Judge: Stephen P. Pfahler, Case: 19CHCV00108, Date: 2023-10-25 Tentative Ruling


Case Number: 19CHCV00108    Hearing Date: October 25, 2023    Dept: F49

Dept. F-49                                                                

Date: 10-25-23

Case #19CHCV00108

Trial Date: 2-5-23

 

SUMMARY JUDGMENT

 

MOVING PARTY: Defendant, Bradley Brokop

RESPONDING PARTY: Plaintiff, Eileen Lopez

 

RELIEF REQUESTED

Motion for Summary Judgment/Summary Adjudication as to the First Amended Complaint

·         1st Cause of Action: Breach of Fiduciary Duty

·         2nd Cause of Action: Negligence

·         3rd Cause of Action: Professional Negligence

 

SUMMARY OF ACTION

Plaintiff Eileen Lopez alleges her ex husband “mismanaged” household finances thereby leading to demands for payment and penalties from the IRS and Franchise Tax Board for the years 2003 through 2007. In 2009, Plaintiff hired Defendant Bradely Brokop to manage Plaintiff’s assets, provide financial advice, mitigate the liabilities for prior tax bills, and prepare future income tax returns. Plaintiff alleges the existence of a written agreement, but is unable to provide a copy of said agreement in the complaint. On September 27, 2011, Plaintiff executed a durable power of attorney for asset management agreement with Defendant.

 

Plaintiff alleges that Defendant “made no attempt to paydown, negotiate or otherwise address Plaintiff’s liabilities for past-due taxes, interest and penalties” from 2009 to 2015. In November 2015, Plaintiff demanded a revocation of the power of attorney agreement. On December 23, 2015, Plaintiff discovered at least some correspondence showing the past-due taxes and penalties based on the turnover of documents from Defendant. In March 2017, Plaintiff alleges her full discovery of the conduct of Defendant following the retention of a new tax professional.

 

On February 8, 2019, and May 7, 2019, Plaintiff filed a complaint and first amended complaint for breach of fiduciary duty, negligence and professional negligence. On July 25, 2019, the court overruled the demurrer to the first amended complaint.

 

On January 30, 2020, the court entered the parties’ stipulation to stay the case. On May 25, 2022, the court lifted the stay.

 

RULING: Denied.

Request for Judicial Notice: Granted.

The court takes judicial notice of the filed pleadings for the existence of their filing, and the minute orders and stipulations in regards to actions taken by the court, but in all documents declines to consider the factual content of any and all for the truth of the matter asserted.

 

Evidentiary Objections: Overruled.

·         Declaration of Cressy Lopez: Not Relied Upon (Code of Civil Procedure § 437c, subd. (q).)

·         Declaration of Eileen Lopez: Plaintiff qualified to testify about beliefs, opinions, observations on own claims, not hearsay.

·         Declaration of Gary Slavett: Qualified and supported declaration, not hearsay.

 

Defendant Bradley Brokop moves for summary judgment on the three causes of action pled in the first amended complaint, and alternatively states nine (9) different issue statements for summary adjudication on the same three causes of action. Defendant moves on grounds of the statute of limitations, and lack any claim supporting any and all of the three causes of action for breach of fiduciary duty, negligence and professional negligence. Plaintiff in opposition denies any bar under the statute of limitations. Plaintiff maintains triable issues of material fact on the issue of breach and damages require denial of the entire motion. Defendant in reply reiterates the statute of limitations arguments through reliance on selected authority for accrual, and additional argument contending the negligence and fiduciary duty claims arise from the same common core of claims, thereby governed by a single statute of limitations.

 

The pleadings frame the issues for motions, “since it is those allegations to which the motion must respond. (Citation.)”  (Scolinos v. Kolts (1995) 37 Cal. App. 4th 635, 640-641; FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 382-383; Jordan-Lyon Prods., LTD. v. Cineplex Odeon Corp. (1994) 29 Cal.App.4th 1459, 1472.) The purpose of a motion for summary judgment or summary adjudication “is to provide courts with a mechanism to cut through the parties’ pleadings in order to determine whether, despite their allegations, trial is in fact necessary to resolve their dispute.” (Aguilar v. Atl. Richfield Co. (2001) 25 Cal.4th 826, 843.)  “Code of Civil Procedure section 437c, subdivision (c), requires the trial judge to grant summary judgment if all the evidence submitted, and ‘all inferences reasonably deducible from the evidence’ and uncontradicted by other inferences or evidence, show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.”  (Adler v. Manor Healthcare Corp. (1992) 7 Cal.App.4th 1110, 1119.) 

