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holding "[n]o objective or observable factors may exist that might have put the plaintiffs on notice of an injury . . . [o]nce the injury manifests itself, the plaintiff is no longer 'ignorant' and the injury is no longer 'unknowable'."
Summary of this case from Watson v. Alfred I. duPont Hosp. For ChildrenOpinion
C.A. No. 08C-10-231 JAP.
Submitted: March 9, 2010.
Decided: June 1, 2010.
On Defendant's Motion for Summary Judgment GRANTED.
James F. Harker, Esquire, Wilmington, Delaware, Attorney for the Plaintiffs.
Herbert W. Mondros, Esquire, Wilmington, Delaware, Attorney for the Defendants.
MEMORANDUM OPINION
Plaintiffs are the estate and beneficiaries of Timothy Buonamici. In 2008 they sued an accountant and the accountant's former employer for alleged malpractice allegedly occurring in 1999 when the accountant prepared a valuation of Tim's ownership interests in certain family businesses. The defendants have moved for summary judgment, arguing that the claims against them are barred by the three year statute of limitations found in 10 Del. C. § 8106. Plaintiffs respond that their action is timely because the defendants' alleged negligence was inherently unknowable and therefore the statute of limitations did not begin to run until 2008 when they purportedly learned of that negligence. The court disagrees. The triggering event for purposes of the statue of limitations is when Plaintiffs learned of the existence of a previously inherently unknowable injury, not when they learned of the cause of the injury. The court further finds that even if knowledge of the cause is the triggering event, Plaintiffs knew, or should have known, years before they filed suit of the cause of their loss. Plaintiffs have slept on their rights, and now their suit must be dismissed.
A. The Facts
Although the parties draw different legal conclusions from them, the material facts are not in dispute.
1. The life and death of Tim Buonamici
Timothy Buonamici was one of five children of Timogento and Ersilia Buonamici. In 1974 or 1975, Tim married Ann-Marie Juliano, who had four children by a previous marriage. During the marriage Juliano stabbed Tim, causing severe and debilitating injuries. The couple was divorced in 1979.In 1981 Tim was placed in St. Francis Hospital for long-term care because of his physical and mental condition. He spent the rest of his life in a series of nursing homes. Tim could not manage his affairs, and in 1981 the Court of Chancery appointed two of Tim's siblings as his guardians. The siblings were succeeded by Tim's mother as guardian, and in 1989 Tim's sister Eileen DiFelice replaced her mother as the guardian.
Tim died in 1999. His siblings believed he was intestate, but a few days after Tim's burial someone produced a 1975 will in which Tim named his then wife as his sole beneficiary. The will further provided that in the event Juliano predeceased him, Tim's estate was to pass to her four children. The will was admitted to probate, and Alfred Isaacs, Esq. was appointed executor of the estate.
2. Tim's business interests and his declining fortune
Tim's father owned Hockessin Mushroom Products which grew and canned mushrooms. Upon the father's death in 1973, the business passed to Tim's mother and the five Buonamici siblings. Family members owned business entities in addition to Hockessin Mushroom. After a series of restructurings Tim retained partial ownership interests in the following:
• Buonamici Enterprises, which owned and operated Tim's Liquors in Hockessin.
• Southwood Farms, which operated a mushroom company.
• Realty Enterprises, which owned the real estate on which Southwood Farms operated.
• Real Vest, which owned financial instruments and which funded the operation of Southwood Farms.
Tim and his siblings, and at one time his mother, were the other owners of these entities.
Tim's prolonged stays in nursing homes took their inevitable toll on his assets. His declining fortunes eventually required that his interests in the family businesses be liquidated so that money would be available to pay his bills. As might be expected, there was no ready market for Tim's interest in closely held family businesses. In 1999 (before Tim's death) Tim's guardian, Eileen DiFelice proposed transferring Tim's interests in the family businesses to Real Vest in exchange for financial instruments already held by Real Vest which could easily be liquidated. She retained defendant Salvatore Morici, C.P.A., who was at the time an officer and employee of defendant Ostroff Fair Company, Inc. to provide a valuation of Tim's interests in the family business. On March 15, 1999 Morici reported to the siblings that the value of Tim's interest in the business was $134,200. Two months later DiFelice petitioned the Court of Chancery for instructions seeking leave to exchange Tim's interest in the businesses for marketable securities valued at $134,200. The Court of Chancery approved the liquidation of Tim's interests shortly thereafter.
