Greater Area Inc. v. Bookman

• Citation: 657 P.2d 828
• Decision Date: 26 November 1982
• Docket Number: No. 5557,5557
• Parties: GREATER AREA INCORPORATED, Appellant, v. Bruce BOOKMAN, Appellee.
• Court: Supreme Court of Alaska (US)

Page 828

657 P.2d 828

GREATER AREA INCORPORATED, Appellant, v. Bruce BOOKMAN, Appellee.

No. 5557.

Supreme Court of Alaska.

Nov. 26, 1982.

Stan Stanfill, Kevin F. McCoy, Hahn, Jewell & Stanfill, Anchorage, for appellant.

David H. Thorsness, Hughes, Thorsness, Gantz, Powell & Brundin, Anchorage, for appellee.

Before RABINOWITZ, C.J., CONNOR, BURKE and COMPTON, JJ., and BLAIR, Superior Court Judge. ^*

OPINION

BURKE, Justice.

The issue in this appeal is whether the superior court erred when it granted summary judgment in favor of an attorney who allegedly committed malpractice. To resolve the question, we must determine whether the lower court correctly ruled that the action was barred by the statute of limitations. We hold that summary judgment was improperly granted.

Early in 1976, attorney Bruce Bookman was engaged to assist in the formation of Greater Area Incorporated [GAI], a corporation designed to provide taxi services. Mr. Bookman participated in several organizational meetings attended by promoters and shareholders of the new venture. He also assisted in preparing draft articles of incorporation and a pre-incorporation stock subscription agreement circulated at a meeting on April 3, 1976. After about a dozen shareholders signed the subscription agreement, which provided for the exchange of taxicab permits for stock in the corporation, the corporation was formed. Mr. Bookman was thereafter named corporate counsel and drafted the articles of incorporation. The articles were properly filed with the Commissioner of Corporations on April 9, 1976. Mr. Bookman failed, however, to register the corporation's stock as required by AS 45.55.070. ¹

On March, 1977, two dissident shareholders engaged an attorney to regain ownership of the taxicab permits they had transferred to the new corporation. One basis of the challenge was the corporation's failure to register the stock under AS 45.55.070. Bookman informed GAI that it was possible that the dissident shareholders' nonregistration challenge would succeed, and advised the corporation to consult with Mr. Miles Schlossberg, an attorney with securities expertise. On May 19, 1977, a meeting was held between Bookman, Schlossberg and GAI. Schlossberg told Bookman and GAI that he believed the dissident shareholders' nonregistration claim would fail because it appeared that GAI was a nonprofit cooperative and exempt from registration under AS 45.55.140(a)(11). ²

On June 10, 1977, the dissident shareholders filed suit against GAI claiming, among other things, that the stock was not registered. Mr. Schlossberg was formally retained to defend against the suit on July 6, 1977. After taking several depositions, Mr. Schlossberg advised the corporation on February 22, 1978, that the dissident shareholders had a greater than fifty percent chance of prevailing on the nonregistration issue. GAI then settled with the shareholders and the lawsuit was dismissed on March 3, 1978. GAI, at this point, had incurred attorney's fees in excess of $5,000.00 and had relinquished four taxicab permits valued at $30,000.00 each.

On June 7, 1979, GAI sued Mr. Bookman, alleging that his failure to properly register the corporation's stock under AS 45.55.070 constituted negligence. Mr. Bookman moved for summary judgment, arguing that the two year statute of limitations for tort actions had expired, thereby barring GAI's action. The trial court granted the motion and GAI now appeals. Our task is to determine whether the trial court properly applied the statute of limitations and whether the resulting grant of summary judgment was correct.

The statute of limitations governing personal injury actions provides:

No person may bring an action (1) for libel, slander, assault, battery, seduction, false imprisonment, or for any injury to the person or rights of another not arising on contract and not specifically provided otherwise; (2) upon a statute for a forfeiture or penalty to the state; or (3) upon a liability created by statute, other than a penalty or forfeiture; unless commenced within two years.

AS 09.10.070. This is the statute to be applied in attorney malpractice actions based on negligence. See Van Horn Lodge, Inc. v. White, 627 P.2d 641, 643 (Alaska 1981).

Our next task is to determine when the statute of limitations begins to run as to a malpractice action against an attorney. Our statute is silent on this question and the issue is one of first impression in this jurisdiction. Courts in other jurisdictions have utilized one of four alternative rules. The statute of limitations may begin to run on the date of the negligent act or omission, on the date actual harm occurred, on the date of discovery, or on the date the attorney-client relationship is terminated. See Annot., 18 A.L.R.3d 978 (1968).

Of the various alternatives, the one that we believe most appropriate for our own jurisdiction is the so-called "discovery rule." According to the best formulation of that rule, the statute of limitations for legal malpractice does not begin to run until the client discovers, or reasonably should discover, the existence of all the elements of his cause of action. ³ See Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 491 P.2d 421, 422 (Cal.1971); Budd v. Nixen, 491 P.2d 433 (Cal.1971); Raymond v. Eli Lilly & Co., 117 N.H. 164, 371 A.2d 170, 174 (1977). In reaching this conclusion, we rely heavily upon the reasoning of the California Supreme Court in Neel v. Magana:

In ordinary tort and contract actions, the statute of limitations, it is true, begins to run upon the occurrence of the last element essential to the cause of action. The plaintiff's ignorance of the cause of action, or of the identity of the wrongdoer, does not toll the statute. In cases of professional malpractice, however, postponement of the period of limitations until discovery finds justification in the special nature of the relationship between the professional man and his client.

In the first place, the special obligation of the professional is exemplified by his duty not merely to perform his work with ordinary care but to use the skill, prudence, and diligence commonly exercised by practitioners of his profession. If he further specializes within the profession, he must meet the standards of knowledge and skill of such specialists.

Corollary to this expertise is the inability of the layman to detect its misapplication; the client may not recognize the negligence of the professional when he sees it. He cannot be expected to know the relative medical merits of alternative anesthetics, nor the various legal exceptions to the hearsay rule. If he must ascertain malpractice at the moment of its incidence, the client must hire a second professional to observe the work of the first, an expensive and impractical duplication, clearly destructive of the confidential relationship between the practitioner and his client.

In the second place, not only may the client fail to recognize negligence when he sees it, but often he will lack any opportunity to see it. The doctor operates on an unconscious patient; although the attorney, the accountant, and...