must be proved by clear and convincing evidence to show

equitable estoppel: (1) there must be conduct, acts, language, or silence amounting to a

representation or a concealment of a material fact; (2) the facts must be known to the party

to be estopped at the time of that party’s conduct, or at least the circumstances must be such

that knowledge of the facts is necessarily imputed to that party; (3) the truth must be

unknown to the other party at the time the representation was acted upon; (4) the

representation must be made with the intent or the expectation that it will be acted on by the

other party; (5) the representation must be relied upon by the other party, leading that party

to act upon it; and (6) the other party must in fact rely on the representation so as to change

11
its position for the worse. City of Whitefish v. Troy Town Pump, 2001 MT 58, ¶ 15, 304

Mont. 346, ¶ 15, 21 P.3d 1026, ¶ 15 (citing Billings Post No. 1634 v. Dept. of Revenue

(1997), 284 Mont. 84, 90, 943 P.2d 517, 520).

¶31 In the instant case, Steve’s attorneys wrote to Respondents in October 1996, to put

them on notice that they would be held liable for damages caused by Lacosta’s faulty work

and to advise them to notify their malpractice carrier. The District Court erroneously

concluded that equitable estoppel was created by representations in the letter that Carolyn’s

claims were “without merit and barred by various statutes and general legal principals.”

However, we have previously held that equitable estoppel is inapplicable when the conduct

complained of consists solely of legal representations. City of Whitefish, ¶ 17 (citing Elk

Park Ranch v. Park County (1997), 282 Mont. 154, 935 P.2d 1131).

¶32 Moreover, the party asserting equitable estoppel has the affirmative duty of proving

its elements. Kelly, ¶ 43 (citations omitted). Here, Respondents have not submitted any

evidence to establish that they relied on the letter or that they changed their position for the

worse because of the letter. Thus, equitable estoppel is not applicable in this case.

¶33 Likewise, judicial estoppel has no application in this case. The doctrine of judicial

estoppel binds a party to their judicial declarations and precludes a party from taking a

position inconsistent with previously made declarations in a subsequent action or proceeding.

Kauffman-Harmon v. Kauffman, 2001 MT 238, ¶ 15, 307 Mont. 45, ¶ 15, 36 P.3d 408, ¶ 15

(citing Fiedler v. Fiedler (1994), 266 Mont. 133, 139, 879 P.2d 675, 679). A party claiming

that judicial estoppel bars another party from re-litigating an issue must show: (1) the

12
estopped party had knowledge of the facts at the time he or she took the original position;

(2) the estopped party succeeded in maintaining the original position; (3) the position

presently taken is inconsistent with the original position; and (4) the original position misled

the adverse party so that allowing the estopped party to change its position would injuriously

affect the adverse party. Kaufman, ¶ 16 (citing In re Raymond W. George Trust, 1999 MT

223, ¶ 51, 296 Mont. 56, ¶ 51, 986 P.2d 427, ¶ 51).

¶34 Here, the record is devoid of any evidence that Respondents were misled and the

District Court did not make any findings or conclusions that Respondents were misled.

Furthermore,

[a] judicial admission is not binding unless it is an unequivocal statement of
fact. Hence, “[f]or a judicial admission to be binding upon a party, the
admission must be one of fact rather than a conclusion of law or the
expression of an opinion.”

George Trust, ¶ 37 (quoting DeMars v. Carlstrom (1997), 285 Mont. 334, 337-38, 948 P.2d

246, 248-49). Thus, a judicial admission applies to facts, not to legal theories or positions.

The District Court determined in the instant case that Appellants took the position that the

provisions of the Trust and Stanley’s will were correctly and properly drafted and that Steve

prevailed in the Beneficiary Suits. However, in that event, it would have been a legal

position and not an unequivocal statement of fact.

¶35 Accordingly, we hold that the District Court erred in concluding that the doctrines of

res judicata, collateral estoppel, equitable estoppel and judicial estoppel barred Appellants’

claims against Respondents.

13
 Issue 3

¶36 Whether Appellants’ claims against Respondents are barred by the three-year statute
of limitations for legal malpractice.

