Lapham v. Stewart

• Decision Date: 12 July 2002
• Docket Number: No. 26790.,26790.
• Citation: 137 Idaho 582,51 P.3d 396
• Parties: Mark W. LAPHAM, Plaintiff-Appellant, v. Michael C. STEWART, Defendant-Respondent.
• Court: Idaho Supreme Court

51 P.3d 396

137 Idaho 582

Mark W. LAPHAM, Plaintiff-Appellant, v. Michael C. STEWART, Defendant-Respondent.

No. 26790.

Supreme Court of Idaho, Boise, April 2002 Term.

July 12, 2002.

John F. Magnuson, Coeur d'Alene, for appellant.

Moffatt Thomas Barrett Rock & Fields, Chtd., Boise, for respondent. Mark S. Prusynski argued.

EISMANN, Justice.

This is an appeal from a summary judgment dismissing a complaint for legal malpractice on the ground that the claim was barred by the statute of limitations. We affirm the judgment of the district court.

I. FACTS AND PROCEDURAL HISTORY

In 1995 Mark Lapham was a private lender living in California who made residential and commercial real estate loans. For approximately ten years prior to that time, his father had operated a similar business in northern Idaho, making hundreds of residential and commercial loans. In mid 1995 Lapham's father became aware that two brothers Kimlee and Walter Mangus wanted to obtain a loan of approximately $30,600 in order to finance improvements to a residence they owned. Lapham's father inspected the Mangus property and concluded that it was worth approximately $85,000, that it was subject to a deed of trust securing a loan with an unpaid balance of approximately $75,000, and that it would have a value of approximately $150,000 after the improvements were made. The Manguses hoped to obtain a short-term loan to make the improvements and then obtain institutional financing to pay the balance owing on that loan.

Lapham's father told him about the Manguses' desire for a loan and the circumstances concerning the property. Because the property did not have sufficient equity to fully secure the requested loan, Lapham's father recommended that the loan should be treated as a construction loan with the funds disbursed in a manner to insure that they were used to pay for the improvements to the property. Lapham decided to make the loan and asked his father to act as his agent in closing the transaction.

Lapham's father contacted the defendant Michael Stewart, an attorney whom he had used to close in excess of 100 loan transactions. Lapham's father asked Stewart to prepare loan documents reflecting a gross loan amount of $34,000, net loan proceeds of $30,600, and a one-year loan term. The loan was to be secured by a second deed of trust, and the documents were to include a provision that the loan proceeds would be disbursed only upon the approval of Lapham's father, acting as agent for Lapham. Stewart's secretary prepared a promissory note and deed of trust using forms drafted by Stewart. The promissory note did not include a provision stating how the loan proceeds were to be disbursed.

The loan was closed on July 12, 1995, at Stewart's office. He was not present, but was represented by his secretary. At the closing, Lapham's father told Stewart's secretary that the loan was to be treated as a construction loan and that the funds were to be disbursed only upon his approval. He stated that when the Manguses wanted funds they would contact Stewart's office, that after inspecting the house Lapham's father would approve a disbursement, and that Stewart's office would then disburse that amount of funds to the Manguses. At the closing, the net loan proceeds of $30,216 were delivered to Stewart's secretary for deposit into Stewart's trust account. The next day, Stewart's secretary disbursed that entire sum to the Manguses without the approval or knowledge of either Lapham or his father.¹

The promissory note required the Manguses to make monthly payments of $500, commencing on August 12, 1995. The Manguses made those payments until January 1996, when they failed to make the payments due in January and February and paid only $150 in March. They did not make any further payments. The Manguses also failed to make the payments due on the first deed of trust. During the summer of 1997, that deed of trust was foreclosed, and Lapham's father purchased the property at the trustee sale, thereby extinguishing the lien of Lapham's second deed of trust.

On July 7, 1998, Lapham brought this action against Stewart seeking to recover damages for legal malpractice based upon the unauthorized disbursement of the loan proceeds. On September 28, 1998, Stewart moved to dismiss on the ground that the action was barred by the statute of limitations, Idaho Code § 5-219(4). Because matters outside the complaint were considered, the district court treated the motion as a motion for summary judgment. IDAHO R. CIV. P. 12(b). The district court determined that there were material issues of fact in dispute and denied the motion.

