Gill v. Hillier, Scheibmeir, Kelly & Satterfield, P.S.

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GEORGE R. "RUSTY" GILL, JR., an individual, Appellant, v. HILLIER, SCHEIBMEIR, KELLY & SATTERFIELD, P.S., a Washington Professional Services Corporation, formerly known as HILLIER, SCHEIBMEIR, VEY & KELLY, P.S., a Washington Professional Services Corporation, and; MARK C. SCHEIBMEIR, Individually and on behalf of the marital community comprised of MARK C. SCHEIBMEIR and JANE DOE SCHEIBMEIR, Respondents.

No. 58057-8-II

Court of Appeals of Washington, Division 2

January 30, 2024

UNPUBLISHED OPINION

Glasgow, C.J.

In 2014, George Gill sold his construction company to Fred Hicks, his former employee. Mark Scheibmeir, Gill's attorney, advised Gill on the sale's structure and drafted the sale documents. Gill sold the company's stock to Hicks and Hicks agreed to make monthly payments toward the purchase price with interest. Hicks also agreed that any default would allow Gill to foreclose on the stock. Gill did not retain an interest in the company's tangible assets.

After Hicks failed to make timely payments for several years and the federal government filed tax liens in 2016 and 2017, Gill sought to repossess the company's equipment in 2019. Gill learned from Scheibmeir that his only option for getting any equipment was foreclosing on the stock, which would result in repossessing the entire company, including its liabilities.

In 2022, Gill sued Scheibmeir and his law firm (collectively the law firm) for legal malpractice, citing failure to structure the transaction so that he would have a secured interest in the company's real estate, equipment, or future receivables. The law firm asserted that Gill's claim fell outside the three-year statute of limitations period. Gill then filed for partial summary judgment, asking the trial court to conclude that he commenced the lawsuit within the statute of limitations period and that the law firm breached its duty of care to him.

The trial court denied Gill's motion, concluding that Gill's claim was barred by the statute of limitations and that genuine issues of material fact remained regarding whether the law firm breached its duty of care. The parties stipulated that Gill reserved the right to appeal but the case would otherwise be dismissed.

On appeal, Gill argues that his claim was timely because either the discovery rule or the continuous representation rule tolled the statute of limitations period. He further argues that there was no genuine issue of material fact regarding the law firm's breach of its duty of care. We affirm.

FACTS

I. Background

Gill started RG Construction, a heavy civil construction company in 2000. Hillier, Scheibmeir, Kelly & Satterfield,^[1] a law firm, provided Gill with a variety of legal services concerning the company.

Several years after starting RG Construction, Gill hired Hicks as a project superintendent. In 2013, Gill agreed to sell RG Construction to Hicks.

A year later, Scheibmeir helped Gill effectuate the sale. Gill told Scheibmeir about the general terms he had discussed with Hicks, and Scheibmeir gave legal advice and drafted the sale documents.

The sale was structured as a stock purchase, so Gill sold all shares of stock in RG Construction to Hicks for $2,273,000. The sale also included "any cash on hand as well as all other assets and liabilities for the corporation[,] except those assets and liabilities" Gill expressly retained. Clerk's Papers (CP) at 65.

Gill and Hicks signed the sale agreement on January 24, 2014. Hicks agreed to pay Gill $20,000 per month starting on February 1, 2015. The deadline for paying the entire purchase price and accrued interest was December 31, 2019. Hicks agreed that if he failed to comply with the sale agreement's terms, he would be entitled to written notice of his default and 30 days to cure the default. But if he did not cure the default within that time frame, Gill would be able to terminate all of Hicks' rights under the sale agreement. All payments Hicks had made would be forfeited to Gill, and Gill would have the right to repossess all of RG Construction's shares "and resume management, ownership, and control of said shares." CP at 70. But the sale agreement did not give Gill a secured interest in any of RG Construction's equipment or personal property. Nor did the agreement give Gill a secured interest in any real estate or future receivables.

II. Buyer's Default

In 2015, Hicks failed to make his first monthly payment to Gill, which constituted a default of the sale agreement. Gill verbally agreed to give Hicks more time "to get his feet under him again . . . and start making his payments." CP at 235. Hicks made his first monthly payment in 2017, agreeing to make slightly larger monthly payments to make up for the missed payments. Between 2015 and 2017, Hicks made good-faith efforts to be able to make payments, and he regularly communicated with Gill about RG Construction. Gill did not send Hicks a written notice to cure default during this time. And Gill did not tell Scheibmeir about Hicks' failures to make payments.

