Opinion
B293421
05-26-2020
DEBORAH JOHANNES, Plaintiff and Appellant, v. GREGORY M. SALVATO et al., Defendants and Respondents.
Randall A. Spencer for Plaintiff and Appellant. Lewis Brisbois Bisgaard & Smith, Kenneth C. Feldman and Barry Zoller for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. BC686312) APPEAL from a judgment of the Superior Court of Los Angeles County. Stephanie M. Bowick, Judge. Affirmed in part, reversed in part, and remanded with directions. Randall A. Spencer for Plaintiff and Appellant. Lewis Brisbois Bisgaard & Smith, Kenneth C. Feldman and Barry Zoller for Defendants and Respondents.
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Plaintiff and appellant Deborah Johannes (Johannes) filed a complaint against her former attorneys—defendants and respondents Gregory M. Salvato (Salvato) and Joseph Boufadel (Boufadel) (collectively defendants)—for legal malpractice, breach of fiduciary duty, and breach of contract. Defendants demurred to each cause of action. The trial court sustained defendants' demurrer in its entirety without leave to amend and entered a judgment of dismissal, from which Johannes appeals.
Salvato is sued both in his individual capacity and as doing business as Salvato Law Offices.
With respect to legal malpractice and breach of fiduciary duty, we conclude that defendants' demurrer was properly sustained on the ground that the claims are time-barred by the statute of limitations. However, Johannes should have been granted leave to amend these causes of action to allege tolling. With respect to breach of contract against Boufadel, the trial court properly sustained the demurrer without leave to amend on the ground that Boufadel was not a signatory to the retainer agreement. With respect to breach of contract against Salvato, the demurrer should have been overruled; the claim was not time-barred and it was not duplicative of other causes of action.
Accordingly, we reverse the judgment of dismissal and direct the trial court to enter a new order (1) sustaining the demurrer as to the legal malpractice and breach of fiduciary duty causes of action with leave to amend; (2) sustaining the demurrer as to the breach of contract cause of action against Boufadel without leave to amend; and (3) overruling the demurrer as to the breach of contract cause of action against Salvato.
BACKGROUND
I. Defendants' Representation of Johannes
The facts summarized in this subsection are taken from the allegations in the operative first amended complaint and matters subject to judicial notice. (See Debrunner v. Deutsche Bank National Trust Co. (2012) 204 Cal.App.4th 433, 435; Gordon v. Law Offices of Aguirre & Meyer (1999) 70 Cal.App.4th 972, 975, fn. 2.)
Johannes was previously married to Patrick Allen Johannes (Patrick). During their 18-year marriage, Johannes and Patrick "acquired assets including interests in Patrick's multi-million dollar business." Before a final order dividing assets was entered in their marriage-dissolution case, Patrick "strategically filed" for chapter 11 bankruptcy (the bankruptcy case).
For clarity, we refer to Patrick by his first name. No disrespect is intended.
Johannes retained defendants—"Certified Bankruptcy Specialists"—to represent her in the bankruptcy case and, specifically, to establish that Patrick had filed for bankruptcy "to defraud [Johannes] of her interests in the community assets[.]"
On or about November 15, 2015, defendants informed Johannes that the bankruptcy court "rejected [their] arguments . . . and instead determined to rule in favor of [Patrick] on nearly every issue in dispute[.]" Defendants also "implied that they could be of no further assistance to [Johannes]." Johannes later learned through reading the bankruptcy court's rulings "that it was due to [d]efendants' repeated failure to meet filing deadlines and to disclose information favorable to [Johannes's] arguments that rulings were issued in [Patrick's] favor."
Johannes, in propria persona, filed a notice of appeal in the bankruptcy case on November 17, 2015. A few weeks later, the bankruptcy court issued an order approving the substitution of Salvato with another attorney to represent Johannes for the "Appeal Only[.]"
The following year, a second substitution of attorney form was filed to substitute Salvato out of the "Bankruptcy Case" and for Johannes to represent herself. The form was signed by Johannes and Salvato; both signatures were dated December 6, 2016. On December 9, 2016, the bankruptcy court approved the substitution.
