Holy Loch Distributors v. Hitchcock

• Decision Date: 29 June 1998
• Docket Number: No. 2860.,2860.
• Court: South Carolina Court of Appeals
• Parties: HOLY LOCH DISTRIBUTORS, INC.; George Hart; and Ann Law, Appellants, v. R.L. HITCHCOCK; A. Christopher Potts; and Brock & Hitchcock, a South Carolina Partnership, Respondents.

332 S.C. 247

503 S.E.2d 787

HOLY LOCH DISTRIBUTORS, INC.; George Hart; and Ann Law, Appellants, v. R.L. HITCHCOCK; A. Christopher Potts; and Brock & Hitchcock, a South Carolina Partnership, Respondents.

No. 2860.

Court of Appeals of South Carolina.

Submitted June 2, 1998.

Decided June 29, 1998.

Rehearing Denied August 19, 1998.

Daryl G. Hawkins, of Lewis, Babcock & Hawkins, Columbia, for Appellants.

Susan Taylor Wall, of Holmes & Thomson, Charleston, for Respondents.

ANDERSON, Judge:

Foreign plaintiffs George Hart and Ann Law brought this action against their attorneys for failing to procure appropriate visas, licenses, and permits to enable their business, Holy Loch Distributors, Inc., to lawfully sell beer in South Carolina. Defendants moved for dismissal of the complaint under Rule 12(b)(6), SCRCP for failure to state a cause of action. The trial court dismissed the complaint as barred by the statute of limitations. We reverse and remand.¹

FACTUAL/PROCEDURAL BACKGROUND

In 1991, appellants George Hart and Ann Law, who are both citizens of the United Kingdom domiciled in Scotland, decided to pursue a business opportunity involving the distribution of imported beer and related products in Charleston, South Carolina. In order to pursue this prospect, Hart and Law liquidated or abandoned business opportunities in Scotland.

Hart and Law consulted with the respondent law firm Brock & Hitchcock, specifically respondents R.L. Hitchcock and A. Christopher Potts, attorneys at Brock & Hitchcock, to obtain legal advice on organizing their business venture, obtaining the necessary permits and licenses to distribute imported beer, and securing the appropriate visas and immigration documents so as to comply with all legal requirements for conducting business in the United States. On August 12, 1991, Hitchcock and Potts, in their representative capacity, incorporated the business venture as Holy Loch Distributors, Inc. Hitchcock and Potts obtained the appropriate permits and licenses from the State of South Carolina for the distribution of imported beer and related products, but failed to obtain or discover the need for the appropriate federal permits and licenses.

The business operated without incident until November 9, 1993. On that date, agents of the United States Bureau of Alcohol, Tobacco and Firearms (ATF) notified appellants Hart and Law that they were operating Holy Loch in violation of federal law. Specifically, they were charged with (a) distributing alcohol without a permit; (b) distributing alcohol without paying the applicable special taxes; and (c) engaging in everyday business activities in violation of immigration laws.

Appellants paid the assessed fines and taxes. On the advice and with the aid of the Brock & Hitchcock law firm, they applied to the ATF for the appropriate permits or licenses. The firm repeatedly assured Appellants that they would be able to obtain the permits and remain in business.

The ATF denied the application. Appellants, with the aid and advice of the law firm, appealed the denial of the permits. Respondents continued to promise Appellants that they would be able to obtain the documentation needed to remain in business.

On February 8, 1995, Appellants, accompanied by Potts, attended the administrative review of the ATF denial. At that hearing, Potts testified that neither he nor Hitchcock knew that a federal license or permit was required for Holy Loch to legally conduct business in the United States. The administrative law judge upheld the denial of the permits and Holy Loch ceased operation.

Appellants Holy Loch Distributors, Hart, and Law brought this action in a complaint dated March 12, 1997 against attorneys Hitchcock and Potts, and the Brock & Hitchcock law firm. They subsequently filed two amended complaints. They alleged causes of action for (1) professional negligence, (2) breach of fiduciary duty, (3) breach of contract, and (4) breach of warranty. Respondents moved for dismissal of the complaint pursuant to Rule 12(b)(6), SCRCP for failure to state facts sufficient to constitute a cause of action. The trial court granted the motion on the ground the statute of limitations had run as to all causes of action. Holy Loch, Hart, and Law appeal.

ISSUE

Did the trial court err in dismissing the complaint on the basis the allegations were barred by the statute of limitations?

