Opinion
No. 56028-0-I.
May 30, 2006.
Appeal from a judgment of the Superior Court for King County, No. 03-2-39912-4, Richard A. Jones, J., entered March 18, 2005.
Counsel for Appellant(s), Mark Timothy Higgins, Higgins Geyer Lock PLLC, 1218 3rd Ave Ste 2500, PO Box 12860, Seattle, WA 98111-4860.
Barbara Zanzig Lock, Higgins Geyer Lock PLLC, 1218 3rd Ave Ste 2500, PO Box 12860, Seattle, WA 98111-4860.
W. Scott Zanzig, Hall Zanzig Zulauf Claflin McEachern PLL, 1200 5th Ave Ste 1414, Seattle, WA 98101-3106.
Counsel for Respondent(s), Mary C. Eklund, Eklund Rockey Stratton PS, 521 2nd Ave W, Seattle, WA 98119-3927.
Emmelyn Hart-Biberfeld, Talmadge Law Group PLLC, 18010 Southcenter Pkwy, Tukwila, WA 98188-4630.
Philip Albert Talmadge, Talmadge Law Group PLLC, 18010 Southcenter Pkwy, Tukwila, WA 98188-4630.
Dismissed by unpublished opinion per Appelwick, C.J., concurred in by Coleman and Grosse, JJ.
More than thirty days after the trial court granted summary judgment in favor of the defendant, the plaintiff brought a motion asking the trial court to dismiss the defendant's counterclaims so that the plaintiff could proceed with an appeal of the summary judgment order. The trial court ruled that there was nothing to dismiss and that the plaintiff's motion was moot. The plaintiff appeals. We hold that the plaintiff's appeal is untimely because the summary judgment order resolved all claims against all parties and the plaintiff did not bring its appeal within 30 days of that order. Therefore, we dismiss the appeal with prejudice.
FACTS
On October 30, 2003, JCV Constructors, Inc., brought a lawsuit against Perry, Shelton, Walker and Associates, PLLC (PSW). PSW filed an amended answer on June 11, 2004. In a section titled 'RULE 12 AND AFFIRMATIVE DEFENSES' PSW alleged that JCV's 'claims, if any have been stated, are frivolous and advanced without reasonable cause.' In a separate section titled 'COUNTERCLAIM,' PSW alleged (1) that it was damaged as a result of JCV's intentional or negligent misrepresentations (negligence issue), (2) that JCV breached its contract with PSW (contract issue), and (3) that the complaint was frivolous and that PSW is entitled to expenses and fees under RCW 4.84.185 (statutory fees request). In its request for relief, PSW asked the court to impose an award of costs and fees under CR 11 (CR 11 request).
In September 2004, PSW moved for summary judgment and asked the court to 'dismiss with prejudice the complaint by [JCV] on grounds all claims asserted are barred by the 3-year statute of limitations in RCW 4.16.080' and that no other time period applies. On November 17, 2004, the court ordered 'that defendant's motion for summary judgment is granted, and plaintiff's complaint is dismissed with prejudice in its entirety.' In a letter on December 8, 2004, PSW's counsel wrote to JCV's counsel that the summary judgment order was not appealable:
Plaintiff cannot now appeal from [the summary judgment] order because the action itself is not concluded. Defendant filed a counterclaim seeking damages from plaintiff under both CR 11 and RCW 4.84.185, among other things. With the dismissal of the complaint, my client can now (and will soon) move for summary judgment on the counterclaim for defense costs.
On December 21, 2004, JCV moved to dismiss PSW's counterclaims. The SFACTS' section of JCV's motion stated in its entirety: 'PSW counterclaimed for violations of RCW 4.84.185 and CR 11.' The motion did not address PSW's negligence or contract issues. PSW responded that it had not asserted a counterclaim under CR 11, but had asserted statutory fees, negligence, and contract counterclaims. PSW then stated
Although plaintiff's motion seeks to dismiss the RCW 4.84.185 counterclaim, it is silent as to defendant's other two counterclaims. Thus, plaintiff's motion presumes the negligence and contract counterclaims were extinguished by the summary judgment order signed by this Court on November 21, 2004. . . . For purposes of the present motion, defendant does not disagree.
PSW thus contended that the only counterclaim at issue before the court was the statutory fees counterclaim. In its reply brief to the trial court, JCV concurred with PSW as to the nature of PSW's claims:
Defendant's negligence and contract counterclaims were actually affirmative defenses that were disposed of by this Court's summary judgment ruling. Defendant's Response at 2.
Defendant admits that it did not plead a counterclaim under CR 11. Id. . . .
Defendant's request for attorney's fees under RCW 4.84.185 has expired because the 30 day period to bring such a motion has passed. Defendant's Response at 3.
