First State Bank v. Daniel and Associates, P.C.

Citation491 F.Supp.2d 1033
Decision Date07 June 2007
Docket NumberNo. 05-2505-JWL.,05-2505-JWL.
PartiesFIRST STATE BANK, Plaintiff, v. DANIEL AND ASSOCIATES, P.C. d/b/a Daniel, Schell, Wolfe and Associates, P.C., Defendant.
CourtUnited States District Courts. 10th Circuit. United States District Courts. 10th Circuit. District of Kansas

Amy Loth Allen, Leonard B. Rose, Patrick L. Kenney, Lathrop & Gage, LC, Kansas City, MO, for Plaintiff.

Joel I. Krieger, Mark E. McFarland, Richmond M. Enochs, Wallace Saunders Austin Brown & Enochs Chtd., Overland Park, KS, for Defendant.

MEMORANDUM AND ORDER

LUNGSTRUM, District Judge.

In this lawsuit plaintiff First State Bank alleges that defendant Daniel and Associates, P.C. d/b/a Daniel, Schell, Wolfe and Associates, P.C. (Daniel & Associates) was negligent in performing accounting and auditing work for non-party Law Enforcement Equipment Company (LEECO). The bank alleges that it relied on erroneous audit reports and financial statements prepared by Daniel & Associates in connection with extending credit to LEECO. On March 20, 2007, the court granted Daniel & Associates' motion for summary judgment on the grounds that the bank's claim is barred by the statute of limitations. See generally First State Bank v. Daniel & Assoc., P. C., 478 F.Supp.2d 1279 (D.Kan.2007). This matter is now before the court on the bank's motion for reconsideration (doc. # 75). For the reasons explained below, this motion is granted in part and denied in part. Specifically, the court finds that it erred in concluding as a matter of law based on the existing summary judgment record that the bank suffered legal injury at the time it made the loan, but the court rejects the bank's argument that it necessarily did not suffer legal injury before January of 2005. Consequently, the court will vacate its prior ruling granting Daniel & Associates' motion for summary judgment and permit Daniel & Associates to file a renewed motion for summary judgment on or before June 27, 2007, based on the legal standards set forth in this Memorandum and Order.

LEGAL STANDARD FOR A MOTION TO RECONSIDER

Because the bank filed its motion to reconsider within ten days after the entry of final judgment, the court construes it as a motion to alter or amend pursuant to Rule 59(e) of the Federal Rules of Civil Procedure. See Servants of Paraclete v. Does, 204 F.3d 1005, 1012 (10th Cir.2000) (a motion to reconsider filed within ten days after entry of judgment is considered a Rule 59(e) motion). Grounds "warranting a motion to reconsider include (1) an intervening change in the controlling law, (2) new evidence previously unavailable, and (3) the need to correct clear error or prevent manifest injustice." Id. Thus, a motion for reconsideration is appropriate where the court has misapprehended the facts, a party's position, or the controlling law. Id. It is not appropriate to revisit issues already addressed or advance arguments that could have been raised in prior briefing. Id.

ANALYSIS

The court will presume familiarity with its prior order granting Daniel & Associates' motion for summary judgment. See generally First State Bank, 478 F.Supp.2d at 1279. In that order, the court stated that the term "substantial injury" in K.S.A. § 60-513(b) means that "the victim must have sufficient ascertainable injury to justify an action for recovery of the damages, regardless of extent." Moon v. City of Lawrence, 267 Kan. 720, 728, 982 P.2d 388, 395 (1999). "The true test to determine when an action accrues is that point in time at which the plaintiff could first have filed and prosecuted his [or her] action to a successful conclusion." Kansas Pub. Employees Ret. Sys. v. Reimer & Koger Assocs., Inc., 262 Kan. 110, 116, 936 P.2d 714, 719 (1997) (quotation omitted). The court held in its prior order that "the bank suffered legal injury sufficient to trigger the running of the statute of limitations at the time it made the loan." First State Bank, 478 F.Supp.2d at 1284 (citing Corsicana Nat'l Bank v. Johnson, 251 U.S. 68, 86, 40 S.Ct. 82, 64 L.Ed. 141 (1919); FDIC v. Jackson, 133 F.3d 694, 696-97 & n. 2 (9th Cir.1998); Farmers & Merchants Nat'l Bank v. Bryan, 902 F.2d 1520, 1522 (10th Cir. 1990); and Fed. Say. & Loan Ins. Corp. v. Haralson, 813 F.2d 370, 377 (11th Cir. 1987)).