 

“On a motion for summary judgment, the initial burden is always on the moving party to make a prima facie showing that there are no triable issues of material fact.” (Scalf v. D.B. Log Homes, Inc. (2005) 128 Cal.App.4th 1510, 1519.) A defendant moving for summary judgment “has met his or her burden of showing that a cause of action has no merit if the party has shown that one or more elements of the cause of action . . . cannot be established.”  (Code Civ. Proc., § 437c, subd. (p)(2).) “Once the defendant . . . has met that burden, the burden shifts to the plaintiff . . . to show that a triable issue of one or more material facts exists as to the cause of action or a defense thereto.” (Ibid.) 

 

“When deciding whether to grant summary judgment, the court must consider all of the evidence set forth in the papers (except evidence to which the court has sustained an objection), as well as all reasonable inference that may be drawn form that evidence, in the light most favorable to the party opposing summary judgment.” (Avivi v. Centro Medico Urgente Medical Center (2008) 159 Cal.App.4th 463, 467; see also Code Civ. Proc., § 437c, subd. (c).) “An issue of fact can only be created by a conflict in the evidence.  It is not created by speculation, conjecture, imagination or guesswork.” (Lyons v. Security Pacific National Bank (1995) 40 Cal.App.4th 1001, 1041 (citation omitted).)

 

The court first addresses the notice of motion. “A party may move for summary adjudication as to one or more causes of action within an action, one or more affirmative defenses, one or more claims for damages, or one or more issues of duty, if the party contends that the cause of action has no merit, that there is no affirmative defense to the cause of action, that there is no merit to an affirmative defense as to any cause of action, that there is no merit to a claim for damages, as specified in Section 3294 of the Civil Code, or that one or more defendants either owed or did not owe a duty to the plaintiff or plaintiffs. A motion for summary adjudication shall be granted only if it completely disposes of a cause of action, an affirmative defense, a claim for damages, or an issue of duty.” (Code Civ. Proc., § 437c, subd. (f)(1).) Nothing in the statute allows for summary adjudication on the separately considered issue of “breach.” Defendant improperly moves for summary adjudication on issues 2, 3, 5, 6, 8, and 9 which effectively seek adjudication on the “breach,” “causation,” and non-punitive “damages” elements within the three causes of action but in no way constitutes a total defense or addresses the complete cause of action within the statutory framework. The motion otherwise lacks any stipulation allowing the subject motion to proceed as to the breach argument under Code of Civil Procedure Section 437c, subdivision (t). The court therefore restricts the motion for summary adjudication to the statute limitations defense in the first, fourth, and seventh pled issue statements.

 

Statute of Limitations

Like the previously considered demurrer, Defendant again contends that the gravamen of the complaint arises from accounting malpractice, and therefore a two year statute of limitations governs all claims. [First Amend. Comp., ¶ 18.] Defendant maintains that the Plaintiff was aware of the facts supporting the complaint as early as November 20, 2015, and certainly no later than January 19, 2016, while the instant complaint was not filed until February 8, 2019. The argument itself depends on a challenge to the alleged discovery date of the “allowed taxes, penalties and [accrued] interest” in March 2017, and a preemptive challenge to any claim under the delayed discovery rule for accrual of the statute of limitations. According to Defendant, actual event putting Plaintiff on notice was the revocation of the Power of Attorney in November 2015, due to the failure to pay “back taxes” and the subsequent hiring of a tax lawyer in January 2016 to address said tax liabilities and property liens. [See First Amend. Comp., ¶ 16.] Upon returning the file with the revocation of the power of attorney, the contents admittedly included tax liens and notices from the Internal Revenue Service (IRS). [First Amend. Comp., ¶ 16.] Furthermore, upon hiring the tax attorney in January 2016, Plaintiff admits to concern over tax liability. [First Amend. Comp., ¶ 18.] The harm was appreciable and actual at the time of the notice of tax liability regardless of the later determined amount.

 

Plaintiff in opposition first challenges the blanket application of the two year statute of limitations to all three causes of action in that the breach of fiduciary claim both relies on a differing factual basis and a four year statute of limitations. Plaintiff concedes to the two year statute of limitations on the professional negligence claim, but maintains the statute only accrued upon receipt of the final determination of tax liability. Plaintiff concedes to the revocation of the power or attorney in December 2015 for purposes of allowing her son, Cressy Lopez, to take over asset management, but contends only limited information was released to Cressy. Plaintiff maintains Defendant failed to keep Plaintiff up to date on the issues either way, which led to the retention of a tax attorney. An offer to the IRS was rejected in March 2017, thereby triggering the two year statute of limitations in that the tax deficiency and alleged malpractice was confirmed.

