Opinion
B296040
02-27-2020
CALIFORNIA LAWYERS GROUP LLP, Plaintiff and Appellant, v. PETER J. MCNULTY, Defendant and Respondent.
California Lawyers Group and Michael S. Brown for Plaintiff and Appellant. McNulty Law Firm, Peter J. McNulty, Brett L. Rosenthal, and Jordan R. Magazine for Defendant and Respondent.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Los Angeles County Super. Ct. No. LC105323) APPEAL from a judgment of the Superior Court of Los Angeles County, Huey P. Cotton, Judge. Affirmed. California Lawyers Group and Michael S. Brown for Plaintiff and Appellant. McNulty Law Firm, Peter J. McNulty, Brett L. Rosenthal, and Jordan R. Magazine for Defendant and Respondent.
____________________
Following an automobile accident, Lonnie Osterman (Osterman) retained appellant California Lawyers Group and Michael Brown (collectively, Brown) to represent her. Two years later, Osterman terminated Brown and retained respondent Peter McNulty (McNulty). McNulty negotiated a $575,000 settlement with Osterman's insurer and, subsequently, disbursed the settlement funds. Although Brown had asserted a lien on the funds, none of the funds were distributed to him.
Brown sued McNulty, Osterman, Osterman's husband, and the insurer for a variety of torts, asserting that the disbursement of the settlement funds interfered with his lien. McNulty demurred, and the trial court sustained the demurrer without leave to amend. Brown appealed.
We affirm. Pursuant to Code of Civil Procedure section 340.6, an action against an attorney for a wrongful act or omission "arising in the performance of professional services" is subject to a one-year statute of limitations. As we discuss, each cause of action against McNulty arose in the performance of professional services, and thus each is subject to a one-year statute of limitations. Because Brown filed the present action nearly three years after the allegedly tortious conduct, each of his claims is time-barred, and thus the demurrer was properly sustained.
All subsequent statutory references are to the Code of Civil Procedure.
FACTUAL AND PROCEDURAL BACKGROUND
Because this case comes to us upon a judgment of dismissal after the trial court sustained McNulty's demurrer, we take as true the facts alleged in the complaint.
Osterman was injured in an automobile accident in March 2011. She retained attorney Brown, with whom she entered into a written attorney-client agreement (agreement) that provided that Brown would "perform all necessary legal services" arising out of the accident, and Osterman would pay Brown 40 percent of her gross recovery. The agreement further provided that Brown would have a lien on "any recovery Client may obtain, whether by arbitration award, judgment, settlement or otherwise" for "all sums owing to Attorney for any unpaid costs or fees under this Agreement." Finally, the agreement said Osterman had the right to discharge Brown at any time, but a discharge "does not . . . relieve Client of the obligation to pay for any costs incurred before such termination, and Attorney has the right to recover from Client the reasonable value of Attorney's legal services rendered from the effective date of the Agreement to the date of discharge."
In November 2011, Osterman settled with the other driver for $100,000, of which Brown received $40,000. Brown then pursued a claim for additional recovery against Osterman's automobile insurer, Farmers Insurance Exchange (Farmers), under the underinsured motorist coverage provision in Osterman's policy.
In April 2013, Osterman terminated her attorney-client relationship with Brown and retained McNulty. In about June 2014, McNulty negotiated a settlement with Farmers for $575,000 on behalf of Osterman and her husband, Michael Osterman (collectively, the Ostermans).
On June 27, 2014, McNulty advised Brown of the settlement with Farmers and asked Brown to waive his lien on the settlement proceeds. In the alternative, McNulty asked Brown to provide a "verified breakdown of your unreimbursed costs as well as your quantum meruit calculation of any fees claimed."
McNulty's letter to Brown stated, in part: "Without belaboring this issue, we've attached several representative documents that we believe underscore the reasons behind the Ostermans's request that you waive any claimed lien. Regrettably, the Ostermans, particularly Lonnie, have very strong feelings about the nature of her attorney-client relationship with you as well as the representation you provided. They both feel that you were very fairly compensated in the underlying case and would appreciate you taking the 'high road' with respect to waiving any lien claimed in their first party case."
Brown responded that he would not waive his lien. Instead, he said he was "willing to accept" $100,000 for fees, which he asserted was "well below what an hourly or quantum meruit claim would produce." Brown stated his offer was "contingent on proof of the gross settlement being only $575,000" and would "automatically expire at 5:00 p.m. on July 18, 2014 if not accepted."
