Opinion
B303885
01-27-2021
DONALD E. HOLLINGSHEAD et al., Plaintiffs and Appellants, v. ROGER C. HARTMAN et al., Defendants and Respondents.
Ronald D. Tym for Plaintiffs and Appellants. Lewis Brisbois Bisgaard & Smith, Kenneth C. Feldman and David D. Samani for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115.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. 19STCV05411) APPEAL from a judgment of the Superior Court of Los Angeles County. Robert S. Draper, Judge. Affirmed. Ronald D. Tym for Plaintiffs and Appellants. Lewis Brisbois Bisgaard & Smith, Kenneth C. Feldman and David D. Samani for Defendants and Respondents.
Donald E. Hollingshead (Hollingshead) and Hollingshead Management Company (appellants) appeal from a judgment of dismissal entered as to two of the defendants in this lawsuit: Roger C. Hartman and Douglas J. Workman, both of whom are attorneys (collectively "respondents"). The trial court sustained respondents' demurrer and entered an order of dismissal as to respondents on the ground that appellants' claims against respondents were barred by the statute of limitations found in Code of Civil Procedure section 340.6 (section 340.6). The sole issue in this appeal is whether the trial court applied the correct statute of limitations to appellants' claims against respondents. We hold that it did, and therefore affirm the judgment of dismissal as to respondents.
BACKGROUND
First two complaints and first demurrer
On February 19, 2019, the initial complaint was filed in this matter. On May 3, 2019, appellants filed the first amended complaint (FAC) against respondents and Debra Duggan, an individual, Proland Management Company, LLC (Proland) (an entity Duggan controls), and various other entities associated with Duggan, alleging elder financial abuse, breach of fiduciary duties, rescission, accounting, and declaratory relief. Respondents demurred to the FAC on the grounds that the causes of action alleged against them -- elder abuse and breach of fiduciary duties -- were barred by the statute of limitations set forth in section 340.6. Respondents argued that appellants knew or should have known of their claims at or around April 2015, when appellants were allegedly shocked and intimidated into entering into a disadvantageous transaction by respondents and others. In response, appellants argued that the four-year statute of limitations found in Welfare & Institutions Code section 15657.7 governed the causes of action against respondents. On August 27, 2019, the trial court sustained respondents' demurrer with leave to amend. The trial court set forth its position that the applicable statute of limitations was section 340.6, rather than Welfare & Institutions Code section 15657.7.
Operative second amended complaint (SAC)
On September 16, 2019, appellants filed the operative SAC. The SAC alleged the same causes of action as the FAC. Appellant Hollingshead was 87 years old at the time that the SAC was filed. The SAC alleged that beginning in approximately 1970, Hollingshead began building an investment portfolio of multifamily housing. At the time of the events in question, appellants' multifamily housing portfolio consisted of low-income multifamily units (the low income housing portfolio) and market-rate units (the market rate portfolio). Appellants alleged that Hollingshead met Duggan and her then husband, Ronald Gregg, in 1998 when Hollingshead was 66 years old. Appellants alleged that Duggan and Gregg immediately recognized Hollingshead to be a prime target for manipulation and undue influence because although he was successful, he was a "gentle, sensitive, isolated, and lonely man who was estranged from his family." Duggan and Gregg thus hatched a plan to take all of Hollingshead's property. Duggan and Gregg commenced the scheme by getting Hollingshead to submit all the lucrative property management contracts for the multifamily housing portfolio to defendant Proland, and, through another entity, Duggan and Gregg began siphoning off money. Hollingshead eventually became dependent on Gregg and Duggan for all his financial needs. In 2006, Hollingshead suffered a life-threatening case of spinal meningitis, which resulted in a substantial and permanent decrease in his cognitive abilities.
Appellants alleged that respondents joined the conspiracy, and that respondents gained Hollingshead's trust by providing legal services to Hollingshead and the various entities that owned the multifamily housing portfolio. Appellants alleged that respondents agreed to assist the conspiracy by advising Hollingshead to sign various documents and drafting the legal documents used to accomplish the takings of Hollingshead's property.
