Reed v. Mitchell & Timbanard, P.C.

• Decision Date: 11 April 1995
• Docket Number: CA-CV,No. 1,1
• Citation: 903 P.2d 621,183 Ariz. 313
• Parties: Jackqueline L. REED, a single woman, Plaintiff-Appellant/Cross-Appellee, v. MITCHELL & TIMBANARD, P.C., an Arizona corporation; Sheldon Mitchell and Jane Doe Mitchell, husband and wife; Kerry B. Moore and John Doe Moore, wife and husband, Defendants-Appellees/Cross-Appellants. 92-0348.
• Court: Arizona Court of Appeals

Page 621

903 P.2d 621

183 Ariz. 313

Jackqueline L. REED, a single woman, Plaintiff-Appellant/Cross-Appellee, v. MITCHELL & TIMBANARD, P.C., an Arizona corporation; Sheldon Mitchell and Jane Doe Mitchell, husband and wife; Kerry B. Moore and John Doe Moore, wife and husband, Defendants-Appellees/Cross-Appellants.

No. 1 CA-CV 92-0348.

Court of Appeals of Arizona,

Division 1, Department E.

April 11, 1995.

Review Denied Sept. 26, 1995. ^*

[183 Ariz. 314] Arthur N. Gorman and Deborah A. Nastro, Phoenix, for plaintiff-appellant/cross-appellee.

Burch & Cracchiolo, P.A. by Daniel Cracchiolo, Daryl Manhart and Karen J. Williams, Phoenix, for defendants-appellees/cross-appellants.

OPINION

KLEINSCHMIDT, Judge.

The Defendants are a law firm and lawyers who represented the Plaintiff, Jackqueline Reed, in a divorce proceeding. Reed sued them, alleging that they failed to adequately secure a promissory note given to her by her former husband. The Defendants moved for summary judgment and partial summary judgment on the grounds, among others, that Reed's malpractice action was barred by the statute of limitations. Because the trial judge found the statute had run, he granted summary judgment to the Defendants but denied their request for attorney's fees and costs. Reed appealed, and the Defendants cross-appealed the denial of their request for fees and costs.

The trial court erred in holding that Reed's action was time-barred. We also reject the Defendants' contentions, which were not addressed by the trial court, that they are entitled to judgment on the merits because Reed cannot prove the essential elements of her malpractice action, and cannot prove any damages resulting from the malpractice. However, we agree with Defendants that Reed is not entitled to recover damages for emotional distress. Accordingly, we reverse the decision of the trial court on the limitations issue, grant partial summary judgment for the Defendants on the emotional distress issue, and remand this case for further proceedings on the merits. Our decision moots the cross-appeal, but even if it did not, we would affirm the trial court's denial of the Defendants' request for fees and costs.

FACTS AND PROCEDURAL HISTORY

In 1983, Jackqueline Reed retained the Defendants to represent her in her divorce from her husband, Dr. Eldon Reed. In April 1984, a formal decree of dissolution prepared by the Defendants was entered by the judge, which, among other things, ordered the husband to give Reed a $250,000 promissory note. The interest bearing note was payable at the rate of at least $1,000 per month beginning May 1, 1984, with a balloon payment of the remaining balance due on May 1, 1986. The order stated:

Said note shall be secured by any assets awarded Husband herein having a value of up to 125% of the face value of the note, which assets shall be chosen by the Wife.

Dr. Reed executed the note in August 1984. Two months later, he pledged several limited partnership interests, tendered a mortgage on his $36,400 condominium, and delivered the stock certificates of his professional corporation as security for the note. The Defendants informed their client of these transactions and sent her copies of the pertinent documents. Although the Defendants told Reed they had secured her note with all available assets, they never attempted to secure the $62,419 in cash proceeds from the sale of the family residence awarded to Dr. Reed, never attempted to secure the $620,000 in his Deferred Compensation Plan, and never attempted to secure his $44,620 interest in a medical building, or the equipment, tangible assets and accounts receivable belonging to his professional corporation.

On May 1, 1986, Dr. Reed failed to make the balloon payment called for by the note. The note may have been extended for a year--the parties dispute the point--but in any event, even if an extension was granted, Dr. Reed failed to pay the note on May 1, 1987. Pursuant to Reed's petition for an order to show cause, the court, on August 10, 1987, ordered that Reed have judgment against her former husband on the note.

At that point, the Defendants told Reed that they did not do collection work and they referred her to attorney David Harowitz. Reed consulted with Harowitz on September 25, 1987. She told him that she wanted to collect on a judgment against her ex-husband, but she was afraid that he might become angry and cease making spousal maintenance and child support payments.

