Judge: Nathan Nhan Vu, Case: 30-2022-01285840, Date: 2023-08-21 Tentative Ruling
Demurrer
Cross-Defendant The Perry Law Firm’s Demurrer to the First Amended Cross-Complaint is SUSTAINED without leave to amend.
Cross-Defendant The Perry Law Firm’s Request to Take Judicial Notice re: Demurrer to First Ameded Cross-Complaint is GRANTED. (See Evidence Code, § 452, subd (d).)
Cross-Defendant The Perry Law Firm (Cross-Defendant Law Firm) demurs to the First Amended Cross-Complaint (FACC) filed by Cross-Complainant Gregg Linn.
Standard for Demurrer
In ruling on a demurrer, a court must accept as true all allegations of fact contained in the complaint. (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) A demurrer challenges only the legal sufficiency of the affected pleading, not the truth of the factual allegations in the pleading or the pleader’s ability to prove those allegations. (Cundiff v. GTE Cal., Inc. (2002) 101 Cal.App.4th 1395, 1404-05.)
Questions of fact cannot be decided on demurrer. (Berryman v. Merit Prop. Mgmt., Inc. (2007) 152 Cal.App.4th 1544, 1556.) Because a demurrer tests only the sufficiency of the complaint, a court will not consider facts that have not been alleged in the complaint unless they may be reasonably inferred from the matters alleged or are proper subjects of judicial notice. (Hall v. Great W. Bank (1991) 231 Cal.App.3d 713, 718 fn.7.)
Although courts should take a liberal view of inartfully drawn complaints, (see Code Civ. Proc., § 452), it remains essential that a complaint set forth the actionable facts relied upon with sufficient precision to inform the defendant of what plaintiff is complaining, and what remedies are being sought, (Leek v. Cooper (2011) 194 Cal.App.4th 399, 413). Bare conclusions of law devoid of any facts are insufficient to withstand demurrer. (Schmid v. City and County of San Francisco (2021) 60 Cal.App.5th 470, 481; see Code Civ. Proc., § 425.10, subd. (a).)
Statute of Limitations
Pursuant to Civil Procedure Code section 340.6, “[a]n action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced within one year after the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission[.]” (Code Civ. Proc., § 340.6, subd. (a).)
Cross-Defendant Law Firm contends that the statute of limitations for legal malpractice actions found in Section 340.6(a) bars the 1st and only cause of action contained in the FACC.
Cross-Complainant responds that the first cause of action is for fraud and not legal malpractice and therefore, the three-year statute of limitations for fraud claims applies. (See Code Civ. Proc., § 338, subd. (d).)
By its own terms, Section 340.6(a) does not apply to claims of “actual fraud.” However, “to determine the statute of limitations which applies to a cause of action it is necessary to identify the nature of the cause of action, i.e., the ‘gravamen’ of the cause of action.” (Hensler v. City of Glendale (1994) 8 Cal.4th 1, 22.) “The nature of the cause of action and the primary right involved, not the form or label of the cause of action or the relief demanded, determine which statute of limitations applies.” (Carter v. Prime Healthcare Paradise Valley LLC (2011) 198 Cal.App.4th 396, 412.)
Thus, the Supreme Court held that “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.” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1236-1237.) “[T]he term ‘professional services’” means not only legal services, but also “include[s] nonlegal services governed by an attorney's professional obligations.” (Id. at p. 1237.)
As the Supreme Court explained:
For purposes of section 340.6(a), the question is not simply whether a claim alleges misconduct that entails the violation of a professional obligation. Rather, the question is whether the claim, in order to succeed, necessarily depends on proof that an attorney violated a professional obligation as opposed to some generally applicable nonprofessional obligation.
(Id. at p. 1238.) The Court made it clear that “plaintiffs involved in ordinary fee disputes cannot evade the statute [of limitations of Section 340.6].” (Ibid.)
Here, the FACC alleges that Cross-Defendant Michael R. Perry (Cross-Defendant Perry) and Cross-Defendant Law Firm made false statements to Cross-Complainant on June 10, 2019, to induce Cross-Complainant to enter into the attorney fee agreement. (See FACC, ¶ 8.) These false statements consisted of:
1. Statements that certain legal services had been performed, billing Cross-Complainant for services that were never performed, and billing for useless professional services that Cross-Defendant Perry represented would guarantee success, (FACC, ¶ 8);
2. Statements regarding the viability of a home owner’s association’s standing to defend a suit and their authority to conduct the complained of activities, (id., ¶ 9); and
3. Statements that they could immediately prevail in a lawsuit against a homeowners association with a motion for summary judgment, (ibid.).
