Citicorp Mortgage, Inc. v. John P. Roberts

• Court: Tennessee Supreme Court
• Decided: October 5, 1998
• Docket: 02S01-9712-CH-00109
• Status: Published

Opinion

IN THE SUPREME COURT OF TENNESSEE AT JACKSON FILED October 5, 1998

Cecil Crowson, Jr. Appellate C ourt Clerk

CITICORP MORTGAGE, INC., ) NOT FOR PUBLICATION ) Filed: October 5, 1998 Plaintiff/Appellee, ) ) Shelby Chancery v. ) ) Hon. Neal Small, Chancellor ) JOHN P. ROBERTS, ) Trial Ct. No. 101815-1 R.D. ) Defendant/Appellant. ) Sup. Ct. No. 02S01-9712-CH-00109

For Plaintiff-Appellee: For Defendant-Appellant:

R. Mark Glover Tim Edwards Michael C. Patton James F. Horner Baker, Donelson, Bearman, Glassman, Jeter, Edwards & Caldwell, P.C. & Wade, P.C. Memphis, Tennessee Memphis, Tennessee

OPINION

JUDGMENT OF COURT OF APPEALS DROWOTA, J. REVERSED In this legal malpractice action, the defendant, John P. Roberts, appeals

from the Court of Appeals’ reversal of summary judgment entered by the trial court

in his favor based on the expiration of the statute of limitations. The issue for our

determination is whether the present action is barred by the one-year statute of

limitations applicable to legal malpractice actions, Tenn. Code Ann. § 28-3-104.1

After carefully examining the record before us and considering the relevant

authorities, we conclude that the instant suit is time-barred. Accordingly, for the

reasons explained hereafter, the decision of the Court of Appeals to reverse the trial

court’s grant of summary judgment to the defendant is reversed.

BACKGROUND

Wilbur Johns (“Johns”) was the owner of a parcel of real property

located in a subdivision in Memphis. Johns sought the services of the plaintiff,

Citicorp Mortgage, Inc., (“Citicorp”), in refinancing debt secured by the property. The

plaintiff hired attorney Michael G. Maddox to handle the closing of the loan.

One of three existing liens on Johns’s property was a lien held by

Shelby Bank. As part of the closing of the loan, the plaintiff instructed Maddox to

obtain and record a release of the lien held by Shelby Bank, so that the plaintiff would

be the senior lien holder on the property. Contrary to these instructions, however,

Maddox never filed a release of the Shelby Bank lien. Thus, after the loan was

closed on January 10, 1990, Shelby Bank continued to hold the first lien on the

property, superior to the plaintiff’s lien.

Subsequent to the closing, Johns defaulted on his indebtedness to

Shelby Bank and to the plaintiff. The plaintiff initiated foreclosure proceedings on the

Tenn. Code Ann. § 28-3-104(a) provides in pertinent part: “The following actions shall be commenced within one (1) year after the cause of action accrued: . . . (2) Actions and suits against attorneys . . . for malpractice, whether the actions are grounded or based in contract or tort . . . .”

2 property in September 1991. In October 1991, the plaintiff’s new counsel discovered

that a release of the Shelby Bank lien had never been filed.

In December 1991, Shelby Bank foreclosed on its deed of trust and sold

the property to satisfy its lien, thereby extinguishing the plaintiff’s lien. The plaintiff

then filed the instant legal malpractice claim against Roberts, who was Maddox’s law

partner, on August 14, 1992.2 Thus, suit was filed approximately two and a half years

after the closing and less than one year after Shelby Bank foreclosed on the property.

The complaint alleged that Maddox committed legal malpractice when he did not

ensure that all existing liens on the property were paid or released at closing so that

the plaintiff would be the senior lien holder on the property. The sole basis for the

plaintiff’s claim against Roberts is his vicarious liability for the malpractice of Maddox,

as Roberts was not involved in the transaction at issue.