The trial court held a hearing on the motion to dismiss counterclaims. JCV's counsel again stressed that 'there's fairly little controversy in some sense about the validity of the counterclaims.' The court asked JCV whether, by relying on PSW's incorrect position that it had outstanding counterclaims, JCV had 'essentially waived' its opportunity to file an appeal within 30 days. JCV argued that equitable estoppel principles would apply, or application of 'CR 54(b) fairly neatly takes care of these contentions.'
PSW responded that JCV was trying to make the trial court improperly extend the time for appeal. PSW stressed that JCV had not raised the negligence or contract issues in its motion to dismiss. PSW contended that because all the putative counterclaims claims were either (1) dismissed by the summary judgment order, (2) extinguished by operation of law, or (3) not argued or presented as counterclaims, there was nothing to dismiss in response to JCV's motion and the summary judgment order was the final order.
The trial court agreed with PSW. The trial court held that the CR 11 request was not a counterclaim and that the statutory fees request was extinguished by operation of law 30 days after the court's summary judgment dismissal. The court determined that the contract and negligence issues were extinguished by its earlier summary judgment order, and that '[t]he parties, through their pleadings, do not disagree with this determination.' Thus, the court ruled that the plaintiff's motion was moot and 'there is nothing for this Court to dismiss.'
On March 18, 2005, the trial court entered an order denying JCV's motion to dismiss counterclaims on the ground that 'no claims or counterclaims remained in this case after' the summary judgment order. JCV filed its appeal on April 6, 2005. In its notice of appeal, JCV sought review of the summary judgment order and the order denying its motion to dismiss counterclaims. PSW moved to dismiss the appeal on the ground that it was untimely. Commissioner Verellen passed PSW's motion to dismiss to this court to be heard at the same time as JCV's underlying claim that the trial court erred in granting PSW's motion for summary judgment.
ANALYSIS I. JCV's Appeal of the Summary Judgment Order Was Untimely
A party may appeal a superior court final judgment, which is the 'final judgment entered in any action or proceeding, regardless of whether the judgment reserved for future determination an award of attorney fees or costs.' RAP 2.2(a)(1). 'A party seeking review of a trial court decision reviewable as a matter of right must file a notice of appeal.' RAP 5.1(a). The notice must be filed within 30 days after the entry of the decision of the trial court which the party filing notice wants reviewed. RAP 5.2(a). In a case with multiple claims for relief, a party can appeal a final judgment that does not dispose of all the claims as to all the parties only after 'an express direction by the trial court for entry of judgment and an express determination in the judgment, supported by written findings, that there is no just reason for delay.' RAP 2.2(d). In such a case, '[t]he time for filing [the] notice of appeal begins to run from the entry of the required findings.' RAP 2.2(d).
RAP 5.2(a) and (e) provide an alternative deadline in the case of orders deciding certain timely motions not at issue in this appeal.
A final judgment is an order that 'adjudicat[es] all the claims, counts, rights, and liabilities of all the parties.' RAP 2.2(d); see also CR 54; Fox v. Sunmaster Prods., Inc., 115 Wn.2d 498, 503, 798 P.2d 808 (1990); Anderson Middleton Lumber Co. v. Quinault Indian Nation, 79 Wn. App. 221, 225, 901 P.2d 1060 (1995) (final judgment is 'a judgment that ends the litigation'), aff'd, 130 Wn.2d 862 (1996); Rhodes v. D D Enter., Inc., 16 Wn. App. 175, 178, 554 P.2d 390 (1976) (final judgment settles all issues in a case). It must be 'in writing and signed by the judge and filed forthwith.' CR 54(a)(1). An order granting summary judgment can be a final judgment if it meets these requirements. Lee v. Ferryman, 88 Wn. App. 613, 622, 945 P.2d 1159 (1997).
It is clear that the summary judgment order dismissed all of JCV's claims against PSW. We consider each of PSW's claims against JCV separately.
A. Statutory Fees Request
The trial court determined that the statutory fees 'counterclaim' was extinguished by operation of law 30 days after the summary judgment order was filed. In Police Guild v. City of Seattle, 113 Wn. App. 431, 441, 53 P.3d 1036 (2002), aff'd, 151 Wn.2d 823 (2004), this court held that a request for fees under RCW 4.84.185 is 'not strictly speaking a counterclaim.' In that case, months after issuing its summary judgment order, the trial court signed a stipulated dismissal between the parties of the defendant's statutory fees counterclaim. Police Guild, 113 Wn. App. at 440-41. This fee-shifting statute requires the defendant to petition the court within 30 days of the dismissal order. RCW 4.84.185. Because that claim had already been extinguished as a matter of law, '[n]othing remained to be dismissed.' Police Guild, 113 Wn. App. at 441. Thus, the 'use of the order did not reinstate nor extend the proceedings' and the 30 day time to file had expired. Police Guild, 113 Wn. App. at 441.
