Wall v. Lewis

• Decision Date: 17 April 1985
• Docket Number: Nos. 10804,10805,s. 10804
• Citation: 366 N.W.2d 471
• Parties: Wendell WALL and Marian Wall, Plaintiffs and Appellees, v. Bayard LEWIS and Lewis Law Office, P.C., Defendants and Appellants. Glen WILTSE and Helen Wiltse, Plaintiffs and Appellees, v. Bayard LEWIS and Lewis Law Office, P.C., Defendants and Appellants. Civ.
• Court: North Dakota Supreme Court

Page 471

366 N.W.2d 471

Wendell WALL and Marian Wall, Plaintiffs and Appellees, v. Bayard LEWIS and Lewis Law Office, P.C., Defendants and Appellants.

Glen WILTSE and Helen Wiltse, Plaintiffs and Appellees, v. Bayard LEWIS and Lewis Law Office, P.C., Defendants and Appellants.

Civ. Nos. 10804, 10805.

Supreme Court of North Dakota.

April 17, 1985.

Miller, Norman & Kenney, Moorhead, for plaintiffs and appellees; argued by Keith L. Miller.

Nilles, Hansen, Magill & Davies, Fargo, for defendants and appellants; argued by Leo F.J. Wilking, III.

PEDERSON, Surrogate Justice.

The plaintiffs (Doctors) filed separate malpractice actions on September 9, 1983, against the defendant attorney Bayard Lewis who had been retained by them to prepare trust agreements to prevent them from incurring personal liability on their medical partnership income. The Doctors assert that as a result of Lewis' negligent preparation of the trusts they incurred personal tax liability on the partnership income. By stipulation, the two actions were consolidated.

In an order, dated August 3, 1984, the district court granted the Doctors' motion to strike Lewis' statute of limitations defense and denied a motion by Lewis to compel discovery of matters relating to that defense. Lewis has filed this appeal from that order. We reverse and remand.

On appeal, Lewis has raised the following two issues:

(1) Whether or not the district court erred in striking the statute of limitations defense; and

(2) Whether or not the district court erred in denying the motion for an order compelling discovery.

The trust agreements were prepared by Lewis between October 1969 and February 1971. As the result of an Internal Revenue Service (IRS) audit of the trust agreements and medical partnership for the years 1972 and 1973, the IRS notified the Doctors, in a letter dated September 3, 1975, of the possibility of additional tax liability. In a subsequent letter, dated September 29, 1977, the IRS issued deficiency notices to the Doctors for the tax years 1972 and 1973. There is considerable dispute as to the nature of the attorney-client relationship between the Doctors and Lewis subsequent to the IRS audit and notification of additional tax assessment.

The Doctors assert that Lewis continued to represent them as they unsuccessfully exhausted their administrative remedies to overturn the IRS tax assessment and that throughout this representation Lewis insisted the trust agreements were valid and the IRS position was incorrect. The Doctors assert that subsequent to Lewis' election as a county judge in 1978 he agreed to retain another attorney to represent them on this matter, and that attorney filed an action in the federal district court seeking to recover the deficiency tax payments made by the Doctors during December, 1977.

Lewis asserts that the Doctors, after seeking advice from their accountant and a second opinion from another attorney, met with Lewis at his law office on December 9, 1977. He contends that at the meeting the Doctors informed him of the IRS treatment of the trust agreements and that another attorney had advised them to bring a malpractice action against Lewis. Lewis asserts that the Doctors informed him that they would not bring a malpractice action against him if he would bring a lawsuit against the IRS to recover the tax deficiency payments and agree to not charge them for his representation if the IRS position was upheld. Lewis contends that the Doctors specifically informed him that although they were aware of the applicable statute of limitations they had voluntarily decided not to bring a malpractice action. Lewis does not dispute that subsequent to his election as a county judge he retained an attorney to continue to represent the Doctors in their attempt to obtain a refund of the deficiency taxes paid by them.

On December 9, 1981, the federal district court summarily dismissed that action, thereby upholding the IRS tax assessments.

The two-year statute of limitations under Section 28-01-18(3), NDCC, is applicable to an action brought against an attorney for professional malpractice. Johnson v. Haugland, 303 N.W.2d 533 (N.D.1981). The statute commences to run when,

"plaintiff knows, or with reasonable diligence should know, (1) of the injury, (2) its cause, and (3) defendant's possible negligence."

Phillips Fur and Wool Co. v. Bailey, 340 N.W.2d 448, 449 (N.D.1983).

The district court struck Lewis' statute of limitations defense, concluding, as a matter of law, that the Doctors had commenced a timely action because there was no injury incurred, and consequently no actionable claim, until the federal district court issued its summary judgment in favor of the IRS on December 9, 1981.

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. Luick v. Rademacher, 129 Mich.App. 803, 342 N.W.2d 617 (1983); Ameraccount Club, Inc. v. Hill, 617 S.W.2d 876 (Tenn.1981); Budd v. Nixen, 6 Cal.3d 195, 491 P.2d 433, 98 Cal.Rptr. 849 (1971). The proposition is succinctly stated by the California Supreme Court in Budd, supra:

"... until the client suffers appreciable harm as a consequence of his attorney's negligence, the client cannot establish a cause of action for...