Hauser v. Josephtal & Co.

Filed 3/6/07 Hauser v. Josephtal & Co. CA2/4

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from a judgment of the Superior Court of Los Angeles County, Richard P. Neidorf, Judge. Affirmed.

Law Offices of Zilinskas & Woosley, Victor G. Zilinskas, Eric A. Woosley and Jamie R. Scubelek for Plaintiff and Appellant.

Holland & Knight, Paul C. Workman, Kregg A. Koch; Winget, Spadafora and Schwartzberg and Michael Schwartzberg for Defendants and Respondents.

Appellant Cliff Hauser contends that the trial court erred in sustaining the demurrer to his amended complaint on statute of limitations grounds. We affirm.

FACTUAL AND PROCEDURAL BACKGROUN

Original Complaint

On July 11, 2005, Hauser filed a complaint against respondents Josephtal & Company, Inc., Oppenheimer & Co., Inc., Fahnestock Viner Holdings, Inc., Fahnestock & Company, Inc., and Robert Nathan.^[1] The complaint alleged that Hauser opened an account with Josephtal in November 1999. In March 2000, Hauser allegedly twice orally instructed Nathan to cease margin trading immediately and to sell all stocks if the account fell below a certain dollar amount. Nathan agreed to do so. In April 2000, Hauser discovered that Nathan had ignored his instructions and the account allegedly sustained losses of approximately $200,000.

The complaint further alleged that Hauser delayed bringing this action based upon the continued representation of [Nathan] that he would recoup [Hausers] losses if he just continued letting [Nathan] handle this account.

The complaint contained causes of action for negligence in the investigation, evaluation, and purchase of investments; negligent and intentional misrepresentation based on Nathans agreeing to follow Hausers instructions without intending to do so, and breach of fiduciary duty based on Nathans failure to follow Hausers instructions.

First Amended Complaint

After respondents demurred to the original complaint, in October 2005 Hauser filed a first amended complaint (FAC). The FAC added the allegation that the account with Josephtal was the product of a written contract between the parties and contended that [respondents] obligation, whether they be contractual or legal, are founded on this written agreement. The FAC also contained expanded allegations concerning Hausers reason for delay in bringing the action: [Nathan] . . . repeatedly represented to [Hauser] that if he took no action, and continued to let [Nathan] manage [Hausers] account, that he would recoup [Hausers] losses without resort to suit. . . . These representations continued even after [Josephtal] went out of business and [Nathan] went to work for [another company]. [Nathan] continued making representations to [Hauser] that he would make good on the losses he caused without resort to suit up until [Hauser] finally stopped believing [Nathan] and finally closed the account [Nathan] was handling on March 17, 2003. The FAC asserted essentially the same claims for negligence, negligent and intentional misrepresentation, and breach of fiduciary duty as in the original complaint.

Respondents demurred to the FAC contending that every cause of action was barred by the applicable statutes of limitations. With regard to the delay in bringing suit, respondents argued that (1) Nathans alleged statements presented no basis for estopping respondents from asserting the statute of limitations defense and (2) even if the doctrine of equitable estoppel applied, Hausers claims would be barred, as he waited more than two years after his trust in Nathans assurances ended to file the complaint. Respondents argued in the alternative that Hauser had ratified Nathans actions by maintaining Nathan as his stockbroker for years after the alleged wrongdoing.

The trial court sustained the demurrer. At the hearing, the court explained the basis for its ruling: Hausers claim accrued in April 2000 and the applicable limitations periods were two years for the negligence claims, three years for the fraud claim, and four years for the breach of fiduciary duty claim. Therefore, the statutes of limitations had run as to all claims. The court determined there was no valid basis asserted in the FAC for application of equitable estoppel to preclude respondents from asserting the limitations defense. The court stated that its ruling was also based on Hausers having ratified Nathans actions by failing to close the account earlier.

Judgment was entered and this appeal followed.

DISCUSSION

According to the FAC, the injurious conduct occurred in March or April 2000. The complaint was not filed until July 2005, more than five years later. The claims asserted are subject to various statutes of limitations, none greater than four years.^[2] The sole question raised is whether respondents should be estopped to assert the statute of limitations defense.

