1999 -NMCA- 29, Delta Automatic Systems, Inc. v. Bingham

• Decision Date: 10 December 1998
• Docket Number: No. 18,849,18,849
• Court: Court of Appeals of New Mexico
• Parties: 1999 -NMCA- 29 DELTA AUTOMATIC SYSTEMS, INC., Diane Quintana, and Paul J. Quintana, Plaintiffs-Appellants, v. Wayne E. BINGHAM and Crider, Calvert & Bingham, P.C., Defendants-Appellees.

Page 1174

974 P.2d 1174

1999 -NMCA- 29

DELTA AUTOMATIC SYSTEMS, INC., Diane Quintana, and Paul J Quintana, Plaintiffs-Appellants, v. Wayne E. BINGHAM and Crider, Calvert & Bingham, P.C. Defendants-Appellees.

No. 18,849.

Court of Appeals of New Mexico.

Dec. 10, 1998.

Certiorari Denied, No. 25,576,

Feb. 17, 1999.

Robert Dale Morrison, Law Offices of Robert Dale Morrison, Albuquerque, Cynthia J. Patterson, Law Offices of Cynthia J. Patterson, Albuquerque, for Appellants.

John A. Klecan, Butt, Thornton & Baehr, P.C., Albuquerque, for Appellees.

OPINION

HARTZ, Chief Judge.

¶1 Diane and Paul J. Quintana were the sole shareholders and officers of Delta Automatic Systems, Inc. (Delta), when Delta hired attorney Wayne E. Bingham to help it terminate its contract with Road Sprinkler Fitters Local Union No. 669 (the Union). Delta and the Quintanas (Plaintiffs) later sued Bingham and his law firm--Crider, Calvert & Bingham, P.C. (the Bingham Firm)--claiming that Bingham failed to take the action necessary to terminate the union contract. Before trial the district court dismissed the Quintanas' individual claims on the ground that only Delta had a cause of action. After Delta rested its case at trial, the district court granted Bingham and the Bingham Firm (Defendants) a directed verdict based on the statute of limitations. Plaintiffs appeal. We affirm.

¶2 The district court properly dismissed the Quintanas' claim because they do not come within any exception to the general rule that shareholders have no cause of action against third parties for injury to their corporation. Our affirmance of the directed verdict against Delta rests on the proposition that the limitations period for professional malpractice commences when the client knew or should have known the facts that form the basis for the claim, regardless of whether the client appreciated that the professional's conduct constituted malpractice.

BACKGROUND

¶3 In 1985 Delta, a fire sprinkler installation business, signed a three-year contract with the Union. The following year, however, the Quintanas decided that Delta was not competitive with other sprinkler companies because it was one of only two union shops left in the area. On April 4, 1986, Delta retained Bingham to help it terminate its union contract. Bingham was an experienced labor lawyer, with special expertise in the construction trades. He represented a number of construction companies, including a sprinkler company that competed with Delta. This other company had previously retained Bingham to help it terminate its union contract.

¶4 There was conflicting evidence at trial regarding what Bingham told the Quintanas at the April 4 meeting, at a follow-up meeting on April 7, and during the next twelve months. The Quintanas' version was as follows: Bingham merely asked for background information at the two initial meetings and said that he would have to research the matter. During the following year Bingham never called the Quintanas with the results of his research. Instead, whenever they called for an update. Bingham said that he was still researching the matter. Bingham told the Quintanas that he was working with another sprinkler company on the same problem and wanted to wait to see how that came out. The Quintanas did not remember being told about any courses of action open to Delta.

¶5 Bingham, on the other hand, asserted that he laid out three options for Delta at their first meetings: (1) wait until the expiration of the current contract and then take action, (2) reopen the negotiations on the current contract to try to obtain more favorable terms, or (3) take steps to repudiate the current contract immediately. Bingham gave the Quintanas a sample of a letter he would need from each of Delta's union employees as a first step in repudiating the contract, if Delta chose the third option. Bingham called the Quintanas three times during the year, each time asking for a decision on the three options. When he did not receive an answer, he assumed that Delta "was happy in the union."

¶6 The parties agree that on April 6, 1987, a year after the initial meeting, Bingham called Paul Quintana to tell him that a recent decision of the National Labor Relations Board, John Deklewa & Sons, Inc., 282 N.L.R.B. 1375 (1987), made it more difficult for Delta to get out of its contract with the Union. Paul understood the new ruling to mean that Delta was "stuck in the union." Paul testified that he was "upset" and "devastated" by this news.

¶7 The next year Delta signed another three-year union contract. Bingham continued to represent Delta and the Quintanas personally in various matters, including drawing up the Quintanas' wills.

