Griggs v. Nash

• Decision Date: 24 May 1989
• Docket Number: No. 17637,No. 1-5,1-5,17637
• Citation: 116 Idaho 228,775 P.2d 120
• Parties: Gordon GRIGGS and Doris Griggs, husband and wife, Plaintiffs, v. Charles E. NASH and Tina E. Nash, husband and wife; Equity Mortgage Services, Inc.; Mortgage Services Escrow; Rick L. VanGelder and Jane Doe VanGelder, husband and wife; John Does; First American Title Insurance Company; United States of America, by and through the Internal Revenue Service; State of Idaho, by and through the Department of Revenue and Taxation; Julie J. Anselment; Bruneel Tire Service; American Carpet Cleaners; Dennis Allen; Tina E. Nash; First Security Bank of Idaho; Coleman Oil Company, Defendants. EQUITY MORTGAGE SERVICES, INC.; Mortgage Services Escrow; and Rick L. VanGelder, Third-Party Plaintiffs-Appellants, v. Kim TROUT, Third-Party Defendant-Respondent.
• Court: Idaho Supreme Court

Page 120

775 P.2d 120

116 Idaho 228

Gordon GRIGGS and Doris Griggs, husband and wife, Plaintiffs, v. Charles E. NASH and Tina E. Nash, husband and wife; Equity Mortgage Services, Inc.; Mortgage Services Escrow; Rick L. VanGelder and Jane Doe VanGelder, husband and wife; John Does No. 1-5; First American Title Insurance Company; United States of America, by and through the Internal Revenue Service; State of Idaho, by and through the Department of Revenue and Taxation; Julie J. Anselment; Bruneel Tire Service; American Carpet Cleaners; Dennis Allen; Tina E. Nash; First Security Bank of Idaho; Coleman Oil Company, Defendants.

EQUITY MORTGAGE SERVICES, INC.; Mortgage Services Escrow; and Rick L. VanGelder, Third-Party Plaintiffs-Appellants, v. Kim TROUT, Third-Party Defendant-Respondent.

No. 17637.

Supreme Court of Idaho.

May 24, 1989.

Quane, Smith, Howard & Hull, Boise, for appellants. W. Scott Wigle, argued.

Clements, Brown & McNichols, Lewiston, for respondent. Michael McNichols, argued.

JOHNSON, Justice.

This is an action against an attorney seeking indemnity or contribution based on an alleged breach of a fiduciary relationship and negligence. The primary issue presented is whether the two-year statute of limitations contained in I.C. § 5-219(4) had run before the action against the attorney was commenced. The trial court ruled that the statute had run. The trial court also awarded attorney fees to the attorney pursuant to I.C. § 12-120(3). We affirm both decisions of the trial court.

I.

THE BACKGROUND AND PRIOR PROCEEDINGS.

Equity Mortgage Services, Inc. (EMSI) of Spokane, Washington, brokers private real estate loans. Charles and Tina Nash owned a house located on 10 acres near Lewiston, Idaho (the property). In March 1984 the Nashes sought the assistance of EMSI to obtain a loan on the property. In the spring of 1984 Gordon and Doris Griggs contacted EMSI indicating their desire to make a loan secured by real property. EMSI arranged for a loan of $35,000 (the loan) to be made by the Griggses to the Nashes. The loan was to be secured by a deed of trust on the property. This deed of trust was to have priority over any other encumbrance or lien on the property. Before the loan was closed, EMSI through Rick Van Gelder, its sole owner and manager, represented to the Griggses that the property had a value of at least $65,000.

When it came time to close the loan in May 1984, Van Gelder prepared the necessary documents for signature by the Nashes and the Griggses. At the request of EMSI, the Nashes obtained a title report listing the liens and encumbrances on the property. EMSI made arrangements with Kim Trout, an attorney in Lewiston, Idaho, to pay off an existing escrow contract relating to the property and to release the net proceeds of the loan to the Nashes when the deed of trust securing the loan had been recorded. Trout paid off the existing escrow contract, recorded the deed of trust, and disbursed the net proceeds of the loan to the Nashes.

Monthly interest payments were due on the loan beginning in June 1984. The principal amount of the loan was due in May 1986. The Nashes made no payments on the note. Also, certain liens on the property were discovered to have priority over the deed of trust securing the loan. One of these was a lien by the State of Idaho for unpaid taxes of the Nashes in the amount of $186.70.

On October 4, 1984, Van Gelder wrote to the Griggses stating that at the time of the closing EMSI had employed Trout to disburse the funds to clear the property and to put the Griggses "in the first position on the property." Van Gelder also advised the Griggses that at the time of the closing Trout was representing the Nashes on a prior sale of the property that had required a foreclosure and that Trout "did not make anyone aware of that pending litigation or of any other things regarding the property that he had prior knowledge of." Van Gelder indicated that EMSI had hired an attorney to prepare a claim against Trout and the title company.

