Beal Bank v. Arter & Haden 1/10/06 CA2/2

SUPREME COURT CASES

Laws-info.com » Cases » California » Court of Appeal » 2006 » Beal Bank v. Arter & Haden 1/10/06 CA2/2

State: California

Court: 1st District Court of Appeal 1st District Court of Appeal

Docket No: B179383

Case Date: 04/19/2006

Preview:Filed 1/10/06

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA SECOND APPELLATE DISTRICT DIVISION TWO

BEAL BANK, SSB, Plaintiff and Appellant, v. ARTER & HADDEN, LLP, et al., Defendants and Respondents.

B179383 (Los Angeles County Super. Ct. No. BC308535)

APPEAL from judgments of the Superior Court of Los Angeles County. John P. Shook, Judge. Reversed and remanded.

Leland, Parachini, Steinberg, Matzger & Melnick, Harvey L. Gould; Carroll, Burdick & McDonough, Vicki L. Freimann, Richard Fannan and David M. Rice for Plaintiff and Appellant.

Moscarino & Connolly, John M. Moscarino and Paula C. Greenspan for Defendants and Respondents.

******

The question presented is whether the limitations period for a legal malpractice action under Code of Civil Procedure1 section 340.6 is tolled as to an attorney's former law firm and one of its partners while the attorney continues to represent the client in the same subject matter at his new firm. We hold that it is tolled and therefore reverse the judgments of dismissal in favor of the former law firm and its partner following demurrers sustained without leave to amend.

FACTUAL AND PROCEDURAL BACKGROUND Plaintiff and appellant Beal Bank, SSB (Beal Bank) filed this legal malpractice action against the attorneys who represented Beal Bank in its efforts to collect default interest on certain loans: Steven Gubner, Beal Bank's current attorney; Gubner's two firms in which he was a partner; Gubner's prior law firm, respondent Arter & Hadden, where Gubner was an associate; and respondent Eric Dean, a partner at Arter & Hadden. Each of the defendants demurred. The trial court sustained the demurrers of Arter & Hadden and Dean without leave to amend, finding the claims against them to be timebarred. On appeal, Beal Bank contends that the statute of limitations was tolled as to Arter & Hadden and Dean during the time Gubner continued to represent Beal Bank.2

1 2

Unless otherwise noted, all statutory references are to the Code of Civil Procedure. Beal Bank settled with the Gubner defendants, who are not parties to this appeal. 2

A.

Allegations in the First Amended Complaint3

In 1996, Beal Bank acquired certain loans from another bank, which had been placed into conservatorship by the Federal Deposit Insurance Corporation (FDIC). The loan documents contained "default interest clauses," which provided that in the event of default, the entire balance of principal and interest would become due and thereafter bear interest at an increased rate over and above the contract rate. The debtors missed payments on some of the loans. By the time Beal Bank acquired the loans, the debtors had negotiated discounted payoffs of the remaining loans with the FDIC, but had failed to make those payments as well. Beal Bank sent notices of acceleration and default to the debtors and recorded notices of default that were based on the increased default interest rate. In March 1997, Beal Bank retained Arter & Hadden to handle its collection efforts. Dean was the attorney primarily responsible for the representation. Counsel for the debtors repeatedly advised Arter & Hadden, through correspondence and other means, that Beal Bank had no legal or factual basis for attempting to collect the default interest. In the first amended complaint, Beal Bank alleged that Arter & Hadden failed to conduct any legal research on the issue, advise Beal Bank that its position was unlikely to prevail, or inform it of the risks involved in continuing to maintain its position. In June 1997, the collateral for the outstanding loans was transferred by the debtors to an entity the debtors controlled. On the following day, that entity filed for bankruptcy protection. Gubner, an associate at Arter & Hadden, then began representing Beal Bank in the bankruptcy court. On Beal Bank's behalf, Arter & Hadden filed a motion for summary judgment in the bankruptcy court, arguing that Beal Bank was On appeal from a judgment of dismissal following a demurrer sustained without leave to amend, we assume the truth of all well-pleaded facts, as well as those that are judicially noticeable, but not contentions, deductions or conclusions of fact or law. (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 814; Blank v. Kirwan (1985) 39 Cal.3d 311, 318.) 3
3