II. Johannes's Lawsuit Against Defendants
On December 8, 2017, Johannes filed a complaint against defendants, asserting causes of action for legal malpractice, breach of fiduciary duty, and breach of contract in connection with defendants' representation of Johannes in the bankruptcy case. She subsequently filed the operative first amended complaint, reasserting the same causes of action.
A. Legal malpractice
Johannes alleged that defendants breached the duty of care they owed to her as her attorneys in the bankruptcy case. Among other things, defendants failed to comply with court deadlines, resulting in the exclusion of evidence; failed to timely file an amended claim, resulting in the denial of a $242,000 litigation discount, $470,305.67 in legal fees, and $3,077,020.75 in distributions from Patrick's company; failed to provide explanations to the bankruptcy court and seek its consideration of untimely filings; failed to retain a forensic accountant; failed to correct an erroneous statement by the bankruptcy court; and "[a]bandoned" Johannes with the deadline to file an appeal approaching.
B. Breach of fiduciary duty
Johannes alleged that, based on the attorney-client relationship, defendants owed her "a fiduciary duty to preserve and protect [her] interests, rights and opportunities." Defendants failed to disclose their negligent acts to Johannes despite their fiduciary duty to do so.
C. Breach of contract
Johannes alleged that a contract—in the form of a retainer agreement dated January 20, 2014 (the retainer agreement)—existed between her and defendants. Salvato breached the contract by refusing Johannes's request to arbitrate their fee dispute.
Johannes attached a copy of the retainer agreement to the first amended complaint. It shows that only Johannes and Salvato were signatories.
III. Defendants' Demurrer
Defendants demurred to each cause of action in the first amended complaint, arguing that (1) each was time-barred by the statute of limitations; (2) the breach of fiduciary duty and breach of contract causes of action were duplicative of the legal malpractice cause of action; and (3) no breach of contract claim could lie against Boufadel, a nonsignatory to the retainer agreement.
IV. Trial Court Order
After entertaining oral argument, the trial court sustained the demurrer in its entirety without leave to amend.
The trial court found it "clear" that Johannes's alleged harm occurred by the time she filed her appeal in the bankruptcy case on November 17, 2015. The court further found that continuous representation tolling ended on December 6, 2016—"the date of [Johannes's] signature consenting to the [second] substitution" of attorney in the bankruptcy case. The court rejected Johannes's contention that the substitution of attorney did not become effective until it was approved by the bankruptcy court on December 9, 2016. There were no allegations that, after December 6, 2016, "[d]efendants continued to provide related legal services to" Johannes, "no allegations of 'an ongoing mutual relationship,' and no allegations of the continuance of activities 'in furtherance of the relationship.'"
Citing the local rules of the bankruptcy court (U.S. Bankr. Ct., Local Bankr. Rules, Southern Dist. Cal., rule 9010-5; U.S. Dist. Ct., Local Civ. Rules, Southern Dist. Cal., rule 83.3(f)(2)), Johannes had argued in opposition to the demurrer that "until the court approves the substitution, the attorney substituting out remains attorney of record" and, therefore, "[d]efendants were not formally released from their representation of [her] until December 9, 2016[,] at the earliest."
Accordingly, one year after December 6, 2016—that is, December 6, 2017—was the last day for Johannes to file her lawsuit. Having been filed on December 8, 2017, Johannes's claims were all time-barred.
The trial court also sustained the demurrer as to the breach of fiduciary duty and breach of contract causes of action on the ground that they were duplicative of the legal malpractice cause of action. The demurrer as to the breach of contract cause of action was sustained on the additional ground that Boufadel was not a signatory to the retainer agreement.
V. Appeal
Johannes filed a timely notice of appeal from the subsequent judgment of dismissal.
DISCUSSION
I. Standards of Review
On appeal from a judgment dismissing an action after sustaining a demurrer without leave to amend, we apply two separate standards of review. (Aguilera v. Heiman (2009) 174 Cal.App.4th 590, 595 (Aguilera).)