¶37 Appellants argue that the statute of limitations for technical defects in complex estate

planning documents does not begin to run until laypersons discover or should have

discovered the malpractice, a fact issue precluding summary judgment. Appellants further

argue that concealment by the attorney also tolls the statute. Additionally, Appellants argue

that the statute does not begin to run until damages are suffered and that they could not have

sued before 1995, because until that time the estate plan was operating properly and to their

benefit, thus they would have had no damages to sue upon.

14
¶38 The statute of limitations for a legal malpractice action provides:

An action against an attorney licensed to practice law in Montana or a
paralegal assistant or a legal intern employed by an attorney based upon the
person’s alleged professional negligent act or for error or omission in the
person’s practice must be commenced within 3 years after the plaintiff
discovers or through the use of reasonable diligence should have discovered
the act, error, or omission, whichever occurs last, but in no case may the action
be commenced after 10 years from the date of the act, error, or omission.

Section 27-2-206, MCA.

¶39 The first issue to address when determining whether a party is barred by the statute

of limitations is when the statute begins to run. In the context of legal malpractice actions,

we have held that both the “discovery rule” and the “accrual rule” are statutorily binding.

Johnson, ¶¶ 11-20 (confirming statutory adoption of “discovery rule”); Uhler v. Doak

(1994), 268 Mont. 191, 195-200, 885 P.2d 1297, 1300-03 (confirming statutory adoption of

“accrual rule”).

¶40 The “discovery rule” begins the statute of limitations upon the discovery of the

negligent act. Section 27-2-206, MCA; Johnson, ¶¶ 11-20. The “accrual rule” provides that

the statute of limitations begins when all elements of a claim, including damages, have

occurred. Uhler, 268 Mont. at 195-200, 885 P.2d at 1300-03 (adopting “accrual rule”

pursuant to §§ 27-2-102(1)(a) and (2), MCA). Thus, the law in Montana for legal

malpractice actions is that the statute of limitations does not begin to run until both the

“discovery rule” and the “accrual rule” have been satisfied. Hence, the statute of limitations

in a legal malpractice action does not begin to run until the negligent act was, or should have

15
been, discovered, and all elements of the legal malpractice claim, including damages, have

occurred.

Discovery Rule

¶41 Appellants’ failure to discover Lacosta’s purported negligence may be excused

because of the complexity of the legal transaction involved. In Young v. Datsopoulos (1991),

249 Mont. 466, 817 P.2d 225, we held that if a legal transaction is beyond the understanding

of a layperson and the “date of discovery” is disputed, summary judgment is not appropriate.

In Young, the decedent’s family hired defendants to probate decedent’s estate. The family

claimed that defendants committed legal malpractice by misadvising the family concerning

removal of a co-personal representative; the possible defense of lack of consideration to a

claim against the estate on several promissory notes; and abandonment of several potential

lawsuits. Young, 249 Mont. at 469, 817 P.2d at 227. We reversed the trial court’s grant of

summary judgment reasoning that the legal transactions constituting the alleged malpractice

were beyond the understanding of a layperson, therefore, when the facts should have been

knowable was a question of fact precluding summary judgment. Young, 249 Mont. at 473,

817 P.2d at 229.

¶42 Furthermore, a drafting attorney may not impose upon her client a duty to understand

defects in a technical instrument in order to defeat a malpractice claim. In Neel v. Magana,

Olney, Levy, Cathcart & Gelfand (Cal. 1971), 491 P.2d 421, 428, the California Supreme

Court judicially adopted a “discovery” rule for statutes of limitation in legal malpractice

cases stating:

16
 Corollary to [the attorney’s] expertise is the inability of the layman to
detect its misapplication; the client may not recognize the negligence of the
professional when he sees it. He cannot be expected to know the relative
medical merits of alternative anesthetics, nor the various legal exceptions to
the hearsay rule. If he must ascertain malpractice at the moment of its
incidence, the client must hire a second professional to observe the work of the
first, an expensive and impractical duplication, clearly destructive of the
confidential relationship between the practitioner and his client.
. . . In the legal field, the injury may lie concealed within the obtuse
terminology of a will or contract; . . .

¶43 Here, the estate plan created by Lacosta created wills with pour-over provisions and

several trusts. The complexity of this estate plan made it difficult even for experts to

understand. John Hagman, an insurance and financial advisor with substantial experience

in estate planning, could not determine whether the Trust was an irrevocable QTIP trust.

