Court Opinion

ID: 9928087
Source: CourtListenerOpinion
Date Created: 2024-01-30 19:14:15.638137+00
Date Added: 2024-06-11T09:48:52.377164
License: Public Domain

Filed
                                                                                          Washington State
                                                                                          Court of Appeals
                                                                                           Division Two

                                                                                          January 30, 2024

    IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON

                                          DIVISION II
 GEORGE R. “RUSTY” GILL, JR., an                                      No. 58057-8-II
 individual,

                                Appellant,

         v.

 HILLIER, SCHEIBMEIR, KELLY &                                  UNPUBLISHED OPINION
 SATTERFIELD, P.S., a Washington
 Professional Services Corporation, formerly
 known as HILLIER, SCHEIBMEIR, VEY &
 KELLY, P.S., a Washington Professional
 Services Corporation, and; MARK C.
 SCHEIBMEIR, Individually and on behalf of
 the marital community comprised of MARK C.
 SCHEIBMEIR and JANE DOE
 SCHEIBMEIR,

                                Respondents.

       GLASGOW, C.J. — In 2014, George Gill sold his construction company to Fred Hicks, his

former employee. Mark Scheibmeir, Gill’s attorney, advised Gill on the sale’s structure and drafted

the sale documents. Gill sold the company’s stock to Hicks and Hicks agreed to make monthly

payments toward the purchase price with interest. Hicks also agreed that any default would allow

Gill to foreclose on the stock. Gill did not retain an interest in the company’s tangible assets.

       After Hicks failed to make timely payments for several years and the federal government

filed tax liens in 2016 and 2017, Gill sought to repossess the company’s equipment in 2019. Gill
No. 58057-8-II

learned from Scheibmeir that his only option for getting any equipment was foreclosing on the

stock, which would result in repossessing the entire company, including its liabilities.

         In 2022, Gill sued Scheibmeir and his law firm (collectively, the law firm) for legal

malpractice, citing failure to structure the transaction so that he would have a secured interest in

the company’s real estate, equipment, or future receivables. The law firm asserted that Gill’s claim

fell outside the three-year statute of limitations period. Gill then filed for partial summary

judgment, asking the trial court to conclude that he commenced the lawsuit within the statute of

limitations period and that the law firm breached its duty of care to him.

         The trial court denied Gill’s motion, concluding that Gill’s claim was barred by the statute

of limitations and that genuine issues of material fact remained regarding whether the law firm

breached its duty of care. The parties stipulated that Gill reserved the right to appeal but the case

would otherwise be dismissed.

         On appeal, Gill argues that his claim was timely because either the discovery rule or the

continuous representation rule tolled the statute of limitations period. He further argues that there

was no genuine issue of material fact regarding the law firm’s breach of its duty of care. We affirm.

                                               FACTS

                                          I. BACKGROUND

         Gill started RG Construction, a heavy civil construction company, in 2000. Hillier,

Scheibmeir, Kelly & Satterfield,1 a law firm, provided Gill with a variety of legal services

concerning the company.

1
    Although the firm has had other names, we use its current name to prevent confusion.

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No. 58057-8-II

       Several years after starting RG Construction, Gill hired Hicks as a project superintendent.

In 2013, Gill agreed to sell RG Construction to Hicks.

       A year later, Scheibmeir helped Gill effectuate the sale. Gill told Scheibmeir about the

general terms he had discussed with Hicks, and Scheibmeir gave legal advice and drafted the sale

documents.

       The sale was structured as a stock purchase, so Gill sold all shares of stock in RG

Construction to Hicks for $2,273,000. The sale also included “any cash on hand as well as all other

assets and liabilities for the corporation[,] except those assets and liabilities” Gill expressly

retained. Clerk’s Papers (CP) at 65.

       Gill and Hicks signed the sale agreement on January 24, 2014. Hicks agreed to pay Gill

$20,000 per month starting on February 1, 2015. The deadline for paying the entire purchase price

and accrued interest was December 31, 2019. Hicks agreed that if he failed to comply with the sale

agreement’s terms, he would be entitled to written notice of his default and 30 days to cure the

default. But if he did not cure the default within that time frame, Gill would be able to terminate

all of Hicks’ rights under the sale agreement. All payments Hicks had made would be forfeited to

Gill, and Gill would have the right to repossess all of RG Construction’s shares “and resume

management, ownership, and control of said shares.” CP at 70. But the sale agreement did not give

Gill a secured interest in any of RG Construction’s equipment or personal property. Nor did the

agreement give Gill a secured interest in any real estate or future receivables.

