Hunter, Maclean, Exley & Dunn v. Frame

• Decision Date: 14 September 1998
• Docket Number: No. S97G1816.,S97G1816.
• Citation: 507 S.E.2d 411,269 Ga. 844
• Court: Georgia Supreme Court
• Parties: HUNTER, MACLEAN, EXLEY & DUNN, P.C. v. FRAME et al.

507 S.E.2d 411

269 Ga. 844

HUNTER, MACLEAN, EXLEY & DUNN, P.C. v. FRAME et al.

No. S97G1816.

Supreme Court of Georgia.

September 14, 1998.

Reconsideration Denied October 2, 1998.

Patrick T. O'Connor, Timothy David Roberts, Oliver, Maner & Gray, Savannah, Byron Attridge, Michael Lawrence Brown, Deborah Ann Penley, King & Spalding, Atlanta, for Hunter, Maclean, Exley & Dunn, P.C.

Robert Bartley Turner, Savage, Herndon & Turner, Savannah, for Christopher K. Frame et al.

Romaine Lubs White, Deputy Gen. Counsel, State Bar of Georgia, Atlanta, Amicus Appellant.

SEARS, Justice.

This Court granted certiorari to the Court of Appeals in this legal malpractice action to consider that court's reversal of the grant of summary judgment in favor of the defendant law firm.¹ We conclude that the Court of Appeals incorrectly reasoned that the running of the applicable statute of limitations was tolled solely by the existence of a confidential relationship between the parties, despite the absence of evidence that there had been an attempt by the defendant law firm to conceal the purported instance of malpractice from the plaintiff, or that the plaintiff was deterred from bringing a claim. Therefore, we reverse.

The pertinent underlying facts are not in dispute. Christopher and Rosemary Frame were the sole owners, stockholders, and officers of a holding company, C.F., Inc., that owned several gasoline and convenience store-related businesses. Among these businesses was Wes Frame, Inc. Hunter, Maclean, Exley & Dunn ("the law firm"), which had represented the Frames for roughly 20 years, served as their counsel during the sale to Golden Isles Petroleum, Inc., ("Golden Isles") of Wes Frame, Inc.'s, stock and the assets of other convenience store-related businesses. The closing took place on April 25, 1989 ("the Golden Isles transaction"). Thereafter, Golden Isles determined that Wes Frame, Inc., was worth less than had been reported in the closing documents.

On July 27, 1989, Golden Isles filed a federal lawsuit against the Frames and their holding company, seeking damages for securities fraud and breach of contract concerning the Golden Isles transaction. The law firm informed the Frames that it could not represent them in the action, because it was likely to be called to testify regarding the Golden Isles transaction. After obtaining an extension of time for the Frames to file their answer, the law firm assisted them in obtaining different counsel to defend the Golden Isles lawsuit. At trial, it was revealed that material financial information had been omitted from the closing documents, resulting in the overvaluation of Wes Frame, Inc. The Frames and C.F., Inc., were found liable, and damages were assessed against them due to these material omissions. The Frames subsequently filed this legal malpractice action, alleging that the judgment against them was caused by the law firm's professional negligence in handling the Golden Isles closing.

Under normal circumstances, the statute of limitation for legal malpractice actions runs from the date of the alleged incident of malpractice.² Hence, the four-year statute of limitation for the Frames' malpractice claim concerning the Golden Isles transaction normally would have expired on April 24, 1993, four years after the transaction's closing.³ However, in March 1993, the law firm executed a written tolling agreement that extended the statute of limitation for the Frame's malpractice claim for an additional year—until April 24, 1994. On September 26, 1994, after the extended deadline had passed, the Frames filed suit against the law firm for legal malpractice with respect to the Golden Isles transaction. The Frames' complaint alleged that the law firm had engaged in substandard disclosure practices in the Golden Isles transaction, and that the firm's failure to include accurate financial data in the closing package provided the basis for Golden Isles' suit for securities fraud and contract breach.

The trial court granted summary judgment in favor of the law firm, concluding that (1) because the extended deadline for filing the malpractice claim had passed, the Frames' complaint was time barred, and (2) because there was "no evidence in the record to suggest that [the law firm] intentionally misinformed, misadvised, inadequately counseled, misled, or obscured facts from the [Frames]," the statute of limitations had not tolled. The Court of Appeals reversed, concluding that because the law firm maintained contact with the Frames during the pendency of the Golden Isles lawsuit, and continued to advise the Frames that they had no exposure to liability in the lawsuit, a confidential relationship existed between the law firm and the Frames sufficient to toll the running of the statute of limitations. This Court granted certiorari to address the propriety of that ruling.

