NC: Underlying Real Estate Transaction
Facts: In September 2002, Billy Wendell Bolton (Client) brought an action for legal malpractice against John W. Crone, III and the firm of Gaither, Gorham & Crone (Attorneys) alleging that, during a real estate transaction for which he had retained their services in February of 1999, Attorneys failed to advise him that the land he sought to purchase for commercial purposes was restricted by covenant to residential use only. In their motion to dismiss the action for its failure to comply with the statute of limitations, Attorneys submitted Client’s answer to their September 2001 complaint as documentary evidence to rebut the claim that they failed to supply Client with the information. Consequently, their motion was transformed to a motion for summary judgment.
Issue: Was the court correct to look to Client’s answer to Attorneys’ complaint in granting a dismissal? If so, did Client’s answer constitute an admission of having been informed of the restrictive covenant, and thereby resolve all issues of material fact and relieve Attorneys of malpractice liability?
Ruling: Yes. In NC, the statute of limitations for a legal malpractice action is three years. Because Client failed to file his claim until seven months after the deadline, a motion to dismiss would readily have been granted. However, in accordance with NC law, a motion to dismiss that includes extrinsic material not excluded by the trial court will be treated as a motion for summary judgment. The standard of review for summary judgment requires the court to look to the facts of the case. The court found that, in response to allegations that Client had received letters in 1999 informing him of the covenant, Client’s answer merely indicated that some of the firm’s attorneys had informed him that they had reason to believe the land was subject to a restrictive covenant; this answer was not a specific denial as was required by the complaint. Client’s failure to specifically deny receipt of the letters was deemed an admission, which thereby resolved all issues of material fact. Having had knowledge of the covenants in February 1999, Client’s claim against Attorneys was barred by the statute of limitations.
Lesson: Although judgment was issued in favor of the attorneys, the attorneys’ mistake of submitting outside evidence to the court in conjunction with a motion to dismiss created a need for the court to further analyze a claim that otherwise could have readily been dismissed. Failing to pay attention to the basic principles of civil procedure could have serious consequences; fortunately, for the attorneys in this case it didn’t.