First, we "review the complaint de novo to determine whether the complaint alleges facts sufficient to state a cause of action under any legal theory or to determine whether the trial court erroneously sustained the demurrer as a matter of law. [Citation.]" (Aguilera, supra, 174 Cal.App.4th at p. 595.) We assume the truth of "all properly pleaded material allegations" (Morillion v. Royal Packing Co. (2000) 22 Cal.4th 575, 579); "we are not concerned with the difficulties a plaintiff may have in proving the claims made in the complaint. [Citation.]" (Kan v. Guild Mortgage Co. (2014) 230 Cal.App.4th 736, 740.)
Second, if necessary, "we determine whether the trial court abused its discretion by sustaining the demurrer without leave to amend. [Citation.] . . . . An abuse of discretion is established when 'there is a reasonable possibility the plaintiff could cure the defect with an amendment.' [Citation.]" (Aguilera, supra, 174 Cal.App.4th at p. 595.)
II. Statute of Limitations
A. Applicable law
There is no dispute that each of the causes of action asserted in the first amended complaint is subject to the statute of limitations set forth in Code of Civil Procedure section 340.6. (Levin v. Graham & James (1995) 37 Cal.App.4th 798, 805 (Levin); see also Lee v. Hanley (2015) 61 Cal.4th 1225, 1236-1237 ["section 340.6(a)'s time bar applies to claims whose merits necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services"].)
All further statutory references are to the Code of Civil Procedure unless otherwise indicated.
Under section 340.6, subdivision (a), "[a]n action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services" must be filed "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," and not more than "four years from the date of the wrongful act or omission[.]"
An exception not applicable here exists if the claim requires the plaintiff to establish factual innocence. (§ 340.6, subd. (a).)
The limitations period is tolled while "[t]he attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred." (§ 340.6, subd. (a)(2).) "[S]ection 340.6 does not expressly state a standard to determine when an attorney's representation of a client regarding a specific subject matter continues or when the representation ends, and the legislative history does not explicitly address this question." (Gonzalez v. Kalu (2006) 140 Cal.App.4th 21, 28.) And, of course, "[t]he end of an attorney-client relationship is not always signaled by a bright line[.]" (Flake v. Neumiller & Beardslee (2017) 9 Cal.App.5th 223, 230 (Flake).)
Determining whether an attorney continues to represent a client for continuous representation tolling depends on an objective examination of "'"evidence of an ongoing mutual relationship and of activities in furtherance of the relationship."' [Citations.] [¶] Where an attorney unilaterally withdraws or abandons his client, 'the representation ends when the client actually has or reasonably should have no expectation that the attorney will provide further legal services.' [Citation.] But where . . . the attorney has been formally substituted out as counsel, that act of substitution ordinarily ends the relationship [citations], although the relationship can continue—notwithstanding the withdrawal and substitution—if the objective evidence shows that the attorney continues to provide legal advice or services [citation]." (Shaoxing City Maolong Wuzhong Down Products, Ltd. v. Keehn & Associates, APC (2015) 238 Cal.App.4th 1031, 1038-1039 (Shaoxing).)
"[F]or a demurrer based on the statute of limitations to be sustained, the untimeliness of the lawsuit must clearly and affirmatively appear on the face of the complaint and matters judicially noticed. [Citation.]" (Coalition for Clean Air v. City of Visalia (2012) 209 Cal.App.4th 408, 420 (Coalition for Clean Air).) And, "when a complaint shows on its face (or with the help of judicially noticed facts) that a pleaded cause of action is apparently barred by the statute of limitations, [a] plaintiff must plead facts which show an excuse, tolling, or other basis for avoiding the statutory bar [citations], at least in order to avoid a successful demurrer. [Citations.]" (Spray, Gould & Bowers v. Associated Internat. Ins. Co. (1999) 71 Cal.App.4th 1260, 1266, fn. 4 (Spray); see also In re Reno (2012) 55 Cal.4th 428, 511 (Reno); 4 Witkin, Cal. Procedure (5th ed. 2008), pleading, § 425.)
