Shelden v. Grossman

Filed 10/3/06 Shelden v. Grossman Ca2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SEVEN

APPEAL from a judgment of the Superior Court of Los Angeles County. James A. Bascue, Judge. Affirmed.

Law Office of Joseph Daniel Davis, Joseph Daniel Davis; and Charlotte E. Costan, for Plaintiff and Appellant.

Nemecek & Cole, Frank W. Nemecek; Greines, Martin, Stein & Richland, Robin Meadow and Edwards L. Xanders for Defendants and Respondents.

_______________________

OrLynn Shelden, known as “Lindy,” sued the estate planning attorney and law firm used by her mother OrLynn Leahy and stepfather Donald Leahy. Lindy[1] claimed that counsel and the firm engaged in malpractice, conspiracy to breach their fiduciary duties, and conspiracy to commit fraud. The trial court dismissed the action after sustaining the demurrer to the Third Amended Complaint without leave to amend. On appeal, Lindy challenges the trial court’s ruling on the demurrer on the grounds that the causes of action were not barred by the statute of limitations, and requests leave to amend the complaint if pleading infirmities are identified. We affirm.

FACTUAL AND PROCEDURAL BACKGROUND

Lindy is OrLynn’s daughter and only child. OrLynn and Donald married in 1968. Attorney N. Matthew Grossman and his firm Parker, Milliken, Clark, O’Hara, & Samuelian (“Parker Milliken”) prepared several wills for OrLynn and Donald. OrLynn’s 1970 will bequeathed her entire estate to Lindy. OrLynn’s 1975, 1980, and 1984 wills left the majority of her estate to Donald.

OrLynn died on July 26, 1985. After her mother’s death, Lindy sued Donald over her mother’s estate, which had passed by the terms of the will largely to Donald. The lawsuit was settled in 1993, and Lindy executed a release of all claims as to Donald and his attorneys pertaining to her mother’s estate. In this release,[2] Lindy acknowledged that she had “expressed some dismay over the disposition of her mother’s interest in community property upon her mother’s death, including certain tax benefits which arose in favor of Donald as the result of her mother’s death.” “[T]o settle and forever resolve whatever hopes and expectations Lindy has had or may now have or at any time in the future will have with respect to” that and other matters “or with respect to any additional gifts from Donald during his lifetime or from Donald’s estate upon his death,” Donald agreed to pay Lindy $10,000 and to establish a $500,000 trust in her name. In return, Lindy acknowledged that she understood that beyond these gifts, “neither Donald nor Donald’s [new] spouse, Carmela Leahy, has made any promises, or shall have any obligations or commitments, to make any additional gifts, bequests, or devises to Lindy, to Lindy’s Trust, or to [Lindy’s son], directly or indirectly, now or at any time in the future.” Lindy released Donald and his new wife “from whatever claims, expectations, or hopes, if any, she may have had or she may now have or may have at any time in the future for any gifts, bequests, devises and inheritances from them or their estates.”

Donald died on December 3, 1999. Lindy filed this lawsuit against Grossman and Parker Milliken in December 2000, asserting three causes of action in her Third Amended Complaint. In her first cause of action for professional negligence, Lindy claimed that in 1975, Donald instructed Grossman and Parker Milliken to change the beneficiary of OrLynn’s will from Lindy to himself and that Grossman and Parker Milliken had failed to disclose that change to OrLynn or to ascertain whether it was what she wanted. She alleged that counsel did not inform OrLynn of the change in the will, of the conflict of interest arising out of their representation of both Donald and OrLynn, or of OrLynn’s need for independent legal counsel to protect her sizeable separate and community property estate, thereby breaching their duty to OrLynn. Lindy charged that Grossman and Parker Milliken repeated these breaches of their fiduciary duties to OrLynn when drafting the 1980 and 1984 wills.