The record is confusing as to precisely who were Morici's clients. For example, in the Complaint the estate alleges that Morici was retained by DiFelice in her capacity as Tim's guardian. But in its exceptions to DiFelice's final accounting filed in the Court of Chancery, the estate claimed Morici "was acting on behalf of all members/stockholders and not independently for the Ward." For purposes of this motion, however, the court assumes that at least Tim, through his guardian DiFelice, was a client of Morici. The court assumes, therefore, that Morici owed a duty of care to Tim.
3. The litigation in the Court of Chancery
In 2000 Tim's guardian DiFelice filed a final accounting of the guardianship in the Court of Chancery. This filing spawned protracted litigation between Tim's estate and the guardian which was not finally resolved until Vice Chancellor Parsons' extensive and thorough opinion in 2008. A central thesis of the estate's claims in that court was that the value of Tim's holdings in the family businesses was substantially understated when those interests were liquidated. The Court of Chancery concluded in pertinent part:
In re Buonamici, 2008 W.L. 3522429 (Del.Ch.).
For the reasons stated, I conclude that the undervaluation of Tim's interest in Realty in connection with the buyout did not result from a breach of contract of fiduciary duty by the Guardian. I do conclude, however, that Eileen was unjustly enriched by the undervaluation, and thus, must return her proportionate share of the $101,100.00 enrichment to the estate with interest at the legal rate from March 15, 1999.
Id. at *11.
Certain of that court's rulings were adverse to the estate. This court expresses no opinion as to whether any of those rulings may operate as collateral estoppel in the instant matter.
4. Plaintiff's claims in this case
The claims in this case arise from the valuation prepared by Morici. Plaintiffs claim that the Morici valuation substantially undervalued Tim's share of the businesses, thereby shortchanging Tim, and later, his estate. The plaintiffs alleged three counts in their complaint: (1) negligence; (2) negligent misrepresentation; and (3) breach of fiduciary duty. Plaintiffs later voluntarily dismissed their breach of fiduciary duty claim.
Plaintiffs have not plead that they relied to their detriment upon the allegedly negligent misrepresentations, and given that there is no indication that they ever changed their position in reliance upon the alleged misrepresentations, the court has difficulty envisioning how they could make such an allegation. Reliance is an essential element of the tort of negligent misrepresentation. Gallagher v. E. I. DuPont de Nemours Co., Inc. 2010 WL 1854131 at *5 (Del. Super.). It is therefore doubtful that the complaint states a claim for negligent misrepresentation. That issue was not raised by defendants and, in light of the result of the current motion, it would not be necessary to reach it.
The core of Plaintiffs' negligence claims is that Morici negligently undervalued the real estate held by the family businesses. In their answering brief plaintiffs assert that (1) Morici never used reasonably current appraisals in valuing the real estate owned by the businesses; and (2) Morici improperly applied depreciation to the real estate, resulting in an undervaluation of $993,915.
B. Analysis 1. Standard of review
Summary judgment is appropriate where "the pleadings, depositions, answers to interrogatories, 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 a judgment as a matter of law." When considering a motion for summary judgment, the facts must be viewed "in the light most favorable to the nonmoving party." Furthermore, "[f]rom those accepted facts the court will draw all rational inferences which favor the non-moving party."
Super. Ct. Civ. R. 56(c)
Mason v. USAA, 697 A.2d 388, 392 (Del. 1997).
Merrill v. Crothall-American, Inc., 606 A.2d 96, 99 (Del. 1992).
