Opinion
Docket No. 27349.
Filed October 29, 2002. SUBSTITUTE OPINION THE COURT'S PRIOR OPINION DATED AUGUST 20, 2002, IS HEREBY WITHDRAWN
Appeal from the District Court of the Fifth Judicial District, State of Idaho, Twin Falls County. Hon. W. H. Woodland, District Judge.
Order granting summary judgment to respondents and dismissing the action, reversed and case remanded.
Ellis, Brown And Sheils Chtd., Boise, for appellants. Allen B. Ellis argued.
Holland Hart, Boise, for respondents. Steven B. Andersen argued.
In this legal malpractice case, the plaintiffs argue that the district court incorrectly applied the statute of limitations under I.C. § 5-219(4) and, therefore, improperly granted the defendants' motion for summary judgment. We reverse and remand.
I. FACTUAL AND PROCEDURAL SUMMARY
This action involves a trust established by spouses Ora and Albert Anderson. The defendants (collectively Attorneys), individually or in partnership, allegedly prepared the trust instrument in a manner contrary to the Andersons' stated intentions and understanding. The plaintiffs, acting in their individual or representative capacities or both (collectively Plaintiffs), bring this malpractice action.
On December 27, 1978, the Andersons established an irrevocable trust, the Anderson Family Trust (Trust). According to the Plaintiffs' allegations, the purpose of the trust was to transfer the Andersons' assets to their heirs and assigns while minimizing the imposition of estate taxes and gaining creditor protection. The Andersons funded the Trust in April 1980. Albert died on November 7, 1983 after which time the Trust could not be repaired. Ora died on April 24, 2000.
Articles 1-1 and 1-2 of the Trust instrument are at issue. Article 1-1 mandated payments of all net income generated by the Trust, and permitted payments from the Trust's principal for necessary expenses, to Albert and Ora throughout their respective lifetimes. Article 1-2 of the Trust instrument specified the time at and the methods by which the Trust was to be terminated and the Trust's assets distributed. Articles 1-1 and 1-2 reserved to the Andersons income from the Trust and a power of appointment, respectively. As a result, the Plaintiffs argue that the Trust's value was diminished significantly by the imposition of sizable estate taxes. The Plaintiffs further argue that the defective Trust instrument also caused the Trust assets to be distributed in a manner and in proportions that differed from expectations under Article 1-2.
Article 1-2 reads in part:
The trust hereby created shall terminate upon the death of the last to die of Albert and Ora Anderson. Upon such occurrence, all property then comprising the trust estate, including any undistributed or accrued income, shall be paid to such persons and entities, in such amounts, proportions and interests as Albert and Ora Anderson by his/her last will and testament may have appointed. However, in no event can Albert and Ora Anderson appoint any interest to his/her estate, his/her creditors or the creditors of his/her estate.
The Trust's alleged defects apparently went unnoticed and did not precipitate any estate tax assessment upon Albert's death in 1983. Gordon Anderson, on his own behalf and as a trustee of the Trust, met with his attorney, Dave Gallafent, on estate planning matters on August 28, 1997. The Plaintiffs state that they learned of the Trust's defects at that meeting with Gallafent and thereupon first incurred expenses in the form of attorney fees to deal with the estate tax problems caused by the Trust's design. The Plaintiffs filed the instant action on August 26, 1999. The Attorneys filed a motion for summary judgment, which the district court granted in January 2001 upon concluding that the Plaintiffs' claim was time-barred under I.C. § 5-219(4). The court determined that the Plaintiffs incurred "some damage," and the instant action accrued, in April 1980 when the Andersons lost control over their assets by transferring those assets to the Trust. The Plaintiffs appeal from this grant of summary judgment.
II. ARGUMENTS ON APPEAL
The issue raised on appeal is whether the instant action was timely filed under I.C. § 5-219(4). For the purposes of this appeal from summary judgment, the parties do not dispute that the Trust instrument was defective in its design in that it did not effectuate the Andersons' intent to insulate their assets from tax and creditor liability, and that I.C. § 5-219(4) is the applicable law. Their views differ only as to the date on which the Plaintiffs first suffered some damage as a result of the Attorneys' preparation of that instrument and, correspondingly, the date on which the instant action accrued.