With respect to the 1984 will, Lindy alleged that counsel negligently failed to advise OrLynn of the availability of a QTIP trust (26 U.S.C. § 2056), a trust that would have permitted OrLynn to leave her separate and community property estate in an irrevocable trust for Donald for the remainder of his lifetime, with the estate passing upon his death to Lindy. Lindy alleged that had OrLynn been advised of the availability of a QTIP trust, she “would have utilized this QTIP Trust to leave her estate to Lindy.” She asserted that OrLynn always intended to bequeath her estate to Lindy in its entirety, and claimed that as a result of the professional negligence of Grossman and Parker Milliken, she “has been damaged by the loss of essentially the entire separate and community property estate owned by OrLynn at her death which, but for the negligence of defendants, and each of them, would have ultimately gone to Lindy instead of Donald’s estate.”

In her second cause of action for conspiracy to breach fiduciary duty, Lindy alleged that by 1975, if not earlier, Donald, Grossman, and Parker Milliken entered into a conspiracy “to aid and abet Donald’s desire to circumvent his fiduciary duty to his wife and to defeat OrLynn’s legitimate community property assets and her clearly expressed intent to ultimately bequeath those assets to Lindy.” Lindy alleged that the motivation for counsel’s participation was financial: “Defendants violated their fiduciary duty to OrLynn, and placed Donald’s interests over OrLynn’s, because of their desire to remain in Donald’s favor and to continue to earn the substantial attorney fees that Donald had paid in the past and was expected to pay in the future for legal services on behalf of Donald’s business and real estate activities and for those fees they expected to earn from his estate after his death.” She claimed that in preparing the 1975, 1980, and 1984 wills, counsel “violated their fiduciary duty to OrLynn . . . because Donald was an important client of the firm and could be regularly counted on for substantial annual billings regarding his business and real estate activities.” Grossman, as executor of Donald’s estate and as a trustee of the trust created to hold the assets in Donald’s estate, “was motivated by his desire to maximize his executor and trustee fees income following Donald’s death.”

Here, Lindy claimed that counsel had deliberately omitted a QTIP trust from OrLynn’s final will “in order to aid and abet Donald in violating his fiduciary duties to OrLynn and in order to thwart OrLynn’s desire, known to Donald and defendants, to bequeath her substantial estate to Lindy.” Defendants’ conspiracy to breach their fiduciary duties to OrLynn, Lindy alleged, deprived Lindy of “the separate and community property estate owned by OrLynn at her death which, but for the intentional misconduct and breach of their fiduciary duties by defendants, and each of them, would have ultimately gone to Lindy instead of Donald’s estate.”

Lindy’s third cause of action, for conspiracy to commit fraud, rested on similar factual allegations. The conspiracy in this cause of action was “to defraud OrLynn out of her legitimate community property assets and her clearly expressed intent to ultimately bequeath those assets to Lindy.” In addition to the factual allegations outlined above, Lindy claimed in this cause of action that counsel concealed the existence of QTIP trusts from OrLynn “in order to assist Donald in his scheme to defraud OrLynn out of her community property assets that they knew she wanted to bequeath to Lindy.” The final will “did not contain a QTIP Trust for the benefit of Lindy because defendants intentionally and fraudulently (by concealment and suppression) failed to include it in OrLynn’s last will in order to assist Donald in defrauding OrLynn and in order to thwart OrLynn’s desire, known to Donald and defendants, to bequeath her substantial estate to Lindy.” Here again, Lindy’s damage was “the loss of the separate and community property estate owned by OrLynn at her death which, but for the intentional misconduct, active concealment and suppression and breach of their fiduciary duties by defendants, and each of them, would have ultimately gone to Lindy instead of Donald’s estate.”

Grossman and Parker Milliken demurred to the Third Amended Complaint. The trial court concluded that the first and second causes of action were barred by the statute of limitations because, as to Lindy, the statute of limitations began running when OrLynn died in 1985 and the bulk of her estate passed to Donald rather than to Lindy. The court also sustained the demurrer to the second cause of action for conspiracy to breach fiduciary duty on the ground that the defendants owed no legal duty to Lindy. Finally, the court determined that the third cause of action, for conspiracy to commit fraud, was also barred by the statute of limitations because Lindy had facts sufficient to put her on notice of the purported fraud when her mother died in 1985. Accordingly, the trial court sustained defendants’ demurrer to the Third Amended Complaint without leave to amend and ordered the case dismissed with prejudice on April 28, 2005. This appeal follows.

