Filed 7/15/22 Lee v. Selan Law Firm CA2/7

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

APPEAL from a judgment of the Superior Court of Los Angeles County, Richard J. Burdge, Jr., Judge. Affirmed.

DRE Law, Darren M. Richie, Antonio Castillo III, and Daniel Infuso for Plaintiff and Appellant.

Law Offices of Fredrick H. Stern, Fredrick H. Stern, and David Hagen for Defendants and Respondents.

____________________________________

INTRODUCTION

GC Processing, Inc., Gold Coast Collective, and Gold Coast Collection, LLC (collectively, Gold Coast) retained Selan Law Firm, Robert Selan, and Lisa Selan (collectively, Selan) to provide legal services. Several years after the representation ended, James Lee, one of the founders of Gold Coast, sued Selan for legal malpractice. The trial court sustained without leave to amend Selan’s demurrer to the complaint, ruling the one-year statute of limitations in Code of Civil Procedure section 340.6 barred Lee’s causes of action.[1] Because facts alleged in the complaint demonstrated Lee discovered or reasonably should have discovered Selan’s allegedly wrongful conduct more than one year before he filed this action, we affirm the judgment the court entered after sustaining Selan’s demurrer.

FACTUAL AND PROCEDURAL BACKGROUND

A. Lee Files a Lawsuit Against Gold Coast’s Former Attorneys

Lee filed this lawsuit in March 2020. According to his operative, second amended complaint, Lee founded Gold Coast—a collection of companies that “dealt with marijuana and marijuana-related products”—with Aaron Taylor. Lee later recruited two other partners, Neema Samari-Kermani and Jeff Buchman, to help run the businesses. Between July 2014 and October 2015 Selan provided Gold Coast with legal services, which included reviewing contracts and obtaining licenses. Selan also “occasionally advised [Lee] on an individual basis about personal matters unrelated” to Gold Coast, even though Lee never signed, in his individual capacity, a retainer agreement with Selan.

Lee asserted three causes of action against Selan: legal malpractice, breach of fiduciary duty, and breach of contract. Each cause of action arose from the same two sets of allegations. First, Lee alleged Selan charged Gold Coast fees that were “arbitrary,” “exorbitant,” and “unconscionable” compared to “the time expended and services provided.” Second, Lee claimed Selan failed to inform him about certain “conflicts” between the Gold Coast partners, which somehow prevented Lee from protecting the value of his ownership interest in Gold Coast. Lee learned in October 2015 (around the time Selan’s representation of Gold Coast ended) that one of the Gold Coast partners, Samari‑Kermani, had sent an email to Selan several months earlier seeking to terminate the representation. Selan did not disclose this fact to Lee. Later, in April 2016, Lee learned Samari-Kermani had “essentially stolen [the] Gold Coast brand and had started unilaterally making deals with [other] investors.” Lee alleged that, had Selan advised him about the conflicts between the Gold Coast partners, in particular about Samari-Kermani’s attempt to terminate Selan’s representation of Gold Coast, Lee would have sought independent legal representation to protect his interest in Gold Coast.

B. Selan Files a Demurrer, and the Trial Court Sustains It Without Leave To Amend

Selan demurred to Lee’s complaint, contending all three of Lee’s causes of action were barred by the one-year statute of limitations in section 340.6. Selan argued that, according to Lee’s allegations, Lee was harmed by Selan’s alleged conduct no later than April 2016, when Lee learned Samari-Kermani “stole [Lee’s] brand,” and that Lee knew or should have discovered the facts constituting Selan’s allegedly wrongful conduct by that date.

Lee conceded in his opposition to the demurrer he suffered actual injury from Selan’s wrongful conduct by April 2016. Lee argued, however, the limitations period in section 340.6 was tolled because Selan willfully concealed its wrongful conduct. Lee alleged that, between 2016 and 2017, he asked Selan to provide copies of its retainer agreements and invoices, but that Selan “ignored” his requests, which prevented Lee from discovering Selan had breached the agreements.

