Thornton v. We the People

Filed 7/19/06 Thornton v. We the People CA2/6

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

California Rules of Court, rule 977(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 977(b). This opinion has not been certified for publication or ordered published for purposes of rule 977.

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION SIX

Tracy Lynn Thornton appeals from an order denying a motion for new trial on her complaint for damages after the trial court granted summary judgment for respondents, We the People, We The People Legal Document Services, We The People Forms & Service Center of Santa Barbara, Inc., We The People Forms & Services of California, Inc., We The People Forms & Service Centers USA, Inc., and Gerald N. Reed. (Code Civ. Proc., § 437c.)^[1] The trial court found that the action was barred by the statute of limitations. We affirm.

Facts and Procedural History

During the 1980s, appellant financed her college education with student loans which became due and payable on or after 1990. In 1996, collection agencies demanded payment. That same year, the United States Department of Education (Department of Education) seized appellant's income tax refund ($430) and applied it to the student loan debt which exceeded $40,000.

Appellant consulted Gerald N. Reed about discharging the student loans in bankruptcy. Reed operated We The People Forms & Service Center of Santa Maria, a store that prepared legal documents for individuals representing themselves in bankruptcy court. Reed allegedly told appellant that the student loans could be discharged if no one objected at the bankruptcy creditor's meeting.

The Bankruptcy Petition

On September 13, 1996, appellant filed a Chapter 7 bankruptcy petition prepared by respondents. (In re Tracy Lynn Thornton, United States Bankruptcy Court, Central District of California, Case No. ND 96-13785-RR.) The petition listed all the student loans, including a Perkins student loan owed to West Virginia University.

On January 6, 1997, the bankruptcy court issued a discharge order. Upon receiving the Notice of Discharge, appellant believed the student loans were discharged and that she was no longer obligated to pay them.

The Perkins Loan

In September 1999, West Virginia University notified appellant that she still owed $2,200 on the Perkins loan with interest and penalties. Appellant called the university and was told that the debt was nondischargeable because the bankruptcy petition was filed less than seven years before payment first became due on the loan. (11 U.S.C. § 523(a)(8).)^[2] Russell Bebout, a university loan officer supervisor, sent appellant a letter stating that federally funded student loans were exempt and nondischargeable. The letter cited the applicable Bankruptcy Code section and stated "[y]our student loan falls into the 7year non-exempt period."

Appellant agreed to repay the loan and began making monthly payments. In October 1999, she received letters from the Department of Education demanding payment on the Perkins loan. Appellant asked the university to notify the Department of Education that she was making loan payments and heard nothing further.

In March 2003, the Department of Education demanded payment on the other student loans which totaled $54,316.96 with interest and penalties.

The Complaint

Appellant sued for negligent misrepresentation, negligent practice of law, and fraud. The complaint alleged that respondents breached a duty of care by not advising appellant to consult an attorney before filing the bankruptcy petition. The third cause of action for fraud alleged that respondents "knew or should have known that answering ANY question posed the PLAINTIFF, regarding ANY aspect of her bankruptcy petition constituted the practice of law without a license. . . ."

Respondents were granted summary judgment on the ground that the action was barred by a two or three year statute of limitations. (§§ 339(1); 338, subd. (d).) The trial court ruled: "The main reason plaintiff went to Mr. Reed and We The People was to address her student loans in bankruptcy. Plaintiff claims Reed told her that her student loans would be discharged in bankruptcy, Plaintiff filed her complaint in this case in November of 2003, a little more than 4 years and two months after she learned that at least one of her student loans was not discharged, and more than 7 years after Reed allegedly told plaintiff her student loans were dischargeable in bankruptcy."

