Filed 12/27/17 Johnson v. Curry CA3
NOT TO BE PUBLISHED

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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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
THIRD APPELLATE DISTRICT
(Sacramento)
----




VEIT JOHNSON et al.,

Plaintiffs and Appellants,

v.

GARY CURRY et al.,

Defendants and Respondents.
C080177

(Super. Ct. No.
34-2012-00132406-CU-FR-GDS)





Plaintiffs and appellants Veit Johnson and Karen Johnson appeal from the judgment entered following the trial court’s award of summary judgment in favor of defendants and respondents Gary Curry, ORBA Insurance Services, Inc., Murphy Retirement Management, Inc., and Intersecurities, Inc., now known as Transamerica Financial Advisors, Inc., based on its finding that plaintiffs’ claims were barred by the statutes of limitations. We shall affirm the judgment.
FACTUAL AND PROCEDURAL BACKGROUND
Veit and Karen both worked for Pacific Bell. In 1994, Veit learned his job was being relocated and he opted to take early retirement. He attended a seminar held by defendant Marilyn Murphy, who allegedly represented to the Johnsons that if Veit took a lump sum instead of a pension and invested the money through her and the other defendants, “he would be able to take out substantial monthly withdrawals for the rest of his life, in an amount that was significantly larger than what the Pacific Bell pension would have paid, and that he would have more than enough money to support himself in his retirement.” Murphy purportedly told Veit that if he withdrew funds from the annuity in an amount computed by her, his retirement money would last his whole life and that there would be money left over to leave as an estate upon his death. Based on her representations, Veit took the lump-sum retirement and gave both it and his other retirement savings to Murphy to invest. Murphy used the funds to purchase a variable annuity for Veit and computed monthly distributions for him.
In 1998, Karen too was offered early retirement. Based on Murphy’s earlier representations to Veit and Karen upon Veit’s retirement, and upon the relationship they had maintained with Murphy since then, Karen too elected a lump-sum retirement. She gave both that lump sum and the proceeds of her retirement investment account to Murphy to invest. Murphy used the funds to purchase two variable annuities for Karen, and computed monthly distributions for Karen from those accounts.
In late 2001, Murphy’s name was replaced with that of another representative without explanation, and the Johnsons were unable to contact Murphy. The distributions from the annuities ceased for Veit in 2006 and for Karen in 2007. The Johnsons allege that at that time “they had no reason to believe that [Murphy] had acted illegally and/or misled them in any way” but instead “attributed the declines in their accounts to a market downturn and to [Murphy’s] unexplained disappearance.” Then, in 2012, the Johnsons spoke with someone whose mother had invested through Murphy’s daughter, which led them to seek legal remedies against defendants and Murphy.
On September 24, 2012, the Johnsons filed suit against defendants. In the operative complaint, the causes of action alleged against defendants were for intentional misrepresentation, negligent misrepresentation, fraud based on a false promise, fraud by omission, breach of fiduciary duty, and breach of fiduciary duty by negligent supervision. The Johnsons alleged Murphy, who was an agent for and supervised by the various other defendants, falsely “represented to plaintiffs that, if they took the lump sum cash-out and invested it with defendants, they would be able to take out significantly more each month than what the pension would have paid, for as long as they lived, and that they would have more than enough money to support themselves in their retirement.” They further alleged Murphy and the other defendants did not disclose to them that the early retirement lump-sum offers they were persuaded to take would be insufficient to support them in their retirement, any of the risks associated with the plan, including that they may run out of money, or that Murphy had no training or expertise in retirement planning. Neither did they disclose to the Johnsons that other similarly situated clients of Murphy sought legal action against her and the defendants in 2003. The Johnsons alleged that they did not discover the wrongdoing until the summer of 2012.
Defendants moved for summary judgment, asserting that all the Johnsons’ causes of action were barred by the statute of limitations set forth in Code of Civil Procedure sections 338, subdivision (d) and 343. The undisputed material facts presented by defendants showed that in late 2001, Veit had attempted to contact Murphy to express his dissatisfaction with the state of the Johnsons’ accounts, due to the precipitous decline in value the accounts had seen, and because he was concerned that they might run out of money. At that time, he proposed to pull nearly all their money out of their investments but Murphy dissuaded him. By 2005, it was apparent to Veit that he would run out of money in less than three years. When he stopped receiving distributions in 2006, Veit no longer believed Murphy’s representations that he would have money for the rest of his life and an estate to leave his heirs. Indeed, by the end of 2003, he had already drawn that conclusion as to both his and Karen’s accounts. Karen too concluded the statements were untrue when her distributions stopped in 2007, and had already realized the result was inevitable when she reviewed her account statements in 2002, 2003, and 2006. However, neither Veit nor Karen at that time blamed Murphy for the loss, but believed the instability in the market that led to the losses was the result of the terrorist attacks of September 11, 2001.