                                       II. BUYER’S DEFAULT

       In 2015, Hicks failed to make his first monthly payment to Gill, which constituted a default

of the sale agreement. Gill verbally agreed to give Hicks more time “to get his feet under him again

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No. 58057-8-II

. . . and start making his payments.” CP at 235. Hicks made his first monthly payment in 2017,

agreeing to make slightly larger monthly payments to make up for the missed payments. Between

2015 and 2017, Hicks made good-faith efforts to be able to make payments, and he regularly

communicated with Gill about RG Construction. Gill did not send Hicks a written notice to cure

default during this time. And Gill did not tell Scheibmeir about Hicks’ failures to make payments.

       Meanwhile, in 2016 and 2017, the Internal Revenue Service filed several tax liens against

RG Construction and Hicks. While our record does not include notices of earlier tax liens, in a

deposition, Gill guessed that he first became aware of a tax lien in 2015.

       Hicks made his last payment to Gill in June 2019, and he failed to make payments due after

that. In October 2019, Gill told Scheibmeir that Hicks had stopped making payments. Gill said he

wanted to repossess RG Construction’s equipment. Scheibmeir said Gill would not be able to

immediately repossess the equipment, explaining that if Gill wanted to get anything back from the

company, he would need to foreclose on the stock, which meant assuming ownership of the

company and all its liabilities. Gill said he was not interested in that option.

       After making several attempts to resolve Hicks’ nonpayment, Gill sued Hicks for breach

of contract in April 2021. Gill was represented by Scheibmeir. The law firm claims that RG

Construction filed for bankruptcy on April 28, 2022, and Gill does not dispute this claim. A day

after the bankruptcy filing, Gill obtained a judgment of nearly $2,300,000 against Hicks and his

spouse. In January 2023, RG Construction’s heavy equipment and tools were sold for almost

$570,000 as part of the bankruptcy case. In addition, the company had accounts receivable in an

amount of about $786,000. The IRS liens amounted to about $1.2 million.

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No. 58057-8-II

                                III. LEGAL MALPRACTICE LAWSUIT

       On June 29, 2022, Gill sued Scheibmeir, as well as his law firm. Gill alleged that the law

firm committed legal malpractice in effectuating the sale of RG Construction because the law firm

failed to ensure “all reasonable and necessary collateral to protect [his] interests from a potential

future default.” CP at 8. Specifically, the law firm failed to ensure Gill would have security

interests in the company’s real estate, equipment, or future accounts receivable. Noting that the

Internal Revenue Service had “recorded tax liens against the real estate owned by RG

Construction,” Gill argued that the liens “impaired [his] interest in” getting payment for the

company. CP at 7.

       The law firm answered that Gill’s claim was barred by the statute of limitations. The statute

of limitations period for legal malpractice claims is three years. RCW 4.16.080(3); Huff v. Roach,

125 Wn. App. 724, 729, 106 P.3d 268 (2005).

       Gill then sought partial summary judgment, asking the trial court to conclude that he

commenced the lawsuit within the statute of limitations period and that the law firm breached its

duty of care to him.

A.     Statute of Limitations Arguments

       Gill argued that the statute of limitations period did not begin to run until RG Construction

filed for bankruptcy on April 28, 2022, which was when he “suffered actual damage due to the

lack of adequate security.” CP at 34. He contended that if he had tried to sue the law firm before

“the RG Construction bankruptcy filing, his lawsuit would have been dismissed because he would

not have been able to establish that the lack of adequate security had proximately caused him any

damage.” Id. Thus, his claims against the law firm did not accrue until RG Construction’s

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No. 58057-8-II

bankruptcy filing. And Gill argued in the alternative that under the discovery rule, the statute of

limitations did not start to run until October 1, 2019, when he learned that the law firm “had failed

to provide him with any security in” RG Construction’s assets. CP at 35. Gill did not make any

argument based on continuous representation.

