Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-01737/USCOURTS-azd-2_08-cv-01737-1/pdf.json

Nature of Suit Code: 360
Nature of Suit: Other Personal Injury
Cause of Action: 28:1331 Fed. Question

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Plaintiff’s supplemental request for oral argument (Dkt. # 128) is denied as the parties

have thoroughly discussed the law and the evidence, and oral argument will not aid the

Court’s decision. See Lake at Las Vegas Investors Group, Inc. v. Pac. Malibu Dev., 933 F.2d

724, 729 (9th Cir. 1991).

WO

NOT FOR PUBLICATION

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Robert A. Mackenzie, trustee of the

bankruptcy estate of WAVO corporation,

Plaintiff, 

vs.

Leonard, Collins and Gillespie, P.C., et al.,

Defendants. 

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No. CV-08-1737-PHX-GMS

ORDER

Pending before the Court is the Motion for Partial Summary Judgment of the Berry

Defendants. (Dkt. # 111.) For the following reasons, the Court denies the Motion.1

BACKGROUND

In 2001, National Datacast, Inc. (“NDI”), a creditor of WAVO corporation, obtained

a judgment against WAVO. While trying to execute the judgment, NDI discovered that

WAVO’s officers and directors had engaged in fraud, breach of fiduciary duty,

mismanagement, and self-dealing. NDI and other creditors of WAVO filed an involuntary

bankruptcy petition against WAVO to prevent the further dissipation of WAVO’s assets and

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to recover transfers made from WAVO to third parties. Patrick Abele was appointed as

Trustee of the WAVO Bankruptcy Estate. As Trustee, Abele retained several law firms as

counsel for various actions in connection with the Bankruptcy Estate. These firms

(collectively “the Law Firm Defendants”) included Leonard, Collins, and Gillespie, P.C.

(“LC&G”); Collins, May, Potenza, Baran & Gillespie (“the Collins Firm”); Treon, Strick,

Lucia, and Aguirre, P.A. (“TSL&A”); and Treon, Whitten, and Berry, PLLC (“TW&B”).

On October 3, 2003, Abele, represented by TSL&A, TW&B, and various attorneys

within those firms, filed a complaint against WAVO’s officers, their respective wives, and

Plymouth DeWitt, L.L.C., a Nevada corporation owned by David Deeds, a former WAVO

officer (“the Deeds Litigation”). In August 2004, Abele retained Defendants Lucia Stark

Williamson LLP (“the Lucia Firm”) and Whitten Berry, PLLC (“the Berry Firm”) as special

counsel to substitute for the firms of TSL&A and TW&B, respectively.

The Deeds Litigation, however, did not progress actively. On May 24, 2005, Anthony

R. Lucia passed away. Plaintiff alleges that without Lucia, various Defendants were not

competent to handle the Deeds Litigation. Plaintiff further alleges that for more than seven

months following Lucia’s death, Defendants did nothing to advance the estate’s claims or

suggest alternate counsel. On January 26, 2006, the District Court, dismissed the case with

prejudice against Abele for the failure of his attorneys to prosecute the Deeds Litigation.

Following the dismissal, Abele resigned as Trustee, and Plaintiff Robert A. Mackenzie was

appointed Successor Trustee (“Plaintiff”). On appeal to the Ninth Circuit Court of Appeals,

Defendants acknowledged that they failed to diligently prosecute the Deeds Litigation, but

argued that dismissal of the case was an unnecessarily harsh sanction. On April 24, 2008,

however, the Ninth Circuit rejected this argument and affirmed the District Court’s dismissal.

In September 2008, Plaintiff filed the instant complaint against the Law Firm

Defendants, Daniel P. Collins, Curt W. Clausen, Christopher J. Berry, Roseanne K. Collins,

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Plaintiff’s complaint names Charleen M. Lucia both in her capacity as a personal

representative of Anthony R. Lucia and in her individual capacity.

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Julie Clausen, Jean Ann Berry and Charleen M. Lucia2 (collectively “Defendants”). Based

on the Defendants failure to prosecute the Deeds Litigation, the complaint alleges causes of

action for legal malpractice, breach of fiduciary duty, and conversion. (Dkt. # 5.) 

