Wellin v. Farace et al
Filing
208
ORDER granting 62 Motion for Summary Judgment; granting 144 Motion for Summary Judgment Signed by Honorable David C Norton on November 6, 2019.(bgam, )
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF SOUTH CAROLINA
CHARLESTON DIVISION
WENDY C.H. WELLIN, on behalf of the
Estate of Keith S. Wellin as its duly
Appointed Special Administrator,
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)
)
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Plaintiff,
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vs.
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THOMAS M. FARACE, ESQ., individually
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and as agent for Nixon Peabody, LLP and
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Nixon Peabody Financial Advisors, LLC;
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NIXON PEABODY, LLP; and NIXON
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PEABODY FINANCIAL ADVISORS, LLC
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Defendant.
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_______________________________________)
No. 2:16–cv–00414–DCN
ORDER
The following matter is before the court on defendants Thomas Farace,
individually and as an agent for Nixon Peabody, LLP and Nixon Peabody Financial
Advisors (“Farace”), Nixon Peabody, LLP (“Nixon Peabody”) and Nixon Peabody
Financial Advisors, LLC (“NPFA”, together with Farace and Nixon Peabody,
“defendants”) motion for summary judgment, ECF No. 62 and 144. For the reasons set
forth below, the court grants defendants’ motion for summary judgment.
I. BACKGROUND
On February 10, 2016, Wendy C.H. Wellin (“Wendy”), on behalf of the Estate of
Keith S. Wellin as its duly appointed Special Administrator (“Estate”), filed a complaint
against defendants for legal malpractice related to the estate planning services provided to
Keith S. Wellin (“Keith”) as his attorney and advisor. ECF No. 9 at 2.
In approximately 2001, defendants began representing Keith with respect to his
estate planning, both individually and as Trustee of the Keith S. Wellin Florida
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Revocable Living Trust dated December 11, 2001 (“Revocable Trust”), which defendants
drafted on Keith’s behalf. ECF No. 62–2 at 5–7. Keith discussed with Farace his desire
to give a substantial portion of the Berkshire Hathaway Class A stock he owned to his
three children in the most tax-advantaged way possible. Id. at 9. Keith and his children,
Peter J. Wellin, Cynthia W. Plum, and Marjorie W. King (collectively, “Wellin
Children”) established Friendship Partners, L.P. (“Friendship Partners”), a Delaware
Limited Partnership, on or around December 9, 2003 (the “2003 Partnership
Agreement”). ECF No. 62–7. This limited partnership was established using the
“Strangi” 1 strategy and was funded with 906 shares of Berkshire Hathaway Class A stock
(the “Berkshire Stock”). ECF No. 62–4 at 23–30; ECF No. 62–7 at 26.
At the time Friendship Partners was formed, Keith was a limited partner and
owned 98.9% of the partnership units. ECF No. 62–7 at 26. The general partner was
Friendship Management, LLC (“Friendship Management”), a Delaware limited liability
company, which owned the remaining 1.1% of the total partnership units. Id. The
Wellin Children controlled Friendship Management, collectively owning 60% of the
limited liability company in equal shares, and the remaining 40% was owned by a trust,
the 2003 KSW Family Trust, the trustees of which were Farace, and a family friend.
Wellin v. Wellin et. al., No. 2:13–cv–1831, ECF No. 301–1 at 22.
On November 7, 2006, Farace sent Keith a letter enclosing a compilation of
Keith’s net worth and taxable estate. ECF No. 62–8. In the letter, Farace stated that most
practitioners were advising clients to no longer rely on the “Strangi” strategy for potential
1
“Strangi” refers to Strangi v. Commissioner of Internal Revenue, 417 F.3d 468
(5th Cir. 2005), the case upon which the proposed strategy was based.
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estate tax savings. Id. Farace stated it would be prudent to consider other strategies and
techniques, including a sale to an intentionally defective grantor trust, which was one of
the four options Farace presented to Keith in 2001. Id. Keith did not take any action at
that time, and the existing structure remained in place. Id.
On December 19, 2007, Keith issued a notice of his intent to transfer his 98.9%
ownership interest of limited partnership units in Friendship Partners to the Revocable
Trust (of which the Wellin Children were the beneficiaries). ECF No. 62–9.
Additionally, on December 26, 2007, Keith signed the following: (1) an Assignment and
Assumption of Limited Partnership Interest, (2) a document stating the Revocable Trust
agreed to be bound by the 2003 Partnership Agreement , and (3) a document agreeing to
pay the Revocable Trust any benefits to which the trust was entitled under the 2003
Partnership Agreement. ECF No. 62–10–12.
