Gracey v. Tiles, Webb, Kulla & Grant
Filed 2/25/13 Gracey v. Tiles, Webb, Kulla & Grant
CA2.7
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 This opinion has not been certified for
publication or ordered published for purposes of rule 8.1115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
SECOND
APPELLATE DISTRICT
DIVISION
SEVEN
WAYNE W. GRACEY, et al.,
Plaintiffs and Appellants,
v.
TILLES, WEBB, KULLA &
GRANT, et al.,
Defendants and Respondents.
B234634
(Los Angeles
County
Super. Ct.
No. BC419069)
APPEAL
from a judgment of Superior Court
of
County, Rolf M. Treu, Judge. Affirmed.
Mesisca,
Riley & Kreitenberg, Dennis P. Riley, Rena E. Kreitenberg and Steven C. De
Vore for Plaintiffs and Appellants.
Robie
& Matthai, Edith R. Matthai and Natalie A. Kouyoumdjian for Defendants and
Respondents.
__________________________________
Appellants are successors-in-interest to owners of
commercial property in Beverly Hills who sought legal advice from respondents,
the Law Firm of
Tilles, Webb, Kulla & Grant (TWKG) and one of their individual
partners, in connection with a lease of that property.
several causes of action against respondents with respect to a contingency fee
agreement for this legal representation
and respondents cross-complained.
The trial
court granted summary judgment/summary adjudication in favor of respondents on
the complaint and denied appellants’ motion for summary judgment/summary
adjudication on respondents’ cross-complaint.
We affirm the judgment (orders granting and denying summary judgment and
summary adjudication).
FACTUAL & PROCEDURAL BACKGROUND
The Commercial Lease
In 1929,
the predecessors-in-interest of appellants Gracey, Suzanne Melin, David Melin,
Paul and Marla Lefler, Donal B. Botkin and Meeker entered into a ground lease
agreement with First National Bank of Beverly Hills
for real property located at 465 N. Beverly Drive
in Beverly Hills. (Wells
Fargo Bank v. Bank of America (1995) 32 Cal.App.4th 424, 428-429.) The lease term was for 95 years, to expire in
2024. It provided for a monthly rental
rate of $2,000 per month, but had a provision which increased the rental rate
when the price of gold increased (the Gold Clause). (Ibid.)
In 1933, a
federal law was enacted which rendered the Gold Clause invalid. In 1977, the law was amended to allow clauses
similar to the Gold Clause in any obligation issued after October 1977, but did
not revive them in existing contracts. (
pp. 428-429.)
First
National Bank assigned its interest in the lease to Triangle Company, which in
turn subleased the property to Bank of America.
In 1981, Triangle terminated the sublease with Bank of America and Bank
of America became the new lessee under the 1929 lease, assuming all obligations
under it. In 1988, the
successors-in-interest to the parties who signed the 1929 lease (collectively
the Owners) took the position the assignment created a new obligation,
permitting them to enforce the Gold Clause.
Bank of America rejected this position and the proposed increase in
payments, and the Owners decided to sue to enforce the Gold Clause.
The Gold Clause
Litigation
The Owners
interviewed several law firms to represent them in the enforcement of the Gold
Clause. They solicited and received
numerous fee proposals from several law firms.
In September 1991, the Owners notified Webb that TWKG had been selected
to represent them. The Owners and TWKG
exchanged several drafts of a proposed contingency fee agreement. Owner George Linthicum was designated as the
agent for all the owners except for the William and Mary Woods Trust. The William and Mary Woods Trust designated
Wells Fargo Bank as its trustee.
In-house counsel for Wells Fargo, Botkin and Linthicum negotiated the
terms of the contingency fee agreement with TWKG. The contingency fee agreement (CFA)
ultimately agreed upon was dated October 29, 1991, and according to Webb, each
of the Owners, with the exception of Linthicum’s mother, Josephine Stinson,
signed the CFA and returned it to him.
The terms
of the CFA provided, inter alia, TWKG’s fee would be 20 percent of all rent
received over the base amount of $2,000 per month.