As in Police Guild, PSW did not petition the court for fees within 30 days of the dismissal order. Thus, the trial court properly recognized that this claim for fees and costs was extinguished by operation of law.
B. CR 11 Request
An appeal may be brought of a final judgment 'regardless of whether the judgment reserves for future determination an award of attorney fees or costs.' RAP 2.2(a)(1). CR 11 authorizes a party to bring a motion for reasonable expenses, including attorney fees, for any pleading, motion, or memorandum signed in violation of the rule. PSW alleged as an affirmative defense that JCV's claims were frivolous and requested an award of costs and fees under CR 11. The trial court concluded that PSW 'did not assert a counterclaim under CR 11 but did plead an affirmative defense under CR 11 in its amended answer and may still bring a motion under CR 11 in this case.'
The CR 11 request was part of PSW's amended answer to JCV's counterclaim. The language of the trial court's order implies that no CR 11 motion was pending before it, as it noted that PSW 'may still bring a motion under CR 11 in this case.' Both parties asserted at oral argument that there was no motion for CR 11 sanctions pending before the trial court. Therefore, we do not address the application or effect of Franz v. Lance, 119 Wn.2d 780, 836 P.2d 832 (1992), and Kemmer v. Keiski, 116 Wn. App. 924, 936-37, 68 P.3d 1138 (2003) (holding that a party that is permitted to appeal a judgment within 30 days after its entry is not required to do so if the judgment does not resolve but leaves open for later determination then-pending claims for reasonable attorney fees and litigation expenses).
PSW's CR 11 request was not a counterclaim barring JCV's right to appeal the summary judgment order. CR 11 provides a method for parties to seek sanctions by motion. A CR 11 motion is not a counterclaim. The trial court's acknowledgement in its March 18 order that it retained authority to hear a subsequent CR 11 motion in no way impaired JCV's right to appeal the summary judgment order nor tolled the period to file the appeal.
C. Contract and Negligence Issues
JCV's motion to dismiss counterclaims made no mention of PSW's contract and negligence issues. It addressed only the statutory fees and CR 11 requests. PSW argued that by failing to seek dismissal of these 'counterclaims,' JCV 'presumes the negligence and contract counterclaims were extinguished by the summary judgment order.' For purposes of JCV's motion to dismiss, PSW did not disagree. JCV agreed that PSW's 'negligence and contract counterclaims were actually affirmative defenses that were disposed of by this Court's summary judgment ruling.' The trial court relied on the parties' agreed representations and ruled that the 'defendant's other two counterclaims where in substance affirmative defenses, and, as such, were extinguished by [the summary judgment] order.' JCV argues that the court disposed of the negligence and contract issues on March 18 by characterizing them as affirmative defenses, but that 'does not mean that the claims were disposed of four months earlier when the summary judgment order was entered.' JCV argues that its actions, PSW's actions, and the court's actions show that none of them believed that the summary judgment order disposed of PSW's negligence or contract issues. JCV argues that unlike in Police Guild, where the statutory fees claim was extinguished by operation of law, the court here needed to exercise judgment to decide that the counterclaims were actually affirmative defenses. Thus, JCV distinguishes Police Guild, and argues that the March order, not the November summary judgment order, should trigger JCV's time to appeal.
There are two significant problems with JCV's argument. First, the trial court's March order did not necessitate an exercise of discretion. JCV argues that justice required the trial court to essentially treat PSW's putative counterclaims as true counterclaims and then exercise discretion to dismiss them in its March order. But the March order merely clarified that the November order had in fact adjudicated all claims of all parties. The March order was a clarification of an existing final order. There was no exercise of discretion.
CR 8(c) provides that '[w]hen a party has mistakenly designated a defense as a counterclaim or a counterclaim as a defense, the court on terms, if justice so requires, shall threat the pleading as if there had been a proper designation.'
If there is any confusion as to the scope of a trial court order, a party intending to appeal should seek clarification from the trial court in sufficient time that its appeal would not be foreclosed if the earlier order in fact adjudicated the entire dispute. A timely post-judgment motion could have been an effective avenue to do so. See CR 59; Structurals N.W. v. Fifth Park Place, 33 Wn. App. 710, 713-14, 658 P.2d 679 (1983). Alternatively, the party could preserve its right to appeal by filing a notice of appeal with this court, risking that it would be deemed premature. Neither action was taken in this case.