The trial court granted defendants’ motion for summary judgment, finding that plaintiffs’ claims were barred by the applicable statutes of limitations. The trial court did not rely on the delayed discovery test outlined in Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1110-1111 that begins the running of the statute of limitations “when the plaintiff suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her,” thereby triggering a duty of inquiry to diligently discover facts necessary to establish her claim. Rather, because of the existence of a fiduciary relationship, the trial court found the duty of inquiry is not triggered until, as set forth in Hobbs v. Bateman Eichler, Hill Richards (1985) 164 Cal.App.3d 174, 201-202 (Hobbs), “a plaintiff becomes aware of facts which would make a reasonably prudent person suspicious.” Here, the trial court found that “Plaintiffs had a duty to investigate by at least 2007 when they stopped receiving distributions. Plaintiffs, however, waited for over five years and failed to make any inquiry, still blaming September 11th.” The trial court further found plaintiffs failed to present any evidence that a fiduciary relationship with defendants persisted beyond 2006, and therefore had not shown that the statute of limitations was tolled.
DISCUSSION
Plaintiffs contend the trial court erred in granting summary judgment to defendants on statute of limitations grounds. They do not dispute that the applicable statutes of limitations are three or four years as set forth in sections 338, subdivision (d) and 343. Neither do they dispute that by no later than 2007, when their distributions ceased, plaintiffs knew that Murphy’s promises that plaintiffs “would be able to take out significantly more each month than what the pension would have paid, for as long as they lived, and that they would have more than enough money to support themselves in their retirement” were false. They argue, however, that there remain triable issues of fact whether plaintiffs were on inquiry notice of defendants’ wrongdoing at that time, whether a reasonably diligent investigation would have revealed the alleged fraud, whether Intersecurities, Inc., should be estopped from asserting the statute of limitations as a defense, and whether the statute was tolled by Intersecurities, Inc.’s fraudulent concealment of Murphy’s wrongdoing. We conclude the trial court did not err in finding as a matter of law that plaintiffs were on inquiry notice of the fraud and breach of fiduciary duty claims as of 2007 when their distributions stopped, and that plaintiffs have not shown the existence of a triable issue of material fact that would preclude summary judgment being entered against them.
In our de novo review of a motion for summary judgment, we begin by identifying the material issues as framed in the pleadings. (Rio Linda Unified School Dist. v. Superior Court (1997) 52 Cal.App.4th 732, 734.) Because the pleadings “ ‘delimit the scope of the issues,’ ” “[t]he complaint measures the materiality of the facts tendered in a defendant’s challenge to the plaintiff’s cause of action.” (FPI Development, Inc. v. Nakashima (1991) 231 Cal.App.3d 367, 381-382.) Once we have identified the material issues, we then determine whether the movant has established prima facie entitlement to judgment in its behalf on these issues. (Rio Linda, supra, at pp. 734-735.) “A defendant moving for summary judgment based on an affirmative defense must present evidence that supports each element of its affirmative defense, which would also be its burden at trial.” (Acosta v. Glenfed Development Corp. (2005) 128 Cal.App.4th 1278, 1292-1293 (Acosta).) If, however, the plaintiff claims there is an exception to the affirmative defense, the plaintiff bears the burden of production and persuasion to establish a triable issue of material fact as to the applicability of that exception. (Ibid.) Finally, we consider whether the opponent has produced evidence creating a factual conflict with respect to one of these issues that can be resolved only at trial. (Rio Linda, supra, 52 Cal.App.4th at pp. 734-735.)
Defendants’ motion for summary judgment is premised on the application of a three- or four-year statute of limitations to plaintiffs’ various claims. (§§ 338, subd. (d) & 343.) For claims based on a breach of fiduciary duty, the cause of action “must be commenced within four years after the cause of action shall have accrued.” (§ 343; WA Southwest 2, LLC v. First American Title Ins. Co. (2015) 240 Cal.App.4th 148, 156 [applying four-year statute of limitations to cause of action for breach of fiduciary duty] (WA Southwest).) For fraud claims, the cause of action must be commenced within three years of accrual, with the cause of action accruing upon “the discovery, by the aggrieved party, of the facts constituting the fraud or mistake.” (§ 338, subd. (d).) In this context, “discovery” does not mean “when the plaintiff became aware of the specific wrong alleged, but when the plaintiff suspected or should have suspected that an injury was caused by wrongdoing.” (Kline v. Turner (2001) 87 Cal.App.4th 1369, 1374.) “Wrong and wrongdoing in this context are understood in their lay and not legal senses.” (Ibid.) Thus, for the fraud-based claims, the three-year statute of limitations began when plaintiffs “ha[d] information which would put a reasonable person on inquiry.” (Ibid.) Defendants argued, and the trial court concluded, that all of the causes of action accrued no later than 2007, when plaintiffs stopped receiving any payments from their annuities and acknowledged knowing that Murphy’s statements regarding the receipt of lifetime income were untrue.