entitled to recover the default interest rate. The bankruptcy court ruled against Beal Bank and entered its final order on May 28, 1998. Beal Bank appealed the matter to the district court, represented by Arter & Hadden. On December 31, 1998, Gubner left the employ of Arter & Hadden and formed Gubner & Associates, which later became Ezra, Brutzkus & Gubner. In turn, Gubner's new firms took over representation of Beal Bank. In April 1999, the district court affirmed the bankruptcy court's ruling, and Beal Bank, represented by Ezra, Brutzkus & Gubner, appealed to the Ninth Circuit Court of Appeals. On September 25, 2001, the Ninth Circuit issued its opinion, affirming the rulings of the lower courts. In the first amended complaint, Beal Bank alleged that none of the defendants ever advised it of the risks associated with its legal position, thereby causing damages as follows: Beal Bank was deprived of an opportunity to settle its disputes with the debtors on favorable terms; Beal Bank was named as a cross-defendant by the debtors in an action filed in state court, which settled on terms causing economic loss to Beal Bank; and Beal Bank incurred unnecessary legal fees in litigating the question of default interest before the bankruptcy court, the district court and the Ninth Circuit. Beal Bank alleged that it has suffered damages totaling more than $3.5 million.

B.

Procedural History

On September 24, 2002, Beal Bank filed an action for professional negligence against Arter & Hadden, Dean, Gubner and Gubner's two law firms. Two days later, Gubner filed a notice of withdrawal as counsel for Beal Bank in the bankruptcy court. In November 2002, Beal Bank and the defendants entered into a written tolling agreement, which provided that the period between September 24, 2002 and December 31, 2003 would not be included in determining the applicability of any statute of limitations. Beal Bank dismissed its complaint without prejudice on November 20, 2002.

4

On December 30, 2003, Beal Bank commenced the instant action for professional negligence.4 Dean and Arter & Hadden separately demurred to the first amended complaint, arguing that Beal Bank suffered an actual injury on May 28, 1998, the date the bankruptcy court entered an adverse ruling against Beal Bank, which commenced the running of the one-year statute of limitations under section 340.6 on Beal Bank's malpractice claim. They argued that the statute of limitations was tolled only until December 31, 1998, when Gubner left Arter & Hadden taking Beal Bank with him as a client and when Arter & Hadden ceased representing Beal Bank. They further argued that the statute of limitations was not tolled as to them by any continuous representation of Beal Bank by Gubner and his new firms, so that the one-year limitations period expired on December 31, 1999, nearly four years prior to the filing of the instant action. In opposition, Beal Bank argued that the statute of limitations did not commence until the Ninth Circuit's opinion was issued on September 25, 2001 and that by virtue of the parties' tolling agreement, its malpractice action was timely filed. The trial court recognized that there was a conflict of authority between Crouse v. Brobeck, Phleger & Harrison (1998) 67 Cal.App.4th 1509 (Crouse) and Beane v. Paulsen (1993) 21 Cal.App.4th 89 (Beane) on the application of the continuingrepresentation tolling provision to an attorney's prior firm. The trial court found Crouse to be more persuasive and sustained the demurrers without leave to amend. Judgments of dismissal were entered as to the claims against Dean and Arter & Hadden. This appeal followed.

The first amended complaint named as defendants Dean, Gubner and Gubner's two law firms. At the time it was filed, Arter & Hadden was in bankruptcy. After the bankruptcy court entered an order for relief from stay of the malpractice litigation, Arter & Hadden was named as a Doe defendant in the first amended complaint. 5

4

DISCUSSION Standard of Review We review de novo the trial court's sustaining of a demurrer without leave to amend, exercising our independent judgment as to whether a cause of action has been stated as a matter of law. (People ex rel. Lungren v. Superior Court (1996) 14 Cal.4th 294, 300; Moore v. Regents of University of California (1990) 51 Cal.3d 120, 125.) We assume the truth of properly pleaded allegations in the complaint and disregard those which are contrary to law or to a fact of which judicial notice may be taken. (Wolfe v. State Farm Fire & Casualty Ins. Co. (1996) 46 Cal.App.4th 554, 559-560.) We give the complaint a reasonable interpretation, reading it as a whole and with all its parts in their context. (Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 558; People ex rel. Lungren, supra, at p. 300.) A demurrer on statute of limitations grounds will not lie where the action may be, but is not necessarily, time-barred; it must clearly and affirmatively appear on the face of the complaint that the action is necessarily barred. (Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 881.)

The Limitations Period Was Tolled As to Arter & Hadden and Dean Section 340.6, subdivision (a) provides in relevant part: "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. In no event shall the time for commencement of legal action exceed four years except that the period shall be tolled during the time that any of the following exist: [

Download Beal Bank v. Arter & Haden 1/10/06 CA2/2.pdf