Blair v. Ing, No. 22401.

• Decision Date: 27 February 2001
• Docket Number: No. 22401.
• Citation: 95 Haw. 247,21 P.3d 452
• Parties: Leslie BLAIR and Laurie Bishop, Co-Trustees of the 1988 Hughes Family Trust, as Amended, Plaintiffs-Appellants, v. Lawrence N.C. ING, Defendant/Cross-Claim Defendant-Appellee, and Thomas Thayer, Defendant/Cross-Claimant-Appellee, and John Does 1-10, Jane Does 1-10, Doe Corporations 1-10, Doe Partnerships 1-10, Doe Non-Profit Organizations 1-10, and Doe Governmental Agencies 1-10, Defendants.
• Court: Hawaii Supreme Court

21 P.3d 452

95 Haw. 247

Leslie BLAIR and Laurie Bishop, Co-Trustees of the 1988 Hughes Family Trust, as Amended, Plaintiffs-Appellants, v. Lawrence N.C. ING, Defendant/Cross-Claim Defendant-Appellee, and Thomas Thayer, Defendant/Cross-Claimant-Appellee, and John Does 1-10, Jane Does 1-10, Doe Corporations 1-10, Doe Partnerships 1-10, Doe Non-Profit Organizations 1-10, and Doe Governmental Agencies 1-10, Defendants.

No. 22401.

Supreme Court of Hawai`i.

February 27, 2001.

Reconsideration Denied April 24, 2001.

Bruce S. Ross, pro hac vice, (of Ross, Sacks & Glazier, LLP, Los Angeles, CA); also appearing Paul J. Barulich, pro hac vice (Redwood Shores, CA) and Arthur B. Reinwald (of Reinwald O'Connor & Playdon); on the briefs: George W. Playdon, Jr. and Jody Lynne Kellerman (of Reinwald O'Connor & Playdon), for plaintiffs-appellants.

Keith K. Hiraoka (Jodie D. Roeca, with him on the briefs, of Roeca, Louie & Hiraoka), for defendant/cross-claim defendant-appellee. Ing.

Shelton G.W. Jim On (Henry F. Beerman, with him on the briefs, of Jim On & Beerman), for defendant/cross-claimant-appellee. Thayer.

MOON, C.J., LEVINSON, NAKAYAMA, and RAMIL, JJ., and Intermediate Court of Appeals Chief Judge BURNS, in place of ACOBA, J., Recused.

Opinion of the Court by MOON, C.J.

Plaintiffs-appellants Leslie Blair and Laurie Bishop (the Appellants), as co-trustees and beneficiaries of the Hughes Family Trust [hereinafter, the Hughes Trust], brought legal malpractice claims against defendant/cross-claim defendant-appellee Lawrence N.C. Ing, a licensed attorney, and professional malpractice claims against defendant/cross-claimant-appellee Thomas Thayer, a certified public accountant, arising from services rendered in conjunction with the Hughes Trust. Ing moved to dismiss the complaint for failure to state a claim upon which relief can be granted pursuant to Hawaii Rules of Civil Procedure (HRCP) Rule 12(b)(6), in which Thayer joined.¹ Concluding that the Appellants lacked standing to assert their claim for relief, the second circuit court granted the motion in favor of Ing and Thayer.

The Appellants timely filed the present appeal and contend that the circuit court erred in granting the motion to dismiss because: (1) Ing and Thayer each owed duties to them as intended beneficiaries of the Hughes Trust; (2) the Appellants have standing to bring their amended complaint; and (3) their claims against Ing are not barred by the applicable statute of limitations, Hawai`i Revised Statutes (HRS) § 657-1(1) (1993). For the reasons set forth below, we hold that: (1) the Appellants have alleged facts sufficient to sustain a legal malpractice action in both tort and contract; (2) to determine the accrual of the statute of limitations, the "discovery rule" applies to legal malpractice actions arising from the drafting of a testamentary document; and (3) the Appellants' amended complaint does not sufficiently state a cause of action against Thayer for accountant malpractice. Accordingly, we vacate in part the circuit court's March 3, 1999 order dismissing the complaint as to Ing and remand this case for further proceedings consistent with this opinion. With respect to the dismissal of the claims against Thayer, we affirm.

I. BACKGROUND

In 1988, Lloyd and Joan Hughes (collectively, the Hugheses), the Appellants' parents, retained Ing to create an estate plan for the disposition of their assets. In performing his duties, Ing drafted, among other things, a revocable living trust agreement, naming the Hugheses as trustees. The Hugheses executed their trust on July 5, 1988. The Hugheses subsequently executed an amendment to their trust on July 15, 1988, changing the name of their trust. Seven months later, on February 17, 1989, the Hugheses executed another amendment to their trust, granting one trustee the power to bind their trust. In all other respects, the Hughes Trust remained the same.

After Lloyd Hughes passed away on January 11, 1996, Joan Hughes, as executor of her husband's estate, retained the services of Thayer to prepare the necessary federal and state estate tax forms.

