Filed 9/1/26 Lugo v. Hartford Fire Insurance Co. CA4/1
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COURT OF APPEAL, FOURTH APPELLATE DISTRICT
DIVISION ONE
STATE OF CALIFORNIA
TERESITA RIVERO LUGO, D087797
Plaintiff and Appellant,
v. (Riverside Super. Ct.
No. CVSW2202639)
HARTFORD FIRE INSURANCE
COMPANY,
Defendant and Respondent.
APPEAL from a judgment of the Superior Court of Riverside County,
Angel M. Bermudez, Judge. Affirmed.
Andrews Law Group, Brian C. Andrews and Brett DeBorde, for
Plaintiff and Appellant.
Booth, Mitchel & Strange and Stacie L. Brandt, for Defendant and
Respondent.
Teresita Lugo learned in February 2016 that her escrow agent had
fraudulently transferred funds from her escrow account. Accordingly, she
sued the agent, the escrow company, and Hartford Fire Insurance Company
(Hartford), the issuer of an escrow bond to the company. Lugo dismissed
Hartford from the suit just before a bench trial that led to a December 2020
judgment against the agent (later amended to include the escrow company).
Lugo sued Hartford again in April 2022, this time to recover under
two escrow bonds. Recognizing that her claim was untimely under a strict
application of the two-year limitations period of Financial Code section
17205, she sought to invoke the doctrine of equitable tolling to extend this
deadline. The trial court sustained Hartford’s demurrer on statute of
limitations grounds without leave to amend after concluding that the
deadline could not be tolled. Finding no basis in the record that Lugo’s
filing of her second claim against Hartford was reasonable under the
circumstances, as required for tolling to apply, we affirm the judgment of
dismissal.
PROCEDURAL AND FACTUAL BACKGROUND1
A. Lugo’s First Lawsuit
Lugo and her husband consulted a real estate broker in 2011 about
refinancing their mortgage. The broker advised them to deposit funds into
an escrow account established by Milestone Escrow, Inc. (Milestone) and
1 These facts are taken from the well-pleaded factual allegations in the
fourth amended complaint (Aryeh v. Canon Business Solutions, Inc. (2013)
55 Cal.4th 1185, 1191 (Aryeh)), the exhibits to the complaint (Panterra GP,
Inc. v. Superior Court of Kern County (2022) 74 Cal.App.5th 697, 708), and
matters the trial court judicially noticed (C.R. v. Tenet Healthcare Corp.
(2009) 169 Cal.App.4th 1094, 1103).
2
managed by Milestone employee Alfredo Perez. They followed this advice by
depositing $75,000 into the account in August 2011. Shortly thereafter,
Perez fraudulently wired these funds out of the account.
Hartford entered the picture in 2014 when it issued the first of two
escrow bonds to Milestone. It issued a $25,000 bond in March 2014 (the 2014
bond) and another bond in August 2015 that was worth $50,000 (the 2015
bond). According to the bonds’ terms, Milestone, the principal, and its agents
and employees were required to “faithfully conform to and abide by the
provisions of the Escrow Law.” With language mirroring Financial Code
section 17205 (section 17205), the bonds authorize a person aggrieved by a
breach of this duty to sue Hartford for damages up to the bond amount with
the caveat that “no such action may be brought after the expiration of two
years from and after the act or default complained of.”2
In 2015, Lugo and her husband were evicted from their home following
the conclusion of foreclosure proceedings they were not aware had been
instituted. Shortly after losing her home, Lugo demanded an explanation
from Perez and the return of the $75,000. Perez strung Lugo along until
February 2016, which is when she met him in his office and obtained her
escrow file. In an apparent attempt to smooth things over, Perez gave Lugo
two personal checks that together totaled $75,000, which Lugo declined to
cash because she demanded to be paid from the escrow account.
Lugo and her husband hired an attorney in March 2017 and sued
Perez and Milestone in Riverside County Superior Court in October 2017.
2 “No action may be brought on an escrow agent’s bond by any person
after the expiration of two years from the time when the act or default
complained of occurs.” (Fin. Code, § 17205.) Neither party asserts that the
two recitations of this rule are materially different.
3
A month later, she sent Hartford a letter making a demand on the 2015 bond
in the amount of $50,000 based on “acts and omissions of Milestone” that
she “became aware of in … February 2016.” The letter also told Hartford to
expect to be named as a defendant in the suit. Hartford rejected Lugo’s
demand a few days later, claiming, among other things, that the acts and
omissions she complained about occurred before the 2015 bond was issued.