Amendment to the
Contingency Fee Agreement
On December
4, 1991, TWKG wrote to the Owners to inform them there had been a provision
inadvertently omitted from the CFA. The
letter (Supplemental Letter) stated, inter alia, “California Business and
Professions Code [section 6147] now mandates that contingency fee agreements
entered into between the parties specifically state in writing that the
contingency fee that we have agreed upon ‘is not set by law, but is negotiable
between attorney and client.’ This
sentence was omitted because, as a practical matter, it was believed that all
of you were clearly aware of the fact that the contingency fee agreement entered
into between us was heavily negotiated at arm’s length over a period of time. .
. .â€
The
Supplemental Letter was sent to Lefler, Stinson, Linthicum, Botkin, Arthur
Melin, Thomas Melin, and Alexandra Laboutin, trustee of the Woods trust. Each owner signed and returned the letter to
Webb, with the possible exception of appellant Botkin.
The Gold Clause
Litigation and Appeal
TWKG filed
a complaint on behalf of Owners against Bank of America on October 31,
1991. The named plaintiffs in that case
were Wells Fargo Bank, N.A., as trustee of the Woods trust; Thomas Melin as
trustee of the Melin Beverly Hills Trust No. 1; Arthur Melin, as Trustee of the
Melin Beverly Hills Trust, No. 2; Peggy Lefler, as Trustee of the Maude Parks
Kelso Trust; Botkin, an individual; and Linthicum, an individual. The case was tried on stipulated facts and
the trial court ruled in favor of Bank of America. The Owners appealed. Owners hired appellate counsel but TWKG
remained co-counsel of record.
32 Cal.App.4th 424, the Court of Appeal reversed the judgment in favor of Bank
of America and held the Owners were entitled to enforce the Gold Clause. The judgment also provided for attorneys fees
in accordance with the terms of the lease.
The effect of this decision was that the Owners were allowed to increase
the rent to $37,000 per month. As the
price of gold increased over the years, the rent rose to more than $85,000 per
month.
Bank of
America wired back rents to TWKG’s trust account. In July 1995, TWKG sent each of the Owners
their share of the back rents. With each
check was a letter outlining the amount paid as well as the amount TWKG was
retaining as payment pursuant to the CFA.
In August 1995, TWKG sent a letter to the Owners stating that TWKG had
competed its services under the terms of the CFA and that the attorney-client
relationship was terminated.
In 1995,
Linthicum, acting on behalf of the Owners, negotiated an amendment to the Lease
(Lease Amendment). This amendment included
a provision instructing Bank of America to pay 20 percent of the rent to TWKG
as allowed under the CFA. TWKG was not a
party to these negotiations nor to the Lease Amendment but drafted the contract
pursuant to Linthicum’s instructions. In
August of every year between 1995 and 2006, Linthicum wrote to Bank of America
outlining instructions on payment of rent, including that 20 percent of the
rent be paid to TWKG. During this
period, no one ever disputed or questioned these payments.
The Appearance of
Meeker
In 2006,
Linthicum became ill. His daughter,
Marianne Meeker (one of appellants), an attorney licensed to practice in the
state of Washington, became the business manager for the Owners. Meeker reviewed all the documents relating to
the Lease, and began to question TWKG’s right to the 20 percent fee. The Owners retained Meeker to represent them
in an effort to set aside the CFA.
In August
2006, Meeker wrote to TWKG stating that she represented the Owners, was
familiar with all the background facts and circumstances surrounding the Gold
Clause litigation, and claiming that TWKG was not entitled to the 20 percent
fee. In a letter dated August 16, 2006,
she told Webb: “I cannot find any documentation that reflected an amendment to
your fee agreement that entitles you to a contingency fee on the proceeds of
the judgment.†On August 24, 2006, she
wrote again saying, “[I]t seems apparent that the owners, of whom my father
would have had no authority to agree to a renegotiated contract, were simply
acquiescing to a demand for payment under the original fee agreement that
clearly did not entitle your firm to a percentage interest in the rents
generated or the award. Several other
irregularities appear to exist in the whole transaction but suffice to say, the
owners are formally disputing the fees being paid to your firm, past, present,
and future. From today forward you are
to place any payments to you from Bank of America in your trust account until
the dispute is resolved. . . . I am
certainly willing to discuss this matter with you or members of your firm to
see if it is possible to reach an agreement, but otherwise please consider this
letter a formal demand for arbitration through the California Bar Association.â€
The next
day, she wrote another letter to Webb which stated: “I was aware of the
amendment and thoroughly reviewed it.