The second significant problem is that JCV's motion did not place the negligence or contract issues before the trial court. On the contrary, JCV represented that it understood that PSW's contract and negligence issues were actually affirmative defenses that were disposed of by the summary judgment order. The doctrine of 'invited error' does not permit a party to set up error by adopting a position that induces the trial court to take an action that the party later challenges on appeal. Pers. Restraint of Tortorelli, 149 Wn.2d 82, 94, 66 P.3d 606 (2003). See also RAP 2.5(a) ('the appellate court may refuse to review any claim of error which was not raised in the trial court').
Here, the trial court expressly noted in its oral ruling that it relied on both parties' representations that the contract and negligence issues were actually affirmative defenses disposed of by the summary judgment order. Thus, JCV cannot claim it was confused as to the nature of those issues, or that it could not have known their nature until the trial court later labeled them affirmative defenses. Only the CR 11 and statutory fees requests were at issue before the trial court. The holding of Police Guild is addressed directly to the statutory fees request, and it was extinguished as a matter of law. The CR 11 request was not a counterclaim and did not hinder JCV's right to appeal. JCV's appeal was not timely.
II. No Extraordinary Circumstances Justify Extension of Time for Appeal
The current RAP provide that an appellant 'should' do certain things and 'must' do others. An appellate court has wide discretion in sanctioning an appellant who fails to do what 'should' be done. RAP 1.2(b), 18.9. When an appellant fails to do what 'must' be done, the result may be dismissal, under RAP 18.9(b), or 'more severe than usual sanctions.' RAP 1.2(b). RAP 1.2(a) generally requires a liberal interpretation of the rules, indicating a preference for decisions on the merits rather than on the basis of technical noncompliance with the rules. To that end, the time limits provided in the RAP may be enlarged or shortened by the appellate court in order to serve the ends of justice. RAP 18.8(a). A specific exception to the rule of liberality is RAP 18.8(b), which limits the court's ability to grant extensions of time for certain filings:
Restriction on Extension of Time. The appellate court will only in extraordinary circumstances and to prevent a gross miscarriage of justice extend the time within which a party must file a notice of appeal, a notice for discretionary review, a motion for discretionary review of a decision of the Court of Appeals, a petition for review, or a motion for reconsideration. The appellate court will ordinarily hold that the desirability of finality of decisions outweighs the privilege of a litigant to obtain an extension of time under this section. The motion to extend time is determined by the appellate court to which the untimely notice, motion or petition is directed.
Unlike in criminal cases, the dictate of this rule in civil cases is not balanced against a competing constitutional right to an appeal for criminal defendants. See State v. Kells, 134 Wn.2d 309, 314, 949 P.2d 818 (1998). The procedures in RAP 18.8(b) and RAP 18.9(b) through (c) are the modern equivalent of jurisdictional requirements. Hoirup v. Empire Airways, 69 Wn. App. 479, 482, 848 P.2d 1337 (1993) overruled in part on other grounds by Nevers v. Fireside, Inc, 133 Wn.2d 804, 947 P.2d 721 (1997). Failure to timely file any of these motions or petitions will result in dismissal, except in extraordinary circumstances or to prevent a gross miscarriage of justice. 'Extraordinary circumstances' include instances where the filing, despite reasonable diligence, was defective due to excusable error or circumstances beyond the party's control. See Reichelt v. Raymark Indus., 52 Wn. App. 763, 765, 764 P.2d 653 (1988). The standard set forth in the rule is rarely satisfied. Shumway v. Payne, 136 Wn.2d 383, 395, 964 P.2d 349 (1998) (citing Scannell v. State, 128 Wn.2d 829, 833-34, 912 P.2d 489 (1996)).
The Reichelt court refused to extend the time for filing a notice of appeal that was filed ten days late despite the fact that one of the two trial attorneys on the case left the firm during the 30 days following entry of judgment, and the firm's appellate attorney had an unusually heavy work load at the time. The court held that no extraordinary circumstances existed justifying an extension of time to avoid a gross miscarriage of justice. A lack of prejudice to the respondent is irrelevant; the prejudice of granting an extension of time would be 'to the appellate system and to litigants generally, who are entitled to an end to their day in court.' Reichelt, 52 Wn. App. at 766 n. 2.
In Scannell, the petitioner exercised reasonable diligence in following prior appellate rules and was confused over a change in the appellate rules. The court determined that extraordinary circumstances did exist and granted an extension of time for filing a notice of appeal. The court held that the petitioner's reasonable diligence and good faith attempt to timely file his notice of appeal warranted leniency given that the court rules caused confusion. Scannell, 128 Wn.2d at 834-35. The court cautioned that other future misinterpretations of the new rules would not be treated with equal leniency.
