Eastwood Ranch v. Dyess
Filed 1/16/13 Eastwood Ranch
v. Dyess CA4/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits
courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115
IN
THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FOURTH
APPELLATE DISTRICT
DIVISION
THREE
EASTWOOD RANCH, LP, et al.,
Plaintiffs and Appellants,
v.
ROBERT W. DYESS, JR., et al.,
Defendants and Respondents.
G046526
(Super. Ct. No. 30-2010-00418687)
O P I N I O N
Appeal
from a judgment of the Superior Court of
County, Jamoa A. Moberly, Judge. Affirmed.
Sayre
& Levitt, Federico Castelan Sayre and Mahadhi Corzano for Plaintiffs and
Appellants.
Sedgwick
LLP and Federick B. Hayes for Defendants and Respondents.
Samuel
Ayoub (Ayoub) a licensed realtor and real estate investor hired Robert W.
Dyess, Jr., (Dyess) and his law firm, Good Wildman Hegness & Walley (the
Law Firm), to prepare documentation to form a limited partnership, and a
limited liability company, and an agreement for the purchase of an apartment
building with several other investors as tenants in common. Dyess prepared documents to create The
Eastwood Ranch, LP, (hereafter the Eastwood Partnership), a Delaware limited
partnership to act as owner of the property, and The Eastwood Ranch GP, LLC,
(hereafter Eastwood GP) to act as the general partner of the Eastwood
Partnership. Ayoub was named the
managing member of Eastwood GP. Dyess
drafted the tenancy in common agreement (TIC Agreement), executed by the
Eastwood Partnership and several other investors purchasing the apartment
building together.
After
the building was purchased, Ayoub discovered problems with Dyess’s drafting of
the TIC agreement. Ayoub, Eastwood
Partnership, and Eastwood GP (hereafter referred to collectively as Plaintiffs,
unless otherwise required to avoid confusion), filed a legal malpractice
lawsuit against Dyess and the Law Firm.
The sole issue raised on appeal is whether the trial court erred in
awarding summary judgment and denying a motion for new trial on the grounds
Plaintiffs’ malpractice action was barred by the one-year
I
Ayoub
and several other investors wished to purchase an apartment building in Texas. Because some of the parties were investing in
the property as Internal Revenue Code section 1031 (hereafter section 1031) exchanges,
Firm.
In
2005, Dyess prepared the documentation to form Eastwood Partnership to act as
owner of the property. He designated
Ayoub as the managing member of Eastwood GP, formed to act as the general
partner of Eastwood Partnership. To take
advantage of section 1031, Dyess recommended the building be purchased and held
as a tenancy in common. The advantages
of section 1031 would be lost if the investors were treated as a partnership.
In
2005, the investors purchased the property for $11,845,000 and then assigned
their interests in the property to the tenancy in common. Dyess drafted the
TIC Agreement for the investors to sign. It provided the Eastwood Partnership owned
55 percent of the property as a tenant in common with three sets of
individual investors, who owned the other 45 percent. As required by section 1031, the TIC
Agreement required all the tenants in common to have unanimous consent for all
significant decisions affecting the property, including renting, refinancing,
or selling the property. Thereafter,
Dyess did not perform any further legal services for Ayoub.
In the
TIC Agreement, Dyess did not include a “‘call provision,’†which would have
specified a procedure under which the majority owners would have the right to
purchase the ownership interest of the minority owners at fair market value at
the time the option was exercised. This
omission is the basis for the Plaintiffs’ legal malpractice action because this
provision was needed several years later (in 2007), when the investors
disagreed about leasing the property.
Specifically,
in September 2007 Ayoub was approached by a gas company wanting to lease the
property’s mineral and subsurface rights.
During the lease negotiations, Ayoub learned for the first time the TIC
Agreement required unanimous consent for all significant property decisions,
including a lease of the mineral rights.
As it turned out, four of the investors (the Shalabys and the Mansours)
refused to give their consent to the lease.
Unable
to lease the property, Ayoub began consulting with a Texas law firm,
Cantey & Hanger, in November 2007, about selling the property. At the time, the property was worth 12.4
million dollars. In January 2008, the Texas law firm
informed Ayoub it could not represent him and the other investors with respect
to a potential sale because their fees would be a flat rate based on the
proceeds of the escrow or a signing bonus.
