French v. Attorney's Liab. Assurance Soc'y

• Decision Date: 12 May 2016
• Docket Number: No. 2015AP758.,2015AP758.
• Citation: 881 N.W.2d 358 (Table),370 Wis.2d 261
• Parties: Jeanna FRENCH and Paula Van Akkeren, Plaintiffs–Appellants, v. ATTORNEY'S LIABILITY ASSURANCE SOCIETY and Quarles & Brady, LLP, Defendants–Respondents.
• Court: Wisconsin Court of Appeals

370 Wis.2d 261
881 N.W.2d 358 (Table)

Jeanna FRENCH and Paula Van Akkeren, Plaintiffs–Appellants,
v.
ATTORNEY'S LIABILITY ASSURANCE SOCIETY and Quarles & Brady, LLP, Defendants–Respondents.

No. 2015AP758.

Court of Appeals of Wisconsin.

May 12, 2016.

¶ 1 PER CURIAM.

Jeanna French and Paula Van Akkeren filed this legal malpractice action against Quarles & Brady, LLP and its malpractice insurance carrier, alleging that the law firm and its attorney were negligent and breached their fiduciary duties in drafting certain trust documents that established an irrevocable trust in which Jeanna French and Paula Van Akkeren were the beneficiaries.¹ The circuit court dismissed the beneficiaries' claims on three grounds: (1) the claims are barred by the six-year statute of limitations; (2) the claims are barred by the doctrine of issue preclusion; and (3) the beneficiaries lack standing. The beneficiaries appeal.

¶ 2 The dispositive issue on appeal is whether the beneficiaries' claims are barred by the statute of limitations. See Wis. Stat. § 893.53 (2013–14).² More specifically, the dispositive issue is when the beneficiaries had information that would give a reasonable person notice of injury and its cause, such that their legal malpractice claims accrued and the limitations period began to run. As we explain below, we conclude that the legal malpractice claims are time barred, because the beneficiaries had sufficient information by November 2005 and the beneficiaries did not file this action until more than eight years later.³ Therefore, we affirm.

BACKGROUND⁴

¶ 3 We summarize the facts as alleged by the beneficiaries in their amended complaint.⁵

¶ 4 In 1991, Quarles & Brady and its attorney Kathleen Gray prepared trust documents for James French, the beneficiaries' father, to establish two irrevocable trusts for the benefit of his children upon his death. The trust documents contain a clause under the heading of Trustee “Powers and Duties” that states that the trustee shall have the power “to deal with any trust hereunder without regard to conflicts of interest.”

¶ 5 In December 2004, Wachovia became the trustee for the trust pertinent to this appeal. In March 2005, Wachovia presented James with a proposal for a “1035 Exchange,” whereby two life insurance policies in the trust would be exchanged for two “no-lapse life-insurance policies.”

¶ 6 On April 7, 2005, Wachovia asked James and his children to sign a waiver of conflict of interest, because the broker for the proposed 1035 Exchange was an affiliate of Wachovia and would earn a commission on the transaction. James refused to sign the waiver and instructed his children to do the same.

¶ 7 On May 18, 2005, Wachovia withdrew its request for a signed waiver of conflict of interest, and informed attorney Gray: “[O]ur legal counsel has determined that after reviewing the facts and circumstances in this case, [Wachovia] will not require the signing of any waivers by the beneficiaries of the French Trust.”

¶ 8 By May 20, 2005, the exchange was completed and an initial commission of $512,000 was paid to Wachovia's affiliate. Wachovia's affiliate continued to receive two percent of the annual insurance premiums every year until 2014, bringing the total commission amount to $548,000.

¶ 9 On May 27, 2005, James demanded from Wachovia and its affiliate “copies of all paperwork related to the exchange as well as a copy of the waiver request and ... the amount of the commission.” Wachovia and its affiliate provided that information on June 13, 2005.

¶ 10 In November 2005, James and his children retained new counsel and demanded that Wachovia reverse the transaction. Wachovia refused.

¶ 11 In July 2006, the children filed an action against Wachovia for breach of fiduciary duty, alleging that the trust documents prohibit self-dealing and conflicts of interest absent express written waiver, and that Wachovia completed the exchange without obtaining such a waiver. In July 2011, the federal district court in that action granted summary judgment in favor of Wachovia, held that the trust documents unambiguously authorized Wachovia to engage in self-dealing, and awarded Wachovia attorney's fees and costs. See generally French v. Wachovia Bank, Nat. Ass'n, 800 F.Supp.2d 975 (E.D.Wis.2011). The Seventh Circuit affirmed that decision in July 2013. See generally French v. Wachovia Bank, N.A., 722 F.3d 1079 (7th Cir.2013).