In August 2018, Hartford was added as a defendant to the suit which,
by that time, had been transferred to Orange County.3 Lugo asserted that,
as the “bonding company for Milestone,” Hartford was liable for (1) money
had and received, (2) fraud, (3) breach of fiduciary duty, (4) unjust
enrichment, and (5) constructive trust. In support of the first cause of
action, Lugo alleged: “Neither the whole nor part of this sum has been paid,
although demand therefor has been made and there is now due owing and
unpaid the sum of $75,000 with interest thereon, as provided by applicable
law, from on and after August 18, 2011.
A bench trial was scheduled for November 2019. The plaintiffs
dismissed Hartford at the start of trial without prejudice. The trial was
continued to December 2019, after which the court found Perez liable for the
$75,000 he transferred from the escrow account. The court made no rulings
at that time as to Milestone’s liability.
The court entered a judgment of $75,000 against Perez in December
2020. A few days later, it issued an order to show cause why Milestone
should not be dismissed from the case. The plaintiff’s responded by
submitting an amended judgment naming Milestone as a judgment debtor,
which the court signed in April 2021. The court vacated this amended
3 Teresita Rivero Lugo et al. v. Milestone Escrow, Inc. et al. (Super. Ct.
Orange County, 2018, No. 30-2018-00984787-CU-FR-CJC) (Lugo I).
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judgment in December 2022 because Milestone had not been properly notified
that the plaintiffs had proposed making it a judgment debtor. In May 2024,
the court entered another amended judgment purportedly making Milestone
jointly and severally liable for the money owed by Perez.
B. Lugo’s Second Lawsuit
Lugo filed the present case in April 2022, naming her former attorneys
and Hartford as defendants (Lugo II). Against Hartford she sought to collect
the full $50,000 amount of the 2015 bond based the judgment obtained in
Lugo I. After a series of amendments to the complaint to respond to
Hartford’s demurrers on section 17205 and other grounds, Lugo’s fourth
amended complaint became the operative pleading. By this time, Lugo’s
claim included a demand for the full amount of the 2014 bond and had
attributed Hartford’s liability to “Perez’s violation of his duties as an escrow
agent.”
Lugo had also beefed up her allegations in an attempt to defeat
Hartford’s section 17205 defense. She alleged facts meant to invoke the so-
called “delayed discovery rule,” which “ ‘postpones accrual of a cause of action
until the plaintiff discovers, or has reason to discover, the cause of action’ ”
(Aryeh, supra, 55 Cal.4th at p. 1192), and which applies to claims subject to
the limitations period of section 17205 (Royal Thrift & Loan Co. v. County
Escrow, Inc. (2004) 123 Cal.App.4th 24, 43–44 (Royal Thrift)). The operative
complaint alleges that it was not until February 2016 when Lugo learned
about Perez’s wrongful 2011 transfer of funds from the escrow account.
Accordingly, this is when Lugo’s claim against Hartford also accrued. (Brock
v. Western Nat’l Indemn. Co. (1955) 132 Cal.App.2d 10, 16 [“The general rule
is that the liability of a surety accrues at the same time as that of the
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principal”].) Accordingly, to be timely, section 17205 would generally require
her claim against Hartford be filed by February 2018.
As noted, however, Lugo II was not initiated until more than four years
after that deadline. To attempt to get around this problem, Lugo alleged
facts designed to invoke the doctrine of equitable tolling, a common law rule
that suspends or extends a limitations period. (Saint Francis Memorial
Hospital v. State Dept. of Public Health (2020) 9 Cal.5th 710, 719 (Saint
Francis).) As we read the complaint and its exhibits, Lugo asserts that the
limitations period of section 17205 ran from February 2016—when she met
Perez and obtained her escrow file—until November 2017—when she sent
her demand letter to Hartford—and was tolled from that point forward. In
other words, she believes Lugo II was initiated with a few months to spare.
Hartford again demurred on statute of limitations grounds based on
section 17205 and argued that equitable tolling was not available to Lugo.
The trial court agreed and sustained Hartford’s demurrer without leave
to amend. The court also concluded that even if equitable tolling could
somehow apply to Lugo’s claim, the tolling event was too short to have
extended the statutory deadline until April 2022. Judgment was
subsequently entered for Hartford.