The trial court sustained the demurrer to each cause of action without leave to amend. The trial court ruled that, for each cause of action, the one-year limitations period began to run in April 2016 because Lee “discovered that his business partners were taking actions against him” and, through the exercise of reasonable diligence, “should have discovered facts supporting his action” against Selan. The court entered judgment against Lee, and Lee timely appealed.

DISCUSSION

A. Standard of Review

“A demurrer tests the legal sufficiency of the factual allegations in a complaint.” (Ivanoff v. Bank of America (2017) 9 Cal.App.5th 719, 725; accord, Genis v. Schainbaum (2021) 66 Cal.App.5th 1007, 1014.) “‘In reviewing an order sustaining a demurrer, we examine the operative complaint de novo to determine whether it alleges facts sufficient to state a cause of action under any legal theory.’” (Mathews v. Becerra (2019) 8 Cal.5th 756, 768; see T.H. v. Novartis Pharmaceuticals Corp. (2017) 4 Cal.5th 145, 162.) “‘“‘“We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law,”’”’” and “‘“‘give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.’”’” (Mathews, at p. 768; accord, Mireskandari v. Gallagher (2020) 59 Cal.App.5th 346, 357-358; Nguyen v. Ford (2020) 49 Cal.App.5th 1, 11.)

“Although a general demurrer does not ordinarily reach affirmative defenses, it ‘will lie where the complaint “has included allegations that clearly disclose some defense or bar to recovery.”’” (Stella v. Asset Management Consultants, Inc. (2017) 8 Cal.App.5th 181, 191; see Nolte v. Cedars-Sinai Medical Center (2015) 236 Cal.App.4th 1401, 1406.) Thus, a “‘“‘demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. [Citation.] In order for the bar . . . to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred.’”’” (Lee v. Hanley (2015) 61 Cal.4th 1225, 1232; see Committee for Green Foothills v. Santa Clara County Bd. Of Supervisors (2010) 48 Cal.4th 32, 42; Nguyen v. Ford, supra, 49 Cal.App.5th at p. 11.)

B. Section 340.6 Bars Each of Lee’s Causes of Action

Section 340.6, subdivision (a), provides: “An 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, or four years from the date of the wrongful act or omission, whichever occurs first.” “On its face, section 340.6[, subdivision (a),] states ‘two distinct and alternative limitation periods: one year after actual or constructive discovery, or four years after occurrence (the date of the wrongful act or omission), whichever occurs first.’” (Samuels v. Mix (1999) 22 Cal.4th 1, 7; see Nguyen v. Ford, supra, 49 Cal.App.5th at p. 12.)

The trial court ruled section 340.6 barred Lee’s complaint because Lee discovered or should have discovered the facts supporting his causes of action against Selan—i.e., Lee had inquiry or constructive notice—more than one year before he filed the complaint.[2] Plaintiffs have constructive notice of a cause of action where they have “‘reason to at least suspect that a type of wrongdoing has injured them.’” (Genisman v. Carley (2018) 29 Cal.App.5th 45, 50; see Bergstein v. Stroock & Stroock & Lavan LLP (2015) 236 Cal.App.4th 793, 818 [the plaintiff has constructive notice when she “‘suspects or should suspect that her injury was caused by wrongdoing, that someone has done something wrong to her’”].) “‘“A plaintiff need not be aware of the specific ‘facts’ necessary to establish the claim; that is a process contemplated by pretrial discovery. Once the plaintiff has a suspicion of wrongdoing, and therefore an incentive to sue, she must decide whether to file suit or sit on her rights. So long as a suspicion exists, it is clear that the plaintiff must go find the facts; she cannot wait for the facts to find her.”’” (Genisman, at p. 51; see Bergstein, at p. 818; Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005) 133 Cal.App.4th 658, 685.) “When a plaintiff reasonably should have discovered facts for purposes of the accrual of a cause of action . . . is generally a question of fact, properly decided as a matter of law only if the evidence (or, in this case, the allegations in the complaint . . .) can support only one reasonable conclusion.” (Stella v. Asset Management Consultants, Inc., supra, 8 Cal.App.5th at p. 193; see Broberg v. The Guardian Life Ins. Co. of america (2009) 171 Cal.App.4th 912, 921.) Nevertheless, “courts should sustain demurrers based on section 340.6 in appropriate circumstances.” (Croucier v. Chavos (2012) 207 Cal.App.4th 1138, 1145.)