B. Analysis
1. Legal malpractice and breach of fiduciary duty
According to the first amended complaint, on or about November 15, 2015, defendants informed Johannes of rulings adverse to her in the bankruptcy case. Based on this allegation and the judicially noticeable fact that Johannes filed her notice of appeal in the bankruptcy case on November 17, 2015 (Evid. Code, § 452, subd. (d)), we conclude that Johannes "discover[ed], or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission" (§ 340.6, subd. (a)) underlying her legal malpractice and breach of fiduciary duty causes of action by November 17, 2015. Thus, absent tolling, these causes of action were time-barred under section 340.6, subdivision (a), by the time the complaint was filed on December 8, 2017.
Therefore, to survive demurrer, Johannes was required to plead facts establishing tolling. (Reno, supra, 55 Cal.4th at p. 511; Spray, supra, 71 Cal.App.4th at p. 1266, fn. 4.) Because she failed to do so in the first amended complaint, the trial court properly sustained the demurrer as to the legal malpractice and breach of fiduciary duty causes of action.
It was an abuse of discretion, however, to deny leave to amend because "there is a reasonable possibility that [Johannes] can amend the complaint to cure its defects." (Careau & Co. v. Security Pacific Business Credit, Inc. (1990) 222 Cal.App.3d 1371, 1386.) Specifically, Johannes may be able to allege facts to support continuous representation tolling until December 8, 2016, or later, thereby making the filing of the complaint on December 8, 2017, timely under section 340.6, subdivision (a).
Defendants attempt to resist this conclusion by arguing that any tolling for continuous representation ended on November 15, 2015; or, alternatively, sometime in October 2016; or, at the very latest, on December 6, 2016. Based on the first amended complaint and facts properly subject to judicial notice, we disagree.
First, defendants point to the first amended complaint's allegations that, on November 15, 2015, "[d]efendants implied that they could be of no further assistance to [Johannes]" and that defendants "[a]bandoned [Johannes] by . . . advising [her] that [they] could no longer represent her with less than a week remaining to file an appeal in a complex case with volumes of documents." Neither of these allegations conclusively establishes that the representative relationship had concluded for all purposes in the bankruptcy matter, as opposed to just the appeal. In December 2015, the bankruptcy court approved the substitution of Salvato out of the bankruptcy case for the "Appeal Only"; he remained the attorney of record for the underlying case for another year until December 2016. And, in opposition to defendants' demurrer, Johannes submitted evidence that defendants continued to perform legal services for Johannes and bill her through May 2016.
Second, defendants contend that "any remaining attorney-client relationship had objectively come to an end" when Johannes and defendants "became adversaries" in October 2016. They cite an e-mail Johannes sent that month informing defendants "that she was pursuing a claim against them" and the fact that another attorney was acting as an intermediary between Johannes and defendants as of December 2, 2016. Whether these events signified the end of the representation for the purpose of continuous representation tolling—particularly in light of the fact that a substitution of attorney form in the underlying bankruptcy case had yet to be filed—is a question of fact that cannot be resolved on demurrer. (See Laclette v. Galindo (2010) 184 Cal.App.4th 919, 921-922, 929 [whether representation continued when attorney remained counsel of record but did not communicate with client for two years was a triable issue of material fact]; O'Neill v. Tichy (1993) 19 Cal.App.4th 114, 120-121 [whether representation continued when client retained other counsel to investigate malpractice was a triable issue of material fact]; see also Nielsen v. Beck (2007) 157 Cal.App.4th 1041, 1052, fn. 6.)
Third, and finally, defendants argue that tolling ended "no later than December 6, 2016," when defendants sent Johannes a substitution of attorney form for the bankruptcy case. They do not aver on appeal that either Johannes or Salvato actually signed the substitution form on December 6, 2016, even though the date appears next to both signatures. Rather, they contend that it is "a distinction without a difference" whether Johannes signed the form on December 8, 2016, as she claims on appeal, because the relevant date is when the substitution was transmitted by Salvato, as that act placed Johannes "on notice that [defendants] would not be providing any further representation." Defendants rely on Flake, supra, 9 Cal.App.5th 223, to support this position. We disagree that Flake compels such a conclusion.