On November 2, 2009, pursuant to the advice and direction of defendants, Keith
established the Wellin Family 2009 Irrevocable Trust (“2009 Irrevocable Trust”) with
South Dakota Trust Company and the Wellin Children as the Trustees. Farace was
named as Trust Protector. ECF No. 62–13. The Wellin Children were the Distribution
Advisors and the Investment Advisors of the 2009 Irrevocable Trust. Id. On November
30, 2009, the Revocable Trust sold its economic interest in Friendship Partners to the
2009 Irrevocable Trust for a promissory note (“2009 Promissory Note”). ECF No. 62–
20. Following an independent appraisal, the value of the economic interest in Friendship
Partners was determined to be $49,800,000, which was approximately 55% of the value
of the underlying Berkshire Stock. ECF No. 62–21. The 2009 Promissory Note was
issued to the Revocable Trust with a face value of $49,800,000, interest only, payable in
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kind. Id. The 2009 Promissory Note was subsequently restated several times, most
recently in 2012, to extend the due date of the principal owed and to reduce the rate of the
interest due to the Revocable Trust. Wellin v. Wellin et. al., ECF No. 301–1 at 22.
After receiving a letter from Farace on January 6, 2010, Keith expressed
confusion regarding the impact of the 2009 Transaction on Keith’s estate. ECF No. 62–
22. Farace sent a follow–up letter to Keith on January 10, 2010 where Farace attempted
clear up any confusion Keith had on the regarding the impact of the 2009 Transaction.
ECF No. 62–23. Farace sent letters again in November 2011 and November 2012
summarizing the 2009 Transaction. ECF No. 62–24. At no point did Keith and Farace
discuss the impact of the 2009 Transaction if the Berkshire Stock were to be sold prior to
Keith’s death. Wellin v. Wellin et. al., ECF No. 599–5 at 5.
In June 2013, Farace was fired and on July 3, 2013, with new counsel in place,
Keith sued his three children seeking, among other things, to set aside the 2009
Transaction on the ground that the transaction was not in Keith’s best interests. Wellin v.
Wellin et. al., ECF No. 1. The complaint alleges that Keith “did not know or understand
that he had lost all control over and access to his partnership interests” in the 2009
Transaction. Wellin v. Wellin et. al., ECF No. 301. The complaint further alleges that
Keith “unknowingly sold his partnership interest for less than market rate while also
retaining the income tax liability should any of the [Berkshire Stock] or the partnership
interests be sold.” Id. Neither the complaint nor the amended complaints challenge the
2003 transaction forming Friendship Partners. Id.
Keith died on September 14, 2014. Wellin v. Wellin et. al., ECF No. 231. On
February 10, 2016, the Estate filed the present case against defendants alleging causes of
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action for negligence, breach of fiduciary duty, breach of contract, and aiding and
abetting breach of fiduciary duty. ECF No. 1. The Estate alleges that defendants
designed and implemented estate planning structures in 2003 and 2009 that “failed to
adequately protect the interests of [Keith]. . . .” ECF No. 9 at 11. The Estate further
alleges defendants failed to “inform or advise [Keith] as to the inherent risks and
consequences of participating in [the] transaction[s].” Id. at 11–14. Finally, the Estate
alleges that defendants aided and abetted Peter J. Wellin and Cynthia W. Plum, in
breaching fiduciary duties owed to Keith in connection with the 2009 Transaction. Id. at
15.
Defendants filed this motion for summary judgment on September 8, 2017
alleging the Estate should be barred by the three–year statute of limitations. ECF No. 62.
The Estate responded to the motion on October 30, 2017, ECF No. 65, to which
defendants replied on November 21, 2017, ECF No. 69. Defendants filed an additional
motion for summary judgment incorporating its prior motion for summary judgment and
asserting summary judgment should be granted due to: (1) the statute of limitations, (2)
lack of evidence that Keith did not understand and agree to the 2009 Transaction (3)
ratification, waiver, and/or estoppel, (4) lack of knowledge as to the claim of aiding and
abetting a breach of fiduciary duty, (5) lack of any evidence showing NPFA performed
any work on behalf of Keith Wellin, meaning NPFA is not liable to the Estate as a matter
of law, (6) lack of any damages suffered as a result of the 2009 Transaction, and (7) lack
of evidence to support the claims of attorney’s fees and punitive damages. ECF No. 144.
The Estate responded to defendants’ new motion on November 15, 2018, ECF No. 155,
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and defendants replied on November 30, 2018, ECF No. 166. The motions are now ripe
for the court’s review.