“The general rule for defining the accrual of a cause of action sets the date as the time ‘when, under the substantive law, the wrongful act is done,’ or the wrongful result occurs, and the consequent ‘liability arises.’ [Citation.] In other words, it sets the date as the time when the cause of action is complete with all of its elements . . . .” (Norgart v. Upjohn Co. (1999) 21 Cal.4th 383, 397 (Norgart).) An exception to this general rule “is the discovery rule.” (Ibid.) The discovery rule “may be expressed by the Legislature or implied by the courts” and has the effect of postponing “accrual of a cause of action until the plaintiff discovers, or has reason to discover, the cause of action.” (Ibid.) To rely on the discovery rule, a plaintiff “must plead ‘ “(1) the time and manner of discovery and (2) the inability to have made earlier discovery despite reasonable diligence.” ’ ” (WA Southwest, supra, 240 Cal.App.4th at pp. 156-157.)
A “plaintiff discovers the cause of action when he at least suspects a factual basis, as opposed to a legal theory, for its elements, even if he lacks knowledge thereof—when, simply put, he at least ‘suspects . . . that someone has done something wrong’ to him [citation], ‘wrong’ being used, not in any technical sense, but rather in accordance with its ‘lay understanding.’ ” (Norgart, supra, 21 Cal.4th at pp. 397-398.) A plaintiff “has reason to suspect when he has ‘ “ ‘ “notice or information of circumstances to put a reasonable person on inquiry . . . .” ’ ” ’ ” (Id. at p. 398.) At that point, he has an obligation to “seek to learn the facts necessary to bring the cause of action in the first place . . . .” (Ibid.)
That said, “ ‘[w]here a fiduciary obligation is present, the courts have recognized a postponement of the accrual of the cause of action until the beneficiary has knowledge or notice of the act constituting a breach of fidelity. [Citations.] The existence of a trust relationship limits the duty of inquiry.’ ” (WA Southwest, supra, 240 Cal.App.4th at p. 157.) “Thus, a plaintiff need not establish that [he or] she exercised due diligence to discover the facts within the limitations period unless [he or] she is under a duty to inquire and the circumstances are such that failure to inquire would be negligent.” (Hobbs, supra, 164 Cal.App.3d at p. 202.) While this limitation on the duty of inquiry eliminates the usual duty to conduct due diligence, “it does not empower th[ese] plaintiff[s] to ‘ “sit idly by” ’ when ‘ “ ‘facts sufficient to arouse the suspicions of a reasonable [person] . . . ’ ” ’ ‘ “come to his [or her] attention.” ’ ” (Ferguson v. Yaspan (2014) 233 Cal.App.4th 676, 683.) Rather, “once a plaintiff becomes aware of facts which would make a reasonably prudent person suspicious, the duty to investigate arises and the plaintiff may then be charged with knowledge of the facts which would have been discovered by such an investigation.” (Hobbs, supra, at p. 202.)
Here, as the trial court found, when plaintiffs became aware in 2007 of the cessation of any payments from the annuities and the complete dissipation of their investments therein, their duty to investigate arose because those circumstances “would make a reasonably prudent person suspicious” of some wrongdoing, even if these particular plaintiffs were not in fact suspicious. (Hobbs, supra, 164 Cal.App.3d at p. 202.) We agree with the trial court that it strains credulity to think that plaintiffs were not suspicious when the income stream stopped, instead blaming their loss on the temporary shock to the stock market following the terrorist attacks of September 11, 2001, but that when they learned from some third party five years later that his mother had sued her investment advisor who happened to be the daughter of Murphy, they became suspicious. Even if these plaintiffs were not subjectively suspicious of Murphy when the distributions stopped, that is not the applicable standard. Rather, as plaintiffs acknowledge, the standard is whether the plaintiffs have reason to suspect an injury and some wrongful cause. (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 803 (Fox).)
