Case Name: Nelson Choi, et al. v. Sagemark Consulting, et al.

Case No.: 1-10-CV-187143

I. Motion by Defendants Sagemark Consulting, Lincoln Financial Advisors Corp., dba Lincoln Financial Group, Lincoln National Corporation, Matthew Roberson and Richard Brown, for Summary Judgment or [sic] Alternatively for Summary Adjudication on the Complaint
Evidence
Defendants’ request for judicial notice is GRANTED. (See Evid. Code § 452, subd. (c), (d); see also Lockley v. Law Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 882 [while courts are free to take judicial notice of the existence of each document in a court file, including the truth of results reached, they may not take judicial notice of the truth of hearsay statements in decisions and court files].)
Given the court’s tentative ruling below, the court declines to address Defendants’ objections to evidence.
Plaintiffs’ Request for a Continuance to Conduct Additional Discovery

As a preliminary matter, Plaintiffs seek to continue the motion to conduct additional discovery.

“A plaintiff generally cannot defeat a well-founded summary judgment motion without setting forth specific facts controverting the motion. An exception is made for an opposing party who has not had an opportunity to marshal the evidence, and a summary judgment motion will be denied or continued if the opposing party declares that ‘facts essential to justify opposition may exist but cannot, for reasons stated, then be presented.’ Upon such a declaration, the trial court’s discretion is strictly limited and a continuance may be mandated.” (Mary Morgan, Inc. v. Melzark (1996) 49 Cal.App.4th 765, 770.)

“The nonmoving party seeking a continuance must show: (1) the facts to be obtained are essential to opposing the motion; (2) there is reason to believe such facts may exist; and (3) the reasons why additional time is needed to obtain these facts. The trial court need not grant a continuance where the proposed discovery is focused on matters beyond the scope of the dispositive issues framed by the pleadings.” (Ace American Ins. Co. v. Walker (2004) 121 Cal.App.4th 1017, 1023.)

“When a continuance of a summary judgment motion is not mandatory, because of a failure to meet the requirements of Code of Civil Procedure section 437c, subdivision (h), the court must determine whether the party requesting the continuance has nonetheless established good cause therefore. That determination is within the court’s discretion.” (Lerma v. County of Orange (2004) 120 Cal.App.4th 709, 716.)

In support, Plaintiffs provide a declaration from their counsel, Steven Garrett. According to counsel’s declaration, Plaintiffs are requesting a continuance with the intent of filing a motion to compel to obtain evidence that was the subject of prior deposition notices and discovery requests. (See Declaration of Steven Garrett at ¶ 17.) As an initial matter, the court notes that, on April 17, 2014, it previously continued the motion by stipulation to allow the parties to complete their discovery. Furthermore, this is not a code-compliant request for a continuance as Plaintiffs fail to indicate why this evidence is essential to opposing the theories raised on Defendants’ motion for summary judgment. (See Combs v. Skyriver Communications, Inc. (2008) 159 Cal.App.4th 1242, 1270 [declarations did not explain why information sought was essential to opposing motion or why additional time was needed]; see also Depew v. Crocodile Enterprises, Inc. (1998) 63 Cal.App.4th 480, 493 [no error in denying continuance request for discovery of corroborative evidence that was not “essential” to justify opposition].) Thus, Plaintiff has not shown what impact, if any, this additional evidence will have on the motion before the court.

Therefore, Plaintiffs’ request to continue the motion to conduct additional discovery is DENIED.

Motion for Summary Judgment/Adjudication

Defendants seek an order granting summary judgment with respect to Plaintiffs’ complaint on the ground that there are no triable issues of fact. Alternatively, Defendants seek to summarily adjudicate the first, second, and third causes of action.

“Summary judgment is properly granted when no triable issue of material fact exists and the moving party is entitled to judgment as a matter of law. A defendant moving for summary judgment bears the initial burden of showing that a cause of action has no merit by showing that one or more of its elements cannot be established or that there is a complete defense. Once the defendant has met that burden, the burden shifts to the plaintiff ‘to show that a triable issue of one or more material facts exists as to that cause of action or a defense thereto.’ ‘There is a triable issue of material fact if, and only if, the evidence would allow a reasonable trier of fact to find the underlying fact in favor of the party opposing the motion in accordance with the applicable standard of proof.’” (Madden v. Summit View, Inc. (2008) 165 Cal.App.4th 1267, 1272 [internal citations omitted].)

Similarly, “summary adjudication is proper if the papers submitted show there is no triable issue as to any material fact and the moving party is entitled to prevail on a cause of action as a matter of law.” (Kight v. CashCall, Inc. (2011) 200 Cal.App.4th 1377, 1386-1387.)