The firm declined representation on the grounds the unanimous consent
clause in the TIC Agreement would complicate the sale transaction. It was deemed too risky for the law firm to
prepare the deal and have it fall through in the event a single investor
objected to the terms of the sale.
In
February 2008, Ayoub sent an e-mail to some of the other investors explaining
the difficulty in finding a law firm to represent the group in selling the
property. He wrote Cantey & Hanger’s
“main concern was, as in the case of other law firms, is that [
refusing to sign any of the documents needed to close the transaction; [
complete stop.’ The concern of the
lawyers is that they will not be able to close escrow and get paid.†Ayoub also disclosed to the others, “I am
wondering now: why the attorney who put
together this [t]enancy-[i]n-[c]ommon back in 2005, moved quickly without these
concerns?â€
Ayoub
was referring to Dyess, the drafting attorney.
Shortly thereafter, Ayoub contacted Dyess to ask about the unanimous
consent provision. Dyess informed Ayoub
that inclusion of a provision permitting a majority rather than unanimous
decision would have violated the IRS’s rules governing section 1031 exchanges,
and the investors would have been required to pay capital gain taxes. Ayoub recalled Dyess represented he had given
the investors the best possible TIC Agreement under the IRS rules.
Although
Dyess did not perform further legal services for Plaintiffs, in
May 2009 he sent Ayoub an e-mail regarding a possible buyer to
purchase the property. In November 2009,
Ayoub visited a friend in California who also used a TIC Agreement to purchase
property. The friend had not encountered
the same problems as Ayoub because his agreement contained a “call
provision.†Ayoub learned this provision
would have permitted him to have purchased the ownership interests of the
dissenting investors for fair market value and, thereafter, he would have been
free to lease or sell the property.
In
February or March of 2010, Ayoub consulted with another attorney, Eugene
Trowbridge in California. Trowbridge
explained “call provisions†in
TIC Agreements were standard as of 2002 and qualified for section
1031 tax deferred status. A few months
later, on October 21, 2010, Plaintiffs filed their legal malpractice action
against Dyess and the Law Firm.
Plaintiffs claimed they could have sold the property for $12.4 million
dollars in 2007 if the TIC Agreement contained the “call provision.†In addition, Plaintiffs alleged they had to
invest additional capital to prevent the property from going into default
because rents from the property had declined along with the overall real estate
market. Ayoub alleged he personally loaned
the investment $230,000, and he had not received his agreed upon management
fees or out of pocket expenses, totaling $300,000.
Dyess
and the Law Firm moved for summary judgment, alleging the statute of
limitations started to run no later than February 7, 2008, when Plaintiffs
first suffered actual injury and had discovered facts relating to Dyess’s
alleged negligence in drafting the TIC Agreement. (§ 340.6) They referred to Ayoub’s February 7, 2008,
e-mail as evidence Ayoub had a strong suspicion Dyess’s drafting skills were
lacking. Plaintiffs filed an opposition,
presenting evidence the statute of limitations did not commence until November
2009, when Ayoub learned from a friend about the missing “call provision.†Plaintiffs also argued Dyess and the Law Firm
were equitably stopped from asserting the statute of limitations defense
because Dyess told Ayoub the agreement was not negligently drafted.
On
November 22, 2011, the court granted the motion. In its minute order, the court stated, “Ayoub
was aware in 2007 and 2008 of facts giving rise to his claim for malpractice,
i.e., that the [TIC Agreement] required unanimous consent of [the] member[s]
for major sales, and that minority members refused to give consent to the sale
of the Property and mineral rights. . . . At that time, he was on notice to
inquire. The only thing Ayoub learned in
2009 was the legal theory behind his malpractice action.†(Citing Village
Nurseries v. Greenbaum (2002) 101 Cal.App.4th 26, 42-43.) In addition, the court ruled Plaintiffs had
failed to “plead or present admissible evidence supporting equitable estoppel.
