Smith v. Stacy, 23196

• Decision Date: 19 December 1996
• Docket Number: No. 23196,23196
• Citation: 482 S.E.2d 115,198 W.Va. 498
• Court: West Virginia Supreme Court
• Parties: William E. SMITH, D. Ray Smith, and Smith Company, A Corporation, Plaintiffs Below, Appellants v. Charles B. STACY, d/b/a Spilman, Thomas & Klostermeyer, A Law Firm, Defendant Below, Appellee.

Page 115

482 S.E.2d 115

198 W.Va. 498

William E. SMITH, D. Ray Smith, and Smith Company, A Corporation, Plaintiffs Below, Appellants v. Charles B. STACY, d/b/a Spilman, Thomas & Klostermeyer, A Law Firm, Defendant Below, Appellee.

No. 23196.

Supreme Court of Appeals of

West Virginia.

Submitted Sept. 24, 1996.

Decided Dec. 19, 1996.

Syllabus by the Court

1. " 'A circuit court's entry of summary judgment is reviewed de novo.' Syl. pt. 1, Painter v. Peavy, 192 W.Va. 189, 451 S.E.2d 755 (1994)." Syl. Pt. 1, Jones v. Wesbanco Bank Parkersburg, 194 W.Va. 381, 460 S.E.2d 627 (1995).

2. " 'Unless a complaint in a malpractice action against an attorney sounds only in tort, such action may be brought on contract or in tort and the fact that the statute of limitations bars the tort action does not preclude an action on contract which is not barred by the applicable limitation statute.' Syllabus, Harrison v. Casto, 165 W.Va. 787, 271 S.E.2d 774 (1980)." Syl. Pt. 1, Hall v. Nichols, 184 W.Va. 466, 400 S.E.2d 901 (1990).

3. "Where the act complained of in a legal malpractice action is a breach of specific terms of the contract without reference to the legal duties imposed by law on the attorney/client relationship, the action is contractual in nature. Where the essential claim of the action is a breach of duty imposed by law on the attorney/client relationship and not of the contract itself, the action lies in tort." Syl. Pt. 2, Hall v. Nichols, 184 W.Va. 466, 400 S.E.2d 901 (1990).

4. "A complaint that could be construed as being either in tort or on contract will be presumed to be on contract whenever the action would be barred by the statute of limitation if construed as being in tort." Syl. Pt. 1, Cochran v. Appalachian Power Co., 162 W.Va. 86, 246 S.E.2d 624 (1978).

5. "In West Virginia, the doctrine of adverse domination tolls statutes of limitation for tort claims against officers and directors who acted adversely to the interests of the company and against lawyers and accountants, owing fiduciary duties to the company, who took action contributing to the adverse domination of the company." Syl. Pt. 1, Clark v. Milam, 192 W.Va. 398, 452 S.E.2d 714 (1994).

6. West Virginia adopts the continuous representation doctrine through which the statute of limitations in an attorney malpractice action is tolled until the professional relationship terminates with respect to the matter underlying the malpractice action.

7. The limitations period for a legal malpractice claim is not tolled by the continuous representation rule where an attorney's subsequent role is only tangentially related to legal representation the attorney provided in the matter in which he was allegedly negligent.

8. The continuous representation doctrine applies only to malpractice actions in which there is clear indicia of an ongoing, continuous, developing, and dependent relationship between the client and the attorney.

9. The continuous representation doctrine should only be applied where the attorney's involvement after the alleged malpractice is for the performance of the same or related services and is not merely continuity of a general professional relationship.

Rudolph L. DiTrapano, Sean P. McGinley, DiTrapano & Jackson, Charleston, for Appellants.

Anita R. Casey, Meyer, Darragh, Buckler, Bebenek & Eck, Charleston, for Appellee.

WORKMAN, Justice:

This is an appeal by William E. Smith, D. Ray Smith, and Smith Company (hereinafter "the Appellants" or "the Smiths") from a final order of the Circuit Court of Kanawha County, which entered judgment in favor of the defendant below, Charles B. Stacy, d/b/a/ Spilman, Thomas, Battle & Klostermeyer (hereinafter "the Appellee"). ¹ The Appellants had attempted to institute a civil action for breach of contract and legal malpractice against the Appellee, and the lower court granted summary judgment in favor of the Appellee on December 1, 1994. The Appellants appeal to this Court, and we ² reverse the decision of the lower court and remand for further proceedings consistent with this opinion.

I. Factual History

Appellants William E. Smith and D. Ray Smith were the sole officers and shareholders of Cunningham Memorial Park, Inc., ³ through which they owned and operated a St. Albans cemetery. In November 1983, the Smiths hired Mr. John D. Stump as an independent contractor to solicit sales of cemetery requirements, such as grave plots, mausoleum space, memorials, and markers. A November 1984 written agreement, purporting to memorialize the arrangement of the parties, accorded Mr. Stump the "exclusive right" to sell "pre-need" cemetery items in exchange for a commission on each sale. The agreement also provided Mr. Stump an "exclusive option" to purchase the assets of the corporation if the Smiths decided to sell them while the agreement was in effect.