Statute of Limitations

Defendants argue that the complaint is barred by the statute of limitations.

“Statute of limitations is the collective term applied to acts or parts of acts that prescribe the periods beyond which a plaintiff may not bring a cause of action.” (V.C. v. Los Angeles Unified School Dist. (2006) 139 Cal.App.4th 499, 509.) “A plaintiff must bring a claim within the limitations period after accrual of the cause of action. In other words, statutes of limitation do not begin to run until a cause of action accrues. Generally speaking, a cause of action accrues at the time when the cause of action is complete with all of its elements.” (Id. at pp. 509-510 [internal citations and quotation marks omitted].)

“Generally, statute of limitations issues raise questions of fact that must be tried; however, when the uncontradicted facts are susceptible of only one legitimate inference, summary judgment is proper.” (Kline v. Turner (2001) 87 Cal.App.4th 1369, 1374.)

Defendants rely on Van Dyke v. Dunker & Aced (1996) 46 Cal.App.4th 446. In that case, the accountant was allegedly negligent in advising his clients that “they would receive a ‘dollar-for-dollar’ tax credit for the fair market value of the land [they] donated.” (Id. at p. 449.) The clients allegedly relied on that advice by donating the real property. (Id. at p. 448.) After doing so, their accountant informed them (in 1991, nearly three years before they filed suit) that he had been mistaken, that they would receive a tax deduction rather than a tax credit, and that the deduction would be spread over a number of years. (Id. at p. 449.) The clients alleged that they would never have donated the property had they known the actual tax treatment applicable to the transaction. (Ibid.)

The clients filed a complaint for professional malpractice against the accountants in June 1994. The accountants filed a motion for summary judgment which was granted by the trial court on the grounds that the complaint was time-barred by the two year statute of limitations under Code of Civil Procedure section 339, subdivision (1). (See Van Dyke v. Dunker & Aced, supra, 46 Cal.App.4th at p. 450.) On appeal, the appellate court affirmed, and held that the clients discovered or should have discovered, facts essential to their malpractice claim in September 1991 when they received their tax return, which showed that accountants’ advice had been in error. The court also held that where a malpractice action was based on erroneous advice, the statute of limitations began to run upon the occurrence of appreciable and actual harm, however uncertain in amount, whether or not the client suffered all or a substantial portion of the resulting damages. (Id. at p. 452.) This harm may have been the loss of a right, remedy or interest, or the imposition of a liability. (Id. at p. 457.) Here, the Court of Appeal determined that the clients suffered damages when, as a result of the accountants’ alleged malpractice, they donated the property, lost appreciable expected tax benefits, and paid unanticipated taxes in 1991. (Ibid.) Therefore, the Court found that there was actual injury regardless of the outcome of the eventual IRS audit and thus the statute of limitations barred the complaint. (Ibid.)

Here, Plaintiffs’ complaint includes causes of action for negligence and breach of implied of contract with a two-year statute of limitations and fraud with a three year statute. (See Code Civ. Proc. §§ 338, subd. (d), 339, 339.1.) Plaintiffs claim that they relied on Defendants’ negligent and fraudulent tax advice in setting up an I.R.C. § 412(i) Plan. On summary judgment, Defendants present evidence showing that Plaintiffs were on notice that the IRS found their Plan defective as late as September 2007. (See Defendants’ Separate Statement of Undisputed Facts at Nos. 30-31; Declaration of Tad Delvin at Exhibits A, B, and N.) In fact, the evidence demonstrates that, in September 2007, Plaintiffs were aware that the IRS would be seeking penalties and Plaintiffs were looking to others to cover those penalties. (Id. at No. 31.) Thus, even though the exact amount of penalties had yet to be determined, the evidence shows that Plaintiffs were on notice of their “damages” no later than September 2007. (Id. at Nos. 30-31.) Since the complaint was not filed until November 2010, Defendants claim that the action is time-barred. (Id. at No. 32.)

