Legal Malpractice Statute of Limitations Applied to Real Property Closing

Where plaintiff offered no evidence to refute defendant attorney’s testimony that he told plaintiff about the issues with a title before the closing of a real property purchase, summary judgment on the legal malpractice claim was affirmed based on the statute of limitations.

In Dent Road General Partnership v. Synovus Bank, No. W2017-01550-COA-R3-CV (Tenn. Ct. App. Nov. 26, 2018), plaintiff was a partnership who had worked with defendant attorney on the purchase of three tracts of real property in 2004. Although the contract stated that the parcels would be conveyed by warranty deeds, at closing a quitclaim deed was given for one. Later, in 2011, plaintiff partnership attempted to sell the property, at which time a title search revealed “four pending lawsuits seeking to set aside a fraudulent conveyance [of one parcel]…, several judgment liens, and liens lis pendens.” Within one year of this 2011 title search, plaintiff brought suit against several entities, including a claim for legal malpractice against defendant attorney in connection with the 2004 purchase.

The trial court granted summary judgment to defendant attorney, finding that “the injury for purposes of the discovery rule occurred on the date of closing, Marcy 31, 2004, and that [plaintiffs] were alerted to the injury when they received the quitclaim deed at closing.” The Court of Appeals affirmed this ruling.

In legal malpractice cases, the discovery rule applies to the one-year statute of limitations, and starts when the plaintiff suffers “legally cognizable damage” and when plaintiff “must have known or in the exercise of reasonable diligence should have known that this injury was caused by the defendant’s wrongful or negligent conduct.” Here, plaintiff argued that the partnership did not suffer an injury, nor did it know about an injury, until it was unable to sell the property due to the title search that revealed the pending lawsuits. Defendant attorney, on the other hand, argued that the statute of limitations on the alleged malpractice began to run at closing when plaintiff was given a quitclaim rather than a warranty deed.

The Court first looked at when plaintiff suffered an injury, noting that “the injury need not be irremediable” for purposes of legal malpractice. (internal citation omitted). The Court determined that the injury occurred at the closing, reasoning:

[Plaintiffs] were the purchasers…during the 2004 transaction. At this time, despite the express requirement that the purchase of the Dent Road property be accomplished by warranty deed, [plaintiffs] received only a quitclaim deed to the Access Tract, a necessary component of the Dent Road property…. Moreover, there is no dispute in this case that at the time of the closing, the quitclaim deed conveyed less than marketable title to [plaintiffs]. …The injury to them was not the inconvenience of defending against a later suit by the buyer but in actually receiving property via quitclaim deed with a cloud on its title, despite the expectation that the title would be conveyed via warranty deed and be marketable.

Next, the Court examined when plaintiff had actual or constructive notice of the injury. Plaintiff relied on the testimony of one of the partners (Watters) who stated in his deposition that “he couldn’t remember receiving the closing documents” and that he “wouldn’t have read the documents.” Plaintiff alleged that this testimony prevented summary judgment, but the Court rejected this argument.

The Court looked at the affidavit of defendant attorney, wherein he stated that he met with partner Watters in person on March 29, 2004 before the closing and discussed “title issues surrounding the Access Tract,” “pending lawsuits affecting title,” and “judgment liens and liens lis pendens.” Defendant stated in his affidavit that “there is no doubt that Mr. Watters understood all of the circumstances of the transaction at issue, and understood the Access Tract was subject to title issues.” In addition to his affidavit, defendant supplied the invoice sent to plaintiff in 2004 that listed the date of the meeting and described the meeting as a discussion of “escrow and title issues.” In response to defendant’s evidence, plaintiff did not dispute that the March 29, 2004 meeting occurred, and in fact failed to specifically address the meeting at all. While Watters had originally stated in a deposition that he did not recall whether defendant explained any title issues to him, he submitted an affidavit in response to the motion for summary judgment stating that “based on the counsel from [defendant] that the issues were minor in nature, I had no reason to believe there was any material issue with title or the closing proceeding as planned.”

Considering the evidence presented by both parties, the Court held that “Watter’s deposition testimony [was] insufficient to create a genuine dispute regarding [defendant’s] unequivocal affidavit testimony that the unresolved title issues were made known to Mr. Watter’s prior to the closing.” The Court further found that Watter’s affidavits did not create an issue of fact, noting that they did not “specifically address the March 29, 2004 meeting” and thus did not conflict with defendant’s testimony. The Court stated that “Mr. Watters was unable to recall, and therefore unable to deny, that the March 29, 2004 meeting took place as described by [defendant],” and that defendant had carried its burden on summary judgment. The Court ruled that “the undisputed facts therefore establish that Mr. Watters knew or should have known that the title defects had not been corrected by [defendant] at the latest, on March 31, 2004, at the closing….” The one-year limitations period thus began to run at the closing of the property, and that the suit was accordingly time-barred.

This holding is pretty fact specific, but it is a reminder that plaintiffs who believe they may have a legal malpractice claim cannot wait until the full effects of the alleged negligence come to pass. In addition, this case shows that a plaintiff’s testimony that he does not recall a specific incident will often not be enough to defeat a properly supported summary judgment motion.

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