Tenn-Fla Partners v. Shelton

• Decision Date: 26 February 2007
• Parties: TENN-FLA PARTNERS v. Henry C. SHELTON, III, et al.
• Court: Tennessee Court of Appeals

233 S.W.3d 825

TENN-FLA PARTNERS v. Henry C. SHELTON, III, et al.

Court of Appeals of Tennessee, at Nashville.

Assigned on Briefs January 31, 2007.

February 26, 2007.

Permission to Appeal Denied by Supreme Court August 13, 2007.

Bruce Kramer, Scott A. Kramer, Memphis, Tennessee, for the appellant, Tenn-Fla Partners.

Jeff Feibelman, Mary Hale, Memphis, Tennessee, for the appellees, Henry C. Shelton, III; C. Bradford Foster, III; Evans & Petree, A Partnership.

OPINION

WILLIAM B. CAIN, J., delivered the opinion of the court, in which PATRICIA J. COTTRELL and FRANK G. CLEMENT, JR., JJ., joined.

Client appeals the dismissal of its legal malpractice action against the attorneys who represented it in a bankruptcy proceeding. The trial court determined that the action was barred by the Statute of Limitations and that there were no grounds upon which the trier of fact could find that the loss alleged by the client was caused by any negligent act or omission of the defendants. We affirm.

I.

Tenn-Fla Partners is a Tennessee general partnership that in 1989 owned as its sole asset a 360 unit apartment complex near Orlando Florida. The apartment complex was financed by $12,685,000 in tax exempt bonds secured by the property and held by First Union National Bank of Florida ("First Union"). In 1992, Tenn-Fla decided to file a Chapter 11 Bankruptcy petition and retained Henry C. Shelton, III, and C. Bradford Foster, III, of the law firm Evans & Petree to represent it in the bankruptcy proceedings. Tenn-Fla filed its petition in the United States Bankruptcy Court for the Western District of Tennessee on July 17, 1992.

Tenn-Fla remained in possession of the apartment complex during the bankruptcy proceeding and proposed a plan of reorganization which would allow Tenn-Fla to repurchase the property and bonds for $9,100,000 which was the amount determined by the Bankruptcy Court to be the value of the property. Prior to the confirmation hearing, however, Tenn-Fla, through its management company, had contact with several entities interested in purchasing the property at prices expected to be substantially above $9,100,000. Tenn-Fla did not inform the Bankruptcy Court or First Union of the interest in the property, but rather postponed any offers until after the confirmation hearing by telling the prospective purchasers that the property could not be marketed while it was in bankruptcy. On January 21, 1994, the Bankruptcy Court confirmed the plan of reorganization allowing Tenn-Fla to repurchase the apartment complex and bonds for $9,885,000. Less than two weeks later, Tenn-Fla entered into a contract to sell the complex and bonds to United Dominion Realty Trust, Inc., for $12,443,547.

On March 3, 1994, after learning of Tenn-Fla's contract to sell the property for a substantial gain, First Union filed an adversarial proceeding in the Bankruptcy Court seeking to revoke the order confirming the plan of reorganization pursuant to 11 U.S.C. § 1144.¹ The Bankruptcy Court conducted a trial on the merits and, on August 4, 1994, revoked the order confirming the plan of reorganization. The Bankruptcy Court specifically found that Tenn-Fla had provided misleading and incomplete disclosures, had deliberately stalled prospective purchasers from making offers on the property, and had concealed information so that it could repurchase the property at a discount, knowing the property could be immediately sold at a substantial profit. The Bankruptcy Court's decision was ultimately affirmed by both the United States District Court for the Western District of Tennessee and the Sixth Circuit Court of Appeals.

After the dispute with First Union arose, Tenn-Fla retained another attorney, Frank Glankler. On September 28, 1994, Mr. Glankler met with Mr. Shelton and Mr. Foster to discuss Tenn-Fla's potential malpractice claim and the effect of that claim on the pending appeal of the bankruptcy court's August 4, 1994 order. Mr. Glankler proposed that Mr. Shelton and Mr. Foster continue to represent Tenn-Fla in the Bankruptcy appeal and that a tolling agreement be entered to toll the one-year statute of limitations for the potential malpractice claim. Drafts of a tolling agreement were exchanged over the next few months. These initial drafts contained an effective date of November 30, 1994. However, a dispute arose concerning the payment of the legal fees owed to Evans & Petree by Tenn-Fla and, as of July 1995, no tolling agreement had been signed. On August 3, 1995, the parties finally executed a tolling agreement which provided that any suit commenced within sixty days after termination of the bankruptcy appeal would be deemed to have been filed on August 3, 1995. The agreement states "any suit filed prior to the termination date shall not be subject to the defense of any statute of limitation or similar statutory defense, unless such defense was valid, enforceable and not subject to waiver or estoppel prior to August 3, 1995." The agreement also acknowledges Tenn-Fla's disputed contention that the defendants had agreed to toll the statute of limitations effective November 30, 1994.

