Murano v. Fraser

Filed 6/20/07 Murano v. Fraser CA1/3

NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

FIRST APPELLATE DISTRICT

DIVISION THREE

Plaintiffs Gabriel and Maria Murano appeal from a judgment entered after the court sustained defendant Stephen Frasers demurrer to their second amended complaint without leave to amend. The Muranos maintain the court erred when it determined they could not state a claim for breach of fiduciary duty against Fraser. We affirm.

BACKGROUND

This action arises from a dispute between appellants, the Bahia Homeowners Association (Bahia), and its receiver. Only defendant Stephen Fraser and the fourth and fifth causes of action of the second amended complaint are at issue.

The fourth cause of action, for conversion, alleges plaintiffs made written claims to defendant Bahia Homeowners Association for losses relating to their real properties and to their property rights in the total principal amount of $172,000. Plaintiffs are informed and believe that upon such information and belief allege that those claims were used by Defendant Bahia Homeowners Association to obtain money from Scottsdale Insurance Company in settlement of such claims. The funds obtained by Bahia were never paid over to Plaintiffs and to date Bahia has failed and refused to account to Plaintiffs. Plaintiffs contend that Plaintiffs and each of them became the owner of such funds at the time of settlement and were entitled to immediate possession of such sums. Defendants unlawfully took and have refused to return to Plaintiffs said property and have converted it to their own use.

The fifth cause of action alleges a breach of fiduciary duty by Fraser: In January, 1996, Bahia homeowners petitioned the court in Marin County Action 146798 for the appointment of a Receiver to sit in place and stead of the 5-member Board of Directors and in June, the Court appointed Bahias property manager, Marshall Levy, as Receiver. During the pendency of Action 146798 a number of Bahia on-water property owners submitted property damage claims to the Association. Plaintiffs owned two on-water properties and made claims totaling $172,000. Plaintiffs are informed and believe and on such information and belief allege that Defendant, Stephen Fraser, Bahias attorney, submitted the claims to the Court. Thereafter, Fraser told the claimants that the judge had rejected the claims as not timely. Plaintiffs had no reason to disbelieve Fraser and placing their confidence in him, took no further action. Subsequently, at a March 7, 2002, Homeowners meeting, called to decide whether to replace Levy with a new Board of Directors, Levy mentioned that the Homeowner damage claims had been used by the Association to obtain a 1.1 Million Dollar settlement from Scottsdale Insurance Company. Until that disclosure, Plaintiffs had been unaware that their claims had been submitted to Scottsdale and that money had been obtained in a settlement with the carrier, which was ultimately put in Bahias bank account. Plaintiffs made a request to review Homeowner records regarding the Scottsdale settlement; however, their request was denied by Fraser on the grounds that the documents were not Homeowner records. After the Receiver had been removed and a new Board of Directors took over the Association, Plaintiffs again made a request to review the Scottsdale documents but were told that the Associations [sic] files were still in Frasers custody and were not available.

29. Plaintiffs are informed and believe and on such information and belief allege that Fraser directly participated in obtaining money from Scottsdale beyond merely giving the receiver legal advise. [Sic.] Fraser knew that Plaintiffs damage claims were being used to obtain money from Scottsdale, and that money was in fact received, and did not disclose that fact to Plaintiffs. Plaintiffs are unsure of the full extent of Frasers involvement, but believe that Fraser knew of the Receivers diversion of all of the settlement monies to Bahia and knew or should have known that some, if not all, of the money received belonged to the claimants since, according to the Receivers statement, their claims had been used to obtain the settlement. By virtue of the acts and omissions regarding the acquisition and detention of Plaintiffs property as alleged above, the Receiver and Fraser held funds, in the principal amount of $172,000 as a constructive trustee for the benefit of Plaintiffs.

30. Defendant, Fraser, directly or constructively received settlement funds which he knew, or should have known, rightfully belong to Plaintiffs and each of them. In diverting the funds to the Associations account, and concealing the fact of the settlement from Plaintiffs, Fraser aided and abetted the Receivers conversion of money belonging to Plaintiffs. Fraser knew, or should have known that the Receiver was committing a breach of trust and he was assisting the Receiver to commit a breach of trust. In addition, Fraser and the Receiver held the money that was received based upon Plaintiffs claims for property damage as constructive trustees for Plaintiffs benefit, in doing the things alleged above, Defendant, Fraser, voluntarily assumed a fiduciary relationship to Plaintiffs and had a fiduciary duty not to release or cause to be release [sic] Plaintiffs [sic] settlement funds to anyone other than Plaintiffs. Defendant breached his fiduciary duty by releasing or causing the release of funds to Defendant Bahia Homeowners Association without Plaintiffs knowledge or consent and by concealing the settlement and the diversion of settlement funds to the Associations account. Plaintiffs are informed and believe and on such information and belief allege that the Court in Action 146798 was asked to approve the Scottsdale settlement and Fraser failed to advise the Court of the fact that Homeowner property damage claims had been used to obtain the settlement. Furthermore, by virtue of the acts and omissions regarding the acquisition and detention of Plaintiffs property as alleged above, Bahia holds the converted funds, in the principal amount of $172,000 as a constructive trustee for the benefit of Plaintiffs.