The Ostermans did not accept Brown's offer. Farmers transferred the settlement funds to McNulty, who distributed them "without any portion whatsoever being paid or tendered to [Brown]."
B. The Present Action
Brown filed the present action on March 3, 2017 against the Ostermans, McNulty, and Farmers. As against McNulty, the complaint asserted seven causes of action: (1) intentional interference with contract; (2) intentional interference with prospective economic advantage; (3) conversion; (4) breach of fiduciary duty; (5) money had and received; (6) declaratory relief; and (7) constructive trust.
C. Demurrer; Appeal
McNulty demurred to the complaint. He contended the complaint failed to plead facts sufficient to state a cause of action against him, and each cause of action was time-barred. With regard to the latter claim, McNulty asserted that, pursuant to section 340.6, an action against an attorney for a wrongful act or omission arising in the performance of professional services must be commenced within one year from the time the plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission. In the present case, McNulty informed Brown on June 27, 2014 that the Ostermans had settled their claim against Farmers for $575,000. Brown waited almost three years, until March 3, 2017, to file the present action. Accordingly, because each cause of action arose out of McNulty's professional services, each was time-barred.
Brown opposed the demurrer, urging that the complaint adequately pled facts supporting claims against McNulty, and the claims were not time-barred. Specifically, Brown asserted the claims against McNulty did not arise out of his performance of professional services because McNulty's disbursement of money subject to Brown's lien would be improper "under any circumstances, not simply within the context of legal representation."
Following a hearing, the trial court ruled that each cause of action was time-barred pursuant to section 340.6 because "McNulty's holding funds in trust for plaintiff and lien holders is part of his professional services." The court also concluded that the complaint failed to state claims for interference with contract, interference with economic advantage, and conversion. The trial court therefore sustained McNulty's demurrer without leave to amend.
The court entered judgment of dismissal as to McNulty on April 17, 2019. Brown timely appealed.
Brown filed his notice of appeal on March 1, 2019, prior to the entry of the judgment of dismissal. We deem Brown's premature notice of appeal to have been timely filed from the subsequent order and judgment. (Cal. Rules of Court, rule 8.104(d)(1).)
DISCUSSION
Brown contends the trial court erred in sustaining the demurrer because (1) his claims against McNulty are not subject to section 340.6's one-year statute of limitations, and thus they are not time-barred, and (2) each cause of action alleged facts stating a claim for relief.
As we discuss, each cause of action against McNulty is subject to the one-year statute of limitations of section 340.6, and Brown has not demonstrated a reasonable possibility he can amend the complaint to allege that his claims were timely. Accordingly, the trial court properly sustained the demurrer without leave to amend.
I.
Standard of Review
" 'A demurrer tests the legal sufficiency of the complaint.' (Hamilton v. Greenwich Investors XXVI, LLC (2011) 195 Cal.App.4th 1602, 1608.) On appeal, an appellate court 'review[s] the complaint de novo to determine whether it alleges facts sufficient to state a cause of action. For purposes of review, we accept as true all material facts alleged in the complaint, but not contentions, deductions or conclusions of fact or law. We also consider matters that may be judicially noticed. [Citation.] When a demurrer is sustained without leave to amend, "we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm." [Citation.] Plaintiff has the burden to show a reasonable possibility the complaint can be amended to state a cause of action.' " (Dudek v. Dudek (2019) 34 Cal.App.5th 154, 163-164.)
II.
Section 340.6 Applies to a Claim Against
an Attorney for a Wrongful Act Arising
in the Performance of Professional Services
The primary issue in this appeal is whether Brown's claims against McNulty are subject to section 340.6's one-year statute of limitations. Section 340.6, subdivision (a), provides: "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." (Italics added.)
In Lee v. Hanley (2015) 61 Cal.4th 1225, 1236-1237, our Supreme Court explained that section 340.6 applies to any claims "whose merits necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services." A "professional obligation" is "an obligation that an attorney has by virtue of being an attorney, such as fiduciary obligations, the obligation to perform competently, the obligation to perform the services contemplated in a legal services contract into which an attorney has entered, and the obligations embodied in the State Bar Rules of Professional Conduct." (Id. at p. 1237.) Professional obligations also include nonlegal professional services required by the attorney-client relationship, such as accounting, bookkeeping, and holding property in trust. (Ibid.) Thus, section 340.6 applies to an attorney's provision of both legal and nonlegal services "governed by an attorney's professional obligations." (Lee v. Hanley, at p. 1237; accord Austin v. Medicis (2018) 21 Cal.App.5th 577, 586-587.)
