Chase Dev. Group v. Fisher

• Decision Date: 19 April 2011
• Docket Number: No. COA09–1521.,COA09–1521.
• Citation: 710 S.E.2d 218
• Court: North Carolina Court of Appeals
• Parties: CHASE DEVELOPMENT GROUP, PTIA Limited Partnership; Chase Group, Inc., d/b/a Chase Group–Maryland; John Jorgenson; and Michael Mellor, Plaintiffs,v.FISHER, CLINARD & CORNWELL, PLLC, and Robert Lefkowitz, Defendants.

710 S.E.2d 218

CHASE DEVELOPMENT GROUP, PTIA Limited Partnership; Chase Group, Inc., d/b/a Chase Group–Maryland; John Jorgenson; and Michael Mellor, Plaintiffs,

v.FISHER, CLINARD & CORNWELL, PLLC, and Robert Lefkowitz, Defendants.

No. COA09–1521.

Court of Appeals of North Carolina.

April 19, 2011.

OPINION TEXT STARTS HERE

Appeals by plaintiffs and defendants from judgment filed 28 May 2009 by Judge Catherine C. Eagles in Guilford County Superior Court. Heard in the Court of Appeals 26 May 2010.

Jackson & McGee, LLP, by Gary W. Jackson and Sam McGee, Charlotte, for plaintiffs.

Poyner Spruill LLP, by Cynthia L. Van Horne, E. Fitzgerald Parnell, III, and Andrew H. Erteschik, Charlotte, for defendants.

STEELMAN, Judge.

The trial court's findings of fact support its denial of defendants' motion for involuntary dismissal. When the defendants' last act of negligence occurred is a factual issue to be decided by the trial court. The trial court's findings of fact on this issue support its ruling that a portion of Jorgenson and Mellor's claims were barred by the three-year statute of limitations, and that a portion of these claims were not barred. It was for the trial court to determine what amount of plaintiffs' damages were proximately caused by the negligence of defendants.

I. Factual and Procedural Background ¹

In 1997, Chase Development Group–PTIA, Limited Partnership (“Chase NC”) acquired a tract of real property located in Guilford County, North Carolina, upon which it operated a Biltmore Suites Hotel (“the Property”). Chase Group, Inc. d/b/a Chase Group–Maryland (“Chase MD”) was the general partner of Chase NC. John Jorgenson (“Jorgenson”) was the Vice–President of Chase MD. Michael Mellor (“Mellor”) was the President of Chase MD. Jorgenson and Mellor were the beneficial owners of Chase NC and Chase MD.

In August of 1999, Chase NC entered into a loan agreement with Bank of America, N.A. (“Lender”). The loan was evidenced by a note and secured by a deed of trust on the Property, an assignment of leases and rents, a security agreement, and a fixture filing. Jorgenson and Mellor were designated as “Borrower Principals” under the loan agreement. They did not personally guarantee the repayment of the loan. However, the loan agreement contained certain “recourse covenants” which triggered the personal liability of Jorgenson and Mellor. Specifically, paragraph 8(b) provided that Chase NC, Jorgenson, and Mellor were jointly and severally liable for “the Lender's incurrence of or obligation to pay attorney's fees, costs, and expenses in any bankruptcy, receivership or similar case filed by or against the Borrower or any Borrower Principal ...” One of the recourse covenants, set forth in Section 5.4(b) of the loan, also contained a prohibition against Chase NC procuring any other financing on the Property without Lender's prior written consent.

On 24 January 2002, Chase NC established a line of credit with First Union National Bank (“Credit Line”). Jorgenson and Mellor steadfastly maintained that the Lender had full knowledge of the Credit Line.

Prior to 2003, the Lender sold the note to an unidentified entity (“the Note Holder”). The loan was serviced and administered by GMAC Commercial Mortgage Corporation (“GMAC”). Following the events of 11 September 2001, the occupancy rates for the Property dropped. In early 2003, Chase NC stopped making payments on the loan. Jorgenson and Mellor entered into negotiations with Allan Hanson (“Hanson”) of GMAC, the objective of which was to resolve the loan default while retaining the Property. There were discussions of Chase NC tendering a deed in lieu of foreclosure to the Note Holder in exchange for a full release of liability for Chase NC, Jorgenson, and Mellor. GMAC and the Note Holder would have accepted such a settlement in the fall of 2003.

In October 2003, when it appeared that it could not reach an agreement with Hanson that would allow it to keep the Property, Chase NC consulted with the law firm of Fisher, Clinard & Cornwell, PLLC (“Fisher Clinard”) and specifically with Robert Lefkowitz (“Lefkowitz”) (collectively “defendants”), an expert in bankruptcy law. Fisher Clinard commenced representation of Chase NC with respect to its default under the loan. Lefkowitz advised Chase NC through Jorgenson and Mellor not to tender a deed in lieu of foreclosure, but to keep its options open. At this point, Jorgenson and Mellor reasonably believed that Fisher Clinard represented them individually as well as Chase NC. Lefkowitz did not discuss with Jorgenson and Mellor the possibility of their personal liability for attorneys' fees if foreclosure, receivership, or bankruptcy was initiated.

