Zoss v. Protsch, CIV 20-4211

FREDERICK M. ZOSS, Plaintiff, v. GREG PROTSCH and MUMFORD & PROTSCH, LLP, Defendants.

CIV 20-4211

UNITED STATES DISTRICT COURT DISTRICT OF SOUTH DAKOTA SOUTHERN DIVISION

April 8, 2021

MEMORANDUM OPINION AND ORDER

Frederick Zoss has filed suit against Greg Protsch and Mumford & Protsch, LLP, alleging malpractice and breach of fiduciary duty. (Doc.1). The claims arose in conjunction with Defendant Protsch's legal advice and the preparation and filing of documents for Plaintiff's sale of cattle to a buyer in North Dakota. Defendants have moved to dismiss under FRCP 12(b)(6) (Doc. 5), arguing Plaintiff's suit was not timely filed and fails to state a claim on which relief can be granted. For the following reasons Defendants' Motion is denied.

Factual Background

Plaintiff sought Defendants' assistance with the sale of certain cattle, which he had already agreed to sell and had delivered to the buyer. (Doc. 1, ¶ 17.). Defendants prepared several documents for the sale, including a contract, promissory note, and security agreement (Doc.1, ¶ 16), which were executed by the seller and buyer on December 30, 2017. Plaintiff received a down payment at that time, with the remainder to be paid later. Defendant filed UCC financing statements with the North Dakota Secretary of State on January 2, 2018 (Doc. 1, ¶ 20) and with the South Dakota Secretary of State on January 4, 2018. (Doc. 1, ¶ 22). Plaintiff alleges that these financing statements were defective and were the result of attorney malpractice. (Doc.1, ¶ 21, 23, 24). Subsequently, the buyer sold some of the cattle and the proceeds were distributed to secured creditors with priority over Plaintiff. Defendants allegedly continued to represent Plaintiff after the filing. (Doc. 1, ¶ 29). Plaintiff alleges Defendants both committed malpractice and also breached their fiduciary duty to Plaintiff through the alleged malpractice and by failing to advise him of possible malpractice on their part. Plaintiff filed suit on December 31, 2020.

Legal Standards

Defendants have moved to dismiss all counts under Federal Rule of Civil Procedure12(b)(6). The standard that a plaintiff must meet to avoid dismissal under Rule 12(b)(6) is set forth in Bell Atlantic Corp. v. Twombly, 550 U. S. 544, 570, 127 S. Ct. 1955, 167 L. Ed. 2d 929 (2007), and requires that the plaintiff have included in the Complaint "sufficient factual matter, accepted as true, to state a claim to relief that is plausible on its face." Accord, Ashcroft v. Iqbal, 556 U. S. 662, 678, 129 S. Ct. 1937, 173 L. Ed.2d 868 (2009). The Ashcroft Court clarified the standard when it added that, "A claim has facial plausibility when the plaintiff pleads factual content that allows the court to draw the reasonable inference that the defendant is liable for the misconduct alleged." Id.

In the context of a Rule 12(b)(6) Motion, the District Court must accept as true all allegations of material fact and construe them in a light most favorable to the non-moving party. Whitney v. Guys, Inc., 700 F.3d 1118, 1129 (8th Cir. 2012) (citing Braden v. Walmart, 588 F.3d 585, 594 (8^th Cir. 2009)). While conclusory statements are insufficient, well-pleaded factual allegations should be deemed true and the District Court should proceed to determine whether plaintiff is entitled to relief. Drobnak v. Anderson Corp., 561 F.3d 778 (8th Cir. 2008). Accord Ulrich v. Pope Cnty., 715 F.3d 1054, 1058 (8th Cir. 2013) (42 U.S.C. § 1983 suit against police who were given qualified immunity; dismissal not warranted unless beyond a doubt plaintiff cannot prove the case).

In determining what facts are applicable in ruling on a Motion to Dismiss, the court generally must "ignore material outside the pleadings, but it may consider materials that are part of the public record or do not contradict the complaint, and materials that are 'necessarily embraced by the pleadings.'" Nelson Auto Center, Inc. v. Multimedia Holdings Corp., 951 F.3d 952, 955 (8th Cir. 2020) (quoting Porous Media Corp. v. Pall Corp., 186 F.3d 1077, 1079 (8th Cir. 1999)). See also 5A Charles A. Wright & Arthur R. Miller, Federal Practice and Procedure: Civil 2d § 1357 (2018)(court may consider "matters of public record, orders, items appearing in the record of the case, and exhibits attached to the complaint"). When the court considers the plausibility of a claim by assessing the pleadings and their exhibits, it does so by "drawing on experience and common sense and viewing the plaintiff's claim as a whole." Whitney, 700 F.3d at 1128 (quoting Mattes v. ABC Plastics, Inc., 323 F.3d 695, 697 n.4 (8th Cir. 2003)).

If materials outside the pleadings are presented in the context of a Rule 12(b)(6) motion, the court may convert the Motion to one for Summary Judgment, or reject the additional materials, or not consider the additional materials. See Rosenbrahn v. Daugaard, 61 F.Supp.3d 845, 850 (D. S.D. 2014) (citing Casazza v. Kiser, 313 F.3d 414, 417 (8th Cir. 2002)).