This is one of those cases where the allegations of the complaint can support only one reasonable conclusion: Lee suspected, or reasonably should have suspected, Selan engaged in the allegedly wrongful conduct more than one year before Lee filed this action. As discussed, Lee’s first set of allegations concerned Selan overcharging and improperly billing Gold Coast for legal services. According to his allegations, Lee was aware of the facts suggesting Selan overcharged Gold Coast no later than 2017. Lee alleged that, “[t]hroughout the course of the representation, which was from approximately July 2014 to October 2015,” he made cash payments to Selan for legal services in “random amounts around $10,000.”[3] Lee alleged that Selan required him to “pay arbitrary amounts for [the firm’s] purported legal services,” but that Selan “never provided an itemized bill stating or justifying what the payments were for.” Lee also alleged that he “tendered” the first, second, and third cash payments at Robert and Lisa’s home while Robert and Lisa “were smoking marijuana” and that this “pattern continued throughout the representation.” Finally, Lee alleged that from “mid-2016 through 2017” he asked for copies of all itemized invoices, but that Selan ignored his requests. Thus, Lee clearly and affirmatively alleged he suspected, or at least reasonably should have suspected, Selan’s allegedly wrongful billing practices no later than 2017, because by that time he had paid Selan what he believed were arbitrary amounts and, despite his requests, had never received itemized invoices. (See Genisman v. Carley, supra, 29 Cal.App.5th at p. 51 [“‘[S]ubjective suspicion is not required. If a person becomes aware of facts which would make a reasonably prudent person suspicious, he or she has a duty to investigate further and is charged with knowledge of matters which would have been revealed by such an investigation.’”].) Lee did not allege he learned any new facts between 2017 and the date he filed his complaint that caused him to believe Selan had improperly billed for its legal services. (Cf. Samuels v. Mix, supra, 22 Cal.4th at p. 16 [the discovery provision in section 340.6, subdivision (a), bars “suit on otherwise viable claims when malpractice defendants . . . can prove a plaintiff’s lack of diligence”].)

Lee’s other allegations in support of his causes of action—those concerning Selan’s alleged failure to disclose conflicts of interest between the Gold Coast partners—fare no better. Lee alleged he learned on October 7, 2015 that Samari-Kermani attempted to unilaterally terminate the representation, which is the fact Lee alleged Selan should have disclosed to him. Lee also alleged he learned in March 2016 that Samari-Kermani “stole” the Gold Coast brand and was making deals with other investors. Again, Lee did not allege that after 2016 he discovered any new facts that caused him to believe Selan had failed to disclose conflicts between the partners during the representation. To the extent Lee believed Selan committed malpractice by failing to disclose Samari-Kermani’s attempt to terminate Selan’s representation and other conflicts between the Gold Coast partners, Lee waited far too long to bring that claim. (See Peregrine Funding Inc. v. Sheppard Mullin Richter & Hampton, supra, 133 Cal.App.4th at p. 684 [investors had constructive notice of their former attorneys’ alleged misconduct where “the conduct . . . described in the complaint” that formed “the basis of [the investors’] claims” was contained in a report filed by a court‑appointed receiver]; see also Britton v. Girardi (2015) 235 Cal.App.4th 721, 735 [plaintiffs alleging their former attorneys committed malpractice in settling a lawsuit had constructive notice of the alleged misconduct where the clients alleged that, “at the time of the settlement, they received only a signature page and knew that they did not receive a copy of the master settlement agreement” and that they were advised that, “by signing the mere signature page, they were giving up all claims . . . and . . . could not talk about the settlement with anyone”].)