The trial court granted summary judgment in favor of the defendant,

holding that the plaintiff’s malpractice action was barred by the one-year statute of

limitations in Tenn. Code Ann. § 28-3-104(a)(2). The trial court explained the basis

for its holding as follows:

The real estate closing which is the subject of this litigation was conducted in January of 199[0]. Within 30 days after said closing, plaintiff knew or should have known that the closing had not been conducted in accordance with closing instructions, specifically that plaintiff was not in a first lien priority position. Further, because plaintiff did not receive a first lien position at the time of closing, it had sustained legally cognizable damages at that point in time. Accordingly, the present action is barred by the applicable statute of limitations, T.C.A. § 28-3-104.

Plaintiff filed suit against Johns, Maddox, Roberts, their law firm, Maddox and Roberts, and Shelby Bank. A default judgment was entered against Maddox. Johns declared bankruptcy, and the claims against Shelby Bank remain pending. The present appeal focuses only on the plaintiff’s claim of malpractice against Roberts.

3 The plaintiff appealed to the Court of Appeals, which reversed the trial

court. The Court of Appeals held that the plaintiff’s action was not barred by the

statute of limitations since no actual injury was sustained by the plaintiff until Shelby

Bank foreclosed on the property in December 1991. The Court of Appeals explained

the basis for its holding as follows:

Plaintiff. . . did not suffer an actual injury until Shelby Bank foreclosed upon its lien, thereby wiping out all other liens, including the Plaintiff’s lien. Before Shelby Bank’s foreclosure, Plaintiff had not suffered an injury as a result of Maddox’s negligent failure to [obtain] a release of the Shelby Bank lien. Although Maddox committed the negligent act in January 1990, this act did not become legally injurious until certain consequences, i.e., when Shelby Bank foreclosed upon its lien in December 1991. If Johns had paid Shelby Bank, as he agreed to do, Plaintiff would not have suffered any injury from Maddox’s negligent act. Thus, because Plaintiff filed this cause of action within one year of the date of [the] injury, Plaintiff’s present action for legal malpractice is not barred by the applicable one-year statute of limitations.

We granted review to decide whether the intermediate court erred in

holding that the plaintiff did not suffer an actual injury for statute of limitations

purposes until its junior lien upon the property had been extinguished by the

foreclosure of the senior lien.

ANALYSIS

I.

The standards governing an appellate court’s review of a motion for

summary judgment are well-settled. Summary judgment is appropriate only if there

are no genuine issues of material fact and the moving party is entitled to judgment

as a matter of law. Tenn. R. Civ. P. 56.03. The party moving for summary judgment

has the burden of demonstrating that no genuine issue of material fact exists, Byrd

v. Hall, 847 S.W.2d 208, 211 (Tenn. 1993), and must either affirmatively negate an

4 essential element of the nonmoving party’s claim or conclusively establish an

affirmative defense, McCarley v. West Quality Food Service, 948 S.W.2d 477, 478

(Tenn. 1997). If the movant does not negate an essential element of the plaintiff’s

claim or conclusively establish an affirmative defense, then the motion for summary

judgment must be denied. Id. at 478-79.

Further, appellate courts must review the record before them without

attaching any presumption of correctness to the trial court’s judgment to determine

whether the absence of genuine issues of material fact entitle the movant to

judgment as a matter of law. Robinson v. Omer, 952 S.W.2d 423, 426 (Tenn. 1997);

Bain v. Wells, 936 S.W.2d 618, 622 (Tenn. 1997). Courts are also required to view

the evidence in the light most favorable to the nonmoving party, draw all reasonable

inferences in that party’s favor, and discard all countervailing evidence. Byrd, 847

S.W.2d at 210-11. If both the facts and conclusions to be drawn from the facts

permit a reasonable person to reach only one conclusion, summary judgment should

be granted. Robinson, 952 S.W.2d at 426; Bain, 936 S.W.2d at 622; McClung v.

Delta Square Ltd. Partnership, 937 S.W.2d 891, 894 (Tenn. 1996).

II.

The statute of limitations for legal malpractice is one year from

when the cause of action accrues. Tenn. Code Ann. § 28-3-104(a)(2). When the

cause of action accrues is determined by applying the discovery rule. In our recent

decision in John Kohl & Company P.C. v. Dearborn & Ewing, ___ S.W.2d ___ (Tenn.

