Opinion
G056058
09-11-2019
RESHAM, INC., et al., Plaintiffs and Appellants, v. TUTTON INSURANCE SERVICES, INC., et al., Defendants and Respondents.
Law Offices of Kevin B. Kevorkian and Kevin B. Kevorkian for Plaintiffs and Appellants. Collins Collins Muir + Stewart, David E. Barker and Ryan E. Palumbo for Defendants and Respondents.
NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 30-2016-00889291) OPINION Appeal from a judgment of the Superior Court of Orange County, Gregory H. Lewis, Judge. Reversed. Law Offices of Kevin B. Kevorkian and Kevin B. Kevorkian for Plaintiffs and Appellants. Collins Collins Muir + Stewart, David E. Barker and Ryan E. Palumbo for Defendants and Respondents.
* * *
While their workers' compensation insurance policy with the California Restaurant Mutual Benefit Corporation (CRMBC) was still in effect, Resham, Inc., Reshiv, Inc., and Vanil, Inc. (collectively "Resham") cancelled the policy midterm in reliance on representations made by Niall Armstrong, an employee of its insurance broker, Tutton Insurance Services, Inc. (collectively "Tutton"), that Armstrong had obtained a waiver from CRMBC of the midterm cancellation penalty. After Resham cancelled the policy, CRMBC sent an invoice for the cancellation penalty in August 2013, and later initiated arbitration seeking payment of the penalty. Resham defended on the basis that Armstrong had obtained a waiver of the penalty from CRMBC, and at the arbitration hearing, Armstrong testified he obtained a waiver. The arbitrator, however, determined Resham owed the cancellation penalty and issued an arbitration award to that effect in June 2016.
In November 2016, Resham sued Tutton, alleging that Tutton committed malpractice and negligent misrepresentation when it represented it had obtained a waiver of the cancellation penalty from CRMBC despite failing to obtain a written waiver or written confirmation of the waiver. Tutton moved for summary judgment, arguing Resham's claims were time-barred under the applicable two-year statute of limitations. Tutton claimed Resham's claims accrued in August 2013, when it was on inquiry notice that Tutton had not obtained a written waiver. Thus, according to Tutton, the November 2016 complaint was outside the limitations period and therefore time-barred. Resham argued it was not actually damaged as a result of Tutton's wrongful conduct until June 2016 when the arbitrator determined Resham was obligated to pay the cancellation penalty. According to Resham, its claims against Tutton accrued on that date and its complaint was timely. The trial court granted summary judgment in favor of Tutton after concluding Resham was on inquiry notice of its claims in November 2013.
On appeal, Resham contends Tutton failed to meet its burden to show Resham was actually damaged as a result of Tutton's malpractice in August 2013. For the reasons stated below, we conclude Tutton failed to show it was entitled to summary judgment. Accordingly, we reverse the judgment.
I
FACTUAL AND PROCEDURAL BACKGROUND
On November 28, 2016, Resham filed a complaint against Tutton, alleging causes of action for professional negligence and negligent misrepresentation. According to the complaint, for the policy period 2011 to 2012, Resham had workers' compensation insurance with CRMBC. The policy had an August 1, 2012, renewal date. Resham, however, was unhappy with CRMBC's performance, and it began exploring alternate coverage in April 2012. Prior to renewal, Armstrong advised Resham's president, Anil Yadav, that CRMBC had agreed to waive any short rate penalty should Resham renew and then cancel midterm. In reliance on that representation, Resham renewed with CRMBC in August 2012. A month later, Resham cancelled the policy.
Tutton, however, never obtained "a written waiver of the short rate penalty or otherwise confirm in writing with CRMBC the waiver of the short rate penalty." In April 2015, CRMBC initiated binding arbitration against Resham for payment of the short rate penalty. On June 2, 2016, the arbitrator issued an award in favor of CRMBC and against Resham "in the amount of $167,179.00 plus interest at the rate of 10 [percent] from and after September 1, 2013."
The written arbitration award was not submitted to the trial court when it heard the summary judgment motion. Although the arbitrator awarded CRMBC $167,179, other undisputed facts in the record indicate the short rate penalty was $166,179. The $1,000 discrepancy is unexplained, but is not germane to the issues on appeal.
Tutton filed a motion for summary judgment, arguing Resham's claims were time-barred under Code of Civil Procedure section 339, which provides a two-year limitations period for professional negligence and negligent misrepresentation claims (all further statutory references are to the Code of Civil Procedure, unless otherwise stated). In its motion, Tutton noted the elements of a professional negligence cause of action are: (1) duty, (2) breach of the duty, (3) proximate causal connection between breach and resulting injury, and (4) actual loss or damage. The elements of a cause of action for negligent representation are: (1) misrepresentation of material fact, (2) justifiable reliance, and (3) resulting damages. The limitations period begins to run when all elements are met or when the plaintiff suspects or should suspect it has been harmed. According to Tutton, the limitations period on Resham's claim began running on August 1, 2013, when it received a letter from CRMBC "stating that a short rate penalty was being enforced and [Resham was] required to pay." Tutton claimed that upon receipt of the August 1, 2013 CRMBC invoice, Resham "knew, or should have known, that [Tutton's] alleged statements that the short rate penalty was waived were inaccurate."
