Peoplessouth Bank v. Farmer & Malone, P.A.

Filing 140

OPINION that the court finds that PSB's claim against Farmer & Malone is barred by the statute of limitations; that an appropriate judgment will be entered. Signed by Honorable Judge Myron H. Thompson on 7/2/2012. (cc, )

IN THE DISTRICT COURT OF THE UNITED STATES FOR THE
MIDDLE DISTRICT OF ALABAMA, SOUTHERN DIVISION

PEOPLESSOUTH BANK, a
Georgia Banking
Corporation,
Plaintiff,
v.
FARMER & MALONE, P.A.,
an Alabama Legal
Professional Association,
Defendant.

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CIVIL ACTION NO.
1:11cv36-MHT
(WO)

OPINION
Plaintiff PeoplesSouth Bank (“PSB”) charges defendant
Farmer & Malone, P.A., a law firm, with legal malpractice
under the Alabama Legal Services Liability Act (“ALSLA”),
1975 Ala. Code § 6-5-571 et seq.

The bank contends that

the law firm provided an inaccurate title opinion on a
piece

of

land

used

as

collateral.

In

addition

to

contesting the merits, the law firm submits that the
bank’s claim is barred by the statute of limitations.

This court has jurisdiction pursuant to 28 U.S.C. § 1332
(diversity of citizenship).
Based on the evidence presented at a bench trial, the
court finds that the bank’s claim is barred by the
statute of limitations.1

I.

FINDINGS OF FACT

This litigation arises from a land deal gone south.
In late spring 2007, Judd Lisenby and Nicole Lisenby
sought a loan from PSB to pay off debt related to their
farming operations.

To secure a $ 858,402.25 loan, Judd

Lisenby offered as collateral an approximately 550-acre
tract of land owned by his father.
appraisal

conducted

in

March

2007,

According to an
the

property

was

valued at $ 1,230,750.
Despite the land’s value, PSB insisted that the loan
have

a

guarantor

in

addition

to

making

the

land

1. This consolidated action was tried simultaneously
with PeoplesSouth Bank v. North, Civ. No. 1:11cv176-MHT.
The North case, however, was tried before a jury and
settled mid-trial.
2

collateral.

A friend of Judd Lisenby, Charles North,

agreed to be a guarantor.

With that condition met, the

bank agreed to the loan.
During the loan-negotiation process, PSB hired the
law firm of Farmer & Malone to conduct a title search of
the property.
players.

The bank and the law firm were repeat

The president of the bank’s local branch,

Dianne Thomas, had frequently worked with attorney James
Farmer.

Over the course of several years, Thomas and

Farmer developed an amicable professional relationship
and each considered the other a friend.
As a matter of routine, banks insist on a title
search to determine whether a deed is valid and whether
a property has any encumbrances or liens against it.
Because these records are not always online, a title
search requires traveling to a county courthouse and
delving through numerous records.

A title search is

essential in calculating a property’s value.

3

Like many lawyers in the Wiregrass Area of Alabama,
Farmer’s law firm uses independent abstractors to perform
title searches.

For this land deal, Farmer hired Cindy

Barnes to conduct the title search.
During her investigation, Barnes uncovered evidence
of an old timber lease on the property.
permits

a

logging

company

to

cut

A timber lease

down

therefore, reduces a property’s value.

trees

and,

Barnes placed a

handwritten note in her report stating that there was a
timber lease assigned from Judd Lisenby’s father to a
logging company in 1961.

Barnes further notes that the

lease was assigned to other logging companies in 1962 and
1976.

Barnes concludes by stating: “See if Lease is

still open (If so I will get copies).
in

2004

...

Timberland.”
025.

which

states

lease

Something was done
is

in

Plum

Creek

Barnes Report (PSB Exhibit 42) at Barnes

Barnes included this handwritten note in her final,

typed report to attorney Farmer.

4

However, the first page

of Barnes’s reports--which contains a summary of her
findings--makes no mention of a timber lease.
Unfortunately
handwritten

note

for
about

everyone
the

received by attorney Farmer.
to his office.

involved,

timber

lease

Barnes’s
was

never

Barnes sent 23 pages by fax

A fax transmittal report indicates that

only 22 pages were received.

The court credits Farmer’s

testimony that the missing page was Barnes’s handwritten
note about the timber lease.
On June 6, 2007, Farmer provided Thomas and the bank
a preliminary title opinion without any reference to a
timber lease on the property.

Based on the preliminary

title opinion, the bank issued the Lisenbys a loan--with
North

as

the

guarantor--on

June

11,

2007.

Shortly

thereafter, on June 14, 2007, the law firm issued a final
title opinion similarly omitting the timber lease.