 

A two year statute of limitations governs accounting malpractice claims. (Apple Valley Unified School Dist. v. Vavrinek, Trine, Day & Co. (2002) 98 Cal.App.4th 934, 942; International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606, 608; Moonie v. Lynch (1967) 256 Cal.App.2d 361, 362.) Whether a two year statute of limitations governs all three causes of action requires consideration of the substance of the claims. “[W]here the gravamen of the case is accounting negligence, the two-year statute is applicable, notwithstanding the existence of other claims against the professionals, such as misrepresentation, for which a different statute of limitations might otherwise apply.” (Sahadi v. Scheaffer (2007) 155 Cal.App.4th 704, 715; Curtis v. Kellogg & Andelson (1999) 73 Cal.App.4th 492, 503 accord Barton v. New United Motor Manufacturing, Inc. (1996) 43 Cal.App.4th 1200, 1207 [“The statute of limitations to be applied in a particular case is determined by the nature of the right sued upon or the principal purpose of the action, not by the form of the action or the relief requested”].)

 

On the two year statute of limitations, Defendant contends the common core of facts leading to the subject action render the entire complaint as primarily for accounting malpractice [First Amend. Comp., ¶¶ 14, 28], while Plaintiff cites to the same common core of facts as a basis of distinction between accounting malpractice and breach of fiduciary duty [First Amend. Comp., ¶¶ 8, 23; Declaration of Eileen Lopez, ¶¶ 10-11]. Plaintiff’s argument depends on a characterization of the relationship with Defendant a fiduciary in nature in that Defendant received a fee for investment services imposed a superseding fiduciary relationship. (McMillin v. Eare (2021) 70 Cal.App.5th 893, 912.)

 

The undertaking of a fiduciary duty itself requires a finding of a knowing and voluntary undertaking “to act on behalf and for the benefit of another” or entry “into a relationship which imposes that undertaking as a matter of law.” (McMillin v. Eare, supra, 70 Cal.App.5th 912 [internal quotations omitted]; American Master Lease LLC v. Idanta Partners, Ltd. (2014) 225 Cal.App.4th 1451, 1479-1480.) The existence of the fiduciary duty cause of action, and four year statute of limitations, remains undisputed by the parties.

 

Nevertheless, while the imposition of a fiduciary duty and statute of limitations remains unchallenged, the court considers the standard under the gravamen of the complaint criteria cited in support of the motion. A district court case found “a cause of action for breach of fiduciary duty is its own ‘right sued on’ and cannot be compartmentalized into another rubric for time-bar purposes.” The attempt to characterize the breach of fiduciary duty as part of a negligence claim was rejected based on an opinion from the Ninth Circuit. (Federal Deposit Ins. Corp. v. McSweeney (S.D. Cal. 1991) 772 F.Supp. 1154, 1157 accord Robuck v. Dean Witter & Co., Inc. (9th Cir. 1980) 649 F.2d 641, 644-645.) The federal courts interpreted state law statute of limitations, and eventually cited back to California court authority on the subject.

 

Consistent with the standard established in Sahadi, Curtis and Barton, California recognizes the application differing statutes of limitations based on the nature of the right, not the form of action or relief demanded for determination of the statute of limitations. (San Filippo v. Griffiths (1975) 51 Cal.App.3d 640, 645-646; Schneider v. Union Oil Co. (1970) 6 Cal.App.3d 987, 993; Kornbau v. Evans (1944) 66 Cal.App.2d 677, 685-686.) “‘Thus, if a plaintiff states several purported causes of action which allege an invasion of the same primary right he has actually stated only one cause of action. On the other hand, if a plaintiff alleges that the defendant's single wrongful act invaded two different primary rights, he has stated two causes of action, and this is so even though the two invasions are pleaded in a single count of the complaint.’” (Choi v. Sagemark Consulting (2017) 18 Cal.App.5th 308, 335.)

 

While the same core of allegedly wrongful conduct factually underpins all claims, the authority indicates a separate and independent basis of conduct and claim for breach of a fiduciary from negligence based on the elevated nature arising within fiduciary relationship versus the similarly situated professional standard for negligence. The burden remains on Defendant to establish a complete defense to the cause of action. Defendant fails to address the factual distinctions between a claim for breach of fiduciary duty versus professional negligence. Reliance on the existence of the two year statute of limitations in and of itself and a common core of facts will not render the intertwined primary claims consolidated. (Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1157-1158 [No distinction found between negligence and breach of fiduciary duty for an insurance broker in that claim relied upon improper insurance policy rather than evidence of self-dealing, conflict of interest, or excessive compensation].)

