Filed 3/4/20 Collett v. Bovitz & Spitzer CA2/8

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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

SECOND APPELLATE DISTRICT

DIVISION EIGHT

JOY COLLETT,

Plaintiff and Appellant,

v.

BOVITZ & SPITZER,

Defendant and Respondent.

B292673

(Los Angeles County

Super. Ct. No. BC688492)

APPEAL from a judgment of the Superior Court of Los Angeles County, Michael J. Raphael, Judge. Reversed.

Tencersherman and Philip C. Tencer, for Plaintiff and Appellant.

Lewis Brisbois Bisgaard & Smith, Raul L. Martinez, Kenneth C. Feldman and Patrik Johansson, for Defendant and Respondent.

_________________________

INTRODUCTION

Appellant Joy Collett filed a complaint against her attorney, respondent Bovitz & Spitzer, alleging causes of action for breach of fiduciary duty, malpractice, and elder abuse. Bovitz & Spitzer demurred, alleging the causes of action were barred by the applicable one-year statute of limitations. In her opposition to the demurrer and at the hearing on the demurrer, Collett argued she could plead a cause of action for actual fraud, which was not time-barred. The trial court sustained the demurrer without leave to amend and entered judgment of dismissal against her.

On appeal, Collett argues the court erroneously sustained the demurrer as to the causes of action for malpractice and breach of fiduciary duty because the statute of limitations was tolled by Bovitz & Spitzer’s continuing representation of her personal financial interests. We conclude this argument is without merit.

Collett also argues the court erroneously denied her leave to amend because she can plead facts sufficient to support a cause of action for actual fraud. We conclude the court abused its discretion in denying Collett an opportunity to amend her complaint. We therefore reverse the judgment of dismissal and order the court to grant Collett leave to amend her complaint.

FACTUAL AND PROCEDURAL BACKGROUND

In or about 1992, Collett and her husband (now deceased) founded Designing Health, Inc., a company that created and sold specialty pet food and supplements. Collett was an owner of Designing Health at all times and acted as its president at certain times. Throughout the life of the company, Collett and her husband loaned money to Designing Health to fund its operations. Collett engaged Bovitz & Spitzer to represent her personal interests on a variety of matters, including ensuring that she and her husband were secured with respect to their deferred compensation and personal loans they made to Designing Health. To secure Collett’s interests, Bovitz & Spitzer was responsible for reviewing, filing, and renewing UCC-1 filings.

In 2008, Udo Erasmus, a former employee and shareholder of Designing Health, obtained a judgment in Colorado against Designing Health for approximately $1,060,000. In 2011, Erasmus filed the judgment in the United States District Court for the Central District of California and in April 2011, Erasmus filed a “Certification of Judgment for Registration in Another Court.”

As of December 2014, Designing Health owed Collett approximately $1.7 million in deferred compensation; $242,092 in royalties; and $160,000 in survivor’s benefits after her husband passed away.

In 2015, Collett sold Designing Health to W.F. Young. In June 2016, Erasmus filed a motion in United States District Court for assignment of the sales proceeds. Erasmus alleged the judgment against Designing Health was unpaid and he asked the district court to order the sale proceeds to be assigned and paid to Erasmus to satisfy the 2008 Colorado judgment. Designing Health opposed the assignment motion, alleging, among other things, that Collett had a superior claim of ownership of the sales proceeds through perfected secured liens on Designing Health’s assets. In July 2016, on behalf of Collett, Bovitz & Spitzer filed a third party claim of right to payment and security interests in the proceeds of the sale. In opposition Erasmus alleged Collett failed to provide any evidence she filed valid UCC financing statements, and that the only financing statement she did provide related to a 2008 security agreement that expired in 2013. In October 2016, the district court granted Erasmus’s assignment motion.

On November 29, 2016, Collett executed and filed a request to substitute Bovitz & Spitzer out of the federal litigation. On December 2, 2016, the district court granted the request to substitute counsel and another attorney substituted in to represent Collett.

On December 27, 2017, Collett filed a complaint in the Los Angeles Superior Court against Bovitz & Spitzer alleging breach of fiduciary duty and legal malpractice.

On April 6, 2018, Collett filed her first amended complaint (FAC) alleging breach of fiduciary duty, legal malpractice, and elder abuse. The FAC alleged Bovitz & Spitzer failed to file and maintain the UCC-1 statements, which allowed Erasmus’s judgment to take priority over the debts Designing Health owed to Collett. In addition, despite failing to file and maintain the statements, Bovitz & Spitzer allegedly charged Collett substantial legal fees for services it did not provide. Collett alleged the resulting loss exceeded $1 million. Collett also alleged that, as of April 6, 2018, Bovitz & Spitzer still represented her. She did not specify how or in what capacity.