Both

title opinions take the form of letters from attorney
Farmer.

They state, in pertinent part, that: “I have

examined the public records in the Offices of the Judge

5

of

Probate

and

Revenue

Commissioner

of

Dale

County,

Alabama, from this date and going back for a period of
thirty-five

(35)

years.”

Preliminary

Title

Opinion

(Joint Exhibit 10) at 1.
Two years later, in June 2009, the Lisenbys defaulted
on their loan and filed for bankruptcy.

Their bankruptcy

triggered the guaranty agreement, and PSB demanded the
balance of the loan from North.
agreement,

North

was

entitled

Pursuant to the guaranty
to

have

the

550-acre

property sold at foreclosure (or credited to his account
by a deed-in-lieu of foreclosure) before the bank could
recover

any

remaining

balance.

Because

the

2007

appraisal of the property valued it significantly higher
than

the

loan’s

principal,

North

believed

that

the

guaranty agreement could be paid off by selling the land.
The discovery of the timber lease, however, significantly
reduced the property’s value.2

2. When PSB accepted a deed-in-lieu of foreclosure
for the property in May 2012, the land was valued at
$ 370,000.
6

The Lisenbys’ attorney brought the timber lease to
the Farmer & Malone’s attention on September 15, 2009,
when he faxed a copy to attorney Farmer.

The timber

lease

the

was

opinion’s

assigned
35-year

in

1961,

outside

coverage.

of

Nonetheless,

title
Farmer

immediately contacted Barnes and Thomas.
Farmer learned from Barnes that she had intended to
include the handwritten note about the timber lease in
the faxed report.

Farmer and Barnes quickly confirmed

that only 22 pages had been sent.

Barnes recorded this

conclusion with a handwritten notation on the top of the
missing page.
It

is

undisputed

that

Farmer

called

Thomas

on

September 15, 2009, to inform her of the timber lease’s
existence.
lease.

Farmer also faxed Thomas a copy of the timber

When Thomas asked why the title opinion had

missed the timber lease, Farmer replied that his opinion

7

extended back only 35 years and that the timber lease had
been recorded well before that.3
There was conflicting testimony as to what was stated
during the conversation about Farmer’s role in the title
opinion’s mistake.

Farmer testified that he informed

Thomas that he had a conflict and asked if she still
wanted him to represent the bank.

He contended that she

replied in the affirmative and he continued to represent
the

bank.4

He

further

testified

that

she

had

been

3.
Thomas also testified that, at some point in
August 2009, North approached her and informed her of the
timber lease.
Thomas stated that she did not believe
North because he contradicted Farmer’s title opinion.
Judd Lisenby testified that he informed Thomas of
timber lease while negotiating the loan agreement
2007.
Lisenby claimed that Thomas dismissed
importance of the timber lease because the property
the collateral.

the
in
the
was

For purposes of resolving this case on a statute-oflimitations ground, the court finds it sufficient that
Farmer put Thomas on notice of the timber lease’s
existence on September 15, 2009. As such, the court need
not decide the exact moment that Thomas was informed of
the timber lease.
4.

Farmer neglected to memorialize this notice of
(continued...)

8

involved in a similar legal malpractice claim in the past
and that she should have been aware that the “conflict”
comment indicated that the bank had a legal claim against
the law firm.

Thomas’s testimony paints a different

picture: she contends that Farmer did not inform her of
any conflict.5

Based on the testimony, the court credits

Farmer’s account of the September 15, 2009, conversation.
Farmer informed Thomas of a conflict, and she reasonably
should

have

known

that

PSB

had

a

malpractice

claim

against the law firm.
On January 14, 2010, North’s attorney sent Farmer a
letter detailing the reasons why the timber lease should
have been uncovered.

The letter points to various tax

receipts and amendments to the deed that were made within
the 35-year period of the title opinion.

Farmer did not

immediately forward this letter to the bank.

(...continued)

conflict in writing.
5.
PSB further complains that Farmer failed to
affirmatively disclose that it had a malpractice claim
against his firm.
9

In June 2010, PSB retained new counsel, Joseph Adams,
to handle the Lisenby case and the Farmer & Malone
malpractice claim.

On June 24 and 25, 2010, Adams

charged the bank for 4.9 hours of work on legal-services
liability.
5) at 1.

Adams Billing Form (Farmer & Malone Exhibit

At trial, Adams testified that his research was

checking into whether a malpractice claim was lurking in
the shadows.

He averred that he did not conclude that

the bank had a malpractice claim against Farmer & Malone
until he received a copy of North’s attorney’s letter in
September 2010, when attorney Farmer finally turned over
his case file.
The bank filed its complaint against the law firm on
January 14, 2011.

II.