II. STANDARD
Summary judgment shall be granted “if the pleadings, the discovery and
disclosure materials on file, and any affidavits show that there is no genuine dispute as to
any material fact and that the movant is entitled to judgment as a matter of law.” Fed. R.
Civ. P. 56(c). “By its very terms, this standard provides that the mere existence of some
alleged factual dispute between the parties will not defeat an otherwise properly
supported motion for summary judgment; the requirement is that there be no genuine
issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247–48 (1986).
“Only disputes over facts that might affect the outcome of the suit under the governing
law will properly preclude the entry of summary judgment.” Id. at 248. “[S]ummary
judgment will not lie if the dispute about a material fact is ‘genuine,’ that is, if the
evidence is such that a reasonable jury could return a verdict for the nonmoving party.”
Id. “[A]t the summary judgment stage the judge’s function is not himself to weigh the
evidence and determine the truth of the matter but to determine whether there is a
genuine issue for trial.” Id. at 249. The court should view the evidence in the light most
favorable to the non–moving party and draw all inferences in its favor. Id. at 255.
III. DISCUSSION
A. NPFA
As an initial matter, the court will examine the argument that summary judgment
should be granted to NPFA because there is no evidence that NPFA provided any
services to Keith. ECF No. 144-1 at 29. The Estate acknowledges it has not discovered
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any evidence suggesting that NPFA provided services to Keith, and accordingly, the
Estate concedes that NPFA should be dismissed from this action. ECF No. 155 at 28.
Therefore, the court grants defendants’ motion for summary judgment for all claims
brought against NPFA as a matter of law.
The court now turns its attention to defendants’ argument that the Estate should
be barred from bringing all claims based on the relevant statute of limitations.
B. Statute of Limitations
Under South Carolina law, this action is governed by a three–year statute of
limitation period. S.C.Code § 15–3–530(1) &(5); see RWE NUKEM v. ENSR
Corporation, 644 S.E.2d 730, 733 (S.C. 2007) (applying three year statute of limitations
in breach of contract action); Stokes–Craven Holding Corp. v. Robinson, 787 S.E.2d 485,
489 (S.C. 2016) (concluding that section 15–3–530(5) of the South Carolina Code
provides a three–year statute of limitations for legal malpractice actions). “Under the
discovery rule, the limitations period commences when the facts and circumstances of an
injury would put a person of common knowledge and experience on notice that some
claim against another party might exist.” Stokes–Craven, 787 S.E.2d 485 at 489; see S.C.
Code Ann. § 15–3–535 (2005) (“[A]ll actions initiated under Section 15–3–530(5) must
be commenced within three years after the person knew or by the exercise of reasonable
diligence should have known that he had a cause of action.”). “This standard as to when
the limitations period begins to run is objective rather than subjective.” Stokes–Craven,
787 S.E.2d at 489 (quoting Burgess v American Cancer Society, South Carolina Division,
Inc, 386 S.E.2d 798, 800 (S.C. Ct. App. 1989) (emphasis in original)). “Therefore, the
statutory period of limitations begins to run when a person could or should have known,
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through the exercise of reasonable diligence, that a cause of action might exist in his or
her favor, rather than when a person obtains actual knowledge of either the potential
claim or of the facts giving rise thereto.” Id. at 490. (Emphasis in original). Before
beginning an analysis of when the statute of limitations accrued and when it expired, the
court must consider the Estate’s assertion that either equitable estoppel or equitable
tolling prevents the defendants from claiming the statute of limitations as a defense
entirely.
a. Equitable Tolling
“[I]n order to serve the ends of justice where technical forfeitures would
unjustifiably prevent a trial on the merits, the doctrine of equitable tolling may be applied
to toll the running of the statute of limitations.” Hooper v. Ebenezer Sr. Services and
Rehabilitation Center, 687 S.E.2d 29, 32 (S.C. 2009) (citing 54 C.J.S. Limitations of
Actions § 115 (2005)). “Where a statute sets a limitation period for action, courts have
invoked the equitable tolling doctrine to suspend or extend the statutory period to ensure
fundamental practicality and fairness.” Id. (citation and internal quotation marks
omitted). “The party claiming the statute of limitations should be tolled bears the burden
of establishing sufficient facts to justify its use.” Id.
In Hooper, the South Carolina Supreme Court noted that equitable tolling
“typically applies in cases where a litigant was prevented from filing suit because of an
extraordinary event beyond his or her control.” Id. Hooper held that, in general,
equitable tolling is appropriate:
(1) where the plaintiff has actively pursued his or her judicial remedies by
filing a timely but defective pleading; (2) where extraordinary
circumstances outside the plaintiff's control make it impossible for the
plaintiff to timely assert his or her claim; or (3) where the plaintiff, by
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exercising reasonable diligence, could not have discovered essential
information bearing on his or her claim.