. . . There is no evidence that . . . Dyess knew at any relevant time that a
call provision could have been included in the TIC Agreement.â€
Plaintiffs
filed a motion for a new trial asserting fraudulent intent was not required to
prove equitable estoppel, and based on this error of law, the court should
grant a new trial. On January 20, 2012,
the court denied the motion. In the
minute order the court stated, “Equitable estoppel cannot apply until the
statute of limitations begins to run. . . . Plaintiffs admitted that [Dyess and
the Law Firm] provided no legal advice and representation in 2009 and 2010. . .
. The one-year statute of limitations ran prior to filing of the complaint on
October 21, 2010.â€
II
Plaintiffs
contend the trial court erred in concluding their malpractice action was barred
by the one-year statute of limitations, and thus the trial court should not
have granted summary judgment. They assert
the court misinterpreted the alleged wrongful acts, because Dyess’s mistake did
not relate to the unanimous consent provision, but rather to his failure to
include the “call provision.†Plaintiffs
allege there is a triable issue of material fact as to whether they had
constructive knowledge of this related, but separate wrongful act. We disagree.
“Summary
judgment is appropriate only if there is no triable issue of material fact and
the moving party is entitled to judgment in its favor as a matter of law. [Citation.] . . . A defendant moving for
summary judgment . . . must show that one or more elements of the plaintiff’s
cause of action cannot be established or that there is a complete defense. [Citation.]
The defendant can satisfy its burden by presenting evidence that negates
an element of the cause of action or evidence that the plaintiff does not
possess and cannot reasonably expect to obtain evidence needed to support an
element of the cause of action.
[Citation.] If the defendant
meets this burden, the burden shifts to the plaintiff to set forth ‘specific
facts’ showing that a triable issue of material fact exists. [Citation.]
[¶] We review the trial court’s
ruling de novo, liberally construe the evidence in favor of the party opposing
the motion, and resolve all doubts concerning the evidence in favor of the
opposing party. [Citation.] We will affirm an order granting summary
judgment . . . if it is correct on any ground that the parties had an adequate
opportunity to address in the trial court, regardless of the trial court’s
stated reasons. [Citations.]†(Securitas
Security Services USA, Inc. v. Superior Court (2011)
197 Cal.App.4th 115, 119 120.)
To
prove professional negligence against an attorney, the former client must
satisfy these elements: (1) the
professional had a duty to use such skill, prudence, and diligence as other
members of the profession commonly exercise; (2) the defendant breached the
duty, failing to meet this standard of conduct; (3) there was causation between
negligence and claimed loss or injury; and (4) actual loss or damage resulted
from professional negligence. (
superseded in irrelevant part by § 340.6, as stated in
A
plaintiff’s discovery (actual or constructive) of a defendant’s alleged
wrongful conduct is not an element of a cause of action for legal malpractice,
but an untimely discovery of injury can be pleaded as an affirmative defense to
a claim of malpractice. (
7-8.) Although section 340.6 specifies
the limitations period begins to run upon the plaintiff’s discovery of such
facts as will show the defending attorney acted wrongfully (or ability to
discover), the section further provides for tolling of that time period until
actual injury is sustained. (§ 340.6,
subd. (a)(1).)
Specifically,
section 340.6 provides, in relevant part, “An action against an attorney for a
wrongful act or omission, other than for actual fraud, arising in the
performance of professional services shall be commenced within one year after
the plaintiff discovers, or through the use of reasonable diligence should have
discovered, the facts constituting the wrongful act or omission, or four years
from the date of the wrongful act or omission, whichever occurs first. . . .
[I]n no event shall the time for commencement of legal action exceed four years
except that the period shall be tolled during the time that any of the
following exist: [¶] (1)
The plaintiff has not sustained actual injury. [¶]
(2) The attorney continues to represent the plaintiff regarding the
specific subject matter in which the alleged wrongful act or omission
occurred. [¶]
(3) The attorney willfully conceals the facts constituting the
wrongful act or omission when such facts are known to the attorney, except that
this subdivision shall toll only the four-year limitation. . . .†(§ 340.6, subd. (a).)
“‘Thus,
the limitations period is one year from actual or imputed discovery, or four
years (whichever is sooner), unless tolling applies.’ [Citation.]
Although the language of the statute is ambiguous on the point, ‘[t]he
tolling provisions of
section 340.6 apply to both the one-year and the four-year
provisions.’ [Citations.]†(Croucier
v. Chavos (2012) 207 Cal.App.4th 1138, 1145-1146.)