1998), we explained that

[i]n legal malpractice cases, the discovery rule is composed of two distinct elements: (1) the plaintiff must suffer legally cognizable damage - an actual injury - as a result of the defendant’s wrongful or negligent conduct, and (2) the plaintiff must have known or in the exercise of reasonable diligence should have known that this injury was caused by the defendant’s wrongful or negligent conduct. An actual injury occurs when there is the loss of a legal right, remedy or interest, or the imposition of a liability. An actual injury may also take

5 the form of the plaintiff being forced to take some action or otherwise suffer “some actual inconvenience,” such as incurring an expense, as a result of the defendant’s negligent or wrongful act. . . .

The knowledge component of the discovery rule may be established by evidence of actual or constructive knowledge of the injury. Accordingly, the statute of limitations begins to run when the plaintiff has actual knowledge of the injury as where, for example, the defendant admits to having committed malpractice or the plaintiff is informed by another attorney of the malpractice. Under the theory of constructive knowledge, however, the statute may begin to run at an earlier date - whenever the plaintiff becomes aware or reasonably should have become aware of facts sufficient to put a reasonable person on notice that an injury has been sustained as a result of the defendant’s negligent or wrongful conduct. We have stressed, however, that there is no requirement that the plaintiff actually know the specific type of legal claim he or she has, or that the injury constituted a breach of the appropriate legal standard.

John Kohl & Company P.C., ___ S.W.2d at ___ (citations omitted).

Applying these principles to the record before us, we are persuaded

that an actual injury was sustained by the plaintiff at the time of the closing on

January 10, 1990. It was on that date that the plaintiff lost its legal position with

regard to the security interest which was to be used to secure the loan. In other

words, the plaintiff’s lien was rendered subordinate to Shelby Bank’s interest in the

property as of the date of closing. Also, the plaintiff’s loan was worth less as of the

day of closing due to its junior position. Accordingly, we find that the actual injury

occurred when Shelby Bank’s senior position was established at the closing on

January 10, 1990.

Regarding the discovery rule’s knowledge requirement, the record

reflects, and the plaintiff concedes in its brief, that its auditors should have discovered

the absence of a recorded release of Shelby Bank’s lien in its files by March 1990.

Thus, the plaintiff should have reasonably known by March 1990 that Maddox had

failed to obtain the release of the Shelby Bank lien as he was instructed to do. Again,

it was unnecessary for the plaintiff to have been aware that there had been a breach

of the appropriate legal standard in order to be deemed to have discovered its right

6 of action, but needed only to be aware or through the exercise of reasonable

diligence should have been aware of facts sufficient to put it on notice that an injury

had been sustained as a result of Maddox’s negligence. See John Kohl & Company

P.C., ___ S.W.2d at ___. It follows that because the plaintiff filed its cause of action

more than one year after March 1990, the plaintiff’s claim is barred by the one-year

statute of limitations.

Finally, we must reject the plaintiff’s fraudulent concealment argument

that the statute of limitations was tolled because of representations made by Maddox

to the plaintiff that the release in question did in fact exist. The tolling doctrine of

fraudulent concealment is not applicable to this case because the plaintiff, through

the exercise of reasonable diligence, should have discovered the release missing by

March 1990. See Shadrick v. Coker, 963 S.W.2d 726, 736 (Tenn. 1998)(holding that

a plaintiff relying upon the doctrine of fraudulent concealment must show, among

other things, that it could not have discovered the wrong despite exercising

reasonable care and diligence). In any event, the plaintiff’s claim of fraudulent

concealment must fail because the statute of limitations had already expired prior to

the conversations between Maddox and agents of the plaintiff which form the basis

of the plaintiff’s fraudulent concealment argument.

CONCLUSION

In view of the foregoing discussion, we conclude that the plaintiff’s suit

was not timely filed. Accordingly, the decision of the Court of Appeals is reversed.

Costs of this appeal are taxed to the plaintiff-appellee.

____________________________________ FRANK F. DROWOTA, III JUSTICE

Concur:

Anderson, C.J., Birch and Holder, J. J.