William H. BRECK, Appellant, v. Frank H. MOORE and Sandra Moore, Appellees. Frank H. MOORE and Sandra Moore, Cross-Appellants, v. William H. BRECK and Safeco Title Agency, Inc., Cross-Appellees.
Nos. S-5435, S-5445.
Supreme Court of Alaska.
Feb. 2, 1996.
910 P.2d 599
Turinsky argues that the trial court erred in considering ex parte communications made to the court in Long‘s behalf. These communications were letters from Long and his wife, an affidavit from Long‘s former attorney, and unsigned letters allegedly written by the parties’ son, Gregory. These letters were addressed to the judge as “an inquiry and of an informative nature.” Copies were not sent to Turinsky. Although the record does not suggest that the trial court gave substantive consideration to these improper communications, neither does the record affirmatively reflect that the court infоrmed Turinsky of them, or that it informed the parties the court would not consider such communications in deciding issues before it. Likewise, the record does not reflect that the court advised Long that such communications are improper.
The parties have filed volumes of paper in this litigation and we recognize the difficulty trial courts have in monitoring service on opposing parties. Nevertheless, ex parte communications raise the possible appearance of impropriety that the justice system must avoid.18 Therefore, on remand, the trial court should follow the requirements set out in Bowlin v. State, 643 P.2d 1, 2 (Alaska App.1982). In that case, the court of appeals required judges to disclose ex parte communications before rendеring any decision that could have been affected by the communication. Id. at 2. Alternatively, the court may clearly state in the record that the communications were not considered in its decision. Id. at 5. On remand, the trial court should give Turinsky an opportunity to respond to the documents or it should state that it has not relied on them in its decision.
IV. CONCLUSION
For the above reasons, we VACATE the June 7, 1993 child support order. We REMAND for entry of a precise child support order, for determination of the custody status of each child at each pertinent time between August 25, 1989, and June 7, 1993, for entry of an order calculating any child support arrearages, and for further proceedings consistent with our discussion of the ex parte communications. We retаin jurisdiction of this case.
Gregory L. Youngmun and John T. Robertson, Staley, DeLisio & Cook, Anchorage, for Appellees/Cross-Appellants.
Michael G. Mitchell and Frederick H. Boness, Preston, Thorgrimson, Shidler, Gates & Ellis, Anchorage, for Cross-Appellee Safeco Title Agency, Inc.
Before MOORE, C.J., and RABINOWITZ, MATTHEWS and COMPTON, JJ., and BRYNER, J. pro tem.*
OPINION
COMPTON, Justice.
Frank Moore and Sandra Moore sued William H. Breck, an attorney, and Safeco Title Agency, Inc. (Safeco) for failing to adequately warn them of building and sewage disposal restrictions on land they eventually purchased. They filed suit promptly after discovery of the restrictions, but many years after closing. The trial court granted summary judgment for Safeco, based on the statute of limitations. After a bench trial, the court granted judgment in favor of the Moores against Breck, but awarded only par-
I. FACTS AND PROCEEDINGS
A. Factual History
Breck represented the Moores in a number of legal matters prior to 1981, including the incorporation of Frank Moore‘s medical practice and the lease of the Moores’ Anchorage home. In the summer of 1981, the Moores, with the assistance of various real estate agents, decided to purchase a duplex in Eagle River owned by Robert and Bonnie Krall. The Moores retained Breck, requesting that he assist them in closing the transaction. They employed Safeco and Alaska Title Guaranty (ATG) to provide title insurance.
On November 9, 1981, ATG sent a letter to Breck requesting that he prepare the warranty deed and deed of trust package needed for a closing scheduled for the following day. The letter included a “Preliminary Commitment for Title Insurance” from Safeco, which stated that the Kralls had fee simple title, subject to restrictions “as recited in the script of the plat of LAKE RIDGE TERRACE SUBD., substantially as hereto attached.” However, the plat was not attached to the letter. Breck completed the documents and sent them to Safeco. He never asked for or obtained a copy of the plat. Hе never advised the Moores that there might be significant title restrictions on the property.1 The plat contained the following restrictions:
- The subdivision at the time of filing is not served by public water and sewer facilities. No onsite water and/or sewage disposal facilities may be constructed [without] prior approval of the Health Department.
- No dwelling shall be constructed or placed upon this lot.
On November 10 the Moores closed the transaction. Although the deed of trust also refers to the plat, the plat was not attached to it at the time of closing. Breck did not attend the closing.