Fraser demurred to the cause of action for conversion on the grounds that it was uncertain and failed to set forth facts sufficient to state a cause of action. He demurred to the breach of fiduciary duty claim on the basis that it failed to set forth facts sufficient to state a cause of action. Specifically, he argued, the Muranos were non-clients and adverse parties and the complaint failed to allege facts supporting the existence of a fiduciary relationship. Fraser also argued both claims were barred by the applicable statute of limitations.

The court ruled: Defendant Stephen Frasers demurrer to the second amended complaint is sustained without leave to amend as follows: [] Fourth Cause of Action: The court ruled previously that the cause of action was uncertain as to whether it was directed against Fraser. Plaintiffs have not clarified that uncertainty and instead now state that the cause of action is not directed against Fraser. The court ruled the fifth cause of action was barred by Code of Civil Procedure section 340.6. The legislative history of the statute indicates that the Legislature intended to establish a statute of limitations for any legal malpractice falling short of actual fraud. (Stoll v. Superior Court (1992) 9 Cal.App.4th 1362, 1366.) The elements of legal malpractice include the attorney-client relationship or other basis for duty. (Nichols v. Keller (1993) 15 Cal.App.4th 1672, 1682, emphasis added.) Plaintiffs allege that Fraser assumed a fiduciary duty to them because he is an attorney and because he received money on their behalf. Although this is not a malpractice cause of action, it is a cause of action involving Frasers performance of professional services involving a duty owed to plaintiffs.^[1]

Appellants filed a premature notice of appeal from the order sustaining Frasers demurrer without leave to amend. To avoid the undue waste of time and resources, we construe the appeal to have been timely filed from the judgment.

DISCUSSION

I. Standard of Review

A general demurrer searches the complaint for a failure to state a cause of action as a matter of law. [Citation.] On review from an order sustaining a general demurrer,  [w]e treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed. [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff.  (Stanton Road Associates v. Pacific Employers Ins. Co. (1995) 36 Cal.App.4th 333, 340-341.)

II. Breach of Fiduciary Duty

Appellants contend the court erred when it applied the one-year limitations period for attorney malpractice (Code Civ. Proc. 340.6)^[2]to their complaint because they are not Frasers clients and their claim against him concerns acts that were not performed while he was providing legal services to them or for their benefit.^[3] They argue that section 340.6 applies only where the alleged error or omission occurred in the course of an attorney-client relationship between the defendant attorney and the plaintiff: [I]f there was no attorney-client relationship or if the attorney was not rendering legal services for his client, than CCP Sec 340.6 is not applicable. Appellants argument is unsupported by the statutory language, the legislative history, or case law.

Section 340.6 provides in relevant part that [a]n 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. Does this language apply to action against an attorney for a wrongful act or omission . . . arising in the performance of professional services if the plaintiff is not a client? To answer this question, we look first to the language of the statute. If the meaning is without ambiguity, doubt, or uncertainty, then the language controls. (In re Marriage of Campbell(2006) 136 Cal.App.4th 502, 506-507.) Only if the meaning of the statute is unclear do we refer to extrinsic aids, including legislative history, to discern legislative intent. (Ibid.)

The wording of section 340.6 does not support appellants proposed construction. It applies to action[s] against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services. The plain meaning of this language is that the one-year period applies to any action against an attorney for a wrongful act or omission. The only qualifications are that the act or omission occurred in the performance of professional services and did not involve actual fraud. Nothing in the language of section 340.6 suggests its application is limited only to actions brought by clients against their counsel. Appellants concede that no California courts have interpreted the statute as incorporating such a limitation.

The legislative history also undermines appellants interpretation. The Legislature enacted section 340.6 in response to the growing cost of malpractice insurance to restrict attorneys potential liability arising from professional activities. (Stoll v. Superior Court, supra, 9 Cal.App.4th at pp. 1367-1369.) Stoll clarifies that the statute applies whether alleged malpractice is based in tort or contract, and whether or not it also breaches a fiduciary duty. The Legislature intended to enact a comprehensive, more restrictive statute of limitations for practicing attorneys facing malpractice claims. The limitation of one year was designed to counteract the potential of lengthy periods of potential liability wrought by the adoption of the discovery rule, and thereby reduce the costs of malpractice insurance. The only limitation of the one-year period was for actual fraud. (Id. atp. 1368.) It is illogical to conclude the Legislature intended to impose a one-year statute of limitations for actions by a client against an attorney arising from the attorneys professional activities, but allow any person other than a client four years to bring suit.

