In Britton v. Girardi (No. B249232 – Filed 4/1/2015), the Second Appellate District upheld the trial court’s dismissal due to the statute of limitations based on an inference it drew from a letter attached to the complaint, while reaffirming its prior application of the limitations period in Probate Code section 16460 for fraud claims in the related case of Prakashpalan v. Engstrom, Lipscomb & Lack (2/27/2014) 223 Cal.App.4th 1105.
In Britton, just as in Prakashpalan, the plaintiffs sued the attorneys who had represented them in connection with claims against their insurer arising out of the Northridge earthquake. In 1997, the attorneys had settled that litigation for more than $100 million. The plaintiffs allege that the attorneys breached their fiduciary duty by (1) failing to provide an accounting for the settlement, (2) failing to obtain their informed consent to the settlement, and (3) concealing their misappropriation of the settlement funds. They claim that they did not discover this wrongdoing until nearly fifteen years later, in 2012, when the Prakashpalans contacted them about their settlement. Significantly, the plaintiffs attached as an exhibit to the complaint a page of the November 3, 1997 letter to the Prakashpalans (rather than the plaintiffs), which stated that a retired judge who presided over the settlement had determined the allocations and the attorneys could not distribute the proceeds until the plaintiffs signed the “Master Settlement Agreement” by which the plaintiffs agreed to its terms and to give up all claims against the insurer.
The attorneys demurred to the complaint based on the limitations period set forth in Code of Civil Procedure section 340.6, which governs claims against attorneys. The plaintiffs, in opposition, argued that delayed discovery prevented the statute from running and that the statute was tolled because the attorneys had failed to make a proper accounting of the client funds. Applying section 340.6, the trial court sustained the demurrer, finding that the statute began to run when plaintiffs received their settlement checks because the plaintiffs knew then that the attorneys had not obtained their consent and had not provided an accounting at the time of settlement.
Unlike in Prakashpalan, where there were sufficient facts to support an argument for “delayed discovery,” the appellate court held the plaintiffs’ claims were time-barred under Probate Code section 16460, which requires that any claim relating to an accounting to be filed within three years. It reasoned that the 1997 letter to the Prakashpalans placed the plaintiffs “on inquiry notice because the information given them about the settlement process warned them that they did not have the information needed to give consent about the process and thus alerted them to investigate.” As it explained in a footnote, the court “infer[red] that although the page from the letter … was addressed to the Prakashpalans, because plaintiffs attached a page from this letter to the [complaint], plaintiffs received a letter that was either identical or substantially similar.” Thus, it concluded that the fraud statute of limitations started running in 1998.
Given that it issued the novel holding that Probate Code section 16460 applies to certain claims against an attorney, the Division One of the Second Appellate District’s reaffirmation in this respect comes as no surprise. However, typically, a court is limited to only drawing reasonable inferences at the pleadings stage, and if the pleading sufficiently states a cause of action, the demurrer cannot be sustained on the basis of a showing of extrinsic matters by inference from attached exhibits. Whether the court violated these rules by inferring that the plaintiffs also received the subject letter addressed to a third party may be a better question for this State’s highest court. Until then, plaintiff’s attorneys are further discouraged from attaching documents to pleadings out of fear that a trial court will “infer” receipt and “characterize” the contents. And, needless to say, if the parties in Prakashpalan are still toiling away in the trial court, the defendants can be expected to use this decision to secure the dismissal that previously eluded them at the pleading stage.
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