The general rule regarding estoppel is that [w]henever a party has, by his own statement or conduct, intentionally and deliberately led another to believe a particular thing true and to act upon such belief, he is not, in any litigation arising out of such statement or conduct, permitted to contradict it. (Evid. Code  623.) The doctrine of estoppel applies where a defense based on the statute of limitations is asserted and the facts indicate the defendant lull[ed] his adversary into a false sense of security, . . . thereby caus[ing] his adversary to subject his claim to the bar of the statute of limitations. (Barr v. ACandS, Inc. (1997) 57 Cal.App.4th 1038, 1056, disapproved in part on another ground in Hamilton v. Asbestos Corp. (2000) 22 Cal.4th 1127, quoting Carruth v. Fritch (1950) 36 Cal.2d 426, 433.) The defendant is not permitted to plead the very delay caused by his course of conduct as a defense to the action when brought. (Ibid.; accord, Lantzy v. Centex Homes (2003) 31 Cal.4th 363, 384.)

The doctrine of equitable estoppel precludes assertion of a limitations defense in three general situations: (1) Where the plaintiff is aware of the cause of action and the identity of the wrongdoer, but the latter by affirmative acts induces the plaintiff to refrain from suit; (2) Where the plaintiff is unaware of his cause of action, and his ignorance is due to false representations by the defendant; (3) Where the plaintiff is unaware of the identity of the wrongdoer and this is due to fraudulent concealment by the defendant. (3 Witkin, Calif. Procedure (4th ed. 1996) Actions, 685, p. 873.) With regard to the first category -- the only one into which the present case could fall -- the affirmative acts leading to estoppel often take the form of a promise on the part of the defendant concerning future performance. (3 Witkin, supra, at p. 873; see, e.g., Shaffer v. Debbas (1993) 17 Cal.App.4th 33, 42 [contractor assured purchasers problems with house would be fixed]; Gilbert Financial Corp. v. Steelform Contracting Co. (1978) 82 Cal.App.3d 65, 68 [contractor promised to fix leaky building and attempted to do so over a period of three years]; Mercer v. Elliott (1962) 208 Cal.App.2d 275, 281 [seller of aircraft assured buyer that records indicating FAA approval of modifications were in the sellers possession and would be delivered].) For estoppel to apply [i]t is not necessary that the defendant acted in bad faith or intended to mislead the plaintiff. [Citations.] It is sufficient that the defendants conduct in fact induced the plaintiff to refrain from instituting legal proceedings. (Shaffer v. Debbas, supra, 17 Cal.App.4th at p. 43.) However, [r]eliance by the party asserting the estoppel on the conduct of the party to be estopped must have been reasonable under the circumstances. (Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 655; accord, Smyth v. USAA Property & Casualty Ins. Co., supra, 5 Cal.App.4th at p. 1478.)

Hauser contends that Nathans alleged promise to recoup the accounts losses if Hauser permitted Nathan to continue to manage it supports an estoppel here. But under the circumstances, Hausers purported reliance on such statement could not have been reasonable. Hauser did not allege he was unaware of the risks inherent in stock trading. Nor could he have done so, given his recent losses of hundreds of thousands of dollars. Nor did he contend Nathan had promised to make good the losses out of his own pocket or to place Hausers funds into a guaranteed investment. The FAC alleged nothing more than that Nathan promised to continue to perform as a stock broker by buying and selling stock, in the hope of earning gains. The fact that these activities did not lead to an increase in the amount necessary to recoup the losses sustained in 2000 could hardly have

come as a surprise to Hauser, given the history of the account and the inherent risks of stock trading.^[3]

Moreover, the trial courts ruling may be affirmed on an alternate ground discussed in the moving papers and respondents brief on appeal, viz., Hausers failure to exercise diligence in pursuing his claims after his alleged reliance on Nathans representations ceased. Hauser argues that as a result of the alleged estoppel, his claims accrued on March 17, 2003, the date he closed his account with Nathan. Even assuming a valid basis for estoppel persisted until that date, his calculation is incorrect. Hausers claims accrued and the limitations period began to run in April 2000 when he learned that a loss had resulted from Nathans violation of the instructions given.^[4] Equitable estoppel does not toll or extend the statute of limitations. As explained in Battuello v. Battuello (1998) 64 Cal.App.4th 842: Tolling, strictly speaking, is concerned with the point at which the limitations period begins to run and with the circumstances in which the running of the limitations period may be suspended. (Id. at p.847, quoting Bomba v. W.L. Belvidere, Inc. (7th Cir. 1978) 579 F.2d 1067, 1070.) Where a statute of limitations is tolled, the limitations period stops running during the tolling event and the tolled interval . . . is tacked onto the end of the limitations period, thus extending the deadline for suit by the entire length of time during which the tolling event previously occurred. (Lantzy v. Centex Homes, supra, 31 Cal.4th at pp. 370-371.) Equitable estoppel, on the other hand, is not concerned with the running and suspension of the limitations period, but rather comes into play only after the limitations period has run and addresses itself to the circumstances in which a party will be estopped from asserting the statute of limitations as a defense to an admittedly untimely action . . . . (Battuello v. Battuello, supra, at p. 847.)