Based upon advice of defendants, Chase NC elected not to tender a deed in lieu of foreclosure, and communicated this decision to Hanson. On 7 November 2003, GMAC filed suit in the Superior Court of Guilford County (“state court action”) against Chase NC. As a result of this suit a receiver was appointed for Chase NC, who shortly thereafter took over the operation of the Property. On 22 December 2003, GMAC filed an amended complaint, seeking to recover from Jorgenson and Mellor as “Borrower Principals” all amounts due under the note and loan documents, including attorneys' fees. The amended complaint asserted that the Credit Line was a violation of the recourse covenant.

Lefkowitz advised Jorgenson and Mellor that GMAC did not have a strong argument for recovery of attorneys' fees from them personally. Lefkowitz advised counsel for GMAC that he did not represent Jorgenson or Mellor and declined to accept service on their behalf. Negotiations for resolution of the dispute continued between counsel and between Jorgenson, Mellor, and Hanson.

Immediately prior to a hearing on GMAC's motion for a preliminary injunction in the state court action, Fisher Clinard filed a petition under Chapter 11 of the United States Bankruptcy Code on behalf of Chase NC, on 15 April 2004. With the filing of the bankruptcy it was clear to all parties that Fisher Clinard only represented Chase NC, and did not represent Jorgenson or Mellor individually. In June of 2004, a settlement proposal that would have allowed Chase NC to retain the Property was rejected by the Note Holder. On 19 January 2005, the Bankruptcy Court refused to approve Chase NC's plan of reorganization. On 22 April 2005, the Bankruptcy Court dismissed the bankruptcy petition. GMAC then instituted foreclosure on the Property.

On 9 May 2005, Lefkowitz filed answer in the state court action to GMAC's amended complaint on behalf of Jorgenson and Mellor, individually. On 14 November 2005, GMAC filed a motion for partial summary judgment seeking a ruling on Jorgenson and Mellor's personal liability for GMAC's attorneys' fees. On 17 January 2006, the trial court granted GMAC's motion and awarded GMAC accrued attorneys' fees against Jorgenson and Mellor of $237,797.16. Lefkowitz recommended appeal of this order. Jorgenson and Mellor sought other legal advice and hired Andrew Chamberlin to represent them.

Jorgenson and Mellor negotiated a settlement with GMAC and the Note Holder. Under the terms of the settlement, Chase NC relinquished title to the Property; Jorgenson and Mellor paid GMAC $300,000 (which included the $237,797.16 previously awarded by the trial court); and the Note Holder released Chase NC, Jorgenson, and Mellor from any further liability.

On 6 November 2007, Chase NC, Chase MD, Jorgenson, and Mellor (“plaintiffs”) filed this action against defendants seeking compensatory damages for negligence arising out of the representation of plaintiffs. Defendants pled the statute of limitations in bar of plaintiffs' claims. The case was heard before the trial court sitting without a jury. A judgment containing detailed findings of fact and conclusions of law was entered on 28 May 2009.

The judgment found that defendants had breached the applicable standard of care, and that Chase NC was entitled to recover of defendants the sum of $50, 000, the amount paid to defendants in fees and costs. As to Jorgenson and Mellor, the court found that there were two periods of legal representation by defendants: (1) from October 2003 until 15 April 2004 (the date of filing bankruptcy on behalf of Chase NC); and (2) from the dismissal of the bankruptcy petition until the dismissal of the state court case (14 March 2006). As to the first period of representation, the trial court held that the claims of Jorgenson and Mellor were barred by the three-year statute of limitations. As to the second period of representation, the trial court awarded damages to Jorgenson and Mellor of $48,720.16. Costs and interest from the date of filing the lawsuit were also awarded to plaintiffs.

From the judgment of the trial court, both plaintiffs and defendants appeal.

II. Standard of Review

“It is well settled in this jurisdiction that when the trial court sits without a jury, the standard of review on appeal is whether there was competent evidence to support the trial court's findings of fact and whether its conclusions of law were proper in light of such facts.” Shear v. Stevens Building Co., 107 N.C.App. 154, 160, 418 S.E.2d 841, 845 (1992). The trial court's findings of fact are conclusive on appeal if supported by competent evidence. Finch v. Wachovia Bank & Tr. Co., 156 N.C.App. 343, 347, 577 S.E.2d 306, 308–09 (2003) (quotation omitted). “Conclusions of law drawn by the trial court from its findings of fact are reviewable de novo on appeal.” Food Town Stores v. City of Salisbury, 300 N.C. 21, 26, 265 S.E.2d 123, 127 (1980) (citation omitted).

III. Appeal of Defendants

A. Sufficiency of the Evidence

In their first argument, defendants contend that the trial court erred in denying their motion for a directed verdict. We disagree.

This case was tried before a judge, sitting without a jury. A motion for directed verdict pursuant to Rule 50 of the North Carolina Rules of Civil Procedure was not...