Delayed Discovery

We review the grant of summary judgment de novo. (Intel Corp. v. Hamidi (2003) 30 Cal.4th 1342, 1348.) In tort cases, the statute of limitations generally begins to run upon the occurrence of the last event essential to the cause of action, even if the plaintiff is unaware that a cause of action exists. (Wilshire Westwood Associates v. Atlantic Richfield Co. (1993) 20 Cal.App.4th 732, 739.) Delayed discovery is an exception. (Nogart v. Upjohn Co. (1999) 21 Cal.4th 383 397.) Under the discovery rule, "the accrual date of a cause of action is delayed until the plaintiff is aware of his injury and its negligent cause. The plaintiff is charged with this awareness as of the date he suspects or should suspect that his injury was caused by wrongdoing, that someone has done something wrong to him." (McKelvey v. Boeing North American, Inc. (1999) 74 Cal.App.4th 151, 160.)

Here the complaint is subject to a two or three year statute of limitations. (§ 339(1) [negligence]; Ventura County Nat. Bank v. Macker (1996) 49 Cal.App.4th 1528, 1530-1531; 338, subd. (d) [fraud]; Curtis v. Kellogg & Andelson (1999) 73 Cal.App.4th 492, 503.) In 1996, respondents allegedly advised appellant the student loans could be discharged and prepared the bankruptcy petition. Appellant had no further contact with respondents. In 1999, she learned that one of the student loans had not been discharged and agreed to make monthly payments on the loan. Appellant sued for damages more than four years later on November 12, 2003.

Appellant argues that the action accrued in 2003 when she discovered that none of the student loans were discharged. Short of consulting a bankruptcy attorney, appellant claims that the average debtor has no way of knowing if his or her debts have been discharged as a matter of law.

We reject the argument because a cause of action accrues when the plaintiff suffers harm and becomes aware of the facts linking the defendant to the harm. (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1109.) Appellant suffered actual and appreciable harm in 1999 when she was told the Perkins loan was not discharged. Rather than consult an attorney, appellant started making loan payments in the amount of $50 a month. At that time, appellant was on constructive notice that the other student loans were probably not discharged. " 'Subjective 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.' [Citation.]" (Wilshire Westwood Associates v. Atlantic Richfield Co., supra, 20 Cal.App.4th at p. 740.)

Appellant cites medical malpractice cases in which the statute of limitations was tolled because the defendant continued to treat the plaintiff or assured the plaintiff the harm was caused by something other than defendant's negligence. (Kitzig v. Nordquist (2000) 81 Cal.App.4th 1384, 1388-1389 [improperly placed dental implants]; Unjian v. Berman (1989) 208 Cal.App.3d 881, 884-885 [negligent facelift surgery].) In Unjian v. Beman, the Court of Appeal stated: "The fact [a facelift] operation did not produce the expected result would not necessarily suggest to the ordinary person the operation had been performed negligently." (Id., at p. 885.)

Unlike facelift surgery in the Unjian case, a Chapter 7 bankruptcy either discharges a student loan debt or it doesn't. "Close" is good enough in horseshoes but not in bankruptcy. To a financially strapped debtor, reinstatement of a $2,200 debt that was supposed to be discharged would put the debtor on inquiry notice. "[T]he discovery rule uses an objective test that looks not to what the particular plaintiff actually knew but to what a reasonable inquiry would have revealed. [Citation.]" (Mills v. Forestex Co. (2003) 108 Cal.App.4th 625, 648.)

In 1999, appellant knew or had a reasonable suspicion that the other student loans had not been discharged. The harm suffered was based on the same erroneous advice by respondents, the same document preparation, and the same wrongful act. The fact that one creditor (West Virginia University) demanded payment before the other creditors (Department of Education) did not toll the statute of limitations. "It is the fact of damage, rather than the amount, that is the relevant consideration. [Citation.] [A plaintiff] may suffer 'appreciable and actual harm' before he or she sustains all, or even the greater part, of the damages occasioned by the professional negligence. [Citations.]" (Van Dyke v. Dunker & Aced (1996) 46 Cal.App.4th 446, 452.)

Evidentiary Rulings

Appellant argues that the trial court erred in striking Exhibit 1 consisting of letters from the Department of Education and collection agencies. Appellant offered the letters to show that it was not until 2003 that she learned the other student loans had not been discharged. The trial court struck the exhibit for lack of foundation.