Although attorney Neil McKay was ultimately able to comprehend the estate plan, he

testified in his deposition that he spent numerous hours attempting to unravel and understand

the plan. Given the inability of these professionals to understand the estate plan, we

conclude that it was clearly beyond Appellants’ understanding. Furthermore, Lacosta

presented no facts to show that either Steve, the Trust or the Estate discovered, or through

the use of reasonable diligence should have discovered, the defects in the Trust documents

in 1992 when Stanley’s will was probated.

¶44 In addition, whether a plaintiff discovers, or through the use of reasonable diligence

should have discovered, the act, error, or omission depends not only on the complexity of

the defect, but also on whether the defect is concealed. To that end, this Court has held that

[t]he three-year statute of limitations for legal malpractice actions contains a
built-in tolling mechanism for a defendant’s fraudulent concealment of a

17
 plaintiff’s injury. That is, a statute of limitations does not begin to run until
the plaintiff discovers, or with reasonable diligence should have discovered,
the act, error, or omission.

Joyce v. Garnaas, 1999 MT 170, ¶ 15, 295 Mont. 198, ¶ 15, 983 P.2d 369, ¶ 15. Thus, in

the context of legal malpractice, a nexus exists between a defendant’s fraudulent

concealment and the question of whether a plaintiff should have discovered the defendant’s

negligent act.

¶45 Although we have not yet ruled upon this issue, other courts have held that “mere

failure to reveal information can be fraudulent concealment by a person, such as a fiduciary,

who has a duty to disclose.” Geo. Knight & Co. v. Watson Wyatt & Co. (1st Cir. 1999), 170

F.3d 210, 215 (citation omitted). Thus, “if a trust or confidential relationship exists between

the parties, which imposes a duty to disclose, mere silence, by the one under that duty

constitutes fraudulent concealment and thus tolls the applicable statute of limitations.”

Greene v. Morgan, Theeler, Cogley & Petersen (S.D. 1998), 575 N.W.2d 457, 462 (citation

omitted).

¶46 This rule recognizes that a client’s failure to discover an attorney’s malpractice often

results from “a second breach of duty by the fiduciary, namely, a failure to disclose material

facts to his client.” Neel, 491 P.2d at 429. As the California Supreme Court noted in Neel,

tolling the statute of limitations when the attorney remains silent “vindicates the fiduciary

duty of full disclosure; it prevents the fiduciary from obtaining immunity for an initial breach

of duty by a subsequent breach of the obligation of disclosure.” Neel, 491 P.2d at 429.

18
¶47 In the instant case, the technical nature of the alleged defects, Lacosta’s actions as a

fiduciary and as an officer of the court in allegedly concealing the false attestations on

Stanley’s will when submitted to probate, her allegedly contradictory advice about the

operation of the Trust, and her alleged treatment of the Trust and Stanley’s will as valid and

operative, are exactly the type of factual questions appropriate for resolution by a trier of

fact. See Young, 249 Mont. at 473, 817 P.2d at 229.

Accrual Rule

¶48 Section 27-2-102, MCA, provides in pertinent part:

When action commenced. (1) For the purposes of statutes relating to
the time within which an action must be commenced:
(a) a claim or cause of action accrues when all elements of the claim
or cause exist or have occurred, the right to maintain an action on the claim or
cause is complete, and a court or other agency is authorized to accept
jurisdiction of the action;
....
(2) Unless otherwise provided by statute, the period of limitation
begins when the claim or cause of action accrues. Lack of knowledge of the
claim or cause of action, or of its accrual, by the party to whom it has accrued
does not postpone the beginning of the period of limitation.

¶49 We have held that this “accrual rule” applies to legal malpractice actions and that the

statute of limitations does not begin to run until all elements of a claim, including damages,

have occurred. Uhler, 268 Mont. at 195-200, 885 P.2d at 1300-03. More specifically, we

stated that

[i]n order to establish a cause of action for legal malpractice, there must be a
showing that the attorney owed his client a duty of care, that there was a
breach of this duty by a failure to use reasonable care and skill, and that the
breach was the proximate cause of the client’s injury and resulted in damages.