On May 9, 2018, Bovitz & Spitzer demurred to the FAC arguing all three causes of action were time-barred under the one year statute of limitations set out in Code of Civil Procedure section 340.6.

In opposing the demurrer, Collett argued the statute of limitations was tolled because Bovitz & Spitzer was still representing her personal interests. She again alleged Bovitz & Spitzer failed to file the necessary documents to secure her loans and deferred compensation, yet charged her substantial legal fees for these services. She argued these acts and omissions constituted actual fraud, which is not subject to a one-year statute of limitations. Collett therefore argued the court should overrule the demurrer or, in the alternative, grant her leave to amend the complaint to plead a separate cause of action for actual fraud.

The trial court sustained the demurrer without leave to amend, finding no “reasonable possibility of alleging scienter in failing to file the UCC forms.”

Collett then filed a motion for reconsideration under section 1008. Lodged with the motion was a proposed Second Amended Complaint (SAC) including additional facts to support her cause of action for fraud. The court denied the motion because Collett failed to explain why the newly alleged facts could not have been discovered and produced at the time of the prior motion. The trial court did not address whether Collett’s SAC sufficiently pleaded a cause of action for fraud.

Collett timely appealed.

DISCUSSION

On appeal, Collett argues: (1) trial court erred by concluding the statute of limitations was not tolled due to Bovitz & Spitzer’s continued representation of her personal interests; and (2) the trial court’s order sustaining the demurrer without leave to amend must be reversed because she can plead a valid cause of action for actual fraud. Collett does not appeal the dismissal of her cause of action for elder abuse, nor does she challenge the court’s denial of her motion for reconsideration.

I. Standard of Review
II.
We independently review the ruling on a demurrer and determine de novo whether the pleading alleges facts sufficient to state a cause of action. (McCall v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) “ ‘We assume the truth of the properly pleaded factual allegations, facts that reasonably can be inferred from those expressly pleaded, and matters of which judicial notice has been taken.’ ” (Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal.App.4th 821, 833.)

If a trial court sustains a demurrer without leave to amend, we determine whether there is a reasonable possibility appellant could cure the defect by amendment. If so, we conclude that the trial court abused its discretion and we reverse. The appellant has the burden of proving that an amendment would cure the defect. (Campbell v. Regents of University of California (2005) 35 Cal.4th 311, 320.)

III. Collett’s Claims for Malpractice and Breach of Fiduciary Duty Are Time-Barred
IV.
Under section 340.6, subdivision (a), “[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 giving rise to the wrongful act or omission.” The time to commence the action shall be tolled during the time that “[t]he attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred.” (§ 340.6, subd. (a)(2).)

An action for fraud must be brought within three years of the date the aggrieved party discovers the facts constituting the fraud. (§ 338, subd. (d); Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, 1122-1123.)

Here the trial court found that the one year statute began to run as of December 2, 2016 when Bovitz & Spitzer was permitted to substitute out of the Erasmus matter and it no longer represented her “in the specific subject matter relating to the priority of her liens against Designing Health.” The complaint was filed on December 27, 2017, over one year later. The trial court found the complaint untimely. We agree.

On appeal Collett argues that although Bovitz & Spitzer withdrew as her litigation counsel in the federal assignment action, it continued to represent her in a transactional capacity in other personal matters. The alleged fraud occurred when the law firm acted in its transactional, not litigation capacity. Only through the litigation did Collett discover Bovitz & Spitzer’s alleged fraud committed in its transactional capacity.

Bovitz & Spitzer argues the statute of limitations was not tolled because any representation of Collett on matters unrelated to securing her interests in Designing Health did not constitute continuing representation under section 340.6. We think Bovitz & Spitzer has the better argument.

On appeal, Collett provides no authority suggesting tolling continues while an attorney represents an injured client on any subject matter. Nor do we find any. The governing statute only provides for tolling while the attorney represents the aggrieved client “regarding the specific subject matter in which the alleged wrongful act or omission occurred.” (§ 340.6, subd. (a)(2), italics added.) We agree with the trial court’s conclusion that the use of the word “specific” precludes tolling from “continuing past the objective evidence of formal withdrawal from the federal case.”

An attorney’s representation is complete when “the agreed tasks or events have occurred, the client consents to termination, or (in the context of litigation) when a court grants an application by counsel for withdrawal.” (Truong v. Glasser (2009) 181 Cal.App.4th 102, 116, italics added.) Contrary to Collett’s assertion, the fact she never received or signed a disengagement letter is not enough to establish continuing representation sufficient to toll the statute of limitations. Additionally, the continuous representation tolling provisions do not depend on the client’s subjective beliefs; rather, the test for whether an attorney continued to represent a client on the same specific subject matter is objective. (Ibid; Lockton v. O’Rourke (2010) 184 Cal.App.4th 1051, 1063.) “The mere existence of an attorney-client relationship does not trigger the continuous representation rule,” and the limitations period is not tolled when “ ‘an attorney’s subsequent role is only tangentially related to the legal representation the attorney provided to the plaintiff.’ ” (Lockton v. O’Rourke, at p. 1064.)

