Case Number: BC676964 Hearing Date: March 12, 2018 Dept: 47

Howard Chow, et al. v. Szeto & Company Accountancy Corporation, et al.

DEMURRER TO SECOND AMENDED COMPLAINT

MOVING PARTY: Defendants Szeto & Company Accountancy Corporation, Leo Szeto and Josie Hung

RESPONDING PARTY(S): Plaintiffs Howard Chow and Yi Hua Chen

STATEMENT OF MATERIAL FACTS AND/OR PROCEEDINGS:

Plaintiffs allege that Defendants committed professional negligence in providing accounting and tax return preparation services for Plaintiff.

Defendants Szeto & Company Accountancy Corporation, Leo Szeto and Josie Hung demur to the second amended complaint.

TENTATIVE RULING:

Defendants Szeto & Company Accountancy Corporation, Leo Szeto and Josie Hung’s demurrer to the first and third causes of action is OVERRULED.

All Defendants are ordered to answer the second amended complaint within 10 days.

DISCUSSION

Demurrer

Requests For Judicial Notice

Defendants’ request that the court take judicial notice of the fact that personal income tax returns for calendar years 2009, 2010 and 2012 were due on April 15, 2010, April 18, 2011 and April 15, 2013 is GRANTED per Evid. Code § 452(h).

Meet and Confer

The Declaration of John s. Chang reflects that the meet and confer requirement set forth in CCP § 430.41 was satisfied.

Analysis

1. First Cause of Action (Negligence); Third Cause of Action (Breach of Oral Contract).

A. Re: Statute of Limitations.

The statute of limitations applicable to a cause of action for professional negligence is two years per CCP § 339(1).

A cause of action for accountant malpractice under section 339, subdivision 1, specifically accrues “on discovery of the loss or damage suffered by the aggrieved party,” but until the client suffers damage or actual injury from the negligence, a cause of action for professional negligence cannot be established. (Schrader v. Scott (1992) 8 Cal.App.4th 1679, 1684 [11 Cal.Rptr.2d 433] [hereafter Schrader].)

Int’l Engine Parts v. Feddersen & Co. (1995) 9 Cal.4th 606, 608 (bold emphasis added).

Here, ¶ 42 alleges that it was not until August 16, 2016 that Plaintiff’s new accountant, Park, discovered the Szeto Defendants’ negligence. ¶ 46 alleges that Plaintiffs did not suffer any damages that would have put them on notice or arouse suspicious of Defendants’ negligence until the IRS sold Plaintiffs’ 50% interest in Poplar LLC on September 27, 2016, as Plaintiffs did not pay any excess tax related to the tax liabilities.

Whether or not Plaintiffs should have discovered the Szeto Defendants’ negligence sooner is a question of fact for the jury to determine[1], but in any event, Plaintiffs’ allegation that it did not suffer damages until September 27, 2016 must be accepted as true on demurrer[2]. The two-year statute of limitations for professional negligence did not begin to run until September 27, 2016, and this action was timely commenced on September 22, 2017.

The statute of limitations for a breach of oral contract cause of action is two years. CCP § 339(1)(“An action upon a contract, obligation or liability not founded upon an instrument of writing”). ¶ 42 alleges that it was not until August 16, 2016 that Plaintiff’s new accountant, Park, discovered the Szeto Defendants’ breach of contract.

“[T]he discovery rule may be applied to breaches which can be, and are, committed in secret and, moreover, where the harm flowing from those breaches will not be reasonably discoverable by plaintiffs until a future time.” April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d 805, 832. As discussed above, it is a question of fact for the jury as to whether Plaintiffs should have discovered the breach of oral contract at an earlier date.

Moreover, damages are an essential element of a breach of contract claim (Behnke v. State Farm General Ins. Co. (2011) 196 Cal.App.4th 1443, 1468) and ¶ 46 alleges that Plaintiffs did not suffer damages until September 27, 2016 when the IRS sold Plaintiffs’ 50% interest in Poplar LLC.

The two-year statute of limitations for breach of oral contract did not begin to run until September 27, 2016, and this action was timely commenced on September 22, 2017.

B. Uncertainty.

Defendants’ argument that the 2AC is uncertain because it cannot be ascertained the dates on which Defendants’ alleged wrongdoing occurred and the exact tax liabilities which Plaintiffs incurred is not persuasive. There are sufficient facts pled to put Defendants on notice of the nature of Plaintiffs’ claims against them. The details may be elicited through discovery.