Lee argues that he “did not have any reason to discover the malpractice or investigate the matter before being injured by his ex-partner” and that, because he “is a lay person,” he “could not have known of the malpractice before having the opportunity to talk to an attorney.” On the first point, Lee’s legal theory is more or less correct (see § 340.6, subd. (a)(1) [limitations period “shall be tolled during the time” the “plaintiff has not sustained actual injury”]), but Lee’s allegations do not help him. Lee alleged he was injured by his ex-partner in April 2016, well over one year before he filed this action.

On the second point, Lee may be correct about his allegations, which are that he “did not become aware that he had a malpractice claim against [Selan] until speaking to” his current attorneys in October 2019, but he is wrong on the law. “‘It is well settled that the one-year limitations period of section 340.6 ‘“is triggered by the client’s discovery of “the facts constituting the wrongful act or omission,” not by his discovery that such facts constitute professional negligence, i.e., by discovery that a particular legal theory is applicable based on the known facts. “It is irrelevant that the plaintiff is ignorant of his legal remedy or the legal theories underlying his cause of action.”’”’” (Croucier v. Chavos, supra, 207 Cal.App.4th at p. 1146; see Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton, supra, 133 Cal.App.4th at p. 685; Village Nurseries v. Greenbaum (2002) 101 Cal.App.4th 26, 42-43 [“‘the one-year period is triggered by the client’s discovery of “the facts constituting the wrongful act or omission,” not by his discovery that such facts constitute professional negligence’”].)

Some courts have held (in cases not cited by Lee) a plaintiff could not with reasonable diligence have discovered a cause of action against a former attorney until speaking with a new attorney. For example, in Krusesky v. Baugh (1982) 138 Cal.App.3d 562 the plaintiff sued her family law attorney for malpractice 11 years after her divorce, alleging the attorney failed to inform her that her ex-husband’s pension payments were community property. (Id. at p. 565.) The plaintiff contended she did not discover she had a right to the pension proceeds until she consulted a different lawyer shortly before she filed the lawsuit. The court in Krusesky held the plaintiff’s action was not barred by section 340.6 because a client “is under no duty to investigate her attorney’s actions unless she has actual notice of facts sufficient to arouse the suspicions of a reasonable person” and, “n light of [her former attorney’s] advice, [the plaintiff’s] lack of suspicion about not receiving part of her husband's pension benefits [was] understandable and her delay . . . reasonable.” ([i]Krusesky, at pp. 567-568.)

In Baright v. Willis (1984) 151 Cal.App.3d 303 the plaintiff, after suffering injuries in an accident, retained an attorney who filed a workers’ compensation action, but advised the plaintiff that he did not have a viable legal action against anyone other than his employer. (Id. at p. 307.) A second attorney gave the plaintiff similar advice. (Ibid.) Several years later, a third attorney advised the plaintiff that he would have had a viable personal injury action against persons other than his employer, but that any such action was barred by the applicable statute of limitations. The advice of the third attorney prompted the plaintiff to sue the first attorney for malpractice. (Id. at pp. 307-308.) The court in Baright held section 340.6 did not bar the plaintiff’s malpractice action against the first attorney because the plaintiff did not discover “that [he] could have filed a personal injury lawsuit” until he consulted with the third attorney and “a party who seeks professional advice regarding facts which might constitute malpractice is entitled to rely on the advice received.” (Id. at pp. 312-313, italics omitted.)

