Opinion
Plaintiffs (Jeff Croucier and David Moody) sued defendants (Anthony G. Chavos and Chavos & Rau, APC)
FACTS
As is often the case in legal malpractice actions, the facts necessary to decide this appeаl are convoluted. There are three pertinent lawsuits: (1) the underlying business litigation, in which Chavos successfully obtained a default judgment in favor of plaintiffs but failed to successfully enforce the judgment; (2) a fraudulent conveyance action, brought by current counsel for plaintiffs against certain parties that allegedly engaged in tortious conduct to stymie the enforcement of the default judgment obtained in the underlying business litigation; and (3) the instant action, in which plaintiffs allege Chavos committed legal malpractice and other torts in the underlying litigation, specifically with regard to the enforcement of the judgment obtained therein.
In conducting our de novo review of the court’s order sustaining Chavos’s demurrer, we “must ‘give[] the complaint a reasonable interpretation, and treat[] the demurrer as admitting all material facts properly pleaded.’ ” (People ex rel. Gallegos v. Pacific Lumber Co. (2008)
Underlying Business Litigation
On October 28, 2005, plaintiffs (represented by Chavos) filed a complaint for breach of contract and fraud against Sun Limousine Manufacturers, Robert Paul Curtis, Steve Curtis, and Mark Kane (collectively, Sun Limousine). This action alleged (1) Sun Limousine was in the business of selling custom limousines; (2) plaintiff's Croucier and Moody each negotiated separate contracts with Sun Limousine to purchase custom limousines; (3) Croucier and Moody each separately paid money consideration to Sun Limousine; (4) Sun Limousine did not deliver the limousines owed to Croucier and Moody; and (5) throughout the relevant time period, Sun Limousine made various false representations to Croucier and Moody.
“On or about April 26, 2006, Plaintiffs obtained a joint default judgment on the causes of action set forth in the complaint, in the sum of $1,132,148.10, which included an award of punitive damages for the fraud alleged in the complaint.” “On or about July 2, 2006, the court signed an Affidavit of Identity and Order naming Xtreme Coach International Corporation as a judgment debtor in the case.” “On or about August 15, 2006, Plaintiffs, through counsel CHAVOS, obtained a Writ of Possession, levied and seized at least one vehicle, registered in the name of Peter Goring, though Goring was not a judgment debtor in the case litigated by CHAVOS. Xtrеme Coach . . . did not own the vehicle levied, though the vehicle was on its premises. This levy cost the Plaintiffs approximately $7,000.00.” The court denied plaintiffs’ motion to quash a third party claim made by Goring with reference to the ownership of the vehicle.
Chavos left the Buckner Firm in December 2006 and established a new firm, Chavos & Rau. Chavos “took the file of Plaintiffs, however, according
Fraudulent Conveyance Action
On June 12, 2008, plaintiffs Croucier and Moody (through Attorney Strickland) filed a complaint against the individual defendants from the underlying business litigation, as well as Peter Goring, Cheryl Goring, and Coach International Corporation (Xtreme Coach). Among other causes of action, plaintiffs asserted a fraudulent conveyance occurred with regard to Sun Limousine and its assets. Plaintiffs put forth the following factual allegations to support this cause of action: (1) the Gorings operated Xtrеme Coach at the same site Sun Limousine had occupied; (2) the individual defendants from the underlying business litigation transferred Sun Limousine to Peter and Cheryl Goring “for little to no value”; (3) the Gorings continue to operate Xtreme Coach “for a profit, with the assets and capital acquired from the acquisition of’ Sun Limousine; and (4) Xtreme Coach utilized the “same employees, equipment, [and] vendors” as Sun Limousine.
Plaintiffs suffered damages as a result of the fraudulent conveyance, “including attorney’s fees, loss of credit, interest on borrowed money, the value of Plaintiffs’ time in prosecuting this action, travel, and other incidental expenses . . . .”
Simultaneously with the complaint, plaintiffs filed ex parte applications for a writ of attachment and injunctive relief with regard to the assets of Xtreme Coach and the Gorings. Croucier stated under oath that plaintiffs became aware Sun Limousine had been sold to Peter Goring in September 2006.
Malpractice Action
On August 13, 2009, plaintiffs Croucier and Moody (represented by Strickland) filed the instant action against Chavos, Chavos & Rau, and the Buckner Firm. Both the initial complaint and the first amended complaint include multiple causes of action (i.e., professional negligence, breach of fiduciary duty, and fraud), but the factual allegations all pertain to the representation of plaintiffs in the underlying business litigation.
