Keonjian v. Olcott

• Citation: 216 Ariz. 563,169 P.3d 927
• Decision Date: 18 October 2007
• Docket Number: No. 2 CA-CV 2007-0047.,2 CA-CV 2007-0047.
• Parties: Maria A. KEONJIAN, a single person, Plaintiff/Appellant, v. Timothy A. OLCOTT, an Arizona professional corporation; Timothy A. Olcott, a single person, Defendants/Appellees.
• Court: Arizona Court of Appeals

169 P.3d 927

216 Ariz. 563

Maria A. KEONJIAN, a single person, Plaintiff/Appellant, v. Timothy A. OLCOTT, an Arizona professional corporation; Timothy A. Olcott, a single person, Defendants/Appellees.

No. 2 CA-CV 2007-0047.

Court of Appeals of Arizona, Division 2, Department B.

October 18, 2007.

Munger Chadwick, P.L.C. By Mark E. Chadwick, Tucson, Attorneys for Plaintiff/Appellant.

Smith Law Group By Christopher J. Smith and E. Hardy Smith, Tucson, Attorneys for Defendants/Appellees.

OPINION

VÁSQUEZ, Judge.

¶ 1 In this legal malpractice action, appellant Maria A. Keonjian appeals from the trial court's grant of summary judgment in favor of appellee Timothy A. Olcott. Keonjian argues the trial court erred in ruling (1) that her claim was barred by the two-year statute of limitations for tort actions, and (2) that she had no claim for breach of contract and was therefore not entitled to the longer limitations period applicable to contract actions. For the following reasons, we affirm.

Facts and Procedural Background

¶ 2 Although the pertinent facts of this case are largely undisputed, we view them in the light most favorable to the party opposing the summary judgment motion below. Hill-Shafer P'ship v. Chilson Family Trust, 165 Ariz. 469, 472, 799 P.2d 810, 813 (1990). In August 2000, Keonjian and her daughter, Asya Almonte, signed a contract for the construction of a house on real property located in Green Valley, Arizona. The contract provided that the construction costs would be divided between them, with Keonjian paying seventy-five percent and Almonte paying twenty-five percent. In December 2000, Olcott, who had been Keonjian's family lawyer since 1994, agreed to provide legal services in connection with this project. At Keonjian's request, Olcott drafted a deed dividing ownership of the property according to each party's contributions to the construction costs. However, Almonte objected to the first draft of the deed, which gave a seventy-five percent interest in the property to Keonjian and a twenty-five percent interest to Almonte and her husband. Olcott prepared a second draft, which created a seventy-five percent joint tenancy held by Keonjian and Almonte and a twenty-five percent joint tenancy held by Almonte and her husband. Although Olcott advised Keonjian that there were no material differences between the two drafts, the second draft effectively gave Almonte and her husband a 62.5 percent interest in the property and Keonjian a 37.5 percent interest. Based on Olcott's advice, Keonjian executed this second deed.

¶ 3 In February 2001, in the course of securing a loan to fund her capital contribution to the project, Almonte asked Keonjian to sign a gift letter. The letter stated that Keonjian had made a gift, valued at "over $300,000," of an undivided 3/4 interest in the property, to herself and Almonte as joint tenants with right of survivorship. Olcott advised Keonjian to sign the gift letter, telling her it was an "internal" letter that could only be used for loan purposes.

¶ 4 In July 2002, Keonjian learned that the deed she had executed had effectively given Almonte a 62.5 percent interest in the property. Almonte refused to sign a revised deed, and Keonjian sued Almonte and her husband seeking to "remedy all of the problems created by the execution of the deed and the gift letter." In October 2003, the parties entered into a settlement agreement, which they amended the following month.

¶ 5 Keonjian filed the current action against Olcott on September 16, 2005. In her complaint, Keonjian alleged that Olcott breached his fiduciary duty with respect to both the preparation of the deed and his advice to Keonjian regarding the gift letter and breached his contract to perform legal services. In his answer, Olcott asserted Keonjian's claims were barred by the statute of limitations. On November 8, 2006, both parties filed motions for summary judgment based on the statute of limitations.

¶ 6 The trial court granted summary judgment in favor of Olcott, finding that Keonjian's claims arose from tort, not contract, and had accrued no later than July 2002, when Keonjian sued Almonte. This timely appeal followed.

Standard of Review

¶ 7 We review a trial court's grant of summary judgment de novo, remaining "mindful that `the statute of limitations defense is not favored.'" CDT, Inc. v. Addison, Roberts & Ludwig, C.P.A., P.C., 198 Ariz. 173, ¶ 5, 7 P.3d 979, 981 (App.2000), quoting Logerquist v. Danforth, 188 Ariz. 16, 22, 932 P.2d 281, 287 (App.1996). Summary judgment is appropriate if there is "no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." Ariz. R. Civ. P. 56(c).