19
Uhler, 268 Mont. at 196, 885 P.2d at 1300 (citing Merzlak v. Purcell (1992), 252 Mont. 527,

529, 830 P.2d 1278, 1279-80) (emphasis added). In Uhler, we overruled our prior decision

in Boles v. Simonton (1990), 242 Mont. 394, 791 P.2d 755, wherein we determined that the

statute of limitations precluded plaintiff’s claims against their attorney even before they had

sustained any actual damages as a result of the malpractice. Uhler, 268 Mont. at 199, 885

P.2d at 1302. We further stated in Uhler that it is inherently illogical and unfair to require

a plaintiff to file an action prior to the accrual of the cause of action because if a plaintiff

filed suit when no actual damages had been sustained, the suit would properly be dismissed.

Uhler, 268 Mont. at 198, 885 P.2d at 1302. Moreover, the mere threat of future harm does

not constitute actual damages. Uhler, 268 Mont. at 198-99, 885 P.2d at 1301-02.

¶50 In the instant case, Respondents contend that the latest that the statute of limitations

could have started to run is April 1992, when Stanley’s will was admitted to probate and

when Carolyn acted to her later alleged detriment. However, this fails to explain how

Carolyn’s reliance on the will by treating it as valid and seeking its probate damaged

Appellants in any fashion. On the contrary, Steve, the Estate and the Trust could not have

filed suit against Respondents in 1992 complaining that the Trust agreement and Stanley’s

will were operating as valid testamentary documents, to their benefit, and exactly as estate

planning documents should operate. In short, there were no damages in 1992 precisely

because Stanley’s will was admitted to probate and the Trust was being implemented. Prior

to 1995, no claim had been asserted jeopardizing the Trust, Stanley’s will or the bequest to

Steve of the trucking operation.

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¶51 The Idaho Supreme Court has adopted an “objectively ascertainable damage” rule in

legal malpractice actions requiring “objective proof that would support the existence of some

actual damage.” Chicoine v. Bignall ( Idaho 1992), 835 P.2d 1293, 1298. Like Montana,

the Idaho court requires more than faulty legal documents taking final effect. Instead, the

cases look for some damage caused by an activity adverse to the damaged party. See, e.g.,

Elliott v. Parsons (Idaho 1996), 918 P.2d 592 (damages occurred not when faulty legal

documents drafted and implemented for sales transactions, but rather four years later when

clients incurred legal fees to resolve resulting disputes with the I.R.S.); Bonz v. Sudweeks

(Idaho 1991), 808 P.2d 876 (no damages when faulty legal work was done by filing a release

of lis pendens in the wrong county; rather, damages occurred later when the mistake resulted

in the loss of a potential financier). See also Marshall v. Fenton, Fenton, Smith, Reneau &

Moon (Okla. 1995), 899 P.2d 621 (where client is involved in litigation through attorney’s

negligence, client suffers no damages until the litigation begins).

¶52 Based on the foregoing, we reiterate our holding in Uhler that the statute of

limitations for legal malpractice actions does not begin to run until all elements of a claim,

including damages, have occurred. Uhler, 268 Mont. at 195-200, 885 P.2d at 1300-03. In

this case, Appellants did not sustain any damages until 1995.

¶53 Accordingly, we hold that the present action, filed on April 3, 1997, was well within

the three-year statute of limitations for legal malpractice actions.

¶54 Reversed and remanded for further proceedings consistent with this Opinion.

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 /S/ JAMES C. NELSON

We Concur:

/S/ PATRICIA O. COTTER
/S/ JIM REGNIER
/S/ W. WILLIAM LEAPHART

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Justice Jim Rice specially concurring.

¶55 I concur with the holding of the Court on all issues, but do not agree with the entirety

of the Court’s analysis with regard to the doctrine of judicial estoppel.

¶56 The Court cites the doctrine’s four-part test as set forth in Kauffman-Harmon v.

Kauffman, 2001 MT 238, 307 Mont. 45, 36 P.3d 408, and notes that the record is devoid of

evidence that Respondents were misled by the declarations made by Appellants in the

Beneficiary Litigation, as required under part four of that test. See ¶ 34. The Court also

concludes that the doctrine applies only to unequivocal statements of fact, not to legal

theories or positions taken by a party. See ¶ 34. I believe these conclusions circumscribe

the doctrine of judicial estoppel in ways we have been careful to avoid in the past, and I

disagree with doing so.