The Sixth Circuit Court of Appeals affirmed the revocation of the plan of reorganization on September 18, 2000. On February 15, 2001, Tenn-Fla filed its complaint for legal malpractice asserting that the defendants were negligent in failing to advise Tenn-Fla of its disclosure obligations and fiduciary duties as a debtor in possession in a bankruptcy proceeding and of the 180-day period in which an order confirming a plan of reorganization can be set aside for fraud pursuant to 11 U.S.C. § 1144. The defendants ultimately filed a motion for summary judgment asserting, in part, that Tenn-Fla's claims are barred by the statute of limitations and that no act or omission on the part of the defendants caused the plaintiff's alleged loss. The trial court granted the motion for summary judgment on both grounds, and Tenn-Fla filed a timely notice of appeal.²

II.

Summary judgments enjoy no presumption of correctness on appeal. City of Tullahoma v. Bedford County, 938 S.W.2d 408, 412 (Tenn.1997); McClung v. Delta Square Ltd. P'ship, 937 S.W.2d 891, 894 (Tenn.1996). Accordingly, we must make a fresh determination concerning whether the requirements of Tennessee Rule of Civil Procedure 56 have been satisfied. Hunter v. Brown, 955 S.W.2d 49, 50-51 (Tenn.1997). Summary judgment is appropriate only when there are no genuine factual disputes with regard to the claim or defense embodied in the motion and when the moving party is entitled to a judgment as a matter of law. Tenn. R.Civ.P. 56.04; Bain v. Wells, 936 S.W.2d 618, 622 (Tenn.1997); Carvell v. Bottoms, 900 S.W.2d 23, 26 (Tenn.1995). A party may obtain a summary judgment either by affirmatively negating an essential element of the nonmoving party's claim or by conclusively establishing an affirmative defense that defeats the nonmoving party's claim. Byrd v. Hall, 847 S.W.2d 208, 215 n. 5 (Tenn.1993). In reviewing a summary judgment, we must view the evidence in the light most favorable to the nonmoving party and must draw all reasonable inferences in favor of the nonmoving party. Robinson v. Omer, 952 S.W.2d 423, 426 (Tenn.1997); Mike v. Po Group, Inc., 937 S.W.2d 790, 792 (Tenn.1996).

Summary judgment is proper in virtually all civil cases that can be resolved on the basis of legal issues alone, Byrd v. Hall, 847 S.W.2d at 210; Pendleton v. Mills, 73 S.W.3d 115, 121 (Tenn.Ct.App.2001) Defenses based on a statute of limitations are particularly amenable to summary judgment motions. Creed v. Valentine, 967 S.W.2d 325, 327 (Tenn.Ct.App.1997); Allied Sound, Inc. v. Neely, 909 S.W.2d 815, 820 (Tenn.Ct.App.1995). Most often the facts material to a statute of limitations defense are not in dispute. When the facts and the inferences reasonably drawn from the facts are not disputed, the court can bring to bear the applicable legal principles to determine whether the moving party is entitled to a judgment as a matter of law.

III.

The trial court first ruled that Tenn-Fla's claim is barred by the Statute of Limitations. Legal malpractice actions must be commenced within one year after the cause of action accrues. Tenn.Code Ann. § 28-3-104(a)(2). As a general rule, a cause of action for an injury accrues when the injury occurs. In legal malpractice actions, the one-year statute of limitations starts to run when the client suffers a legally cognizable injury resulting from an attorney's negligence, and the client knows or should know the facts sufficient to give notice of that injury. John Kohl & Co., P.C. v. Dearborn & Ewing, 977 S.W.2d 528, 532 (Tenn.1998); Carvell v. Bottoms, 900 S.W.2d at 29. In this case, Tenn-Fla knew or should have known that it had suffered a "legally cognizable injury" no latter than March 3, 1994, the date it was served with First Union's complaint to revoke the order confirming the plan of reorganization. Accordingly, the statute of limitations ran on March 3, 1995.

The Tolling Agreement

Parties may enter into a "tolling agreement" whereby the defendant agrees not to plead the statute of limitations. Such agreements are governed by contract law, and their interpretation requires the court to ascertain the intent of the parties. If the contract is plain and unambiguous, the meaning thereof is a question of law, and it is the Court's function to interpret the contract as written according to its plain terms. Petty v. Sloan, 197 Tenn. 630, 277 S.W.2d 355 (1955). If the language of a written instrument is unambiguous, the Court must interpret it as written rather than according to the unexpressed intention of one of the parties. Sutton v. First Nat'l Bank of Crossville, 620 S.W.2d 526 (Tenn.App.1981).

Pursuant to the August 4, 1995 tolling agreement, Tenn-Fla's February 15, 2001 complaint is deemed to have been filed on August 3, 1995, five months after the statute of limitations ran. Moreover, the...