       The law firm responded that under the discovery rule, the statute of limitations began

running when Gill discovered or should have discovered the facts giving rise to his cause of action,

and Gill should have discovered his lack of a security interest in RG Construction’s tangible assets

by reviewing the plain language of the sale agreement when he sold the company in 2014 or when

Hicks first failed to make payments in 2015. And it disputed Gill’s “contention that he did not

suffer actual injury until RG Construction filed for bankruptcy,” pointing out that Gill “either knew

or should have known that he suffered some appreciable damage” in 2016 and 2017 when RG

Construction and Hicks incurred federal tax liens, which took priority over unsecured debts. CP at

203-04.

B.     Breach of the Duty of Care Arguments

       Gill argued that the law firm breached its duty of care to him when it failed to advise him

to retain a security interest in RG Construction’s tangible assets. Gill provided declarations from

two experts: a commercial litigation attorney and a certified public accountant who had worked

with him and with Scheibmeir.

       The commercial litigation attorney declared that while he had personally “sold companies

using a stock pledge agreement,” he had “never done so without also providing a security interest

against the tangible assets in favor of the seller.” CP at 180. He opined that because Hicks “needed

seller financing to be able to buy” RG Construction, the law firm “should have demanded, as any

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No. 58057-8-II

bank would have done, that the extension of credit” be backed by such a security interest. CP at

181. He explained that if the law firm had done so, Gill “would have been first in line to receive

the proceeds of the sale of the company assets in the event of a business failure.” CP at 181. He

further explained that without “a security interest against the tangible assets,” Gill was left with

“an empty bag because the buyer caused the business to incur debts in excess of the value of its

assets.” Id. He added that he was “unaware of any tax benefit for [Gill] based on” the structure of

the sale, and that any tax benefit would have been worth far less than a recovery through a security

interest in RG Construction’s tangible assets. Id.

       The accountant declared that he did not advise Gill or Scheibmeir to refrain from retaining

a security interest in RG Construction’s tangible assets. And he said he was “not aware of any

potential tax savings or other business advantage” Gill would have received by foregoing such a

security interest. CP at 185.

       The law firm responded that it did not breach its duty of care to Gill. Scheibmeir declared

that in his “professional expert opinion,” his structuring of the sale “complied with the standard of

care for attorneys in the State of Washington.” CP at 216. He said Gill had advised him “that he

wanted to take the company back quickly in the event” of default, and that was “exactly what the

sales documents . . . allowed him to do.” Id. He explained that selling RG Construction’s shares

of stock—as opposed to selling the tangible assets comprising the business—gave Gill the ability

“to quickly recover the stock” in the event of default. CP at 214. Gill could “thus retake possession

of the company” and get “complete control over all company assets and any decision as to what to

do with those assets.” Id. He further explained that if Gill had alerted him to Hicks’ default earlier,

                                                  7
No. 58057-8-II

he could have advised Gill of “effective remedies that would have avoided his loss,” such as

immediately regaining control of the company or negotiating for more collateral. CP at 215.

        Scheibmeir’s declaration also contradicted the accountant’s declaration. Scheibmeir

declared that before the sale, Gill asked him to consult with the accountant, and the accountant

recommended a stock purchase because of its tax benefits.

C.      Trial Court’s Decision

        After a hearing, the trial court denied Gill’s motion for partial summary judgment.

        Regarding the statute of limitations, the trial court said that if the law firm had moved to

dismiss the case based on this issue, it would have felt “compelled to grant” the motion. Verbatim

Rep. of Proc. (VRP) at 22. It explained that Gill should have discovered his lack of a security

interest in RG Construction’s tangible assets before he signed the sale agreement on January 24,

2014, as well as when Hicks failed to make his first monthly payment in 2015. Addressing Gill’s

argument that he did not experience actual injury allowing him to sue for malpractice until RG

Construction filed for bankruptcy, the trial court said “injury is the invasion of a legal interest,”

and Gill’s legal interest was invaded when Hicks “incurred a series of federal tax liens in 2016 and

2017.” VRP at 21-22.

        Regarding the duty of care, the trial court said it could not grant summary judgment because

it thought the commercial litigation attorney essentially declared that there was only one acceptable

way to structure the transaction at issue, and it did not believe “that the sale of a business with real

property and hard assets can only be handled in one way.” VRP at 18.