The amendment is a contract between the owners and the Bank. I do not see how it meets the requirements
for an amended (materially changed) contingency fee agreement under California
law. . . . . Your firm is not a party to
the lease and your firm does not own an interest in the property. I realize that the parties were not
unsophisticated, but they were lay people and they had a right to rely on your
assertion that you were entitled to do this because of your duties of
disclosure toward them. It just seems to
me that this amendment was overreaching. . . .
In conclusion, please be aware that this is a dispute concerning the
reasonableness of fees and the conscionability of the agreement, if there is
one. . . . I am operating under a set of
assumptions based on the records in my possession and from these records I have
concerns about the conclusions to which they lead. . . .†She then listed several “bullet points†which
included the following: “California Law requires changes in contingency
agreements to be valid only with informed consent and written advice to seek
independent counsel and is non-delegable. . . .
Authority to consent to material changes in terms needed to be obtained
individually from each plaintiff and could not be delegated when you sought to
change a material term of the agreement. . . .
You cannot shift the individual obligation of each plaintiff to pay a
share of a contingency fee by drafting a document giving yourself an interest
in the lease proceeds without informed and written consent from each and every
client and without advice in writing to seek independent counsel. . . . There is no statute of limitations on the
assertion of ethical violations concerning the reasonableness of fees or other
ethical violations concerning improper fee agreements. . . . Unconscionable contracts are void in spite of
agreement. . . . Void contracts are unenforceable. . . . Unwritten contingency agreements or
materially altered agreements are per se unenforceable under California Law. .
. . Please reconsider your position to
ignore my request to place disputed fees in trust.â€
On August
28, 2006, she wrote: “I will be gathering documents and taking the necessary
steps to initiate arbitration because of the time constraints.†She followed up these letters with a steady
stream of correspondence to TWKG for two years.
During this time, Meeker continued to authorize Bank of America to pay
TWKG its fees pursuant to the CFA. Then
from February 2007 to April 2008, Meeker abruptly stopped writing to TWKG or
its counsel. During this period, in
August 2007, Meeker again sent written authorization to Bank of America to pay
TWKG the 20 percent fee. Bank of America
continued to make the payments in 2007 and 2008.
In October
2007, Linthicum passed away and Meeker became the trustee and executor of his
estate.
The underlying lawsuit
On July 31,
2009, the Owners,
represented by a California law firm, filed this action against TWKG, seeking
to invalidate the CFA and the Lease Amendment.
The complaint contained causes of action for declaratory relief that the
CFA was void, declaratory relief that the Lease Amendment was void, breach of
fiduciary duty, professional negligence, intentional misrepresentation,
concealment, and money had and received.
A First Amended Complaint (FAC) was filed in January 2012 with the same
causes of action. TWKG answered and
filed a cross-complaint for breach of contract, intentional interference with
contractual relations, and declaratory
relief.
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The Summary Judgment
Motions
On August
27, 2010, TWKG filed a motion for summary judgment on the FAC contending that
the Owners’ claims were barred by the statute of limitations.
On November
24, 2010, the Owners filed a motion for summary adjudication on the FAC and
summary judgment on the cross-complaint.
On December
22, 2010, TWKG filed a second motion for
summary judgment on the FAC, contending that neither the CFA nor the Lease
Amendment was voidable under Business and Professions Code section 6147, and
that the CFA and Lease Amendment were ratified by the Owners, and that the
Owners/Plaintiffs lacked standing.
The rulings
The motions
for summary adjudication and summary judgment were set for hearing on March 10,
2011. The court initially granted
summary adjudication in favor of TWKG and Webb on the fifth and sixth causes of
action for misrepresentation and concealment, holding that they were barred by
the one-year statute of limitations of Code of Civil Procedure section
340.6. It also granted summary
adjudication in favor of TWKG and Webb on the first, second and seventh causes
of action for declaratory relief and money had and received on the basis that
the Owners/Plaintiffs ratified the CFA and the Lease Amendment by continuing to
make payments from 2006 through 2008. It
denied the Owners’ motion for summary judgment on the cross-complaint. The court allowed supplemental briefing on
whether the third and fourth causes of action for
negligence were also time-barred by the statute of limitations. After the supplemental briefing was
submitted, it ruled that the third and fourth causes of action were also barred
by the one-year statute of limitations, and stated, “[t]he combined effect of
this ruling is to grant summary judgment in full on the complaint in favor of
TWKG.†The cross-complaint remained
pending, but the parties later stipulated to entry of judgment on the
cross-complaint.
