Caledonia Leasing and Equipment Co., Inc. v. Armstrong, Allen, Braden, Goodman, McBride & Prewitt

• Decision Date: 17 November 1992
• Citation: 865 S.W.2d 10
• Parties: CALEDONIA LEASING AND EQUIPMENT CO., INC., Plaintiff/Appellant, v. ARMSTRONG, ALLEN, BRADEN, GOODMAN, McBRIDE & PREWITT, Attorneys, A Partnership, Defendant/Appellee.
• Court: Tennessee Court of Appeals

Page 10

865 S.W.2d 10

CALEDONIA LEASING AND EQUIPMENT CO., INC., Plaintiff/Appellant, v. ARMSTRONG, ALLEN, BRADEN, GOODMAN, McBRIDE & PREWITT, Attorneys, A Partnership, Defendant/Appellee.

Court of Appeals of Tennessee,

Western Section, at Jackson.

Nov. 17, 1992.

Application for Permission to Appeal

Denied by Supreme Court

March 1, 1993.

Mary L. Wolff, Daniel K. Evans, Wolff Ardis, Memphis, for plaintiff/appellant.

Joel Porter, Kathryn E. Story, Burch Porter & Johnson, Memphis, for defendant/appellee.

HIGHERS, Judge.

On March 14, 1985, Caledonia Leasing and Equipment Company, Inc. ("Caledonia Leasing") sued its former attorneys, Armstrong, Allen, Braden, Goodman, McBride & Prewitt, ("Armstrong, Allen"), seeking damages for legal malpractice committed in perfecting security interests in real property for a loan Caledonia Leasing made to Gordon Transports, Inc. (Gordon Transports). On October 24, 1991, the trial court granted Armstrong, Allen's motion for summary judgment, holding that the statute of limitations barred Caledonia Leasing's claim. Caledonia Leasing has appealed that decision to this court, and we reverse.

In 1982, Caledonia Leasing was primarily involved in leasing several operating terminals to Gordon Transports which operated an interstate truck line. Gordon Black, Wakefield Gordon and McClain Gordon were the principal shareholders and the Board of Directors of both Gordon Transports and Caledonia Leasing. McClain Gordon was president of both Gordon Transports and Caledonia Leasing. Neither corporation, however, had an ownership interest in the other.

On September 20, 1982, Caledonia Leasing made two loans to Gordon Transports in the total amount of $657,315.92. As security for the loan, Gordon Transports executed six deeds of trust that gave Caledonia Leasing a security interest in certain real properties of Gordon Transports located in six different states.

Caledonia Leasing engaged Armstrong, Allen to perform the legal services necessary to perfect its security interest in the real properties. Under federal bankruptcy law, perfection of the trust deeds within ten days of the September 20th loan was necessary to prevent a subsequent bankruptcy trustee for Gordon Transports from avoiding Caledonia Leasing's deeds of trust as preferential transfers. Armstrong, Allen recorded the deeds of trust in the appropriate jurisdictions on and between October 18-22, 1982.

On February 9, 1983, Gordon Transports filed a voluntary petition for reorganization in the United States Bankruptcy Court for the Western District of Tennessee under Chapter 11 of the Bankruptcy Code and became a debtor in possession. ¹ Gordon Transports retained James S. Cox and Associates and William H. Thomas, Jr., to provide legal representation for the company in the bankruptcy proceedings. On April 14, 1983, the Bankruptcy Court granted Gordon Transports' motion to convert the Chapter 11 bankruptcy proceeding into a Chapter 7 liquidation proceeding, and it appointed A.J. Calhoun as Bankruptcy Trustee ("Trustee") of the case.

In July and September of 1983, the Bankruptcy Court authorized the Trustee to sell certain real properties of Gordon Transports. On July 18, 1983, the Trustee filed a motion to hold in escrow the net proceeds from the sale of Gordon Transports' land and truck terminals in Corinth, Mississippi, and Gainesville, Georgia, upon which Caledonia Leasing held a deed of trust. In his motion, the Trustee stated that he was reviewing Gordon Transports' records and believed that he might have several causes of action against Caledonia Leasing for a sale by Gordon Transports of Caledonia Leasing stock to McClain Gordon, Wakefield Gordon and Gordon Black for less than fair market value and, following the sale, an increase in Gordon Transports' lease payments to Caledonia Leasing. The Trustee further stated that he was investigating the probability of other wrongful acts that could give him a cause of action against Caledonia Leasing. Caledonia Leasing answered and alleged that it held a perfected security interest in the real property to be sold and was entitled to payment from the proceeds of any court approved sale.

On August 3, the Bankruptcy Court allowed James S. Cox & Associates, and William H. Thomas, Jr., to withdraw as counsel for Caledonia Leasing, and James D. Causey was substituted as counsel.

