In re Dow, Bankruptcy No. 2-88-05047

CourtUnited States Bankruptcy Courts. Sixth Circuit. U.S. Bankruptcy Court — Southern District of Ohio
Writing for the CourtR. GUY COLE, Jr.
Citation132 BR 853
PartiesIn re Martin T. DOW, Debtor. Nora E. JONES, Trustee, Plaintiff, v. HYATT LEGAL SERVICES, et al., Defendants.
Docket NumberBankruptcy No. 2-88-05047,Adv. No. 2-91-0045.
Decision Date22 October 1991

132 B.R. 853 (1991)

In re Martin T. DOW, Debtor.
Nora E. JONES, Trustee, Plaintiff,
HYATT LEGAL SERVICES, et al., Defendants.

Bankruptcy No. 2-88-05047, Adv. No. 2-91-0045.

United States Bankruptcy Court, S.D. Ohio, E.D.

October 22, 1991.

132 BR 854
132 BR 855
132 BR 856
Nora E. Jones, Schottenstein, Zox & Dunn, Columbus, Ohio, trustee and attorney for trustee

Richard O. Wuerth, Lane, Alton & Horst, Columbus, Ohio, for defendants.

Charles M. Caldwell, Office of the United States Trustee, Columbus, Ohio, Asst. U.S. trustee.


R. GUY COLE, Jr., Bankruptcy Judge.

I. Prelimninary Statement

This matter is before the Court upon the motion ("Motion") of Hyatt Legal Services, Joel Hyatt, William Brooks, Susan Hyatt, Wayne Willis, Jane/John Doe, James Reese, Ben Rainsberger, and Richard Ovestrud (together, the "defendants") to dismiss the complaint filed by the Chapter 7 trustee ("plaintiff") and the plaintiff's opposition to that motion. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and the General Order of Reference entered in this district.

II. Statement of Facts

The claims in this proceeding arise from the underlying Chapter 7 proceeding of Martin T. Dow ("debtor"). The complaint, filed February 4, 1991 by the trustee ("plaintiff"), alleges that the defendants were negligent in advising and representing the debtor and that the defendants are guilty of fraudulent representations and/or nondisclosure. In her first claim, the plaintiff asserts that negligence and/or a breach of contract by the defendants caused the debtor to file a petition for relief under Chapter 7 of the Bankruptcy Code. The claim also alleges that if the defendants had advised and represented the debtor in a skillful and diligent manner, the debtor would not have engaged in certain transactions and conveyances involving real property and would not have prepared and filed incomplete and inaccurate statements and schedules in connection with the bankruptcy petition.

The second claim charges the defendants with fraudulent and/or negligent misrepresentation and nondisclosure. Specifically, it is alleged that the debtor consulted the defendants regarding various real estate transactions the debtor entered into with the intent to hinder, delay or defraud the creditors of the debtor and the trustee, and that the defendants, although possessing knowledge of the scheme, assisted the debtor in its furtherance. With respect to the representations in the debtor's statements and schedules filed in connection with his bankruptcy petition, it is alleged that the defendants either knew such representations were false or had reason to know such representations were false and failed to exercise reasonable care in preparing and filing the documents. The third claim seeks turnover or disclosure of all information relating to the debtor's property or financial affairs in the defendant's control.

Judgment in the amount of $130,000 on the first claim and in the amount of $60,000

132 BR 857
on the second is requested. The third claim seeks turnover to the plaintiff of any and all recorded information in the defendants' control which relates to the debtor's property or financial affairs

III. Discussion

A. Standards on Motion to Dismiss

Fed.R.Civ.P. 12(b)(6), made applicable to bankruptcy proceedings by Fed. R.Bankr.P. 7012, provides that a claim may be dismissed for failure to state a claim upon which relief can be granted. The plaintiff's complaint may only be dismissed under Bankruptcy Rule 7012 if it is clear that no relief could be granted under any set of facts that could be proved consistent with the allegations. Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984); Conley v. Gibson, 355 U.S. 41, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Collins v. Nagle, 892 F.2d 489, 493 (6th Cir.1989); Davis H. Elliott Co. v. Caribbean Utilities Co., Ltd., 513 F.2d 1176, 1182 (6th Cir.1975). "The issue is not whether a plaintiff will ultimately prevail but whether the claimant is entitled to offer evidence to support its claims." Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974). In determining the motion, all allegations of the complaint are presumed to be true and all reasonable inferences are to be made in favor of the nonmoving party. 2A J. Moore and J.D. Lucas, Moore's Federal Practice, Para. 12.07 (2d ed. 1986). See also, Scheuer, 416 U.S. at 236, 94 S.Ct. at 1686; Collins, 892 F.2d at 493; Morgan v. Church's Fried Chicken, 829 F.2d 10, 12 (6th Cir.1987). However, any conclusions, deductions, or opinions masked as factual allegations may not be presumed to be true. Morgan, 829 F.2d at 12 (citing Westlake v. Lucas, 537 F.2d 857, 858 (6th Cir. 1976); Davis H. Elliott, 513 F.2d at 1182)).