Because jurisdiction in this case is based on diversity of citizenship, South Dakota law on attorney malpractice and breach of fiduciary duty applies. The South Dakota Supreme Court has identified the elements of an attorney malpractice claim in numerous cases, including Hamilton v. Sommers, 855 N.W. 2d 855, 862 (S.D. 2014) as follows:

... a successful claim against an attorney for legal malpractice requires proof of four elements: "(1) the existence of an attorney-client relationship giving rise to a duty, (2) the attorney, either by an act or failure to act, breached that duty, (3) the attorney's breach of duty proximately caused injury to the client, and (4) the client sustained actual damage." (quoting Peterson v. Issenhuth, 2014 S.D. 1, ¶ 17, 842 N.W.2d at 355).

Accord, Keegan v. First Bank of Sioux Falls, 519 N.W.2d 607 (S.D. 1994).

In addition, a legal malpractice claim is governed by SDCL § 15-2-14.2, which provides that a malpractice claim must be filed within three years of the alleged "error, mistake, or omission." The South Dakota Supreme Court has determined that this provision is a statute of repose, rather than a statute of limitations. Robinson-Podoll v. Harmelink, Fox & Ravnsborg Law Office, 939 N.W.2d 32, 41 (S.D. 2020) (citing Pitt-Hart v. Sanford USD Medical Center, 878 N.W.2d 406, 413 (S.D. 2016)). The court provided clarification of the concept of "statute of repose" in Pitt-Hart where it described a statute of repose as setting an outer limit on when the client's claim for professional malpractice may be filed and referred to the rationale for such a statute: "[s]tatutes ofrepose effect a legislative judgment that a defendant should 'be free from liability after the legislatively determined period of time.' " 878 N.W.2d at 414 (citing Lozano v. Montoya Alvarez, 572 U.S. 1, 9-10, 134 S. Ct. 1224, 1231-32, 188 L.Ed.2d 200 (2014)). The outer limit is measured from the "last culpable act or omission of defendant." Id. at 413. The court added that South Dakota follows the "occurrence rule," which means the claim arises from the time of the negligent act, not from the time it was discovered. Id. See also Haberer v. Rice, 511 N.W.2d 279, 287 (S.D. 1994).

A related issue raised by the South Dakota Supreme Court in addressing statutes of repose is the continuing-tort doctrine. In Pitt-Hart, the court discussed the doctrine as follows, and noted its application to a statute of repose in the context of professional medical malpractice: "While the continuous-treatment rule does not apply to a statute of repose, the continuing-tort doctrine does. 'When the cumulative result of continued negligence is the cause of the injury, the statute of repose cannot start to run until the last date of negligent treatment.'" 878 N.W.2d at 415 (citing Cunningham v. Huffman, 154 Ill.2d 398, 182 Ill. Dec. 18, 609 N.E.2d 321, 325 (1993); Wells v. Billars, 391 N.W.2d 668 (S.D. 1986)). The court added that the "cause of action may be tolled when a 'medical practitioner ... continue[s] "to treat the patient for the particular disease or condition created by the original act of alleged negligence".' " Lewis v. Sanford Med. Ctr., 840 N.W.2d 662, 667 S.D. 2013) (quoting Liffengren v. Bendt, 612 N.W.2d 91 (S.D. 2000)). In the court's view, this rule applies only when the plaintiff receives "continuous treatment ... by the same physician or clinic." Liffengren, 612 N.W.2d at 633. Thus, although a period of repose will not be tolled for any reason once it has begun, such a period may be "delayed from commencing" if a plaintiff "demonstrate[s]: (1) that there was a continuous and unbroken course of negligent treatment, and (2) that the treatment was so related as to constitute one continuing wrong." Pitt-Hart, 878 N.W.2d at 415 (quoting Cunningham, 609 N.E.2d at 325). In Pitt-Hart, the plaintiff could make no such showing so relief was denied. Id. at 416.

With respect to a claim of breach of fiduciary duty, the South Dakota Supreme Court has explained that, "An attorney's fiduciary duty likewise grows out of the attorney-client relationship but involves a different duty than the standard of care for legal malpractice." Slota v. Imhoff, 949 N.W.2d 869, 876 (S.D. 2020). The court clarified that, "A breach of fiduciary duty in theattorney-client relationship arises from the representation of a client and involves the fundamental aspects of an attorney-client relationship. The fiduciary obligations are twofold: (1) confidentiality; and (2) undivided loyalty." Id. at 876-77 (quoting Behrens v. Wedmore, 2005 S.D. 79, 52, 698 N.W.2d 555, 576). The court acknowledged, however, that "claims for legal malpractice, breach of fiduciary duty, and other torts are often indistinguishable when applying the repose statute as the claims typically involve the same type of conduct and damages." Id. at 877. The court concluded that, "when the conduct giving rise to a claim for legal malpractice and breach of fiduciary duty and the resulting damages are inseparable, SDCL...