Peoplessouth Bank v. Farmer & Malone, P.A.
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
FARMER & MALONE, P.A.,
an Alabama Legal
CIVIL ACTION NO.
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
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
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
To secure a $ 858,402.25 loan, Judd
Lisenby offered as collateral an approximately 550-acre
tract of land owned by his father.
According to an
valued at $ 1,230,750.
Despite the land’s value, PSB insisted that the loan
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
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 bank and the law firm were repeat
The president of the bank’s local branch,
Dianne Thomas, had frequently worked with attorney James
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.
Like many lawyers in the Wiregrass Area of Alabama,
Farmer’s law firm uses independent abstractors to perform
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.
A timber lease
therefore, reduces a property’s value.
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
Barnes concludes by stating: “See if Lease is
still open (If so I will get copies).
Something was done
Barnes Report (PSB Exhibit 42) at Barnes
Barnes included this handwritten note in her final,
typed report to attorney Farmer.
However, the first page
of Barnes’s reports--which contains a summary of her
findings--makes no mention of a timber lease.
received by attorney Farmer.
to his office.
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
thereafter, on June 14, 2007, the law firm issued a final
title opinion similarly omitting the timber lease.
title opinions take the form of letters from attorney
They state, in pertinent part, that: “I have
examined the public records in the Offices of the Judge
Alabama, from this date and going back for a period of
(Joint Exhibit 10) at 1.
Two years later, in June 2009, the Lisenbys defaulted
on their loan and filed for bankruptcy.
triggered the guaranty agreement, and PSB demanded the
balance of the loan from North.
Pursuant to the guaranty
property sold at foreclosure (or credited to his account
by a deed-in-lieu of foreclosure) before the bank could
appraisal of the property valued it significantly higher
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
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.
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
September 15, 2009, to inform her of the timber lease’s
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
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
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
Thomas also testified that, at some point in
August 2009, North approached her and informed her of the
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
Lisenby claimed that Thomas dismissed
importance of the timber lease because the property
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.
Farmer neglected to memorialize this notice of
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
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
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.
conflict in writing.
PSB further complains that Farmer failed to
affirmatively disclose that it had a malpractice claim
against his firm.
In June 2010, PSB retained new counsel, Joseph Adams,
to handle the Lisenby case and the Farmer & Malone
On June 24 and 25, 2010, Adams
charged the bank for 4.9 hours of work on legal-services
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
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.
CONCLUSIONS OF LAW
PSB brings a claim of legal malpractice against the
Because this court hears this case pursuant to diversity
governed by Alabama law.
Before this court can consider
contention that this case is barred by the statute of
Section 6-5-574(a) of the ALSLA states, in relevant
“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.
Id. § 6-5-
One of these provisions, § 6-2-3, reads:
“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
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
additional two years to file a complaint.
places an absolute bar on actions brought after four
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
The ALSLA’s four-year maximum cap for bringing
suit is not implicated in this litigation.
the time PSB relied on the faulty title opinion.
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
damages”); see also Kachler v. Taylor, 849 F. Supp. 1503,
1511-12 (M.D. Ala. 1994) (Thompson, C.J.).
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.
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.
concludes that the bank was on notice of a claim against
the law firm by at least June 24, 2010.
By that time,
believe that PSB--a sophisticated, multi-state banking
corporation--could be ignorant of a malpractice claim by
Since this suit was filed in January 2011,
the bank cannot rely on the six-month discovery provision
for tolling the statute of limitations.
fraudulently concealed certain facts and, therefore, it
extension upon discovery of the fraud.
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.
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.
bank responded with four reasons why § 6-2-3's additional
two years apply.
The court addresses each in turn,
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.
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)
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
whether there were any encumbrances (such as a timber
looking for the latter.
Transcript at 132-33.
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
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
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.”
Id. at 175-76.
Thus, it is apparent that the bank did
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
Transcript at 96.
Much of this argument
hinges on the bank’s belief that Farmer did not mention
Thomas on September 15, 2009.
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
conflict of interest existed and inquired as to whether
his continued representation of the bank was desired.
also testified that he had worked with Thomas on a
similar case involving legal malpractice and that she had
considerations, the bank could not reasonably rely on
failure to state affirmatively that a potential
malpractice claim could be brought.
limitations should apply to this litigation.
malpractice claim on September 15, 2009, and brought suit
within six months.
Because this action was filed in
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.
An appropriate judgment will be entered.
DONE, this the 2nd day of July, 2012.
/s/ Myron H. Thompson
UNITED STATES DISTRICT JUDGE
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