“The question of when a
malpractice plaintiff actually discovered or through the use of reasonable
diligence should have discovered a wrongful act or omission and suffered injury
is generally one of fact.
[Citation.]†(
814, 824, fn. omitted (McCann).) “The question becomes a matter of law only
where reasonable minds can draw but one conclusion from the evidence. [Citation.]â€
(Ibid, fn. 13;
Cal.3d 1103, 1112 (Jolly) [“While
resolution of the statute of limitations issue is normally a question of fact,
where the uncontradicted facts established through discovery are susceptible of
only one legitimate inference, summary judgment is properâ€].)
In this
case, the record clearly reveals when Plaintiffs
sustained actual injury from the manner in which Dyess prepared the
transactional documents. The complaint
acknowledges that by 2008 Plaintiffs learned they could not lease or sell the
property without unanimous consent of all the tenants in common, law firms
refused to represent them in selling the property, and there was no remedy
written in the agreement to address this contingency. The issue we must decide is whether there was
also evidence Plaintiffs had sufficient suspicion of wrongdoing to trigger the
statute of limitations. (§ 340.6,
subd. (a).)
“It is well settled that
the one-year limitations period of section 340.6 ‘“is triggered by the client’s
discovery of ‘the facts constituting the wrongful act or omission,’ not by his
discovery that such facts constitute professional negligence, i.e., by
discovery that a particular legal theory is applicable based on the known
facts. ‘It is irrelevant that the plaintiff is ignorant of his legal remedy or
the legal theories underlying his cause of action.’†[Citation.]’
[Citations.]†(
Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 685 (
“The statute of
limitations is not tolled by belated discovery of legal theories, as distinguished from belated discovery of
In legal and medical malpractice cases, the courts are often confronted
with such claims that the statute of limitations has been tolled. However, the Supreme Court repeatedly has
explained that it is the knowledge of facts rather than discovery of legal
theory, that is the test. The test is
whether the plaintiff has information of circumstances sufficient to put a
reasonable person on inquiry, or has the opportunity to obtain knowledge from
sources open to his or her investigation.
[Citation.] If the plaintiff
believes that someone has done something wrong because of the damages suffered
by [him or] her, such a fact is sufficient to alert a plaintiff ‘to the
necessity for investigation and pursuit of her remedies.’ [Citation.]â€
(McGee v. Weinberg (1979) 97
Cal.App.3d 798, 803; see Jolly, supra, 44
Cal.3d at
p. 1110;
18 Cal.3d 93, 101.)
Plaintiffs claim Dyess
negligently drafted the TIC Agreement by failing to include a remedy in the
event the tenants in common could not unanimously agree about matters involving
the property. Specifically, Dyess could
have included a “call provision,†which would have permitted Plaintiffs to
purchase the interests of the dissenting investors. Plaintiffs correctly assert having knowledge
of the unanimity provision cannot be deemed the same thing as having knowledge
Dyess omitted the call provision. And
Plaintiffs established they first learned about the possibility of including a
call provision in 2010, when Ayoub read his friend’s TIC Agreement.
Nevertheless, we agree
with the trial court’s determination the statute of limitations began to run in
2007 when Plaintiffs should have discovered the facts supporting
liability. It is undisputed Plaintiffs
suffered actual injury in September 2007 when they were unable to lease the
mineral rights, and in November 2007 when the Texas law firm and other law
firms refused to represent Plaintiffs in the sale of the property. Ayoub’s e-mail to his fellow investors
reflected Plaintiffs suspected the harm was caused by poor drafting of the TIC
Agreement. Although they may not have
known Dyess omitted a specific kind of provision that could have easily
remedied the impasse between investors, the facts underlying the harm plus
Ayoub’s stated suspicious would have alerted a reasonable person “‘to the
necessity for investigation and pursuit of [his or] her remedies.’ [Citation.]â€
(McGee v. Weinberg (1979) 97
Cal.App.3d 798, 803.) In other words,
Plaintiffs were not ignorant of the need for a remedy to address the damage,
they were only unaware of the name or type of provision that should be added to
their TIC Agreement.
