First Interstate Financial v. Savage , 2020 UT App 1 ( 2020 )

2020 UT App 1THE UTAH COURT OF APPEALS
FIRST INTERSTATE FINANCIAL LLC AND PAUL THURSTON,
Appellants,
v.
SCOTT SAVAGE AND
SAVAGE YEATES AND WALDRON PC,
Appellees.
Opinion
No. 20180660-CA
Filed January 3, 2020
Third District Court, Salt Lake Department
The Honorable Mark S. Kouris
No. 170906637
Karra J. Porter, Scott Evans, Erika Larsen, and
Kristen C. Kiburtz, Attorneys for Appellants
Andrew M. Morse, R. Scott Young, and Adam M.
Pace, Attorneys for Appellees
JUDGE MICHELE M. CHRISTIANSEN FORSTER authored this Opinion,
in which JUDGES DAVID N. MORTENSEN and JILL M. POHLMAN
concurred.
CHRISTIANSEN FORSTER, Judge:
¶1 First Interstate Financial LLC and Paul Thurston
(collectively, Plaintiffs) appeal the district court’s dismissal of
their complaint against Scott Savage and Savage Yeates and
Waldron PC (collectively, Savage 1), as well as its denial of their
1. While a number of actions mentioned in this decision involved
both Scott Savage and his law firm, for simplicity, we refer to
Savage individually in discussing both his actions and those of
his law firm.
First Interstate Financial v. Savage
motion to amend their complaint. We reverse and remand for
further proceedings.
BACKGROUND
¶2 In April 2009, Plaintiffs retained Savage to defend them in
a lawsuit filed against them in Utah by McGillis Investments
Company. During the discovery period on this lawsuit, Plaintiffs
collected and produced approximately 19,000 documents, which
Savage intended to present as exhibits at trial. However, Savage
failed to comply with the pretrial disclosure requirements of rule
26(a) of the Utah Rules of Civil Procedure, and as a result, the
trial court struck “substantially all” the exhibits Savage intended
to use to defend Plaintiffs at trial.
¶3 The case proceeded to trial, and the jury entered a verdict
against Plaintiffs on October 22, 2010, which included a
$1,250,000 judgment. Plaintiffs paid the judgment, as well as
$700,000 in legal fees to Savage. Subsequently, McGillis filed a
second suit against Plaintiffs in Colorado, which went to trial in
June 2014. At trial in that case, “McGillis was allowed to make
references to the Utah case.” The Colorado jury ultimately found
against Plaintiffs as well and entered judgment “in the amount
of $1,450,000 and property worth $400,000.”
¶4 Plaintiffs filed a complaint against Savage on October 17,
2017, alleging legal malpractice, breach of contract, and breach of
fiduciary duty. The complaint alleged that Savage did not tell
Plaintiffs the exhibits had been stricken until just before trial,
that he told them “not to worry” about the stricken exhibits
because he could rely on the other party’s exhibits at trial, and
that he assured them the trial court had erred in striking the
exhibits and its decision would be overturned on appeal. It
further alleged that Savage did not inform Plaintiffs that the
exhibits were stricken due to his failure to comply with the
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pretrial disclosure requirements of rule 26(a) and that Plaintiffs
did not learn of his failure until June 2014.
¶5 Savage moved to dismiss Plaintiffs’ complaint on the
ground that the statute of limitations on their malpractice claims
had expired. Savage asserted that the statute of limitations on
Plaintiffs’ claims began to run on October 22, 2010, when the
verdict was entered against them in Utah, and that pursuant to
the four-year limitations period on legal malpractice claims, see
Utah Code Ann. § 78B-2-307 (LexisNexis 2018), their claims
expired on October 22, 2014. Savage further asserted that the
statute of limitations was not tolled, because Plaintiffs admitted
that they discovered the facts giving rise to their claims in June
2014, within the limitations period.