¶8 In April 1989 the Quintanas transferred their legal business from Bingham to Alan Wilson. Wilson then joined the law firm of Dines, Wilson & Gross, P.C. (the Dines firm), and another attorney at the Dines firm took over Delta's representation. Delta was experiencing serious labor problems at this time. The Quintanas asked the Dines firm to terminate the union contract if possible. They were advised, however, that Delta could not terminate the contract and that Delta should file for bankruptcy. In November 1991 the Quintanas consulted Nicholas J. Noeding, a labor lawyer. With Noeding's assistance Delta terminated its union contract in 1992. Delta did not file for bankruptcy; in fact, it began to enjoy financial success.

¶9 By April 1992 Noeding had contacted some attorneys who pursue malpractice claims because he had decided that Plaintiffs had a potential malpractice claim against the Dines firm for failing to terminate the 1988 union contract and for making other alleged mistakes while handling Delta's labor matters. In August 1992, after reviewing Defendants' files pertaining to Delta, Noeding suggested that Delta might also have a cause of action for malpractice against Defendants. Plaintiffs filed a malpractice claim against the Dines firm on October 25, 1995, and amended the complaint to include Defendants on June 10, 1996. The complaint alleged financial damage to Delta and damages personal to the Quintanas, including loss of credit and emotional distress.

¶10 Before trial the district court dismissed the Quintanas' individual claims, but it denied Defendants' motion for summary judgment based on the statute of limitations. At the close of Delta's case the court directed a verdict in favor of Defendants on statute-of-limitations grounds.

DISCUSSION

A. Shareholders' Claims

¶11 Defendants filed a pretrial motion to dismiss the Quintanas' personal claims on the ground that any cause of action for malpractice belonged only to Delta. The district court granted the motion, apparently on the basis that the alleged malpractice arose out of Defendants' representation of Delta, not the Quintanas. We affirm the district court's decision on this issue.

¶12 On appeal the Quintanas challenge the procedural fairness of the dismissal. Our review, however, discloses no abuse of discretion by the district court in handling the motion. We therefore turn to the merits.

¶13 On a motion to dismiss, the court must accept the allegations of the complaint as true. See Sanders v. Estate of Sanders, 1996-NMCA-102, p 16, 122 N.M. 468, 927 P.2d 23. If the allegations can support a cause of action, the motion to dismiss must be denied. See id. p 6. The Quintanas claimed that Defendants harmed them personally by failing to terminate the 1985 union contract. They contended that constant labor problems caused damage to their personal credit standing, inability to maintain their standard of living, and emotional distress.

¶14 In general, shareholders cannot bring individual claims against a third party for injuries that derive from damage to the corporation. "A corporation and a shareholder--even a sole shareholder--are separate entities, and a shareholder of a corporation does not have an individual right of action against a third person for damages that result because of an injury to the corporation." Marchman v. NCNB Texas Nat'l Bank, 120 N.M. 74, 81, 898 P.2d 709, 716 (1995). " '[A]lthough the stockholders of a corporation suffer when the corporation incurs a loss, only the corporation may vindicate its rights. An indirectly injured party should look to the recovery of the directly injured party, not the wrongdoer for relief.' " Id. (quoting NCNB Nat'l Bank v. Tiller, 814 F.2d 931, 937 (4th Cir.1987)). Our Supreme Court recognized only two exceptions to the general rule: " when [shareholders] have suffered an injury separate and distinct from the other shareholders or when they are owed a special duty by the wrongdoer." Marchman, 120 N.M. at 82, 898 P.2d at 717.

¶15 The Quintanas invoke the second exception, claiming that Defendants owed them a "special duty" because they had a personal attorney-client relationship with Defendants. In addition, they rely on Leyba v. Whitley, 1995-NMSC-078, 120 N.M. 768, 907 P.2d 172, for the proposition that they have personal causes of action because, as sole shareholders of Delta, they were the intended beneficiaries of Defendants' representation of Delta.

¶16 We turn first to the "special duty" argument. The special duty arises when the wrongdoer owes a duty to the shareholder directly. See Marchman, 120 N.M. at 82, 898 P.2d at 717.

There must be a direct injury to the shareholder in his or her individual capacity, independent of any duty to the corporation, before the shareholder is entitled to sue.

....

When the alleged wrongful acts are directed at the corporation and not at the shareholders, the cause of action accrues to the corporation and not to the shareholders in their individual capacity [sic].

Id. The Quintanas contend that Defendants owed them a special duty because Bingham drew up their wills and represented them in business matters apart from his representation of Delta. It is true that as their personal lawyers, Defendants owed...