A demurrer for uncertainty is properly sustained where the complaint is so vague or uncertain that the defendant cannot reasonably respond, i.e., when the defendant cannot determine what issues must be admitted or denied, or what counts are directed against the defendant. (Khoury v. Maly’s of California, Inc. (1993) 14 Cal.App.4th 612, 616; Weil & Brown, Cal. Practice Guide: Civil Procedure Before Trial, supra, ¶ 7:85.) Demurrers for uncertainty are disfavored and strictly construed “because ambiguities can reasonably be clarified under modern rules of discovery.” Lickiss v. Financial Industry Regulatory Authority (2012) 208 Cal.App.4th 1125, 1135.

Conclusion.

The demurrer to the first and third causes of action is OVERRULED.

2. First Cause of Action Against Defendant Josie Hung.

In the third cause of action for breach of oral contract was dismissed as against Defendant Josie Hung, only the first cause of action for negligence is asserted against her.

Defendant Hung argues that she should be dismissed from this action because, as a member of the accounting Defendants’ staff, Hung was an employee who only owed duties to her employer and no others. Moreover, Hung argues that Civil Code § 2324 shields accounting staff from liability. These arguments are not persuasive. Civil Code § 2324 does not shield an agent from liability for negligent performance of a duty owed to a client arising out of a contract for services:

Bosworth urges as his last contention that since he was acting for a disclosed principal he, the agent, cannot be held liable. He relies upon the general rule that normally the agent will not be liable in an action based on contract brought by a third person where both the fact of agency and the name of the principal are disclosed. (Automatic Poultry Feeder Co. v. Wedel (1963) 213 Cal.App.2d 509, 518 [28 Cal.Rptr. 795]; Hayman v. Shoemake (1962) 203 Cal.App.2d 140, 159 [21 Cal.Rptr. 519].) This rule has applicability when Civil Code section 2343 is not involved. (Oppenheimer v. General Cable Corp. (1956) 143 Cal.App.2d 293, 297 [300 P.2d 151].)

Civil Code section 2343 provides in part: “One who assumes to act as an agent is responsible to third persons as a principal for his acts in the course of his agency, in any of the following cases, and in no others: . . . 3. When his acts are wrongful in their nature.”

“[If] a tortious act has been committed by an agent acting under authority of his principal, the fact that the principal thus becomes liable does not of course exonerate the agent from liability.” ( Perkins v. Blauth (1912) 163 Cal. 782, 787 [127 P. 50]; Rest. 2d Agency, §§ 343, 344 et seq; Rest. 2d Agency, Appendix, Rep. Notes, pp. 561, 562; 20 A.L.R. 97; 99 A.L.R. 408.) The fact that the tortious act arises during the performance of a duty created by contract does not negate the agent’s liability. (Mechem, Outlines of the Law of Agency (4th ed.) §§ 343, 346, pp. 232, 234.) CA(9) (9) It is stated in Eads v. Marks, 39 Cal.2d 807, at pages 810, 811 [249 P.2d 257]: “. . . The same act may be both a tort and a breach of contract. . . . Even where there is a contractual relationship between the parties, a cause of action in tort may sometimes arise out of the negligent manner in which the contractual duty is performed. . . . A tort may grow out of or be coincident with a contract, and the existence of a contractual relationship does not immunize a tort feasor from tort liability for his wrongful acts in breach of the contract. [Citation.]”

Mears v. Crocker First Nat. Bank (1950) 97 Cal.App.2d 482 [218 P.2d 91], is not in point. It involved nonfeasance; a failure by an agent to perform a duty there held to be owed by the agent only to his principal. We are not here concerned with the worrisome problem of the liability of an agent to third persons for injury resulting from his failure to perform a duty which nominally he owes only to his principal. (But see Mechem, op. cit., §§ 347, 348, pp. 235, 236.)

Here the plaintiffs sued for the negligent performance of a contractual duty which Bosworth (although acting under a contract between his principal and plaintiffs) had personally agreed with plaintiffs to perform. He had assumed a duty towards plaintiffs. The court found for plaintiffs on the issue of negligence and found injury proximately resulting therefrom, all on evidence which we hold to be substantial.

Bayuk v. Edson (1965) 236 Cal.App.2d 309, 319-20 (bold emphasis added).

Accordingly, Defendant Hung’s demurrer to the first cause of action is OVERRULED.

All Defendants are ordered to answer the second amended complaint within 20 days.

Plaintiff to give notice.

IT IS SO ORDERED.

Dated: March 12, 2018 ___________________________________

Randolph M. Hammock

Judge of the Superior Court