¶6 In response to Savage’s motion, Plaintiffs sought to
amend their complaint to include additional allegations relevant
to the tolling issue:
36. At the time Plaintiffs first heard of Savage’s
failure, Savage was still representing Plaintiffs.
37. When Plaintiffs first learned of Savage’s
failure, they did not know that such failure
amounted to legal malpractice.
38. Furthermore, they could not discover their
legal malpractice claim because they were still
being represented by Savage and the severity of
Savage’s failures was still being concealed by
Savage.
39. However, Plaintiffs later retained
independent counsel not associated with Savage to
work on appellate matters related to verdicts
against them in April of 2016.
20180660-CA 3 2020 UT App 1First Interstate Financial v. Savage
40. At this time, with the direction of
independent counsel, Plaintiffs first learned the
significance of Savage’s failure, and they began
investigating potential malpractice claims against
[Savage] . . . .
Plaintiffs did not dispute that the statute of limitations began to
run as of October 22, 2010, but argued that the statute of
limitations should be tolled under the fraudulent concealment
doctrine. They asserted that “despite learning about the factual
circumstance giving rise to their legal malpractice claim” in June
2014, “Plaintiffs acted reasonably not fully understanding the
legal significance of Savage’s failure, and therefore, they acted
reasonably in not filing suit immediately.” Because “they acted
reasonably in light of [Savage’s] fraudulent concealment,”
Plaintiffs maintained that the statute of limitations should be
tolled until June 2018, four years after they first discovered the
facts underlying their claim.
¶7 Following oral argument on the motions, the district court
rejected Plaintiffs’ arguments. In reviewing the applicable facts,
the court expressly referenced both the complaint and the
proposed amended complaint. The court took judicial notice of
Colorado court documents indicating that “Savage ‘formally
withdrew on May 13, 2014’ as counsel for Plaintiffs.” It
determined that “the concealment doctrine does not apply”
because “there is no allegation or evidence that Savage did
anything to conceal the alleged error or dissuade Plaintiffs from
filing suit in the four months between the time Plaintiffs allege
they learned of the error and the statute of limitations ran.” It
also recognized Savage’s assertion that he had “stopped working
for Plaintiffs, at their request, on June 4, 2013.” The district court
stated in its Order, “Although Plaintiffs did not plead this in
their Complaint or Proposed Amended Complaint, they did not
dispute it in their Reply Memorandum in Support of Motion for
Leave to File an Amended Complaint or at oral argument.” The
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court further determined that “Plaintiffs had ample time to file
their lawsuit after learning of the alleged error” and that they
had “not asserted any facts that prevented them from doing
this.” Accordingly, the district court granted the motion to
dismiss and denied Plaintiffs’ motion to amend their complaint.
ISSUES AND STANDARDS OF REVIEW
¶8 Plaintiffs assert that the district court erred in dismissing
their complaint and in denying their motion to amend the
complaint. “Because the propriety of a motion to dismiss is a
question of law, we review for correctness, giving no deference
to the decision of the trial court.” Krouse v. Bower, 2001 UT 28,
¶ 2, 20 P.3d 895. In doing so, “we accept the factual allegations in
the complaint as true and consider them, and all reasonable
inferences to be drawn from them, in the light most favorable to
the non-moving party.” Id. Further, while we generally “will not
disturb a trial court’s ruling on a motion to amend a complaint
absent a clear abuse of discretion,” Neztsosie v. Meyer, 883 P.2d
920, 922 (Utah 1994), where a motion to amend is denied on the
basis that the complaint cannot withstand a motion to dismiss,
we “review the trial court’s underlying determination regarding
the legal sufficiency of the claim for correctness,” Shah v.
Intermountain Healthcare, Inc., 2013 UT App 261, ¶ 6, 314 P.3d
1079.