Equitable tolling applies either where the defendant is shown to have
actively misled or prevented the plaintiff in some extraordinary way from
discovering the facts essential to the filing of a timely lawsuit, or where the
plaintiff has timely raised the same claim in the wrong forum.
Id. While the Hooper court stated that these circumstances were not an “exclusive list of
circumstances that justify the application of equitable tolling”, it cautioned that equitable
tolling “should be used sparingly and only when the interests of justice compel its use.”
Id. at 33.
The South Carolina Supreme Court has not specifically enumerated the acts of an
accused attorney in a legal malpractice action that would constitute an extraordinary
event justifying equitable tolling. See Stokes–Craven Holding Corp., 787 S.E.2d at 495
n. 9 (“In view of our decision, we need not reach Stokes–Craven's contention that
equitable doctrines precluded the application of the statute of limitations.”). This court
has previously examined when attorney conduct in a legal malpractice claim under South
Carolina law justifies equitable tolling. See Vieira v. Simpson, 2015 WL 1299959
(D.S.C. Mar. 23, 2015). In Vieira, the plaintiff–client brought a legal malpractice claim
against her attorney for inducing the plaintiff into not bringing a claim. Id. at 2. The
plaintiff–client argued equitable tolling should apply because the defendant–attorney
withheld information relating to the transaction at issue and acted adverse to plaintiff–
client’s interest, which caused the plaintiff-client not to bring a claim. Id. at *6. The
facts showed that the plaintiff–client expressed concern that a conflict of interest may
exist between the plaintiff–client and defendant–attorney. Id. This court held that such
an expression constituted notice to the plaintiff-client that a claim of legal malpractice
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may exist. Id. This court held that the attorney’s withholding of information related to
the transaction at issue and action adverse to the plaintiff–client’s interest did not “induce
the plaintiff into a false belief that his lawyer [was] acting on his behalf.” Id. The court
held that plaintiff–client’s notice of a potential claim against defendant-attorney made the
attorney’s withholding of information relating to the transaction and action adverse to
plaintiff–client’s interest an event “insufficient to meet their burden to equitably toll the
statute of limitations.” Id.
Upon examining when attorney conduct qualifies as an extraordinary event
justifying equitable tolling in a habeas corpus proceeding, the Supreme Court has held
that the “garden variety claim” of negligence does not qualify as an extraordinary event
justifying equitable tolling. Holland v. Florida, 560 U.S. 631, 631 (2010). In Holland, the
record facts show that the plaintiff–client identified the applicable legal rules for his
attorney, the attorney subsequently failed to provide specific information to the plaintiffclient, despite the plaintiff–client’s pleas for such information, and the attorney failed to
communicate with the plaintiff–client over a period of years despite plaintiff–client’s
numerous demands for a response to letters sent. Id. Though not an absolute conclusion,
Holland held that these record facts suggested that “this case may well present
‘extraordinary [event].’” Id. When facing the same claim as in Holland, this court has
previously held “attorney negligence, however gross or egregious, does not qualify as an
‘extraordinary [event]’ for purposes of equitable tolling; abandonment of the attorney–
client relationship . . . is required.” Blake v. Walker–Staley, 2016 WL 1253185, at *4
(D.S.C. Mar. 31, 2016) (quoting Cadet v. Fla. Dep't of Corr., 742 F.3d 473, 481 (11th
Cir. 2014)).
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This court recognizes that the cases do not give bright–line instance of when
equitable tolling is or is not appropriate in legal malpractice cases. However, the court
finds that these cases provide guidance on what may or may not be considered an
extraordinary event to justify equitable tolling in a legal malpractice claim. An
extraordinary event to justify equitable tolling in a legal malpractice claim might occur
when: (1) defendant–attorney’s conduct amounts to abandonment of plaintiff–client, or
(2) defendant–attorney ignores the plaintiff–client’s demands for information when
plaintiff–client specifically informs attorney how such information can be ascertained.
An event in a legal malpractice claim may not be an “extraordinary event” such to justify
equitable tolling in a legal malpractice claim when: (1) a defendant–attorney’s
withholding of information to the issue in question and action adverse to the plaintiff–
client’s interest exists but plaintiff–client is aware of a defendant–attorney’s potential
conflict or (2) the attorney’s misconduct is simple negligence.
