Opinion
1 CA-CV 10-0559
10-25-2011
NICHOLAS D. KOWALCZYK and ANDRIA KOWALCZYK, husband and wife, Plaintiffs/Appellants, v. PHILIP G. MAY and SUZANNE D. MAY, husband and wife, Defendants/Appellees.
Nicholas Kowalczyk and Andria Kowalczyk Plaintiffs/Appellants, In Propria Persona Chandler Schneider & Onofry, P.C. by Jon D. Schneider Luane Rosen Attorneys for Defendants/Appellees Phoenix
NOTICE: THIS DECISION DOES NOT CREATE LEGAL PRECEDENT AND MAY NOT BE CITED
EXCEPT AS AUTHORIZED BY APPLICABLE RULES.
See Ariz. R. Supreme Court 111(c); ARCAP 28(c);
Ariz. R. Crim. P. 31.24
MEMORANDUM DECISION
(Not for Publication - Rule 28, Arizona Rules of Civil Appellate Procedure)
Appeal from the Superior Court in Maricopa County
Cause No. CV2008-092604
The Honorable John R. Ditsworth, Judge
AFFIRMED
Nicholas Kowalczyk and Andria Kowalczyk
Plaintiffs/Appellants, In Propria Persona
Chandler
Schneider & Onofry, P.C.
by Jon D. Schneider
Luane Rosen
Attorneys for Defendants/Appellees
Phoenix
PORTLEY, Judge
¶1 Plaintiffs-Appellants Nicholas D. Kowalczyk and Andria Kowalczyk ("the Kowalczyks") challenge the summary judgment granted to Defendants-Appellees Philip G. May and Suzanne D. May ("May"), which dismissed their legal malpractice lawsuit. They argue they timely filed their lawsuit within the applicable two-year statute of limitations, as required by Arizona Revised Statutes ("A.R.S.") section 12-542 (2010). They also argue the trial court erred when it denied their motion for a new trial and granted May attorneys' fees. For the reasons that follow, we affirm the rulings.
FACTUAL AND PROCEDURAL HISTORY
¶2 Philip May was hired by Nicholas Kowalczyk, an optometrist, in August 1995 to represent him in a dispute with Vision Service Plan of Arizona, Inc. ("VSP"). Shortly thereafter, May also agreed to defend Kowalczyk in a matter pending before the Arizona State Board of Optometry ("Board").
The Board initiated an investigation of Kowalczyk's optometry practice in the spring of 1994.
¶3 May filed a notice of appearance with the Board in September 1995 and requested "any material or information relating to the investigation of the Kowalczyks available for [his] review." Although the Board gave May the charges against Kowalczyk, he was told that the Confidential Investigative Report ("Report") could not be released during the investigation. The Board, after considering the complaint during its November 1995 executive session, authorized its attorney to pursue a Consent Agreement with Kowalczyk.
The Report remained confidential pursuant to A.R.S. § 32-1744(N) (1995) until the law changed in 2001. A.R.S. § 32-1744(O) (2001).
¶4 May, with his client's knowledge, negotiated a Consent Agreement ("Agreement"). Kowalczyk signed the Agreement and delivered it to May on December 20, 1995. The Board adopted the Agreement the following month.
The Agreement reflected that audits of Kowalczyk's records indicated billing irregularities as well as the omission of required ocular health eye examinations, which were violations of A.R.S. § 32-1743(4) and (10) (1995). As a result, Kowalczyk had to complete a one-year probation and submit a policy manual designed to improve the record-keeping practices at his business. The Agreement specified, however, that Kowalczyk entered into it "for the purpose of settlement and [did] not admit nor deny the Findings of Fact and Conclusions of Law contained in the Board's Order."
¶5 May terminated the attorney-client relationship in August 1996. Between March 1998 and July 1999, the Kowalczyks sent letters to May that contested their legal bill and expressed dissatisfaction with his representation. For example, they complained that May failed to advise Kowalczyk of the consequences of signing the Agreement, failed to obtain Board records, and failed to disclose material information. They also alleged May committed ethical violations and failed to act in their best interests, and claimed to have suffered financial harm because of his negligent representation.
¶6 After the legislature amended A.R.S. § 32-1744 in 2001, the Report became available to Kowalczyk. The Kowalczyks obtained the Report and other documents in the Board's file. As a result, they discovered that handwritten notes in May's case file contained information from the Report.
May had provided copies of his case file to the Kowalczyks on multiple occasions after August 1996.
¶7 About four years later, May received a fax which indicated that the Kowalczyks had found notes in his handwriting that proved he had access to the Report before Kowalczyk signed the Agreement. Any suspicions they had were confirmed on August 29, 2006, when they received a letter from the State Bar of Arizona stating that May had confirmed he authored the notes.