Because the doctrine of equitable estoppel does not stop the statute from running or extend it, the plaintiff has only a reasonable time in which to bring his action after the estoppel has expired (Van Hook v. So. Cal. Waiters Alliance (1958) 158 Cal.App.2d 556, 569; Industrial Indem. Co. v. Ind. Acc. Com. (1953) 115 Cal.App.2d 684, 690) and must proceed[] diligently once the truth is discovered (Lantzy v. Centex Homes, supra, 31 Cal.4th at p. 384.) If a substantial period for instituting proceedings supervened after expiration of the delay engendered by [the defendant] . . . his conduct or representations will not estop him from asserting the bar of the statute [of limitations.] (Van Hook v. So. Cal. Waiters Alliance, supra; 158 Cal.App.2d at p. 569; Industrial Indem. Co. v. Ind. Acc. Com., supra, 115 Cal.App.2d at p. 690.)

The diligence requirement has led several California courts to conclude that [i]f there is still ample time to institute the action within the statutory period after the circumstances inducing delay have ceased to operate, the plaintiff who failed to do so cannot claim an estoppel. (Lobrovich v. Georgison (1956) 144 Cal.App.2d 567, 573-574; accord, Mills v. Forestex Co., supra, 108 Cal.App.4th at pp. 656-657; Santee v. Santa Clara County Office of Education (1990) 220 Cal.App.3d 702, 716; DeRose v. Carswell (1987) 196 Cal.App.3d 1011, 1026-1027.) Courts have also held that lengthy delays in instituting suit are unreasonable without regard to whether the statute of limitations has run. (Regus v. Schartkoff (1957) 156 Cal.App.2d 382, 387 [where defendant fraudulently induced plaintiff to refrain from filing a lawsuit for personal injury caused by a dog bite for three years but plaintiff did not file for an additional two years after discovering the fraud, plaintiffs failure to institute action not excused by estoppel]; Brick Church Transmission v. Southern Pilot (Tenn.Ct.App. 2003) 140 S.W.3d 324, 335-336 [adopting rule that plaintiff had reasonable time after basis for estoppel ends to file suit rather than period based on day-for-day tolling of statute of limitations]; Nyitrai v. Bonis (1972) 266 Md. 295 [292 A.2d 642, 644-645] [where administrator induced plaintiff to believe her claim against her uncles estate would be settled, action brought almost three years after circumstances creating the estoppel ceased to exist was barred by statute of limitations].)

By the time Hauser lost faith in Nathan and closed the account in March 2003, the statutes of limitations covering at least two of the claims had already expired. Diligence required Hauser to act expeditiously to protect his legal rights. Instead, he waited more than two years, filing his complaint in July 2005. Even assuming arguendo that the initial failure to file suit could be excused by reliance on Nathans representations, no justification was offered in the FAC for this second lengthy period of delay. (See Mills v. Forestex Co., supra, 108 Cal.App.4th at p. 641 [when a plaintiff relies on a theory of . . . estoppel to save a cause of action that otherwise appears on its face to be time-barred, he or she must specifically plead facts which, if proved, would support the theory].) The trial court did not err in sustaining the demurrer.

