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Jennings v. Shuler

Court of Appeals of Mississippi

February 4, 2014

GRACE WEST JENNINGS, APPELLANT
v.
THOMAS S. SHULER, INDIVIDUALLY, AND MCCLURE & SHULER, A PARTNERSHIP, COMPOSED OF THOMAS S. SHULER, JAMES MCCLURE, JR., AND JAMES MCCLURE, III, AS PARTNERS OF THE PARTNERSHIP, APPELLEES

COURT FROM WHICH APPEALED: PANOLA COUNTY CIRCUIT COURT. DATE OF JUDGMENT: 08/16/2012. TRIAL JUDGE: HON. R. KENNETH COLEMAN. TRIAL COURT DISPOSITION: GRANTED SUMMARY JUDGMENT IN FAVOR OF APPELLEES.

FOR APPELLANT: BRUCE S. KRAMER, ELAINE SHENG.

FOR APPELLEES: DAN W. WEBB, NORMA CARR RUFF.

MAXWELL, J. IRVING AND GRIFFIS, P.JJ., BARNES, ISHEE, ROBERTS AND FAIR, JJ., CONCUR. CARLTON, J., DISSENTS WITH SEPARATE WRITTEN OPINION, JOINED BY LEE, C.J., AND JAMES, J.

OPINION

Page 848

NATURE OF THE CASE: CIVIL - LEGAL MALPRACTICE

EN BANC.

MAXWELL, J.

¶1. In her appeal of the grant of summary judgment in favor of Thomas Shuler and his law partnership, Grace West Jennings argues the dispositive question is whether Shuler, as a matter of law, owed her a duty to file a financing statement to perfect an interest in collateral covered by a security agreement Shuler had drafted. The circuit court had granted summary judgment in Shuler's favor based on its finding Shuler owed no duty, and without a duty, there could be no claim for legal malpractice.

¶2. We disagree with the circuit court that Shuler, as a matter of law, owed no duty to file a financing statement. Instead, we find that whether Shuler breached the duty of professional care owed to

Page 849

Jennings by not filing a financing statement is a question of fact, not resolvable on summary judgment. However, we also disagree with Jennings that this issue is dispositive and demands reversal.

¶3. We review the grant of summary judgment de novo.[1] And in our de novo review, we must consider each ground for summary judgment raised by Shuler.[2] Shuler had alternatively argued to the circuit court that even if Jennings's evidence establishes a claim that he breached a duty, Jennings could not establish Shuler's failure to file a financing statement proximately caused her injury. Shuler had also argued Jennings's legal-malpractice claim was time-barred. After considering these alternative grounds, we find the circuit court properly dismissed Jennings's legal-malpractice claim on summary judgment. Even if Jennings had made it past the hurdle of establishing a triable question of Shuler's professional negligence by not filing a financing statement, she cannot show damages proximately caused by the failure to file. Further, her claim was filed outside the three-year statute of limitations. Thus, we affirm.

Background

I. Jennings Loaned More Than One-Half Million Dollars to Her Son

¶4. By the time Jennings retained Shuler to draft loan documents, she had already lent her son Luther Allen West more than $500,000, without requiring security. It was only when her other children found out about the loans--children who, along with Jennings and West, were partners in H& G Land Company, LP (H& G)--that they contacted Shuler on Jennings's behalf.

¶5. At the direction of Jennings's other son, Shuler drafted: (1) a promissory note; (2) a deed of trust on West's real property; (3) a security agreement covering West's nine percent interest in H& G, West's share in the West Family Trust, and West's interest in some farm equipment; and (4) an assignment to Jennings of West's interest in the collateral upon default, until West paid off the debt. Specifically, the security agreement granted Jennings an interest in " [a]ll farm equipment now owned or hereafter acquired by [West], including but not limited to those items of equipment set forth on Exhibit 'A' attached hereto[.]" But there was no attached Exhibit A.

¶6. On December 31, 2002, the day Jennings and West came in to sign the documents, Shuler told them he would need West's farm-equipment list in order to draft the exhibit and file a financing statement. Shuler promptly recorded the deed of trust in Panola County, Mississippi. But he did not file a financing statement with the Secretary of State's Office, because he was waiting on West's farm-equipment list. See Miss. Code Ann. § 75-9-501 (Rev. 2002).