On or about June 14, 1997, Joan Hughes passed away. Under the terms of the Hughes Trust, the Appellants were the sole, named residual beneficiaries of the trust and became successor co-trustees. In carrying out their duties as co-trustees, the Appellants retained the services of different attorneys and accountants to review the Hugheses' testamentary documents. The new attorneys notified the Appellants that the trust document prepared by Ing and the tax return prepared by Thayer contained several costly "errors and omissions." Thus, on October 9, 1998, the Appellants filed a legal malpractice claim against Ing and an accountant malpractice claim against Thayer.

In support of their claims, the Appellants alleged that the Hughes Trust contains several provisions reflecting that the Hugheses intended to create an estate plan employing an "A-B trust plan";² specifically, the Hughes Trust contained several references to a bypass trust. The Appellants further alleged that, although the Hughes Trust creates a bypass trust, Ing negligently drafted the Hughes Trust by failing to "include a funding formula by which the [bypass] trust could be created." The alleged failure to properly draft the trust instrument caused the Hugheses' entire estate to be subject to federal and state taxes upon the death of Joan Hughes.

The Appellants further alleged that Thayer was negligent in preparing and filing the estate tax returns because he failed to utilize several tax saving techniques, such as disclaimers and the unified tax credit. Thayer's alleged error also caused the Hugheses' entire estate to incur increased taxes, thereby diminishing the Appellants' inheritance. According to the Appellants, the alleged errors by Ing and/or Thayer resulted in approximately $200,000 in adverse tax consequences to the Hughes Trust.

Both the legal and accountant malpractice claims were based upon negligence theories. The complaint generally alleged that: (1) it was the Hugheses' intent to (a) minimize probate or other court procedures, (b) minimize state and federal estate taxation, and (c) transfer their assets to the Appellants with the least taxation possible; (2) Ing and Thayer, individually, owed the Appellants a duty of care as the intended beneficiaries of the Hughes Trust; (3) Ing and Thayer failed to exercise reasonable care in fulfilling their duties; (4) Ing's and Thayer's negligence were legal causes of the adverse tax consequences that diminished the Appellants' inheritance; and (5) the Appellants' injury was reasonably foreseeable. Subsequently, by leave of the circuit court, the Appellants filed an amended complaint asserting the same factual allegations against Ing and Thayer, but adding a breach of contract theory based upon third party beneficiary principles [hereinafter "third party beneficiary theory"].³ In sum, the crux of the Appellants' claims is that the conduct of Ing and Thayer caused the Hughes Trust to pay a total of $200,000 in adverse estate taxes, thereby reducing the Appellants' inheritance.

Ing filed a motion to dismiss the complaint, in which Thayer joined [hereinafter, the motion to dismiss]. On February 10, 1999, the circuit court granted the motion to dismiss, ruling that the Appellants lacked standing to bring a legal malpractice action against Ing, who was their parents' attorney. In the alternative, the circuit court concluded that, because the trust did not provide on its face any intention to minimize taxes or maximize the Appellants' inheritance, Ing did not owe a duty to the Appellants under either legal theory. Therefore, the circuit court concluded that the Appellants lacked standing to bring their complaint as third-party beneficiaries or trustees and dismissed the claims against Ing. Moreover, the court concluded that, even assuming that the Appellants had standing, their legal malpractice action was barred by the applicable six-year statute of limitations based on its finding that the limitations period began to accrue on the date the Hughes Trust was drafted.

In dismissing the claims against Thayer, the circuit court found that the requirements of the Restatement (Second) of Torts § 552, entitled "negligent misrepresentation," had not been met because the Appellants were merely "incidental," not "intended," beneficiaries of the agreement between Thayer and Joan Hughes. Accordingly, the circuit court also dismissed the complaint against Thayer.

The Appellants timely filed the present appeal.

II. STANDARDS OF REVIEW

A. Motion to Dismiss

It is well settled that:

A complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his or her claim that would entitle him or her to relief. Ravelo v. County of Hawaii, 66 Haw. 194, 198, 658 P.2d 883, 886 (1983) (quoting Midkiff [v. Castle & Cooke, Inc.], 45 Haw. [409,] 414, 368 P.2d [887,] 890 [(1962)]); Marsland v. Pang, 5 Haw. App. 463, 474, 701 P.2d 175, 185-86, cert. denied, 67 Haw. 686, 744 P.2d 781 (1985). We must therefore view a plaintiff's complaint in a light most favorable to him or her in order to determine whether the allegations contained therein could warrant relief under any alternative theory. Ravelo, 66 Haw. at 199, 658 P.2d at 886. For this reason, in reviewing [a] circuit court's order dismissing [a] complaint . . . our consideration is strictly limited to the allegations of the complaint, and we must deem those allegations to be true. Au [v. Au], 63 Haw. [210,] 214, 626 P.2d [173,] 177 (1981).

Baehr v. Lewin, 74 Haw. 530, 545, 852 P.2d 44, 52, reconsideration granted in part and denied in part, 74 Haw. 650, 875 P.2d 225 (1993).

Touchette v. Ganal, 82 Hawai`i 293, 297-98, 922 P.2d 347, 351-52 (1996) (brackets and ellipsis in the original).

B. Summary Judgment⁴

Summary judgment is

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