In support of the summary judgment motion, Armstrong submitted a declaration attaching the proposal and "Contribution Indication Quote" he obtained on the CRMBC insurance policy. The proposal noted the policy had a short rate cancellation penalty for midterm cancellation. The quote noted the short rate penalty, but also provided that "[i]f the mid-term cancellation is mutually agreed to by CRMBC and the member, no short rate penalty will apply."
The August 1, 2013 CRMBC invoice demanding payment of the short rate penalty was attached as an exhibit to another declaration. The letter stated that "the results of the 2012 audit for Resham, Inc., indicat[ed] a contribution due of $181,153.00," and requested payment within 15 days. The dollar amount included $166,179 for a "Short Rate Penalty."
In its Separate Statement of Undisputed Material Facts, Tutton set forth key dates, including Resham renewing the CRMBC insurance policy in early August 2012, cancelling the policy in September 2012, receiving the CRMBC invoice in August 2013, and filing its complaint against Tutton in November 2016. Tutton also noted that Resham's claims were based on Tutton's representation that "CRMBC agreed to waive any sho[rt] rate penalty should [Resham] renew the[ ] policy and later terminate or cancel the policy mid-term" despite Tutton's failure "to obtain from CRMBC a written waiver of the short rate penalty or otherwise confirm in writing with CRMBC the wa[i]ver of the short rate penalty." Resham never disputed these facts.
Resham opposed the motion for summary judgment, arguing that Tutton failed to carry its burden of proof to demonstrate that Resham's claims were barred by the statute of limitations and that it (Resham) was not damaged until issuance of the arbitration award. Resham contended that "whether the short rate penalty had been waived, and whether [Resham] [was] damaged, was not determined until the arbitration order was issued. Had the arbitration been in [Resham's favor], [Resham] would not have been damaged and there would not have been any malpractice . . . Until the arbitration was decided, there was no claim that [Resham] could have brought against [Tutton]."
In a supporting declaration, Yadav declared that "Armstrong told me prior to renewal that the short rate penalty had been waived" and that "Armstrong has at all times maintained to me that CRMBC waived the short rate penalty." Yadav further declared that Resham "defended the CRMBC arbitration on the basis that CRMBC had waived the short rate penalty" and that "Armstrong testified at the arbitration that CRMBC had waived the short rate penalty." Resham also submitted a Separate Statement of Additional Undisputed Material Facts, which reiterated the statements in Yadav's declaration, including that "Armstrong has at all times maintained to [Resham] that CRMBC had waived the short rate penalty" and that "Armstrong testified at the arbitration that CRMBC had waived the short rate penalty." The record does not contain any response from Tutton to these additional undisputed facts.
The trial court granted Tutton's motion for summary judgment. It determined section 339 is the applicable statute of limitations and concluded Tutton had met its burden to show the statute of limitations was a complete defense to Resham's causes of action. The court determined the limitations period began to run on August 1, 2013, when Resham received the CRMBC invoice, because on that date, Resham had inquiry notice of its claims against Tutton.
II
DISCUSSION
"A motion for summary judgment is properly granted 'if all the papers submitted show that there is no triable issue as to any material fact and that the moving party is entitled to judgment as a matter of law.'" (Biancalana v. T.D. Service Co. (2013) 56 Cal.4th 807, 813.) "The moving party bears the burden of showing the court that the plaintiff 'has not established, and cannot reasonably expect to establish, a prima facie case. . . .' [Citation.]" (Miller v. Department of Corrections (2005) 36 Cal.4th 446, 460.) "We review summary judgment appeals by applying the same three-step analysis applied by the trial court: First, we identify the issues raised by the pleadings. Second, we determine whether the movant established entitlement to summary judgment, that is, whether the movant showed the opponent could not prevail on any theory raised by the pleadings. Third, if the movant has met its burden, we consider whether the opposition raised triable issues of fact." (Hawkins v. Wilton (2006) 144 Cal.App.4th 936, 939-940.) "' Where the evidence presented by defendant does not support judgment in his favor, the motion must be denied without looking at the opposing evidence, if any, submitted by plaintiff.' [Citation.]" (Id. at p. 940.)
"On appeal after a motion for summary judgment has been granted, we review the record de novo, considering all the evidence set forth in the moving and opposition papers except that to which objections have been made and sustained. [Citation.]" (Guz v. Bechtel National, Inc. (2000) 24 Cal.4th 317, 334.) "Because a summary judgment denies the losing party its day in court, we liberally construe the evidence in support of that party and resolve doubts concerning the evidence in that party's favor." (Creekridge Townhome Owners Assn., Inc. v. C. Scott Whitten, Inc. (2009) 177 Cal.App.4th 251, 255.) In addition, "[w]hile resolution of the statute of limitations issue is normally a question of fact, where the uncontradicted facts established through discovery are susceptible of only one legitimate inference, summary judgment is proper. [Citation.]" (Jolly v. Eli Lilly & Co. (1988) 44 Cal.3d 1103, 1112 (Jolly); NBCUniversal Media, LLC v. Superior Court (2014) 225 Cal.App.4th 1222, 1231 [summary judgment proper where uncontradicted facts established through discovery show statute of limitations has run].) Finally, "[t]hough summary judgment review is de novo, review is limited to issues adequately raised and supported in the appellant's brief." (Christoff v. Union Pacific Railroad Co. (2005) 134 Cal.App.4th 118, 125.)