Appellant asserts that her attorney had the original documents and could have authenticated the copies attached to the opposition papers. That is not enough. To satisfy the business records exception to the hearsay rule, the proponent of the evidence must show, among other things, that "[t]he sources of information and method and time of preparation were such as to indicate its trustworthiness." (Evid. Code, § 1271, subd. (d).) Unless a proper foundation is laid, the documents may not be considered. (§ 437c, subd. (d); Weil & Brown, Cal. Practice Guide, Civil Procedure Before Trial (Rutter 2005) ¶ 10:133, p. 10-53.)

Appellant argues that the trial court erred in not considering additional undisputed facts (Facts 25 through 42) in her opposition papers. The undisputed facts were offered to show why appellant waited until 2003 to file the action. The trial court found that "undisputed fact numbers 25 through 42 are not material." It did not err. "The presence of a factual dispute will not defeat a motion for summary judgment unless the fact in dispute is a material one. [Citation.]" (Saldana v. Globe-Weis Systems Co. (1991) 233 Cal.App.3d 1505, 1518.) Here the proposed undisputed facts are irrelevant to the issue of when appellant discovered the alleged wrong doing, i.e., when she had reason to suspect that someone had done something "wrong" to her. (See Norgart v. Upjohn Company, supra, 21 Cal.4th at p. 397 ["wrong" is not used in a technical sense].)

We reject the argument that the Perkins loan obligation was a trivial matter and gave appellant no reason to suspect that she had been harmed. When the United States Department of Education seized the $430 income tax refund in 1996, appellant was financially compelled to seek the protection of the bankruptcy court. Appellant was partially disabled, in chronic pain, and unable to work full time. Her net monthly income was $671.72 and her monthly expenses were $640. Appellant had no savings, paid respondents $199 for their services, and paid $175 for the bankruptcy filing fee.

Like the trial court, we must utilize common sense when drawing inferences from the undisputed facts. (See e.g., Visueta v. General Motors Corp. (1991) 234 Cal.App.3d 1609, 1615.) The complaint alleges that appellant has "never made sufficient income to pay her student loans."

The crucial issue is when appellant knew, or should have discovered that she was harmed by respondents' wrongful conduct. The undisputed facts point to 1999 when appellant was required to repay a student loan thought to discharged.^[3] "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." (Jolly v. Eli Lilly & Co., supra, 44 Cal.3d at p. 1111.)

The judgment (orders granting summary judgment and denying motion for new trial) is affirmed. Respondents are awarded costs on appeal.

NOT TO BE PUBLISHED.

YEGAN, J.

We concur:

GILBERT, P.J.

PERREN, J.

Martin J. Tangeman, Judge

Superior Court County of San Luis Obispo

______________________________

David L. Hagan, for Appellant.

Greg A. Coates; Cumberland, Coates & Duenow

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^[1] Unless otherwise stated, all statutory references are to the Code of Civil Procedure. Because the order denying the motion for new trial is nonappealable, we treat the notice of appeal as an appeal from the underlying judgment. (Walker v. Los Angeles Metropolitan Transportation Authority (2005) 35 Cal.4th 15, 18.)

^[2] In 1996, when the bankruptcy petition was filed, the Bankruptcy Code provided that student loan debts were nondischargeable unless the first payment became due and payable more than seven years before the date of filing the bankruptcy petition, or the debtor proved that excepting the debt from discharge would impose an undue hardship. (11 U.S.C. § 523(a)(8); In re Pardee (9th Cir. BAP 1998) 218 B.R. 916, 919-920.)

^[3] It is undisputed that appellant "decided to file bankruptcy believing that all of her loans would be discharged." (Undisputed Material Fact 12, emphasis added.) It is further stipulated that upon receipt of the Notice of Discharge, appellant believed "all of her student loans had been discharged and that she was not longer obligated to pay them." (Undisputed Fact 17, emphasis added.)