Plaintiffs alleged in their initial complaint that neither Chavos nor the Buckner Firm conducted adequate postjudgment discovery “to determine the status of Xtreme Coach . . . , its relations to Peter Goring, hоw and why it was conducting business in the very location of Sun Manufacturers, the Defendant in the underlying case, and the fact that Xtreme Coach was
The court granted a motion for judgment on the pleadings in September 2010, with leave to amend, based on a statute of limitations defense.
Plaintiffs’ first amended complaint omitted much of the specific factual detail included in the initial complaint. Instead, plaintiffs more generally alleged that defendants were negligent in their representation of plaintiffs, by failing to “diligently, timely and properly identify any and all persons and entities who competent lawyers similarly situated would have joined in underlying case as indispensable parties . . . ; and seek and obtain equitable and legal remedies for declaratory relief, specific performance of existing contracts, constructive trusts and resulting trusts; and sought and obtained timely marshaling and tracing of all potential underlying . . . assets; and sought and obtained rescission and/or reformation of relevant purchase and sale arrangements concerning their assets; and secured title to all of their purloined assets; and timely and properly avoided transfers thereof to any alleged bona fide purchasers for value, setting aside any and all transfers to ‘straws’ and agents; and timely prosecuted any and all tort[] claims, and performed necessary adversary proceedings in Bankruptcy Cоurts to set aside any attempts by underlying defendants or their agents to declare plaintiffs as discharged creditors; and secured any and all economic damages and penalties as lawyers of ordinary skill similarly situated would have accomplished in their stead, WHICH, AS OF JUNE 5, 2008, WERE NO LONGER AVAILABLE TO PLAINTIFFS.”
The court sustained a demurrer to the first amended complaint without leave to amend. The court then entered a judgment of dismissal as to Chavos.
We are presented with a single issue: Did the trial court properly apply section 340.6 in sustaining Chavos’s demurrer to the first amended complaint?
“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. . . . [I]n 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: [¶] (1) The plaintiff has not sustained actual injury, [¶] (2) The attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred." (Code Civ. Proc., § 340.6, subd. (a), italics added.)
“Thus, the limitations period is one year from actual or imputed discovery, or four years (whichever is sooner), unless tolling applies.” (Beal Bank, SSB v. Arter & Hadden, LLP (2007)
Plaintiffs filed their malpractice complaint in the instant case on August 13, 2009, clearly within any possible four-year limitations period (as the underlying business litigation began Oct. 28, 2005).
With regard to whether the one-year limitations period precludes plaintiffs’ action, there are three issues that must be addressed: (1) did plaintiffs discover Chavos’s wrongful act(s) оr omission(s) more than one year prior to August 13, 2009; (2) if discovery occurred, was the statute of limitations tolled because the attomey(s) at issue continued to represent plaintiffs; and (3) if discovery occurred, was the statute of limitations tolled because plaintiffs had not sustained actual injury at the time they discovered Chavos’s wrongful act?
Tolling by Continued Representation
The second question is easiest to answer, so we address it first. Given the procedural posture of this case, the earliest the statute of limitations could be deemed to start running with regard to claims against Chavos is June 5, 2008. This is the date on which plaintiffs’ current counsel, Strickland, substituted into the underlying business litigation, replacing Chavos as counsel of record. Under section 340.6, subdivision (a)(2), the statute of limitations was tolled until Chavos ceased to represent plaintiffs in the underlying business litigation. (See Beal Bank, SSB v. Arter & Hadden, LLP, supra,
Discovery of Wrongful Acts or Omissions
We turn to the first question: When did plaintiffs discover Chavos’s alleged wrongful acts and omissions? “It is well settled that the one-year limitations period of section 340.6 ‘ “is triggered by the client’s discovery of ‘the facts constituting the wrongful act or omission,’ not by his discovery that such facts constitute professional negligence, i.e., by discovery that a particular legal theory is applicable based on the known facts. ‘It is irrelevant that the plaintiff is ignorant of his legal remedy or the legal theories underlying his cause of action.’ ” ’ ” (Peregrine Funding, Inc. v. Sheppard Mullin Richter & Hampton LLP (2005)
Tolling by Lack of Actual Injury
The final question is whether the statute of limitations was tolled from June 2008 through August 2008 because plaintiffs had not yet suffered (as of June 2008) any “actual injury” under section 340.6, subdivision (a)(1). This statutory tolling provision is rooted in the required element of “actual loss or damage” in a professional negligence action. (Budd v. Nixen (1971)
“The test for actual injury under section 340.6 ... is whether the plaintiff has sustained any damages compensable in an action . . . against an attorney for a wrongful act or omission arising in the performance of professional services. . . .” (Jordache, supra,
Plaintiffs in this case claim the statute of limitations should have continued tolling until plaintiffs had evidence that the judgment was collectible at the time Chavos committed malpractice, but not collectible after June 2008. In other words, Chavos’s acts and omissions may have been harmless if it turned out there was nothing available in 2006 or 2007 to levy upon or, alternatively, if Strickland succeeded in enforcing the judgment. Plaintiffs propose that “actual injury” did not occur until at least mid-August 2008, when judgment debtor examinations began providing evidentiary support for the allegations in the fraudulent conveyance action (which was filed in June 2008). Indeed, at oral argument, plaintiffs’ counsel assertеd that she believed the statute of limitations continued tolling until the resolution of the fraudulent conveyance action.