In Shumway, after obtaining no relief by direct review, the petitioner filed a personal restraint petition in the Court of Appeals. This court dismissed the petition and informed Shumway of the method and rules governing discretionary review of the Court of Appeals decision. Shumway did not move for discretionary review, and filed a petition for a writ of habeas corpus in federal court. She did not deny that she was advised of her right to seek discretionary review in state court but claimed that an attorney she consulted on an informal basis may have told her that she did not need to file the motion in order to pursue a federal writ of habeas corpus.
The federal court, concerned that Shumway had not exhausted her state law remedies, certified to the Washington Supreme Court the question of whether Shumway could seek discretionary review in state court 'upon a proper showing from counsel regarding her failure to seek such review earlier.' The Washington Supreme court held that Shumway could not seek discretionary review. More than a year's extension would be necessary to allow her to seek discretionary review of the dismissal. Shumway argued that extraordinary circumstances existed that required an extension of time in order to prevent a gross miscarriage of justice because her failure to timely file was attributable to her reliance on the advice of an attorney.
The court noted that Shumway does not claim reasonable diligence, confusion about the method of seeking review, excusable error in interpreting the rules, or circumstances beyond her control. She does not claim that she attempted in good faith to secure review. Instead, she argues that she did not believe review in this court was necessary in order for her to present her claims to the federal court.
Shumway, 136 Wn.2d at 396. The Shumway court held that '[t]he erroneous advice of an attorney' on the effect of a Washington court decision on a different action in another jurisdiction was not an extraordinary circumstance justifying an extension of time. Shumway, 136 Wn.2d at 396-97.
Washington courts have been very selective in allowing any extensions. See, e.g., Schaefco, v. Gorge Comm'n, 121 Wn.2d 366, 368, 849 P.2d 1225 (1993) (finding that time limit for filing notice of appeal not extended by earlier untimely motion for reconsideration, no sufficient excuse for failure to file a timely notice of appeal, and no sound reason to abandon the preference for finality even where appeal 'raises many important issues'); Bostwick v. Ballard Marine Inc., 127 Wn. App. 762, 775-76, 112 P.3d 571 (2005) (finding no extraordinary circumstance where trial court did not notify party that it had entered an order and party lacked diligence in failing to monitor entry of order on pending motion); Beckman v. DSHS, 102 Wn. App. 687, 695, 11 P.3d 313 (2000) (finding no extraordinary circumstances where the State missed the deadline for appealing a multi-million dollar judgment because the State was 'obligated to monitor the actual entry of the judgments').
In most cases where the 'extraordinary circumstances' test has been met, 'the moving party actually filed the notice of appeal within the 30-day period but some aspect of the filing was challenged.' Bostwick, 127 Wn. App. at 776 (citing Reichelt, 52 Wn. App. at 765; Weeks v. Chief of State Patrol, 96 Wn.2d 893, 895-96, 639 P.2d 732 (1982) (notice timely filed but filed in wrong court); State v. Ashbaugh, 90 Wn.2d 432, 438, 583 P.2d 1206 (1978) (notice timely filed but rejected by court for lack of filing fee); Structurals N.W., 33 Wn. App. at 714 (notice timely when filed within 30 days of entry of stipulated 'amended' judgment)); see also Scannell, 128 Wn.2d at 834-35.
Here, JCV's counsel informed PSW's counsel, at some point prior to the running of the 30-day limit to file the notice of appeal, that JCV intended to appeal the trial court's November 17 summary judgment order. PSW insisted on December 8 that the summary judgment order was not final and thus not appealable because PSW's CR 11 and statutory fees requests continued to exist and had not been adjudicated. PSW's counsel was mistaken as to the finality of the November order.
JCV's counsel told the trial court that she did not appeal within 30 days because after PSW's counsel pointed out the counterclaims, JCV's counsel went and looked carefully at [the trial court summary judgment] order. I looked at CR 54. I looked at the civil rules. I looked at the facts that counterclaims, although I thought they were improperly presented, remained. And, therefore, promptly, not 15 months later like in the Seattle Police G[u]ild case, but promptly I brought a motion before this Court on December 20 or 21 to have their counterclaims dismissed.
JCV argues that PSW's counsel engaged in 'intentionally deceptive and inconsistent conduct' and 'should not be rewarded for its misconduct.' The court noted that 'it appears to some degree disingenuous for defense counsel to have taken the position and make representations that the counterclaim was not subject to a final order and then argue today that it was,' but JCV's counsel 'chose to act at her own peril and rely upon defense counsel's representations of what the law was or was characterized as.'
A mistaken understanding of the law and reliance on opposing counsel's interpretation of the law is not an extraordinary circumstance justifying an extension of time. Under these facts, reasonable diligence would have required either a timely request to the trial court to clarify the scope or finality of its decision, or a filing of a notice of appeal to preserve the appeal.