Appellants reliance on Quintilliani v. Mannerino (1998) 62 Cal.App.4th 54 is not persuasive. The question posed there concerned the extent to which section 340.6 applied to an attorney who performed both legal services and business functions. The court held the statute applied to causes of actionincluding a claim for breach of fiduciary dutyarising from the attorneys performance of legalservices, but notto nonlegal businessservices. (Id. at pp. 65-66.) Quintilliani says nothing about whether section 340.6 applies to actions based upon legal services if the action is brought by a plaintiff who was not a client. Appellants citation to out-of-state cases distinguishing legal from non-legal business services for purposes of insurance coverage (General Acc. Ins. Co. v. Namesnik (9th Cir. 1986) 790 F.2d 1397 [tax attorney functioned as business agent rather than attorney in soliciting investments]; Natl. Union Fire Ins. Co. v. Shane & Shane (Ohio 1992) 605 N.E.2d 1325, 1328) is unhelpful for the same reason. Like Quintilliani, they do not address whether the applicability of the malpractice statute of limitations depends on whether the plaintiff is a client or not.

To resolve this appeal we now must consider whether the allegations against Fraser are premised on a wrongful act or omission arising in the performance of professional services. ( 340.6.) Giving appellants complaint a reasonable interpretation, the gist of the breach of fiduciary duty claim is that Fraser, as counsel to Bahia and/or its receiver, helped obtain the insurance settlement from Scottsdale, divert the settlement proceeds to Bahia, and conceal the settlement from appellants despite actual or constructive knowledge that some part of the money was rightfully theirs. Appellants maintain Fraser occupied a fiduciary relationship to them independent of his role as Bahias attorney because he assisted the receivers alleged conversion of the insurance settlement funds as a constructive trustee. But even assuming he in fact became constructive trustee of their funds, as appellants allege, he is only alleged to have done so in his capacity as an attorney assisting his client procure a court-approved settlement from an insurer. Appellants do not satisfactorily explain how Frasers role can be construed as anything other than an attorney engaged in the provision of legal services. Without citation to the record, appellants suggest in their reply brief that it is not at all clear that Fraser provided any legal services with respect to obtaining the Scottsdale settlement because it is now known that the Receiver hired another attorney, Christine Balthazar, Esq., to handle the Scottsdale claim. In other words, Fraser, even though he was Bahias attorney, may not have performed any professional services at all with respect to obtaining the settlement from Scottsdale. All that is known is that at the March 7, 2002 Homeowner Meeting, the Receiver implicated Fraser in participating in some way with the Scottsdale matter. But if appellants could have alleged that Fraser participated in the alleged diversion of their funds in some way other than through his capacity as an attorney providing legal representation, it was their burden to demonstrate to the court how they could amend their complaint. (Stanton Road Associates v. Pacific Employers Ins. Co., supra, 36 Cal.App.4th at pp. 340-341.) They did not do so. The court correctly ruled that the cause of action for breach of fiduciary duty was time-barred.^[4]

III. Conversion

We are somewhat mystified as to why appellants argue, and at some length, about the conversion claim against Fraser. They concede, as they did in the trial court, that this cause of action was not directed against him. The court sustained Frasers demurrer to it, explaining it had ruled on an earlier demurrer to a previous iteration of the complaint that the cause of action was uncertain as to whether it was directed against Fraser, and that appellants have not clarified that uncertainty and instead now state that the cause of action is not directed against Fraser. (Italics added.) Appellants agree they are not claiming conversion as against Fraser. No issues remain on this score for this court to address.

DISPOSITION

The judgment is affirmed.

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Siggins, J.

We concur:

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McGuiness, P.J.

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Pollak, J.

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^[1] Although not involved in this appeal, the court also overruled the Bahias demurrer to causes of action for unfair debt collection practices and breach of fiduciary duty, the latter of which was premised at least in part on Frasers alleged conduct as Bahias agent.

^[2] All further statutory references are to the Code of Civil Procedure.

^[3] Appellants do not dispute that their claim is time-barred if section 340.6 applies. Instead, they contend the applicable limitations period is the catch-all four-year provision found in section 343.

^[4] Because we so conclude we do not address Frasers assertion that the complaint does not sufficiently allege the existence of a fiduciary relationship between himself and appellants.