Wright v. Compton, Prewett, Thomas & Hickey, P.A., 93-522

• Decision Date: 06 December 1993
• Docket Number: No. 93-522,93-522
• Citation: Wright v. Compton, Prewett, Thomas & Hickey, P.A., 866 S.W.2d 387, 315 Ark. 213 (Ark. 1993)
• Court: Arkansas Supreme Court
• Parties: John H. WRIGHT, III; Mark W. Wright; Lynn Wright Parker; and Valley Fast Foods, Inc., Appellants, v. COMPTON, PREWETT, THOMAS & HICKEY, P.A. and W.I. Prewett, Appellees.

Page 387

866 S.W.2d 387

315 Ark. 213

John H. WRIGHT, III; Mark W. Wright; Lynn Wright Parker and Valley Fast Foods, Inc., Appellants, v. COMPTON, PREWETT, THOMAS & HICKEY, P.A. and W.I. Prewett, Appellees.

No. 93-522.

Supreme Court of Arkansas.

Dec. 6, 1993.

C. Richard Crockett, Christopher O. Parker, Little Rock, for appellants.

Norwood Phillips, El Dorado, for appellees.

DUDLEY, Justice.

Plaintiffs, John H. Wright, III, Mark W. Wright, Lynn Wright Parker and Valley Fast Foods, Inc., filed a malpractice action against defendants, Compton, Prewett, Thomas and Hickey, P.A., a professional corporation of attorneys, and William I. Prewett, an attorney employed by the corporation. Among affirmative defenses, the defendants pleaded that the statute of limitations had run and moved for summary judgment on that ground. The trial court granted the motion. We reverse and remand.

The facts surrounding the limitation issue are as follows. The suit was commenced on January 11, 1989. Prior to that, in the fall of 1985, Valley Fast Foods, Inc., a Texas corporation, owned Burger King fast food franchises and restaurant equipment in the Rio Grande Valley, fifty percent of the common stock in a corporation that owned the Benton Motor Inn in Benton, twenty-five percent of the common stock in a corporation that owned the International Inns of Louisiana, and other lesser items of personal property. The stockholders in Valley Fast Foods were J.H. Wright, Jr. and his three children, J.H. Wright, III, Mark W. Wright, and Lynn Wright Parker. In the fall of 1985, the stockholders wanted to separate the Burger King restaurants from the ownership of common stock in the motel corporations. They retained William I. Prewett to advise them on the separation of assets. By letter dated September 4, 1985, Prewett suggested that the separation of assets could be a tax free reorganization under section 355(d) of the Internal Revenue Code.

Prewett subsequently prepared the documents to complete the three steps required for the reorganization. The steps consisted of the formation of a new corporation named Wright III Foods, Inc.; the transfer of some of the assets, primarily the Burger King restaurant franchises and equipment, from Valley Fast Foods to Wright III Foods, Inc.; and the exchange by plaintiff shareholders of their stock in Valley Fast Foods for stock in Wright III Foods, Inc. In the terms used in section 355, Valley Fast Foods was the distributing corporation and Wright III Foods, Inc. was the controlled corporation. The Internal Revenue Service subsequently ruled that the reorganization was taxable, not tax free, because, pursuant to subsection (b)(1)(A) of section 355 and the applicable regulations, both the distributing and the controlled corporations must be actively engaged in a business before and after the reorganization, and the passive ownership of the corporate stock in the motels did not qualify as actively engaging in a business. Valley Fast Foods and the stockholders in Wright III Foods, Inc., plaintiffs, were required to pay taxes and interest of more than $350,000 as a result of the reorganization being ruled to be taxable. The plaintiffs' suit alleges that defendants are liable for malpractice because the reorganization was taxable.

The procedure involving the motion for summary judgment is well settled. The defendants, as the movants for summary judgment, bore the burden of demonstrating that there was no genuine issue of material fact. Mount Olive Water Ass'n v. City of Fayetteville, 313 Ark. 606, 856 S.W.2d 864 (1993). All proof submitted had to be viewed most favorably to the party resisting the motion, and any doubt and all inferences should have been resolved against the moving party. Id. Once the movant made a prima facie showing of entitlement, however, the responding party had to meet proof with proof to demonstrate there was remaining a genuine issue of a material fact. Id. The response and supporting material had to set forth specific facts showing that there was a genuine issue for trial. Id. Our review is limited to examining the evidentiary items presented and determining whether the trial court correctly ruled that those items left all material facts undisputed. Hardie v. Estate of Davis, 312 Ark. 189, 848 S.W.2d 417 (1993).

The parties agree that the applicable statute of limitation is the three-year period provided in Ark.Code Ann. § 16-56-105 (1987). See also Goldsby v. Fairley, 309 Ark. 380, 831 S.W.2d 142 (1992). They also agree that the limitation period begins to run, in the absence of concealment of the wrong, when the negligence occurs, not when it is discovered by the client. Chapman v. Alexander, 307 Ark. 87, 817 S.W.2d 425 (1991).

In the trial court the defendants attached affidavits and supporting materials to their motion for summary judgment, and those documents constituted proof that the legal...