On September 14, 2009, Defendants TW&B, the Berry Firm, Christopher J. Berry,

and Jean Ann Berry (collectively “the Berry Defendants”) moved for partial summary

judgment with respect to Plaintiff’s claims for legal malpractice and breach of fiduciary duty.

(Dkt. # 111 at 1–2.) On October 19, Defendants LC&G, the Collins Firm, Daniel P. Collins,

and Roseanne K. Collins joined the Motion. (Dkt. # 120.) These Defendants contest that

Plaintiff’s claim for legal malpractice is barred by the statute of limitations because the

Successor Trustee opined in August 2006, more than two years before filing this case, that

at leastsome of Plaintiff’s damages became irreversible prior to the conclusion of Plaintiff’s

underlying appeal.

LEGAL STANDARD

Summary judgment is appropriate if the evidence, viewed in the light most favorable

to the nonmoving party, shows “that there is no genuine issue as to any material fact and that

the movant is entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). Substantive law

determines which facts are material, and “[o]nly disputes over facts that might affect the

outcome of the suit under the governing law will properly preclude the entry of summary

judgment.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986); see Jesinger v. Nev.

Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). In addition, the dispute must be

genuine, that is, the evidence must be “such that a reasonable jury could return a verdict for

the nonmoving party.” Anderson, 477 U.S. at 248.

The moving party “bears the initial responsibility of informing the district court of the

basis for its motion, and identifying those portions of [the record] which it believes

demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477

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U.S. 317, 323 (1986). However, the moving party need not disprove matters on which the

opponent has the burden of proof at trial. Id. at 323. In such cases, the burden is on the

nonmoving party to establish a genuine issue of material fact. Id. at 322–23. The nonmoving

party “may not rest upon the mere allegations or denials of [the party’s] pleadings, but . . .

must set forth specific facts showing that there is a genuine issue for trial.” Fed. R. Civ. P.

56(e); see Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586–87 (1986).

DISCUSSION

Plaintiff’s claims for legal malpractice and breach of fiduciary duty did not accrue

until Plaintiff’s underlying appeal in the Deedslitigation was completed. See Amfac Distrib.

Corp. v. Miller, 138 Ariz. 155, 673 P.2d 795 (Ct. App. 1983) (“Amfac I”), approved as

supplemented by, 138 Ariz. 152, 673 P.2d 792 (1983) (“Amfac II”). This is so, even though

Plaintiff opined more than two years before bringing these malpractice claims that a

successful appeal might not completely eliminate all of the damages suffered as a result of

Defendant’s alleged misconduct in the Deeds Litigation. See id.

I. Claimsfor AttorneyMisconduct andBreach of Fiduciary Duty Accrue when

Damages Become Irrevocable and Irremedial. 

Under Arizona law, claims for legal malpractice and breach of fiduciary duty are

governed by a two-year statute of limitations. See Ariz. Rev. Stat. § 12-542; see also Kiley

v. Jennings, Strouss & Salmon, 187 Ariz. 136, 139, 927 P.2d 796, 799 (Ct. App. 1996). The

two-year limitations period “begins to run when a cause of action accrues.” Commercial

Union Ins. Co. v. Lewis and Roca, 183 Ariz. 250, 254, 902 P.2d 1354, 1359 (Ct. App. 1995)

(citing Ariz. Rev. Stat. § 12-542). As the Arizona Court of Appeals stated in Commercial

Union,

[A] cause of action for legal malpractice accrues when the client

both: (1) has sustained appreciable, non-speculative harm or

damage as a result of such malpractice and (2) knows, or in the

exercise of reasonable diligence should know, that the harm or

damage was a direct result of the attorney’s negligence.

Id. at 253, 902 P.2d at 1358. The Arizona Supreme Court has further explained that a “claim

of legal malpractice requires more than negligence by an attorney.” Glaze v. Larsen, 207

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Ariz. 26, 29, 83 P.3d 26, 29 (2004). Instead, “actual injury or damages must be sustained

before a cause of action in negligence is generated.” Id. In malpractice claims based on

attorney misconduct, a plaintiff’s injury or damages are deemed to be “actual” and

“appreciable” when the harm to the client becomes “irremedial” and “irrevocable.”