DISCUSSION
The parties agree that Lugo’s claim against Hartford could be timely
under section 17205 only if both the delayed discovery rule and equitable
tolling apply. The complaint alleges, and Hartford does not dispute, that
Lugo became aware of Perez’s misconduct in February 2016, and we agree
that she is entitled to this accrual date for her claim against the company
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under the delayed discovery rule.4 Finally, Hartford does not contest Lugo’s
argument that, at least in theory, this limitations period may be equitably
tolled.5
The parties’ positions diverge, however, at whether tolling is available
to Lugo and, if it is, whether the duration of the tolling event saves her claim.
Lugo appears to contend the limitations period was tolled from November
2017—when she provided notice by sending a demand letter to Hartford—
until April 2022—when she filed Lugo II. According to Lugo, the operative
complaint alleges all the requirements for equitable tolling to apply, and the
trial court erroneously resolved disputed facts to define the length of the
tolling event. Hartford disagrees in both respects.
“An affirmative defense, the statute of limitations exists to promote
the diligent assertion of claims, ensure defendants the opportunity to collect
evidence while still fresh, and provide repose and protection from dilatory
suits once excess time has passed.” (Aryeh, supra, 55 Cal.4th at p. 1191.)
4 The trial court’s order states that “delayed discovery does not appear
to apply here,” but the court’s meaning is at best unclear. To the extent it
believed the delayed discovery concept did not apply to the limitation period
in section 17205, that was an error (Royal Thrift, supra, 123 Cal.App.4th at
pp. 43–44), which for reasons that follow was harmless.
5 Neither party addresses whether the Legislature intended for section
17205 to be subject to equitable tolling. (See, e.g., Saint Francis, supra, 9
Cal.5th at p. 720 [rebuttable presumption exists that “statutory deadlines are
subject to equitable tolling”]; PGA West Residential Assn., Inc. v. Hulvern
Internat., Inc. (2017) 14 Cal.App.5th 156, 178 [discussing statutes not subject
to tolling]; Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 373 [same].) Nor
was this issue brought up in Royal Thrift, supra, 123 Cal.App.4th 24, which
is the only case that cites section 17205. Because this is not a point of
contention here, we assume without deciding that section 17205’s deadline
may be tolled.
7
“The limitations period, the period in which a plaintiff must bring suit or
be barred, runs from the moment a claim accrues.” (Ibid.) A claim accrues
when a plaintiff is on at least inquiry notice of the basis for complaint. In
other words, the plaintiff must have had “reason to at least suspect that a
type of wrongdoing has injured them.” (Fox v. Ethicon Endo-Surgery, Inc.
(2005) 35 Cal.4th 797, 807 (Fox).)
The application of a statute of limitations is ordinarily an issue of fact.
(Fox, supra, 35 Cal.4th at p. 810.) But when the facts are undisputed, as we
treat the material factual allegations when reviewing an order sustaining a
demurrer, the application of a statute of limitations is a purely legal question
that we review de novo. (Aryeh, supra, 55 Cal.4th at p. 1191.) A demurrer on
this ground “ ‘ “will not lie where the action may be, but is not necessarily,
barred.” ’ ” (Committee for Green Foothills v. Santa Clara County Bd. of
Supervisors (2010) 48 Cal.4th 32, 42.) Rather, “ ‘ “[i]n order for the bar ... to
be raised by demurrer, the defect must clearly and affirmatively appear on
the face of the complaint; it is not enough that the complaint shows that the
action may be barred.” ’ ” (Ibid.)
Equitable tolling “applies ‘occasionally and in special situations’ to
‘soften the harsh impact of technical rules which might otherwise prevent a
good faith litigant from having a day in court.’ ” (Saint Francis, supra, 9
Cal.5th at p. 719.) “[T]he effect of equitable tolling is that the limitations
period stops running during the tolling event, and begins to run again only
when the tolling event has concluded.” (Lantzy v. Centex Homes (2003) 31
Cal.4th 363, 370.) “As a consequence, the tolled interval, no matter when it
took place, is tacked onto the end of the limitations period, thus extending
the deadline for suit by the entire length of time during which the tolling
event previously occurred.” (Id. at pp. 370–371.)
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“To determine whether equitable tolling may extend a statute of
limitations, courts must analyze whether a plaintiff has established the
doctrine’s three elements: [(1)] timely notice to the defendant, [(2)] lack of
prejudice to the defendant, and [(3)] reasonable and good faith conduct by the
plaintiff.” (Saint Francis, supra, 9 Cal.5th at pp. 725–726.) In addressing
the third element, a court must decide whether the late filing was both
objectively “fair, proper, and sensible in light of the circumstances” and
“the result of an honest mistake or was instead motivated by a dishonest
purpose.” (Id. at p. 729.)