 

The court therefore finds Plaintiff can articulate a separate and independent claim for breach of fiduciary duty under a separate, four year statute of limitations. It remains undisputed that the agreement for Defendant to undertake financial management services imposed a fiduciary duty. [First Amend. Comp., ¶¶ 10-11, 22; Lopez Dec., ¶¶ 5-8, 11.] (McMillin v. Eare, supra, 70 Cal.App.5th at p. 912.) Again, because the nature of the claim, rather than the form of relief or action sought or relief requested governs, the court finds Plaintiff states a valid claim for breach of fiduciary duty separate and apart from the negligence claims based on the agreement. The court declines to make factual gradations on core rights in order to determine whether Defendant can shift the burden of proof on a defense supposition. The court therefore concludes the February 2017 filed complaint was well within the four year statute of limitations for purposes of the instant motion.

 

The motion for summary judgment is therefore denied in that the court cannot adjudicate the entire action. The motion for summary adjudication on issue number one (1) is also denied.

 

Negligence and Professional Negligence

Defendant moves for summary adjudication based on a determination that accrual of the claim occurred upon the suspicion of potential malpractice following the revocation of the power of attorney agreement and turnover of the file more than two years prior to the filing of the action. The relief sought arises under an undisputed two year statute of limitations.

 

Generally, a statute of limitations begins to run “when the cause of action is complete with all of its elements”—namely, wrongdoing, causation, and resulting harm.  (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397; Pooshs v. Philip Morris USA, Inc. (2011) 51 Cal.4th 788, 797 [“A cause of action accrues ‘when [it] is complete with all of its elements’—those elements being wrongdoing, harm, and causation”].) “The statute of limitations in professional negligence cases starts to run when all the elements are complete. The last element to be determined may be the actual injury caused by the negligence.” (Moss v. Duncan (2019) 36 Cal.App.5th 569, 574-575.)

 

The “discovery rule” constitutes a basis for accrual. (Norgart v. Upjohn Co., supra, 21 Cal.4th at p. 397; Pooshs v. Philip Morris USA, Inc., supra, 51 Cal.4th at p. 797.) “Under the discovery rule, the statute of limitations begins to run when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her [him].” (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110.) “While resolution of the statute of limitations issue is normally a question of fact, where the uncontradicted facts established through discovery are susceptible of only one legitimate inference, summary judgment is proper.” (Id. at p. 1112; see Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 808–809.)

 

Case law specifically clarifies the standard for accrual for accounting malpractice claims. Where damages are a result of tax liabilities, damages are not fixed until the completion of the audit and the final tax deficiency is assessed by the tax authority. The damages constitute the additional penalty assessed as a result of the late payment. These damages are distinct from the tax already owed. (Moss v. Duncan (2019) 36 Cal.App.5th at pp. 576-578; International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606, 619-620.) The rule derives in part on public policy. “[A]ctual injury’ represents a legal term of art which recognizes that an inchoate or potential injury cannot give rise to a professional malpractice action until there has been an actual determination that the accountant's alleged negligence is related to the deficiency assessment. Once the audit process is finalized, however, the harm caused by the accountant's negligence is no longer contingent and the taxpayer's cause of action in tort for alleged malpractice against the accountant accrues under [Code of Civil Procedure] section 339, subdivision 1.” (Moss v. Duncan, supra, 36 Cal.App.5th at p. 578 (internal quotations omitted).)

 

Plaintiff alleged negotiations remained ongoing at the time of the filing of the complaint [First Amend. Comp., ¶ 18], and it remains unclear if a final settlement was reached in that Plaintiff represents an agreement for payment of $100,000 pursuant to an “OIC” in May 2019 though that agreement was revoked and negotiations continued at least into 2020. [Lopez Dec., ¶¶ 16, 18; See Declarations of Gary Slavett and Cressy Lopez, ¶¶ 18-20.] The court finds the declaration of Slavett as an attorney sufficient for purposes of attesting to the ongoing resolution of the dispute with the IRS.

 

The court otherwise finds no argument challenging the basis for the claimed accrual of damages, in that Defendant only depends on the diligence/duty to investigate requirement. In other words, under the standard cited above, unless and until the final penalties and interest is determined, the mere notice of potential penalties and interest as part of the negotiation process will not constitute an accrual action. No final decision or agreement appears on the record. The court declines to consider the factual scenarios considered in other cases distinguished by Moss v. Duncan. (Apple Valley Unified School Dist. v. Vavrinek, Trine, Day & Co., supra, 98 Cal.App.4th at pp. 946-947; Van Dyke v. Dunker & Aced (1996) 46 Cal.App.4th 446, 455.)