Commercial Union, 183 Ariz. at 254, 902 P.2d at 1358 (citing Amfac I, 138 Ariz. at 156, 673

P.2d at 796 and Amfac II, 138 Ariz. at 154, 673 P.2d at 794).

When attorney misconduct occurs in the context of litigation, Arizona courts have

further held that the resulting malpractice claim does not accrue until the appellate process

has been either fully exhausted or waived. See Amfac II, 138 Ariz. at 154, 673 P.2d at 794

(“[I]n legal malpractice cases, the injury or damaging effect on the unsuccessful party is not

ascertainable until the appellate process is completed or is waived by a failure to appeal.”)

As the Arizona Court of Appeals explained in Amfac I, 

When malpractice occurs in the course of litigation, . . . [i]t is

not possible to readily determine whether a lawyer’s negligence

. . . will ultimately result in damage to his client. Apparent

damage may vanish with successful prosecution of an appeal

and ultimate vindication of the attorney’s conduct by an

appellate court. 

138 Ariz. at 156, 673 P.2d at 796. The Arizona Supreme Court later affirmed Amfac I,

holding that a claim for legal malpractice “accrues when the plaintiff knew or should

reasonably have known of the malpractice and when the plaintiff’s damages are certain and

not contingent upon the outcome of an appeal.” Amfac II, 138 Ariz. at 153, 673 P.2d at 793

(internal quotation omitted). In so holding, the court also observed that “an unsuccessful

party’s damages are [not] certain, fixed, or irreversible upon entry of judgment” by the trial

court because such damages may be “considerably lessened or possibly eliminated” if the

plaintiff is “successful on appeal.” Id. at 154 n. 2, 673 P.2d at 794 n. 2. And, while this

standard was originally promulgated in cases dealing with claims for attorney malpractice,

courts have since extended Amfac I & II to claims for breach of fiduciary duty. See Cecala

v. Newman, 532 F. Supp.2d 1118, 1143 (D. Ariz. 2007).

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This statement is contained in a letter drafted on November 29, 2006 by the

Successor Trustee’s special counsel, Arthur E. Cirulnick.

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II. Plaintiff’s Damages Did Not Become Fixed Until the Underlying Appeal in

the Deeds Litigation became Final. 

In the amended complaint, Plaintiff alleges that Defendants’ misconduct during the

Deeds Litigation prevented the bankruptcy estate from recovering damages for the alleged

fraudulent transfers from WAVO insiders to third parties. These damages remained

speculative and remote until Plaintiff’s underlying appeal became final on July 23, 2008.

Until that date, the potential for success by the Trustee in the Deeds Litigation had not been

extinguished. Had the Ninth Circuit reversed the District Court’s dismissal, and had the

underlying case resulted in a judgment that fully compensated the bankruptcy estate for its

injuries, there might not have been any damages as a result of Defendant’s mishandling of

the Deeds Litigation. In other words, Plaintiff’s damages were not “fixed,” “irreversible,” or

“remedial.” See Amfac II, 138 Ariz. at 154 n. 2, 673 P.2d at 794 n. 2. Instead those damages

were still “contingent upon the outcome of an appeal” as a successful result could have

“substantially limited” or even “eliminated” the damages resulting from Defendants’

misconduct. See id.

The Berry Defendants, however, point to the deposition testimony from the Plaintiff’s

Successor Trustee, in which he opined that some of the damages resulting from Defendants’

misconduct in the Deeds Litigation had become irreparable as of August 2006. Because this

belief arose more than two years before Plaintiff filed his malpractice claims, the Berry

Defendants argue these claims are time-barred under Arizona Revised Statute Section 12-

551. In his deposition, the Successor Trustee indicated that in August of 2006, he would have

agreed with the following statement:

[E]ven if the decision of the District Court is ultimately reversed

[on appeal], the Estate’s ability to engage competent counsel

and to obtain and enforce a judgment against the WAVO

Insiders has been irreparably and materially impaired as a result

of the passage of five years since the Trustee was appointed,

coupled with the additional delays that are now being sustained

while the matter is on appeal.3

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(Dkt. #112 Ex. 5 at 38–40; Ex. 6 at ¶ 5F.) In subsequent deposition testimony, however, the

Trustee clarified that successfully prosecuting the Estate’s claims in the Deeds Litigation

might still have been possible if the Ninth Circuit had reversed the District Court’s adverse

judgment: 

Irreparable impairment? I agree with that. The extent is

unknown. . . . [R]ather than starting at the foot of the hill[,] if

this thing had been reversed, we may have started down below.

* * *

That’s not to say we couldn’t have accomplished getting to the

top of the hill, but it would have been a lot more difficult. 

* * * 

If the Court of Appeals had reversed, it would have been

extremely difficult to find counsel to take it over unless for some

reason existing counsel, who had all the experience and

knowledge to this point, was willing to step in and take it

forward, to, again correct that which was not done earlier. 

(Dkt. # 112, Ex. 5 at 38–40.) In another portion of his deposition, the Successor Trustee

further stated that “while the estate had been damaged” by Defendants’ misconduct, it was

unclear whether “that damage could be remedied” on appeal. (Dkt. # 112, Ex. 5 at 30.) 

At most, this evidence creates a question of fact as to whether Plaintiff believed that

it had suffered irreparable harm more than two years before he filed this complaint. And,

while the Trustee’s testimony does suggest some awareness of damages as of August 2006,

this evidence does not demonstrate that Plaintiff’s damages were actually irremedial or

irreversible at that time. See Celotex, 477 U.S. at 323 (observing that the party moving for

summary judgment has the burden of demonstrating the absence of a material fact when that

party carries the burden of proof on issue at trial). The Successor Trustee’s testimony

indicates that Defendants’ misconduct disadvantaged plaintiff and made recovery difficult,

but it does not demonstrate that Plaintiff would have been unable to recover the full extent

of the Bankruptcy Estate’s damages in the Deeds Litigation if the Ninth Circuit had reversed

the lower court’s dismissal of those claims. Additionally, inasmuch as the Trustee testified

that a favorable Ninth Circuit decision might have corrected any damages resulting from

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Defendants’ misconduct, this evidence actually suggests that Plaintiff’s harm did not become

fixed until the Ninth Circuit’s decision in the Deeds Litigation became final in July 2008.

To support their argument that damages were fixed prior to September of 2006, the

Berry Defendants further offer the November 29, 2006 letter, in which the Successor

Trustee’s counsel indicated that twelve million dollars would be a fair and reasonable amount

to compensate the Estate for the damages sustained. (Dkt. # 112, Ex. at 8.) This letter, though

an estimate of damages as of November 29, 2006, does not provide evidence that damages

were fixed. Again, under Arizona law, damages resulting from attorney misconduct in the

course of litigation do not become fixed until an underlying appeal is exhausted or waived.

See Amfac II, 138 Ariz. at 154, 673 P.2d at 794. It is undisputed that the November 29, 2006

letter was drafted before Plaintiff’s underlying appeal in the Deeds Litigation became final.

Yet, even if this letter does suggest that damages were somehow fixed as of November 29,

2006, Plaintiff’s complaint was still timely under Section 12-542’s two-year statute of

limitations. Plaintiff filed his complaint on September 23, 2008; accordingly, the action was

timely filed as long as damages did not become fixed prior to September 23, 2006. Because

November 29, 2006 clearly falls within the two-year limitations period and since there is no

reason for imputing this estimate to the trustee earlier than that date, Plaintiff’s claim was

timely under Arizona law.

In addition, to the extent that the Successor Trustee’s testimony suggests that some

ofthe harmcaused by Defendants’ misconduct became irreversible priorto September 2006,

Plaintiff’s damages still did not become fixed until the Ninth Circuit affirmed the District

Court’s order dismissing Plaintiff’s claims. Again, under Arizona law, damages for

malpractice arising in the course of litigation do not become “certain, fixed, or irreversible”

where those damages might be “considerably lessened or possibly eliminated” on appeal.