Resham agrees section 339's two-year statute of limitations applies, asserting the "sole issue to be determined on this appeal is when [its] cause[s] of action accrued . . . In this case, no actual loss or damage was sustained by [Resham] until the arbitration award was issued." Specifically, Resham argued that "[u]ntil the arbitration award, no liability was imposed on [it] as to which [Resham] could have alleged a cause of action against [Tutton]." Because damages is an essential element of Resham's claims and the limitations period on the claims begins running when all elements of a claim are met, the salient issue on appeal is when Resham sustained actual damages from Tutton's alleged malpractice.
"In tort actions, the statute of limitations commences when the last element essential to a cause of action occurs." (San Francisco Unified School Dist. v. W.R. Grace & Co. (1995) 37 Cal.App.4th 1318, 1326.) Where the last essential element is damage, "the infliction of appreciable and actual harm, however uncertain in amount, will commence the statutory period." (Davies v. Krasna (1975) 14 Cal.3d 502, 514.) The common law rule that a cause of action accrued on the date of injury has been modified by the discovery rule. (Jolly, supra, 44 Cal.3d at p. 1109.) Under the discovery rule, a cause of action does not accrue until the plaintiff either discovers the injury and its negligent cause or could have discovered the injury and cause through the exercise of reasonable diligence. (Ibid.) Thus, a claim that an insurance agency is negligent "does not accrue prior to the maturation of perceptible harm, to the injured person's awareness of it, or of circumstances that indicate he should have been aware of it." (United States Liab. Ins. Co. v. Haidinger-Hayes, Inc. (1970) 1 Cal.3d 586, 597; see also Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176, 187 [noting "general rule that in actions for professional or fiduciary malpractice, the cause of action does not accrue until the plaintiff discovers, or should discover, the negligence"].)
Resham contends it did not sustain actual harm until the arbitration award was issued. When a client suffers actual injury from a professional's negligence and whether a collateral proceeding, such as an arbitration, is required before the client sustains actual damages was extensively addressed by the California Supreme Court in Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739 (Jordache). In Jordache, the Supreme Court reaffirmed that "[a]ctual injury occurs when the client suffers any loss or injury legally cognizable as damages in a legal malpractice action based on the asserted errors or omissions." (Id. at p. 743.) It also reiterated the following basic principles: "(1) determining actual injury is predominantly a factual inquiry; (2) actual injury may occur without any prior adjudication, judgment, or settlement; (3) nominal damages, speculative harm, and the mere threat of future harm are not actual injury; and (4) the relevant consideration is the fact of damage, not the amount." (Ibid.)
Although Jordache involved legal malpractice and a different statute of limitations (section 340.6), (id. at pp. 742-743), we find it persuasive and instructive on the analogous issues in nonlegal malpractice cases.
In Jordache, the defendant law firm (Brobeck) was retained to defend its clients (collectively "Jordache") in a lawsuit (the Marciano action), but allegedly failed to advise Jordache it had insurance coverage for the Marciano action. Jordache sued its liability insurers for $30 million in attorney fees and costs paid to defend the Marciano action. The insurance coverage litigation was ultimately settled for $12.5 million. (Jordache, supra, 18 Cal.4th at pp. 744-746.) Jordache then sued Brobeck for negligence, seeking to recover the remaining $17.5 million in defense costs. Brobeck argued the malpractice claim was time-barred, contending Jordache had sustained actual injury when it was required to pay defense costs or when it lost the benefit of the insurance policies during the period before it tendered the defense of the Marciano action to the insurance carriers. The trial court granted summary judgment in favor of Brobeck, but the Court of Appeal reversed, concluding "whether Brobeck's omissions impaired Jordache's interests in the benefits of its insurance policies was contingent on the outcome of the [insurance coverage] action." (Jordache, supra, 18 Cal.4th at p. 746.) The Supreme Court reversed, holding Jordache had sustained actual injury within the meaning of section 340.6 before the settlement of the insurance coverage litigation. (Id. at p. 743.)
The Supreme Court determined Jordache sustained "actual, existing injuries" when "it expended millions of dollars to defend the Marciano action." (Jordache, supra, 18 Cal.4th at p. 754.) In this case, however, there is no evidence Resham expended any funds to defend the arbitration. In addition, as the arbitration demand was made in April 2015, any funds likely would be incurred after that date and Resham's November 2016 complaint would fall within the two-year limitations period of section 339. Finally, Tutton did not move for summary judgment on the basis Resham sustained actual damages when it defended the arbitration.