2. The statute of limitations for Plaintiffs' claims
Plaintiffs' complaint alleges claims of negligence and negligent misrepresentation. The applicable statute of limitations for these claims is set forth in 10 Del. C. § 8106, which provides that "no action to recover damages caused by an injury unaccompanied by force . . . shall be brought after the expiration of 3 years from the accruing of the cause of such action."In general, the limitations period begins to run at the time of the wrongful act. However, the statute of limitations may be tolled where there is concealment or fraud, or where "the injury is inherently unknowable and the claimant is blamelessly ignorant of the wrongful act and the injury complained of." Under this last exception, often called the "time of discovery rule," the statute of limitations does not begin to run until the "discovery of facts `constituting the basis of the cause of action or the existence of facts sufficient to put a person of ordinary intelligence and prudence on inquiry which, if pursued, would lead to the discovery' of such facts."
Coleman v. Pricewaterhousecoopers, LLC, 854 A.2d 838, 842 (Del. 2004).
Id.
Id. (internal citation omitted). See also S R Assoc., L.P. v. Shell Oil Co., 725 A.2d 431, 439 (Del. Super.) ("It is not the actual discovery of the reason for the injury that starts the clock, but the discovery of facts sufficient to put a person of ordinary intelligence on inquiry which, if pursued, would lead to discovery.").
The Delaware Supreme Court has previously applied the time of discovery rule to accountant malpractice cases "because of the special character of the relationship between the professional and the client, and the inability of a layperson to detect the professional's negligence." However, the application of the rule is "necessarily based on the facts of each case." In order for the rule to apply the only two requirements are: (1) an "inherently unknowable" injury and (2) a "blamelessly ignorant" plaintiff.
Id.
Id.
Morton v. Sky Nails, 884 A.2d 480, 482 (Del. Super. 2005).
3. When an injury is inherently unknowable, discovery of the injury triggers the running of the statute of limitations.
Plaintiffs opposition to the motion for summary judgment turns on their contention that, under the time of discovery rule, the statute of limitations did not begin to run until it learned of Morici's negligence. According to Plaintiffs, the "application of the Time of Discovery Rule . . . requires the Court to find sufficient undisputed facts that put Plaintiffs on notice of Defendants' negligence." This is an incorrect statement of the law. It is not notice of the negligence or cause of the injury, but rather notice of the injury, which triggers the running of the statute of limitations. "Under Delaware law . . . if the limitations period is tolled under [the time of discovery rule], it is tolled only until the plaintiff discovers (or exercising reasonable diligence should have discovered) his injury." Stated another way, in order for the doctrine to apply "[n]o objective or observable factors may exist that might have put the plaintiffs on notice of any injury."Since its beginning the time-of-discovery rule in Delaware has focused on the manifestation of the injury as the triggering event for the running of the statute of limitations. The Delaware time-of-discovery rule originated in the Delaware Supreme Court's well known opinion of Layton v. Allen. In 1958 Mrs. Allen underwent a surgical hernia repair. The surgery seemed uneventful except, unbeknownst to anyone, someone left a metal hemostat in her abdomen. Several years passed without complication until 1965 when Mrs. Allen began to experience abdominal pain. The cause of the pain was not found for several months until the presence of the hemostat was discovered and removed in August 1966. Mrs. Allen underwent emergency surgery and, shortly thereafter, brought suit against the surgeon who performed the hernia repair and the hospital. The defendants sought to dismiss the suit on the basis of the then-applicable two-year statute of limitations.
246 A.2d 794 (Del. 1968).
Since then the General Assembly has enacted a new statute of limitations for medical negligence cases. 18 Del.C. § 6856.
The question before the Supreme Court was: when did the statute of limitations begin to run? The then-controlling statute — 10 Del. C. sec. 8118 — barred suits filed more than two years after "the date upon which it is claimed that such injuries were sustained." The surgeon and hospital contended that this date was the day of the surgery when the hemostat was left in Mrs. Allen. For her part Mrs. Allen argued that she could not possibly have known that there was a hemostat inside her and that the date when her injuries were "sustained" could not have been earlier than when she first began to experience pain.
That section is now codified as section 8119.
