Larson v. Norkot Mfg., Inc.

• Citation: 653 N.W.2d 33,2002 ND 175
• Decision Date: 05 November 2002
• Docket Number: No. 20020058.,20020058.
• Court: North Dakota Supreme Court
• Parties: Mark V. LARSON, Plaintiff and Appellee, v. NORKOT MANUFACTURING, INC., Western Industries, Inc., and James Page, individually, Defendants, Third-Party Plaintiffs and Appellants, v. McGee, Hankla, Backes & Wheeler, P.C., Third-Party Defendant and Appellee.

653 N.W.2d 33

2002 ND 175

Mark V. LARSON, Plaintiff and Appellee, v. NORKOT MANUFACTURING, INC., Western Industries, Inc., and James Page, individually, Defendants, Third-Party Plaintiffs and Appellants, v. McGee, Hankla, Backes & Wheeler, P.C., Third-Party Defendant and Appellee.

No. 20020058.

Supreme Court of North Dakota.

November 5, 2002.

Rehearing Denied December 12, 2002.

Lyle W. Kirmis, Zuger Kirmis & Smith, Bismarck, N.D., for plaintiff and appellee.

James L. Norris, James L. Norris, P.C., Houston, TX, for defendants, third-party plaintiffs and appellants. Steven A. Storslee, Storslee Law Firm, P.C., Bismarck, N.D., for third-party defendant and appellee.

VANDE WALLE, Chief Justice.

[¶ 1] Norkot Manufacturing, Inc., Western Industries, Inc., and James Page (collectively, "Page") appealed a district court memorandum and order granting a renewed motion for summary judgment dismissing Page's legal malpractice claims against Mark V. Larson and the law firm of McGee, Hankla, Backes & Wheeler, P.C., ("McGee").¹ We conclude there are genuine issues of material fact precluding summary judgment, and we reverse and remand for further proceedings.

I

[¶ 2] This is the second appeal from a summary judgment dismissing Page's legal malpractice claims against Larson and McGee on the ground they were barred by the statute of limitations. See Larson v. Norkot Mfg., Inc., 2001 ND 103, ¶ 2, 627 N.W.2d 386

.

[¶ 3] While a member of the McGee law firm, Larson represented Page in negotiating a business asset sale involving grinders and the right to manufacture grinders to Rexworks, Inc., and drafted an asset purchase agreement and other agreements, which were signed on February 2, 1993. No indemnification provision protecting Page from liability for damage caused by Maxigrinders manufactured by Rexworks was included in the sale agreements.

[¶ 4] A Maxigrinder manufactured by Page and purchased from Rexworks by the City of Rapid City, South Dakota, caught fire and was destroyed. Rapid City sued Rexworks. In a third-party complaint, Rexworks sued Page as a third-party defendant, seeking indemnification or contribution for any damages for which Rexworks might be found liable to Rapid City. That complaint was served upon Page's agent on January 8, 1996. On February 21, 1996, Page's attorneys filed an answer, counterclaim, and crossclaim seeking indemnity or contribution in the South Dakota suit. Larson, 2001 ND 103, ¶ 11, 627 N.W.2d 386. A Texas company that purchased from Rexworks a Maxigrinder manufactured by Rexworks sued Rexworks in Texas for damages caused when the Maxigrinder caught fire. Rexworks served Page with a third-party complaint in April 1996.

[¶ 5] On June 26, 1996, Page and Rexworks agreed Rexworks would pay a reduced amount to Page as full payment for all amounts due under the 1993 agreements; Page would indemnify Rexworks for claims arising out of products manufactured by Norkot and sold by Rexworks (specifically including the machine involved in the South Dakota litigation); and Rexworks would indemnify Page for losses arising out of machines manufactured by Rexworks (specifically including the machine involved in the Texas litigation).

[¶ 6] Larson and Page became involved in litigation in 1998:

Larson sued Page on January 12, 1998, to recover unpaid legal fees. On February 6, 1998, Page answered and counterclaimed for legal malpractice for failing to include in the sale contracts with Rexworks "any provision in the contract to protect Norkot and Page from liability to parties who may be injured, physically or financially, as a consequence of the use of any of the assets transferred from Norkot to Rexworks."

Id. at ¶ 4. Page alleged he entered into an indemnity agreement with Rexworks on June 26, 1996, and "lost $379,316 plus other damages caused by Larson's and McGee's legal malpractice." Page asserted the same malpractice claim against McGee in a third-party complaint.

[¶ 7] The trial court granted motions by Larson and McGee for dismissal of Page's legal malpractice claims on the ground they were barred by the statute of limitations. Page appealed. We concluded there was "a genuine issue of material fact precluding summary judgment on the question of when Page knew, or with reasonable diligence should have known, of the injury, its cause, and the defendants' possible negligence." Id. at ¶ 13. We affirmed the dismissal of Larson's claim against Page, reversed the remainder of the judgment, and remanded for further proceedings.