In opposition, Plaintiffs argue that the statute of limitations does not begin to run until the IRS makes a determination and actually assesses a tax deficiency. (See Plaintiffs’ Additional Fact at No. 104.) Plaintiffs cite Int’l Engine Parts v. Feddersen & Co. (1995) 9 Cal.4th 606 where the clients (parent and subsidiary corporations) sued their accountants for negligence in connection with the preparation of tax returns that were subsequently audited by the IRS. The accountants moved for summary judgment on the basis that the case was time-barred. (Id. at p. 610.) The defendants argued that the two-year statute ran in 1988 because it commenced in July 1986, when the subsidiary sustained actual injury by being forced to withdraw its settlement offer in the unrelated litigation and by having its line of credit reduced. (Ibid.) The defendants also argued that the plaintiffs’ payment of attorney fees in connection with the audit constituted actual injury for purposes of commencing the statute of limitations. (Ibid.) In response, the plaintiffs claimed that their suit was timely under section 339, subdivision (1), because it was filed within two years after the IRS assessed the deficiency. (Id. at p. 611.) The trial court granted defendants’ motion and the appellate court affirmed. (Ibid.)

The California Supreme Court reversed and created a special bright-line rule for accounting malpractice for the negligent preparation of tax returns that are subsequently audited by taxing authorities. The Court held that the date in which the IRS makes a final determination of a tax deficiency serves by operation of law as the date of accrual of the statute of limitations in such cases, noting: “The deficiency assessment serves as a finalization of the audit process and the commencement of actual injury because it is the trigger that allows the IRS to collect amounts due and the point at which the accountant’s alleged negligence has caused harm to the taxpayer.” (Feddersen, supra, 9 Cal.4th at p. 617.) The Feddersen court thus held that the action was timely filed:

“[I]n the present case, actual injury occurred when the IRS issued its penalty tax assessment on May 16, 1988, rather than when [the subsidiary] withdrew its settlement offer in an unrelated lawsuit, or when the company’s bank reduced its line of credit by $200,000 in anticipation of [the subsidiary’s] potential tax liability. Although these two latter events may represent palpable harm caused by the malpractice of the accountant, they are based on a tentative assessment of potential liability only. Although [the defendants’] alleged negligence may have been ‘discovered’ during the audit, such potential liability could not amount to actual harm until the date of the deficiency tax assessment or finality of the audit process.”

(Id. at p. 620.)

However, the Supreme Court has subsequently recognized that Feddersen involved “very narrowly drawn circumstances” and “did not articulate a ‘rule for all seasons.’” (See Adams v. Paul (1995) 11 Cal.4th 583, 588; see also Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 763 [Feddersen presented specialized circumstances and did not articulate a rule of broad or general applicability].) In Van Dyke, the case cited by Defendants, the appellate court distinguished Feddersen on the ground that it was expressly limited to a specific type of accountant malpractice, i.e., “the negligent preparation of tax returns.” (Van Dyke, supra, 46 Cal.App.4th at p. 454.) Similarly, in Apple Valley Unified School Dist. v. Vavrinek, Trine, Day & Co. (2002) 98 Cal.App.4th 934, the Fourth Appellate District, after discussing Feddersen and Jordache and the genesis of the “actual injury” requirement, concluded that Feddersen’s narrow holding applies only to cases involving negligent tax return preparation. (Id. at p. 952.) For example, in Sahadi v. Scheaffer (2007) 155 Cal.App.4th 704, the Sixth Appellate District, applying Feddersen, determined that plaintiff’s claims based on negligent preparation of tax returns were not time barred. (Id. at p. 733.)

Here, Defendants have provided undisputed evidence demonstrating that they did not prepare tax returns for the Plaintiffs. (See Defendants’ Separate Statement of Undisputed Facts at Nos. 23-24.) Since this action does not involve the negligent preparation of tax returns, Feddersen is inapposite. Instead, as stated above, the undisputed evidence shows that Plaintiffs were on notice of the IRS penalties imposed on them no later than September 2007. (Id. at Nos. 30-31.) Even though, as Plaintiffs argue, the IRS audit was not completed until 2009, Plaintiffs were already on notice of their damages as late as September 2007 to trigger the statute of limitations on their claims. Since the complaint was not filed until November 2010, the court finds that the action is time-barred. (Id. at No. 32.)

Therefore, Defendants’ motion for summary judgment is GRANTED. Having granted the motion on this ground, the court declines to address Defendants’ remaining arguments for summary judgment.

II. Motion by Cross-Defendant American General Life Insurance Company for Summary Judgment or [sic] Alternatively for Summary Adjudication on the Cross-Complaint

With respect to the cross-complaint, the only claims against cross-defendant American General Life Insurance Company (“AG”) are for indemnity, contribution, and comparative fault. Since there is no basis for liability against Defendants in the complaint, there are no triable issues of fact with respect to the cross-complaint on these claims.

Accordingly, AG’s motion for summary judgment to the cross-complaint is GRANTED. Given the basis for this ruling, there is no need to address the objections to evidence.