Vossoughi v. Polaschek

859 N.W.2d 643

Ahmad S. VOSSOUGHI and C, N, & A, Inc., Appellants

v.Joseph A. POLASCHEK and Michael J. Meloy, Appellees.

No. 13–1381.

Supreme Court of Iowa.

Feb. 13, 2015.

Steven E. Ballard and Michael J. Harris of Leff Law Firm, L.L.P, Iowa City, for appellant.

Robert V.P. Waterman Jr. and Joshua J. McIntyre of Lane & Waterman, LLP, Davenport, for appellee Polaschek.

John T. Flynn of Brubaker, Flynn & Darland, P.C., Davenport, for appellee Meloy.

Opinion

HECHT, Justice.

Vossoughi and a company owned by him brought this legal malpractice action against attorneys who prepared documents in connection with the sale of real and personal property. Vossoughi appeals from a district court ruling granting summary judgment to both attorneys. Because we conclude the summary judgment should not have been granted in favor of either attorney, we reverse and remand for further proceedings.

I. Factual Background and Proceedings.

A reasonable fact finder viewing the evidence in the light most favorable to Vossoughi and C, N, & A, Inc. could find the following facts from the summary judgment record. Ahmad Vossoughi was the sole owner of C, N, & A, Inc. The company owned and operated Cigarette Oasis, LLC (Oasis). Oasis was located on real estate Vossoughi owned in Davenport, Iowa. In September 2006, Vossoughi and C, N, & A, Inc. entered into a set of agreements with Mark Polaschek (Mark), who managed BVM Enterprises LLC (BVM) and PPM Properties, Inc. (PPM). The contracting parties were represented by counsel; Vossoughi and C, N, & A, Inc. were represented by Michael J. Meloy, and Mark was represented by his brother Joseph Polaschek (Polaschek).

After five or six hours of negotiations, the parties executed three separate agreements on September 15, 2006: (1) an “Asset and Business Name Purchase Agreement,” setting out that BVM would pay C, N, & A, Inc. the sum of $261,281.98 to acquire Oasis; (2) a “Noncompetition Agreement,” requiring PPM to pay Vossoughi an additional $70,000; and (3) a “Real Estate Contract,” setting out that PPM would pay Vossoughi $40,000 for the real property.¹

An “Addendum to the Real Estate Contract” contained language purporting to cross-collateralize the three agreements. Paragraph 3 of the addendum provided that any default under the Noncompetition Agreement or Asset and Business Name Purchase Agreement would also constitute default under the Real Estate Contract. Paragraph 5 of the addendum authorized PPM to prepay the balance due on the Real Estate Contract without penalty, but provided that the payment obligations under the other two agreements would remain secured by the real property until fully paid.² Paragraph 6 of the addendum included the following language addressing the consequences of prepaying the real estate purchase price:

If Buyer elects to prepay under the terms of this real estate purchase contract, Seller shall convey the real property to Buyer subject to the full payment of said contract and expressly subject in the warranty deed for said conveyance stating that the Buyer is restricted and can sell said real estate only upon the full payment and completion of the terms of the Non-compete Agreement and the Asset Purchase Agreement.

If the Buyer is unable to re-convey the real property in the event of default by Buyer of either the Non-competition Contract or the Asset Purchase Agreement, then the Buyer and Seller agree that the value of damages would be difficult if not impossible to calculate at this time and as such, the Buyer shall be obligated to pay to Seller as liquidated damages on the failure of the Buyer to re-convey the “market value” on the real property with any improvements.

Vossoughi believed the payments due on all three of the agreements were secured by a lien on the real property created by language in the addendum. However, the agreements and addendum did not provide for perfection of a security interest securing the sellers' interests in the personal property, nor did they provide for a mortgage against the real estate securing the contractual right to receive payments under two of the agreements in the event PPM exercised its right to prepay the purchase price on the real estate contract.

The buyers took possession of Oasis and the real property, and began making installment payments to Vossoughi. Six months later, in March 2007, Mark contacted Meloy, stating he wanted to pay in full the balance owed on the real estate contract. On March 28, 2007, Meloy contacted Vossoughi and informed him of Mark's offer to prepay the real estate contract obligation. When told there would be a fee for Meloy's legal services in connection with the closing of the real estate transaction, Vossoughi terminated the attorney-client relationship. Meloy did no further work for Vossoughi or C, N, & A, Inc.