The parties engaged in discovery, and on May 8, 2000, Stewart again moved for summary judgment. The parties stipulated that the motion would be heard on July 13, 2000. On July 7, 2000, Lapham moved to file an amended complaint alleging four causes of action (professional negligence, negligence, breach of fiduciary duty, and breach of contract), all premised upon the unauthorized disbursement of the loan proceeds. The district court granted the motion for summary judgment and denied the motion to file an amended complaint. The district court concluded that the two-year statute of limitations began to run in January 1996 because at that time Lapham suffered some damage when the Manguses failed to make the monthly payment. The district court also held that Lapham could not avoid the two-year statute of limitations for professional negligence by seeking to characterize his cause of action as ordinary negligence, breach of fiduciary duty, or breach of contract. The district court dismissed the complaint, and Lapham appealed.

II. ANALYSIS

In an appeal from an order of summary judgment, this Court's standard of review is the same as the standard used by the trial court in ruling on a motion for summary judgment. Eagle Water Company, Inc. v. Roundy Pole Fence Company, Inc., 134 Idaho 626, 7 P.3d 1103 (2000). All disputed facts are to be construed liberally in favor of the non-moving party, and all reasonable inferences that can be drawn from the record are to be drawn in favor of the non-moving party. Id. Summary judgment is appropriate if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Id. If the evidence reveals no disputed issues of material fact, then only a question of law remains, over which this Court exercises free review. Morrison v. Young, 136 Idaho 316, 32 P.3d 1116 (2001).

A. Did the district court err in ruling that the plaintiff's claim for professional malpractice was barred by the statute of limitations?

An action to recover damages for "professional malpractice" must be commenced within two years after the cause of action has accrued. IDAHO CODE §§ 5-201 & 5-219 (1998).² Except for actions based upon leaving a foreign object in a person's body or where the fact of damage has been fraudulently and knowingly concealed,³ the cause of action for professional malpractice accrues "as of the time of the occurrence, act or omission complained of," IDAHO CODE § 5-219 (1998), although there must also be some damage for the cause of action to accrue. Griggs v. Nash, 116 Idaho 228, 775 P.2d 120 (1989). The limitation period is not extended by reason of any continuing consequences or damages resulting from the malpractice or any continuing professional or commercial relationship between the injured party and the alleged wrongdoer. IDAHO CODE § 5-219 (1998).

In this case, the occurrence or act complained of was the unauthorized disbursement of the loan proceeds on July 13, 1995, by Stewart's secretary. The issue is when Mark Lapham suffered some damage from that disbursement. He argues that he did not suffer some damage until July 12, 1996, when the unpaid balance of the loan became due.

The basis of the "some damage" requirement is that in order to have a cause of action to recover damages, the plaintiff must prove that he or she suffered some damage, Stephens v. Stearns, 106 Idaho 249, 678 P.2d 41 (1984), or at least is entitled to recover nominal damages, Bonner v. Roman Catholic Diocese of Boise, 128 Idaho 351, 913 P.2d 567 (1996). Until some damage occurs, a cause of action for professional malpractice does not accrue. Treasure Valley Bank v. Killen & Pittenger, P.A., 112 Idaho 357, 732 P.2d 326 (1987). Therefore, some damage is required because it would be nonsensical to hold that a cause of action is barred by the statute of limitations before that cause of action even accrues.

In this case, however, Lapham had a cause of action against Stewart when Lapham's funds were disbursed from Stewart's trust account without Lapham's consent and contrary to his express instructions. At that point, Lapham was damaged in the sum of $30,216. He could have sued Stewart to recover those funds. That the Manguses may have repaid the funds in the future would not toll or delay the running of the statute of limitations. As stated in Figueroa v. Merrick, 128 Idaho 840, 844, 919 P.2d 1041, 1045 (Ct.App.1996), "The mere hope that the loss may be recovered from another party in the future does not toll the statute of limitation for malpractice."

Lapham also argues that a cause of action for professional malpractice does not accrue until the damage becomes "objectively ascertainable," which he construes to mean when Lapham had "objectively verifiable proof that he had been damaged." He argues that because Lapham did not learn of facts showing that he had been damaged until after July 12, 1996, his damage was not objectively ascertainable, and his cause of action could not have accrued, prior to that date. The standard that damages be "objectively ascertainable" does not mean that the fact of damage must have been known to the injured party, or that it must have been ascertainable from facts...