¶57 Although we have previously employed the four-part test in cases such as Kauffman

and Fiedler v. Fiedler (1994), 266 Mont. 133, 879 P.2d 675, we have not universally used

the test in determining the doctrine’s applicability. We applied the doctrine in Rowland v.

Klies (1986), 223 Mont. 360, 726 P.2d 310, without using the test, and declined to apply the

doctrine in Nelson v. Nelson, 2002 MT 151, 310 Mont. 329, 50 P.3d 139, without

referencing the test. While the four-part test may be helpful in some cases, it is important

to note that the “[j]udicial estoppel doctrine is equitable . . . .” Nelson, ¶ 20 (quoting 28

Am.Jur.2d Estoppel and Waiver § 74 (2000)). We have noted that “while this rule is

frequently referred to as ‘judicial estoppel,’ it more properly is a rule which estops a party

to play fast-and-loose with the courts . . . .” Rowland, 224 Mont. at 367, 726 P.2d at 315

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(quoting 31 C.J.S. Estoppel § 117B, pgs. 623-627 (1964)). Consequently, as an equitable

doctrine, “there is no pat formula for applying judicial estoppel, and a flexible standard for

judicial estoppel permits consideration of all circumstances involved.” 31 C.J.S. Estoppel

and Waiver § 139, p. 595 (1996); see also Czajkowski v. Chicago (1992), 810 F.Supp. 1428,

1445 (the doctrine is applied under “a flexible standard not reducible to a pat formula”). In

my view, there may be circumstances beyond those defined by the four-part test where

application of the doctrine is appropriate.

¶58 Neither should the doctrine be limited to factual assertions. “Judicial estoppel may

arise when a person has taken a position or asserted a fact under oath in a judicial

proceeding contrary to a position he is taking in the present litigation . . . .” Rowland, 223

Mont. at 368, 726 P.2d at 316 (emphasis added) (quoting LaChance v. McKown

(Tex.Ct.App. 1983), 649 S.W.2d 658, 660). We declined to apply the doctrine in Nelson

because the litigant there was “not now changing her theory of liability, nor is she trying to

prevail on opposite theories.” Nelson, ¶ 21.

[The doctrine] is intended to protect the courts from being manipulated by
chameleonic litigants who seek to prevail, twice, on opposite theories. The
purpose of the doctrine of judicial estoppel is to reduce fraud in the legal
process by forcing a modicum of consistency on the repeating litigant.

Nelson, ¶ 20 (emphasis added) (quoting 28 Am.Jur.2d Estoppel and Waiver § 74 (2000)).

¶59 Appellants took the position in the Beneficiary Litigation that Mrs. Watkins was

estopped from changing her previous judicial assertion that the 1992 Will and Trust were

valid. They did not prevail in that litigation on the basis of their own judicial assertion that

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the Will and Trust were valid, a subtle yet significant distinction. Furthermore, and in any

event, the position Appellants took in the Beneficiary Litigation is not inconsistent with the

position they have taken in the present litigation. Here they have alleged in their complaint:

Defendants [have] breached their duties, implied obligations, and the heirs’
justifiable expectations, and acted in bad faith, by, among other things, failing
to determine clearly and document properly the intent of Stanley L. Watkins
and allowing Stanley Watkins’ will to be executed in such a way as to allow
Carolyn to challenge his will and the Trust, and failing to reasonably
implement the terms of the Trust Agreement, including transferring assets into
the Trust in a manner that left the ownership of the assets open to Carolyn
Watkins’ attack.

. . . . As a direct and proximate consequence of the Defendant’s [sic]
negligence . . . Ms. Watkins was enabled to act in a manner that prejudiced
the interests of the Plaintiffs in favor of the personal interests of Ms. Watkins.
[Emphasis added.]

Thus, Appellants’ claims here are not necessarily premised on the invalidity of the Will or

Trust, but only that the manner in which Respondents acted allowed Mrs. Watkins to

prejudice their interests. I see no inconsistency here which calls for the application of the

judicial estoppel doctrine.

¶60 I concur.

/S/ JIM RICE

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