In April 2015, Hollingshead went to respondents' offices believing he was there to discuss selling his interests in the low-income housing portfolio. Instead, he was escorted into a conference room where there were approximately 70 documents he was "ordered" to sign by Duggan and respondents. When Hollingshead protested, he was told that over $70,000 had been spent on legal fees preparing the documents and that he had to sign them. Hollingshead allegedly signed under duress. The documents effectuated a complex series of transactions whereby Hollingshead purportedly transferred his general partnership interests and limited partnership interests relating to the low-income housing portfolio to Proland and transferred several other ownership interests in various entities to Duggan and entities she controlled. The fair market value of the interests purportedly transferred by Hollingshead was between approximately $100 million and $165 million at the time of the transactions. However, Hollingshead was allegedly coerced to transfer these property interests for payment of only approximately $23 million, $14 million of which was in the form of a nine-year promissory note from Proland.
Gregg died in 2012 and Duggan took over the businesses.
The SAC further alleged that days after Hollingshead was "intimidated into signing" these legal documents, he was directed by respondents to sign a lengthy back-dated "conflict waiver" in which respondents inserted false statements that Hollingshead had separate legal counsel to review the documents, and that respondents were not representing Hollingshead and his entities, or Duggan and her entities, in the transaction. Instead, the document stated that respondents were acting only as the drafters of the documents due to their unique understanding of the interworkings of the various entities. Appellants allege that Hollingshead did not understand the meaning of the document and believed respondents continued to represent him in connection with all aspects of the multifamily housing portfolio, as they had for years. Respondents continued to represent appellants with respect to the multifamily housing portfolio through June 2018. Appellants alleged that respondents knew that the price being paid to appellants for the interests in the housing portfolio that Hollingshead was forced to convey in April 2015 was grossly inadequate.
Appellants alleged that Duggan, and upon information and belief respondents, thereafter continued to coerce Hollingshead to change the general partners of various partnerships to benefit Duggan; that Hollingshead had no understanding of the nature and import of the documents; and that in this way Duggan gained illicit control over the entities that owned the market rate portfolio.
The SAC alleged that in 2018, after Duggan told Hollingshead that he must transfer his interests in the market rate portfolio to her for nothing, Hollingshead went to a lawyer. The SAC described the above acts as a conspiracy, the last overt act of which was not earlier than June 27, 2018.
In the first cause of action for financial elder abuse, appellants alleged that respondents assisted Duggan and her entities in obtaining property owned by appellants; that at the time of the acts Hollingshead was over the age of 65; and that the acts of obtaining property were done for wrongful purpose and by undue influence.
In the second cause of action for breach of fiduciary duties, appellants alleged that Proland and Duggan represented to appellants that they were holding the property in trust for the benefit of appellants. Such relationship put Duggan and her entities in a fiduciary relationship with appellants. Further, respondents were attorneys who regularly represented appellants. This arrangement put respondents in a fiduciary relationship with appellants. Appellants alleged that respondents violated their fiduciary relationship with appellants "by participating in the conspiracy described herein and coercing, and permitting Duggan to coerce, [Hollingshead] into signing documents purporting to transfer the interests of [appellants] to Duggan and Proland on patently unfair terms, including but not limited to a price substantially less than fair market value." Appellants also asserted that respondents committed a breach of fiduciary duty "when they, in 2019, falsely asserted that [Hollingshead] had been given the opportunity to read the documents relating to the 2015 transaction before signing and falsely assert[ing] that [Hollingshead] had had the benefit of independent counsel."
Demurrer to SAC and dismissal
On October 18, 2019, respondents filed a demurrer to two causes of action alleged against them in the SAC. Respondents argued that appellants' claims against them were time-barred, there was no tolling of the statute of limitations, and the '"last overt act"' doctrine was not applicable. Following briefing, on December 4, 2019, the trial court issued an order sustaining respondents' demurrer without leave to amend.
