Estate of Watkins v. Hedman, Hileman & Lacosta

• Decision Date: 08 June 2004
• Docket Number: No. 02-140.,02-140.
• Court: Montana Supreme Court
• Parties: ESTATE OF Carolyn WATKINS, Plaintiff and Appellant, v. HEDMAN, HILEMAN & LACOSTA, a General Partnership, and Susan Lacosta, Donald Hedman, and William Hileman, individuals, Defendants and Respondents.

91 P.3d 1264

2004 MT 143

ESTATE OF Carolyn WATKINS, Plaintiff and Appellant, v. HEDMAN, HILEMAN & LACOSTA, a General Partnership, and Susan Lacosta, Donald Hedman, and William Hileman, individuals, Defendants and Respondents.

No. 02-140.

Supreme Court of Montana.

Submitted on Briefs September 26, 2002.

Decided June 8, 2004.

For Appellant: Lee C. Henning, Kathy M. Burch, Henning & Keedy, P.L.L.C., Kalispell, Montana.

For Respondents: George D. Goodrich, William Evan Jones, Garlington, Lohn & Robinson, PLLP, Missoula, Montana.

Justice JAMES C. NELSON delivered the Opinion of the Court.

¶ 1 The Estate of Carolyn Watkins (the Estate) brought a legal malpractice action in the District Court for the Fourth Judicial District, Missoula County, to recover damages allegedly sustained as a result of attorney Susan Lacosta's negligence in drafting a will and trust for Carolyn and her husband. The District Court granted Respondent's motion for summary judgment concluding that the Estate's action was time-barred under the three-year statute of limitations for legal malpractice. The Estate appeals. We reverse and remand for further proceedings consistent with this Opinion.

¶ 2 We address the following issue on appeal: Whether the District Court erred in determining that the Estate's claim of legal malpractice was barred by the three-year statute of limitations for legal malpractice actions.

Factual and Procedural Background

¶ 3 Carolyn and Stanley Watkins were a married couple whose varied business holdings included a substantial interest in Watkins-Shepherd Trucking as well as vending businesses and beverage distributorships. Carolyn and Stanley maintained their business interests despite Stanley's worsening heart condition and his legally blind status. For many years, the couple's estate planning consisted of simple wills drafted in 1987. These wills provided that upon the death of one spouse, everything was to go to the survivor. In 1991, Stanley's health deteriorated substantially and, given the size of the multi-million dollar estate, Carolyn became concerned about preserving the family assets for their children.

¶ 4 In 1992, Carolyn retained Susan Lacosta, an attorney whose emphasis was in estate and tax planning, to draft an estate plan for Stanley and herself. Carolyn instructed Lacosta to draft an estate plan with the same result as the 1987 wills, but with additional protection as far as probate, privacy and with some tax advantages. Lacosta never met with Stanley, nor did she discuss the estate plan with him.

¶ 5 Lacosta prepared a complex estate plan with wills and several trusts pursuant to a trust agreement entitled "The Stanley L. and Carolyn M. Watkins Revocable Trust Agreement" (the Trust). Carolyn later testified that it was her desire that the Trust remain revocable so that she would retain flexibility. Carolyn also testified that she continuously asked Lacosta whether the Trust was revocable and that Lacosta assured her that it was and that it could be changed at any time. Because Stanley was ill, Lacosta sent the documents home with Carolyn and left it to Carolyn to explain the documents to Stanley and obtain his signature. Lacosta and a member of her staff subsequently "witnessed and acknowledged" Stanley's will.

¶ 6 Stanley died on April 7, 1992, and his will, prepared only a few months earlier, was admitted to probate. Although Stanley's 1992 will was admitted to probate with Lacosta's knowledge, Lacosta did not disclose to Carolyn or to the court that the will had been improperly executed because it was not signed in the presence of witnesses as required by § 72-2-522, MCA. Carolyn was also unaware that the Trust became irrevocable upon Stanley's death.

¶ 7 More than a year after Stanley's death, Carolyn instructed her local attorney, Don Lee, to sell an asset owned by the Trust. Lee contacted Lacosta for advise in understanding the estate plan. Lacosta advised Lee to effect the following series of transfers: (1) Carolyn, as trustee, should transfer the asset to a separate revocable trust; (2) Carolyn, as trustee of the separate revocable trust, should then transfer the asset to herself individually, and (3) Carolyn, individually, should then sell the asset to the buyer. This series of transactions was completed on July 17, 1994.