The faxed letter was dated December 10, 2005, and transmitted the next day. The letter has the Kowalczyks' business name and fax number and is in Mrs. Kowalczyk's handwriting. At oral argument below, Mrs. Kowalczyk denied that the letter was written on December 10th and alleged it was a forged document.
¶8 The Kowalczyks filed their complaint on August 28, 2008, and alleged May breached his duty of care by failing to adequately investigate and prepare for the Board matter and by failing to act in their best interests. They also alleged May breached his duty to disclose material information. May denied the allegations, asserted the claims were barred by the statute of limitations, and subsequently filed a motion for summary judgment.
The Kowalczyks also alleged that May had either failed to obtain the Board's Report or received or reviewed it and failed to disclose its contents to them. They further alleged that May should have withdrawn as counsel or obtained their written consent once he realized that he and the Board's attorney had worked in the same firm.
¶9 After argument, the motion was granted. The trial court found: (1) that the Kowalczyks' malpractice claim accrued in either 1998 or 1999 and had to be filed by 2001; and (2) even if the failure to disclose the Report's contents constituted a separate claim, it accrued not later than December 2005 and had to be filed by December 2007. The court subsequently denied the Kowalczyks' motion for a new trial and awarded May attorneys' fees. This appeal followed, and we have jurisdiction pursuant to A.R.S. § 12-2101(A)(1) (West 2011).
The Arizona Legislature recently renumbered A.R.S. § 12-2101 See 2011 Ariz. Sess. Laws, ch. 304, § 1 (1st Reg. Sess. (effective July 20, 2011).
DISCUSSION
I. Standard of Review
¶10 We review a grant of summary judgment de novo, review the evidence in the light most favorable to the party opposing summary judgment, and independently assess questions of law concerning the statute of limitations. Keonjian v. Olcott, 216 Ariz. 563, 565, ¶ 7, 169 P.3d 927, 929 (App. 2007); Logerquist v. Danforth, 188 Ariz. 16, 18, 932 P.2d 281, 283 (App. 1996). Summary judgment is appropriate "if the facts produced in support of the claim or defense have so little probative value, given the quantum of evidence required, that reasonable people could not agree with the conclusion advanced by the proponent of the claim or defense." Orme Sch. v. Reeves, 166 Ariz. 301, 309, 802 P.2d 1000, 1008 (1990).
II. Statute of Limitations
¶11 The Kowalczyks raise three arguments to demonstrate that the trial court incorrectly determined their claim accrued by 1999. First, they argue their letters in 1998 and 1999, which alleged negligent representation, "were intended as leverage against Phil May to make him back off from his aggressive billing tactics," not to state a claim. Second, they argue that fraudulent concealment tolled their claims until August 2006, when they received confirmation that May had authored the handwritten notes. Finally, they assert their claim did not accrue until September 2007, when their harm allegedly became "impossible to remedy or retract" because we denied their appeal from summary judgment entered for the Board.
The Kowalczyks separately challenged the Agreement in a suit against the Board. The following facts are taken from Kowalczyk v. Arizona Board of Optometry, No. 1 CA-CV 06-0113 (Ariz. App. Mar. 27, 2007) (mem. decision). They filed a special action in the superior court in August 2002 to rescind the Agreement based on extrinsic fraud and alleging that they had been denied access to public records. We affirmed the dismissal of the rescission claim but reversed the dismissal of the public records claim. On remand, the court granted the Board's motion for summary judgment and we affirmed that ruling on appeal.
A.
¶12 Legal malpractice actions are subject to the two-year statute of limitations governing tort claims under A.R.S. § 12-542. Kiley v. Jennings, Strouss & Salmon, 187 Ariz. 136, 139, 927 P.2d 796, 799 (App. 1996). The two-year limitation begins upon discovery — that is, when a plaintiff knew or should have known of the negligence, its cause, and the resulting harm. Keonjian, 216 Ariz. at 565, ¶ 9, 169 P.3d at 929; see Walk v. Ring, 202 Ariz. 310, 316, ¶ 22, 44 P.3d 990, 996 (2002). In Walk, our supreme court stated that "it is not enough that a plaintiff comprehends a 'what'; there must also be reason to connect the 'what' to a particular 'who' in such a way that a reasonable person would be on notice to investigate whether the injury might result from fault." 202 Ariz. at 316, ¶ 22, 44 P.3d at 996.