On the other hand, section 340.6 does not apply to an attorney's alleged misconduct "merely because it occurs during the period of legal representation or because the representation brought the parties together and thus provided the attorney the opportunity to engage in the misconduct." (Lee v. Hanley, supra, 61 Cal.4th at p. 1238.) Thus, for example, the statute does not bar claims "that an attorney stole from or sexually battered his client while the attorney was providing legal advice." (Ibid.)
Our Supreme Court elaborated on the distinction between conduct that arises in the performance of professional services and conduct that does not in Flores v. Presbyterian Intercommunity Hospital (2016) 63 Cal.4th 75 (Flores). There, the court examined section 340.5, which provides a three-year statute of limitations for actions against a health care provider for injury or death "based upon such person's professional negligence"—that is, "a negligent act or omission to act by a health care provider in the rendering of professional services, which act or omission is the proximate cause of a personal injury or wrongful death, provided that such services are within the scope of services for which the provider is licensed." (§ 340.5, subd. (1).) The court relied on Lee v. Hanley to conclude that whether negligence in maintaining hospital equipment or premises constitutes "professional negligence" (as opposed to ordinary negligence) depends on "the nature of the relationship between the equipment or premises in question and the provision of medical care to the plaintiff." The court explained: "A hospital's negligent failure to maintain equipment that is necessary or otherwise integrally related to the medical treatment and diagnosis of the patient implicates a duty that the hospital owes to a patient by virtue of being a health care provider. Thus, if the act or omission that led to the plaintiff's injuries was negligence in the maintenance of equipment that, under the prevailing standard of care, was reasonably required to treat or accommodate a physical or mental condition of the patient, the plaintiff's claim is one of professional negligence under section 340.5. But section 340.5 does not extend to negligence in the maintenance of equipment and premises that are merely convenient for, or incidental to, the provision of medical care to a patient." (Flores, at p. 88.)
With these principles in mind, we now turn to the allegations of the complaint.
III.
The Trial Court Did Not Err in Sustaining
the Demurrer Without Leave to Amend
A. Causes of Action for Intentional Interference with Contract, Intentional Interference with Prospective Economic Advantage, Conversion, Breach of Fiduciary Duty, and Money Had and Received
The first, second, third, fourth, and sixth causes of action allege that McNulty acted tortiously by directing payment of, receiving, and distributing settlement funds in derogation of Brown's lien. Specifically, the complaint alleges:
McNulty was not named in the fifth cause of action for breach of contract or the seventh cause of action for quantum meruit.
(1) Interference with contract and prospective economic advantage (first and second causes of action): McNulty interfered with contract and prospective economic advantage by "request[ing], approv[ing], direct[ing], process[ing], and intentionally caus[ing] a payment in settlement of the Ostermans' claims to be issued and delivered without including [Brown's] name on the draft or check for payment," and by "conspiring with the Ostermans to issue, accept, and process a draft or check in contravention of Plaintiff's contractual rights and lien rights."
(2) Conversion (third cause of action): McNulty received settlement funds subject to Brown's lien and "wrongfully and intentionally exercised control over the portion of the payments to which [Brown] is entitled, by retaining some or all of those monies for his own use and benefit, by providing those monies to the Ostermans, or by otherwise disposing of the monies."
(3) Breach of fiduciary duty (fourth cause of action): McNulty became Brown's fiduciary "by virtue of [his] receipt and possession of the settlement payments," which payments Brown retained for himself and/or provided to others.
(4) Money had and received (sixth cause of action): McNulty "received" and "failed to turn . . . over" to Brown monies that "belong to" Brown.
McNulty contends, and the trial court concluded, that section 340.6 applies to these causes of action. For the reasons that follow, we agree.
Each of the actions on which Brown's claims against McNulty are based—directing payment of, receiving, and distributing the settlement funds—is governed by the California Rules of Professional Conduct. As specifically relevant here, those Rules provide:
• An attorney may "take such action on behalf of the client as is impliedly authorized to carry out the representation," including by "settl[ing] a matter." (Rules Prof. Conduct, rule 1.2.)
• Funds received or held by a lawyer for the benefit of a client or "other person to whom the lawyer owes a contractual, statutory, or other legal duty" shall be deposited in a segregated trust account and withdrawn at the earliest possible time "after the lawyer or law firm's interest in that portion becomes fixed." (Rules Prof. Conduct, rule 1.15(a), (c)(2).)