Even if Bovitz & Spitzer represented Collett in some undescribed transactional capacity after substituting out of the federal litigation, she has not alleged that it continued to provide transactional representation with respect to her financial interests in Designing Health, the subject matter of her dispute. We can therefore only conclude that all “agreed tasks” or “events inherent” in the transactional representation of her interests in Designing Health were complete once the federal court granted Bovitz & Spitzer’s application to withdraw from the federal action.

V. The Court Abused Its Discretion in Denying Collett Leave to Amend Her Complaint to State a Cause of Action for Fraud
VI.
At the hearing on the demurrer, Collett argued she could plead a cause of action for actual fraud: “[d]efendants said that they had performed the legal services for my client, when in reality they had not. They billed her for it. She paid those bills. And that constitutes fraud. So we would like leave to amend to further detail that in our [c]omplaint.” At the end of the hearing, Collett’s counsel stated: “[Bovitz & Spitzer] promised to file the UCC-1’s, multiple UCC-1’s, in fact. They told my client that they had done that. They billed her for it. She paid for the bills. [This] didn’t come out until later, and we’re still within the statute of limitations to plead this cause of action.”

Bovitz & Spitzer argued Collett’s fraud claim was a “garden-variety negligence case” she wanted to “dress up” to plead a “disfavored” fraud cause of action in order to overcome the statute of limitations. After taking the matter under submission, the court sustained the demurrer without leave to amend. The court’s analysis of its decision to deny Collett leave to amend was as follows: “[t]he Court submitted this case in part to consider whether there is a reasonable possibility that the facts here could be re-characterized to state this cause of action as a fraud one. There is not a reasonable possibility of alleging scienter in failing to file the UCC forms.”

“The policy favoring amendment is so strong that it is a rare case in which denial of leave to amend can be justified.” (Howard v. County of San Diego (2010) 184 Cal.App.4th 1422, 1428.) “ ‘Where [a] complaint is defective, “[i]n the furtherance of justice great liberality should be exercised in permitting a plaintiff to amend his complaint, and it ordinarily constitutes an abuse of discretion to sustain a demurrer without leave to amend if there is a reasonable possibility that the defect can be cured by amendment.” ’ ” (Aubry v. Tri-City Hospital Dist. (1992) 2 Cal.4th 962, 970–971.) “ ‘If there is any reasonable possibility that plaintiff can state a good cause of action, it is error and an abuse of discretion to sustain the demurrer without leave to amend.’ ” (Campaign for Quality Education v. State of California (2016) 246 Cal.App.4th 896, 904, italics added.)

A court’s denial of leave to amend is reviewable on appeal, “ ‘even in the absence of a request for leave to amend’ [citations], and even if the plaintiff does not claim on appeal that the trial court abused its discretion in sustaining a demurrer without leave to amend.” (Aubry v. Tri-City Hospital Dist., supra, 2 Cal.4th at p. 971; Baldwin v. Marina City Properties, Inc. (1978) 79 Cal.App.3d 393, 413–414; see § 472c, subd. (a) [“When any court makes an order sustaining a demurrer without leave to amend the question as to whether or not such court abused its discretion in making such an order is open on appeal even though no request to amend such pleadings was made.”])

Ultimately, “ ‘[l]eave to amend should be denied only where the facts are not in dispute, and the nature of the plaintiff’s claim is clear, but under substantive law, no liability exists and no amendment would change the result.’ ” (Howard v. County of San Diego, supra, 184 Cal.App.4th at p. 1428.) Where, as here, a “ ‘fair prior opportunity’ ” has not already been given to correct a substantive defect in a complaint, “ ‘[l]iberality in permitting amendment is the rule’ ” even when the complaint is “ ‘deficient in substance.’ ” (Colich & Sons v. Pacific Bell (1988) 198 Cal.App.3d 1225, 1241.) If no leave has yet been requested, as was the case here, a party should be permitted to amend a substantively deficient complaint if he or she can show there is a reasonable probability the defect can be cured. If there is any reasonable probability it can, it is an abuse of discretion to deny leave to amend.