In his reply brief, Hauser contends that leave to amend should have been granted. Generally, it is an abuse of discretion to sustain a demurrer without leave to amend if there is any reasonable possibility that the defect can be cured by amendment. (Titus v. CanyonLake Property Owners Assn. (2004) 118 Cal.App.4th 906, 917.) However, [l]eave to amend is properly denied if the facts and nature of plaintiffs claim are clear and under the substantive law, no liability exists [citation[,]] or where it is probable from the nature of the defects and previous unsuccessful attempts to plead that the plaintiffs cannot state a cause of action [citation]. (Ibid., quoting Haskins v. San Diego County Dept. of Public Welfare (1980) 100 Cal.App.3d 961, 965.) Moreover, [i]t is the plaintiffs burden to show either the trial court or the reviewing court how the complaint can be amended to state a cause of action. (Titus v. Canyon Lake Property Owners Assn., supra, 118 Cal.App.4th at p. 917.) Hauser was given a chance to expand on the inadequate allegations of the original complaint and was unable to plead facts supporting an estoppel. He has described no new or additional facts that could be pled if he were given further opportunity to amend. The trial court did not abuse its discretion.

DISPOSITION

The judgment is affirmed.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

MANELLA, J.

We concur:

EPSTEIN, P.J.

WILLHITE, J.

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Analysis and review provided by La Mesa Property line Lawyers.

^[1] Oppenheimer & Co., Inc., Fahnestock Viner Holdings, Inc., and Fahnestock & Company, Inc. were alleged to be successors in interest to Josephtal & Company, Inc. These four defendants will be cumulatively referred to herein as Josephtal.

^[2] Claims for damage to intangible property interests caused by professional negligence or malpractice are governed by the two-year statute of limitations contained in Code of Civil Procedure section 339, subdivision (1). (Neel v. Magana, Olney, Levy Cathcart & Gelfand (1971) 6 Cal.3d 176, 182.) Fraud is subject to a three-year statute of limitations. (Civ. Proc. Code 338, subd. (d).) Although it is frequently said that [n]egligent misrepresentation is a form of fraud (see, e.g., Tijsseling v. General Acc. Etc. Assur. Corp. (1976) 55 Cal.App.3d 623, 627, fn.1), courts have generally concluded that negligent misrepresentation is subject to the two-year statute, particularly where the alleged misrepresentation occurs in the course of the performance of a professional duty. (See, e.g., Hydro-Mill Co., Inc. v. Hayward, Tilton & Rolapp Ins. Associates, Inc. (2004) 115 Cal.App.4th 1145, 1155; Smyth v. USAA Property & Casualty Ins. Co. (1992) 5 Cal.App.4th 1470, 1477-1478.) Code of Civil Procedure section 343, the four-year catch-all statute, applies to breach of fiduciary duty. (Di Grazia v. Anderlini (1994) 22 Cal.App.4th 1337, 1344; David Welch Co. v. Erskine & Tulley (1988) 203 Cal.App.3d 884, 893; Manok v. Fishman (1973) 31 Cal.App.3d 208, 213.) Hauser contends that the four-year statute of limitations should apply to all the claims because his relationship with respondents was founded on a written contract. Under the current view, claims for professional malpractice are subject to the two-year rule, whether pled as a tort or a breach of contract. (See Neel v. Magana, Olney, Levy, Cathcart & Gelfand, supra, at p. 182; Apple Valley Unified School Dist. v. Vavrinek, Trine, Day & Co. (2002) 98 Cal.App.4th 934, 942.) Moreover, even if the four-year statute applied to all claims, our analysis would be the same, as Hausers complaint was filed more than five years after the injury-causing event.

^[3]Laraway v. First Nat. Bk. of La Verne (1940) 39 Cal.App.2d 718, cited by Hauser, is inapposite. Plaintiff there filed suit approximately one year after learning that she had been charged an excessive amount by her investment advisor for corporate debentures purchased on her behalf many years earlier and that, contrary to her advisors continuing assurances, the investment had become valueless. (Id. at pp. 727-728.) Hauser does not claim to have been misled regarding the value of his investment.

^[4] In his brief, Hauser cites authority for the proposition that [w]here a fiduciary relationship exists, facts which ordinarily require investigation may not incite suspicion and do not give rise to a duty of inquiry or the usual duty of diligence. (Hobbs v. Bateman Eichler, Hill Richards, Inc. (1985) 164 Cal.App.3d 174, 201-202.) The rule can lead to delayed accrual of the statute of limitations. (Ibid.) Here, however, there is no question of delayed accrual. The FAC made clear that Hauser discovered the facts supporting his claims in April 2000.