The Moores moved into the duplex shortly after closing. Three to four weeks later, the Moores received a complete title insurance policy from Safeco. The plat, which contained the sewer and building restrictions, wаs attached to the policy. Frank Moore placed the policy in his files without reading it. Sandra Moore never saw the policy. The Moores moved out in early 1983 because of extensive problems with the septic system and resulting water damage.
B. Procedural History
In October 1987 the Moores filed suit against the Kralls and the real estate agents involved in the transaction, alleging misrepresentation relating to the septic system. In September 1989 the Moores’ attorney in the suit against the Kralls discovered the plat restrictions. In August 1990 the Moores amended their complaint to add Breck and Safeco, alleging breach of contract and negligence for failing to warn of the restrictions. The Moores settled with the Kralls2 and agreed to dismiss thе claims against the real estate agents. In February of 1992 Safeco moved for summary judgment, which the Moores opposed. Breck answered the Moores’ complaint against him, alleging in part that he was working for Safeco, not the
[The Moores] were on inquiry notice and reasonably should have known of the existence of the plat restriction from the time the preliminary commitment referencing that restriction was furnished to [the Moores] and their attorney. The court finds that there is no genuine issue of material fact in this regard. This notice was sufficient to commence the running of the statute of limitations for thе tort causes of action. The six year statute of limitations for the contract cause of action began to run upon issuance of the preliminary commitment as well, since that is when the “breach” is alleged to have occurred.
Safeco was awarded attorney‘s fees and costs against the Moores in the amount of $14,910.71.
After a bench trial, the court entered findings of fact and conclusions of law holding that the statute of limitations did not require dismissal of the suit against Breck. Regarding tolling of the statute of limitations under the discovery rule, the court stated:
The court finds as a factual matter that Dr. Moore acted reasonably in not reading the policy. The policy arrived after the transaction was closed; Dr. Moоre‘s testimony regarding his reliance on professionals in the field was credible and reasonable. There was no evidence to suggest that a reasonable person in Dr. Moore‘s circumstances would have read the policy.
The court limited the Moores’ damages to closing costs, and ordered each party to bear their own litigation costs and attorney‘s fees.
II. DISCUSSION
A. The Nature of the Professional Malpractice Action
An action against a real estate attorney and a title agency for negligent title research and disclosure is a professional negligence or malpractice action. A professional malpractice action involves “a professional‘s alleged breach of a duty of due care which was implied by law as a result of a contractual undertaking.” Lee Houston & Assocs., Ltd. v. Racine, 806 P.2d 848, 853 (Alaska 1991). Like other professionals, real estate attorneys and title agencies must use due care to discover and disclose to their clients significant restrictions on real title. See Bank of California v. First Am. Title Ins. Co., 826 P.2d 1126, 1129 (Alaska 1992). The hybrid nature of a professional malpractice action has led to some confusion about whether common law contract or tort rules apply. This case raises questions about the statute of limitations, the discovery rule, and the measure of damages. We address all three questions at the outset.
First, the statute of limitations on the claims in this case is six years.
Second, the discovery rule applies to the claims in this case. We have consistently held that the discovery rule applies to professional malpractice. Lee Houston, 806 P.2d at 851 (malpractice by real estate agents); Gudenau & Co. v. Sweeney Ins. Inc., 736 P.2d 763, 766 (Alaska 1987) (malpractice by insurance agents); Sharrow v. Archer, 658 P.2d 1331, 1334 (Alaska 1983) (malpractice by phy-
Third, the tort measure of damages applies to this case. Like those of any other action for negligence, the elements of a cause of action in tort for professional negligence are: (1) the duty of the professional to use such skill, prudence, and diligence as other members of the profession commonly possess and exercise; (2) a breach of that duty; (3) a proximate causal connection between the negligent conduct and the resulting injury; and (4) actual loss or damage resulting from the professional‘s negligence.
Because the Moores sued for malpractice under both contract and tort theories, the trial court analyzed damages under both contract and tort measures. While the professional services contract gives rise to the duty of due care, the professional‘s negligence gives rise to the damage. The damage generally should be measured according to traditional tort principles.3
B. The Trial Court Correctly Applied the Discovery Rule
As discussed, the Moores were required to bring suit within six years of the time they knew or reasonably should have known of all the elements of their cause of action.4 Lee Houston, 806 P.2d at 855; Bookman, 657 P.2d at 829. The trial court held that the Moores had notice of the claims against Safeco in 1981 as a matter of law, but that the Moores did not have notice of the claims against Breck until 1989. The Moores amended their complaint to add Safeco and Breck in 1990. Because both claims arise from the same set of facts, these holdings present an apparent conflict on the date of discovery. The conflict is more apparent than real. What a plaintiff should have known about her cause of action depends upon all of the surrounding circumstances.