¶13 Here, although they dispute the purpose of their letters, the 1998 and 1999 letters demonstrate that the Kowalczyks were aware of May's alleged negligent conduct, its impact on Kowalczyk's optometry license, and the resulting financial harm. They were on notice to investigate — and did investigate — whether they had a viable malpractice claim against May. See id. at 317, ¶ 28, 44 P.3d at 997 ("'[T]he statute of limitations begins to run when the plaintiff suspects or should suspect that [an] injury was caused by wrongdoing.'" (citation omitted)). As a result, the accrual of the statute of limitations began in 1999.
The Kowalczyks sought the advice of several attorneys in 1999 regarding a possible malpractice claim. Those attorneys, however, advised them that May's conduct did not constitute legal malpractice.
¶14 The Kowalczyks argue they could not file a lawsuit within the two-year time period because they lacked proof of May's negligence in 1999. The trial court correctly noted that whether the Kowalczyks could prove their allegations is immaterial to the issue of accrual. As a result, the court properly found that the statute of limitations on their legal malpractice claim was time barred in 2008.
B.
¶15 The Kowalczyks also contend that the statute of limitations was tolled because of fraudulent concealment. The fraudulent concealment doctrine applies to parties in a fiduciary relationship. See Walk, 202 Ariz. at 319, ¶ 34, 44 P.3d at 999. If a plaintiff establishes that the defendant engaged in fraud to prevent the plaintiff from discovering a cause of action, the statute of limitations is tolled until the plaintiff discovers or reasonably should have discovered either the cause of action or its concealment. Id. at ¶¶ 34-35.
¶16 Although an attorney-client relationship is a fiduciary relationship, In re Piatt, 191 Ariz. 24, 26, 951 P.2d 889, 891 (1997), the Kowalczyks' argument fails because they had identified the possibility of a legal malpractice claim in 1999. They told May that he had breached his duty of care in part by withholding information and repeatedly asked him whether he received the Report. They concede they did not pursue a malpractice claim at that time.
¶17 Even though they had the notes and the Report in 2001, they claim that they did not discover May's negligence until 2006, when the State Bar confirmed that May had authored the notes. Even if we assume for purposes of argument that the notes uncovered a concealed cause of action, the statutory period began to run when the Kowalczyks discovered concealment or the possibility of negligence. See, e.g., Walk, 202 Ariz. at 319, ¶¶ 34-35, 44 P.3d at 999; Arroyo v. United States, ____ F.3d ____, No. 10-2311, 2011 WL 3849638, at *15 (7th Cir. Sept. 1, 2011) (Posner, J., concurring) (fraudulent concealment applies only if the defendant prevents the plaintiff from filing a timely complaint after the plaintiff has or should have discovered the cause of action). Considering that the Kowalczyks made numerous inquiries into whether May received the Report in 1999, 2000, and 2001, they clearly suspected that he had allegedly failed to disclose information well before 2006.
¶18 The Kowalczyks contend that the limitations period was tolled until they confirmed through the State Bar that May had authored the notes. We disagree. Fraudulent concealment only suspends the statutory period until a plaintiff learns facts that warrant a diligent investigation, not until confirmation of concealment. See Walk, 202 Ariz. at 317, ¶ 25, 44 P.3d at 997 ("[O]ur holding today is not meant to relieve a potential plaintiff of the reasonable duty to timely inquire whether any basis exists for legal action."). Although the Kowalczyks explained that the State Bar letter "proved" May had authored the notes, their December 2005 fax demonstrates they were aware that he allegedly wrote the notes and failed to disclose information to them. As a result, even if the fraudulent concealment doctrine applied, they had two years from December 2005 to file their complaint.
C.
¶19 Alternatively, the Kowalczyks argue their claim did not accrue until it became impossible to remedy their injury. They claim this occurred in September 2007, after we denied their appeal in the separate action against the Board, and rely on Commercial Union Insurance Co. v. Lewis and Roca, 183 Ariz. 250, 902 P.2d 1354 (App. 1995).
¶20 In Commercial Union, a law firm issued a coverage opinion to Commercial Union which omitted a relevant supreme court opinion. Id. at 252, 902 P.2d at 1356. Commercial Union denied coverage to its insured, and the claimant secured a judgment and later forced the insured into bankruptcy. Id. After the bankruptcy trustee challenged the denial of coverage, Commercial Union discovered the omission and settled with the bankruptcy trustee before suing the firm for malpractice. Id. Although the trial court dismissed the claim as untimely, we reversed because the insurer's claim only became ascertainable after the court denied Commercial Union's attempt to distinguish the omitted case. Id. at 252-53, 258, 902 P.2d at 1356-57, 1362. Thus, until the ruling, Commercial Union could not attribute its damages to the law firm's negligence. Id.