Idaho Code § 5-219 states, in relevant part, that an action must be commenced:
[w]ithin two (2) years:
. . . .
4. . . . [where the] action [is] to recover damages for professional malpractice . . . the cause of action shall be deemed to have accrued as of the time of the occurrence, act or omission complained of, and the limitation period shall not be extended by reason of any continuing professional or commercial relationship between the injured party and the alleged wrongdoer. . . .
The Plaintiffs argue that their first objectively ascertainable damage occurred on August 28, 1997, that damage being their expenditures for professional fees to address the estate tax problems created by the Attorneys' negligence. They also argue that, prior to Ora's death, the existence of damage in the form of estate tax liability remained conjectural and that any such damage could not be determined with objective certainty because the tax laws that would be in effect at the time of Ora's death remained unpredictable and unknowable until that point in time. Finally, they claim that the district court erred in determining that their action accrued in April 1980, asserting that the Andersons' loss of control over their assets through their conveyance to the Trust was not "damage" because they intended to lose such control and that, but for the Attorneys' negligence, this loss of control would have achieved their objectives in establishing the Trust.
The Attorneys contend that the district court correctly identified the accrual date as April 1980 when the Plaintiffs were damaged by the transfer of their property to the Trust without receiving the expected benefit of excluding that property from their taxable estates. The Attorneys also argue that the Plaintiffs are attempting to assert an impermissible discovery exception to I.C. § 5-219(4).
III. ANALYSIS
A. Standard of Review and Statute of Limitations
The grant of summary judgment is proper "if the pleadings, depositions, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." I.R.C.P. 56(c). We exercise free review in deciding whether there is an issue of fact and whether it is material. See Friel v. Boise City Hous. Auth., 126 Idaho 484, 485, 887 P.2d 29, 30 (1994). In the first prong of the summary judgment analysis as to material facts, we examine the pleadings and record, liberally construing all alleged facts and reasonable inferences to favor the non-movant. Zumwalt v. Stephan, Balleisen Slavin, 113 Idaho 822, 824, 748 P.2d 406, 408 (Ct.App. 1987). Where no genuine issues of material fact remain, we take up the second prong of the analysis to determine whether a party was entitled to judgment as a matter of law. Id.; Blough v. Wellman, 132 Idaho 424, 425, 974 P.2d 70, 71 (1999).
Idaho Code § 5-219(4) comprises the statute of limitations for professional malpractice actions, including those against attorneys licensed to practice in Idaho. Owyhee County v. Rife, 100 Idaho 91, 95-96, 593 P.2d 995, 999-1000 (1979). Unless an exception applies, this statute requires the filing of a professional malpractice action within two years after the cause of action accrues. I.C. § 5-219(4). The Idaho Supreme Court has held that a cause of action hereunder does not accrue, and hence the statute of limitation does not begin to run, until the plaintiff first incurs some objectively ascertainable damage caused by the defendant's alleged tort. Chicoine v. Bignall, 122 Idaho 482, 483, 487-88, 835 P.2d 1293, 1294, 1298-99 (1992). Thus, the statute's accrual standard operates under a completed tort theory in that the cause of action accrues when the tort is completed, an event that corresponds with the first objectively ascertainable occurrence of some damage. See, e.g., Streib v. Veigel, 109 Idaho 174, 178-80, 706 P.2d 63, 67-69 (1985). The analysis of what constitutes some damage turns on the facts and circumstances of each case. Bonz v. Sudweeks, 119 Idaho 539, 543, 808 P.2d 876, 880 (1991).
Four exceptions to the statute's two-year filing requirement exist, providing plaintiffs with an extended period of time within which to reasonably become aware of and pursue recovery for their later-evident injuries. See id. § 5-219(4); see also W. PAGE KEETON ET AL., PROSSER AND KEETON ON THE LAW OF TORTS § 30, at 166-67 (5th ed. 1984).