Judgment
was entered on June 14, 2011, in favor of TWKG and Webb on the complaint and in
favor of TWKG on the cross-complaint.
CONTENTIONS ON APPEAL
Appellants
contend on appeal the trial court erred in granting summary judgment and
summary adjudication because (1) respondents did not comply with Business and
Professions Code section 6147, and thus the CFA is voidable; (2) it erroneously
concluded that appellants’ evidence was inherently unreliable; (3) the causes
of action for intentional misrepresentation are not barred by the statute of
limitations; (4) respondents falsely represented that the purpose of the Lease
Amendment was to simplify rent payments and appellants could not have known
this; (5) the payment of rents did not constitute actual injury; (6)
respondents’ intentional concealment of their legal files estops them from
asserting the statute of limitations defense; and (7) the causes of action for
professional negligence and breach of fiduciary duty were not barred by the
statute of limitations.
Appellants
also contend the trial court erred in denying their motion for summary judgment
on the cross-complaint because the CFA did not comply with Business and
Professions Code section 6147, and they can only recover for services by
quantum meruit.
DISCUSSION
1. Summary Judgment
rules
A motion
for summary judgment is properly granted if all the papers submitted show that
there is no triable issue as to any material fact and that a party is entitled
to judgment as a matter of law. (Code
Civ. Proc., § 437c, subd.(c).) A moving
defendant may meet its burden on summary judgment by establishing a complete
defense to each cause of action. (
25 Cal.4th 826, 849.) We review a trial
court’s decision to grant summary judgment de novo, considering all of the
evidence set forth in the supporting and opposition papers, if not subject to
any valid evidentiary objections, and all uncontradicted inference reasonably
deducible from that evidence. (
1342, 1348.)
As set
forth below, we find the trial court properly granted summary adjudication for
TWKG and Webb on each cause of action in the FAC and properly denied
appellants’ motion for summary judgment on the cross-complaint.
2. The First, Second, and Seventh Causes of
Action
The first
(declaratory relief that the CFA was void), second (declaratory relief that the
Lease Agreement was void), and seventh (money had and received) causes of
action of the FAC were based on TWKG’s alleged non-compliance with Business and
Professions Code section 6147.
The trial
court granted summary adjudication on these causes of action on the grounds
that the Owners ratified the CFA and the subsequent letter amending the CFA by
their subsequent actions and because the Lease Agreement did not need to meet
the requirements of Business and Professions Code section 6147.
a.
Ratification
Civil Code
section 1588 provides that “[a] contract which is voidable solely for want of
due consent may be ratified by a subsequent consent.†The party charged with ratification must have
fully known what he or she was doing.
The very essence of ratification is that it is done with full knowledge
of the party’s rights.†(
552, 571, quoting Brown v. Rouse
(1894) 104 Cal. 672, 676.) In
learned the contingency fee agreement with his attorney was voidable, he voided
the agreement. (Fergus v. Sanger, supra,
150 Cal.App.4th at p. 571.) Here, in
contrast, even after Meeker sent several letters to TWKG on the Owners’ behalf
indicating their belief that the agreement was void in 2006, and even after
TWKG refused to place the disputed funds in a trust account, Meeker continued
to direct Bank of America to deposit the 20 percent portion of the rent due
into TWKG’s account for years. Each time
Meeker directed the Bank of America to pay TWKG the Owners clearly ratified the
CFA, and thus the CFA cannot be declared void.
In their
reply brief, appellants contend Meeker could not have ratified a contract
between Owners and TWKG and in addition, she did not know the CFA was voidable. However, Meeker’s letters to TWKG in 2006
clearly indicate she was an attorney, representing all the Owners, and was
familiar with all the background facts and circumstances regarding the CFA,
Supplemental Letter and Lease Amendment.