The trial court reiterated that the applicable statute of limitations was section 340.6. The court noted that "Hollingshead's causes of action against [respondents] accrued in April 2015, and . . . the statute of limitations would have run by April 2016 unless it was tolled or accrual was delayed." In sustaining respondents' demurrer, the court explained that Hollingshead failed to allege that a disability restricted his ability to bring the present action or that later transactions implicated respondents.
Section 340.6 provides, in pertinent part, that "[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 constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first." Appellants do not contest in this appeal that the statute of limitations commenced to run in April 2015, nor do they contend that they have presented any basis for arguing that the statute was tolled.
On January 9, 2020, the trial court ordered dismissal of the case against respondents.
On January 28, 2020, appellants filed a notice of appeal from the dismissal.
DISCUSSION
I. Standard of review
"'A demurrer tests the sufficiency of the complaint as a matter of law; as such, it raises only a question of law. [Citations.]' [Citation.] Thus, the standard of review on appeal is de novo. [Citation.] 'In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules.' "We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law . . . ." [Citations]. Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.]' [Citations.]" (Berg & Berg Enterprises, LLC v. Boyle (2009) 178 Cal.App.4th 1020, 1034.)
When the allegations in a pleading, including any records subject to judicial notice, demonstrate that a claim is time barred, the claim is properly adjudicated via demurrer. (See, e.g., Nguyen v. Ford (2020) 49 Cal.App.5th 1, 15; Croucier v. Chavos (2012) 207 Cal.App.4th 1138, 1141-1142.)
II. The statute of limitations found in section 340.6 was properly applied to appellants' claims against respondents
The sole question in this appeal is whether the one-year statute of limitations found in section 340.6, which applies to actions against attorneys arising in the performance of professional services, applies to appellants' causes of action against respondents. Appellants argue that the four-year statute of limitations found in Welfare and Institutions Code section 15657.7, which applies to actions brought under the Elder Abuse and Dependent Adult Civil Protection Act (Welf. & Inst. Code, § 15600 et seq.), is the applicable statute of limitations.
The parties acknowledge that section 340.6 was applied to a cause of action for elder abuse against an attorney in Austin v. Medicis (2018) 21 Cal.App.5th 577, 585. However, in Austin, the parties "agree[d] that the one-year limitations period in section 340.6 applie[d] to the sixth and seventh causes of action, for elder abuse/ undue influence and negligent infliction of emotional distress." (Ibid.) Because the application of section 340.6 was not contested in that case, we decline to use it as precedent for the issue before us.
A. Standards for application of section 340 .6
The parties' main disagreement concerns the appropriate interpretation of Lee v. Hanley (2015) 61 Cal.4th 1225 (Lee). In Lee, the Supreme Court clarified that the one-year statute in section 340.6 "applies to a claim when the merits of the claim will necessarily depend on proof that an attorney violated a professional obligation -- that is, an obligation the attorney has by virtue of being an attorney -- in the course of providing professional services." (Lee, at p. 1229.) In Lee, the former client of an attorney sued the attorney for, among other things, conversion, when the attorney refused to return to the former client unearned attorney fees that she had advanced to him. (Ibid.) The trial court sustained the attorney's demurrer without leave to amend on the ground that it was barred under section 340.6. (Lee, at p. 1229.) The Supreme Court concluded that the trial court erred. The court explained, "Lee's allegations, if true, would show that Hanley has violated certain professional obligations in the course of providing professional services, and any claim based on his violation of these obligations is time-barred. But the complaint can also be construed to allege a claim for conversion whose ultimate proof at trial may not depend on the assertion that Hanley violated a professional obligation. Thus, on at least one reasonable construction of the complaint, at least one of Lee's claims is not time-barred." (Id. at pp. 1229-1230).
