Covel v. Gilson

Filed 6/19/07 Covel v. Gilson CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

Paige Covell appeals a summary judgment in favor of Peter W. Gilson and Hamilton Potter. (Code Civ. Proc., 437c.)[1] We affirm.

FACTS AND PROCEDURAL HISTORY

On June 14, 2004, Paige Covell filed an action against Peter W. Gilson and Hamilton Potter, former officers of Covell's previous employer, alleging causes of action for breach of contract and fraud. Gilson and Potter answered the complaint and following discovery, moved for summary judgment. Deposition testimony, declarations, and documentary evidence established this:

Covell worked for Spring Anesthesia Group, Inc. ("SAG") as vice-president of sales and marketing from 1982 through November, 1996. SAG managed the medical practices of anesthesiologists and Covell had obtained many of its accounts.

SAG was owned in part by Covell's father, L. David Covell. In 1993, Physicians Support Systems, Inc. ("PSS") acquired SAG. The purchase price included $5.5 million, evidenced by a promissory note due and payable on August 12, 2003, to Spring Investment Limited Liability Company and the L. David Covell Trust. Gilson executed the promissory note as President of PSS.

In 1996, Covell decided to leave his employment with PSS/SAG. In consideration of a loan of $727,500, Covell agreed to a non-competition agreement with a five-year term. The promissory note evidencing Covell's obligation stated a 6.75 percent annual interest rate with annual interest payments commencing June 30, 1997. The principal of the loan became due on August 11, 2003. Covell executed the promissory note on October 23, 1996.

Covell also executed a "Non-Competition and Confidentiality Agreement" on October 23, 1996. Hamilton Potter executed the agreement on behalf of SAG. Covell and PSS/SAG were represented by separate counsel during the negotiations and document preparation.

As an amendment to the $727,500 promissory note, Covell prepared an agreement that SAG would forgive all unpaid interest. The amendment stated: "[A]ny unpaid interest due shall be forgiven at such time as the principal becomes due under any terms of said Note." Covell executed the amendment, but SAG did not. On November 27, 1996, Covell received a letter from SAG's New York attorneys informing him that "the side agreement [that he] proposed on forgiveness of interest will not be executed." Covell's bank account received the $727,500 loan proceeds that day.

In his declaration and deposition, Covell stated that Gilson and Potter represented and assured him that any interest on the promissory note would be forgiven. On November 25, and 26, 1996, Covell recorded his telephone conversations with Gilson and Potter without their knowledge or consent. During these telephone conversations, Gilson and Potter stated that the loan to Covell would be interest-free.

In his deposition, Gilson testified that he informed Covell that he "would do what [he] could to make [the loan] interest free." Before transmitting the loan proceeds, however, Gilson informed Covell that SAG would not forgive the interest.

On June 30, 1997, PSS wrote Covell and stated that $33,635 interest was now "[p]ayable on [r]eceipt of this Invoice." The letter requested Covell to "[p]lease remit [his] payment" to PSS.

In November, 1997, NDC Health Systems acquired PSS and SAG. Gilson and Potter resigned their employment shortly thereafter.

On June 30, 1998, PSS again wrote Covell and stated that now $51,375.94 interest was "[p]ayable on [r]eceipt of this Invoice." Again, the letter requested that Covell remit payment to PSS.

Approximately one year later, on June 15, 1999, the Covell family accountant wrote Covell and stated that "PSS's successor has already put you on notice that they intend to withhold the interest owed [from payment of the $5.5 million promissory note]." The accountant advised Covell to seek legal advice because if he "wait[ed] until 2003 without making a claim, [he] may run into statute problems, particularly if [he] assert[s] fraud against Potter and Gilson." The accountant also stated that "it was [his] clear understanding from [his] conversation with Gilson that the interest would be forgiven."

On May 6, 2003, NDC Health Systems paid the sums due under PSS's $5.5 million promissory note. It subtracted $321,141.42 for the unpaid interest owed by Covell, however, because Covell was a beneficiary of the promissory note.

In their motion for summary judgment, Gilson and Potter asserted that the three-year limitations period of section 338, and the parol evidence rule of section 1856, preclude Covell's actions. (Covell later dismissed the causes of action for breach of contract.) In response to the summary judgment motion, Covell argued in part that the limitations period on the fraud causes of action began to run on May 6, 2003, when NDC Health Systems offset the unpaid interest from the $5.5 million obligation of PSS.