She formally disputed the fee arrangement and contended “several other
irregularities appear to exist in the whole transaction.†She referred to the Supplemental Letter and
claimed that it did not meet California law requirements for contingency fee
agreements. She referred to California
law which requires changes in contingency fee agreements to have informed
consent with written advice to seek independent counsel, individual consent to
material changes from each plaintiff, and argued that void contracts are
unenforceable. The only possible
interpretation of these statements is that Meeker was claiming that the CFA,
Supplemental Letter and Lease Agreement were voidable. She then asked for payments under the Lease
to be placed in trust. Her subsequent
actions authorizing the lease payments ratified the terms of the fee contract.
Appellants’
citation of Blanton v. Womancare
(1985) 38 Cal.3d 396 for the proposition that an attorney cannot alter the
rights of a contracting party is inapposite.
In Blanton, the attorney had
no authority to bind his client to an agreement for arbitration since he was
engaged to litigate in a judicial forum.
(Id. at pp. 407-408.) Here, Meeker’s letter made it clear that she
was engaged by the Owners’ successors to assert their rights against TWKG with
respect to the CFA, Supplemental Letter, and Lease Agreement. At no other point did the Owners disagree
with Meeker’s assertions.
b.
Supplemental Letter and the Lease Amendment
Owners
contend that the Lease Amendment, which provided a mechanism for Bank of
America to pay part of the rent to TWKG, as well as the Supplemental Letter to
the CFA, were material modifications to the CFA and also required compliance
with Business and Professions Code section 6147. In support of the contention, they cite
377. In Stroud, however, the modification substantially increased the
amount of fees to be paid to the attorneys.
The court held that any material change to a contingency fee agreement
requires compliance with Business and Professions Code section 6147. Neither the Supplemental Letter nor the Lease
Amendment increases the amount of fees due to TWKG, nor can we construe them as
“material changes†to the CFA. The
Supplemental Letter clearly indicated that it was sent in order to comply with
Business and Professions Code section 6147 and the Lease Amendment provided a
vehicle for payments to be made. None of
these changed the method of computing fees or the amount due. More importantly, TWKG was not a party to the
Lease Amendment; it was only an agreement between the Owners and Bank of
America drafted by TWKG. Meeker herself
recognized this in her letter to Webb on August 25, 2006, in which she stated:
“The amendment is a contract between the owners and the Bank. I do not see how it meets the requirements
for an amended (materially changed) contingency fee agreement under California
law.†The Lease Amendment did not need
to comply with Business and Professions Code section 6147.
c.
Signed Copies of the CFA and Supplemental Letter
Business
and Professions Code section 6147 requires that the attorney shall provide to
the client a duplicate copy of the contingency fee contract, signed by both the
attorney and the client.
Appellants
contend that only some of the clients had copies of the CFA and Supplemental
Letter which they signed, that they did not have copies signed by the other
Owners, and also that Botkin did not sign either of these documents. They submitted declarations in support of
their motions for summary judgment and summary adjudication and in opposition
to TWKG’s motion for summary judgment, in which the various plaintiffs stated
that the records maintained by their predecessors do not contain copies of the
fully executed copies of either the CFA or the Supplemental Letter.
TWKG filed
evidentiary objections to these declarations.
Webb’s
declaration establishes that none of the original clients except for Botkin are
appellants. His declaration also
established that he sent signed copies of the CFA and the Supplemental Letter
to each client and never received any of them back by return mail, nor was he
ever notified at any point in time that any of the Owners had not received the
signed copies.
The trial
court found that the original clients of TWKG are no longer living, except for
Botkin. Appellants’ declarations did not
state that the clients were never provided with the duplicate executed copies,
only that appellants and Botkin reviewed the files and could not find
copies. The trial court ruled that the
declarations did not establish that the copies were never provided. It also ruled that Business and Professions
Code section 6147 does not require that every client receive copies signed by
every other client. Finally, it found
the lack of Stinson’s signature was not fatal to the validity of the cause of
action because she was not a named plaintiff in the underlying action.
On appeal,
appellants contend the trial court erred in finding the declarations
unreliable. We disagree. The declarations submitted by appellants do
not contain any facts which dispute Webb’s declaration, only conclusions from
the lack of documentation in the file.
The allegations that TWKG did not provide signed duplicate copies as
required by the statute are not supported by evidence, and thus the causes of
action based on violation of that requirement of Business and Professions Code
section 6147 cannot be maintained. (
Cal.App.4th 1001, 1018.)