Krusesky and Baright are distinguishable. The plaintiffs in those cases did not reasonably suspect the attorney defendant caused them any appreciable injury until they consulted new counsel because they reasonably relied on their attorneys’ legal advice. (See Krusesky v. Baush, supra, 138 Cal.App.3d at p. 567 [“In some cases, sustaining known physical or monetary damages may be a fact sufficient to alert a plaintiff ‘to the necessity for investigation and pursuit of her remedies.’ [Citation.] In other cases, however, because of the nature of legal advice, a financial loss will pass unnoticed.”].) That is not the case here. While Lee may have initially relied on Selan’s legal advice, Lee knew by October 2015 that Selan failed to disclose Samari-Kermani’s attempt to terminate the representation, which Lee alleged was a breach of Selan’s professional obligations. And, according to Lee’s allegations, Lee knew he suffered injuries in April 2016 when he discovered that Samari-Kermani stole the Gold Coast brand—years before he consulted with his current attorneys. That was enough to put Lee on constructive or inquiry notice that Selan had caused his injuries and required Lee “to do more than wait” almost four years to bring his claims. (Britton v. Girardi, supra, 235 Cal.App.4th at p. 736; see Worton v. Worton (1991) 234 Cal.App.3d 1638, 1650 [plaintiff had constructive notice of her former divorce attorneys’ alleged misconduct when she learned her husband received excess benefits under a pension plan that was a community asset]; McGee v. Weinberg (1979) 97 Cal.App.3d 798, 800, 804 [plaintiff had constructive notice of her former divorce attorneys’ alleged misconduct where she alleged she believed she was going to receive benefits from her husband’s life insurance policy under a stipulated judgment, but did not receive the benefits when the husband died]; cf. Gutierrez v. Mofid (1985) 39 Cal.3d 892, 898 [“if one has suffered appreciable harm and knows or suspects that professional blundering is its cause, the fact that an attorney has not yet advised him does not postpone commencement of the limitations period”].)

Lee also argues the limitations period was tolled under section 340.6, subdivision (a)(3), which provides that “the time for commencement of legal action . . . shall be tolled during the time” the “attorney willfully conceals the facts constituting the wrongful act or omission when those facts are known to the attorney, except that this subdivision shall toll only the four-year limitation.” The problem for Lee is evident from the language of the statute: It doesn’t apply to the one-year limitations period. (See Genisman v. Carley, supra, 29 Cal.App.5th at p. 53 [“The tolling provision concerning an attorney’s willful concealment of facts tolls ‘only the four-year limitation,’ which we need not address given our conclusion that the trial court correctly” sustained the demurrer “based on the one-year limitation.”]; Jocer Enterprises, Inc. v. Price (2010) 183 Cal.App.4th 559, 567 [“With the exception of subdivision (a)(3), the tolling provisions apply to both the one-year and four-year limitations periods.” (Italics added.)].)[4]

DISPOSITION

The judgment is affirmed. Selan is to recover its costs on appeal.

SEGAL, J.

We concur:

PERLUSS, P. J.

FEUER, J.

[1] Statutory references are to the Code of Civil Procedure.

[2] Lee does not dispute that all of his causes of action arise from the performance of Selan’s professional services and that therefore section 340.6 applies to all of them. (See Lee v. Hanley, supra, 61 Cal.4th at p. 1237 [section 340.6’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,” i.e., “an obligation that an attorney has by virtue of being an attorney”].)

[3] Lee alleged in his initial complaint he personally made the $10,000 payments, but omitted this fact from the second amended complaint. While we generally review only the operative complaint when reviewing an order sustaining a demurrer, where an earlier complaint “‘“contains allegations destructive of a cause of action, the defect cannot be cured in subsequently filed pleadings by simply omitting such allegations without explanation.”’” (Hendy v. Losse (1991) 54 Cal.3d 723, 742.)

[4] Lee contends that, even if section 340.6 would otherwise bar his action, the limitations period should be tolled “for equitable purposes.” “The California Supreme Court, however, has already spoken regarding the exclusivity of the tolling provisions enumerated in section 340.6,” stating that “‘the Legislature expressly intended to disallow tolling under any circumstances not enumerated in the statute.’” (Gordon v. Law Offices of Aguirre & Meyer (1999) 70 Cal.App.4th 972, 979; see Laird v. Blacker (1992) 2 Cal.4th 606, 618.) Therefore, “the doctrine of equitable tolling is inapplicable” to a cause of action barred by section 340.6. (Gordon, at p. 980.)