ANALYSIS
¶9 Plaintiffs do not defend the sufficiency of their original
complaint on appeal. They assert, however, that the facts in their
proposed amended complaint provided a sufficient basis to
preclude dismissal on statute-of-limitations grounds. We agree
with Plaintiffs. While the district court did not expressly so state,
we can only conclude on this record that the court denied the
motion to amend the complaint on the basis that the proposed
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amendment would have been futile. The district court gave no
other basis for its denial, and it expressly considered the
additional facts asserted in the proposed amended complaint in
deciding whether Plaintiffs’ claims were barred by the applicable
statute of limitations.
¶10 A complaint “does not fail to state a claim unless it
appears to a certainty that the plaintiff would be entitled to no
relief under any state of facts which could be proved in support
of the claim.” Mack v. Utah State Dep’t of Commerce, 2009 UT 47,
¶ 17, 221 P.3d 194 (quotation simplified). 2 And it “is well settled
that a court may deny a motion to amend as futile if the
proposed amendment would not withstand a motion to
dismiss.” Jensen v. IHC Hosps. Inc., 2003 UT 51, ¶ 139, 82 P.3d
1076 (quotation simplified). We conclude that the proposed
amended complaint stated sufficient facts to survive a motion to
2. Although not argued here, we recognize that Savage’s statute-
of-limitations argument is an affirmative defense. Utah R. Civ. P.
8(c). Plaintiffs are not generally required to anticipate a statute-
of-limitations defense by pleading facts establishing that a
statute was tolled. See Brehany v. Nordstrom, Inc., 812 P.2d 49, 59
(Utah 1991); accord Zoumadakis v. Uintah Basin Med. Center, Inc.,
2005 UT App 325, ¶¶ 6–7, 122 P.3d 891. We recognize that
myriad cases sustain a court’s ability to grant a motion to
dismiss on the basis of a statute-of-limitations defense. However,
in these cases, facts sufficient to prove the defense were found in
the operative complaint. See Young Res. Ltd. P’ship v. Promontory
Landfill LLC, 2018 UT App 99, ¶ 25, 427 P.3d 457. These cases do
not change the reality that where defendants allege facts beyond
the complaint to support a motion to dismiss, district courts
would be well-advised to convert motions to dismiss into
motions for summary judgment, as expressly allowed in the
rule, so that matters outside the operative complaint might be
properly considered. See Utah R. Civ. P. 12(b).
20180660-CA 6 2020 UT App 1First Interstate Financial v. Savage
dismiss and therefore was not futile. As a result, we conclude
that the motion to amend should have been granted and the
motion to dismiss the action should have been denied.
¶11 In Russell Packard Development, Inc. v. Carson, 2005 UT 14,
108 P.3d 741, our supreme court outlined various circumstances
for which a statute of limitations may be tolled. The
circumstance at issue in this case is the fraudulent concealment
branch of the equitable discovery rule. The fraudulent
concealment rule operates to toll a statute of limitations “where a
plaintiff does not become aware of the cause of action because of
the defendant’s concealment or misleading conduct.” Id. ¶ 25
(quotation simplified). This rule itself has two variants—one in
which the discovery of the cause of action occurs after the statute
of limitations has expired and one in which the discovery occurs
before. Id. ¶¶ 29–30. When the cause of action is discovered
before the relevant statute of limitations has expired, as occurred
in this case, “a plaintiff must show that, given the defendant’s
actions, the plaintiff acted reasonably in failing to file suit before
the limitations period expired.” Id. ¶ 30.