Cross-Complainant argues that Section 340.6(a) does not apply here because the 1st Cause of Action sounds in fraud or fraud in the inducement. Cross-Complainant reasons that because the Cross-Complaint alleges Cross-Defendant Perry knowingly misrepresented facts and everyone has a duty to tell the truth in the context of contract formation, there is no need to establish a violation of Cross-Defendants’ professional obligations for purposes of the 1st Cause of Action.
It is true that the FACC alleges a claim for fraud or fradulent inducement. However, to prevail on this claim, Cross-Complainant will have to provide proof that Defendant Law Firm violated a professional obligation. As an initial matter, the FACC alleges that Cross-Defnedants were Cross-Complainant’s legal counsel, who provided legal advice and recommendations to Cross-Complainant. (See FACC, ¶¶ 8-12.)
In order to prevail, Cross-Complainant will need to show that Cross-Defendants did not properly bill for professional services, which is a professional obligation. (See FACC, ¶ 8; Bird, Marella, Boxer & Wolpert v. Superior Court (2003) 106 Cal.App.4th 419, 430–431 [attorney owes client fiduciary duty to ensure that billings are fair and reasonable].) Therefore, Cross-Complainant’s fraud claim is subject to the statute of limitations of Section 340(a).
In the alternative, Cross-Complainant must show that Cross-Defendants gave legal advice that fell below the applicable standard of care and skill for the provision of legal services, which is also a professional obligation. (See FACC, ¶ 9; Lysick v. Walcom (1968) 258 Cal.App.2d 136, 146 [attorney representing client owes a “high duty of care” imposed by statute and rules governing professional conduct].)
Cross-Complainant argues that applying the statute of limitations in Section 340.6(a) to his claim is inconsistent with the caselaw and renders the exception for “actual fraud” meaningless.
However, the Supreme Court in Lee v. Hanley specifically required courts to review the complaint or cross-complaint and determine whether “the claim, in order to succeed, necessarily depends on proof that an attorney violated a professional obligation as opposed to some generally applicable nonprofessional obligation.” (Lee v. Hanley, supra, 61 Cal.4th at p. 1238.) The court is following this requirement of the precedent.
Further, the Lee v. Hanley Court described situations when Section 340.6(a)’s time bar would not apply. For example, it “does not bar a claim for wrongdoing — for example, garden-variety theft — that does not require proof that the attorney has violated a professional obligation, even if the theft occurs while the attorney and the victim are discussing the victim's legal affairs.” (Id. at p. 1237.)
Additionally, the Supreme Court noted that Section 340.6(a) “does not bar a claim arising from an attorney's performance of services that are not professional services, meaning services performed by an attorney which can be judged against the skill, prudence and diligence commonly possessed by other attorneys.” (Ibid.) Thus, the exception for “actual fraud” is not superfluous.
Accrual of Cause of Action
Civil Procedure Code section 340.6 states that the statute of limitations runs either “one year after 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.” (Code Civ. Proc., § 340.6, subd. (a).)
However, the statute of limitations is tolled during the time that the attorney who is alleged to have committed the wrongful act or omission “continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred.” (Code Civ. Proc., § 340.6, subd. (a)(2).)
Cross-Defendants continued to represent Cross-Complainaint until September 18, 2020, when the substitution of attorney was filed. Cross-Complainant did not file the Cross-Complaint until December 14, 2022.
“[U]nder the delayed discovery rule, a cause of action accrues and the statute of limitations begins to run when the plaintiff has reason to suspect an injury and some wrongful cause, unless the plaintiff pleads and proves that a reasonable investigation at that time would not have revealed a factual basis for that particular cause of action. In that case, the statute of limitations for that cause of action will be tolled until such time as a reasonable investigation would have revealed its factual basis.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 803.)