Harowitz reviewed Reed's divorce file in late October 1987. On October 26, 1987, he wrote her a letter informing her that the August 10, 1987 judgment against Dr. Reed had not been recorded and that he thought Dr. Reed's pension plan assets were unreachable. In December 1987, Harowitz noticed Dr. Reed for a debtor's exam. Dr. Reed wrote Harowitz that he would not appear, and the doctor called his former wife and allegedly harassed her for trying to collect the judgment. As a result, Reed told Harowitz to discontinue any collection efforts.

On May 29, 1988, Dr. Reed filed for Chapter 7 bankruptcy. Reed retained a bankruptcy attorney, John J. Herbert, to represent her in those proceedings. After reviewing her divorce file, Herbert told Reed that the Defendants may have committed malpractice by failing to secure the note.

On October 25, 1989, Reed filed this legal malpractice suit against the Defendants, asserting claims for breach of contract and for negligence based on the Defendants' alleged failure to properly secure the note. Reed's expert witness, J. Emery Barker, testified that the Defendants had fallen below the standard of care by not specifying in the decree the assets which were to serve as security for the note or by not requiring Dr. Reed to execute security documents to be attached to the decree.

The Defendants moved for summary judgment. They argued that Reed's complaint was barred by the statute of limitations. They also argued that they were entitled to summary judgment on the alternate grounds that Reed could not have prevailed on her claim against her husband even if the Defendants had not been negligent, that Reed could not prove damages against them because the debt from her former husband could have been collected after Reed discharged the Defendants as her attorneys, and that Reed was not entitled to damages for emotional distress. Reed counter-moved for summary judgment on the limitations issue, contending that her complaint was timely filed. The trial court ruled in favor of the Defendants, holding:

Assuming arguendo that the promissory note was inadequately secured, giving the Plaintiff every benefit of the doubt, it is clear that the Plaintiff knew or should have known that Dr. Reed was not going to pay and that a question regarding the adequacy of the security was presented as of September 25, 1987.

As of September 25, 1987, Dr. Reed had defaulted on the promissory note and had not made the balloon payment due on May, 1986 or on May, 1987, assuming that a one year extension ... had been granted.... Further, the Plaintiff had retained attorney David Harowitz to try to collect on the note. Mr. Harowitz had begun work to determine whether any assets existed upon which to execute when he was instructed by the Plaintiff to stop.

Therefore, assuming there was lawyer malpractice on Defendants' part, and damages resulting therefrom, the negligence and damages were ascertainable and nonspeculative, on September 25, 1987.

The trial court did not rule on the Defendants' alternative grounds for summary judgment.

Reed moved for reconsideration. The trial court denied her motion, holding:

The inquiry is when the Plaintiff could have reasonably discovered the alleged malpractice. In other words, when the plaintiff should have or could have known of the alleged malpractice. The Plaintiff could have known of the malpractice if she had not terminated Mr. Harowitz. To conclude otherwise would suggest that the Plaintiff could engage Mr. Harowitz, or other counsel, ad infinitum and terminate the professional relationship as she did in this case and the statute of limitations would never run.

After the trial court ruled in their favor, the Defendants sought an award of their costs and attorneys' fees pursuant to Rule 11, Arizona Rules of Civil Procedure, and Ariz.Rev.Stat.Ann. ("A.R.S.") sections 12-341.01(C) and 12-349. The Defendants maintained that the lawsuit was obviously time-barred and unsubstantiated from the start. The trial court denied this motion, finding that the "statute of limitations issue as applied to the facts in this case is fairly debatable and susceptible to the divergent interpretations of Plaintiff and Defendants" and that each side had a " 'good faith' basis for the position taken."

THE MALPRACTICE ACTION IS NOT TIME-BARRED

In reviewing a grant of summary judgment, we view the evidence in the light most favorable to the party opposing the motion. Hill-Shafer Partnership v. Chilson Family Trust, 165 Ariz. 469, 472, 799 P.2d 810, 813 (1990). We are not bound by any conclusions of law drawn by the trial court. Tovrea Land & Cattle Co. v. Linsenmeyer, 100 Ariz. 107, 114, 412 P.2d 47, 54 (1966).

The parties agree that, in Arizona, legal malpractice actions are subject to the two-year statute of limitations for tort claims set forth in A.R.S. section 12-542. Tullar v. Walter L. Henderson, P.C., 168 Ariz. 577, 580, 816 P.2d 234, 237 (App.1991). A claim for legal malpractice accrues when: (1) the plaintiff knows or reasonably should know of the attorney's negligent conduct; and (2) the plaintiff's damages are ascertainable, and not speculative or contingent. Id. at 579, 816 P.2d at 236.

The Defendants argue that Reed's cause of action accrued, at the latest, in September 1987. By that time, Dr. Reed had defaulted on the note, Reed had converted the obligation into a judgment for the full amount of the note, and she had retained Harowitz to assist her in her collection...