10 Del.C. § 8119 (formerly section 8118).
The Supreme Court concluded that the statutory phrase "such injuries were sustained" was ambiguous and, after an analysis which need not be repeated here, concluded that:
Upon the bases of reason and justice, we hold that when an inherently unknowable injury, such as is here involved, has been suffered by one blamelessly ignorant of the act or omission and injury complained of, and the harmful effect thereof develops gradually over a period of time, the injury is `sustained' under § 8118 when the harmful effect first manifests itself and becomes physically ascertainable.
Layton, 246 A.2d at 798.
Nothing in the Layton analysis suggests that the plaintiff must be aware of the negligence before the statute begins to run. To the contrary, a sine qua non of the Layton analysis is that the plaintiff must be "blamelessly ignorant" of an "inherently unknowable" injury. Once the injury manifests itself, the plaintiff is no longer "ignorant" and the injury is no longer "unknowable."
Any possible doubt about the centrality of manifestation of the injury to the analysis is laid to rest by the Layton Court's application of its new rule to the facts before it:
Translated in the terms of this case, we hold that the limitations period commenced to run when the plaintiff first experienced pain caused by the unknown foreign object. Since that event occurred in 1965 and this action was file in 1966, the action is timely.
Id.
In other words, Mrs. Allen did not know of the presence of the hemostat, and by extension the negligence of her surgeon, until the hemostat was discovered in 1966. Yet, the Supreme Court ruled that the statute of limitations began to run in 1965 when Mrs. Allen first began to experience pain, as opposed to the later time when she learned of her surgeon's negligence.
Within a few years after Layton the Supreme Court repeated that it is the first manifestation of injury which is the triggering event:
We agree with the view of the Trial Court that commencement of the running of the statute does not depend on when a diagnosis is made or a `cure' effected. If it did the statute would never start in some cases. The statute starts, rather, when a harmful effect first manifests itself and becomes physically ascertainable. In short, manifestation of the problem, not its cure, is the test under Layton.
Collins v. Wilmington Medical Center, Inc., 319 A.2d 107, 108 (Del. 1974).
And, just recently the Supreme Court referred to Layton as the "inherently unknowable injury rule."
Dambro v. Meyer, 974 A.2d 121, 137 (Del. 2009) (internal quotation marks omitted).
The Supreme Court's opinion in Becker v. Hamada, Inc. also illustrates the error in the instant Plaintiffs' argument. In 1970 the plaintiffs, the owners of the Castle Mall near Newark, contracted with a general contractor for the construction of a new roof. The contractor in turn subcontracted with defendant Hamada for the installation of a roof using products supplied by defendant Celotex. The roof was completed and paid for in 1971. Soon thereafter it began to leak and repeatedly did so in the following years. Finally, in 1979 the owners hired an expert to determine the cause of the leaks. The expert found that the leaks were caused by defects in workmanship and materials used in the 1971 installation of the roof.
455 A.2d 353 (Del. 1982).
The owners brought suit, and Hamada and Celotex both defended on the basis of the statute of limitations. The Supreme Court held that the time-of-discovery rule was inapplicable and that the claims were time-barred. In doing so, the court held it was irrelevant when the plaintiffs learned the cause of the leaks:
The only conclusion that can be drawn from these facts is that the existence of a roof defect was reasonably discoverable before 1976, even though Castle Mall Associates did not attempt to pinpoint the exact cause of the leaks until 1979.
Even in malpractice and fraud cases where a discovery rule is applied it is not the actual discovery of the reason for the injury which is the criteria. . . .
Thus, under a time of discovery rationale, appellants still would have failed to timely file.
Id. at 356, quoting Omaha Paper Stock Co. v. Martin K. Eby Constr. Co., 230 N.W.2d 87, 89-90 (Neb. 1975) (emphasis added).
The issue before this Court, therefore, is not, as Plaintiffs suggest, when they learned of Morici's negligence. Rather the issue is: When did Plaintiffs learn that Tim's interests had been undervalued?