In rejecting Jordache's argument it had not suffered any actual injury until the insurance coverage litigation was settled, the Supreme Court noted the "insurance coverage litigation could not determine the existence or effect of Brobeck's alleged negligence." (Jordache, 18 Cal.4th at p. 753.) Rather, "the result of Jordache's coverage litigation could only confirm, but not create, Jordache's actual injuries from the late tender of the Marciano action's defense." (Ibid.) It concluded: "Although the outcome of the coverage litigation may have reduced Jordache's damages, that action could neither necessarily exonerate Brobeck, nor extinguish Jordache's action against Brobeck for failure to render timely advice on insurance issues." (Ibid.)
As the foregoing shows, "the determination of actual injury does not necessarily require some form of adjudication, judgment, or settlement." (Jordache, supra, 18 Cal.4th at p. 755, italics added.) The Jordache court recognized, however, that in some cases the determination of whether a client suffers actual injury arising from an attorney's advice or actions might depend upon the outcome of a collateral proceeding. (Jordache, supra, 18 Cal.4th at p. 755) The Supreme Court cited Baltins v. James (1995) 36 Cal.App.4th 1193 (Baltins), for the proposition that "allegations of attorney error in a particular case's factual setting may lead to a finding that actionable injury occurred only when a related action was adjudicated." (Jordache, supra, 18 Cal.4th at p. 755.)
The Jordache court rejected any bright line test for determining actual injury (id. at p. 764), and disapproved Baltins to the extent it suggests there is a "bright line" test for actual injury (Jordache, supra, 18 Cal.4th at p. 761, fn. 9).
In Baltins, the attorney incorrectly predicted how a court would resolve a community property issue, and the clients suffered actual injury when they obtained an adverse judgment. (Baltins, supra, 36 Cal.App.4th at p. 1208.) The Jordache court distinguished Baltins from the instant matter, observing that in Baltins, "the propriety of the legal advice, and hence the existence and effect of error, depended on the future resolution of the issue adversely to the client," whereas, "[b]y contrast, Brobeck's alleged professional negligence did not require an adjudication to indicate its existence. Jordache's claims against Brobeck do not require another proceeding to determine the propriety of affirmative advice or actions. Nor was this an instance where the alleged negligence would have no effect at all until a subsequent adjudication." (Jordache, 18 Cal.4th at p. 761.)
The Jordache court also distinguished Sirott v. Latts (1992) 6 Cal.App.4th 923 (Sirott), another case that concluded the determination of actual injury depended on a collateral proceeding. In Sirott, the client received negligent legal advice that he did not have to pay the insurer a premium for certain medical malpractice coverage, and suffered actual injury when his attorney failed in arbitration proceedings to reinstate the coverage. (Id. at pp. 929-930.) The Jordache court construed "the Sirott decision as an instance where the propriety of the attorney's advice or actions depended on the outcome of a claim by or against a client. [Citation.] In these circumstances, the claim may have to be resolved in order for the client to know that the attorney erred. The pertinent inquiry there may not be when the plaintiff sustained actual injury, but when the plaintiff discovered, or reasonably should have discovered, the facts constituting a wrongful act or omission." (Jordache, supra, 18 Cal.4th at p. 759.) This aspect of Jordache, however, has no relevance to our case because Resham does not argue it did not discover Tutton committed malpractice until issuance of the arbitration award.
Here, when the undisputed facts are construed in the light most favorable to Resham, an "actionable injury occurred only when a related action [here, the arbitration on payment of the short rate penalty] was adjudicated." (Jordache, supra, 18 Cal.4th at p. 755, italics added.) The relevant undisputed facts are as follows: Before August 2012, Armstrong represented to Yadav that CRMBC had agreed to waive the short rate penalty if Resham cancelled the CRMBC policy midterm. The CRMBC insurance policy, as summarized in the insurance quote, provided that "[i]f the mid-term cancellation is mutually agreed to by CRMBC and the member, no short rate penalty will apply." Armstrong has at all times maintained that CRMBC had waived the short rate penalty. Resham defended the CRMBC arbitration on the basis that CRMBC had waived the short rate penalty. At the arbitration, Armstrong testified that CRMBC had waived the short rate penalty. On June 2, 2016, in a written arbitration award, the arbitrator found in favor of CRMBC and ordered Resham to pay the short rate penalty. Finally, Resham's complaint alleged that Tutton failed to obtain a written waiver of the short rate penalty from CRMBC or confirmation of CRMBC's waiver in writing.
From the undisputed facts, it can be inferred that Armstrong obtained an oral waiver of the short rate penalty, but the arbitrator determined an oral waiver was ineffective. Rather, Armstrong should have obtained a written waiver. However, until the arbitrator determined an oral waiver was insufficient, Resham had no malpractice claim against Tutton. Stated differently, if an oral waiver was sufficient, Tutton did not breach any duty and Resham was not damaged because it did not have to pay the short rate penalty. However, because a written waiver was required, Resham sustained actual damaged when it was ordered to pay the short rate penalty. Thus, the "existence and effect" of Tutton's professional negligence (failure to obtain a written waiver) depended on the resolution of the arbitration.