The high court explained that section 340.6 was enacted in 1977 "amid rising legal malpractice insurance premiums." (Lee, supra, 61 Cal.4th at p. 1233.) In enacting the final version of the bill, "the Legislature intended to establish a limitations period that would apply broadly to any claim concerning an attorney's violation of his or her professional obligations in the course of providing professional services regardless of how those claims were styled in the plaintiff's complaint." (Id. at p. 1235.) Thus, "the statute applies not only to actions for professional negligence but to any action alleging wrongful conduct, other than actual fraud, arising in the performance of professional services." (Id. at p. 1236.) The Supreme Court clarified that "while section 340.6(a) applies to claims other than strictly professional negligence claims, it does not apply to claims that do not depend on proof that the attorney violated a professional obligation." (Lee, at p. 1236.) The high court defined a "professional obligation" as "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.) In contrast, section 340.6 does not bar "a claim for wrongdoing -- for example, garden- variety theft -- that does not require proof that the attorney has violated a professional obligation." (Lee, at p. 1237.) In addition, section 340.6 does not bar "a claim arising from an attorney's performance of services that are not 'professional services,' meaning 'services performed by an attorney which can be judged against the skill, prudence and diligence commonly possessed by other attorneys.'" (Lee, at p. 1237.)
The plaintiff argued that section 340.6 only applied when an attorney performs services that require a license to practice law. The Supreme Court explained that this definition was too narrow: "the training and regulation that make the practice of law a profession, as well as the grounds on which an attorney may be disciplined as an attorney, include professional obligations that go beyond duties of competence associated with dispensing legal advice or advocating for clients in dispute resolutions." (Lee, supra, 61 Cal.4th at p. 1237.) Thus, the high court concluded, "the term 'professional services' is best understood to include nonlegal services governed by an attorney's professional obligations.'" (Ibid.) However, all forms of attorney misconduct was an interpretation that swept "too broadly." (Id. at p. 1238.) The court concluded that section 340.6 "applies to claims that necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services unless the claim is for actual fraud." (Lee, at p. 1239.) Because the plaintiff's claim for conversion did not necessarily depend on proof that the attorney violated a professional obligation, her suit was not barred by section 340.6. (Lee, at p. 1239.)
B. Application to this case
The question before us is therefore whether the complained of conduct depends upon proof that respondents violated a professional obligation. In answering this, we review the allegations of the SAC. Because the matter was resolved on demurrer, we must assume the truth of the allegations in the SAC.
Appellants' allegations regarding financial elder abuse, generally, are that Duggan and her entities wrongfully obtained property owned by appellants, and that respondents assisted Duggan and her entities in obtaining such property. However, none of the allegations against respondents involve any conduct outside of their professional role as attorneys. Appellants accuse respondents of having strong influence over Hollingshead because they had been continuously providing legal services to him and his entities. Respondents are alleged to have assisted in the conspiracy by "advising [Hollingshead] that he should do as directed by [Duggan] and Gregg when they directed him to sign various documents, and by drafting the legal documents to accomplish the taking of [Hollingshead's] property." In regards to the low-income housing portfolio, respondents are alleged to have prepared legal documents transferring the interests of the properties without warning Hollingshead of the import of such documents and without informing Hollingshead that they were not acting in his best interests. Hollingshead allegedly signed "complex legal documents" because of his weakened condition and his trust of respondents.
Respondents' role in the transaction in April 2015 was similarly and unquestionably the role of attorneys. Appellants allege that in April 2015, Hollingshead went to the offices of respondents, to discuss selling his interests in the low-income housing portfolio. He was escorted into a room where documents were awaiting his signature, and was purportedly "ordered" to sign the documents by Duggan and respondents. Appellants described the documents as effectuating a "complex series of transactions," through which Duggan unlawfully took appellants' properties "with the direct assistance of" respondents. Days after he was intimidated into signing these documents at respondents' offices, respondents directed him to sign a "lengthy back-dated 'conflict waiver'" in which respondents allegedly inserted false statements that Hollingshead had independent legal counsel review the documents. Respondents also indicated in the letter that, with respect to the April 2015 transaction, they were not representing appellants, nor were they representing Duggan and her entities, but were rather "only acting 'as the drafters of the documents . . . due to our unique understandings of the interworking of the various entities.'" Hollingshead allegedly believed that respondents represented him in the transaction, as he had for years. In addition, Hollingshead represented that respondents continued to represent him after April 2015.