Viewing the facts in the light most favorable to the Estate, it is clear no
extraordinary event has occurred such that equitable tolling would be appropriate in this
instance. The Estate contends that the court should apply equitable tolling because when
“Keith expressed confusion” over the impact of the 2009 Transaction defendants
provided an explanation to Keith that was “misleading for a number of reasons” and did
not contain important information regarding tax consequences to the Estate. ECF No. 65
at 34–35. The evidence shows that defendants sent Keith a letter on January 6, 2010.
ECF No. 65–23. One week later, on January 13, 2010, Farace sent another letter that
begins by stating “[i]t appears there is a bit of confusion . . . ”, and then proceeded to
provide a clarification on the impact of the 2009 Transaction. ECF No. 65–24. The court
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finds it fair to conclude that the January 13, 2010 letter is a response to Keith’s confusion
after he received the January 6, 2010 letter. Even assuming this clarification was
negligent, defendants’ conduct clearly does not amount to abandonment of Keith.
Furthermore, unlike the plaintiff–client in Holland, there is nothing in the record to show
that Keith specifically asked for information regarding the Estate’s tax liability in the
event the Berkshire stock were to be sold during Keith’s lifetime nor is there anything in
the record to show that Keith identified the applicable legal rules on the Estate’s tax
liability in the event the Berkshire stock were sold during Keith’s lifetime and gave such
information to the defendants. Based on the totality of these facts, the court does not find
the alleged misrepresentations in the January 13, 2010 letter are negligence that warrants
equitable tolling.
Even assuming that defendants’ withholding of information relating to the
transaction at issue was the type of extreme negligence that would justify equitable
tolling, the Estate expressed concern over defendants’ “divided loyalties” between the
Estate and the Wellin Children to defendants in an email on February 8, 2012. 2 ECF No.
2
In the February 8, 2012 e–mail to Farace’s assistant (at the assistant’s Nixon
Peabody email address), Wendy requested that Keith’s will be sent to her email address
so the will could be reviewed. Wendy stated in this e–mail that “we were thinking it
through” in relation to what to do about Farace’s divided loyalties between Farace and
the Wellin Children. This court finds that this conduct is sufficient to establish an agency
relationship between Wendy and Keith under South Carolina law, and therefore,
Wendy’s statement in the February 8, 2012 e–mail and Wendy’s threat to fire Farace
prior to April 2, 2012 due to his divided loyalties are imputed onto the Estate. See
Crystal Ice Co. of Columbia v. First Colonial Corp., 257 S.E.2d 496, 497 (1979) (holding
that South Carolina law recognizes “the relationship of principal and agent if the parties,
in the conduct of their affairs, actually place themselves in such position as requires the
relationship to be inferred by the courts, and if, from the facts and circumstances of the
particular case, it appears that there was at least an implied intention to create it, the
relation may be held to exist, notwithstanding a denial by the alleged principal, and
whether or not the parties understood it to be an agency.”).
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65–34 at 2. In the February 8, 2012 e–mail, the Estate questions what Farace said to one
of the Wellin Children, Cynthia W. Plum, to cause her to behave “hostile . . . to say the
least” toward Wendy. Id. Questioning of Farace’s conversation with Cynthia W. Plum is
followed by the Estate expressing “concern . . .about [Farace’s] divided loyalties.” Id.
The Estate then threatened to fire defendants because of these “divided loyalties” no later
than April 2, 2012. ECF No. 65–35 at 6. Like the plaintiff–client in Vieira, the Estate
was aware of a potential conflict with defendants, which provided the Estate notice it had
a potential claim against the defendants. The Estate was on notice of a potential claim
against defendants, and therefore, the fact that defendants withheld information relating
to the transaction at issue and allegedly acted adverse to the Estate’s interest is not an
extraordinary event such that equitable tolling is justified.
South Carolina law requires that equitable tolling should be applied when “in
view of all the circumstances, to deny it would permit one party to suffer a gross wrong at
the hands of the other.” Hooper, 687 S.E.2d at 33. Even assuming that defendants’
misrepresentations in the January 13, 2010 letter were beyond “garden variety”
negligence, in view of all the circumstances, the facts fail to demonstrate that defendants’
conduct amounted to an “extraordinary event” or “gross wrong” such that equitable
tolling is appropriate. Hooper, 687 S.E.2d 33. Construing all inferences in the light most
favorable to the Estate, the court does not find that the Estate has provided evidence that
justifies equitable tolling in a legal malpractice claim.