Gilson and Potter also objected to evidence of the recorded telephone conversations pursuant to Penal Code section 632. The trial court did not rule upon the evidentiary objections because it was unnecessary to do so.

The trial court granted summary judgment in favor of Gilson and Potter, after concluding that the three-year limitations period precludes the fraud causes of action; the parol evidence rule applies and precludes evidence of the oral representations; and Covell did not establish the requisite element of justifiable reliance upon the oral representations.

Covell appeals and contends that triable issues of material fact exist regarding the causes of action for promissory fraud.

DISCUSSION

I.

Covell asserts that he has stated a cause of action for promissory fraud within the three-year limitations period of section 338. (Lazar v. Superior Court (1996) 12 Cal.4th 631, 638 [defining promissory fraud in employment context].) He argues that the three-year limitations period did not begin to run until May 6, 2003, when NDC Health offset the accrued interest from payment of the $5.5 million promissory note. Covell points out that the statute of limitations begins to run upon the occurrence of appreciable and actual harm, not nominal damages or threat of future harm. (San Francisco Unified School Dist. v. W. R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1326 ["[T]he statute of limitations begins to run on the occurrence of 'appreciable and actual harm, however uncertain in amount,' that consists of more than nominal damages."].) He adds that his promissory note and defendants' oral representations regarding interest were tied to the five-year term of his agreement not to compete with SAG.

The trial court may grant a summary judgment only if no material factual issues exist or if the evidence establishes as a matter of law that a cause of action cannot prevail. ( 437c, subd. (c); Yuzon v. Collins (2004) 116 Cal.App.4th 149, 159.) The reviewing court independently determines the effect of the undisputed facts. (Merrill v. Navegar, Inc. (2001) 26 Cal.4th 465, 476 ["We review the trial court's decision de novo, considering all of the [admissible] evidence the parties offered in connection with the motion . . . and the uncontradicted inferences the evidence reasonably supports."].)

Section 437c, subdivision (p)(2), provides: "A defendant . . . has met his . . .  burden of showing that a cause of action has no merit if that party has shown that one or more elements of the cause of action . . . cannot be established, or that there is a complete defense to that cause of action. 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 that cause of action or a defense thereto."

Section 338, subdivision (d), provides a three-year limitations period for a fraud cause of action. The cause of action commences to run upon the occurrence of actual and appreciable harm that is more than nominal damages. (San Francisco Unified School Dist. v. W. R. Grace & Co., supra, 37 Cal.App.4th 1318, 1326.) "The mere breach of dutycausing only nominal damages, speculative harm or the threat of future harm not yet realizednormally does not suffice to create a cause of action." (Ibid.)

Here the causes of action against Gilson and Potter commenced to run in 1997 and 1998 when Covell received invoices charging interest and stating that it was now payable. PSS thus billed Covell for a liquidated amount of interest on an allegedly interest-free loan. Moreover, in 1999, the family accountant wrote Covell and warned him of the running of the limitations period given that "PSS's successor has already put [him] on notice that they intend to withhold the interest owed [from payment under the $5.5 million promissory note]." Infliction of this actual and appreciable harm commenced the three-year limitations period. (Wilshire Westwood Associates v. Atlantic Richfield Co. (1993) 20 Cal.App.4th 732, 739.) Covell's complaint, filed in 2004, is untimely and the trial court properly granted summary judgment. ( 437c, subd. (o)(2) [causes of action has no merit if defendant establishes a complete defense thereto].)

II.

Moreover, Potter and Gilson's statements do not rise to the level of an enforceable promise because Covell did not reasonably rely upon the statement when agreeing to the non-competition agreement.

The judgment is affirmed. Respondents to recover costs on appeal.

NOT TO BE PUBLISHED.

GILBERT, P.J.

We concur:

YEGAN, J.

PERREN, J.

Martin J. Tangeman, Judge

Superior Court County of San Luis Obispo

______________________________

John C. Lauritsen for Plaintiff and Appellant.

Adamski, Moroski, Madden & Green, Martin P. Moroski and Elizabeth Coleman Smallwood for Defendants and Respondents.

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[1]All statutory references are to the Code of Civil Procedure unless stated otherwise.