III. The Trial Court Did Not Err in Granting Summary Judgment to PSW
Because we hold that the appeal is untimely, we need not address the merits of the trial court's summary judgment ruling. However, in the interest of judicial economy, we address the merits of the underlying order. An appellate court engages in the same inquiry as the trial court when reviewing an order of summary judgment. Folsom v. Burger King, 135 Wn.2d 658, 663, 958 P.2d 301 (1998). Summary judgment is appropriate if there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. CR 56(c). A fact is material if the outcome of the litigation depends on its resolution. Police Guild, 151 Wn.2d at 830. The court must consider the facts submitted and all reasonable inferences from those facts in the light most favorable to the nonmoving party. Clements v. Travelers Indem. Co., 121 Wn.2d 243, 249, 850 P.2d 1298 (1993).
For summary judgment purposes, this court presents the facts in the light most favorable to JCV as the nonmoving party. The following facts are taken primarily from the declaration of Gary Johnson, JCV's president. JCV and CRK, Inc., (not a party to this lawsuit) were joint venture partners in a construction business. PSW provided accounting and audit services for the joint venture. The joint venture ended by its terms in 1997. JCV and CRK worked to wind up the venture's affairs, including a final accounting to determine the parties' ending capital accounts. CRK told JCV in early 1998 that 'the balance of JCV's capital account was approximately negative $500,000.' Johnson 'surmised that the Joint Venture's accounting, particularly with respect to the accounting of each venturer's capital account, probably was significantly mistaken.' In 1999, JCV hired Berntson Porter Co. an accounting firm, to analyze the accounts. Berntson Porter issued preliminary reports in December 1999 and March 2000 that suggested to Johnson that his 'suspicions about the capital account balances were founded.' (March report).
JCV sent CRK a letter in March after receiving the preliminary report, asserting that JCV was entitled to substantial increases to its capital account. In that letter, JCV informed CRK that it had ceased bidding additional work 'because of the economic realities of the joint venture financial statement figures as they currently are presented by Berntson Porter' and presented its conclusions concerning the final capital accounts to CRK. CRK rejected most of JCV's proposed adjustment to the capital accounts. CRK stated that it would 'commence the arbitration process' called for in the joint venture agreement if the parties could not settle the dispute.
In November 2000, Berntson Porter issued a final report that concluded that errors in the joint venture's accounting had resulted in JCV's negative capital account. The report concluded that CRK owed JCV 'almost a million dollars.' CRK failed to meet JCV's written demand for compensation and JCV filed an accounting action against CRK in December 2000. In March 2001, JCV lost its bonding with Safeco due to its negative capital account and the accounting dispute. JCV and CRK reached a settlement in January 2002. However, due to CRK's limited finances, JCV was forced to accept a settlement that did not make it whole. JCV subsequently retained an expert in forensic accounting that provided a report to JCV on September 30, 2003. JCV filed its lawsuit against PSW the following month, on October 30, 2003. Washington has a three-year statute of limitation for negligence claims. RCW 4.16.080. A cause of action accrues and the statutory limitation period commences when a party has the right to seek relief in the courts. First Maryland Leasecorp v. Rothstein, 72 Wn. App. 278, 282, 864 P.2d 17 (1993). The elements of a negligence claim are duty, breach, causation, and damages. Green v. A.P.C., 136 Wn.2d 87, 95, 960 P.2d 912 (1998). A negligence claim accrues when a plaintiff exercising due diligence should have discovered the basis for the cause of action, even if actual discovery did not occur until later. Allen v. State, 118 Wn.2d 753, 758, 826 P.2d 200 (1992). The discovery rule is applicable to actions against accountants. Hunter v. Knight, Vale Gregory, 18 Wn. App. 640, 643-44, 571 P.2d 212 (1977).
A negligence action brought before damages are incurred would be premature and subject to dismissal. See First Maryland, 72 Wn. App. at 282 (noting this principle in context of fraud action). The aggrieved party need not know the full amount of damage before the cause of action accrues, only that some actual and appreciable damage occurred. First Maryland, 72 Wn. App. at 285. A plaintiff put on notice by some appreciable harm caused by another's wrongful conduct must exercise due diligence to discover the scope of the actual harm and is charged with what a reasonable inquiry would have discovered. Green, 136 Wn.2d at 96.
To prevail on summary judgment, PSW must show that JCV discovered or should have discovered all elements of its claim more than three years before it filed suit on October 30, 2003. JCV does not dispute that it was aware of some accounting errors before October 2000 and thus does not dispute that it was or should have been aware that PSW breached a duty toward it. JCV further admits that the March 2000 preliminary report from its independent accounting firm confirmed its suspicions that PSW had made accounting errors, particularly related to the capital account balances.