[¶ 8] After further discovery, McGee renewed its motion for summary judgment and Larson joined in the renewed motion. The district court ordered that Page's legal malpractice claims be dismissed, explaining:

This Court finds that the statute of limitations commenced to run when Page received the South Dakota third party complaint on January 9, 1996. The complaint should have placed a reasonable person on notice of a potential claim of legal malpractice. The issue of indemnification under the agreement would reasonabl[y] have been discussed between Mr. Page and his attorneys in preparing a defense. Since the claims for legal malpractice were served more than two years after the accrual of [a legal] malpractice case on January 9, 1996, the Court concludes that Page's claims are barred by the statute of limitations.

Judgment was entered accordingly and this appeal followed.

II

[¶ 9] In the earlier appeal, we reiterated when summary judgment may be rendered:

Under N.D.R.Civ.P. 56, summary judgment shall be rendered if there is no genuine issue as to any material fact and any party is entitled to judgment as a matter of law. Summary judgment may be issued to dispose of a controversy without trial if either party is entitled to judgment as a matter of law, if there is no dispute as to either the material facts or the inferences to be drawn from undisputed facts, or if resolving factual disputes would not alter the result.

Larson v. Norkot Mfg., Inc., 2001 ND 103, ¶ 7, 627 N.W.2d 386.

[¶ 10] In the earlier appeal, we also reiterated the elements necessary for a legal malpractice action and when a cause of action for legal malpractice accrues for a statute of limitations analysis:

The elements of a legal malpractice action for professional negligence are the existence of an attorney-client relationship, a duty by the attorney to the client, a breach of that duty by the attorney, and damages to the client proximately caused by the breach of that duty. Dan Nelson Constr., Inc. v. Nodland & Dickson, 2000 ND 61, ¶ 14, 608 N.W.2d 267. The two-year statute of limitations under N.D.C.C. § 28-01-18(3) applies to malpractice actions against attorneys. Binstock v. Tschider, 374 N.W.2d 81, 84 (N.D.1985). "A cause of action for legal malpractice does not accrue, and the statute of limitations does not commence to run, until the client has incurred some damage."

Wall v. Lewis, 366 N.W.2d 471, 473 (N.D.1985). We have adopted a discovery rule, which tolls the statute of limitations in malpractice actions until the plaintiff knows, or with reasonable diligence should know, of the injury, its cause, and the defendant's possible negligence. Jacobsen v. Haugen, 529 N.W.2d 882, 885 (N.D.1995).

Larson, 2001 ND 103, ¶ 9, 627 N.W.2d 386. See also Budd v. Nixen, 6 Cal.3d 195, 98 Cal.Rptr. 849, 491 P.2d 433, 438 (1971)

("[T]he cause of action in tort does not accrue until the client both sustains damage, and discovers, or should discover, his cause of action."). Thus, (1) for one to have a cause of action for an attorney's legal malpractice, there must be damages to the client proximately caused by the attorney's breach of a duty to the client; (2) the statute of limitations does not begin to run until the client has incurred some damage from the alleged malpractice; and (3) the statute of limitations is tolled until the client knows, or with reasonable diligence should know, of the injury, its cause, and the defendant attorney's possible negligence. Larson, at ¶ 9. "`Any appreciable and actual harm flowing from the attorney's negligent conduct establishes a cause of action upon which the client may sue.'" Wall v. Lewis, 366 N.W.2d 471, 473 (N.D.1985), quoting Budd v. Nixen, 6 Cal.3d 195, 98 Cal.Rptr. 849, 491 P.2d 433, 436 (1971).

[¶ 11] In the first appeal, the parties focused on when Page had knowledge of the January, 1996 action in South Dakota. We reversed, stating "there is a genuine issue of material fact precluding summary judgment on the question of when Page knew, or with reasonable diligence should have known, of the injury, its cause, and the defendants' possible negligence." Larson, 2001 ND 103, ¶ 13, 627 N.W.2d 386.

[¶ 12] Again in this appeal, the parties have focused their attention, and that of the trial court, on the question of when Page knew, or with reasonable diligence should have known, of his injury, its cause, and his attorneys' possible negligence. But, the parties have not focused their attention, or that of the trial court, on the question when Page sustained damages as a result of his attorneys' negligence, if any. Certainly, if Page lost $379,316 under his June 26, 1996, agreement with Rexworks as a result of his attorneys' negligence, he sustained damages at that time. He may also have sustained damages before that if he incurred or paid attorney fees necessitated by his attorneys' negligence. As the court observed in Budd v. Nixen, 6 Cal.3d 195, 98 Cal.Rptr. 849, 491 P.2d 433, 437 (1971): "If the facts show that defendant's negligence caused plaintiff to incur or pay [attorney] fees on or before September 11, 1965, two years prior to the institution of the present suit, then plaintiff's action in tort would now be barred by the statute of limitations." See also Sirott v. Latts, 6 Cal.App.4th 923, 8 Cal.Rptr.2d 206, 209 (1992)

("A client suffers damage when he is compelled, as a result of the attorney's error, to incur or pay attorney fees."); Lucey v. Law...