In 1984, Mr. Stump formed John D. Stump & Associates, Inc., and Mr. Stump personally retained the option rights under the agreement with the Smiths. In March 1985, the Smiths offered to sell the cemetery assets to Mr. Stump for $3.5 million or the cemetery corporate stock for $3.0 million. Both offers were for cash transactions. Mr. Stump rejected the offer, but stated that he would be interested if the property were offered at a lower price.

In 1986, Mr. William E. Rowe offered the Smiths $1.5 million dollars to purchase the cemetery. Aware of the "exclusive option" to purchase which existed with Mr. Stump, the Smiths retained the Appellee to determine the requirements for compliance with that agreement. Subsequent to consultation with the Appellee, the Smiths offered to sell the cemetery corporate stock to Mr. Stump for $1.5 million. In a March 7, 1986, responsive letter, Mr. Stump rejected that offer, but reserved the right to make a counteroffer. By letter dated March 19, 1986, Mr. Stump's attorney notified the Smiths of Mr. Stump's claim that the Smiths owed him over $77,000 in commissions.

In a March 25, 1986, letter, the Smiths notified Mr. Stump that the previous offer to sell the cemetery stock had been withdrawn. Instead, they offered to sell him the assets of the cemetery corporation for $1.1 million upon condition that he assume the liabilities of the corporation and pay an additional $400,000 for a ten-year covenant not to compete.

By letter dated April 3, 1986, Mr. Stump responded that he was willing to accept the offer "subject to my being able to secure suitable financing[.]" Mr. Stump also stated, however, that he had "no need of a non-competitive agreement. Under the language of the [agreement] there was no contemplation of any payment for a non-competitive clause and such clause cannot be considered an asset of the corporation."

After consultation and advice from the Appellee, the Smiths responded in an April 7, 1986, letter advising Mr. Stump that the agreement did not provide for conditional acceptance of an offer and repeated that the covenant not to compete was "an integral part of the offer and of the proposed transaction...." In that April 7, 1986, letter, the Smiths informed Mr. Stump that his response could not properly be considered an acceptance and that the Smiths had sold the corporate assets to Mr. Rowe.

On April 7, 1986, the Smiths and Mr. Rowe executed an asset purchase contract transferring all cemetery assets to Mr. Rowe, with the exception of the pre-need sales contract with Mr. Stump. The asset purchase contract contemplated a cash down payment of $200,000 and the issuance of promissory notes payable over a period of years. Mr. Rowe agreed to assume all corporate liabilities, except those under the pre-need sales contract, and to pay the Smiths $400,000 over a period of ten years, without interest, ⁴ for the covenant not to compete.

On December 22, 1986, Mr. Stump instituted a civil action against the Smiths and Mr. Rowe in the Circuit Court of Kanawha County. The complaint alleged that the Smiths had failed to honor Mr. Stump's exclusive right to sell pre-need items by failing to pay him proper commissions, that the Smiths had interfered with his "exclusive option" to purchase the cemetery by refusing his "acceptance" of the March 25, 1986, offer, and that Mr. Rowe had tortiously interfered with Mr. Stump's contract rights and was thereby unjustly enriched. Mr. Rowe subsequently settled with Mr. Stump and was dismissed from the case. The Appellee and his law firm performed all discovery and pretrial preparation for two and one-half years.

On July 26, 1989, the Appellee's firm informed the Smiths that Mr. Stump's attorney had orally stated his belief that Mr. Stacy had committed legal malpractice. The firm also informed the Smiths that Mr. Stump's attorney, when questioned about the oral accusations, had responded by denying that he had made such an allegation. The July 26, 1989, letter also advised the Smiths as follows: "Needless to say, Mr. Stacy did not commit legal malpractice[.]" A second letter from the Appellee's firm to the Smiths, dated August 18, 1989, discussed the merit of the potential allegations of legal malpractice by Mr. Stacy. That letter stated that the allegations of malpractice were "vague and nonspecific," and dismissed the allegations as "substantively groundless."

On September 14, 1989, the Appellee's firm recommended that the Appellants pay Mr. Stump $500,000 to settle the case. The Appellants sought a second opinion and retained the firm of DiTrapano and Jackson to assume the Appellants' defense. Subsequent to a July 9, 1990, trial, the jury found for Mr. Stump and awarded him $92,750 on his claim for unpaid sales commissions and $249,244 on his claim regarding the sale of the cemetery to Mr. Rowe. By order dated October 29, 1990, the circuit court denied the Smiths' motions for judgment notwithstanding the verdict, for new trial, and to alter or amend the judgment.

The Smiths appealed that decision to this Court, and in John D. Stump & Associates, Inc. v. Cunningham...