After considering the facts of this case, and mindful of the South Carolina
Supreme Court’s instruction that equitable tolling should only be used “sparingly,” the
court declines to apply equitable tolling to suspend or extend the three–year statute of
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limitations. The Estate has not shown extraordinary events beyond its control, gross
wrongs or any other circumstances that prevented the Estate to warrant equitable tolling.
b. Equitable Estoppel
“Under South Carolina law, a defendant may be estopped from claiming the
statute of limitations as a defense if the delay that otherwise would give operation to the
statute had been induced by the defendant's conduct.” Kleckley v. Northwestern National
Casualty Company, 526 S.E.2d 218, 220 (2000). “The essential elements of equitable
estoppel are divided between the estopped party and the party claiming estoppel.”
Strickland v. Strickland, 650 S.E.2d 465, 470 (S.C. 2007).
The elements of equitable estoppel as related to the party being estopped
are: (1) conduct which amounts to a false representation, or conduct which
is calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (2)
the intention that such conduct shall be acted upon by the other party; and
(3) actual or constructive knowledge of the real facts. The party asserting
estoppel must show: (1) lack of knowledge, and of the means of knowledge
of the truth as to the facts in question; (2) reliance upon the conduct of the
party estopped; and (3) a prejudicial change of position in reliance on the
conduct of the party being estopped.”
Id. “To succeed on a claim for equitable estoppel, a party must prove ‘lack of
knowledge, and the means of knowledge, of the truth as to the facts in question.’”
Rodarte v. University of South Carolina, 799 S.E.2d 912, 918 (S.C. 2017) (quoting
Strickland, 650 S.E.2d at 470). “One with knowledge of the truth or the means by which
with reasonable diligence he could acquire knowledge cannot claim to have been
misled.” Southern Development Land & Golf Co. Ltd. v. South Carolina Public Service
Authority, 426 S.E.2d 748, 751 (S.C. 1993). The South Carolina Supreme Court has
discussed when a plaintiff–client could not show lack of knowledge, or means of
knowledge, of a potential legal malpractice claim against a defendant–lawyer. See
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Mitchell v. Holler, 429 S.E.2d 793 (S.C. 1993). In Mitchell, the plaintiff–client argued
she did not know about the alleged malpractice and a potential claim until the South
Carolina Supreme Court reversed her conviction based on ineffective assistance of
counsel. Id. at 795. The record facts established that the plaintiff–client complained
about the defendant–attorney’s conduct in providing legal services in March 1983. Id.
The Mitchell court found this sufficient to prove plaintiff–client knew or had the means
of knowing that a legal malpractice claim may exist in March 1983. Id.
The Estate argues defendants’ silence on the risks and consequences of the 2009
Transaction should estop defendants from relying on statute of limitations as a defense.
ECF No. 65 at 32–33. When silence is intended, or when it has the effect of misleading a
party, it may operate to satisfy the elements of equitable estoppel as related to the party
being estopped. Southern Development Land & Golf Co. Ltd., 426 S.E.2d 748 at 751.
The court agrees with the Estate that as Keith’s attorney, defendants and Keith had a
relationship such that silence could possibly operate to satisfy the elements of equitable
estoppel as related to the party being estopped. See Hedgepath v. Am. Tel. & Tel. Co.,
559 S.E.2d 327, 339 (S.C. Ct. App. 2001) (“A duty to speak or disclose may be found . . .
where it arises from a preexisting definite fiduciary relation between the parties”). While
the court is mindful that “[t]he relationship between an attorney and a client is highly
fiduciary in its nature and of a very delicate, exacting and confidential character” Ellis v.
Davidson, 595 S.E.2d 817, 823 (S.C. Ct. App. 2004), the court finds that defendants’
silence on the risks and consequences of the 2009 Transaction did not prevent from the
Estate from the knowledge or the means of knowledge that a legal malpractice claim may
exist.
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As discussed above, the Estate complained of defendants’ conduct in providing
legal services to defendants in an email on February 8, 2012. ECF No. 65–34 at 2. The
Estate then threatened to fire defendants because of this conduct no later than April 2,
2012. ECF No. 65–35 at 6. Like the plaintiff–client in Mitchell, the Estate’s
complaining of the defendants’ conduct in providing legal services in February 2012 and
again in April 2012 show that the Estate knew or should have known that there was a
potential claim for legal malpractice. Construing all facts and inferences in the light most
favorable to the Estate, the Estate cannot prove it lacked the knowledge or the means of
knowledge, of the truth as to the facts in question – that there was a potential legal
malpractice claim against defendants – equitable estoppel cannot be used here to prevent
a statute of limitations claim. Therefore, the court declines to apply equitable estoppel to
suspend or extend the three–year statute of limitations. The court will now begin its
analysis on when the Estate’s claims began to accrue under the statute of limitations and
if such claims have expired to bar them under the statute of limitations.