• If a client or other person disputes the lawyer's right to receive a portion of those funds, "the disputed portion shall not be withdrawn until the dispute is finally resolved." (Rules Prof. Conduct, rule 1.15(c)(2).)
As these rules explicitly govern an attorney's obligation to clients "or other person[s]," we are puzzled by Brown's suggestion that "attorneys have no professional obligation to nonclients."
Fairly read, the complaint alleges that McNulty was acting in his capacity as the Ostermans's attorney when he directed payment of, received, and distributed settlement funds. As we have said, each of these actions was specifically governed by the Rules of Professional Conduct, and each was reasonably required to carry out McNulty's professional obligations to the Ostermans. Accordingly, Brown's claims against McNulty thus necessarily assert the "violat[ion of] a professional obligation in the course of providing professional services." (Lee v. Hanley, supra, 61 Cal.4th at pp. 1236-1237; see also Foxen v. Carpenter (2016) 6 Cal.App.5th 284, 292 [claims against attorney for distribution of settlement funds were subject to section 340.6 because "plaintiff will not be able to establish her contract claims against defendants without demonstrating they breached professional duties owed to her, or nonlegal services closely associated with the performance of their professional duties as lawyers"].)
On appeal, Brown contends that even if McNulty's receipt and disbursement of settlement proceeds occurred in the course of providing professional services to the Ostermans, section 340.6 does not apply to his claims because McNulty did not undertake any legal obligations or perform any legal services "for the benefit of [Brown]." In other words, Brown suggests that section 340.6 applies only to claims asserted by individuals to whom a defendant attorney has provided legal services. But Brown cites no authority—and we are not aware of any—for the proposition that section 340.6 applies only where there is an attorney-client relationship between the plaintiff and defendant. To the contrary, the statutory language is clear that section 340.6 applies to any action against an attorney for a wrongful act or omission (other than actual fraud) arising in the performance of professional services (§ 340.6, subd. (a)), and at least one Court of Appeal has applied the statute to a claim brought against an attorney by a plaintiff with whom the attorney had never had an attorney-client relationship. (Vafi v. McCloskey (2011) 193 Cal.App.4th 874 [section 340.6 applied to action brought against former adversary's attorney].)
McNulty cites Kaiser Foundation Health Plan, Inc. v. Aguiluz (1996) 47 Cal.App.4th 302 (Kaiser) and Weiss v. Marcus (1975) 51 Cal.App.3d 590 (Weiss), but they do not assist him. Both cases hold that an attorney's release to his client of funds claimed by another person may give rise to tort claims, but neither addresses whether those tort claims are subject to section 340.6. (See Kaiser, at pp. 304-307; Weiss, at pp. 599-601.) Accordingly, neither applies here.
In the alternative, Brown contends his allegations in the present case are not subject to section 340.6 because, like the conversion claim in Lee v. Hanley, they do not "necessarily" depend on proof that Brown violated a professional obligation. We do not agree. In Lee v. Hanley, a client sued her former attorney for a variety of torts arising out of the attorney's alleged failure to return unearned attorney and expert witness fees after he was terminated. The court held that section 340.6 did not bar the client's conversion claim because the alleged misconduct did not necessarily arise in the performance of professional services. (Lee v. Hanley, supra, 61 Cal.4th at p. 1240.) Indeed, at the time of the alleged conversion, the matter for which the attorney had been retained had settled, and the attorney was no longer representing the client. (Id. at pp. 1229-1230.) Moreover, the complaint did not allege the attorney's misconduct was tied to his performance of professional services; to the contrary, the allegations were consistent with a claim that the attorney "misspent Lee's money or decided to keep it for no good reason." (Id. at p. 1240.) Thus, because the client's claim of conversion did not necessarily depend on proof that the attorney violated a professional obligation, the court held it was not barred by section 340.6. (Lee v. Hanley, at p. 1240.)