DISCUSSION

I. Standard of Review

“’We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.’ [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff. [Citation.]” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)

II. First and Second Causes of Action

Lindy’s claims for professional negligence and conspiracy to breach fiduciary duties are governed by Code of Civil Procedure section 340.6, subdivision (a),[3] which requires the initiation of litigation “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.” The statute of limitations is tolled until the plaintiff sustains actual injury. (§ 340.6, subd. (a)(1).) Lindy claims on appeal that the statute was tolled until Donald died, but Lindy sustained her actual injury long ago, when her mother passed away.

All of Lindy’s claims come down to the same core alleged wrongdoing: that counsel, whether intentionally or negligently, failed to carry out OrLynn’s testamentary desire to bequeath her estate to her daughter Lindy. All of the wrongful conduct alleged by Lindy happened prior to OrLynn’s death, and the outcome became evident when OrLynn died in 1985: as a result of the asserted machinations of Donald and counsel, OrLynn’s will left substantially all of her estate to Donald outright rather than to Lindy (either directly or as the ultimately beneficiary of a trust). Lindy sustained her injury when OrLynn died leaving her with no legal entitlement to OrLynn’s estate beyond the limited bequests made to her in the will. At that point Lindy knew or reasonably should have known that there was no QTIP trust in OrLynn’s will and that very little of her mother’s estate had been left to her. If she believed, as she apparently did, that this was a frustration of her mother’s testamentary wishes, she was on notice at that time that she had been injured. (See Laird v. Blacker (1992) 2 Cal.4th 606, 615-618 [fact and knowledge of damage are central to statute of limitations; damage need not be “irremediable” to have occurred; client is damaged by malpractice when an adverse judgment is entered, not once appeal of that judgment is final].)

Lindy tries to avoid the bar of the statute of limitations by alleging that she was not injured until Donald died in 1999, having failed “to bequeath and devise to plaintiff those assets . . . that comprised OrLynn’s separate and community property estate.” She notes the general rule that actions involving the death of a testator commence upon the testator’s death because the “intended beneficiary acquires no recognized legal rights under a will until the testator dies,” citing Heyer v. Flaig (1969) 70 Cal.2d 223, at pages 230-231, disapproved on other grounds in Laird v. Blacker, supra, 2 Cal.4th at page 617, and argues that because OrLynn intended that her estate pass to Lindy at Donald’s death, the statute of limitations did not begin to run until Donald died in 1999.

Lindy’s argument fails because it is not Donald’s death or will, but OrLynn’s death, with the will she had at the time of her death, that deprived Lindy of the inheritance she believes her mother intended for her. OrLynn’s intent to leave her estate to Lindy at the time of Donald’s death through a QTIP trust should have been given effect by trust provisions in OrLynn’s will rather than by a bequest of her estate to Donald without restriction. OrLynn may have intended that her estate pass to Lindy when Donald died, but nothing in OrLynn’s will makes it so--and this is the cause of the injury to Lindy.

While Lindy attempts to argue that her injury was merely speculative at the time her mother died (Adams v. Paul (1995) 11 Cal.4th 583, 590 [action does not arise when there is only potential for future harm]), we cannot envision what could possibly be speculative about one’s intended inheritance being left entirely to another without legal restriction. As we have just noted, Lindy was deprived of whatever inheritance OrLynn wanted her to receive at any point in the future when OrLynn died, making permanent her estate plan that made no provision for a QTIP trust that would cause Lindy to inherit OrLynn’s estate upon Donald’s death. Lindy’s injury arose from the lack of a direct bequest or a QTIP trust in OrLynn’s will, which became permanent and irreversible at the time of OrLynn’s death. (See ibid. [“the loss or diminution of a right or remedy is well recognized as constituting injury or damage”]; Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 750 [“actual injury may consist of impairment or diminution, as well as the total loss or extinction, of a right . . .”]; Foxborough v. Van Atta (1994) 26 Cal.App.4th 217, 227 [“when malpractice results in the loss of a right, remedy, or interest, or in the imposition of a liability, there has been actual injury regardless of whether future events may affect the permanency of the injury or the amount of monetary damages eventually incurred”]; Ruchti v. Goldfein (1980) 113 Cal.App.3d 928, 935 [“It is not necessary that the pension rights be matured, i.e., there be an unconditional right to immediate payment, before there is damage due to the rights being lost”]; see also Radovich v. Locke-Paddon (1995) 35 Cal.App.4th 946, 970-979 [injury from malpractice leading to repudiation of community property rights arose not at death of spouse but far earlier, when the injured spouse entered into the agreement repudiating the interest]; Hensley v. Caietti (1993) 13 Cal.App.4th 1165, 1175 [“Negligent legal advice which induces a client to enter into a binding contract resolving marital property and support issues results in actual injury at the point of entry”].)