1. Evidentiary Considerations

Since a motion under Rule 12(b)(6) is directed solely to the complaint, extrinsic evidence may not be considered in determining the motion. Carter v. Stanton, 405 U.S. 669, 671, 92 S.Ct. 1232, 1234, 31 L.Ed.2d 569 (1972) (per curiam); Morgan, 829 F.2d at 12 n. 2; Roth Steel Products v. Sharon Steel Corp., 705 F.2d 134, 155 (6th Cir.1983) (citing Sims v. Mercy Hospital of Monroe, 451 F.2d 171, 173 (6th Cir.1971)). See also Fed.R.Civ.P. 12(b). According to the defendants the Court also may consider other facts which the Court "judicially knows," as they appear from all of the pleadings, orders and records of the case. Cohen v. United States, 129 F.2d 733, 736 (8th Cir.1942); Yudin v. Carroll, 57 F.Supp. 793, 795 (D.C.Ark.1944). However, the cases cited by the defendants are pre-1948 and, thus, subject to a 1948 amendment of 12(b)(6).

There was an early period during which some courts held that on a Rule 12(b)(6) motion to dismiss for failure to state a claim upon which relief could be granted, materials extrinsic to the complaint could not be considered. Since 1948, however, Rule 12(b) has provided that if "matters outside the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56."

Hollis v. U.S. Dept. of Army, 856 F.2d 1541, 1543 (D.C.Cir.1988) (footnotes omitted). The current version of 12(b)(6) contemplates that, if the Court does not exclude extrinsic evidence, the motion shall be treated as a summary judgment motion. Fed.R.Civ.P. 12 advisory committee's note. If a motion to dismiss is thus converted into a motion for summary judgment, both parties must be assured a reasonable opportunity to submit affidavits and other extrinsic evidence. Id.; Hollis, 856 F.2d at 1543.

The Court chooses to exclude extrinsic evidence in this case and not to convert the Motion to one for summary judgment. Therefore, only the pleadings may be considered in the Court's determination. Since the defendants have filed the Motion in response to the complaint and have not filed an answer, the only pleading currently before the Court is the complaint. Thus, only the complaint may be considered in the current decision.

132 BR 858

B. First Claim

1. Statute of Limitations

The defendants contend that the first claim should be dismissed as it is time-barred. In Ohio, claims for legal malpractice must be commenced within one year after the cause of action accrues. Ohio Rev.Code Ann. § 2305.11(A) (Anderson 1991). A legal malpractice claim accrues when there is a:

cognizable event whereby the client discovers or should have discovered that his injury was related to his attorney\'s act or non-act and the client is put on notice to pursue his possible remedies against the attorney or when the attorney-client relationship for that particular transaction terminates, whichever occurs later.

Lamberjack v. Graves, 1991 WL 156541 (Ohio App.1991) (citing Zimmie v. Calfee, Halter and Griswold, 43 Ohio St.3d 54, 538 N.E.2d 398 syllabus (1989)) (emphasis added). See also Omni-Food & Fashion, Inc. v. Smith, 38 Ohio St.3d 385, 528 N.E.2d 941 (1988). Therefore, in determining when a legal malpractice action accrues, the discovery date and the termination date must be determined and compared. Lamberjack, 1991 WL 156541.

"Conduct dissolving the `essential mutual confidence between attorney and client signals the termination of the professional relationship.'" Flynt v. Brownfield, Bowen & Bally, 882 F.2d 1048, 1051 (6th Cir.1989) (citing Brown v. Johnstone, 5 Ohio App.3d 165, 450 N.E.2d 693 (Summit Co. 1982)). As the attorney-client relationship is of a consensual nature, the actions of either party can affect its continuance. Flynt, 882 F.2d at 1051; Artromick Internat'l, Inc. v. Drustar, Inc., 134 F.R.D. 226, 230 (S.D.Ohio 1991). An affirmative act sufficient to put the other party on notice of the termination of the relationship starts the running of the statute of limitations. Flynt, 882 F.2d at 1052; Brown, 5 Ohio App.3d at 165, 450 N.E.2d 693. For the purpose of determining when discovery of malpractice occurred, the significant date is that of a "cognizable event." A cognizable event is one which should alert a reasonable person that a questionable legal practice may have occurred. Lamberjack, 1991 WL 156541; Zimmie, 43 Ohio St.3d at 58, 538 N.E.2d 398.

This adversary proceeding was commenced on February 4, 1991. The defendants attempt to bring within the Court's consideration various motions and pleadings filed in the underlying bankruptcy proceeding. However, as stated previously, the Court may consider only the complaint in the determination of this issue; extrinsic evidence is not available for consideration. See Roth Steel, 705 F.2d at 155. The only relevant date in the pleadings is February 6, 1990, which is the date when defendant Rainsberger orally moved to withdraw as debtor's counsel. As this is the Court's sole indication of the termination of the attorney-client...

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