1. The statute of limitations is tolled in malpractice actions when a defendant intentionally conceals an act of professional negligence from a plaintiff, causing the plaintiff to be deterred from bringing a claim.⁴ Our Code provides that "[i]f a defendant... [is] guilty of a fraud by which the plaintiff has been debarred or deterred from bringing an action, the period of limitation shall run only from the time of the plaintiff's discovery of the fraud."⁵ This provision has always been strictly construed to require (1) actual fraud involving moral turpitude, or (2) a fraudulent breach of a duty to disclose that exists because of a relationship of trust and confidence.⁶ Furthermore, prescribing periods of limitation is a legislative, not a judicial, function, and thus all analyses of whether the running of a particular limitation period has been tolled must be performed within the statutory framework.⁷

In considering what actions will toll the running of a limitation period, this Court has distinguished between cases where the underlying claim is actual fraud, and cases where the underlying claim is something other than fraud. In cases where the gravamen of the underlying complaint is actual fraud, the limitation period is tolled "until such fraud is discovered, or could have been discovered by the exercise of ordinary care and diligence."⁸ On the other hand, in situations such as exist in this appeal, where the gravamen of the underlying action is not a claim of fraud, but rather of malpractice, the statute of limitations is tolled only upon a showing of "a separate independent actual fraud involving moral turpitude which deters a plaintiff from filing suit."⁹ In such cases, before the running of the limitation period will toll, it must be shown that the defendant concealed information by an intentional act—something more than a "mere failure, with fraudulent intent, to disclose such conduct, unless there is on the party committing such wrong a duty to make a disclosure thereof by reason of facts and circumstances, or the existence between the parties of a confidential relationship."¹⁰

It is this last phrase—"the existence ... of a confidential relationship"—which the Court of Appeals relied upon in finding that the limitation period in this case had tolled. Focusing on evidence (1) that throughout the Golden Isles litigation, the law firm continued to assure the Frames that they had not exposed themselves to liability in closing the Golden Isles transaction, and (2) that the law firm had represented the Frames for a number of years, the Court of Appeals concluded that the firm used its confidential relationship with the Frames to "actually lull [them] into not understanding the quality and effect of [the firm's] prior legal services."¹¹ In reaching this conclusion, the Court of Appeals relied upon its own precedent from Sutlive, supra, that "the existence of a confidential relationship between the parties lessens, if not negates, the necessity of showing actual fraud" in tolling situations.¹² The crux of the Court of Appeals' decision in this matter is its conclusion that the confidential relationship between the Frames and the law firm dispensed with the need to show intentional concealment and actual deterrence before the limitations statute will be tolled. For the reasons explained below, we disagree with that conclusion.

Because the existence of a confidential relationship between the parties, such as existed here, does not affect the existence of fraud—that is, the intention to conceal or deceive—a confidential relationship cannot, standing alone, toll the running of the statute. Rather, a confidential relationship means only that the plaintiff has cause to rely upon, and place confidence in, the defendant.¹³ Thus, it affects only the extent of (a) the defendant's duty to reveal fraud,¹⁴ and (b) the plaintiff's corresponding obligation to discover the fraud for herself. Where a confidential relationship exists, a plaintiff does not have to exercise the degree of care to discover fraud that would otherwise be required, and a defendant is under a heightened duty to reveal fraud where it is known to exist. Put another way, a confidential relationship imposes a greater duty on a defendant to reveal what should be revealed, and a lessened duty on the part of a plaintiff to discover what should be discoverable through the exercise of ordinary care. But the fraud itself—the defendant's intention to conceal or deceive—still must be established, as must the deterrence of a plaintiff from bringing suit.¹⁵

Otherwise, an undesirable anomaly will be created with regard to tolling issues in malpractice cases. As explained above, where the gravamen of a malpractice claim is actual fraud, then the limitations period is tolled until the fraud is, or through the exercise of ordinary care should have been, discovered. Thus, a lawyer who is sued for actual fraud may, when claiming that the limitations period has run, rely upon the plaintiff's duty to exercise ordinary care and diligence to...