The bank now contends that the court committed clear error by concluding that the bank suffered actionable injury at that time. The bank argues that it could not have brought an accounting malpractice claim against Daniel & Associates until LEECO stopped making payments on its loan in January of 2005. Upon further consideration of the arguments presented in the bank's motion to reconsider, the court believes that it erred in concluding as a matter of law based on the existing summary judgment record that the bank suffered legal injury sufficient to trigger the running of the statute of limitations at the time it made the loan. In reaching this conclusion, the court relied on cases which seemed apposite because they involved claims based on improper loans. In retrospect, however, they are distinguishable because in those cases the plaintiff banks were not asserting the type of claim asserted in this case, which is a third-party claim for an accountant's alleged negligence. Corsicana National Bank, Jackson, and Bryan all involved various claims brought by banks against the banks' officers and/or directors. Haralson is distinguishable for other reasons. Haralson, like this case, involved a claim by a bank against an accountant arising out of misrepresentations in a financial statement. That case involved the application of Alabama law under which, much like Kansas law, the cause of action accrues for statute of limitations purposes "as soon as the party in whose favor it arises is entitled to maintain an action." 813 F.2d at 377. The Eleventh Circuit stated that the bank "suffered a legal injury by virtue of the misrepresentation in the financial statement when it was induced to make a loan ... on the basis of that financial statement." Id. This court discounts the persuasive value of this statement primarily because the Eleventh Circuit did not provide any meaningful legal analysis of how it reached that conclusion. The court may not have devoted much attention to the issue because, as the bank suggests, the fact of legal injury was obvious because the misrepresentation claim at issue in Haralson was a fraud claim and, under Alabama law, nominal damages are sufficient to maintain such a claim. First Bank v. Fielder, 590 So.2d 893, 898 (Ala. 1991), overruled on other grounds, Life Ins. Co. v. Smith, 719 So.2d 797 (Ala.1998). Additionally and/or perhaps alternatively, the court's statement that the bank suffered legal injury when it made the loan can arguably be regarded as dicta because the court held that there was a genuine issue of material fact concerning discovery of the fraud. Haralson, 813 F.2d at 377-78. Thus, the Haralson court's statement concerning when the bank suffered legal injury was not necessary to the court's holding in any event. In sum, the cases the court originally relied on did not address the specific issue of what constitutes legally cognizable "injury" sufficient to maintain the type of claim at issue in this case. Because the court now believes those cases are distinguishable, the court vacates its prior ruling insofar as it held as a matter of law that "the bank suffered legal injury sufficient to trigger the running of the statute of limitations at the time it made the loan." First State Bank, 478 F.Supp.2d at 1284.

Because the court believes that it is in the interests of justice to revisit further the statute of limitations issue, it will permit Daniel & Associates to file a renewed motion for summary judgment. In that connection, the court once again returns to the issue of what it deems the appropriate legal standard for determining when the bank suffered injury sufficient to justify an action for recovery of damages under Kansas law. In resolving this issue, absent controlling precedent this court must attempt to predict how the Kansas Supreme Court would decide this matter. Royal Maccabees Life Ins. Co. v. Choren, 393 F.3d 1175, 1180 (10th Cir.2005) (federal court sitting in diversity must apply state law as announced by the highest state court). The court must "follow any intermediate state court decision unless other authority convinces [it] that the state supreme court would decide otherwise." Save Palisade FruitLands v. Todd, 279 F.3d 1204, 1207 n. 1 (10th Cir.2002). The court should consider analogous decisions by the state supreme court, decisions of lower courts in the state, decisions of federal and other state courts, and the general weight and trend of authority. Progressive Cas. Ins. Co. v. Engemann 268 F.3d 985, 987-88 (10th Cir.2001). Dicta from the state supreme court represents the court's own comment on the development of state law and "is an appropriate source from which this prediction may be made." Carl v. City of Overland Park, 65 F.3d 866, 872 (10th Cir.1995).

The Kansas Supreme Court addressed the issue of the accrual of the statute of limitations on a third-party claim for an accountant's alleged negligence in the case of Brueck v. Krings, 230 Kan. 466, 638 P.2d 904 (1982). In Brueck, the depositors of a failed savings and loan association brought suit against an accounting firm and others. The plaintiffs contended that the fact of injury was not reasonably ascertainable until the association closed its doors on August 1, 1997. Id. at 470, 638 P.2d at 908. The Kansas Supreme Court disagreed, relying on the fact that the association had shown numerous indicia of faltering or having financial difficulty more than two years prior to when the plaintiffs commenced their lawsuit against the accounting firm. Id. The court explained that "[t]he critical information to trigger the running of the statute of limitations is knowledge of the fact of injury, not the extent of injury." Id. at 470-71, 638 P.2d at 908. The court affirmed the...

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