On October 5, 1983, the Bankruptcy Court, by consent of the parties, authorized and directed the Trustee to hold in escrow the gross proceeds of the sale of all terminals in which Caledonia Leasing claimed a security interest to afford the Trustee sufficient time to determine if he had a supportable defense to the validity of Caledonia Leasing's trust deeds or grounds to support an objection to the allowance of any claim filed by Caledonia Leasing. The order provided that the interest of Caledonia Leasing as a secured party, if any, would attach to the gross sales proceeds and any interest thereon being held in escrow by the Trustee.

On March 15, 1984, the Trustee filed an adversary proceeding against Caledonia Leasing to avoid its deeds of trust pursuant to § 547 of the Bankruptcy Code as preferential transfers. His complaint alleged that Caledonia Leasing was an "insider" of Gordon Transports, that Caledonia Leasing's perfection of its security interest in Gordon Transports' real property was a transfer of property to or for the benefit of Caledonia Leasing on account of an antecedent debt made while Gordon Transports was insolvent, within one year from Gordon Transports' bankruptcy filing and that the transfer allowed Caledonia Leasing to receive more than it would in a Chapter 7 bankruptcy case. Caledonia Leasing settled the adversarial proceeding well over a year later.

On March 14, 1985, Caledonia Leasing sued Armstrong, Allen for negligently failing to timely record the deeds of trust. Their complaint alleged that, if the Trustee was successful in setting aside Caledonia Leasing's deeds of trust because they were filed late, then Armstrong, Allen's negligence in recording the deeds caused their injury. On May 30, 1990, Armstrong, Allen moved for summary judgment alleging that the statute of limitations barred Caledonia Leasing's cause of action. The trial court granted the motion on October 24, 1991.

Caledonia Leasing presents the following issue on appeal: did the trial court erroneously find that no genuine issue of material fact existed with respect to whether or not the plaintiff's legal malpractice claim was timely filed.

Under Tenn.R.Civ.P. 56.03, a summary judgment is appropriate when "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Moving parties may demonstrate that they are entitled to a judgment as a matter of law in several ways. First, they may affirmatively negate an essential element of the nonmoving party's claim. Second, they may conclusively establish an affirmative defense that defeats the nonmoving party's claim. Third, they may demonstrate that the nonmoving party cannot establish an essential element of its case. Moman v. Walden, 719 S.W.2d 531, 533 (Tenn.App.1986). See 10A C. Wright, A. Miller & M. Kane, Federal Practice and Procedure § 2727, at 130-31 (2d ed. 1983).

In ruling on a motion for summary judgment, both appellate and trial courts must review the matter in the light most favorable to the nonmoving party and draw all legitimate conclusions of fact in its favor. Smith v. Sovran Bank Cent. South, 792 S.W.2d 928 (Tenn.App.1990). If the pleadings, stipulations, depositions, and affidavits, when viewed in the light most favorable to the opponent of summary judgment, show that no genuine issue of material fact exists, and if the record reveals no error of law, the moving party is then entitled to summary judgment. Maxwell v. Davco Corp. of Tennessee, 776 S.W.2d 528, 531 (Tenn.App.1989).

We turn now to the question of when the statute of limitations bars an attorney malpractice claim. Tenn.Code Ann. § 28-3-104(a) (Supp.1990) provides:

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; ....

A cause of action for legal malpractice accrues and the statute of limitations commences to run when (1) the attorney has committed negligence, (2) the client has been injured by that negligence, Ameraccount Club, Inc. v. Hill, 617 S.W.2d 876, 878-79 (Tenn.1981), and (3) the client discovers, or in the exercise of reasonable care and diligence, should have discovered, the existence of the facts constituting negligence by the attorney and the injury caused by the attorney's negligence. Security Bank & Trust v. Fabricating, Inc., 673 S.W.2d 860, 865 (Tenn.1983).

In recent years, the Supreme Court has considered the elements of the accrual of a legal malpractice action. In Ameraccount Club, supra, the plaintiffs employed the defendant attorneys to register a service mark and logo with the United States Patent Office. In December of 1974, the attorneys negligently submitted an incomplete registration application, and on March 3, 1975, they learned of their omission. On March 13, 1975, the attorneys filed the additional information necessary to complete the application. Thus, March 13, 1975, became the official filing date of the application. On August 13 and 15, 1975, the Patent Office informed the attorneys and the plaintiffs respectively that an application for registration of a similar logo had been filed on February 28, 1975, and would be cited against the plaintiff's application because of its prior filing date. On September 2, 1975, the attorneys admitted to the plaintiff's president that they were negligent in filing the original incomplete application. On April 27, 1976, the U.S. Patent Office refused to register the plaintiffs'...