Momenian v. Davidson

• Decision Date: 29 December 2017
• Docket Number: No. 16-7129,16-7129
• Citation: 878 F.3d 381
• Parties: Houshang H. MOMENIAN, et al., Appellants v. Michael M. DAVIDSON, Appellee
• Court: U.S. Court of Appeals — District of Columbia Circuit

878 F.3d 381

Houshang H. MOMENIAN, et al., Appellants

v.Michael M. DAVIDSON, Appellee

No. 16-7129

United States Court of Appeals, District of Columbia Circuit.

Argued September 20, 2017

Decided December 29, 2017

Christopher G. Hoge, Washington, DC, argued the cause and filed the briefs for appellants.

James N. Markels, Washington, DC, argued the cause for appellee. With him on the brief was Timothy R. Dingilian, Washington, DC.

Before: Pillard and Wilkins, Circuit Judges, and Silberman, Senior Circuit Judge.

Wilkins, Circuit Judge:

This legal-malpractice action arises from Defendant Michael M. Davidson’s representation of Houshang and Vida Momenian (the "Momenians") in a lawsuit filed in D.C. Superior Court on August 18, 2009 (the "2009 Litigation"). The Momenians settled the 2009 Litigation on October 12, 2010, but allege Defendant failed to explain that the settlement meant all of their claims were fully and finally dismissed. On May 6, 2015, the Momenians (collectively with the Houshang Momenian Revocable Trust, "Plaintiffs") sued Defendant for, inter alia , his allegedly negligent settlement advice. Defendant moved to dismiss pursuant to the three-year statute of limitations, arguing that if Plaintiffs had exercised reasonable diligence investigating their claims, they would have been on notice of the cause of action at some point prior to May 6, 2012. Defendant also moved to dismiss for failure to state a claim on the merits.

The District Court twice dismissed the complaint as untimely: first with leave to amend, and second with prejudice, concluding that Plaintiffs' amended complaint failed to allege facts sufficient to overcome the timeliness bar.

The District Court engaged in a thorough and careful analysis of the timeliness issue. However, taking the allegations of the complaint as true and drawing all reasonable inferences in Plaintiffs' favor, we do not agree that Plaintiffs' claims are conclusively time barred at the pleading stage. Under the circumstances of this case, including the parties' attorney-client relationship, Plaintiffs' efforts to check in with Defendant about the 2009 Litigation every three months following the 2010 settlement plausibly fulfilled their duty to investigate their affairs with reasonable diligence. It is therefore plausible that Plaintiffs' claims did not accrue prior to May 6, 2012. Accordingly, we reverse and remand for proceedings consistent with this opinion.

I.

The following facts are taken from the operative complaint and assumed true for the purpose of reviewing Defendant’s motion to dismiss. Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007).

The 2009 Litigation resulted from a series of real-estate transactions in Washington, D.C. In 1990, the Momenians purchased three properties from Paul and Amelia Interdonato (the "Interdonatos") with a $265,000 promissory note (the "Note") secured by the properties' deeds of trust. In January 1998, Paul Interdonato wrote a letter to Houshang confirming the Note’s remaining balance of $181,167.24.

Over the next four years, Plaintiffs attempted several direct and indirect payments on the Note by transferring real-estate-related assets to the Interdonatos. Specifically, they allege four such payments, in the amounts of $10,000, $29,999.46, $50,000, and an unspecified amount of rent apparently collected by the Interdonatos from tenants of a property owned by Plaintiffs. On January 1, 2002, Plaintiffs and the Interdonatos entered into a Note Modification Agreement stating Plaintiffs' "total outstanding indebtedness to the Interdonatos" was $141,898.47 and that Plaintiffs would pay that balance at a rate of $1,300 per month. These payments continued until November 2012, amounting to $197,600.

Defendant filed the 2009 Litigation on the Momenians' behalf in August 2009. That complaint alleged the Interdonatos did not properly credit the four payments Plaintiffs claimed to have made on the Note. During discovery, Houshang repeatedly asked Defendant to hire an accountant or have one appointed by the court to "do an analysis and computation of the amounts which should have been credited to Plaintiffs' Note." J.A. 90. No such accountant was ever hired or appointed during the 2009 Litigation.

On Defendant’s advice, the Momenians settled the 2009 Litigation on October 12, 2010, by executing a praecipe stating "the Clerk of [ ] Court will dismiss with prejudice this action." J.A. 90. Pursuant to the settlement, the Interdonatos agreed to credit $15,000 to the Note balance immediately. At the time he signed the praecipe, Houshang believed the settlement involved only one of the four claimed credits because, Plaintiffs allege, Defendant did not adequately explain that dismissal of the action "with prejudice" meant all claims were fully and finally dismissed. Houshang believed "other aspects of his claim, having to do with other amounts which he claimed should have been credited to Plaintiffs' Note, would be referred to the Court and/or a Court-appointed accountant." Id.