The allegations described above necessarily depend on proof that respondents violated professional obligations in the course of providing professional services. All allegations involve respondents' roles as advisers to Hollingshead and his companies or drafters of complex legal documents. There are no allegations that fall outside of respondents' professional obligations.
As to appellants' second cause of action for breach of fiduciary duties, appellants allege that respondents were attorneys who regularly represented appellants, and this arrangement placed respondents in a fiduciary relationship with appellants. Appellants make no allegations that respondents had any other fiduciary responsibilities to them. Thus, any claim for breach of fiduciary duty was also governed by section 340.6.
C. Respondents' acts did not fall outside of their professional obligations
Appellants argue that the four-year statute of limitations found in Welfare and Institutions Code section 15657.7 is applicable to the alleged acts of respondents. In support of their position, appellants argue that the acts of respondents would give rise to elder abuse if committed by a non-attorney. Appellants cite Lee for the proposition that section 340.6 does not apply to acts by an attorney that would give rise to liability if committed by anyone -- not just an attorney.
Appellants' argument fails for two reasons. First, appellants read Lee too broadly. The Lee court acknowledged that "[m]isconduct does not 'aris[e] in' the performance of professional services . . . merely because it occurs during the period of representation or because the representation brought the parties together." (Lee, supra, 61 Cal.4th at p. 1238.) To be specific, section 340.6 does not bar claims "unrelated to the Legislature's purpose in enacting section 340.6(a) -- for example, claims that an attorney stole from or sexually battered a client while the attorney was providing legal advice." (Ibid.) Thus, while the Lee court recognized that section 340.6 does not apply to all claims brought against attorneys, it did not go so far as to define claims falling outside of section 340.6 as acts that would give rise to liability if committed by anyone. Instead, the high court was clear that section 340.6(a) "applies to claims that necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services unless the claim is for actual fraud." (Lee, at p. 1239.)
As explained in Connelly v. Bornstein (2019) 33 Cal.App.5th 783, 797, (Connelly) "[t]he examples provided by Lee of wrongful conduct that violates both an attorney's professional obligations and generally applicable nonprofessional obligations involve conduct that is merely incidental to the provision of professional services: sexual battery and 'garden-variety theft.'" Thus, in defining conduct that falls outside of the limitations period set forth in section 340.6, we look for conduct that is merely incidental to an attorney's professional obligations - not, as appellants suggest, conduct that would give rise to liability if committed by a non-attorney.
As the parties acknowledge, Connelly, supra, 33 Cal.App.5th 783 illustrates that attorneys are subject to the one-year statute of limitations found in section 340.6 even when their conduct is identical to that of non-attorneys. In Connelly, the Court of Appeal confirmed that section 340.6 applies to malicious prosecution claims against attorneys, even though non-attorneys who commit malicious prosecution are subject to a different statute of limitations. (Connelly, at pp. 798-799.)
Second, appellants' argument fails because the acts alleged by appellants in the SAC depend upon proof that the attorneys violated professional obligations in the course of providing professional services. All acts described by appellants in the SAC arise from and involve professional services provided by respondents. Whether it was through providing legal advice, or drafting complex contracts, or acting in their role as fiduciaries to appellants, every act alleged against respondents involved professional services. As such, these acts fall under the category of acts related to the Legislature's purpose in enacting section 340.6, which was to stem rising legal malpractice premiums. The trial court did not err in determining that section 340.6 was the applicable statute of limitations to the claims in the SAC alleged against respondents.
Appellants' argument that respondents' wrongful acts were identical to Duggan's is contradicted by the allegations of the SAC. While Duggan was alleged to have wrongfully obtained control over appellants' properties, respondents were alleged to have "executed their part of the conspiracy by preparing the legal documents purporting to transfer the interests, by not warning [Hollingshead] of the import of such documents, and by not informing [Hollingshead] that they were not acting in his best interests." Thus, we reject appellants' argument that "Duggan is alleged to have committed the exact same wrongful conduct."
DISPOSITION
The judgment is affirmed.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
/s/_________, J.
CHAVEZ We concur: /s/_________, P. J.
LUI /s/_________, J.
HOFFSTADT