For delayed discovery, plaintiff “must specifically plead facts to show (1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.’ In assessing the sufficiency of the allegations of delayed discovery, the court places the burden on the plaintiff to ‘show diligence’; ‘conclusory allegations will not withstand demurrer.’ ” (Id. at p. 808, citation omitted.)
Cross-Complainant does not dispute that he should have been aware of the alleged misrepresentations by September 18, 2020, when the substitution of attorney was filed in the prior lawsuit. Cross-Complainant also does not plead any facts to show that there was or would have been delayed discovery in this case.
The FACC was filed more than a year after Plaintiff discovered or should have discovered the alleged wrongdoing and the 1st Cause of Action is time-barred. The court must sustain the demurrer.
Pleading with Particularity
To state a cause of action for fraud, a plaintiff must allege the following with specificity: (1) a misrepresentation, (2) knowledge of its falsity, (3) intent to defraud, 4) justifiable reliance, and (5) damages. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645 [specific pleading requirement for fraud necessitates pleading facts that show how, where, when, and who of the fraudulent conduct].)
In cases against corporate employers, Plaintiff must “allege the names of the persons who made the allegedly fraudulent representations, their authority to speak, to whom they spoke, what they said or wrote, and when it was said or written.” (Tarmann v. State Farm Mutual Automobile Ins. Co. (1991) 2 Cal.App.4th 153, 157.)
Defendant Law Firm contends that the 1st cause of action is not pleaded with the required particularity.
The FACC alleges Cross-Defendants made false representations on June 10, 2019, but it does not allege how and where the misrepresentations were made (e.g., in person, in writing, over the telephone, by electornic or other means, and at what location(s)).
The FACC thus does not plead the fraud claim with the required specificity and the court must sustain the demurrer.
Leave to Amend
“It is an abuse of the trial court's discretion to sustain a demurrer without leave to amend if there is a reasonable possibility the plaintiff can amend the complaint to allege any cause of action.” (Smith v. State Farm Mutual Automobile Ins. Co. (2001) 93 Cal.App.4th 700, 711.) “Liberality in permitting amendment is the rule, if a fair opportunity to correct any defect has not been given.” (Angie M. v. Superior Court (1995) 37 Cal.App.4th 1217, 1227.)
However, it is the plaintiff's “burden to establish how the complaint can be amended to state a valid cause of action.” (Sanowicz v. Bacal (2015) 234 Cal.App.4th 1027, 1044.) In order to meet this burden, a plaintiff may submit a proposed amended complaint or enumerate facts and demonstrate how those facts establish a cause of action. (See Cantu v. Resolution Trust Corp. (1992) 4 Cal.App.4th 857, 890.)
The trial court properly sustains a demurrer without leave to amend where plaintiff fails to meet its burden. (Jensen v. Home Depot (2018) 24 Cal.App.5th 92, 97.) “[N]otwithstanding the liberal policy favoring amendment of complaints, upon sustaining a demurrer to a first amended complaint, the court may deny leave to amend when the plaintiff fails to demonstrate the possibility of amendments curing the first amended complaint's defects.” (Hedwall v. PCMV, LLC (22 Cal.App.5th 564, 579.)
In this case, Cross-Complainant has not requested leave to amend nor has Cross-Complainant shown how the FACC could be amended to avoid the application of Section 340.6(a).
In fact, the court previously sustained Cross-Defendant Law Firm’s demurrer to the original Cross-Complaint with leave to amend. In filing a FACC, the Cross-Complainant did not make any material amendments that addressed the statute of limitations issues. In addition, in the Opposition to this Demurrer, Cross-Complainant did not point to any new allegations or assert any new arguments, but merely repeated his prior allegations and arguments.
The court threfore will sustain without leave to amend.
Motion to Strike
Cross-Defendant The Perry Law Firm’s Motion to Strike Portions of the First Amended Cross-Complaint is taken OFF CALENDAR.
Cross-Defendant The Perry Law Firm (Cross-Defendant Law Firm) moves to strike the prayer for punitive damages contained in the First Amended Cross-Complaint (FACC) filed by Cross-Complainant Gregg Linn.
In light of the court’s ruling on the Cross-Defendant Law Firm’s Demurrer to the FACC, the Motion to Strike Portions of the FACC is now moot and shall be taken off calendar.
Cross-Defendant Law Firm shall give notice of this ruling.