The dissent correctly notes that Resham never argued it suffered no actual damages until the arbitrator determined Tutton did not obtain an effective waiver. However, in opposing Tutton's motion for summary judgment, Resham argued Tutton failed to meet its burden to show Resham suffered actual damages before issuance of the arbitration award. As the movant, Tutton had to show "the uncontradicted facts established through discovery are susceptible of only one legitimate inference." (Jolly, supra, 44 Cal.3d at p. 1112, italics added.) As we have established, based on our de novo review of the moving and opposition papers, there is at least one legitimate inference that would support Resham's argument on actual damages. Thus, Tutton failed to meet its burden to show it was entitled to summary judgment.
Tutton contends Resham's causes of action accrued on receipt of the August 1, 2013 CRMBC invoice because upon receipt of the invoice, Resham should have requested written confirmation of the waiver. However, the invoice never mentioned a waiver of the penalty. It cannot be construed as notifying Resham the short rate penalty could be waived only in writing. In light of the fact that Armstrong maintained at all times he obtained a waiver, a reasonable person could conclude the invoice was mistaken. In any event, even if the invoice put Resham on notice that Armstrong might not have obtained a waiver, the effect of Armstrong's failure to obtain a proper waiver and Resham's right to recover for that failure was not determined until the arbitration. Thus, Resham's claims did not accrue until the issuance of the arbitration award. The trial court therefore erred in granting summary judgment.
The dissent argues our ruling in favor of Resham contradicts numerous cases holding formal adjudication is not required before actual damages can occur. We do not disagree with the holding of those cases. The dissent, however, fails to acknowledge the Supreme Court's explanation that some cases require an adjudication to determine whether there have been damages. (Jordache, supra, 18 Cal.4th at p. 755.) Thus, while incurring an obligation can constitute actual damages, that is not the case here because it was unclear whether Resham actually incurred a contractual obligation to pay the short rate penalty until the arbitration.
A contrary ruling also would place a plaintiff like Resham in an awkward legal position. Despite reasonably believing Tutton did not commit malpractice because Armstrong had obtained an effective waiver of the short rate penalty, Resham would have to sue Tutton and Armstrong for not obtaining a waiver before the arbitration was concluded or be time-barred from raising any malpractice claim. Moreover, after suing Tutton and Armstrong for not obtaining an effective waiver, Resham would have to rely on Armstrong's testimony he had obtained an effective waiver to defeat CRMBC's claim at the arbitration. To make matters worse, Resham could lose its case against Tutton and Armstrong if their summary judgment motion was heard because at that point Resham could show only speculative or contingent damages.
III
DISPOSITION
The judgment is reversed. Appellants are entitled to recover their costs on appeal.
ARONSON, J. I CONCUR: MOORE, J. BEDSWORTH, Acting P. J., Dissenting:
I respectfully disagree with my colleagues that the statute of limitations on Resham's cause of action against its former insurance broker Tutton began as late as the formal adjudication of Resham's short rate penalty in the 2016 arbitration. Resham incurred its damages from Tutton's malpractice in 2012 when Resham, relying on Tutton's advice, discontinued its existing workers' compensation policy, and at that moment incurred the contractual short rate penalty. Resham was put on notice of Tutton's malpractice in 2013 when Resham received the bill for that short rate penalty.
The rationale of the majority opinion is perhaps best articulated in these key sentences on page 12: "From the undisputed facts, it can be inferred that Armstrong obtained an oral waiver of the short rate penalty, but the arbitrator determined an oral waiver was ineffective. Rather, Armstrong should have obtained a written waiver. However, until the arbitrator determined an oral waiver was insufficient, Resham had no malpractice claim against Tutton. Stated differently, if an oral waiver was sufficient, Tutton did not breach any duty and Resham was not damaged because it did not have to pay the short rate penalty." (Italics added.)
First, I can't find this theory anywhere in the appellant's opening brief or the record below. Appellant's opening brief focused on Resham's theory that its damages were inherently speculative until reduced to the arbitration award. The linchpin of appellant's argument was reliance on the two superficially similar insurance malpractice cases of Williams v. Hilb, Rogal & Hobbs Ins. Services of California, Inc. (2009) 177 Cal.App.4th 624, 641 (Williams) and Walker v. Pacific Indemnity Co. (1960) 183 Cal.App.2d 513 (Walker), cases in which the court held that the damages were too speculative to start the statute of limitations until there was a formal adjudication. Those cases are not even mentioned in the majority opinion which reversed on the basis of a wholly different theory. I cannot fault the trial judge for failing to accept an argument that was not presented to him.
Williams and Walker are distinguishable. Each case involved uninsured tort damages that, by definition, could not come into existence until a formal adjudication, and insurers paid for the entirety of the defense until that adjudication. But while they were the linchpin of appellant's brief, my colleagues do not cite them in the majority opinion, instead focusing on the unraised oral waiver point.
But second, and more importantly, even if the issue had been raised, its acceptance contradicts a substantial body of California case law, both from our Supreme Court and the Court of Appeal. California cases long ago repudiated the idea that a plaintiff's damages from professional malpractice must somehow be formally adjudicated before the damage element in a cause of action for professional malpractice has occurred. They have consistently held that when, in reliance on the professional, the plaintiff incurs a substantial degradation of its legal rights or obligations, that is when the damage occurs.