Discussion

¶ 8 Keonjian argues the trial court erred on two substantive grounds in granting summary judgment in favor of Olcott. First, she contends that her malpractice claims based on negligence and breach of fiduciary duty did not accrue until the settlement of the lawsuit with Almonte on October 1, 2003, and are thus not barred by the two-year limitations period. Second, she argues she has a valid breach of contract claim against Olcott on which she is entitled to the longer limitations period applicable to contract actions.

¶ 9 In Arizona, legal malpractice claims are generally governed by the statute of limitations for tort claims in A.R.S. § 12-542, which provides that such claims must be brought "within two years after the cause of action accrues." See Kiley v. Jennings, Strouss & Salmon, 187 Ariz. 136, 139, 927 P.2d 796, 799 (App.1996). Arizona applies the discovery rule to determine when a cause of action for legal malpractice accrues. Commercial Union Ins. Co. v. Lewis & Roca, 183 Ariz. 250, 254, 902 P.2d 1354, 1358 (App. 1995). "[T]he discovery rule applies not only to the discovery of negligence, but also to discovery of causation and damage." Id. at 253, 902 P.2d at 1357. Thus, for legal malpractice claims, the limitations period starts to run when the client has suffered harm and knows or should have known that the harm was a direct result of the attorney's negligence. Id.

¶ 10 Keonjian cites Commercial Union for the proposition that the statute of limitations does not begin to run until the harm is "impossible to remedy or retract." Drawing on this proposition, she argues her cause of action against Olcott did not accrue until her claims against Almonte were exhausted, because until then the damages caused by Olcott could be remedied by recovering damages against Almonte. Keonjian misinterprets Commercial Union. The recovery of damages on her separate claim against Almonte has no bearing on the issue of when her cause of action accrued against Olcott.

¶ 11 In Commercial Union, attorneys at a law firm had erroneously overlooked a relevant case in advising a client about an insurance coverage issue. Id. at 252, 902 P.2d at 1356. However, a different attorney representing the client in subsequent litigation advised that the case was distinguishable. Id. at 253, 902 P.2d at 1357. Until the court in that litigation ruled against the client and found the overlooked case controlling, the client had not suffered damages even though the negligence had occurred some years before. Id. at 256-57, 902 P.2d at 1360-61. As the court noted in Commercial Union, until that ruling, "[t]he coverage issue was an open question." Id. at 257, 902 P.2d at 1361. Thus, it was in this context that Commercial Union used "irremedia[b]l[e] or . . . irrevocable" to describe the "actual and appreciable" harm a plaintiff must sustain before a cause of action for professional negligence can accrue. Id. at 254, 902 P.2d at 1358 (citations omitted).

¶ 12 In the other two cases relied upon by Keonjian, Glaze v. Larsen, 207 Ariz. 26, 83 P.3d 26 (2004), and Amfac Distribution Corp. v. Miller, 138 Ariz. 152, 673 P.2d 792 (1983), the issue was when a cause of action accrues for legal malpractice that occurred in the course of litigation. Glaze, 207 Ariz. 26, ¶ 14, 83 P.3d at 29; Amfac, 138 Ariz. at 153, 673 P.2d at 793. In such cases, "`the injury or damaging effect'" of the negligence "`is not ascertainable until the appellate process is completed or is waived by a failure to appeal.'" Id. ¶ 15, quoting Amfac, 138 Ariz. at 154, 673 P.2d at 794. These cases are distinguishable from the present case, because Olcott's alleged malpractice did not occur during the course of litigation and any harm or damage to Keonjian was immediate and ascertainable. Here, unlike Amfac and Glaze, there was no prospect that the "[a]pparent damage may vanish with successful prosecution of an appeal and ultimate vindication of the attorney's conduct by an appellate court." Amfac Distrib. Corp. v. Miller, 138 Ariz. 155, 156, 673 P.2d 795, 796 (App.1983), supplemented by Amfac, 138 Ariz. 152, 673 P.2d 792.

¶ 13 In the majority of malpractice cases, "the damage or injury occurs contemporaneously with the malpractice." Commercial Union, 183 Ariz. at 256, 902 P.2d at 1360. Keonjian's is just such a case. Any harm arising from the drafting of the deed occurred at the moment she executed it, because it diminished her interest in the property to less than the undivided seventy-five percent she had intended. And any harm she suffered from advice relating to the gift letter arose when she signed it, depriving herself of any right to reimbursement for "over $300,000," which the letter characterized as a gift. Thus, if the facts are as Keonjian alleges, the harm was irremediable or irrevocable at those two points in time because "a future appeal or other court proceedings" would not have enabled her to "avoid[]" such harm. Glaze, 207 Ariz. 26, n. 1, 83 P.3d at 30 n. 1. This is the case "notwithstanding that [her] damages may not have been fully ascertainable at that time." Id.

¶ 14 The "controlling issue" is when Keonjian "became aware or should have been aware of the cause of [her] harm." Commercial Union, 183 Ariz....