¶12 As a threshold matter, we observe that the district court’s
ruling appears to have misconstrued the showing that must be
made by a plaintiff attempting to toll the running of the
limitations period where discovery of the facts underlying the
cause of action occurs before the limitations period expires. The
district court determined that “the concealment doctrine does
not apply” in this case because “there is no allegation or
evidence that Savage did anything to conceal the alleged error or
dissuade Plaintiffs from filing suit in the four months between the
time Plaintiffs allege they learned of the error and the statute of
limitations ran.” (Emphasis added.) In other words, the court did
not believe that any actions by Savage alleged to have taken
place before Plaintiffs discovered their cause of action were
relevant to whether the limitations period was tolled; rather, the
court expected Plaintiffs to show that Savage actively engaged in
20180660-CA 7 2020 UT App 1First Interstate Financial v. Savage
fraudulent concealment after they had discovered their claim for
the purpose of hindering their pursuit of the claim within the
remaining limitations period. This is not a proper application of
the rule. While a plaintiff must show that “given the defendant’s
actions, the plaintiff acted reasonably in failing to file suit before
the limitations period expired,” id. (emphasis added), we do not
read Russell Packard as necessarily requiring active concealment
by the defendant after the plaintiff discovers the facts underlying
the cause of action, see id. ¶¶ 41–43 (determining that the
reasonableness of the plaintiffs’ actions following discovery of
the facts underlying their claims could not be determined as a
matter of law, even though the plaintiffs did not allege that the
defendants engaged in fraudulent concealment after the spring
of 2000, when the plaintiffs began to discover the facts
underlying their claim). The district court therefore erred in
declining to consider allegations of concealment occurring
prior to June 2014 in assessing the reasonableness of Plaintiffs’
actions.
¶13 We next turn to the question of whether, given all of
Savage’s alleged actions, Plaintiffs “acted reasonably in failing to
file suit before the limitations period expired.” Id. ¶ 30. “To make
this showing, a plaintiff must demonstrate that a reasonably
diligent plaintiff would not necessarily have filed a complaint
within the limitations period; or said another way, that a
reasonable plaintiff may have delayed in filing his or her claim
until after the limitations period expired.” Id.; see also Colosimo v.
Roman Catholic Bishop of Salt Lake City, 2007 UT 25, ¶ 39, 156 P.3d
806 (“[A] party seeking to take advantage of the rule must act
in a reasonable and diligent manner.”). “[W]eighing the
reasonableness of the plaintiff’s conduct in light of the
defendant’s steps to conceal the cause of action necessitates
the type of factual findings which preclude [judgment as a
matter of law] in all but the clearest of cases.” Berenda v. Langford,
914 P.2d 45, 54 (Utah 1996); accord Russell Packard, 2005 UT 14,
¶ 39.
20180660-CA 8 2020 UT App 1First Interstate Financial v. Savage
¶14 Plaintiffs’ amended complaint asserted (1) that their
ongoing attorney–client relationship with Savage precluded
them from timely filing their claim and (2) that based on
Savage’s representations and statements regarding the
significance of the exhibits, they did not understand that
Savage’s error amounted to legal malpractice. Savage asserts that
Plaintiffs’ factual allegations as pleaded in their complaint and
amended complaint are insufficient to toll the statute of
limitations because, contrary to Plaintiffs’ assertion, Savage had
concluded his representation of Plaintiffs before June 2014 and
because Plaintiffs’ ignorance of the legal significance of the facts
cannot be a basis for tolling the statute of limitations. We
disagree. 3
¶15 In ruling on a motion to dismiss, the court must “accept
the factual allegations in the complaint as true and interpret
those facts, and all reasonable inferences drawn therefrom, in a
light most favorable to the plaintiff as the nonmoving party.”
Russell Packard, 2005 UT 14, ¶ 34. Although “[t]he district court
may take judicial notice of public records and may thus consider
them on a motion to dismiss,” BMBT, LLC v. Miller, 2014 UT App
64, ¶ 6, 322 P.3d 1172 (quotation simplified), the court was still
required to accept Plaintiffs’ factual allegations as true. The
amended complaint asserted that Plaintiffs were hindered in
recognizing and pursuing their malpractice claim because
Savage continued to represent them and to be involved in their
litigation. The amended complaint does not provide details
regarding the ongoing relationship between Savage and
Plaintiffs, but the mere fact that Savage withdrew as counsel in
3. We also note that it was improper for the district court to
attach any significance to Plaintiffs’ failure to rebut Savage’s
factual assertions—specifically that Savage “stopped working
for Plaintiffs, at their request, on June 4, 2013”—that are not
found in Plaintiffs’ proposed amended complaint.