Even if Lindy still believed after her mother’s death that she would receive her mother’s estate via Donald’s will, the statute of limitations would still have begun running once Lindy renounced any such expectation in 1993. In a settlement agreement resolving the litigation over her mother’s estate,[4] Lindy specifically disavowed any belief that Donald would remedy the alleged wrongdoing leading to his inheritance of OrLynn’s estate. As consideration for the settlement of the lawsuit, Lindy declared that she “understands and agrees” that “neither Donald nor Donald’s [new] spouse, Carmela Leahy, has made any promises, or shall have any obligations or commitments, to make any additional gifts, bequests, or devises to Lindy, to Lindy’s Trust, or to [Lindy’s son], directly or indirectly, now or at any time in the future.” Because Lindy released Donald and his new wife “from whatever claims, expectations, or hopes, if any, she may have had or she may now have or may have at any time in the future for any gifts, bequests, devises and inheritances from them or their estates,” even if her cause of action somehow could be viewed as not having accrued or as being tolled prior to that date, she was injured at the very latest at the time she signed that release and acknowledged that she had no legal entitlement or expectation of further bequests to remedy any failure to properly pass OrLynn’s estate on to her.

Because Lindy had suffered actual injury and was aware of her injury either when her mother died in 1985, or, at the latest, when she executed the 1993 release, the statute of limitations had run on her first two causes of action long before she filed suit in December 2000. The trial court properly sustained defendants’ demurrer to these two causes of action.

III. Third Cause of Action

The three-year statute of limitations in section 338 applies to Lindy’s claim for conspiracy to commit fraud. Varying her arguments slightly to claim that this statute of limitations had not run when she filed suit in 2000, Lindy argues that delayed discovery and the last overt act doctrine save her claim from being time-barred.

The statute of limitations on a fraud claim begins to run when the last overt act pursuant to the conspiracy is completed. (Wyatt v. Union Mortgage Co. (1979) 24 Cal.3d 773, 786.) Lindy claims that Donald’s death is the last overt act in the conspiracy to defraud her “because up until then the conspirators had the opportunity to reconsider, terminate their fraudulent agreement, prepare Donald’s will effecting OrLynn’s intent and thereby avoid liability in tort for their conspiracy to deprive Lindy of her mother’s estate.” Lindy’s argument, while creative, again misses the point of when she was injured. As discussed extensively above, Lindy was injured at OrLynn’s death when she was denied any significant legal entitlement to OrLynn’s estate. The fact that Lindy would not have received the money until Donald died if OrLynn’s supposed wish for a trust scheme she knew nothing about had been honored is beside the point--had the proper trust been set up, OrLynn’s will would have conferred on Lindy a legal interest in OrLynn’s estate, although her actual receipt of the remaining estate would have been delayed until Donald died. Instead, Donald received nearly all of OrLynn’s entire estate outright. Any conspiracy to cause OrLynn’s estate to be diverted from Lindy to Donald, therefore, was complete when OrLynn died and Donald received her estate free of any legal obligation to devise it to Lindy.

We need not resolve the unique question of whether someone’s death from presumably natural causes could ever be “’an outward act done in pursuance of the crime and in manifestation of an intent or design, looking toward the accomplishment of the crime’” (People v. Zamora (1976) 18 Cal.3d 538, 549, fn. 8), for here, Donald’s death cannot be considered an overt act in furtherance of the conspiracy because the conspiracy had already accomplished its goal before he died. “[A]cts committed by conspirators subsequent to the completion of the crime which is the primary object of the conspiracy cannot be deemed to be overt acts in furtherance of that conspiracy.” (Id. at p. 560.) If there was a conspiracy to wrongfully wrest Lindy’s inheritance from her and turn it over to Donald, that conspiracy accomplished its aim in 1985 when OrLynn’s estate passed almost entirely to Donald with no legal interest preserved for Lindy--more than a decade prior to Donald’s 1999 death. Just because Donald could have reconsidered until he died and bequeathed what had been OrLynn’s to Lindy, that does not convert his death into an act in furtherance of the long-ago completed conspiracy.

