The Supreme Court of Idaho has reversed the dismissal of a legal malpractice action on the basis that the case was not time-barred under the applicable statute of limitations. In Minnick v. Ennis, a husband and wife owned a large tract of land in Idaho, which they intended to develop into a residential subdivision. They hired an attorney to assist them with the project.
In order to preserve the natural beauty and habitat of the property, the couple sought to gift a portion of their acreage to a non-profit conservation organization. Consequently, the attorney drafted and negotiated an easement, which transferred rights in the property to the organization. However, unbeknownst to the couple, the attorney failed to subordinate an existing mortgagee’s interest in the property to the organization’s interest, which was required by federal law, and the express terms of the easement, for a valid charitable conveyance.
The clients also intended to claim the conveyance as a charitable contribution for tax purposes, and took a charitable deduction for three consecutive tax years. The Internal Revenue Service (“IRS”) subsequently conducted an audit of the couple’s tax returns, and later notified them that their charitable deductions had been disallowed. As a result, the IRS sought approximately $250,000 of unpaid taxes.
The clients filed a petition in the United States Tax Court contesting the IRS’s findings. The IRS initially answered the petition, arguing that the conveyance did not constitute a charitable contribution for various reasons, including that the appraised value of the property was overstated. As a result of discovery conducted in that case, the couple (and the IRS) first learned that the attorney had never subordinated their mortgage to the charitable easement. The IRS then amended its answer to include this new information as additional grounds for disallowing the charitable deductions. The Tax Court ultimately found in favor of the IRS, specifically as a result of the subordination issue.
Within one year of learning of the attorney’s omission, the couple brought a malpractice action against him. The attorney moved to dismiss the case, arguing that the applicable statute of limitations had expired, because the case was brought more than two years from the date of the IRS’s decision to disallow the charitable deductions. The court granted the attorney’s motion and dismissed the case. The couple appealed.
The Supreme Court of Idaho reversed, applying the so-called ‘Some Damage Rule’. The Court found that the attorney’s conduct had not proximately caused damages to the couple until the IRS amended its answer to include the subordination issue. Because the malpractice action was filed within two years of that date, it was not time-barred. The Court remanded the case to the lower court for further proceedings.
Decision: Minnick v. Ennis