c. Accrual
The statute of limitations period begins to run when “the facts and circumstances
of an injury would put a person of common knowledge and experience on notice that
some claim against another party might exist.” Stokes–Craven, 787 S.E.2d at 489; see
S.C. Code Ann. § 15–3–535 (2005) (“[A]ll actions initiated under Section 15–3–
530(5) must be commenced within three years after the person knew or by the exercise of
reasonable diligence should have known that he had a cause of action.”). The parties
disagree as to when the Estate knew or should have known that a cause of action for legal
malpractice existed, and therefore, when the statute of limitations began to run. This case
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was filed on February 10, 2016; however, on October 30, 2015, defendants and the Estate
executed an agreement (“Tolling Agreement”) that tolled the period between execution of
the Tolling Agreement and date of filing. ECF No. 65–43. Therefore, to determine if the
statute of limitations has run, there must be objective proof that the Estate knew or should
have known that a cause of action for legal malpractice existed prior to October 30,
2012. 3
Defendants argue that all the Estate’s claims arise out of the 2009 Transaction,
and therefore the statute of limitations began to run when the 2009 Transaction was
executed on November 30, 2009, or when Keith received follow–up letters in 2010, 2011,
and 2012 referring to the 2009 Transaction. ECF No. 62 at 21. On the other hand, the
Estate argues that the statute of limitations did not begin running until the hiring of new
tax and estate counsel alerted the Estate of “the truth about risks, consequences, and
benefits” of the 2009 Transaction on sometime between June 2013 and July 3, 2013.
ECF No. 65 at 28. The Estate relies on True v. Monteith, 489 S.E. 615 (S.C. 1997) to
argue that “[c]lients are not expected to investigate their attorney’s loyalties or the quality
of their advice for each transaction”, and therefore, could only have learned of the
Estate’s potential claim once new counsel was hired to examine the 2009 Transaction.
ECF No. 65 at 27–28; see True, 489 S.E. 615 at 617 (holding that “absent other facts, the
client should be able to rely on the attorney's advice and should be able to follow this
3
The Tolling Agreement preserved “any defense available to any party as of the date of
[the Tolling Agreement], and [the Tolling Agreement] shall not be deemed to revive any
claim that is or was already barred on that date.” ECF No. 65–43 at 4. The Tolling
Agreement specifically states that “[t]he period between [October 20, 2015] and
[February 10, 2016] shall not be included in determining the applicability of any statute
of limitations . . defense.” Id. at 1. The following analysis applies equally if the date of
filing, February 10, 2016, is deemed to be the operative date as to when the action tolled.
17
advice without fear the attorney is not acting in the client's best interest”). The Estate
also relies on Manios v. Nelson, Mullins, Riley & Scarborough, LLP, 697 S.E.2d 644,
654 (S.C. Ct. App. 2010), to further argue that there is conflicting evidence as when the
Estate knew or should have known there was a cause of action, and therefore, the statute
of limitations is a jury question. ECF No. 65 at 29–30; see Manios, 697 S.E.2d 644 at
654 (holding that “[i]f there is conflicting evidence as to whether a claimant knew or
should have known he or she had a cause of action, the question is on for the jury”).
The court rejects each of the Estate’s arguments as to why these claims should not
be barred by the statue of limitations. The court first considers the Estate’s argument that
knowledge of a potential claim could not have been found until new counsel was hired
and then the Estate’s argument that there is conflicting evidence as to whether the Estate
knew or should have known there was a cause of action.
1. The True Justification
Facts other than advice of new counsel put the Estate on notice that a claim might
exist against defendants, and therefore, protection by the discovery rule is not applicable.
In True, the South Carolina Supreme Court held, “absent other facts”, a client is protected
by the discovery rule when, relying on the advice of counsel, the client fails to otherwise
bring a claim with the statute of limitations. True, 489 S.E.2d at 617. The court in True
then goes on to explain what “other facts” would not give a client protection under the
discovery rule. Id. The True court holds that, “knowledge of the injury does not, a
fortiori, give rise to a suspicion of any impropriety by her attorney . . . but by knowledge
of facts, diligently acquired, sufficient to put an injured person on notice of the existence
of a cause of action against another.” Id.; see Dean v. Ruscon Corp., 468 S.E.2d 645,
18
363, (S.C. 1996) (“According to the discovery rule, the statute of limitations begins to run
when a cause of action reasonably ought to have been discovered”) In other words,
notice of a potential claim – not knowledge of the injury – is a type of “other fact” when
the discovery rule would start the running of the statute of limitations in a legal
malpractice claim.