In our view, plaintiffs confuse the question of whether they had (as of June 2008) sustained “actual injury” (§ 340.6, subd. (a)(1)) with two other quеstions: (1) whether they had sufficient evidence to prove damages in a malpractice action as of June 2008 and (2) whether all uncertainty had been removed with regard to the amount of damages they had suffered.
Our Supreme Court made clear in Jordache that “[t]he loss or diminution of a right or remedy constitutes injury or damage. [Citation.] Neither uncertainty of amount nor difficulty of proof renders that injury speculative or inchoate.” (Jordache, supra,
We conclude plaintiffs suffered “actual injury” by June 2008. Through various alleged acts аnd omissions, Chavos failed to enforce plaintiffs’ roughly $1 million judgment in the underlying business litigation from mid-2006 through June 2008. The lack of any recovery on this substantial money judgment represents an actual injury sufficient to support a legal malpractice cause of action under Jordache, supra,
It is certainly true that the $1 million judgment might not represent the amount of damages that would be awarded against Chavos in a legal malpractice action. For one, after reviewing the evidence presented by both sides, a jury in a malpractice action might find Chavos did not breach his duty of care and/or find that the judgment was not collectible (in whole or in part) regardless of what efforts were brought to bear by Chavos. (See DiPalma v. Seldman (1994)
Secondly, plaintiffs’ continued litigation with Sun Limousine, Xtreme Coach, and Peter Goring could reduce the amount of damages caused by Chavos’s alleged negligence. If Strickland succeeds in her efforts to recover money for plaintiffs after June 2008, any potential damages award against Chavos would be reduced by the amount recovered by Strickland. (See Norton v. Superior Court (1994)
But Strickland’s efforts to remedy the perceived shortcomings of Chavos’s representation do not toll the statute of limitations. This is not a case in which the “existence and effect of attorney error . . . depend[s] upon a judicial resolution” of a separate action. (Shifren v. Spiro (2012)
Here, by allegedly failing to promptly and competently pursue enforcement of the judgment in the underlying business litigation, Chavos caused “actual injury” to plaintiffs. Further proceedings might remedy or reduce these damages. But only the instant malpractice action could result in findings as to whether Chavos actually committed malpractice and whether
DISPOSITION
The judgment is affirmed. Defendants Anthony G. Chavos and Chavos & Rau shall recover costs incurred on appeal.
Rylaarsdam, Acting P. J., and Fybel, J., concurred.
On July 18, 2012, the opinion was modified to read as printed above.
Notes
We will refer to defendants/respondents as “Chavos.” Another defendant—Buckner, Alani, Khouri, Chavos & Mirkovich (Buckner Firm)—is not a party to this appeal. Chavos previously worked at the Buckner Firm before departing to start his own firm. The Buckner Firm was not dismissed pursuant to the judgment of dismissal that is the subject of this appeal. The case between plaintiffs and the Buckner Firm continued past the judgment of dismissal, in part because of a cross-complaint filed by the Buckner Firm against plaintiffs.
Plaintiffs have not argued in their briefs that reversal is justified on another ground. For instance, notwithstanding the inclusion of a “fraud” cause of action in the first amended complaint, plaintiffs do not contend their first amended complaint states a valid cause of action in “actual fraud,” which is explicitly excluded from the scope of section 340.6. Nor do plaintiffs identify any additional facts they would plead were they given an opportunity to amend their operative complaint. (Total Call Internal., Inc. v. Peerless Ins. Co. (2010)
The focus of plaintiffs’ briefs seems to be the initial complaint (and the court’s grant of a motion for judgment on the pleadings on the initial comрlaint). Indeed, plaintiffs included only the initial complaint in the clerk’s transcript. Chavos successfully moved to augment the record with copies of the first amended complaint and the demurrer papers that were not included in the clerk’s transcript pursuant to plaintiffs’ designation. As noted previously, the initial complaint is relevant to our review because plaintiffs may not disavow the factual allegations made therein. But we “ ‘will not consider the sufficiency of a superseded complaint . . . (Amarel v. Connell (1988)
According to counsel’s representation at oral argument, the fraudulent conveyance action ultimately resulted in another default judgment in favor of plaintiffs.