We agree with Lugo that the operative complaint meets the first two
elements of equitable tolling. She provided notice to Hartford in November
2017 that she believed she had a claim under Milestone’s 2015 bond within
two years of when her claim accrued. (Saint Francis, supra, 9 Cal.5th at
p. 726 [notice of claim within statutory period required].) And although
Hartford contends otherwise, Lugo’s demand letter arguably gave the
company sufficient notice to prepare to defend against that and any other
related claims. (See id. at p. 728 [courts consider whether application of the
doctrine would prevent the defendant from defending against the later
asserted claim].)
But Lugo’s complaint falls short of satisfying the third element.
Dispositive here is that she dismissed Hartford from Lugo I without having
either entered into a tolling agreement or secured a waiver of a statute of
limitations defense.6 The filing of a lawsuit stops a limitations clock from
6 Once a plaintiff is on notice of the basis for their claim, they “can safely
agree to delay filing only if the defendant agrees in writing to toll the running
of the statute of limitations.” (Carr et al., Cal. Affirmative Defenses 2d (2025)
Statute of Limitations, § 25:67.)
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ticking; however, “ ‘[i]n the absence of a statute, a party cannot deduct from
the period of the statute of limitations applicable to his case the time
consumed by the pendency of an action in which he sought to have the matter
adjudicated, but which was dismissed without prejudice to him.’ ” (Thomas v.
Gilliland (2002) 95 Cal.App.4th 427, 429–430, 432–433 [plaintiff dismissed
defendant without prejudice], quoting Wood v. Elling Corp. (1977) 20 Cal.3d
353, 359.) Given that Lugo could have litigated her claim against Hartford to
judgment in Lugo I—and considering the statute-of-limitations consequences
of dismissing the company from that suit without prejudice but without a
waiver or tolling agreement—the tactic of asserting her claim in Lugo II was
neither fair, proper, nor sensible as required for equitable tolling to apply.
Moreover, once Lugo obtained a judgment against Perez—which forms
the basis for her belief that Hartford is liable under the escrow bonds—she
waited an additional 16 months to file suit in Lugo II. The complaint is
silent as to the reasons for this delay, Lugo offers no explanation on appeal,
and we are unable to infer any credible justification for waiting so long to
reassert in Lugo II a claim that she could have fully litigated in Lugo I. Lugo
suggests that her participation in the postjudgment litigation in Lugo I
demonstrates her diligence and reasonableness vis-à-vis Hartford, but the
company was not a part of those proceedings. We therefore conclude that
equitable tolling is not available to Lugo due to the absence of allegations in
the complaint that demonstrate her objective reasonableness in pursuing her
claim against Hartford.
To be sure, the complaint asserts that Lugo “acted in good faith and
reasonably at all times in pursuing her claims against Hartford” and that
she acted “diligently.” Aside from the fact that we do not treat her legal
contentions as true when reviewing Hartford’s demurrer (Blank v. Kirwin
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(1985) 39 Cal.3d 311, 318), they do not square with our conclusion that, even
under the most liberal interpretation of the complaint, Lugo’s litigation
conduct is inconsistent with the equitable nature of the relief she seeks.7
Finally, “ ‘ “it is error for a trial court to sustain a demurrer when the
plaintiff has stated a cause of action under any possible legal theory.” ’ ”
(Tran v. Nguyen (2023) 97 Cal.App.5th 523, 528.) Lugo argues that the
judgment should be reversed because her complaints collectively assert “any
number” of viable claims, though she declines to suggest any. Given the
limited scope of Hartford’s liability, we are unable to identify any potential
claims that would be timely. In that same vein, the trial court did not abuse
its discretion in denying Lugo leave to amend—which she neither requested
below nor suggests on appeal is reversible error—because there is no basis for
us to infer that the untimeliness defect can be corrected by yet another
amendment. (Ibid.)
DISPOSITION
The judgment is affirmed. Hartford shall recover its costs on appeal.
DATO, J.
WE CONCUR:
MCCONNELL, P. J.
O’ROURKE, J.
7 We therefore need not consider Lugo’s argument that the trial court
improperly resolved a dispute of fact in determining the length of the tolling
event. Nor do we need to analyze equitable tolling for each escrow bond
separately, as Lugo argues that the same facts establish the elements of
equitable tolling for both.
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