Notice of a potential claim for legal malpractice exists when a client expresses
concern of their attorney’s conduct. See Vieira, 2015 WL at *7 (holding that, under
South Carolina law, suspicion of their attorney’s conflict in a transaction put claimant
sufficiently “on notice that . . . some claim against [their attorney] might exist”, and
therefore, the statute of limitation begins to run upon such notice); Mitchell v. Holler, 429
S.E.2d at 795 (holding the statute of limitations begins to run on the date plaintiff–client
complained about her attorney’s conduct in providing legal services because that date
was when plaintiff–client “knew or should have known that she might have a claim” of
legal malpractice). As discussed above, the Estate was aware of the “divided loyalties”
of the defendants on February 8, 2012 at the latest. ECF No. 65–34 at 2. The expressing
of the “divided loyalties” is sufficient to establish notice that the Estate may have a claim
against the defendant. See Vieira, 2015 WL at *7 (holding that, under South Carolina
law, suspicion of their attorney’s conflict in a transaction put claimant sufficiently “on
notice that . . . some claim against [their attorney] might exist”, and therefore, the statute
of limitations begins to run upon such notice); Mitchell v. Holler, 429 S.E.2d at 795
(holding the statute of limitations begins to run on the date plaintiff–client complained
about her attorney’s conduct in providing legal services because that date was when
plaintiff–client “knew or should have known that she might have a claim” of legal
19
malpractice). This notice is the fact – not the fact that the Estate did not discover its
injury until hiring new counsel – that began the running of the statute of limitations.
Therefore, the court finds that the Estate’s argument, that the Estate is protected by the
discovery rule, fails.
2. The Manios Justification
There is no conflicting evidence as to when the Estate knew or should have
known a claim existed against the defendants, and therefore, the date when the statute of
limitations began to run is not a question for the jury. In Manios, the South Carolina
Court of Appeals held that the date the statutes of limitations began to run was a jury
question because “there is conflicting evidence as to whether a claimant knew or should
have known he or she had a cause of action”. Manios, 697 S.E.2d at 654. However, the
South Carolina Court of Appeals has also held that the date the statute of limitations
began to run is not a question for the jury when there is “no dispute regarding the
information that was readily available to them” to show when the claimant knew or
should have known there was a potential cause of action. Personal Care, Inc. v. Theos,
825 S.E.2d 281, 287 (S.C. Ct. App. 2019); see Burgess, 386 S.E.2d 798 at 800 (“A party
cannot escape the application of [the discovery rule] by claiming ignorance of existing
facts and circumstances, because the law also provides that if such facts and
circumstances could have been known to the party through the exercise of ordinary care
and reasonable diligence, the same result follows” (emphasis in original)).
As discussed above, the Estate expressing the defendants’ “divided loyalties” was
sufficient to establish that the Estate knew or should have known it had a claim against
the defendants. See Vieira, 2015 WL at *7 (holding that, under South Carolina law,
20
suspicion of their attorney’s conflict in a transaction put claimant sufficiently “on notice
that . . . some claim against [their attorney] might exist”, and therefore, the statute of
limitations begins to run upon such notice). The evidence is in an email the Estate sent to
defendants. ECF No. 65–34 at 2. There is no conflicting evidence as to the date of this
email, February 8, 2012. Id. Therefore, the court finds that Estate’s argument, the date
the statutes of limitations began to run involves questions for the jury, fails.
The arguments made by the Estate do not justify an application of the discovery
rule, there is no conflicting evidence as to when the Estate knew or should have had
notice of a claim against defendants, and the date when the Estate knew or should have
known of a possible claim against defendants was beyond three years from the date the
statute of limitations began to run on the Estate’s claim. Therefore, the court grants the
defendants’ motions for summary judgment because on all the claims brought by the
Estate are barred by the statute of limitations. 4
4
Defendants also argues summary judgment is warranted because of: (1) lack of
evidence that Keith did not understand and agree to the 2009 Transaction, (2) ratification,
waiver, and/or estoppel, (3) lack of knowledge as to the claim of aiding and abetting a
breach of fiduciary duty, (4) lack of any damages suffered as a result of the 2009
Transaction, and (5) lack of evidence to support the claims of attorney’s fees and punitive
damages. ECF No. 144-1 at 14–28, 30–34. The court does not rule on any of these
arguments because they are rendered moot by the court’s grant of summary judgment
based on the statute of limitations.
21
IV. CONCLUSION
For the reasons set forth above, the court GRANTS defendants’ motion for
summary judgment.
AND IT IS SO ORDERED.
DAVID C. NORTON
UNITED STATES DISTRICT JUDGE
November 6, 2019
Charleston, South Carolina
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