3. Statute of
Limitations
The trial
court granted summary adjudication of the third (breach of fiduciary duty),
fourth (professional negligence), fifth (intentional misrepresentation), and
sixth (concealment) causes of action of the FAC on the grounds they were barred
by the one-year limit of Code of Civil Procedure section 340.6.
Code of
Civil Procedure section 340.6 provides for a one-year statute of limitations in
an action against an attorney “for a wrongful act or omission, other than for
actual fraud, arising in the performance of professional services.†The time starts to run “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
. . . (1) the plaintiff has not sustained actual injury. . . .â€
The applicable
statute of limitations is a legal issue subject to de novo review. (Vafi
v. McCloskey (2011) 193 Cal.App.4th 874, 880; Stoltenberg v. Newman (2009) 179 Cal.App.4th 287, 291.)
a.
Third and Fourth causes of action
The third
and fourth causes of action alleged breach of fiduciary duty and professional
negligence. There is no dispute that
actions against an attorney for professional negligence are governed by the
one-year statute of limitations of Code of Civil Procedure section 340.6. (Quintilliani
v. Mannerino (1998) 62 Cal.App.4th 54, 68.)
Appellants
argue that these causes of actions do not allege professional negligence in the
sense that legal mistakes were made, but instead allege a voidable contract for
the payment of fees, and thus the more general four-year statute of limitations
of Code of Civil Procedure section 343
There are
no published decisions on the applicable statute of limitations for a violation
of Business and Professions Code section 6147.
Appellants
cite Martin Healthcare Dist. v. Sutter
Health (2002) 103 Cal.App.4th 861, where the court of appeal applied the
four-year statute of limitation to claims involving Government Code section
1092 because there was no specific statute of limitations for that
statute. But here, an examination of
appellants’ claims reveals that they are alleging that TWKG failed to comply
with Business and Professions Code section 6147 when entering into a fee
agreement (the CFA) during the course of their professional relationship. This is precisely the type of act or omission
the performance of professional services that Code of Civil Procedure section
340.6 governs. (Quintilliani v. Mannerino, supra, 62 Cal.App.4th at p. 68; see
Cal.App.4th 798, 804 [portion of claim against attorneys related to amount of
fees collected].)
At oral
argument, the parties raised the issue of whether a claim for excessive
attorney fees can be characterized as legal malpractice and thus whether Code
of Civil Procedure section 340.6 applies.
In Schultz v. Harney (1994) 27
Cal.App.4th 1611, clients of an attorney sued him for legal malpractice and
fraud. The basis of their action against
the attorney was that he charged excessive and unreasonable fees and had
falsely represented that the fees he charged were legal. The attorney had been unwilling to accept the
case subject to the fee limitations contained in Business and Professions Code
section 6146 (which sets limits for contingent fees for legal representation in
personal injury actions against health care providers). He allegedly represented to the clients that
those statutory provisions could be legally waived and drafted a written waiver
for the client to sign before he agreed to accept the case. (Id.
at p. 1616.) The attorney then
successfully represented the clients, reaching a settlement for a large
monetary sum. The fees he claimed were
in excess of those which would have been collected had the provisions of
Business and Professions Code section 6146 been applied. (Id.
at p. 1617, fn. 3.) The attorney filed a
demurrer to the complaint on the grounds, inter alia, that it did not state a
cause of action for legal malpractice.
The trial court sustained the demurrer without leave to amend and the
clients appealed. In concluding that
charging excessive attorney fees can be characterized as legal malpractice, the
court of appeal stated the attorney “had a duty to know and properly apply the
applicable law relating to fees for his services in connection with the presentation
and approval of the [settlement]. An
integral part of those services is the justification for and setting of the
attorney fees earned in achieving the [settlement].†(Id.
at pp. 1621-1622.)
In this
case, as in Schultz, the allegations
for professional negligence also stem from the initial agreement setting
attorneys fees and the failure to comply with a Business and Professions Code
requirement. Clearly this case involves
TWKG’s knowledge and application of law relating to fees for their services. In addition, the record reflects that the
Owners solicited and received numerous fee proposals from various law firms
from March through April 1991. In May
1991, they began negotiations for services with TWKG, but did not sign the CFA
until October 1991, only after several drafts of the proposed CFA were
exchanged and modified. The Owners and
TWKG were fully engaged in the process of setting the fee and had already
engaged in negotiations prior to the acts or omissions which formed the basis
of the professional negligence claim.