Second, Lindy claims that the statute of limitations was tolled because she did not discover the existence of a conspiracy to deprive her of her inheritance until a time within the limitations period for her fraud claim. Lindy claims that she “certainly did not discover that she was to be deprived of her mother’s estate until Donald died, and his will became public knowledge.” Lindy’s Third Amended Complaint, however, does not plead delayed discovery: it merely asserts that there was no injury until Donald’s death. Lindy has not pleaded specific facts to show the time and manner of her delayed discovery of the alleged conspiracy, nor why she was unable to discover it earlier despite reasonable diligence. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808.)

No such allegations, moreover, are possible under the circumstances. The delayed discovery rule does not toll the statute of limitations until a person actually discovers facts supporting a fraud claim; it “only delays accrual until the plaintiff has, or should have, inquiry notice of the cause of action.” (Fox v. Ethicon Endo-Surgery, Inc., supra, 35 Cal.4th at p. 807.) “If a person becomes aware of facts which would make a reasonably prudent person suspicious, he or she has a duty to investigate further and is charged with knowledge of matters which would have been revealed by such an investigation.” (Mangini v. Aerojet-General Corp. (1991) 230 Cal.App.3d 1125, 1150.) Here, Lindy knew or reasonably should have known that she was deprived of her mother’s trust directly and that there was no QTIP trust when her mother died in 1985. The QTIP trust or direct bequest from her mother would have been contained in her mother’s final will had there been any substantial provision for Lindy, but OrLynn’s estate was left to Donald. Moreover, in language we have already quoted extensively above, in 1993 Lindy acknowledged her “dismay over the disposition of her mother’s interest in community property upon her mother’s death,” released Donald from any claim to inherit from his estate, and recognized that Donald had not made any promises, nor did he have any obligation or commitment, to make any additional gifts or bequests to Lindy or her trust. Delayed discovery sufficient to prevent the claim from being time-barred cannot be alleged under these circumstances.

IV. Conclusion

Lindy’s three causes of action are barred by the respective statutes of limitations. Accordingly, we find it unnecessary to address the additional arguments advanced by the parties concerning the application of collateral estoppel and the absence of or existence of a duty on the part of the defendants to Lindy. As Lindy has not established a reasonable possibility that the defects can be cured by amendment, the trial court did not abuse its discretion in denying leave to amend for a fourth time. (Blank v. Kirwan, supra, 39 Cal.3d at p. 318.)

DISPOSITION

The judgment is affirmed. Respondents shall recover their costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.

ZELON, J.

We concur:

PERLUSS, P. J.

JOHNSON, J.

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[1] As Shelden and her mother share a first name and the Leahys shared a last name, we refer to each person by first name or nickname for clarity and convenience.

[2] We granted defendants’ request for judicial notice of this and other documents on June 6, 2006. Lindy has also filed a request that this court take judicial notice of declarations filed in support of her opposition to a motion for summary judgment in her lawsuit against Donald’s estate. Lindy requests that we take judicial notice of these declarations because they contain “facts relevant responsive [sic] to issues respondents’ [sic] have raised on appeal.” We are not permitted to use judicial notice in this manner. (Bach v. McNelis (1989) 207 Cal.App.3d 852, 864-865 [courts “may not judicially notice the truth of assertions in declarations or affidavits filed in court proceedings”].) We therefore deny Lindy’s request for judicial notice.

[3] All further statutory references are to the Code of Civil Procedure.

[4] Lindy protests that this release is not part of the present lawsuit and that it was obtained through fraud and misrepresentation. It is appropriate for us to take judicial notice of this document. (§ 430.30, subd. (a).) We are not concerned here with the enforceability of the release, but merely with its notice-giving effect on Lindy: whether or not the release was valid, it put Lindy on notice that Donald disavowed any promise to leave her anything and that any further receipts from Donald were purely discretionary.