In Flake, "[f]ormer counsel moved to withdraw from representing a client, alleging another attorney had agreed to handle—and was already handling—postjudgment motions, and that the other attorney would also handle the appeal of an adverse judgment. The client sued former counsel for malpractice more than one year after the motion to withdraw was made, but less than one year after the motion was granted. The question before [the Court of Appeal was] whether the trial court properly granted summary judgment to former counsel based on the one-year statute of limitations provided by . . . section 340.6 on the ground that the client could not have had an objectively reasonable expectation that former counsel was continuing to represent him after the motion to withdraw had been served. [The Court of Appeal] conclude[d] the answer [was] 'yes.'" (Flake, supra, 9 Cal.App.5th at p. 226, fn. omitted.) The Court of Appeal acknowledged that "until a motion to withdraw is granted, it cannot be certain that the trial court will sever the attorney-client relationship." (Id. at p. 230.) Nevertheless, former counsel's motion to withdraw "would indicate to any objectively reasonable client that [former counsel's] representation of [the client] was over, as it had been completely assumed by another." (Id. at p. 232.)
Defendants equate the formal service of a presumably complete motion to withdraw in Flake—which marked the end of continuous representation tolling—to Salvato's act of e-mailing a substitution of attorney form to another attorney to provide to Johannes for her signature. We find these acts readily distinguishable.
Based on the record before us, it would appear that the date that Johannes actually signed the second substitution of counsel form represents a definitive cessation of "'". . . an ongoing mutual relationship and of activities in furtherance of the relationship[]"'" (Shaoxing, supra, 238 Cal.App.4th at p. 1038) and thus ended tolling. Because Johannes may be able to allege that she signed on (or after) December 8, 2016—exactly one year before she filed the complaint in this action—denial of leave to amend as to the causes of action for legal malpractice and breach of fiduciary duty was an abuse of discretion.
Johannes argues that it was an abuse of discretion to deny leave to amend because she can state a cause of action for actual fraud, which would not be governed by the statute of limitations under section 340.6. Because we conclude that the matter must be remanded to allow Johannes to file a second amended complaint, we do not reach this issue. On remand, Johannes may attempt to plead a cause of action for actual fraud, but we express no opinion on the merits of such a claim.
2. Breach of contract against Salvato
The breach of contract cause of action is also subject to the one-year statute of limitations under section 340.6. (Levin, supra, 37 Cal.App.4th at p. 805; see also Bird, Marella, Boxer & Wolpert v. Superior Court (2003) 106 Cal.App.4th 419, 430 ["courts have held attorney-client fee disputes and legal malpractice claims fall within the same statute of limitations, . . . section 340.6"].) However, the date of accrual of the cause of action is distinct from that of the legal malpractice and breach of fiduciary duty causes of action. As set forth above, the breach of contract cause of action is premised on the allegation that Salvato violated the retainer agreement by refusing Johannes's request to arbitrate their fee dispute. Because it is not clear from the first amended complaint or matters properly subject to judicial notice when Salvato's refusal occurred, the demurrer based on the statute of limitations as to the breach of contract cause of action against Salvato should have been overruled. (Coalition for Clean Air, supra, 209 Cal.App.4th at p. 420.)
III. Duplicative Causes of Action
The trial court also sustained the demurrer as to the breach of fiduciary duty and breach of contract causes of action on the alternative ground that they were merely duplicative of the legal malpractice cause of action. This was error.
There is a split of authority regarding whether a demurrer may be properly sustained on the ground that a cause of action is duplicative. (Compare Palm Springs Villas II Homeowners Assn., Inc. v. Parth (2016) 248 Cal.App.4th 268, 290 [demurrer properly sustained on ground that cause of action was duplicative] with Blickman Turkus, LP v. MF Downtown Sunnyvale, LLC (2008) 162 Cal.App.4th 858, 890 [that a cause of action is duplicative "is not a ground on which a demurrer may be sustained"].) We need not wade into this dispute because Johannes's breach of fiduciary duty and breach of contract causes of action are not duplicative of her legal malpractice cause of action.
