The Best Choice Fund, LLC v. Low & Childers, PC (12/20/2011)

January 6, 2012

Arizona Court of Appeals Division One Holds that Rules Regarding the Accrual of Legal Malpractice Claims During Litigation Are Not Applicable Outside of the Litigation Context and Refuses to Decide Whether to Adopt the Continuous Representation Rule in Arizona.

Plaintiff National Transportation Holding Corporation (“NT”) was formed in 2005 as a captive liability insurer to taxi and limousine companies. NT retained the law firm of Low & Childers, P.C. (“L&C”) to provide legal services. As required by statute, NT employed USA Risk Group, Inc. (“USA”) to act as captive manager to perform bookkeeping services and to notify the director of the Arizona Department of Insurance (“DOI”) of the captive insurer’s failure to comply with the law. On February 3, 2006, USA notified DOI of NT’s failure to comply with the conditions of its certificate of authority and DOI summarily suspended NT’s certificate, prohibiting NT from conducting new business and requiring that it wind up its business. On March 20, 2006, NT’s president and USA’s vice president executed a settlement agreement and mutual release of claims. On March 30, 2006, NT’s president and L&C also executed a settlement agreement and mutual release of claims, but L&C continued to represent NT during the period of NT’s winding up and dissolution. On June 6, 2008, the DOI issued a certificate of compliance for dissolution or withdrawal to NT and the Arizona Corporation Commission issued NT a certificate of dissolution on October 31, 2008. NT filed suit against L&C and USA on June 23, 2009, alleging professional negligence and breach of contract against L&C and breach of the captive management agreement against USA. The trial court granted summary judgment for the defendants on all claims, ruling that (1) the claims against L&C were barred by the statute of limitations because a two-year statute of limitations applies to malpractice claims and (2) the claim against USA was barred by the doctrine of accord and satisfaction.

NT appealed; the Court of Appeals affirmed in part and reversed in part. The Court rejected NT’s argument that its claim against L&C for malpractice accrued in June 2008 when DOI issued the certificate of compliance for dissolution and withdrawal. The Court held that legal rules about the accrual of malpractice claims during the course of litigation were inapplicable and that because the harm to NT became ascertainable when the suspension order was issued in 2006, NT’s claims accrued at that time. The Court rejected NT’s arguments that “the limitations period was tolled by (1) L&C’s concealment of its negligence, (2) economic duress, and (3) L&C’s continuous representation of NT through the run-off of the business.” The court rejected the first two arguments because NT failed to raise them at trial and had thus waived them. The Court rejected the third argument by first noting that Arizona had not adopted the continuous representation doctrine, but that the Court need not decide whether to adopt it because more than two years had passed since L&C’s representation for the matters giving rise to the malpractice claim had finished. The Court also rejected NT’s argument that L&C engaged in separate acts of malpractice after issuance of the certificate of suspension and that NT’s breach of contract claim was subject to a six-year statute of limitations because NT failed to raise those issues at trial and had thus waived them.

The Court reversed the trial court’s judgment that the release executed between the president of NT and a vice president of USA constitute an accord and satisfaction because there was a question of fact as to whether NT’s president had apparent authority to execute the release. Because the issue of consideration was likely to come up on remand, the Court also instructed the trial court that “[t]he fact that any potential claims against the parties may never have come to fruition does not affect the legal sufficiency of releases as consideration.”

Presiding Judge Timmer authored the opinion; Judges Irvine and Barker concurred.