 

The court additionally therefore finds the argument in reply contending the existence of interest and penalties in and of themselves constitutes the accrual point improperly narrows the scope of the rule. The court also declines to consider the legal malpractice standard relied upon in reply and instead adheres the standard for accounting liability. (See Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 752.) To reiterate, the existence of the amount of the possibility of interest and penalties, which may be rendered to zero or amount to a significant sum, remains a specific factor under the accounting standard for accrual. [See Declaration of Jonathan Mishkin.] The declaration of Johnathan Mishkin also presents testimony on the subject matter of finalizing the dispute. The declaration remains both unchallenged and only conclusively addressed in the last section of the reply. The court therefore finds triable issues of material fact on the issue of accrual based on the admissible evidence regarding the existence of the dispute and potential for significant, outstanding penalties and interest separate an apart from the original tax deficiency Plaintiff arguably constructively became aware of upon receiving the file and revoking the power of attorney agreement.

 

Finally, the court rejects the argument in the reply regarding the improper effort to seek merger of the fiduciary duty and negligence claims via the interest and penalties, which as addressed above the court finds inapplicable. (Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc., supra, 115 Cal.App.4th at pp. 1157-1158 [No distinction found between negligence and breach of fiduciary duty for an insurance broker in that claim relied upon improper insurance policy rather than evidence of self-dealing, conflict of interest, or excessive compensation].) Even considering the merger of damages strenuously emphasized in the reply, however, Defendant fails to establish any factual lack of fiduciary duty. Again, Defendant cannot simply rely on a claim under the statute of limitations without establishing a basis of no separate and independent conduct thereby factually merging the alleged claims into an undistinguishable primary right. (Id. at pp. 1158-1159.)

 

The motions for summary adjudication on the statute of limitations to the negligence causes of action are denied.

 

Standard of Care

While the court declines to consider the specifically articulated motions for summary adjudication on the elements within the claim, the court considers the standard of care argument for purposes of determining whether Plaintiff properly states the challenged claims.

 

“[A]ccountants have been recognized as ‘a skilled professional class ... subject generally to the same rules of liability for negligence in the practice of their profession as are members of other skilled professions.’” (Lindner v. Barlow, Davis & Wood (1962) 210 Cal.App.2d 660, 665 [internal quotation marks omitted].) Defendant challenges the lack of any evidence of conduct falling below the standard of care for an accountant. The argument depends on citation to the deposition of Plaintiff and a series of documents identified as the “inspection report.” [Declaration of Andrew Wright, Compendium of Exhibits, Exhibit 8.] Plaintiff, on the other hand, presents a declaration of tax attorney Jonathan Mishkin. Attorney Mishkin categorically addresses the IRS negotiation process and potential impacts regarding the amount settled upon. Mishkin specifically contends the actions of Defendant fell below the standard of care as a result of the sale certain property, and non-payment of taxes following said sale. Said failure to pay taxes led to the imposition of penalties and interest that would not have otherwise accrued., and later requiring new counsel for resolution. [Mishkin Decl.] The court finds triable issues of material fact on the issue of the negligence claims, specifically breach standard of care, causation and resultant damages.

 

Defendant lastly offers an argument that the damages claim itself is speculative. The argument relies on a lack of evidence in support of the claim, and that Defendant in fact reduced outstanding liability. A defendant may satisfy its burden on summary adjudication by pointing to an absence of evidence supporting plaintiff’s claims. (Union Bank (1995) 31 Cal.App.4th 573, 590; see Ganoe v. Metalclad Insulation Corp. (2014) 227 Cal.App.4th 1577, 1584; Scheiding v. Dinwiddie Const. Co. (1999) 69 Cal.App.4th 64, 81-83.) A defendant must do this by providing evidence that a plaintiff does not possess and cannot reasonably obtain needed evidence, rather than simply by arguing that a plaintiff has no evidence. (Aguilar, supra, 25 Cal.4th at pp. 854-855.) The court finds no support for this argument simply based on documents produced in the compendium of evidence and deposition testimony from the Plaintiff. Triable issues of material fact exist based on the expert testimony of Mishkin. The motions for summary adjudication on the negligence causes of action are therefore denied.

 

In summary, the motion for summary judgment and motions for summary adjudication are denied in their entirety.

 

Motions to compel further responses currently set for November 1 and 2, 2023. Trial also remains set for February 5, 2024.

 

Defendant to give notice.