PSW argues that the required exercise of reasonable diligence could have led JCV to know of appreciable harm from alleged errors in the joint venture accounting no later than March 2000. JCV argues that it did not suffer any actual damage from PSW's negligence until 2001 (when it lost bonding by Safeco) or 2002, when JCV and CRK settled the accounting action. JCV argues that had it been able to recover its losses from CRK, it would have had no resulting damage from PSW's conduct. Thus, JCV argues, even though it was aware of PSW's wrongful acts, the statute of limitation did not begin to run until 2001 at the earliest because that was when JCV was first appreciably damaged.
The question here is when JCV was damaged. JCV relies primarily on three Washington cases. The first is Sabey v. Howard Johnson Co., 101 Wn. App. 575, 5 P.3d 730 (2000). In 1989, Sabey invested in a company relying on an actuarial firm's negligent statement that the company's pension plan was adequately funded. Later that year, Sabey learned that the company's plan was actually significantly under-funded. The company went bankrupt two years later, and the Pension Benefits Guaranty Corporation (PBGC) paid the shortfall in the pension funding. PBGC notified Sabey in 1993 that he was potentially liability for the shortfall, and confirmed in 1995 that it would hold Sabey liable. In 1998, Sabey settled PBGC's claim. Later that year, Sabey sued the actuarial firm on a negligence theory to recover the settlement loss. Sabey, 101 Wn. App. at 579-81. The actuarial firm argued that Sabey's claim was time-barred because Sabey knew of the alleged negligence in 1989, and knew of his potential liability in 1993 and 1995, but did not sue the actuarial firm until 1998. This court held that Sknowledge of potential liability is not the equivalent of actual harm,' and until Sabey agreed to settle with PBGC, his personal liability was purely speculative. Sabey, 101 Wn. App. at 595.
The second case is First Maryland. In that case, the Rothsteins invested $25,000 in a partnership. The Rothsteins and other members of the partnership relied on Jones's representations to obtain a bank loan in the partnership's name. The Rothsteins guaranteed the loan. In 1983, the Rothsteins refused to reconfirm their guaranty on the loan at the bank's request because they learned of misrepresentations about the original investment and guaranty. The bank obtained a judgment against the partnership in 1987 and sued the Rothsteins on their guaranty. The Rothsteins filed a third party claim against Jones in 1988. Jones argued that the claim was time-barred because the Rothsteins were aware of Jones's wrongful conduct by 1983 or 1984. The court held that a cause of action does not accrue when the plaintiff becomes aware of a wrong if 'plaintiff's damages are not certain to occur or too speculative to be proven' at that time. First Maryland, 72 Wn. App. at 284 (quoting Acri v. Int'l Ass'n of Machinists Aerospace Workers, 781 F.2d 1393, 1396 (9th Cir. 1986)). The First Maryland court held that the partnership, not the Rothsteins, was primarily liable to the bank, and that the Rothsteins would become liable only if the partnership assets were insufficient to satisfy the loan and the bank made a demand on the guarantors. Thus, the statute of limitation did not commence until the bank made its demand. First Maryland, 72 Wn. App. at 285-86.
JCV's situation is distinguishable from the circumstances presented in Sabey and First Maryland. In both those cases, whether or not the plaintiff suffered any actionable damage was dependent on the action of third parties. In Sabey, the plaintiff was not liable until he settled with a third party that demanded payment from him. The plaintiff then sought reimbursement from the actuarial firm. And in First Maryland, the plaintiffs were not liable until the bank demanded payment from them under a guaranty. They then sought reimbursement from Jones. Barring the action of the third party, neither of those plaintiffs would have any damages for which to seek compensation.
JCV's position is essentially different: JCV asserts that it was owed approximately $1 million from CRK. Its claimed damages were not contingent on any speculative action or demand of CRK or any other party. In fact, the First Maryland case acknowledges this distinction. In a footnote, the First Maryland court stated:
To the extent Rothsteins sought and were entitled to a rescission of their guaranty or return of their $25,000 investment, not damages based on their guaranty, judicial relief became available once the misrepresentations were made. However, it appears from the record that Jones was found not to be an agent of First Maryland and any misrepresentations he made would not give rise to rescission rights against the bank. Further, Rothsteins did not want a return of their $25,000 investment.
First Maryland, 72 Wn. App. at 285 n. 5. Unlike the Rothsteins, JCV sought to recover damages it asserts arose directly from PSW's negligent accounting. The fact that JCV was damaged was not uncertain or dependent on any third party action.