Plaintiffs allege Defendant continued to represent them in the 2009 Litigation after the October 2010 settlement. In support they offer an invoice from Defendant for a period ending May 15, 2011, which states:

Promissory note issues

December—Preparation of ltr. to atty. Interdonato enclosing promissory note schedule print-out by accountant (12/3/10)

January to April—left telephonic message for atty. Interdonato; conference w/HM to discuss promissory note, review of document prepared by HM; telephonic conferences w/ accountant, forwarding documents to accountant; review of preliminary revised print-out & telephonic conference w/HM re same

NO CHARGE

J.A. 91. Additionally, "[d]uring 2011 and early 2012," Houshang allegedly called Defendant approximately every three months to discuss the 2009 Litigation and another matter. Id. During these conversations, Houshang asked "when he would have an opportunity to go before a judge," and "Defendant responded generally that he was working on it." Id.

On May 7, 2012, the Interdonatos issued a Notice of Foreclosure against the Trust (to which the Momenians had "[a]t some time prior to May 7, 2012" conveyed real estate purchased with the Note) claiming a balance of $238,383.44. J.A. 90-91. By June 14, 2012, Plaintiffs hired new counsel to represent them against the Interdonatos. Their new attorney filed a motion that day to stop the foreclosure and to challenge the amounts the Interdonatos claimed were due. On November 2, 2012, Plaintiffs settled the foreclosure litigation by paying $85,000 for full satisfaction of the Note. On January 31, 2013, Houshang recorded a conversation with Defendant that Plaintiffs argue confirms both that Defendant did not explain that all claims were fully dismissed by the 2010 settlement, and that Defendant told Houshang his claims could continue to be litigated after the 2010 settlement. J.A. 91-92.

Until November 2012, the Momenians continued to make monthly payments of $1,300 pursuant to the Note Modification Agreement, totaling $197,600. By May 2012, Plaintiffs believed the Note was paid off and that, "if anything, they had overpaid." J.A. 90.

Plaintiffs filed this action in D.C. Superior Court on May 6, 2015, alleging legal malpractice and breach of fiduciary duty arising from Defendant’s advice to settle the 2009 Litigation, his failure to hire an accountant during the 2009 Litigation, and his alleged failure to explain that the October 2010 praecipe would result in full and final release of all Plaintiffs' claims.

Defendant removed to federal court and moved to dismiss under Rule 12(b)(6). Defendant argued the action was untimely because the plain text of the praecipe dismissing the 2009 Litigation "with prejudice" gave Plaintiffs notice of any claims arising from dismissal of the entire action, and because Plaintiffs knew of Defendant’s failure to hire an accountant before October 12, 2010. J.A. 64. Defendant further argued Plaintiffs had not pled proximate cause because the 2009 Litigation had no merit and, therefore, the 2010 settlement could not have caused Plaintiffs harm. J.A. 65-66.

Plaintiffs argued that the limitations period did not commence until May 7, 2012, when they received the foreclosure notice.¹ J.A. 60. Alternatively, Plaintiffs argued that determining when one reasonably learns of injury caused by a fiduciary’s wrongdoing is a "question of fact that cannot be resolved by summary judgment," and that Defendant’s failure to explain "that a dismissal with prejudice meant that there would be no further litigation" lulled Plaintiffs "into a false sense of security." J.A. 59, 60. Plaintiffs also argued that their 2009 Litigation claims were meritorious, and that Defendant is estopped from claiming otherwise because he filed the lawsuit himself. J.A. 56-57.

The District Court granted Defendant’s motion to dismiss the complaint as time barred but granted Plaintiffs leave to amend. The court rejected Defendant’s argument that the praecipe’s plain language of "dismissal with prejudice" put Plaintiffs on actual notice of their claims because, as a layperson, Houshang was entitled to a "reasonable period of time" after the alleged malpractice to discover his claims. Momenian v. Davidson , No. 15-cv-828, 2016 WL 259641, at *5 (D.D.C. Jan. 21, 2016) (quotation marks omitted). However, the District Court concluded this "reasonable period" elapsed before the May 6, 2012 critical date. The complaint stated that by May 2012 Plaintiffs already thought they overpaid the Note; therefore, the court concluded, they were aware of their injury before the May 7, 2012 foreclosure notice. The District Court further concluded that exercise of reasonable diligence during the eighteen months between the alleged malpractice on October 12, 2010 and May 6, 2012—such as checking public court records, consulting with Defendant, or consulting with a different lawyer—would have put Plaintiffs on notice of Defe...