1. Moore v. Safeco
In suits against third parties, “the plaintiff is generally charged with the lapses of attorneys acting in his behalf.” Pedersen v. Zielski, 822 P.2d 903, 907 n. 5 (Alaska 1991) (quoting Gutierrez v. Mofid, 39 Cal.3d 892, 218 Cal.Rptr. 313, 323, 705 P.2d 886, 896 (1985)). If Breck should have discovered the Moores’ cause of action against Safeco in 1981, then thе Moores are charged with this constructive discovery. The trial court properly distinguished between what Breck reasonably should have known and what the Moores reasonably should have known. Breck was retained as an attorney with expertise in real estate law. One of his princi-
The Moores assert that there is a genuine issue of fact about Breck‘s role in the purchase. In his answer, Breck asserted that he worked for Safeco, not the Moores.5 The Moores interpret this to mean that Breck “switched his allegiance” at some point in the transaction and that Breck was no longer the Moores’ agent at closing for purposes of the discovery rule. If Breck was not the Moores’ agent, then the Moores would not be charged with Breck‘s negligence. We conclude that the Moores’ argument mischaracterizes Breck‘s statements. Breck was attempting to recast the legal relationships in order to shift responsibility to Safeco. He does not contend that he changed allegiance from one master to the other. Rather, he asks that the court view the entire transaction through a different legal prism. The trial court properly rejected Breck‘s argument. Breck was the Moores’ attorney at all relevant times. The fact that he exchanged documents with the title insurer and that his fee was channelled through the title insurer does not change his relationship to the Moores. In their complaint against both Safeco and Breck, the Moores asserted that Breсk was their attorney at the time of closing. In the trial against Breck, the Moores proved that Breck was their attorney at the time of closing. There was no genuine issue of material fact precluding the court from granting summary judgment for Safeco.
2. Moore v. Breck
In their suit against Breck, the Moores are responsible only for their own knowledge and lack of diligence. Breck argues that because Dr. Moore is educated and speaks English, the receipt of the closing documents in 1981 put him on notice of the restrictions. The discovery rule takes into account the sophistication of the plaintiff in the particular area of knowledge. See Pedersen, 822 P.2d at 907 (medical terminology); Johnson v. Haberman & Kassoy, 201 Cal.App.3d 1468, 247 Cal.Rptr. 614, 619 (1988) (complicated lease); Long v. Abbott Mortgage Corp., 459 F.Supp. 108, 116-17 & n. 6 (D.Conn.1978) (sophisticated investor). In Gudenau, we held that it might be reasonable for an insured to rely on an insurance broker‘s statements аbout the scope of coverage, rather than reading and interpreting the detailed language of the exclusionary clauses. Id. at 767. This court reviews the underlying factual determinations for clear error, but does not defer to the trial court‘s application of the legal doctrine of reasonableness to the established facts. Luedtke v. Nabors Alaska Drilling, Inc., 834 P.2d 1220, 1223 (Alaska 1992);
This court reviews an award of damages for an abuse of discretion and independently reviews the law applied by the trial court. Johnson v. Alaska Dep‘t of Fish & Game, 836 P.2d 896, 910 (Alaska 1991). The Moores moved into the duplex in late 1981, moved out because of the septic problems in early 1983, and were relieved of their obligations to make mortgage payments by settlement with the Kralls in late 1992. They seek all out-of-pocket expenses.6 The trial court awarded only closing costs. Additionally, because the trial court found the amount recovered by the Moores was negligible “in relation to the amount sought in the litigation,” it held that there was not a prevailing party for the purpose of attorney‘s fees and costs.
1. The Moores were damaged by Breck‘s negligence and made proper efforts to mitigate their damages
Breck argues that the no dwelling plat restriction is invalid as a matter of law and therefore the Moores have suffered no damage because of it.7 In Belland v. O.K. Lumber Co., 797 P.2d 638, 641-42 (Alaska 1990), we held that a lender suffered no damage when the lender‘s attorney failed to discover a prior federal tax lien on the mortgaged property. Because a purchase money mortgage takes precedence over all prior liens, the lender was not harmed by the attorney‘s negligence. Id. at 641-42. The value of the loan was not diminished at all by the presence of the tax lien. In the present case, it is arguable that the no dwelling restriction is not enforceable against the Moores.8 However, the restriction is not facially void. Thus, the cloud on the Moores’ title is sufficient damage to maintain the action. The trial court correctly concluded that the Moores had alleged sufficient damage to state a cause of action for malpractice.