CONCLUSIONS OF LAW

PSB brings a claim of legal malpractice against the
law

firm

for

failing

to

discover

the

timber

lease.

Because this court hears this case pursuant to diversity

10

jurisdiction,

the

bank’s

governed by Alabama law.
the

merits,

it

must

legal-malpractice

claim

is

Before this court can consider

first

address

the

law

firm’s

contention that this case is barred by the statute of
limitations.
Section 6-5-574(a) of the ALSLA states, in relevant
part, that:
“All legal service liability actions
against a legal service provider must be
commenced within two years after the act
or omission or failure giving rise to
the claim, and not afterwards; provided,
that if the cause of action is not
discovered and could not reasonably have
been discovered within such period, then
the action may be commenced within six
months from the date of such discovery
or the date of discovery of facts which
would reasonably lead to such discovery,
whichever is earlier; provided, further,
that in no event may the action be
commenced more than four years after
such act or omission or failure.”
1975 Ala. Code § 6-5-574(a). The ALSLA also provides that
certain enumerated provisions concerning “the computation
of statutory periods of limitation” apply.
574(b).

Id. § 6-5-

One of these provisions, § 6-2-3, reads:
11

“In actions seeking relief on the ground
of fraud where the statute has created
a bar, the claim must not be considered
as having accrued until the discovery by
the
aggrieved
party
of
the
fact
constituting the fraud, after which he
must have two years within which to
prosecute his action.”
1975 Ala. Code § 6-2-3.
Stated simply, legal-malpractice claims have a twoyear statute of limitations.

However, if the cause of

action was not immediately discovered, the plaintiff
normally has six additional months to bring suit, but if
fraud

concealed

the

claim,

the

plaintiff

additional two years to file a complaint.

has

an

Alabama law

places an absolute bar on actions brought after four
years.

See Coilplus-Alabama, Inc. v. Vann, 53 So. 3d

898, 904 (Ala. 2010) (summarizing the statutory scheme).6

The Supreme Court of Alabama has explained that
ALSLA’s two-year statute of limitations begins to run at

6
The ALSLA’s four-year maximum cap for bringing
suit is not implicated in this litigation.
12

the time PSB relied on the faulty title opinion.

See

Sirote & Permutt, P.C. v. Bennett, 776 So. 2d 40, 45
(Ala. 2000) (holding that malpractice suit against lawyer
for faulty title opinion accrues on the “date that the
plaintiffs first suffered legal damage for which they
would

have

been

entitled

to

bring

an

action

for

damages”); see also Kachler v. Taylor, 849 F. Supp. 1503,
1511-12 (M.D. Ala. 1994) (Thompson, C.J.).

PSB’s claim

regarding the faulty title opinion accrued on June 11,
2007, when it relied on the preliminary title opinion and
closed the loan with the Lisenbys.

Because this suit was

filed in January 2011, the claim is untimely.7

7. The court notes that Sirote & Permutt relies on
the “damages” rule for determining the accrual of a
statute of limitations. Sirote & Permutt, 776 So. 2d at
44-45 & n.5. The Supreme Court of Alabama has recently
shifted away from this doctrine and adopted an
“occurrence” rule: a claim accrues when the act or
omission giving rise to liability occurs.
Denbo v.
DeBray, 968 So. 2d 983, 989 (Ala. 2006). In this case,
the choice between the “damages” and “occurrence” rules
is of no consequence.
Under the occurrence rule, the
claim accrued when Farmer & Malone issued its preliminary
title opinion: June 6, 2007, only five days before the
“damages” rule date.
13

To
§

the

extent

6-5-574(a)’s

that

six-month

PSB

seeks

discovery

shelter

rule,

under

the

court

concludes that the bank was on notice of a claim against
the law firm by at least June 24, 2010.
the

bank

had

researching

retained

ALSLA

another

claims.

It

By that time,

attorney
strains

who

started

credulity

to

believe that PSB--a sophisticated, multi-state banking
corporation--could be ignorant of a malpractice claim by
that point.

Since this suit was filed in January 2011,

the bank cannot rely on the six-month discovery provision
for tolling the statute of limitations.
PSB’s

central

claim

is

that

attorney

Farmer

fraudulently concealed certain facts and, therefore, it
is

entitled

to

the

two-year

statute

extension upon discovery of the fraud.

of

limitations

Because the court

concludes that the bank was on notice of a malpractice
claim when Farmer informed Thomas of the conflict of
interest on September 15, 2009, the two-year statute of
limitations would make this case timely.

14

At trial, the court requested that PSB’s counsel
clarify her contentions for why the bank is entitled to
the two-year tolling of the statute of limitations.