20180660-CA 9 2020 UT App 1First Interstate Financial v. Savage
the Colorado case around this time does not demonstrate that
their attorney–client relationship was terminated altogether or
that he was not continuing to consult with them on other
matters.
¶16 Further, Plaintiffs’ allegation that Savage’s actions
precluded them from understanding the legal significance of
their claims is relevant to an inquiry into the reasonableness of
their actions in this case. Savage accurately points out that it is
“the discovery of facts forming the basis for the cause of action”
that is relevant to the tolling of the statute of limitations, not the
legal significance of those facts, and that “[m]ere ignorance of
the existence of a cause of action will neither prevent the
running of the statute of limitations nor excuse a plaintiff’s
failure to file a claim within the relevant statutory period.”
Russell Packard, 2005 UT 14, ¶¶ 20–21. However, Plaintiffs
alleged that Savage led them to believe that they lacked a cause
of action because he told them that the exclusion of the exhibits
would not hurt their case. In other words, accepting Plaintiffs’
allegations as true, they did not delay pursuing their cause of
action out of mere ignorance; they delayed as a result of
misinformation allegedly provided by Savage. 4
4. Savage also asserts that Plaintiffs’ lack of investigation after
discovering Savage’s failure requires us to determine that they
were not reasonably diligent as a matter of law. In doing so, he
relies on our supreme court’s holding in Colosimo v. Roman
Catholic Bishop of Salt Lake City, 2007 UT 25, 156 P.3d 806, that a
plaintiff cannot be “excused from the due diligence requirement
simply by alleging that any investigation into the culpability of
the . . . defendants would have been futile.” Id. ¶ 47. But
Plaintiffs have not alleged that investigation would have been
futile; rather, they allege that Savage’s false representations led
them to believe that there was nothing to investigate. And this
(continued…)
20180660-CA 10 2020 UT App 1First Interstate Financial v. Savage
¶17 While four months may be “ample time” for a plaintiff to
file a lawsuit under some circumstances, we cannot say, as a
matter of law, that Plaintiffs did not act with reasonable
diligence in this case. Accepting the allegations in Plaintiffs’
amended complaint, it is reasonable to infer that Savage’s
misrepresentations led Plaintiffs to believe that they could not
pursue a malpractice claim, despite knowing of the facts
underlying that cause of action, and that Plaintiffs were not in a
position to file a suit against Savage during those four months by
engaging another attorney because of their continuing
relationship with Savage. We simply do not view this as the
“clearest of cases.” See Berenda, 914 P.2d at 54. Because the
amended complaint alleged facts sufficient to withstand a
motion to dismiss, the district court erred in dismissing
Plaintiffs’ claims and in denying their motion to amend their
complaint.
CONCLUSION
¶18 Because Plaintiffs’ amended complaint alleged facts
sufficient to show that they acted reasonably in failing to file
(…continued)
precise circumstance was recognized by the Colosimo court as a
circumstance where lack of investigation may nevertheless be
reasonably diligent: “[W]here a plaintiff has made inquiry
and then been misled by the defendants, he has raised
sufficient evidence of the futility of further investigation to
survive summary judgment.” Id. ¶ 48. Savage’s alleged
misrepresentation regarding the impact the exhibits’ exclusion
had on Plaintiffs’ case could well have influenced Plaintiffs’
delay in filing suit before the limitations period expired, and we
therefore cannot say that Plaintiffs were not reasonably diligent
as a matter of law under the circumstances presented here.
20180660-CA 11 2020 UT App 1First Interstate Financial v. Savage
their complaint within the limitations period in light of Savage’s
alleged fraudulent concealment, the district court erred in
denying the motion to amend the complaint and dismissing the
action. We therefore reverse and remand for further
proceedings.
20180660-CA 12 2020 UT App 1