B. Accrual Date
The question before us is whether the Attorneys are entitled to judgment as a matter of law. Zumwalt, 113 Idaho at 824, 748 P.2d at 408. Upon our review of applicable case law, we conclude that Elliott v. Parsons, 128 Idaho 723, 918 P.2d 592 (1996), is controlling.
After oral argument in the instant case, the Idaho Supreme Court issued its decision in Lapham v. Stewart, ___ Idaho ___, 51 P.3d 396 (2002). Elliott, being more factually similar to the instant case than Lapham, supplies the appropriate authority.
In Elliott, the defendant attorney was hired to structure a 1982 sales transaction so as to qualify for favorable tax treatment as an installment sale. He negligently prepared the sales contract, however, and the transaction did not so qualify. With a mistaken understanding and expectation regarding the transaction's structure, the plaintiffs prepared and filed their 1982 federal tax return treating the transaction as an installment sale. In 1986, the Internal Revenue Service (I.R.S.) informed the plaintiffs that the transaction was not an installment sale, and that they owed back taxes and interest. The plaintiffs then hired another tax attorney to resolve the I.R.S. matter. Eventually, the plaintiffs and I.R.S. reached a settlement, and the I.R.S. issued an enforceable and collectible assessment in the summer of 1992. The matter advanced and, on the eve of trial in November 1992, the plaintiffs paid the assessed taxes and interest. The plaintiffs filed suit against the defendant attorney in March 1993, commencing the action some eleven years after the attorney's alleged negligence.
The Elliott defendant filed a motion for summary judgment, asserting that the plaintiffs' claim was time-barred by I.C. § 5-219(4). The plaintiffs argued that some objectively ascertainable damage resulting from the attorney's negligence first occurred in 1992 when the I.R.S. issued its assessment. The district court granted summary judgment holding that the plaintiffs' objectively ascertainable damage corresponded with their 1986 expenditure to hire the tax attorney. The Idaho Supreme Court affirmed. Elliott at 724-25, 918 P.2d at 593-94.
This case on its facts is most similar to Elliott. Elliott involved counsel's negligent drafting of sales transaction instruments. The instant case involved the Attorneys' alleged negligent preparation of the Trust instrument. The purpose of the instruments in both cases was to minimize tax liability. The negligence in Elliott and that alleged in the instant case defeated this purpose and resulted in negative tax consequences to the plaintiffs. The plaintiffs here and in Elliott consulted with other counsel and began to incur legal fees brought about by the defective instruments. Like the parties claiming malpractice in Elliott, the Plaintiffs sustained some damage in the form of attorney fees, that is, a monetary loss they would not have suffered but for the Attorneys' alleged malpractice. The Plaintiffs first incurred those expenses to deal with the problems created by the Trust instrument in the August 28, 1997, meeting with attorney Gallafent.
The district court held that the Plaintiffs' action accrued in April 1980, equating the Andersons' loss of control over their assets with Plaintiffs' first suffering of some damage. We conclude, however, that the court incorrectly applied the some damage standard in that this loss of control did not constitute damage. Indeed, the Andersons sought out precisely this loss of control when they procured the Attorneys' services in establishing the Trust. We also note that in Elliott, the Supreme Court did not hold that the property conveyance constituted "some damage." Although, as in Elliott, malpractice may cause negative tax consequences at some point in time, August 28, 1997, represents the first date on which the Plaintiffs incurred some objectively ascertainable damage through their incurrence of attorney fees due to the Attorneys' allegedly negligent preparation of the Trust instrument. Therefore, we hold that the Plaintiffs' malpractice action was timely filed.
IV. CONCLUSION
Because the district court misapplied the some damage accrual standard under I.C. § 5-219(4), we hold that the Attorneys were not entitled to summary judgment as a matter of law. We reverse and remand. Attorney fees were not requested in this matter; therefore, costs only are awarded to Plaintiffs pursuant to I.A.R. 40.
Chief Judge PERRY and Judge LANSING CONCUR.