STANDARD OF REVIEW

The ruling on a Rule 12(b)(6), SCRCP motion to dismiss must be based solely upon the allegations set forth in the complaint. State Bd. of Med. Examiners v. Fenwick Hall, Inc., 300 S.C. 274, 387 S.E.2d 458 (1990). The motion will not be sustained if the facts alleged and the inferences reasonably deducible therefrom would entitle the plaintiff to relief on any theory of the case. Stiles v. Onorato, 318 S.C. 297, 457 S.E.2d 601 (1995); Brown v. Leverette, 291 S.C. 364, 353 S.E.2d 697 (1987). The question to be considered is whether in the light most favorable to the plaintiff, and with every doubt resolved in his behalf, the complaint states any valid claim for relief. Toussaint v. Ham, 292 S.C. 415, 357 S.E.2d 8 (1987).

LAW/ANALYSIS

The ATF notified appellants Hart and Law that they were operating Holy Loch Distributors in violation of federal law on November 9, 1993. In determining Appellants' claims were barred by the statute of limitations, the trial court found Appellants had actual knowledge of Respondents' alleged errors or omissions by November 9, 1993. The court ruled that "[a]ny argument for tolling, even if legally cognizable, ended on February 8, 1995, when the business was closed down after an [administrative] appeal [of the permit denials] was lost. Thereafter, [Appellants] had 21 months in which to file suit but failed to do so.... Consequently, the within action is barred by the statute of limitations as a matter of law."

Statute of Limitations and the Discovery Rule

The statute of limitations for bringing legal malpractice claims in South Carolina is three years. S.C.Code Ann. § 15-3-530(5) (Supp.1997) ("action[s] for any injury to the person or rights of another, not arising on contract," i.e., tort actions); Berry v. McLeod, 328 S.C. 435, 492 S.E.2d 794 (Ct.App.1997) (legal malpractice claim), cert. denied (S.C.1998). The statute of limitations for bringing a contract action is also three years. S.C.Code Ann. § 15-3-530(1) (Supp.1997) ("action[s] upon a contract, obligation, or liability, express or implied").

Traditionally, a cause of action accrued at the time of the injury, but South Carolina has modified this custom by adopting the "discovery" rule. The statutory limitations period begins to run on negligence actions when a person could or should have known, through the exercise of reasonable diligence, that a cause of action might exist in his or her favor, rather than when a full-blown theory of recovery is developed. Christensen v. Mikell, 324 S.C. 70, 476 S.E.2d 692 (1996); Snell v. Columbia Gun Exchange, 276 S.C. 301, 278 S.E.2d 333 (1981). The discovery rule for tort actions is specifically provided for by statute. S.C.Code Ann § 15-3-535 (Supp. 1997) ("[A]ll actions initiated under [s]ection 15-3-530(5) [regarding actions for injury to a person or his rights not arising by contract] must be commenced within three years after the person knew or by the exercise of reasonable diligence should have known that he had a cause of action.").

The discovery rule is applicable to contract actions. Santee Portland Cement Co. v. Daniel Int'l Corp., 299 S.C. 269, 384 S.E.2d 693 (1989) (extending the discovery rule to contract actions while noting only certain statutes have "built in" discovery provisions within the statute itself), overruled on other grounds by Atlas Food Sys. & Servs., Inc. v. Crane Nat'l Vendors Div. of Unidynamics Corp., 319 S.C. 556, 462 S.E.2d 858 (1995)

(amendment to general contract statute of limitations reducing period from six to three years did not impliedly repeal South Carolina's UCC statute of limitations of six years).

Our Supreme Court has defined "reasonable diligence" as follows:

The exercise of reasonable diligence means simply that an injured party must act with some promptness where the facts and circumstances of an injury would put a person of common knowledge and experience on notice that some right of his has been invaded or that some claim against another party might exist. The statute of limitations begins to run from this point and not when advice of counsel is sought or a full blown theory of recovery developed.

Mitchell v. Holler, 311 S.C. 406, 409, 429 S.E.2d 793, 795 (1993) (quoting Snell v. Columbia Gun Exch., Inc., 276 S.C. 301, 303, 278 S.E.2d 333, 334 (1981)). The test of whether a person should have known the operative facts is objective, rather than subjective. Kreutner v. David, 320 S.C. 283, 465 S.E.2d 88 (1995).

Equitable Estoppel and Tolling of the Statute of Limitations

Under the discovery rule, the statute of limitations would begin to run on November 9, 1993, when Appellants first learned from the ATF that Respondents had failed to procure the documentation necessary for them to operate lawfully. As noted above, Appellants' original complaint was not filed until March 12, 1997, apparently after the running of the three-year limitations period. However, Appellants claim Respondents should be equitably estopped from asserting the statute of limitations as a complete bar to their claims because Appellants relied on Respondents' representations that they would be able to take corrective actions that would enable Appellants to remain in business.²

A defendant may be estopped from asserting the statute of limitations as a defense if the delay that otherwise would give operation to the statute has been induced by the defendant's conduct. This may consist of an express representation that the claim will be settled without litigation or conduct that suggests a lawsuit is not necessary....