The

bank responded with four reasons why § 6-2-3's additional
two years apply.
keeping

in

“reasonable

mind

The court addresses each in turn,
that

reliance”

tolling provision.

a

plaintiff

standard

to

must

satisfy

trigger

§

the

6-2-3's

Denbo, 968 So. 2d at 991.

First, PSB submits that the title opinion’s 35-year
coverage statement is fraudulent.

The bank believes

that, because parts of the title opinion reference a deed
from 1947, the standard of care requires that the title
opinion cover from that period forward.
97.

Transcript at

The bank ignores the plain language of the title

opinion, which expressly states that it encompasses “from
this date and going back for a period of thirty-five (35)
years.”
1.

Preliminary Title Opinion (Joint Exhibit 10) at

Moreover, when the court asked Thomas whether she

cared about the temporal coverage of the title opinion or

15

whether there were any encumbrances (such as a timber
lease),

she

unequivocally

looking for the latter.

replied

that

she

Transcript at 132-33.

was

only

Given the

title opinion’s express temporal limitation and Thomas’s
testimony, PSB cannot reasonably rely on a belief that
the investigation covered a 46- or even 60-year period.
In any event, that Farmer went back further than 35 years
is hardly a basis to complain.
Second, PSB believes that attorney Farmer’s statement
in September 2009 that his title opinion covered only 35
years was a fraud. Id. at 95-96.

This claim fails for

the same reasons as the prior argument.
Third, PSB believes that the following statement is
fraudulent: “I have examined the public records in the
Offices of the Judge of Probate and Revenue Commissioner
of Dale County.” Preliminary Title Opinion (Joint Exhibit
10) at 1.

According to the bank, Farmer improperly

implied that he had personally gone to the relevant
public

records

offices

when,

16

in

fact,

he

used

an

independent

abstractor

to

conduct

title

searches.

Transcript at 96. As an initial matter, the court is
skeptical that Farmer’s invocation of standard principles
of agency can be construed as fraudulent.

But in any

event, Thomas’s testimony forecloses the bank’s argument.
At trial, the following exchange occurred:
The Court: “Would it have made a
difference whether [Farmer] had had
someone else to do that work as long as
he signed of on it?”
Thomas: Well, no, because he-–I mean,
you know, he is the one that gave me the
title opinion. Jim [Farmer] is the one
that I dealt with.
Jim is the one I
depended on. And the-–you know, he had
a partner. I didn’t-–I mean, I didn’t–we never talked about Cindy Barnes.”
The Court: “I mean, is that something
that as a bank you were concerned about?
Whether he used someone else to actually
go to the courthouses and check on
these?”
Thomas: “As long as Jim Farmer gave me
a title opinion, my confidence, my
trust, and I knew that he was giving me
a title opinion that was right.”

17

Id. at 175-76.

Thus, it is apparent that the bank did

not

belief

rely

on

a

that

Farmer

had

gone

to

the

courthouses to conduct the title search.
Finally, PSB submits that attorney Farmer had a duty
to disclose that there was a potential malpractice claim
against him, not merely that there was a conflict of
interest.

Transcript at 96.

Much of this argument

hinges on the bank’s belief that Farmer did not mention
a

conflict

of

interest

during

Thomas on September 15, 2009.

his

conversation

with

In light of its finding

that Farmer did inform Thomas about a conflict, the court
concludes that the bank should have been aware that it
had a potential malpractice claim against the law firm as
of

September

15,

2009.

Farmer

told

Thomas

that

a

conflict of interest existed and inquired as to whether
his continued representation of the bank was desired.

He

also testified that he had worked with Thomas on a
similar case involving legal malpractice and that she had
access

to

in-house

counsel.

18

In

light

of

these

considerations, the bank could not reasonably rely on
Farmer’s

failure to state affirmatively that a potential

malpractice claim could be brought.
PSB
§

has

6-2-3's

failed

to

two-year

provide

extension

any
of

reason
the

for

why

statute

of

limitations should apply to this litigation.
concludes

that

the

bank

should

have

The court

discovered

its

malpractice claim on September 15, 2009, and brought suit
within six months.
January

2011,

it

Because this action was filed in
is

barred

by

ALSLA’s

statute

of

limitations.8
*

*

*

In sum, the court finds that PSB’s claim against
Farmer & Malone is barred by the statute of limitations.

8. The court notes that were it to reach the merits,
it has considerable doubt concerning Farmer & Malone’s
primary argument: that the firm is insulated from
liability for errors committed by its independent
abstractor, Cindy Barnes. The title opinion is authored
by the law firm, not an undisclosed abstractor.
19

An appropriate judgment will be entered.
DONE, this the 2nd day of July, 2012.
/s/ Myron H. Thompson
UNITED STATES DISTRICT JUDGE