                                                   8
No. 58057-8-II

        The parties then stipulated that Gill reserved the right to appeal the denial of summary

judgment, but the case would otherwise be dismissed. The trial court approved the stipulation and

dismissed the case.

        Gill appeals the denial of summary judgment and dismissal.

                                             ANALYSIS

                                       I. STANDARD OF REVIEW

        We review a trial court’s dismissal on summary judgment de novo, performing the same

inquiry as the trial court. Mackey v. Home Depot USA, Inc., 12 Wn. App. 2d 557, 569, 459 P.3d

371 (2020). Summary judgment is appropriate only “if the pleadings, depositions, answers to

interrogatories, and admissions on file, together with the affidavits . . . show that there is no genuine

issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.”

CR 56(c). “‘A material fact is one upon which the outcome of the litigation depends.’” Mattingly

v. Palmer Ridge Homes, LLC, 157 Wn. App. 376, 387, 238 P.3d 505 (2010) (quoting Balise v.

Underwood, 62 Wn.2d 195, 199, 381 P.2d 966 (1963)). A genuine issue of material fact exists

where “reasonable minds could disagree on the facts controlling the outcome of the case.” Mackey,

12 Wn. App. 2d at 569.

        “When determining whether an issue of material fact exists,” we “must construe all facts

and inferences in favor of the nonmoving party.” Ranger Ins. Co. v. Pierce County, 164 Wn.2d

545, 552, 192 P.3d 886 (2008). On summary judgment, “a nonmoving party’s declaration must be

taken as true and can create a genuine issue of material fact even if it is ‘self-serving.’” Mackey,

12 Wn. App. 2d at 575 (quoting Reagan v. Newton, 7 Wn. App. 2d 781, 806, 436 P.3d 411 (2019)).

                                                   9
No. 58057-8-II

                                   II. STATUTE OF LIMITATIONS

       “As an affirmative defense, the statute of limitations is a matter on which the defendant

bears the burden of proof.” Kiona Park Ests. v. Dehls, 18 Wn. App. 2d 328, 336, 491 P.3d 247

(2021). The statute of limitations period for legal malpractice claims is three years. RCW

4.16.080(3); Huff, 125 Wn. App. at 729. The statute of limitations period “begins to accrue when

the plaintiff has a right to seek legal relief.” Cawdrey v. Hanson Baker Ludlow Drumheller, P.S.,

129 Wn. App. 810, 816, 120 P.3d 605 (2005).

A.     Discovery Rule

       Gill argues that the statute of limitations does not bar his malpractice claim because his

cause of action did not accrue “until at least October 1, 2019[,] when [he] learned that he could

not . . . repossess the RG Construction equipment.” Appellant’s Opening Br. at 29. Gill argues that

there is at least a material factual issue concerning whether he “knew or reasonably should have

discovered” that he had claims against the law firm earlier. Id. at 33. And he argues that he could

not have sued when the Internal Revenue Service began recording tax liens against RG

Construction because “Scheibmeir’s malpractice had not proximately caused Gill any damage at

that point.” Id. at 27-28. We disagree.

       In situations where a plaintiff could not have recognized their injury when it occurred, the

statute of limitations begins to run when the plaintiff discovers—or, in the exercise of reasonable

diligence, should have discovered—the facts giving rise to their claim. Cawdrey, 129 Wn. App. at

816; Davis v. Davis Wright Tremaine, L.L.P., 103 Wn. App. 638, 655, 14 P.3d 146 (2000). “The

rule does not specifically require knowledge of the existence of a legal cause of action.” Huff, 125

Wn. App. at 729. “Instead, the statute of limitations begins to run when ‘the plaintiff knew or

                                                10
No. 58057-8-II

should have known all of the essential elements of the cause of action.’” Id. (internal quotation

marks omitted) (quoting Matson v. Weidenkopf, 101 Wn. App. 472, 482, 3 P.3d 805 (2000)).