On October 11, 1984, an attorney representing the Griggses wrote to EMSI demanding that EMSI pay the Griggses the principal amount of the loan, plus interest. The letter stated that EMSI had breached the fiduciary relationship that EMSI had with the Griggses "by failure to insure proper disbursements of their funds."

On November 2, 1984, Van Gelder wrote to the attorney for the Griggses requesting an assignment of the note and deed of trust signed by the Nashes to allow EMSI to take action against Trout. The letter noted that EMSI had "already incurred approximately $1,500.00 in attorney's fees for the work done." Van Gelder proposed that EMSI would execute a promissory note to the Griggses for the amount owed on the loan and would forward it to the attorney for the Griggses together with an assignment of any award against Trout.

On July 30, 1985, the Griggses filed the complaint in this action making claims against the Nashes, EMSI and its subsidiary Mortgage Services Escrow, Van Gelder and his wife, the title company, and various parties alleged to hold liens on the property. One of the lien holders named was the State of Idaho. The complaint alleged that EMSI and Van Gelder had failed to (1) investigate the financial position of the Nashes, (2) inspect the property, (3) obtain an independent appraisal or other evidence of the value of the property, and (4) examine the title to the property to determine whether the deed of trust given to the Griggses would be a valid first lien. This complaint was served on EMSI and Van Gelder on August 5, 1985.

On January 29, 1987, EMSI and Van Gelder filed a motion for leave to file a third-party complaint against Trout. The third-party complaint was filed on September 23, 1987. It alleged that Trout had acted as the attorney for EMSI and Van Gelder in closing the loan transaction between the Griggses and the Nashes. EMSI and Van Gelder sought indemnification or contribution from Trout for any damages that might be awarded against them in favor of the Griggses. They alleged that Trout had breached fiduciary duties owed to them by failing, among other things, to advise them of Trout's knowledge of the value of the property. They also alleged that Trout had been negligent in failing to clear all prior liens from the title to the property.

Trout filed a motion for summary judgment on the ground that the claims against him by EMSI and Van Gelder were barred by the two-year statute of limitations in I.C. § 5-219(4). For the purposes of the motion, Trout admitted that it must be taken as true that (1) EMSI engaged Trout to handle the Nash loan closing, (2) Trout knew of a lawsuit affecting the property and of an appraisal valuing the property at less than EMSI believed it to be worth, and (3) if Trout had disclosed the lawsuit and the appraisal, EMSI would have foregone the loan to the Nashes.

In ruling on the motion for summary judgment, the trial court stated that the issue to be decided was: "what is the applicable limitation period for an action seeking indemnification for potential liability of one party, allegedly caused by the professional malpractice of another?" The trial court ruled that the gravamen of the third-party complaint was legal malpractice and that I.C. § 5-219(4) applied. In granting summary judgment, the trial court held that EMSI suffered damage as a result of Trout's alleged malpractice at least by November 2, 1984, which was more than two years before EMSI and Van Gelder moved for leave to file a third-party complaint. The trial court also awarded Trout attorney fees pursuant to I.C. § 12-120(3), which became effective in 1986. The trial court reasoned that this statute was in force when EMSI and Van Gelder sought leave to file the third-party complaint and that it was not retroactively applied. The judgment was certified by the trial court as final pursuant to I.R.C.P. 54(b), and EMSI and Van Gelder appealed.

After the appeal was filed, the claims of the Griggses against EMSI and Van Gelder were tried. The trial court found that (1) Van Gelder was negligent in his investigation of the property and erroneously informed the Griggses that the property was worth $65,000, (2) the loan was made solely on the basis of the value of the property represented by Van Gelder, and (3) Van Gelder represented that the security interest of the Griggses in the property would be first in line, when, in fact, there was a tax lien of $186.70 that had priority over theirs. The trial court granted judgment against EMSI and Van Gelder for their damages, interest and attorney fees. Judgment was granted against Mortgage Services Escrow for $186.70, because of the tax lien.

II.

THIS IS AN ACTION BASED ON PROFESSIONAL MALPRACTICE AND IS SUBJECT TO THE STATUTE OF LIMITATIONS CONTAINED IN I.C. § 5-219(4).

Trout asserts that this is an action for professional malpractice. EMSI and Van Gelder contend that it is an action for indemnity or contribution. We hold that this is an action for professional malpractice, not an action for indemnity or contribution.

The third-party complaint is drawn in the form of an action for indemnity or contribution. It alleges that the liability of EMSI and Van Gelder to the Griggses, if any, resulted from the acts or omissions of Trout. It alleges that Trout's breaches of his fiduciary duty and/or his negligence were the proximate cause of the damages. However, the claims in the third-party complaint are not based on any of the theories upon which the right to indemnity or contribution may be made. The only basis for the claims is Trout's alleged malpractice in his representation of EMSI and Van Gelder.

This Court has stated that "the right of indemnity ... refers to those situations where a person who without fault on his part is compelled to pay damages occasioned by the negligence of another." May Trucking Co. v. International Harvester Co., 97 Idaho 319, 543 P.2d 1159 (...