In a related argument, Breck claims that the Moores failed to mitigate their damages by declining to pay him an additional fee to quiet title on the property. After the no dwelling restriction was discovered, Breck wrote to the Moores:
I would estimate that the total cost of the Quiet Title Action would likely be in the $5,000 to $7,000 range. In view of my arguable exposure to a possible professional negligence claim... I would be willing to undertake the Quiet Title Action on behalf of the Moores at one-half of my standard hourly rate (i.e. at $75.00 per hour instead of $150.00 per hour) for time expended, plus reimbursement for my out-of-pockеt expenses and costs, should the Moores desire to consider this course.
The Moores did not in fact pursue this course. Instead the Moores settled with the Kralls and filed suit against Breck for the difference. The Moores acted reasonably. They had a duty to mitigate their damages and, while it might have been unreasonable
2. Causation
The lack of clear proof by the Moores understandably gave the trial court difficulty in determining whether Breck‘s negligence was a “substantial factor” in bringing about the Moores’ losses, or whether the losses were “reasonably foreseeable.” However, the trial court was able to determine that “Breck‘s negligence was a legal cause of the Moores’ purchase of the duplex.”
The finding that the Moores had not met their burden of proving proximate cause on several damage allegations is a factual one. Dura Corp. v. Harned, 703 P.2d 396, 406 (Alaska 1985). Factual determinations are reviewed for clear error.
3. Damages
The next step is to determine the appropriatе method of measuring the damages. A purchaser employs title agents to assure that she has adequate information about significant title restrictions before closing. The no dwelling restriction was shown to be a “deal stopper” at trial. However, the trial court found that the Moores “failed to carry their burden of proving the nature of their damages and their relation to defendant‘s negligence/breach of contract.” Therefore, the damage done to the Moores by entering into the contract could not be measured with any certainty. The court also found that the “Moores failed to introduce evidence... regarding... any connection between the plat restrictions at issue and the septic system prоblems.” Therefore, the issue of whether an award of all out-of-pocket costs would be appropriate is not before this court, as we find no clear error on these factual determinations of the trial court. However, damages relating to the no dwelling restriction can be measured with sufficient certainty by using a different method.
Although there is apparently no Alaska case discussing the measure of damages to be applied in a malpractice case involving restrictions on real property negligently overlooked, several cases provide close analogies. In Advanced, Inc. v. Wilks, 711 P.2d 524, 527 (Alaska 1985), we noted that two theories of damages were possible in a damage to real property case: diminution in value and cost of cure.9 In Hancock v. Northcutt, 808 P.2d 251, 255 (Alaska 1991), we again noted these two alternate methods in a damage to property case. Also, in City of Kenai v. Burnett, 860 P.2d 1233, 1241-42 (Alaska 1993), an inverse condemnation case, we stated that the diminution in value measure was a proper one on which to instruct the jury, and noted that the cost of cure measure could be appropriate if the diminution test were shown to be inadequate. Id. at 1241-42. The Restatement of Torts, in discussing harm to chattels, indicates that these two measures of damages are applicable in an appropriate case. Restatement (Second) of Torts § 928 (1979).
Cases from other jurisdictions with similar facts, although not involving attorney malpractice, generally hold that a diminution in value approach is the appropriate measure.10
The Moores are entitled to receive at least the property as they expected to receive it. Therefore, the measure of damages is the lesser of (1) the cost of removing the no dwelling restriction, and (2) the diminutiоn of the property value as measured by the value of the property with and without the restriction.11
We remand the determination of damages to the trial court for application of these criteria.
D. The Trial Court Correctly Rejected Breck‘s Proposed Cost and Supersedeas Bond
The parties vigorously contest Breck‘s innovative cost and supersedeas bond strategies. Breck attempted to support his motion for a stay of execution of judgment with a supersedeas bond, listing himself as the principal and his professional corporation as the surety. The trial court rejected this bond, instead requiring “a surety completely independent of defendant Breck.” Breck then attempted to “collateralize” the bond with a deed to Anchorage land, which he valued at the tax assessment rate. The trial court rejected the collateral and noted that the amount was $1,000 short. Breck sent a check for $1,000, which was apparently intended to make up the deficit in his supersedeas bond. The clerk treated the check as a cost bond submitted to avoid dismissal of Breck‘s appeal. The trial court has never approved a supersedeas bond and no stay of the judgment against Breck has been entered. We conclude that the trial court acted properly.12
Breck frequently makes the compound allegation that the trial court “erred (or abused its discretion), as a matter of law” on the supersedeas bond issues. The Moores interpret this to mean that Breck is asserting an abuse-of-discretion standard of review. They contend that this court should instead independently review the rejection of Breck‘s bonds. In fact, the two actions by the trial court are reviewed under two different standards of review.