California courts have rejected the idea that damages must be formally adjudicated before they can be said to have occurred, and with good reason: Hope springs eternal. A plaintiff already damaged by some act of the defendant will often hope that somehow he or she can avoid the reification of the damages into a formal judgment in the adjudicatory process. Resham probably did harbor the hope it might defeat CRMBC's action for its short rate penalty in the adjudicatory process. But that hope could not erase the fact it had already incurred the penalty.
A dramatic (literally dramatic) example of the rule damages do not need any formal adjudication for the statute of limitations to begin running is Davies v. Krasna (1975) 14 Cal.3d 502 (Davies). Davies involved an author suing a playwright. In 1951 the author submitted a story to the playwright "in confidence." In 1954 the playwright violated that confidence by disclosing the story to various persons in the entertainment industry. By the end of 1955 the author had learned of the disclosures. (Id. at pp. 504-505.) The author sued the playwright in 1959. Davies held that because the 1954 disclosure destroyed the marketability of the author's story, when the author learned of the disclosures by the end of 1955, "he had incurred actual and appreciable damage sufficient to start the running of the period of limitation." (Id. at p. 514.)
What's more, the Davies court expressly rejected the very argument which Resham did make in its opening brief, which was that "at the time of discovery [of the disclosure] the actual damages were too speculative to justify an award[.]" (Davies, supra, 14 Cal.3d at p. 514.) Wrote Justice Tobriner for a unanimous court: "To delay the running of the period of limitation until defendant's acts furnished plaintiff with a more certain proof of damages would contravene the principle that victims of legal wrong should make reasonable efforts to avoid incurring further damage. . . . [¶] We fear that plaintiff's interpretation of the statute of limitations would impair the safeguards it imposes in cases involving unliquidated damages. As Justice Allport pointed out in his dissenting opinion in the Court of Appeal, 'The argument [advanced by plaintiff] would be available in all such actions that the applicable statute is tolled for an indefinite time simply because the nature and extent of the damage was not determined or readily provable within the otherwise applicable statutory period of limitation.' We conclude that the statutory period commenced once Davies suffered actual and appreciable damage, and thus no later than November 11, 1955." (Id. at p. 515, italics added.)
I think Davies applies a fortiori to the case at bar. In Davies there was a stronger case for not dating what were unliquidated - indeed arguably amorphous - damages until there was "a more certain proof" in the arbitration. Here, Resham's damages constituted a certain sum, readily ascertainable from the insurance contract's short-rate penalty provisions, reduced to a nice tidy bill in August 2013.
But the 800-pound gorilla in this area is Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739 (Jordache). The Jordache opinion is complex. It is like three-dimensional chess in that it involved consideration of no less than three separate lawsuits. So a fairly detailed analysis of it is required.
The jeans-maker Jordache was sued in 1984. The company had advertising liability coverage with several insurers which would have paid for the company's defense in that underlying action. But its first set of defense lawyers failed to request a defense from the insurers. (Jordache, supra, 18 Cal.4th at pp. 744-745.)
Later, in 1987 a second set of defense lawyers spotted the possibility the insurers would have to pay for the defense of the underlying action and demanded the insurers pay for it. They didn't immediately, so the company got a third set of lawyers to sue the insurers in a coverage action. Thus began a second lawsuit. (Jordache, supra, 18 Cal.4th at p. 745.) But by 1987 there lurked the danger the insurers had a late-notice defense to the company's demand for payment of defense fees. (Jordache, supra, 18 Cal.4th at p. 745.)
The underlying original action against the company settled in May 1990. In the wake of that settlement, there was a summary adjudication in the coverage action in July 1990, involving one of the insurers. That summary adjudication determined three things: (1) the company really was owed a defense under its advertising liability coverage; (2) the company had let three years go by without notifying its insurer of the underlying action; but (3) whether the company's late notice had prejudiced the insurer was a triable issue of material fact. (See Jordache, supra, 18 Cal.4th at pp. 744-746.)
In short, by July 1990 the company could still hope it might reduce or eliminate its damages by defeating the insurers' late notice defense. And indeed the company was able to obtain some reduction. In the wake of the summary adjudication, the company settled its claims against its insurers in the coverage action for $12.5 million. (See Jordache, supra, 18 Cal.4th at pp. 745-746.)
At this point the company turned its attention to its first set of defense lawyers - the ones who had failed to advise it the defense of the underlying action could have come out of the company's insurance coverage. The effective day the company sued the first set of defense lawyers was August 15, 1991, about two weeks after the company settled its insurance suits for $12.5 million. (Jordache, supra, 18 Cal.4th at p. 746.) (There was a tolling agreement, which meant though the malpractice suit was filed in February 1991, the suit was "deemed" filed August 15, 1990.)