Here, Collett’s FAC was substantively deficient because her claims were time-barred. The question, however, was not whether she could “re-characterize” the facts in her FAC to state a different cause of action, particularly since it was her first request for leave from the court to amend her complaint. The question was whether she could plead any facts sufficient to cure those defects. In our view, she made a sufficient showing that she could. She represented to the court that Bovitz & Spitzer did not simply negligently fail to perfect her security interests. She stated Bovitz & Spitzer did not file the documents they promised to file, misrepresented to her that they actually did file the documents, and then charged her for the services they never performed.

Bovitz & Spitzer contends nonetheless that Collett cannot use the allegations in the SAC to argue she should have been given leave to amend the FAC because the proposed SAC should have been submitted before or at the hearing on the demurrer to the FAC, and because she is not challenging the denial of her motion for reconsideration on appeal. They argue Collett is improperly attempting to “bootstrap” the proposed SAC to argue the court abused its discretion on denying her leave to amend. These contentions appear based on a misapprehension of the standard and procedure for challenging denial of leave to amend on appeal.

First, a plaintiff is not required to submit a proposed SAC to the trial court to support its request for leave to amend. Bovitz & Spitzer provide no authority for the proposition that a plaintiff must do so, nor are we aware of any. Collett’s arguments in her opposition to the demurrer were therefore sufficient.

Second, to prevail on appeal, an appellant must show the reviewing court how she can amend her complaint to state a valid cause of action. (Campbell v. Regents of University of California, supra, 35 Cal.4th at p. 320.) Only then can we determine whether to order leave to amend. That Collett is not appealing the denial of her motion for reconsideration does not preclude us from considering her proposed SAC to determine whether she can amend her complaint to state a cause of action for fraud. For the following reasons, we conclude she can.

Despite the liberal policy of allowing leave to amend, fraud must be “pled specifically.” (Lazar v. Superior Court (1996) 12 Cal.4th 631, 645.) The policy of liberally construing a pleading, therefore, “ ‘ “ ‘will not ordinarily be invoked to sustain a pleading defective in any material respect.’ ” ’ ” (Ibid.) This particularity requirement necessitates pleading facts showing how, when, where, to whom, and by what means the misrepresentations were tendered. (Ibid.)

The elements for actual fraud are: (1) a misrepresentation; (2) knowledge of the falsity (scienter); (3) intent to induce reliance on the misrepresentation; (4) justifiable reliance; and (5) resulting damage. (Robinson Helicopter Co., Inc. v. Dana Corp. (2004) 34 Cal.4th 979, 990.) Under the heightened standard for pleading fraud, therefore, Collett was required to plead how, when, where, to whom, and by what means Bovitz & Spitzer tendered the alleged misrepresentation that it filed the necessary UCC documents to secure her financial interests in Designing Health and billed her for services it did not perform.

In the proposed SAC, Collett alleged that on or about February 7, 2013, Bovitz & Spitzer told her via writing that it reviewed the UCC filings, performed analysis to perfect the issues, and renewed two UCC-1 financing statements. The SAC alleged Bovitz & Spitzer billed her for this service. It alleged on or about April 23, 2014 and June 19, 2015, Bovitz & Spitzer told Collett via telephone it performed additional work on the secured claims and billed her for this work. The SAC also includes dates on which Bovitz & Spitzer told Collett it “would secure the foregoing claims,” was “handling the secured debt,” had “reviewed UCC materials,” and “would structure the secured claims to protect her interests.”

These factual allegations sufficiently specify “how, when, where, to whom, and by what means” Bovitz & Spitzer allegedly misrepresented that it perfected Collett’s security interests. Bovitz & Spitzer, by J. Scott Bovitz and a Mr. Salvato, told Collett via telephone and mail on specified dates that it analyzed, handled, reviewed, and structured her debts, interests, and claims. Most importantly, the SAC alleges Bovitz & Spitzer told Collett in writing on February 7, 2013 that it renewed two specific UCC-1 financing statements. Collett only discovered years later during the Erasmus litigation that Bovitz & Spitzer had not filed or renewed the documentation necessary to secure her interests.

Bovitz & Spitzer have not presented us with any argument as to why these allegations are not specific enough to support a cause of action for fraud, especially when she was denied the opportunity to allege these facts on her very first request to amend her complaint. Where, as here, a “ ‘fair prior opportunity’ ” has not already been given to correct a substantive defect in a complaint, “ ‘[l]iberality in permitting amendment is the rule’ ” even when the complaint is “ ‘deficient in substance.’ ” (Colich & Sons v. Pacific Bell, supra, 198 Cal.App.3d at p. 1241.)

DISPOSITION

The judgment is reversed and the matter is remanded with directions that the court grant appellant leave to amend her complaint. Parties to bear their own costs on appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

STRATTON, J.

I concur:

GRIMES, Acting P. J.
WILEY, J., Concurring.

I concur in the result.

WILEY, J.