In Davis v. Davis Wright Tremaine, 103 Wn. App. 638, 657, 14 P.3d 146 (2000), the court rejected the plaintiff's argument that his claims were not time-barred because, until he lost his lawsuit against a third party, he did not know that he was damaged by the action of the law firm defendant. The court held that the plaintiff was not entitled to wait to see whether he could recover damages from the third party before suing his law firm. Davis, 103 Wn. App. at 657. The court stated that the plaintiff's argument 'confuses his knowledge of the fact of damages with knowledge of the person against whom he could seek to collect those damages.' Davis, 103 Wn. App. at 657. Here, JCV claimed direct damage as a result of PSW's negligent accounting services. JCV's subsequent settlement with CRK only determined the amount of damages (if any) it wished to seek from PSW to make it whole. When JCV brought its lawsuit against CRK, it could have also brought a lawsuit naming PSW. Under Davis, JCV was not entitled to wait to see whether or how much it could recover from CRK before suing PSW.
JCV also cites to Mack Financial Corp. v. Smith, 720 P.2d 191 (Idaho 1986), and Axel Johnson, Inc. v. Arthur Andersen Co., 738 F. Supp. 772 (S.D.N.Y. 1990). Neither of these cases is persuasive. In Mack, a lender required a borrower to submit audited financial statements as a condition of a loan. The borrower filed bankruptcy, and the lender pursued collection of the loan in bankruptcy court. The lender was not able to fully recover in bankruptcy and sued the borrower's accountant for negligence. The factual circumstances of Mack are not analogous. JCV's position is more like that of the borrower, not the lender, in Mack. And, the Mack lender suffered no certain loss until it could not fully recover from the borrower's estate. To the contrary, the fact of JCV's damage was not uncertain when it learned of PSW's negligence.
The Axel Johnson decision is likewise not persuasive. In 1982, Axel Johnson, Inc., (Axel) purchased a company (ITI) in reliance on an accountant's materially false and deceptive audits and financial reports. In 1985, a private citizen brought a qui tam action against ITI and Axel under the False Claims Act. The government assumed prosecution of the action. Axel Johnson, 738 F. Supp. at 773. Axel and ITI settled with the government in 1989. Axel sued the accountant the same year. Axel Johnson, 738 F. Supp. at 776. The Axel Johnson plaintiff, like the plaintiffs in First Maryland and Sabey, would have had no damages for which to seek compensation barring the action of third parties the private citizen who brought the qui tam suit and the government. That is, until 'the outcome of the government's investigation was known,' Axel would have suffered no 'identifiable and appreciable loss' resulting from the accountant's allegedly negligent accounting. Axel Johnson, 738 F. Supp. at 777. This is not the case for JCV. JCV's alleged damages were not contingent on any third party action.
The third case JCV primarily relies on is Johnson v. Reehoorn, 56 Wn. App. 692, 784 P.2d 1301 (1990). In that case, the plaintiff hired an attorney to probate his father's estate. The attorney hired an accountant to help out with the federal taxes. The accountant filed the taxes late. The attorney informed the plaintiff that the sole consequence of the late filing would be a small penalty, and that either the attorney or the accountant would take care of the penalty. The IRS imposed a $115.20 penalty in 1982. Approximately one year later, the IRS notified the accountant that the late filing disqualified a special use valuation the estate had relied upon. As a result of the disqualification, the plaintiff owed approximately $120,000 in additional taxes. Reehoorn, 56 Wn. App. at 694, 697.
The court stressed that the plaintiff's lack of knowledge that the estate had a cause of action for anything other than the penalty was attributable in substantial degree to the assurance from the attorney and the accountant that they would pay the penalty and there would be no further consequence from the late filing. Reehoorn, 56 Wn. App. at 698.
Less than three years after being notified of the loss of the special use valuation, but more than three years after the imposition of the $115.20 penalty, the plaintiff sued the attorney and the accountant. The court held that the plaintiff's lawsuit was not barred by the statute of limitation. The court distinguished between the 'mere imposition of a penalty for late filing' and 'the loss of a valuable substantive right involving over $120,000 in additional taxes.' Reehoorn, 56 Wn. App. at 697-98. The court ruled that the plaintiff's cause of action did not accrue until he was notified of the loss of the special use valuation in 1983. Reehoorn, 56 Wn. App. at 698.
JCV cites to the Reehoorn case to argue that its 'damages' in paying Berntson Porter to analyze the joint venture's accounts did not trigger the statute of limitation because these fees were not a substantive loss. But our conclusion that the statute of limitation was triggered does not rely on the timing of JCV's payments to Berntson Porter. Rather, the statutory period was triggered by JCV's knowledge that it was damaged no later than March 2000 when its accountant confirmed JCV's suspicion of accounting errors and put JCV on inquiry notice of everything that reasonable diligence would have discovered. Thus, the limitation period began to run no later than March 2000, and JCV's lawsuit brought in October 2003 was time-barred.
We would affirm the trial court, but having determined that the appeal is untimely we dismiss the appeal with prejudice.
GROSSE and COLEMAN, JJ., Concur.