The above conclusion is
what sets this case apart from McCann,
supra,
153 Cal.App.3d
814, relied upon by Plaintiffs. In that
case, the court concluded separate acts of malpractice led to separate
actionable injuries. The plaintiff in
of his marriage that his attorney drafted a stipulation that inadequately
provided for distribution of the marital assets. (McCann,
supra,
153 Cal.App.3d
at pp. 817-818.) He decided not to
sue. However, the following year, he
learned the stipulation contained a second deficiency in that it failed to
provide for a termination of his spousal support obligations when he purchased
a house. (Id. at p. 818.) The
appellate court concluded the claim for negligence regarding the spousal
support stipulation was timely even though the plaintiff had earlier discovered
he had a possible malpractice action against the defendant based on a different
drafting mistake. (Id. at
pp. 820-821.)
In contrast, here there
was only one injury as a result of Dyess’s failure to include the “call
provision,†i.e., Plaintiffs could not sell or lease the property without
unanimous consent of all the tenants in common.
The two provisions are separate but certainly related. Plaintiffs’ knowledge of the harm caused by
one would put a reasonable person on constructive notice there may be something
that could be added or changed to help remedy the investors’ deadlock over what
to do with their property. We are not
suggesting Plaintiffs were required to have expert knowledge of the types of
remedies available under the IRS rules for section 1031 tax deferred
exchanges. The test for triggering the
statute of limitations is not the point at which a Plaintiff has technical
knowledge of the standard or care in drafting a TIC Agreement. But as seen in Ayoub’s e-mail to the other
investors, he clearly suspected the TIC Agreement was not properly drafted. Given these facts, a reasonable person would
investigate the matter further by seeking different legal advice, i.e., get a
second opinion.
We agree with the trial
court’s conclusion the disputed facts established, as a matter of law,
Plaintiffs were on notice of a potential legal malpractice claim in 2007. The statute of limitations are “‘practical
and pragmatic devices to spare the courts from litigation of stale claims, and
the citizen from being put to his defense after memories have faded, witnesses
have died or disappeared, and the evidence has been lost.’ [Citation.]â€
(Adams v. Paul (1995) 11
Cal.4th 583, 603.) As aptly noted by
Dyess and the Law Firm, if we were to accept Plaintiffs’ theory they needed
actual knowledge of the name of the missing remedy provision, they would have
unilateral control over the limitations period.
It should not take years of missed leasing opportunities, multiple
rejections of legal representation, or lack of purchase offers to put a
reasonable person on inquiry notice and the need to seek an expert’s
opinion. We conclude that in this case
the nature of the Plaintiffs’ damages in 2007 were sufficient to cause a
reasonable person to suspect the TIC Agreement was negligently drafted. In short, when Plaintiffs found it impossible
to lease or sell the property, or find a law firm to represent them, the
statute of limitations to file a legal
malpractice action was triggered.
E. Equitable
Estoppel
Plaintiffs
argue the trial court erred in finding (1) they were required to plead
fraudulent intent to claim equitable estoppel, and (2) equitable estoppel does
not apply until the statute of limitations begins to run. Applying our de novo standard of review, we
need not decide if the trial court was mistaken. Based on our review of the record, we
conclude equitable estoppel does not apply in this case.
Plaintiffs
seek to “invoke the venerable principle that ‘“[o]ne cannot justly or equitably
lull his adversary into a false sense of security, and thereby cause his
adversary to subject his claim to the bar of the statute of limitations, and
then be permitted to plead the very delay caused by his course of conduct as a
defense to the action when brought.’â€
[Citations.] [¶] Equitable tolling and equitable estoppel are
distinct doctrines. ‘“Tolling, strictly
speaking, is concerned with the point at which the limitations period begins to
run and with the circumstances in which the running of the limitations period
may be suspended. . . . Equitable estoppel, however, . . . comes into play only
after the limitations period has run and addresses . . . the circumstances in
which a party will be estopped from asserting the statute of limitations as a
defense to an admittedly untimely action because his conduct has induced
another into forbearing suit within the applicable limitations period. [Equitable estoppel] is wholly independent of
the limitations period itself and takes its life . . . from the equitable
principle that no man [may] profit from his own wrongdoing in a court of
justice.’†[Citation.]†(Lantzy
v. Centex Homes (2003) 31 Cal.4th 363, 383 (Lantzy).)