       The elements of a legal malpractice case are duty, breach, causation, and injury, with injury

being the invasion of another person’s legal interest. Id. at 729-30. As the Huff court explained,

injury and damages are different concepts in this context, even though the terms are often used

interchangeably. Id. at 729. Injury “is the invasion of another’s legal interest, while damages are

the monetary value of those injuries.” Id. at 730. The Huff court declined to adopt a rule where

recovery of damages arising from malpractice had to be certain before the statute of limitations

would accrue. See id. at 729-32. The statute of limitations accrued in that case when the Huffs’

attorney “missed the statute of limitations, effectively invading [the Huffs’] legal interests,” even

though it was not yet clear that the Huffs’ opponents would raise the statute of limitations as a

defense. Id. at 730.

       Here, in their arguments on appeal about the statute of limitations, the parties dispute only

when Gill should have known about the injury. We hold that the statute of limitations bars Gill’s

claim. As Gill stated in his complaint, the injury—the invasion of his legal right—occurred when

the Internal Revenue Service recorded its first tax lien against RG Construction. Gill later argued

differently before the trial court, but he did not move to amend his complaint.

       Moreover, the fact that the tax lien injured Gill has support in our record and in case law.

Before the lien, Gill’s ability to regain control of RG Construction in its entirety was

unencumbered. But when the Internal Revenue Service recorded the lien, it obtained an interest in

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No. 58057-8-II

RG Construction’s property that was superior to Gill’s as an unsecured creditor.2 Gill lacked a

superior secured interest in that property, so the lien allowed the Internal Revenue Service to take

the property to pay the tax debt to the extent it had a secured interest. United States v. Allahyari,

980 F.3d 684, 690 (9th Cir. 2020) (to get priority over a subsequent federal tax lien, security

interest must have been perfected); BLACK’S LAW DICTIONARY 507 (11th ed. 2019) (defining

unsecured debt as “debt not supported by collateral or other security”).

       Gill contends that he could not have successfully sued the law firm for legal malpractice

until it was clear that Hicks was not going to pay him, in particular, until the date that RG

Construction filed for bankruptcy. Until then, Gill argues, he could not have proven that he had

incurred any damages. But this argument ignores that Gill’s legal interest, his ability to collect

against RG Construction’s assets, was first invaded when the tax lien took priority because Gill’s

interest was unsecured. Under Huff, it is the invasion of the legal interest that causes the statute of

limitations to accrue. 125 Wn. App. at 729-30. And, as the law firm pointed out in oral argument,

after learning about the lien, Gill could have preserved any claim he had against the firm by

entering into an agreement with the law firm to toll the statute of limitations period. Or Gill could

have filed a complaint against the firm and then moved to stay the proceedings. See Landis v. N.

Am. Co., 299 U.S. 248, 254, 57 S. Ct. 163, 81 L. Ed. 153 (1936) (“[T]he power to stay proceedings

is incidental to the power inherent in every court to control the disposition of the causes on its

docket.”).

2
  Understanding a Federal Tax Lien, U.S. INTERNAL REVENUE SERV. (explaining that a federal tax
lien protects the federal government’s interest in a taxpaying entity’s “property, including real
estate, personal property[,] and financial assets”), https://www.irs.gov/businesses/small-
businesses-self-employed/understanding-a-federal-tax-lien (last updated May 17, 2023).

                                                  12
No. 58057-8-II

       The first federal tax lien in our record is dated August 17, 2016. Gill testified that he was

aware of a tax lien in 2015. In either case, the injury occurred more than three years before Gill

commenced the 2022 lawsuit. Therefore, we hold that the statute of limitations bars Gill’s legal

malpractice claim.

B.     Continuous Representation Rule

       Gill argues in the alternative that the continuous representation rule tolled the statute of

limitations for his legal malpractice claim. In legal malpractice actions, the continuous

representation rule “tolls the statute of limitations until the end of an attorney’s representation of

a client in the same matter in which the alleged malpractice occurred.” Janicki Logging & Constr.

Co. v. Schwabe, Williamson & Wyatt, P.C., 109 Wn. App. 655, 661, 37 P.3d 309 (2001). Gill

contends that the statute of limitations period for his malpractice claim began running when the

law firm stopped representing him in 2022, so this claim was timely.