4. Plaintiffs knew, or should have known, of the undervaluation in 2000.
The undisputed evidence shows that by July, 2000, Plaintiffs knew, or should have known, that Tim's share of the businesses had been undervalued. In its July, 2000 exceptions to the final guardianship accounting filed by DiFelice in the Court of Chancery, the plaintiff estate argued that Tim's share in the family businesses was substantially undervalued. Among the reasons given for its objection, the estate pointed to what it perceived as a low valuation of real estate owned by some of the businesses. In its objections the estate alleged:
The Ward's interest in Realty Enterprises LLC was liquidated approximately May 1999 for $14,400. Realty Enterprises obtained a mortgage in November 1999 in the amount of $1,300,000, which indicates that the Ward's interest was substantially undervalued to his detriment.
The Ward received nothing for the 1999 liquidation of his interest in Southwood Farms, but Southwood Farms currently owns realty having assessed values in 1998 of $349,440 and took out in October 1999 a mortgage in the amount of $180,000 on three parcels of realty. This indicates that the Ward's interest was substantially undervalued to his detriment .
Elsewhere in the objections the estate referred to the Court of Chancery's order permitting the liquidation of Tim's interests in exchange for marketable securities valued at $134,200. The estate asserted that "[t]his amount undervalued the Ward's interests."
These statements leave this court with no doubt that in July, 2000 the estate realized that Tim's share in his family businesses had been undervalued. No later than July, 2000, therefore, the statute of limitations clock was ticking on the estate's claim.
At the time it filed its objections to the final accounting, the estate was fully aware that Morici and his employer had performed the valuation. Those objections refer to the fact that the "firm of Ostroff, Fair Company, P.C. was engaged by the members/stockholders of the closely-held family businesses to determine the market value of the Ward's equity interests." The estate also attached a cover letter for the Morici report as an exhibit to its objections.
Later events, all of which occurred more than three years before suit was filed, confirm Plaintiffs' knowledge of the injury. In 2001 Anita Ventresca, one of the heirs under Tim's will, hired an accountant in order to prepare for litigation over the value of Tim's share. According to that accountant's retention letter "we will assist you and your attorneys . . . with preparation for litigation in the above-referenced proceeding." Included in the services to be performed by the accountant was:
The "above-referenced proceeding" was "Timothy Buonamici, Jr. Guardianship and Estate."
Examining lists of assets and liabilities prepared by Ostroff, Fair Company on business valuations and, if deemed necessary, subjecting the lists to certain investigative procedures to determine their completeness and accuracy.
Further services included "[a]ssisting with case strategy, developing deposition inquiries . . . and preparing requests for the production of records." In March, 2002, the accountant raised questions about the existence of appraisals for the real property, commenting "[i]f he did not obtain appraisals, I would like to know how he valued the properties." Shortly thereafter, on June 18, 2002, the accountant commented to the instant Plaintiffs' counsel that the Morici valuation was "at best a poor job." In their brief Plaintiffs assert varying interpretations as to what their accountant was referring. Those suggested interpretations, however, do not address, much less question, the conclusion that the Plaintiffs knew that the estate had suffered injury.
The Court concludes, therefore, that the undisputed evidence shows that Plaintiffs knew more than three years before they filed suit that the estate had been injured. Consequently, no later than July, 2000, they were neither "blamelessly ignorant" nor was the injury "inherently unknowable." The motion for summary judgment must, therefore, be granted on this basis alone.
5. Even assuming the statute of limitations did not begin to run until Plaintiffs knew, or should have known, of the alleged negligence, the action would still be barred.Assuming for the sake of argument that Plaintiffs were correct and that the statute of limitations did not begin to run until they knew of the alleged negligence, their claim would still be barred . As mentioned earlier, Plaintiffs contend that Morici depreciated the value of the real estate and that it was wrong for him to do so. They point to his 2005 deposition in the Court of Chancery proceeding as the first time they learned of this. The evidence in the record shows, however, that Plaintiffs knew, or should have known, much earlier that Morici depreciated the real estate.