“One
aspect of equitable estoppel is codified in Evidence Code section 623, which
provides that ‘[w]henever a party has, by his own statement or conduct,
intentionally and deliberately led another to believe a particular thing true
and to act upon such belief, he is not, in any litigation arising out of such
statement or conduct, permitted to contradict it.’ [Citation.]
But ‘“[a]n estoppel may arise although there was no designed fraud on
the part of the person sought to be estopped.
[Citation.] To create an
equitable estoppel, ‘it is enough if the party has been induced to refrain from
using such means or taking such action as lay in his power, by which he might
have retrieved his position and saved himself from loss.’ . . . “. . . Where
the delay in commencing action is induced by the conduct of the defendant it
cannot be availed of by him as a defense.Չۉ۪
[Citations.]†(
To
invoke the doctrine of equitable estoppel, Plaintiffs rely on evidence Dyess
knew Plaintiffs were having difficulty selling the property and that he advised
Ayoub there was no way around the unanimous consent provision. If true, this would be considered faulty
legal advice. Relying on
103 Cal.App.4th 394 (Leasequip),
Plaintiffs argue that in legal malpractice cases any erroneously rendered legal
opinion can serve as a basis for applying equitable estoppel. Not so.
In the Leasequip case,
plaintiff corporation was prevented from filing a timely legal malpractice
action against its attorney because, during the statutory period, its corporate
powers were suspended. (
resulted directly from the attorney’s erroneous advice that compliance with
corporate formalities was not necessary and would not affect the company’s
legal claims. (Ibid.) The appellate court,
applying the doctrine of equitable estoppel, ruled the attorney could not raise
a statute of limitations defense when plaintiff’s reliance upon his erroneous
legal advice was the very thing that led to the statute expiring. (Id.
at p. 405.)
Other
courts have factually distinguished this case and interpreted the
attorney’s misconduct will not invoke equitable estoppels unless there is
specific conduct that induced the plaintiff from filing suit.
(See Peregrine, supra, 133
Cal.App.4th at p. 686.) Indeed, it has
long been the rule that equitable estoppel must be based on conduct inducing
the plaintiff to refrain from filing suit.
(See Battuello v. Battuello
(1998) 64 Cal.App.4th 842, 848 [promise made during settlement negotiations
induced plaintiff not to file suit or objection to probate petition];
Corp. (2008) 165 Cal.App.4th 129, 138 [defendant “urged the bonding company
and Unocal to suspend legal actions†with a “promise to amend the contractsâ€];
33, 43-44 [suit delayed by representations of repair]; cf. Peregrine, supra, 133 Cal.App.4th at p. 686 [no facts alleged
showing defendants “‘actually and
reasonably induced’ the investors to forbear filing suit . . .’’].)
There is no evidence in
the record showing Dyess or his Law Firm induced Plaintiffs from filing a
lawsuit against him or the Law Firm.
Plaintiffs do not allege Dyess discouraged them from filing a legal
malpractice action. Dyess simply
represented to the Plaintiffs he thought the TIC Agreement was properly
drafted. However, when Plaintiffs asked
Dyess about the TIC Agreement, they already suspected this was not the case. At the time, Plaintiffs were on notice of the
need to inquire about Dyess’s drafting skills.
A reasonable person would seek the legal opinion of someone other than
Dyess, to review the agreement he prepared for error. It would not be reasonable to ask the doctor
who operated on the wrong leg if he thinks he did a good job. Dyess’s favorable opinion about his own
drafting skills was no justification for Plaintiffs to forbear filing a
malpractice suit within the limitations period.
Despite having suspicion of wrongdoing, Plaintiffs sat on their rights
to file suit.
III
The judgment is
affirmed. Respondents shall recover
their costs on appeal.
O’LEARY,
P. J.
WE CONCUR:
MOORE, J.
FYBEL, J.
name="_ftn1" title="">[1] All
further statutory references are to the Code of Civil Procedure, unless
otherwise indicated.
name="_ftn2" title="">[2] Under
this provision of the United States Internal Revenue Code, a party can exchange
certain types of property to defer the recognition of capital gains or losses
that may be due upon sale.
