Choi v. Sagemark Consulting, H041569A

Background

Plaintiffs (Nelson and Jeannie Choi and Choice Instruments) followed financial advisors’ recommendation to fund a complex IRC §412(i) plan in 2003–2004, primarily with American General whole life policies.
IRS audited the plan: November 2006 IRS letter identified multiple defects and recommended unwinding or conversion; plaintiffs continued to communicate with defendants while audit/negotiations proceeded.
A September 19, 2007 email from advisor Brown told the Chois there would be penalties but suggested offsets or a possible American General contribution; Chois expressed expectation American General would cover penalties.
Plaintiffs incurred out-of-pocket losses (policy purchases, conversions, taxes, penalties) by 2008–2009 and sued defendants for negligence, fraud, and breach of contract in November 2010; defendants cross-claimed against American General.
Trial court granted summary judgment for defendants and American General solely on statute-of-limitations grounds, finding plaintiffs were on inquiry notice no later than September 2007; appellate court affirmed.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
When did limitations begin to run?	Limitations did not run until actual penalties were assessed (2009); Sept. 2007 email only showed possibility of future damages.	Sept. 2007 email put Chois on inquiry notice of actual, appreciable harm (IRS penalties), so claims accrued then.	Held: Accrual occurred by Sept. 2007; complaint filed Nov. 2010 was untimely.
Did the fiduciary/continuing relationship toll limitations?	Ongoing advisory role and defendants’ assurances should toll or estop application of limitations while audit resolved.	No legal basis to toll beyond normal discovery rule; plaintiffs had inquiry notice despite continued representation.	Held: Tolling not warranted; discovery rule controls and plaintiffs were on notice by Sept. 2007.
Were only some claims time-barred (distinct accruals) or all claims?	Multiple discrete injuries (deductibility, Form 8886, lost policy benefits) accrued at different times, so some claims survive.	All alleged injuries trace to the same primary right (bad advice to establish/fund §412(i) plan); accrual date applies to entire action.	Held: Single primary right theory applies; accrual at Sept. 2007 bars the entire action.
Did the trial court err by refusing late evidence/arguments?	Trial court abused discretion by excluding late-filed deposition exhibits and tolling argument.	Submissions were untimely and prejudicial; court properly exercised discretion.	Held: Trial court did not abuse discretion; late submissions were excluded.

Key Cases Cited

Feddersen v. International Engine Parts, 9 Cal.4th 606 (Cal. 1995) (bright-line rule that in negligent tax-return-preparation cases actual injury accrues on IRS assessment)
Fox v. Ethicon Endo-Surgery, 35 Cal.4th 797 (Cal. 2005) (discovery rule: limitations run when plaintiff discovers or should have discovered cause of action)
Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison, 18 Cal.4th 739 (Cal. 1998) (actual injury inquiry is fact-specific; Feddersen’s rule narrowly applied)
Apple Valley Unified Sch. Dist. v. Vavrinek, Trine, Day & Co., 98 Cal.App.4th 934 (Cal. Ct. App. 2002) (refusal to extend Feddersen beyond negligent tax-return-preparation; apply fact-specific accrual test)
Van Dyke v. Dunker & Aced, 46 Cal.App.4th 446 (Cal. Ct. App. 1996) (injury from erroneous tax advice can accrue when plaintiff learns of bad advice, not necessarily at IRS assessment)
Jolly v. Eli Lilly & Co., 44 Cal.3d 1103 (Cal. 1988) (once plaintiff suspects wrongdoing, duty to investigate arises)
Adams v. Paul, 11 Cal.4th 583 (Cal. 1995) (fact of damage, not amount, is relevant to accrual analysis)
E-Fab, Inc. v. Accountants, Inc. Services, 153 Cal.App.4th 1308 (Cal. Ct. App. 2007) (discovery rule and accrual require reasonable diligence; separate accrual dates when claims target different defendants or facts)