We conclude
that failure to include the mandatory clause required by Business and
Professions Code section 6147 in the CFA falls under the heading of
professional negligence and thus is governed by the statute of limitations of
Code of Civil Procedure section 340.6.
The next
issue to examine in these causes of action is when the time period began.
Under Code
of Civil Procedure section 340.6, malpractice action commences once a former
client discovers his attorney’s malpractice and suffers actual injury. If a client has not sustained actual injury,
the limitations period is tolled. (Code
Civ. Proc., § 340.6, subd. (a)(1).)
“It is well
settled that the one-year limitations period of [Code of Civil Procedure]
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 . . . .â€â€™â€ (
Richter & Hampson LLC (2005) 133 Cal.App.4th 658, 685;
Cal.App.4th 1138, 1146.) Appellants’
discovery of the facts constituting the alleged wrongful act was in August 2006
at the latest as evidenced by Meeker’s letter.
The Owners
claim they did not suffer actual injury until they actually knew that the CFA
was voidable. However, their knowledge
of the voidability of the CFA is irrelevant; it is the date of the actual
injury which controls.
The test
for actual injury under Code of Civil Procedure section 340.6 is “whether the
plaintiff has sustained any damages compensable in an action . . . against an
attorney for a wrongful act or omission arising in the performance of
professional services.†(
Phleger & Harrison (1998) 18 Cal.4th 739, 751; Callahan v. Gibson Dunn & Crutcher (2011) 194 Cal.App.4th 557,
568-569.) “Any appreciable and actual
harm flowing from the attorney’s negligent conduct establishes a cause of
action upon which the client may sue.†(
for determining actual injury under [Code of Civil Procedure] section
340.6. [Citations.] Instead, actual injury issues require
examination of the particular facts of each case in light of the alleged
wrongful act or omission.†(
Here, each
of the Owners’ causes of action is premised on the allegation that TWKG’s
failure to provide adequate professional services caused them to pay excessive
attorneys fees. Owners’ knowledge
pertaining to whether the CFA was voidable is irrelevant to the issue of actual
injury. (Croucier v. Chavos, supra, 207 Cal.App.4th at p. 1148.)
The
undisputed facts establish that Owners sustained actual injury as early as July
1995, when they wired into TWKG’s trust account 20 percent of the back
rents. These damages were sufficiently
“manifest, non-speculative and mature†for Owners to plead a cause of action
for malpractice. (Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison, supra,
18 Cal.4th at p. 752.) Thus, the actual
injury occurred in July 1995, more than 13 years before the lawsuit was filed
in 2009.
Therefore,
either using the one-year period from discovery or the four-year period from
actual injury, these causes of action are time-barred.
b.
Fifth and Sixth Causes of Action
Appellants
contend that the fifth and sixth causes of action (intentional
misrepresentation and concealment) are not controlled by Code of Civil
Procedure section 340.6. They contend
that the three-year limit of Code of Civil Procedure section 338 or the
four-year limit of Code of Civil Procedure section 343 apply instead.
Code of
Civil Procedure section 338 provides for a three-year statute of limitations
for actions for fraud or mistake. The
cause of action is deemed to have accrued upon discovery of facts constituting
the fraud or mistake. Code of Civil
Procedure section 340.6 applies to all actions, except for fraud, which are brought
against an attorney for a wrongful act or omission which arises in the
performance of professional services.
Code of Civil Procedure section 340.6 applies to any cause of action
falling short of actual fraud. For
example, claims against an attorney for breach of fiduciary duty or
constructive fraud are governed by Code of Civil Procedure section 340.6. (Stoll
v. Superior Court (1992) 9 Cal.App.4th 1362, 1364-1368;
Cal.App.4th at p. 70.)
Appellants
contend that they have claimed actual fraud in their fifth and sixth causes of
action.
The label
given to a cause of action is not dispositive.