¶ 12 In July 2014, the beneficiaries filed this legal malpractice action against the law firm's insurance carrier. The beneficiaries amended the complaint in August 2014 and added the law firm as a defendant. The amended complaint alleges that the law firm and attorney Gray “were negligent, and breached the fiduciary duties they ow[ed] James French and the beneficiaries of the Trust, in drafting the trust instruments to permit the trustee ... to effectuate transfers in trust assets despite having conflicts of interest, and despite self-dealing, without first informing James French and/or the beneficiaries that such conduct was permitted under the Trust documents in securing their consent to such terms.” The beneficiaries seek as damages the attorney's fees they paid their own counsel in the federal litigation, the attorney's fees the federal court in that litigation ordered them to pay to reimburse Wachovia, and the alleged lost value of the trust.⁶

¶ 13 In October 2014, the law firm filed a motion to dismiss asserting among other defenses that the claims are barred by the statute of limitations. The circuit court granted the motion to dismiss, and the beneficiaries now appeal.

DISCUSSION

¶ 14 As we stated above, the dispositive issue on appeal is whether the beneficiaries' legal malpractice claims are barred by the statute of limitations. “A threshold question when reviewing a complaint is whether the complaint has been timely filed, because an otherwise sufficient claim will be dismissed if that claim is time barred.” Pritzlaff v. Archdiocese of Milwaukee, 194 Wis.2d 302, 312, 533 N.W.2d 780 (1995). Generally, “[a] motion to dismiss based on the statute of limitations is treated as a motion for summary judgment.” Dakin v. Marciniak, 2005 WI App 67, ¶ 4, 280 Wis.2d 491, 695 N.W.2d 867 ; see also Wis. Stat. § 802.06(2)(b). “Accordingly, the statute of limitations issue is subject to our independent review.” Willowglen Academy–Wisconsin, Inc. v. Connelly Interiors, Inc., 2008 WI App 35, ¶ 9, 307 Wis.2d 776, 746 N.W.2d 570. As we proceed to explain, we conclude that, based on the allegations in the amended complaint, the beneficiaries' legal malpractice claims are barred by the statute of limitations.

¶ 15 The parties appear to agree that the malpractice claims in this case are governed by the six-year statute of limitations under Wis. Stat. § 893.53.⁷ See generally Hicks v. Nunnery, 2002 WI App 87, ¶ 17, 253 Wis.2d 721, 643 N.W.2d 809 (“The applicability of the six-year statute of limitations under Wis. Stat. § 893.53 to legal malpractice actions is well established.”).

¶ 16 “To prevail in an action for legal malpractice, a plaintiff must prove four elements: (1) a lawyer-client relationship existed; (2) the defendant committed acts or omissions constituting negligence; (3) the attorney's negligence caused the plaintiff injury; and (4) the nature and extent of injury.” Id., ¶ 33.

¶ 17 The parties' dispute concerns the latter two elements, specifically when the beneficiaries had information that would give a reasonable person notice of their injury and its cause. See Claypool v. Levin, 209 Wis.2d 284, 300–301, 562 N.W.2d 584 (1997). The law firm argues, as it did in its motion to dismiss, that the beneficiaries' malpractice claims accrued no later than November 2005, after: (1) the 1035 Exchange had occurred without James' and the children's waiver of conflict of interest; (2) the commission had been paid to Wachovia's affiliate; (3) the children had discharged the law firm as their attorneys; (4) the children had retained replacement counsel who demanded that Wachovia reverse the exchange; and (5) Wachovia had refused to do so. Because the claim accrued no later than November 2005, so the argument goes, and the beneficiaries did not file this malpractice action until more than eight years later in July 2014, the claims are time barred.

¶ 18 The beneficiaries concede that the law firm's alleged negligent drafting authorizing self-dealing took place in 1991, and that the law firm's alleged failure to so inform the beneficiaries took place before the beneficiaries replaced the law firm with new counsel in November 2005. However, the beneficiaries argue that their claims are not time barred because the claims did not accrue until July 6, 2011, when the federal district court issued its decision in their action against Wachovia and the beneficiaries “learned that the trust documents permitted the insurance exchange despite Wachovia's self-dealing and conflict of interest.” The beneficiaries appear to argue that they relied on replacement counsel's and attorney Gray's advice or statements and that the advice or statements suggested to the beneficiaries that Wachovia, not the law firm, was the cause of their injury. The beneficiaries contend that, by relying on the advice or statements, they exercised “reasonable diligence” to discover the cause of their injury and failed to do so. This reasonable reliance, the beneficiaries argue, prevented them from discovering the cause of their injury...