The issue in lawsuit number three was the statute of limitations. If the damages had occurred when the company, in the wake of the uncertainty as to the validity of the insurers' late-notice defense as it existed in July 1990, settled the coverage action for the $12.5 million, the company's suit against its first set of lawyers would have been clearly timely. But the Supreme Court held that was not the determinative date. The high court dated the damages element of the company's malpractice cause of action to December 1987, when the company's second set of defense lawyers told the company it had coverage for the defense of the underlying action: "Here, the undisputed facts established that Jordache sustained actual injury as a result of Brobeck's [the first set of lawyers] alleged neglect no later than December 1987. By then, Jordache had lost millions of dollars - both in unpaid insurance benefits for defense costs in the Marciano action and in lost profits from diversion of investment funds to pay these defense costs. As Brobeck asserts, these damages were sufficiently manifest, nonspeculative, and mature that Jordache tried to recover them as damages in its insurance coverage suits." (Jordache, supra, 18 Cal.4th at p. 752.)
I lack the subtlety required to distinguish our case from Jordache. Applying Jordache to the case at hand, it is hard to avoid the fact the high court dated the damages element to a time - December 1987 - when it was still possible for the company to believe that it could completely recover its fees (and some extra to reflect the lost opportunity costs of having paid the fees already) by defeating the insurer's late notice defense. Following Jordache, then, Resham's damages occurred in August 2013, even if Resham, like the plaintiff in Jordache, still had the hope it would emerge from later litigation completely whole by its reliance on some defense, perhaps an oral waiver such as the one my colleagues infer.
But the majority does not apply Jordache to the case at hand. Rather it relies on Baltin v. James (1995) 36 Cal.App.4th 1193 (Baltin) as its main authority to reverse the trial court. Baltin was thoroughly described in Jordache itself, because Jordache rejected application of Baltin to the facts at hand. And I think my colleagues are correct to consider the possibility of applying Baltin here, because it shows just how tricky ascertainment of the date of damages can be. But I must respectfully disagree with their application.
Well they don't apply the majority opinion in Jordache. They do, however, in the second paragraph of footnote 7, invoke the rationale of Chief Justice George's dissent, namely that applying Jordache would necessitate "the early filing of legal malpractice actions that might otherwise not be brought." (See Jordache, supra, 18 Cal.4th at p. 767, dis. opn. of George, C. J.)
I reproduce in the margin the fairly large swath of text in Jordache which rejected Baltin. I know it's long - worse, it's a long footnote - but I italicize the passages which, to my mind, show Baltin does not help Resham here. I divine from the passage that the Jordache court fastened on the problem of whether a plaintiff's claim inherently depends on, as the majority opinion says, the "outcome of a collateral proceeding." (Maj. opn. ante, at p. 10.) I particularly note the passages emphasizing that in Baltin the legal malpractice had "no effect" until the collateral proceeding, and rejecting the argument that there was "only a threat of injury" which depended on a defense to be later adjudicated.
"Jordache also relies on Baltins v. James, supra, 36 Cal.App.4th 1193. The plaintiffs in that case, husband and wife, alleged the attorney negligently advised them about transferring and managing real property while the husband appealed an order setting aside his community property settlement agreement with his former wife. According to the complaint, the attorney told plaintiffs that, during the appeal, the husband could treat the property as if the order did not exist. The husband transferred a ranch to his new wife, although it was a community asset of his former marriage. He also spent more than $500,000 on properties he received under the former settlement agreement. He alleged he made the expenditures because the attorney told him he would receive either title to the properties or reimbursement. After the order was affirmed on appeal, the trial court entered a judgment finding the husband breached his fiduciary duties regarding the community property and denying most of the reimbursement credits he sought. (Id. at pp. 1197-1199.) In the legal malpractice action, the Court of Appeal concluded, 'Under the [plaintiffs'] allegations, any error in [the attorney's] advice was not determinable, and had no effect, until following his advice resulted in the adverse judgment in the dissolution action. [Citations.]' (Id. at p. 1208.)
"Jordache contends that, as in Baltins v. James, Brobeck's alleged negligence exposed Jordache only to a threat of injury that depended on the insurers' successfully raising the late notice defense. However, the alleged negligence in Baltins v. James was that the attorney predicted incorrectly how a court would resolve an issue in the future. Thus, the propriety of the legal advice, and hence the existence and effect of error, depended on the future resolution of the issue adversely to the client. (Baltins v. James, supra, 36 Cal.App.4th at pp. 1196, 1208; cf. Sirott v. Latts [(1992)] 6 Cal.App.4th [923,] 929-930.)
"By contrast, Brobeck's alleged professional negligence did not require an adjudication to indicate its existence. Jordache's claims against Brobeck do not require another proceeding to determine the propriety of affirmative advice or actions. Nor was this an instance where the alleged negligence would have no effect at all until a subsequent adjudication. Brobeck's neglect required Jordache to pay defense costs in the Marciano action for years and to lose investment opportunities for those funds. The alleged omissions also gave the insurers an objectively viable defense, which National Union raised immediately when it answered Jordache's complaint in the insurance coverage action. The circumstances Jordache alleges are not comparable to those of Baltins v. James, supra, 36 Cal.App.4th 1193. Like the plaintiff in Sirott v. Latts, supra, 6 Cal.App.4th 923, and unlike the plaintiffs in Baltins v. James, Jordache expended attorney fees as a direct result of its attorneys' alleged negligence well before the resolution of any collateral judicial action." (Jordache, supra, 18 Cal.4th at pp. 760-762, italics added.)