A. Breach of fiduciary duty
"The elements of a cause of action for breach of fiduciary duty are the existence of a fiduciary relationship, breach of fiduciary duty, and damages. [Citation.]" (Oasis West Realty, LLC v. Goldman (2011) 51 Cal.4th 811, 820-821 (Oasis).)
Johannes alleged that, by virtue of their attorney-client relationship, a fiduciary relationship existed between her and defendants. Defendants breached their "fiduciary obligation to disclose" their acts of legal malpractice to Johannes, which caused her to suffer damages. These allegations are sufficient to state a cause of action distinct from legal malpractice based on defendants' breach of their duty to keep Johannes reasonably informed about significant developments in the bankruptcy case. (See Bus. & Prof. Code, § 6068, subd. (m) [an attorney has a duty "'to keep clients reasonably informed of significant developments in matters with regard to which the attorney has agreed to provide legal services'"]; Chambers v. Kay (2002) 29 Cal.4th 142, 157.)
B. Breach of contract
"[T]he elements of a cause of action for breach of contract are (1) the existence of the contract, (2) plaintiff's performance or excuse for nonperformance, (3) defendant's breach, and (4) the resulting damages to the plaintiff. [Citation.]" (Oasis, supra, 51 Cal.4th at p. 821.)
Johannes alleged the existence of a contract in the form of the retainer agreement, that she performed all of her nonexcused obligations, that defendants breached their obligations by failing to competently represent her and by Salvato's refusal to arbitrate, and that she suffered damages. These allegations are sufficient to state a breach of contract cause of action distinct from legal malpractice or breach of fiduciary duty. (Cf. Charnay v. Cobert (2006) 145 Cal.App.4th 170, 186 [allegations that attorney "breached the retainer agreement by, among other things, billing in excess of the amounts agreed to in the retainer agreement and for tasks not performed" were sufficient to state a claim].)
IV. No Breach of Contract Cause of Action Against Boufadel
The trial court properly sustained the demurrer as to the breach of contract cause of action against Boufadel without leave to amend on the ground that he was not a signatory to the retainer agreement.
"Under California law, only a signatory to a contract may be liable for any breach. [Citations.]" (Clemens v. American Warranty Corp. (1987) 193 Cal.App.3d 444, 452; see also Tri-Continent Internat. Corp. v. Paris Savings & Loan Assn. (1993) 12 Cal.App.4th 1354, 1359 [explaining that the plaintiff could not "assert a claim for breach of contract against one who is not a party to the contract"].)
That Boufadel did not sign the retainer agreement is not subject to reasonable dispute. Although the first amended complaint alleges that "[Johannes] and [d]efendants were parties to a written contract in the form of" the retainer agreement, the copy of the agreement attached by Johannes as an exhibit does not specifically mention Boufadel or bear his signature. We may consider exhibits attached to a complaint when reviewing a demurrer and "[i]f facts appearing in the exhibits contradict those alleged, the facts in the exhibits take precedence. [Citation.]" (Holland v. Morse Diesel Internat., Inc. (2001) 86 Cal.App.4th 1443, 1447.) Thus, we may disregard any inference from the first amended complaint that Boufadel was a signatory to the retainer agreement.
Accordingly, the demurrer as to the breach of contract cause of action against Boufadel was properly sustained on the ground that he did not sign the retainer agreement. Because amendment cannot cure this defect, the demurrer was properly sustained without leave to amend.
DISPOSITION
The judgment of dismissal is reversed.
We affirm the order sustaining the demurrer without leave to amend as to the breach of contract cause of action against Boufadel.
We reverse the trial court's order sustaining without leave to amend the demurrer as to the legal malpractice and breach of fiduciary duty causes of action against both defendants, and as to the breach of contract cause of action against Salvato.
On remand, the trial court is directed to issue a new order (1) sustaining the demurrer as to the legal malpractice and breach of fiduciary duty causes of action with leave to amend; (2) sustaining the demurrer as to the breach of contract cause of action against Boufadel without leave to amend; and (3) overruling the demurrer as to the breach of contract cause of action against Salvato.
The parties are to bear their own costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
/s/_________, J.
ASHMANN-GERST We concur: /s/_________, P. J.
LUI /s/_________, J.
CHAVEZ