Meanwhile, in 2016 and 2017, the Internal Revenue Service filed several tax liens against RG Construction and Hicks. While our record does not include notices of earlier tax liens, in a deposition, Gill guessed that he first became aware of a tax lien in 2015.

Hicks made his last payment to Gill in June 2019, and he failed to make payments due after that. In October 2019, Gill told Scheibmeir that Hicks had stopped making payments. Gill said he wanted to repossess RG Construction's equipment. Scheibmeir said Gill would not be able to immediately repossess the equipment, explaining that if Gill wanted to get anything back from the company, he would need to foreclose on the stock, which meant assuming ownership of the company and all its liabilities. Gill said he was not interested in that option.

After making several attempts to resolve Hicks' nonpayment, Gill sued Hicks for breach of contract in April 2021. Gill was represented by Scheibmeir. The law firm claims that RG Construction filed for bankruptcy on April 28, 2022, and Gill does not dispute this claim. A day after the bankruptcy filing, Gill obtained a judgment of nearly $2,300,000 against Hicks and his spouse. In January 2023, RG Construction's heavy equipment and tools were sold for almost $570,000 as part of the bankruptcy case. In addition, the company had accounts receivable in an amount of about $786,000. The IRS liens amounted to about $1.2 million.

III. Legal Malpractice Lawsuit

On June 29, 2022, Gill sued Scheibmeir, as well as his law firm. Gill alleged that the law firm committed legal malpractice in effectuating the sale of RG Construction because the law firm failed to ensure "all reasonable and necessary collateral to protect [his] interests from a potential future default." CP at 8. Specifically, the law firm failed to ensure Gill would have security interests in the company's real estate, equipment, or future accounts receivable. Noting that the Internal Revenue Service had "recorded tax liens against the real estate owned by RG Construction," Gill argued that the liens "impaired [his] interest in" getting payment for the company. CP at 7.

The law firm answered that Gill's claim was barred by the statute of limitations. The statute of limitations period for legal malpractice claims is three years. RCW 4.16.080(3); Huff v. Roach, 125 Wn.App. 724, 729, 106 P.3d 268 (2005).

Gill then sought partial summary judgment, asking the trial court to conclude that he commenced the lawsuit within the statute of limitations period and that the law firm breached its duty of care to him.

A. Statute of Limitations Arguments

Gill argued that the statute of limitations period did not begin to run until RG Construction filed for bankruptcy on April 28, 2022, which was when he "suffered actual damage due to the lack of adequate security." CP at 34. He contended that if he had tried to sue the law firm before "the RG Construction bankruptcy filing, his lawsuit would have been dismissed because he would not have been able to establish that the lack of adequate security had proximately caused him any damage." Id. Thus, his claims against the law firm did not accrue until RG Construction's bankruptcy filing. And Gill argued in the alternative that under the discovery rule, the statute of limitations did not start to run until October 1, 2019, when he learned that the law firm "had failed to provide him with any security in" RG Construction's assets. CP at 35. Gill did not make any argument based on continuous representation.

The law firm responded that under the discovery rule, the statute of limitations began running when Gill discovered or should have discovered the facts giving rise to his cause of action, and Gill should have discovered his lack of a security interest in RG Construction's tangible assets by reviewing the plain language of the sale agreement when he sold the company in 2014 or when Hicks first failed to make payments in 2015. And it disputed Gill's "contention that he did not suffer actual injury until RG Construction filed for bankruptcy," pointing out that Gill "either knew or should have known that he suffered some appreciable damage" in 2016 and 2017 when RG Construction and Hicks incurred federal tax liens, which took priority over unsecured debts. CP at 203-04.

B. Breach of the Duty of Care Arguments

Gill argued that the law firm breached its duty of care to him when it failed to advise him to retain a security interest in RG Construction's tangible assets. Gill provided declarations from two experts: a commercial litigation attorney and a certified public accountant who had worked with him and with Scheibmeir.

The commercial litigation attorney declared that while he...