Vossoughi appeared the very next day at Polaschek's office and executed a warranty deed transferring title to the real estate to PPM. Polaschek had prepared the deed, and he charged Vossoughi $500 for his legal services. Vossoughi told Polaschek he was concerned the warranty deed contained no reference to the cross-collateralizing language of the addendum and no mention of the buyers' remaining payment obligations under the other two agreements. Polaschek assured Vossoughi that after he signed the warranty deed, an additional page incorporating the provisions of the addendum would be added to ensure the remaining payment obligations would remain secured by the real property. Vossoughi signed the warranty deed, and despite Polaschek's promises, the deed was later recorded without any additional language and without a second page referencing the cross-collateralized agreements.

In February 2008, the buyers stopped making payments on the two other contract obligations. Vossoughi's investigation revealed the warranty deed he signed had been recorded on April 9, 2007, without the additional page incorporating the provisions of the addendum. Worse yet, Vossoughi discovered Mark had borrowed $184,000 from American Bank & Trust Company and secured the loan with a mortgage on the Oasis real estate.

Vossoughi and C, N, & A, Inc. filed a breach of contract action against BVM, PPM, and Mark. The action produced no remedy for the plaintiffs, however, because BVM had already been involuntarily dissolved by the Illinois Secretary of State, and both PPM and Mark had filed for bankruptcy under Chapter 7 of the Bankruptcy Code, 11 U.S.C. §§ 701 –84 (2006). American Bank & Trust foreclosed its mortgage.

Vossoughi and C, N, & A, Inc. filed a petition in the bankruptcy court seeking a determination that the contract obligations of PPM and Mark arising from the Asset and Business Name Purchase Agreement and the Noncompetition Agreement were nondischargeable in bankruptcy. The bankruptcy court denied the requested relief, however, because it found no evidence the debtors had committed any malicious or fraudulent act within the meaning of 11 U.S.C. § 523(a)(2) or (6). Accordingly, the bankruptcy court ruled the debts arising from the two agreements were dischargeable. See Vossoughi v. Polaschek (In re Polaschek ), No. 08–81311, 2012 WL 1569611, at *8 (Bankr.C.D.Ill. May 3, 2012). Vossoughi and C, N, & A, Inc. were left with $210,000 in unsecured, nonpriority, fully dischargeable claims—and took nothing from the bankruptcy.

Vossoughi and C, N, & A, Inc. filed a petition alleging legal malpractice claims against both Meloy and Polaschek on June 16, 2010. The petition asserted the defendant attorneys were negligent in connection with the preparation of the warranty deed and conveyance in March 2007. After Meloy filed an affidavit disclaiming any involvement in the March 2007 transaction, Vossoughi dismissed the action against Meloy without prejudice on April 18, 2011.

Vossoughi and C, N, & A, Inc. sued Meloy a second time, however, on June 26, 2012. In an amended petition filed in this action, the plaintiffs alleged Meloy negligently performed legal services in negotiating, drafting, and providing legal advice in connection with the three agreements executed in September 2006.³ Each of the defendants filed a motion for summary judgment.

II. Summary Judgment on Claims Against Meloy.

Meloy's motion for summary judgment raised the statute of limitations as an affirmative defense. The district court found this defense meritorious and granted summary judgment. The district court noted the limitations period of five years for legal malpractice actions does not begin to run until the plaintiff discovers the injury. See Iowa Code § 614.1(4) (2005); Venard v. Winter, 524 N.W.2d 163, 166 (Iowa 1994) ; Franzen v. Deere & Co., 377 N.W.2d 660, 662 (Iowa 1985). However, the district court held the plaintiffs were deemed to have discovered the injury on March 29, 2007, when Vossoughi signed the warranty deed. The discovery occurred on that date, the district court concluded, because Vossoughi's signature on the deed imputes to him knowledge of the deed's contents. See Huber v. Hovey, 501 N.W.2d 53, 55 (Iowa 1993) (“[F]ailure to read a contract before signing it will not invalidate the contract. Absent fraud or mistake, ignorance of a written contract's contents will not negate its effect.” (Citation omitted.)).

The district court further held in the alternative that the plaintiffs discovered the injury when the warranty deed was recorded on April 9, 2007. See Iowa Code § 558.55 (“[T]he filing and indexing [of deeds in the recorder's office] shall constitute constructive notice to all persons of the rights of the grantees conferred by the instruments.”). Thus, the district court concluded the limitations period for filing the instant claim against Meloy expired on either March 29, 2012, or April 9, 2012, and granted summary judgment to Meloy because the plaintiffs' petition asserting the instant claim against him was not filed until June 26, 2012.

The plaintiffs filed a motion to amend the court's ruling, contending there was no injury as a result...