Amfac II, 138 Ariz. at 154 n. 2, 673 P.2d at 794 n. 2; see also Althaus v. Cornelio, 203 Ariz.

597, 600, 58 P.3d 973, 976 (Ct. App. 2002) (holding that damages in a malpractice claim

became fixed because a settlement agreement “eliminate[d] any possibility of the malpractice

damages changing”). In other words, when a plaintiff’s underlying litigation is still pending

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on appeal, awareness or knowledge that some damages might be irreversible is not sufficient

to trigger the statute of laminations. Instead, damages arising from attorney misconduct

during litigation are not considered fixed as long as there is still a possibility that the

damages could be considerably lessened, substantially changed, or eliminated. In this case,

damages did not become fixed while Plaintiff’s underlying appeal was still pending as a

successful appeal may have considerably altered the amount or degree of harm.

The Court also rejects the Berry Defendants’ contention that the facts of this case

merit an exception to Amfac I & II. First, Defendants’ reliance on Cecala, 532 F. Supp.2d

at 1143 is misplaced. In Cecala, a client raised claims for attorney malpractice, breach of

fiduciary duty, and intentional infliction of emotional distress. Id. at 1142–43. While the

malpractice and breach of fiduciary claims were based on the attorney’s misconduct during

the course of litigation, the intentional infliction of emotional distress claimwas based on the

attorney’s sexual relationship with the client. Id. at 1143. While the district court found that

the malpractice claims were timely under Amfac I & II, the court held that the client’s claim

for emotional distress was barred because the alleged damages resulting from the attorney’s

improper sexual relationship were not contingent on the client’s underlying appeal. Id.

Unlike the claim for emotional distress in Cecala, however, the alleged damages in this case

arose as a result of Defendants’ failure to prosecute the Bankruptcy Estate’s claims during

the Deeds Litigation. Furthermore, as discussed above, these damages could have been

reversed or at least substantially altered by a successful result on appeal. 

Next, the Berry Defendants argue that Amfac I & II do not apply because the Deeds

Litigation was dismissed more than two years before the Successor Trustee filed his

complaint in this case. (See Dkt. # 123 at 5.) To support this argument, the Berry Defendants

point to a footnote in Amfac I, which provides, “There could be some conceivable

circumstances where the client obtains another professional opinion that his attorney’s work

during litigation is negligent.” 138 Ariz. at 157 n. 3, 673 P.2d at 797 n. 3. This exception,

however, does not apply when the alleged professional opinion is the trial court’s order or

judgment dismissing a plaintiff’s underlying claims. To hold otherwise would eviscerate

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Amfac I & II since a trial court’s non-final judgment would be deemed sufficient to trigger

the statute of limitations even when a plaintiff has not exhausted or waived the right to

judicial review. In rejecting this very approach, the Arizona Court of Appeals explained:

If . . . a cause of action accrues at the time of the conduct or

initial judgment rather than at the time the damage has become

irremedial, a client would constantly be required to secondguess his attorney and would be forced to obtain other legal

opinions on the attorney’s handling of the case. Nothing could

be more destructive of the attorney-client relationship.

See id. at 157–58, 673 P.2d at 797–98 (footnote omitted).

Finally, the Berry Defendants’ suggestion that the Successor Trustee’s opinion proves

“actual” and “appreciable” damages that were not contingent on the outcome of an appeal

is disingenuous. The Berry Defendants served as Plaintiff’s counsel of record and prosecuted

the appeal through the Ninth Circuit’s decision. This all occurred long after the date on which

the Berry Defendants now claim that damages became “fixed.” If damages truly were fixed,

it seems illogical that the Berry Defendants would have put forth as much time and effort in

attempting to reverse the District Court’s decision in order to keep the underlying Deeds

Litigation alive. 

CONCLUSION

The Court holds that Plaintiff’s claims for malpractice and breach of fiduciary duty

did not accrue until the underlying appeal became final.

IT IS THEREFORE ORDERED that the Berry Defendants’ Motion for Partial

Summary Judgment (Dkt. # 111) is DENIED. 

DATED this 4th day of January,2010.

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