¶21 Unlike Commercial Union, the Kowalczyks' harm was immediate when Kowalczyk signed the Consent Agreement - he was placed on probation for a year and had to revise his business practices. See Keonjian, 216 Ariz. at 566, ¶ 13, 169 P.3d at 930 (harm from negligent advice regarding gift letter was "irremediable or irrevocable" when plaintiff signed the letter because future proceedings would not allow plaintiff to "avoid" the harm) (citation omitted). The harm, moreover, was magnified in 1999 when VSP denied Kowalczyk membership because of his probation. Because their claim accrued well before 2007, when they became aware of the harm and attributed it to May, the trial court did not err.
In a 1998 letter, the Kowalczyks alleged that May's advice adversely affected their livelihood because he failed to inform them that a probation disqualified Kowalczyk from VSP membership for five years.
III. Denial of Motion for a New Trial
¶22 The Kowalczyks also contend that the trial court erred when it refused to grant them a new trial because "the verdict, decision, findings of fact, or judgment [was] not justified by the evidence or [was] contrary to law." Ariz. R. Civ. P. 59(a)(8). We review the denial of a motion for a new trial for an abuse of discretion. Cnty. of La Paz v. Yakima Compost Co., 224 Ariz. 590, 596, ¶ 5, 233 P.3d 1169, 1175 (App. 2010). An abuse of discretion occurs if the court misapplies the law or renders a decision that is not substantially supported by the record. Merlina v. Jejna, 208 Ariz. 1, 3, ¶ 6, 90 P.3d 202, 204 (App. 2004).
¶23 We will not revisit the Kowalczyks' argument that fraudulent concealment "is a completely different cause of action," see supra ¶¶ 17-18, nor the argument that their damage became irremediable and irrevocable only when we affirmed summary judgment in favor of the Board, see supra ¶ 20. They contend, however, that a new trial was warranted because the trial court failed to give specific reasons for the award of attorneys' fees as required by A.R.S. § 12-350 (2011). We disagree.
¶24 Section 12-350 defines eight factors that a court may consider when determining whether to award attorneys' fees pursuant to A.R.S. § 12-349 (2011), including "[t]he extent of any effort made to determine the validity of a claim before the claim was asserted." A.R.S. § 12-350. The court must state the reasons for its decision. Id.
¶25 Here, in the award of fees pursuant to A.R.S. § 12-349, the trial court stated that "under a preponderance of the evidence standard, Plaintiffs' claims were brought without substantial justification and/or brought primarily for delay or harassment in that they were brought approximately ten (10) years or more after the claims accrued." The trial court stated a cogent reason for the award, and we find no abuse of discretion in denying the motion for a new trial.
IV. Award of Attorneys' Fees
¶26 Finally, the Kowalczyks challenge the trial court's grant of attorneys' fees. We review an award of attorneys' fees for an abuse of discretion. Orfaly v. Tucson Symphony Soc'y, 209 Ariz. 260, 265, ¶ 18, 99 P.3d 1030, 1035 (App. 2004).
¶27 The trial court awarded fees under A.R.S. §§ 12-349 and -341.01(C) and Arizona Rule of Civil Procedure 11. We find no abuse of discretion. The order provided a specific reason for the award under A.R.S. § 12-349 as required by A.R.S. § 12-350. Although the Kowalczyks contend that the statute "mandate[s]" a court to consider the statutory factors, a court need only "set forth the specific reasons for the award." A.R.S. § 12-350. Because the court found that they brought their claims without substantial justification and/or primarily for delay or harassment, it is clear that the court followed the law and found that the Kowalczyks did not make a good faith effort to determine the validity of their claims before filing their complaint. Therefore, the court did not abuse its discretion in awarding attorneys' fees.
Because we affirm the grant of attorneys' fees under A.R.S. § 12-349, we do not address whether the award was also proper pursuant to A.R.S. § 12-341.01(C) or as a sanction under Rule 11.
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¶28 May has requested fees on appeal. The Kowalczyks filed this appeal in the hopes of setting a new precedent concerning the statute of limitations defense. They have not, however, cited cases or argued how Walk can be further extended; it was a decision of our supreme court and we are bound to follow it until the court decides the issue differently. Consequently, the appeal lacked substantial justification, and we will award May a reasonable sum for his attorneys' fees on appeal, pursuant to A.R.S. § 12-349, in addition to costs, upon compliance with Arizona Rule of Civil Appellate Procedure 21.
CONCLUSION
¶29 Based on the reasons discussed above, we affirm the rulings of the trial court.
MAURICE PORTLEY, Judge CONCURRING: JON W. THOMPSON, Presiding Judge JOHN C. GEMMILL, Judge