In the present case, in contrast, McNulty is alleged to have been actively providing legal services to the Ostermans at the time of the alleged misconduct, and the alleged misconduct was intimately connected to the provision of those services. Indeed, the only fair reading of the complaint is that McNulty engaged in each of the acts on which Brown's complaint is based—that is, directing payment of, receiving, and distributing settlement funds—in his capacity as the Ostermans's attorney. Put another way, McNulty's only involvement with the settlement proceeds at issue was in his role as the Ostermans's attorney. Further, those actions were "reasonably required" in the course of providing the legal services for which McNulty had been retained. (Flores, supra, 63 Cal.4th at p. 88.) And, McNulty's alleged duty not to distribute funds to which Brown had asserted a claim arose directly out of his obligation under the Rules of Professional Conduct not to withdraw from a client trust account funds to which a client "or other person" claims an interest. (Rules Prof. Conduct, rule 1.15(c)(2).) As such, Brown will not be able to establish his claims against McNulty without demonstrating a breach of his professional duties. (See Foxen v. Carpenter, supra, 6 Cal.App.5th at p. 292 ["Plaintiff's contract claims are based on [attorneys'] alleged misconduct in allocating the settlement funds in the personal injury action . . . . There is no other fair reading of the pleading and the attached exhibits. [Thus], plaintiff will not be able to establish her contract claims against defendants without demonstrating they breached professional duties owed to her, or nonlegal services closely associated with the performance of their professional duties as lawyers."].)
Brown also asserts his claims against McNulty are not subject to section 340.6 because his claim for conversion is predicated "on a breach of fiduciary duty, which is applicable to all those who hold any property in trust for another." Brown cites no legal authority for the proposition that McNulty was holding funds in trust for Brown and had a fiduciary duty to him, and thus we do not consider it. (See Akins v. State of California (1998) 61 Cal.App.4th 1, 50 [contention waived by failure to cite legal authority]; Atchley v. City of Fresno (1984) 151 Cal.App.3d 635, 647 [a point asserted by appellant without argument or authority need not be discussed by reviewing court].) --------
For all the foregoing reasons, we conclude the first, second, third, fourth, and sixth causes of action against McNulty are governed by section 340.6's one-year statute of limitations. Because the complaint alleges facts sufficient to put Brown on inquiry notice of his claim against McNulty no later than June 27, 2014, but the complaint was not filed until March 3, 2017, these causes of action are time-barred.
B. Causes of Action for Constructive Trust and Declaratory Relief
The eighth and ninth causes of action purport to assert claims for constructive trust and declaratory relief. But while denominated "causes of action" in the complaint, constructive trust and declaratory relief are remedies, not causes of action. (E.g., Batt v. City and County of San Francisco (2007) 155 Cal.App.4th 65, 82, quoting Glue-Fold, Inc. v. Slautterback Corp. (2000) 82 Cal.App.4th 1018, 1023, fn. 3 ["A constructive trust is 'not an independent cause of action but merely a type of remedy.' "]; Galvan v. Dameron Hospital Assn. (2019) 37 Cal.App.5th 549, 553, fn. 2 ["While denominated 'causes of action' in the complaint, declaratory and injunctive relief are remedies, not causes of action."].) Accordingly, because Brown has failed to timely allege against McNulty a substantive claim to which he could append his requests for constructive trust and declaratory relief, these "causes of action" necessarily fail.
C. No Leave to Amend
Following the sustaining of a demurrer, courts liberally grant leave to amend. Indeed, "[a] trial court abuses its discretion by sustaining a demurrer without leave to amend where ' "there is a reasonable possibility that the defect can be cured by amendment." ' (Loeffler v. Target Corp. (2014) 58 Cal.4th 1081, 1100; accord, City of Dinuba v. County of Tulare (2007) 41 Cal.4th 859, 865.)" (A.J. Fistes Corp. v. GDL Best Contractors, Inc. (2019) 38 Cal.App.5th 677, 687.) Even if, as is the case here, a plaintiff failed to ask the trial court for leave to amend, the plaintiff may seek leave to amend for the first time on appeal. (Mercury Ins. Co. v. Pearson (2008) 169 Cal.App.4th 1064, 1072.) In seeking leave to amend on appeal, however, the plaintiff must demonstrate how it could amend its pleading and how its proposed amendments would change the legal effect of the pleading. Thus, " 'the burden is on the plaintiff to demonstrate that the trial court abused its discretion. [Citations.] Plaintiff must show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.' " (Goodman v. Kennedy (1976) 18 Cal.3d 335, 349; accord Zelig v. County of Los Angeles (2002) 27 Cal.4th 1112, 1126.)
In the present case, Brown asserts that it was an abuse of discretion for the trial court to deny him the opportunity to amend his complaint to state a timely claim for relief against McNulty. However, Brown fails to demonstrate in what manner he can amend to change the legal effect of his pleading. Accordingly, he has not demonstrated that the trial court abused its discretion by denying him leave to amend.
DISPOSITION
The judgment is affirmed. Respondent is awarded his appellate costs.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
EDMON, P. J. We concur:
EGERTON, J.
DHANIDINA, J.