On the facts of this case, at the point that the distributions stopped, it would be evident to a reasonable person that the investment scheme Murphy presented to plaintiffs as providing lifetime distributions greater than their pensions would provide was not all that she said it was, regardless of any intervening stock market fluctuations. Thus, we agree with the trial court that the only reasonable inference that could be drawn from the evidence presented on the motion for summary judgment was that a reasonably prudent person would be suspicious that some wrongdoing had occurred when the promised lifetime distributions ceased after less than a decade. (Cleveland v. Internet Specialties West, Inc. (2009) 171 Cal.App.4th 24, 31 [on summary judgment based on inquiry notice to trigger the statute of limitations “the issue is whether the only reasonable inference to be drawn” from the undisputed facts is if the plaintiff should have learned the facts essential to his claim].) Accordingly, as of 2007, despite the prior existence of a fiduciary relationship, plaintiffs could be charged with facts that could have been discovered by an investigation, had they undertaken one. As plaintiffs were on inquiry notice of their potential claim at that time, the statute of limitations began to run by no later than 2007. This make their causes of action filed in 2012 untimely.
On appeal, plaintiffs argue defendants did not show that plaintiffs could have discovered facts revealing Murphy’s wrongdoing by 2007. However, as with the application of the discovery rule in general, the burden of proof is not on defendants to show whether evidence of wrongdoing could have been discovered through reasonable investigation, but rather is on plaintiffs as the party seeking to establish an exception to the statute of limitations. (See Acosta, supra, 128 Cal.App.4th at p. 1293.) Indeed, plaintiffs failed to plead that had they engaged in a diligent investigation, they could not have discovered facts to support their causes of action within the statute of limitations period. (See Fox, supra, 35 Cal.4th at pp. 808-809.) They did allege that they did not know why Murphy disappeared or with whom to speak about their investments, but the undisputed evidence presented by defendants showed that a representative took over Murphy’s clients, attempted to persuade plaintiffs to reduce their monthly distributions in 2002, and also sent them a letter explaining Murphy’s retirement. Plaintiffs ignored the representative’s advice and letter, and did not attempt to contact any other financial advisor despite the acknowledged imminent dissipation of their investments. Plaintiffs also alleged defendants’ ongoing intentional omission of information to plaintiffs regarding the problems with Murphy’s advised investment scheme. However, these allegations do not demonstrate that had plaintiffs engaged in a reasonable investigation, they would have been unable to learn of the alleged wrongdoing.
Plaintiffs also argue Intersecurities, Inc., should be estopped from relying on the statute of limitations as a defense because there was an ongoing fiduciary relationship that required defendants to disclose to plaintiffs material information that would have put plaintiffs on notice of the wrongdoing. The trial court found there was no evidence in the record to support plaintiffs’ claim that defendants’ fiduciary relationship with Karen continued until 2010. Indeed, the evidence was not in the record and plaintiffs attempt to present that evidence on appeal. We deny plaintiffs’ motion to admit additional documentary evidence on appeal because the evidence was not presented to the trial court and was available to the parties at the time of the hearing on the motion for summary judgment. (See Elbert, Ltd. v. Hall (1950) 101 Cal.App.2d 208, 214-215 [application to produce additional evidence denied where it was available but not produced for the consideration of the trial court]; see also Von’s Companies, Inc. v. Seabest Foods, Inc. (1996) 14 Cal.4th 434, 444, fn. 3, 2d par. [“[N]ormally ‘when reviewing the correctness of a trial court’s judgment, an appellate court will consider only matters which were part of the record at the time the judgment was entered.’ ”].) Therefore, as in the trial court, plaintiffs have not shown that estoppel applies to prevent Intersecurities, Inc., from obtaining summary judgment on statute of limitations grounds.
Finally, plaintiffs argue triable issues of material fact exist as to whether the statute of limitations was tolled due to defendants’ fraudulent concealment of Murphy’s wrongdoing. “A limitations period that has started to run can nevertheless be tolled if the putative defendant engages in ‘fraud in concealing a cause of action.’ ” (Ferguson v. Yaspan, supra, 233 Cal.App.4th at p. 683.) This “lulling” of the limitations period is to prevent a defendant from engaging in deception and thereby causing a claim to become stale. (Id. at pp. 683-684; Snapp & Associates Ins. Services, Inc. v. Robertson (2002) 96 Cal.App.4th 884, 890.) However, “[t]he fraudulent concealment doctrine ‘ “does not come into play, whatever the lengths to which a defendant has gone to conceal the wrongs, if a plaintiff is on notice of a potential claim.” ’ ” (Snapp, at pp. 890-891.) Here, plaintiffs were on notice of their potential claims, as discussed above, when the promised lifelong annuity distributions ceased in 2006 and 2007. Therefore, regardless whether defendants thereafter engaged in fraudulent concealment of Murphy’s wrongdoing, plaintiffs have not shown the existence of a triable issue of material fact that would prevent summary judgment from being entered against them.

DISPOSITION
The judgment is affirmed. Respondents are entitled to their costs on appeal. (Cal. Rules of Court, rule 8.278(a)(1), (2).)



BUTZ , J.



We concur:



RAYE , P. J.



BLEASE , J.