       The law firm responds that we should not consider this argument because Gill failed to

make it below. Gill replies that “even if the parties did not explicitly mention the continuous

representation rule by name in the trial court,” the law firm has “not established that the appellate

record is deficient in any respect for the purpose of applying” the rule. Appellant’s Reply Br. at

12. We agree with the law firm.

        “On review of an order granting or denying a motion for summary judgment,” we

“consider only evidence and issues called to the attention of the trial court.” RAP 9.12 (emphasis

added). “‘The purpose of this limitation is to effectuate the rule that the appellate court engages in

the same inquiry as the trial court.’” Gartner, Inc. v. Dep’t of Revenue, 11 Wn. App. 2d 765, 777,

455 P.3d 1179 (2020) (internal quotation marks omitted) (quoting Mithoug v. Apollo Radio of

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No. 58057-8-II

Spokane, 128 Wn.2d 460, 462, 909 P.2d 291 (1996)). Therefore, a party must inform the trial court

“of the rules of law it wishes the court to apply and afford the trial court an opportunity to correct

any error.” Ainsworth v. Progressive Cas. Ins. Co., 180 Wn. App. 52, 81, 322 P.3d 6 (2014)

(emphasis added).

       While appellate courts have the discretion to waive this rule, this discretion is rarely

exercised, especially when the alleged error does not implicate a constitutional right. See id.;

Hiesterman v. Dep’t of Health, 24 Wn. App. 2d 907, 913, 524 P.3d 693 (2022), review denied, 1

Wn.3d 1020 (2023). For example, in Silverhawk, LLC v. KeyBank National Association, a breach

of contract case, Division One held that a company’s new argument regarding contract terms was

“untimely” under RAP 9.12 where the company made the argument for the first time on appeal,

even though the contract was in the record. 165 Wn. App. 258, 265, 268 P.3d 958 (2011).

       Here, Gill did not argue below that the continuous representation rule tolled the statute of

limitations period. Given that the trial court did not have the opportunity to correct the alleged

error, we decline to review it. While Gill contends that the record is not deficient for the purpose

of applying the continuous representation rule, the record’s sufficiency with regard to the relevant

facts does not prevent application of RAP 9.12. Silverhawk, 165 Wn. App. at 265. The purpose of

RAP 9.12 is ensuring “‘that the appellate court engages in the same inquiry as the trial court.’”

Gartner, 11 Wn. App. 2d at 777 (internal quotation marks omitted) (quoting Mithoug, 128 Wn.2d

at 462). In this case, the trial court lacked the opportunity to rule on the application of the

continuous representation rule with the benefit of argument from both sides. As a consequence,

there is no trial court ruling on this issue for us to review. And Gill seeks reversal of the trial

court’s decision, so the principle that we can affirm on any ground supported by the record under

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No. 58057-8-II

RAP 2.5 does not help him. Moreover, Gill does not explain why he did not raise continuous

representation when he brought a summary judgment motion. We therefore decline to make an

exception to RAP 9.12.

                                      III. ADDITIONAL ISSUES

       Gill argues that there was no genuine issue of material fact regarding the law firm’s breach

of its duty of care, contending that the commercial litigation attorney’s expert testimony

established as a matter of law that the law firm’s representation in the sale of RG Construction fell

“below the standard of care.” Appellant’s Opening Br. at 38. Given our holding that the statute of

limitations barred Gill’s legal malpractice claim, we need not reach this argument.

       Along with his malpractice claim, Gill brought a breach of fiduciary duty claim below. Gill

alleged that the law firm breached its fiduciary duty to him by continuing to represent him after it

discovered, or should have discovered, that its representation fell below the standard of care,

creating a conflict of interest. The trial court did not address this claim in its ruling on summary

judgment, and after the summary judgment hearing, the parties agreed to dismiss the entire case

with prejudice pending this appeal.

       The parties’ briefing, both below and on appeal, focused on the legal malpractice claim.

This focus is understandable, as the viability of the breach of fiduciary duty claim depends on

proving malpractice. Because the trial court dismissed the breach of fiduciary duty claim, and

because Gill did not independently brief the issue on appeal, we do not address it here.

                                          CONCLUSION

       We affirm the trial court’s denial of summary judgment and dismissal of the case.

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No. 58057-8-II

       A majority of the panel having determined that this opinion will not be printed in the

Washington Appellate Reports, but will be filed for public record in accordance with RCW

2.06.040, it is so ordered.

                                                  Glasgow, C.J.
 We concur:

 Cruser, J.

 Che, J.

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