As mentioned earlier, the real property belonging to the family businesses was titled in the name of Realty Enterprises. The Morici valuation listed the primary business activity of Realty Enterprises as "Real Estate Investment." And DiFelice's Petition for Instructions in the Court of Chancery alleged that Realty Enterprises "owns the real estate used by Southwood Farms in its mushroom processing business." In short, even if Plaintiffs were unfamiliar with the way the Buonamici siblings had structured their businesses, they knew from the Morici report and the petition that it was Realty Enterprises which owned the real estate.
The same information is publicly available in the Recorder of Deeds office.
Morici's valuation of Realty Enterprises on its face shows that the real estate was depreciated. Schedules II and III contain balance sheets which show depreciation of Realty Enterprises' Fixed Assets.As of 12/31/98: Book Value 294,510 (Accum. Depreciation) (993,915) 825,462
The emphasis was added to the original report.
Although Plaintiffs contend they never knew about the depreciation issue until Morici's deposition, Plaintiffs' counsel was examining Morici on the document — the document which they had since 2000 — when Morici conceded he had applied depreciation to the real property. Morici Dep. At 46-9.
By 2000 Plaintiffs therefore knew, or were on inquiry notice, that Morici had depreciated the real estate. In their brief, Plaintiffs argue that they could not be expected to know the significance of the work papers attached to the Morici valuations because they are lay people. This is belied, however, by the fact that no later than 2000 they were represented by counsel and by no later than 2001 they had retained an accountant as an expert to assist them in litigation.
Plaintiffs' retention of the accountant is of particular assistance in determining when they were aware of the negligence. Borrowing a principle from medical negligence opinions, the instant plaintiffs are presumed to be aware of Morici's alleged negligence once they consulted an independent accountant about his valuations.
Ordinarily medical negligence opinions after 1976 are of little use in determining whether claims against other professionals are time-barred because the unique wording of the medical negligence statute of limitations. There is at lease one concept, however, which has evolved in medical negligence cases which is helpful here. In Ewing v. Beck the Delaware Supreme Court developed an exception to the medical malpractice statute of limitations known as the "continuous negligent medical treatment" doctrine. That doctrine provides that when a patient has undergone a series of negligent medical treatments from a health care provider the statute of limitations requires a two part inquiry: (1) what is the date on which the plaintiff had actual or constructive knowledge of the negligent course of treatment, and (2) what is the date of the last negligent act in the continuum of negligent treatment. Of importance here is the Supreme Court held that when the patient consults an independent health care provider about his or her condition, the patient is presumed to have actual or constructive knowledge of the first health care provider's negligence.
In 1976 the General Assembly enacted what was then known as the "Health Care Malpractice Act' which contained, among other things, a new statute of limitations for medical negligence cases.
520 A.2d 653 (Del. 1987).
Benge v. Davis, 553 A.2d 1180, 1184 (Del. 1989) (interpreting and applying Ewing).
Smith v. Wallace, 701 A.2d 86 (Del. 1997).
The principle that a patient is presumed to have knowledge of a prior physician's negligence when the patient consult an independent physician about the same condition is not tied to the language of the medical malpractice statute of limitations. That principle is thus transferrable to cases involving professionals other than health care providers. The Court sees no reason to differentiate medical malpractice cases from accounting malpractice cases in this regard and will therefore apply the rule here.
Applying this principle to the instant case, Plaintiffs are presumed to have been aware of Morici's alleged negligence when in 2001 they consulted with the independent accountant referred to earlier about the valuation. Thus, despite the fact that they were lay persons, Plaintiffs knew or should have known no later than 2001 that Morici had depreciated the value of the real estate and that it was negligent to do so. It follows that even the markedly expanded exception to the statute of limitations sought by Plaintiffs could not save their claim.
C. Conclusion
The Plaintiffs' claims are subject to a three year statute of limitations. The Plaintiffs claim that they were blamelessly ignorant of Defendants' negligence until 2005. They contend, therefore, that their action is timely filed. Their argument, however, is premised on a faulty interpretation of the law. The statute of limitations begins to run when Plaintiffs became aware of their injury. The undisputed record conclusively shows they were aware of their injury no later than 2000 and thus their action is untimely. Defendants' motion for summary judgment is GRANTED and the case is DISMISSED.