Here, by contrast, Resham's contractual debt to its insurer did not inherently depend on a future adjudication. Resham incurred that debt back in 2012 by terminating its policy prematurely. The arbitration in 2016 "could only confirm, but not create" that actual injury. (Jordache, supra, 18 Cal.4th at p. 753.)
Turning to the fact that the plaintiffs in Jordache parted with real money, while here Resham incurred a debt, I think a number of appellate decisions confirm that the incurrence of a debt is enough to satisfy the occurrence-of-damage element for the statute of limitations to begin running:
First, Foxborough v. Van Atta (1994) 26 Cal.App.4th 217 (Foxborough). There a client lost the right to automatically annex a parcel of land thanks to land use malpractice by his attorney. He argued collateral litigation against a third party could have recouped his losses and "cured" his attorney's negligence. The court held that the damages occurred when he lost the right that he had hired his attorney to secure. (Id. at p. 225, 227.) The appellate court said: "Thus, when malpractice results in the loss of a right, remedy, or interest, or in the imposition of a liability, there has been actual injury regardless of whether future events may affect the permanency of the injury or the amount of monetary damages eventually incurred." (Id. at p. 227, italics added.) In the case at hand, Resham incurred a liability when it discontinued its insurance, thereby incurring the short-rate penalty.
Here the assessment from the insurer for a specific amount presents a stronger case for the occurrence of damages than in Foxborough. In that case the actual damage from the loss of a legal right to automatically annex a parcel would seem to require some further factual adjudication.
Second, Hensley v. Caietti (1993) 13 Cal.App.4th 1165 (Hensley) and Turley v. Wooldridge (1991) 230 Cal.App.3d 586 (Turley). Both cases held that the statute of limitations on actions for attorney malpractice resulting in an unnecessarily disadvantageous marital settlement agreement began with the client's signing of the agreement, prior to the time when the agreement was incorporated into a formal judgment. (See Hensley, supra, 13 Cal.App.4th at pp. 1173-1175; Turley, supra, 230 Cal.App.3d at pp. 589, 593-594.)
In the present case, Hensley and Turley show that Resham was injured when it entered into the transaction in which it discontinued its workers' compensation insurance. Or, as another Court of Appeal put it in summarizing Hensley: "Without question, a party's alteration of its legal position in reliance on its counsel can constitute actual injury even though the party may be able to avoid or reduce the injury through subsequent legal action." (Callahan v. Gibson, Dunn & Crutcher LLP (2011) 194 Cal.App.4th 557, 570, italics added.) I think that's precisely what happened here.
Third, Garver v. Brace (1996) 47 Cal.App.4th 995, 1000 (Garver). I recognize that Garver is not a malpractice case; it is a case where the court held the suit was filed within the statute of limitations period. I refer to it because it is consonant with my conclusion the damages element for a malpractice cause of action begins to run with the incurrence of a contractual penalty and the notice of that penalty by a claimant, which is, after all, the case before us.
In Garver, two buyers of agricultural property signed a promissory note for about 90 percent of the purchase price to the sellers. The note had a rather large - and potentially unenforceable - prepayment fee clause if it was paid off before the expiration of 10 years. However, at the time of signing the buyers expected to build a home on the property (which they subsequently did) and not to have to repay the note in those 10 years. Four years into the note, however, the buyers were "forced to sell" the property, and it was then the sellers demanded payment of the prepayment penalty. (See Garver, supra, 47 Cal.App.4th at pp. 998-999, 1001.) After paying the fee the buyers sued the sellers seeking restitution of the prepayment penalty on various grounds, including economic duress.
The Garver court found the damage from the entering into of a disadvantageous contract accrued when the sellers demanded the penalty: "The buyers were not required to pay the prepayment fee until the sellers demanded it. That is the date upon which the buyers suffered appreciable and actual harm and, therefore, the date on which their cause of action to challenge the validity of the prepayment fee clause accrued." (Garver, supra, 47 Cal.App.4th at pp. 1000-1001, italics added.)
The ascertainment of when the damage occurs in the context of the statute of limitations, particularly the statute of limitations for professional malpractice, is an exceedingly complex matter. It is one with which our high court has repeatedly wrestled. (See Jordache, supra, 18 Cal.4th at p. 765 (conc. opn. of Kennard, J.) ["This is the fourth decision in as many years in which this court has addressed the question of what constitutes 'actual injury' from professional malpractice for purposes of applying a statute of limitations."].) So it may be I just don't understand the area. And I certainly would have profited from the trial court's resolution of the implied waiver theory that was not presented to him or us. As it is, after reviewing Davies, Jordache, Foxborough, Hensley, Turley and Garver, I am unable to find error. So I must respectfully dissent from the decision to reverse.
BEDSWORTH, ACTING P. J.