(Vafi, supra, 193 Cal.App.4th
at p. 881.) The elements of actual fraud
are (1) representation, (2) falsity, (3) knowledge of falsity, (4) intent to
deceive and (5) reliance, resulting in damage.
(Vega v. Jones, Day Reavis &
Pogue (2004) 121 Cal.App.4th 282, 291.)
An
examination of the fifth and sixth causes of action demonstrates that they do
not claim actual fraud. As the trial
court correctly observed, the gravamen of these claims stem from TWKG’s
allegedly negligent conduct in the performance of professional services. The Supplemental Letter to the Owners makes
it clear that TWKG omitted a required provision from the CFA and promptly
informed its clients. There was no
allegation or evidence supporting an intent to deceive or knowledge of its
falsity. Therefore, the statute of
limitations of Code of Civil Procedure section 340.6 applies to the fifth and
sixth causes of action and therefore they are time-barred. (Quintilliani
v. Mannerino, supra, 62 Cal.App.4th at pp. 69-70.)
4. Equitable estoppel as a bar to application of
Code of Civil Procedure section 340.6
Appellants
contend that TWKG is estopped from using the statute of limitations as a
defense because they completely controlled payment of the attorneys fees. They also claimed that they provided a legal
interpretation of the Lease Agreement to Owners which enabled them to benefit
from the onerous payments. Appellants
contend that TWKG was retained to determine whether the CFA was voidable and
since they did not inform Owners of the voidability, and insisted that the
Lease Agreement supported the CFA, that they cannot use it against Owners to
their disadvantage.
Appellants
rely on the case Leasequip Inc. v. Dapeer
(2002) 103 Cal.App.4th 394, in which an attorney advised corporation’s
personnel that they did not need to comply with corporate formalities. The corporation’s status was suspended for
failure to follow those formalities. The
corporation sued the attorney for malpractice, but was unable to proceed
because of the suspension of their corporate status. When it had been reinstated, the statute of
limitations had passed. The court of
appeal held that the attorney had deliberately misled the corporation, and the
corporation had a right to rely on his legal advice although it was to its
detriment.
Here,
however, Owners were aware of the facts and legal ramifications surrounding the
CFA. Meeker’s August 16, 2006, letter
establishes that she was familiar with the facts surrounding the original
litigation and that she believed the CFA was void and unconscionable and that
TWKG had breached its fiduciary duty. A
second letter on August 28, 2006, affirmed her earlier letter and indicated
that she had reviewed records, researched the law, and concluded that TWKG had
engaged in wrongful conduct. She also
indicated that she was taking “necessary steps to intitiate arbitration because
of the time constraints.†This supports
the conclusion that she knew there was a legal cause of action and a statute of
limitations problem.
5. The Cross-Complaint
Appellants’
motion for summary judgment on TWKG’s cross-complaint was denied, but
appellants later stipulated to judgment in favor of TWKG after the court ruled
on the other summary judgment and summary adjudication motions. Because appellants stipulated to judgment
they cannot now complain, but in any event, we find the trial court’s denial of
their motion was proper for the same reasons we uphold the grant of summary
judgment to TWKG on the complaint.
DISPOSITION
We affirm
the judgment in favor of TWKG and Webb.
Respondents are awarded costs on appeal.
WOODS,
J.
We concur:
PERLUSS, P. J.
ZELON, J.
name="_ftn1" title="">
[1] Appellants
are Wayne Gracey, as Substitute Trustee of the William E. Woods and Mary
Corinth Woods Trust (Gracey); Vernon Giles, as Trustee of the Fry Family Trust
of 1990 (Giles); Suzanne Melin, as Trustee of the Melin Beverly Hills Trust No.1
(Suzanne Melin); David Melin, as Substitute Trustee of the Melin Beverly Hills
Trust No. 2 (David Melin); Paul Kelly Lefler (Paul Lefler) and Marla Lefler
(Marla Lefler), as Co-Trustees of the Paul Kelly Lefler Living Trust; Marianne
Meeker, as Successor Trustee of the Linthicum Family Trust (Meeker); and Donal
V. Botkin, an individual (Botkin).
Respondents are the TWKG and one of their individual partners, Stephen
P. Webb (Webb).
[2] Linthicum
informed Webb that Stinson was in the process of assigning her interests in the
property to him and did not wish to be a party to the litigation.