¶7. Instead of receiving the farm-equipment list, in April 2003 Shuler received a visit from Bill Fleming, a trust officer with First Security Bank (FSB). Fleming showed Shuler a document in which Jennings had transferred to FSB the right to receive the loan repayments West owed Jennings. The document named Fleming as custodian. And Fleming asked Shuler to hand over the original documents in connection with the Jennings-West loan.

Page 850

¶8. The transfer-of-custody document acknowledged that the security agreement was missing Exhibit A, the list of farm equipment. Shuler told Fleming that because no farm-equipment list had ever been provided, no financing statement had been filed. Shuler encouraged Fleming to get the equipment list and file the financing statement with the Secretary of State's Office. While West eventually gave Fleming the list in January 2004, no one told Shuler. And no financing statement was ever filed to perfect Jennings's interest in the collateral.

II. Jennings's Son Filed Bankruptcy

¶9. Despite West's immediate default, Jennings continued to work with her son, instead of trying to seize the collateral from him, which was certainly her right under the assignment. In April 2004, she sent West a letter acknowledging his default, threatening to obtain a judgment against him, but giving her son another chance to work things out with Fleming.

¶10. According to Jennings, she believed this letter was sufficient notice of West's default for the terms of the assignment to take effect, making her the outright owner of West's nine percent interest in H& G and West's interest in the West Family Trust. But none of the records of H& G reflected any transfer of ownership. Instead, the records showed West was still the owner of his nine percent interest and was paid distributions accordingly.

¶11. That is until December 2005, when the H& G partners amended their partnership agreement based on West's filing bankruptcy--an event that under the terms of the partnership made West a limited partner, instead of a general partner. West did not in fact file bankruptcy until March 2006--putting the change of West's status from general to limited partner outside the ninety-day preferential-treatment period.[3] At that time, H& G stopped making distributions to West--or more precisely West's bankruptcy estate--but instead sent West's portion to Jennings.

¶12. With Shuler's aid, Jennings filed a proof of claim, asserting her status as a secured creditor. In November 2008, the bankruptcy trustee hired an attorney to investigate Jennings's and H& G's financial dealings with West pre- and post-bankruptcy. And Jennings retained new counsel to replace Shuler. In 2009, the trustee initiated an adversary proceeding--a lawsuit within the bankruptcy case to determine the validity of Jennings's secured claims.[4] In the adversary complaint, the trustee challenged Jennings's status as a secured creditor, asserting that Jennings neither filed a financing statement to perfect her interest in West's partnership interest in H& G nor took any steps, prior to West filing bankruptcy, to exercise any security interest she possessed in any of West's assets. Further, H& G had continued to treat West, not Jennings, as owner of his nine percent interest. The adversary complaint also alleged that Jennings had violated the automatic stay,[5] that she was an " insider" who had received voidable loan repayments within the year of West's filing bankruptcy,[6] and that she had failed

Page 851

to amend her proof of claim based on these repayments.

¶13. Jennings claims that it was not until November 26, 2008--when the bankruptcy trustee applied to hire an attorney to investigate her interest--that she learned that Shuler had never filed a financing statement. Jennings ultimately settled with the trustee in 2012, receiving $15,600 more than the appraised value of West's interest in H& G. While the bankruptcy court had rejected Jennings's assertion that she had an absolute assignment of West's pledged assets, the court did find her claim to West's share in the H& G partnership was superior to the bankruptcy estate's.

III. Jennings Sued Shuler for Legal Malpractice

¶14. Before the adversary proceeding had concluded, Jennings sued Shuler [7] for legal malpractice on November 22, 2011. In her complaint, she alleged Shuler had " negligently failed to execute the Uniform Commercial Code filings necessary to perfect [her] security interest in the collateral described in the Agreements with [West]." Consequently, her secured-interest status in West's bankruptcy had been challenged in the adversary proceeding, requiring her " to engage counsel to defend her interests." And " [i]f the Trustee prevails because Shuler failed to perfect her security interest or if the Bankruptcy Court determines there ...


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