¶ 8 In January 1995, during a meeting with Carolyn and her insurance and financial advisor, John Hagman, Lacosta again assured Carolyn that the Trust was revocable. Hagman had substantial experience in estate planning and he directly asked Lacosta whether the Trust created a Qualified Terminable Interest Property (QTIP) trust. Lacosta responded that the Trust agreement did not create a QTIP trust and that Carolyn could do anything she wanted with any of the Trust assets because the trust was fully revocable by her. However, on April 21, 1995, during a meeting with Carolyn and her CPA, Gary McDermott, Lacosta admitted that the Trust was an irrevocable QTIP trust.

¶ 9 Sometime between May and July 1995, Carolyn hired Neil McKay, an estate and tax planning attorney, to determine whether and to what extent the Trust was irrevocable. McKay testified in his deposition that the Trust would be very difficult for the average layperson to understand. In fact, he testified that even as an estate and tax planning expert, he had to spend many hours reading the Trust document before he could understand it. Sometime after July 1995, McKay confirmed that the Trust was irrevocable.

¶ 10 When Carolyn discovered that the estate plan prepared by Lacosta did not reflect her and Stanley's intent, she made several efforts to minimize or negate the damage. She first attempted to obtain the Trust beneficiaries' cooperation in correcting the mistakes. This cooperative effort failed, so Carolyn next proceeded with legal action to have the erroneous estate plan legally modified. These efforts resulted in acrimonious and protracted litigation between Carolyn and her son, Steve Williamson, as well as some of the other Trust beneficiaries. In those cases (hereafter collectively referred to as the "Beneficiary Suits"), the District Court found Carolyn's claims to be time-barred. The court reasoned that as the personal representative of her husband's estate, Carolyn had an absolute legal duty to the beneficiaries to understand and administer the estate. It did not matter whether she in fact understood the legal documents.

¶ 11 Carolyn died on February 23, 1997. On December 29, 1997, her Estate brought an action to recover damages sustained by Carolyn as a result of Lacosta's negligence. Respondents moved for summary judgment based on the statute of limitations and on the doctrines of res judicata and collateral estoppel. On December 28, 2001, the District Court ruled that the Estate's claim was time-barred under the three-year statute of limitations. The court did not address Respondent's other arguments. Thereafter, the Estate filed a Motion to Alter or Amend the Judgment, which the District Court denied on March 4, 2002. The court's orders concluded that Carolyn should have discovered Lacosta's negligence by April 1992, and that because Carolyn sustained damages by April 1992, the Estate's claim was time-barred. The Estate appeals from these orders.

Standard of Review

¶ 12 Summary judgment is proper only when no genuine issue of material fact exists and the moving party is entitled to judgment as a matter of law. Rule 56(c), M.R.Civ.P. Our standard in reviewing a district court's summary judgment ruling is de novo. Johnson v. Barrett, 1999 MT 594, ¶ 9, 295 Mont. 254, ¶ 9, 983 P.2d 925, ¶ 9 (citing Stutzman v. Safeco Ins. Co. of America (1997), 284 Mont. 372, 376, 945 P.2d 32, 34). We use the same Rule 56, M.R.Civ.P., criteria applied by the district court. Johnson, ¶ 9. Moreover, all reasonable inferences which may be drawn from the offered proof must be drawn in favor of the party opposing summary judgment. Johnson, ¶ 8 (citing Schmidt v. Washington Contractors Group, 1998 MT 194, ¶ 7, 290 Mont. 276, ¶ 7, 964 P.2d 34, ¶ 7).

Discussion

¶ 13 Whether the District Court erred in determining that the Estate's claim of legal malpractice was barred by the three-year statute of limitations for legal malpractice actions.

¶ 14 The Estate argues that the District Court, when rendering its orders in December 2001 and March 2002, failed to recognize the substantial legal distinctions between the Beneficiary Suits and this legal malpractice case, thus, the court improperly applied the same analysis to this case as it applied in the Beneficiary Suits. The Estate maintains that the relationship at issue here and the legal duties inherent in that relationship are different from that adjudicated in the Beneficiary Suits. In the Beneficiary Suits, the court reasoned that Carolyn, as the personal representative of her husband's estate, had an absolute legal duty to understand and administer the estate plan, thus the fiduciary duty ran from Carolyn to the beneficiaries. In this legal malpractice case, the fiduciary duty runs from Lacosta to Carolyn. We agree with the Estate that this distinction changes the application of the statute of limitations in this case.

¶ 15 The statute of limitations for a legal malpractice action provides:

An action against an attorney licensed to practice law in Montana or a paralegal assistant or a legal intern employed by an attorney based upon the person's alleged professional negligent act or for error or omission in the person's practice must be commenced within 3 years after the plaintiff discovers or through the use of reasonable diligence should have discovered the act, error, or omission, whichever occurs last, but in no case may the action be commenced after 10 years from the date of the act, error, or omission.

Section 27-2-206, MCA. The Estate argues that in some circumstances, a plaintiff is not strictly bound by this three-year statute of limitations....