The trial court‘s determination that an attorney‘s professional corporation may not act as surety for the attorney‘s personal appeal involves an interpretation of the Rules of Civil Procedure. We independently review this decision. Ford v. Municipality of Anchorage, 813 P.2d 654, 655 n. 2 (Alaska 1991). The trial court correctly concluded that a professional corporation is not sufficiently independent from the professional to act as a surety. In addition, we note that under Civil Rule 80(b)(1), “[n]o attorney at law ... is qualified to be a surety.” We see no principled distinction that would allow an attorney‘s professional corporation to act as a surety. An attorney should not be able to bootstrap his or her way around the surety requirement or Rule 80(b)(1).
The trial court rejected Breck‘s proffer of real property as collateral for the bond. We review the trial court‘s determination that a surety is inadequate for an abuse of discretion. Appellate Rule 204(d) provides that the supersedeas bond is subject to the approval of the court and “shall have such surety or sureties as the court requires.” “Rulе 204(d) allows the superior court discretion to set the security required for a stay.” City of Nome v. Catholic Bishop of N. Alaska, 707 P.2d 870, 878 (Alaska 1985). The rules allow a cash substitute for a bond.
III. CONCLUSION
Summary judgment for Safeco and the award of costs and attorney‘s fees are AFFIRMED. The determination that Breck is liable to the Moores for professional malpractice is AFFIRMED. The award of damages is REVERSED and REMANDED for recalculation. The decision on attorney‘s fees and costs is VACATED. The court should reconsider attorney‘s fees and costs in light of the revised award of damages.
MOORE, C.J., concurs.
MOORE, Chief Justice, concurring.
I agree with the result in this case. I write seрarately because I disagree with two aspects of the majority opinion. First, the majority holds that the six-year statute of limitations for contracts, rather than the two-year statute for torts, applies to this case of professional malpractice. [Op. at 603-604] The majority relies upon Lee Houston & Assocs. v. Racine, 806 P.2d 848, 855 (Alaska 1991), which held that the six-year statute applies to professional malpractice actions claiming economic loss. I joined Justice Burke‘s dissent in Lee Houston, stating that the two-year statute should be applied because the defendant breached a general fiduciary duty to the client, that such duties are analogous to a general tortfeasor‘s duty of reasonable care, and that therefore the two-year statute of limitаtions for torts was more appropriate. Id. at 856-57 (Burke, J., dissenting); see also Scott L. Altes, The Statute of Limitations for Professional Malpractice in Alaska after Lee Houston & Associates, Ltd. v. Racine, 9 Alaska L.Rev. 41, 52-53 (1992) (agreeing that the tort statute of limitations is more appropriate in such circumstances).
In this case, the Moores sued their lawyer, Breck, for breach of contract and negligence for failing to warn of restrictions in the plat for the property purchased by the Moores. This cause of action is based more in tort—for negligence—than in contract law. Therefore, for the same reasoning outlined in the Lee Houston dissent and in Altes, supra, I would apply the two-year statute of limitations to this case.
My other objection to the majority opinion is its citation to Bauman v. Day, 892 P.2d 817 (Alaska 1995), in which I also dissent. I reaffirm my oрposition to the overly broad discovery rule for contracts adopted in Bauman.
Nevertheless, I concur in the result reached today. As the majority correctly states, “[w]e have consistently held that the discovery rule applies to professional malpractice.” [Op. at 603] The fact of negligent title research and the resulting harm are difficult for a lay person to discover. Furthermore, as previously discussed, this action
Notes
SAFECO acting through its agents and/or employees to [sic] retained, requested, authorized and directed [Breck] to prepare a Deed of conveyance which Deed of conveyance was prepared and delivered to the offices, agents and employees of SAFECO, from BRECK‘S office in accordance with the directions and instructions received from SAFECO; and that no retainer, request, authorization or direction was received from any other party. SAFECO was acting as the “PRINCIPAL“, and BRECK was acting as the “AGENT” of SAFECO, with regard to the preparation and delivery of the aforesaid Deed of conveyance.