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Tentative Ruling
Judge Colleen Sterne
Department 5 SB-Anacapa
1100 Anacapa Street P.O. Box 21107 Santa Barbara, CA 93121-1107

CIVIL LAW & MOTION

Grace Design Associates, Inc. v. Mark T. Coffin, et al.

Case No: 19CV04976
Hearing Date: Mon Feb 03, 2020 9:30

Nature of Proceedings: Demurrer First Amended Complaint

 

 

 

Grace Design Associates, Inc. v. Mark T. Coffin, et al. (Judge Sterne)

Case No. 19CV04976

           

Hearing Date:      February 3, 2020                                                        

 

HEARING:             

Demurrer of Defendant Mark T. Coffin to First Amended Complaint

 

ATTORNEYS:       

For Plaintiff Grace Design Associates, Inc.: A. Maria Plumtree, Plumtree & Associates

For Defendant Mark T. Coffin: R. Chris Kroes, Linda Elias-Wheelock, Law Offices of McCarthy & Kroes

 

                                   

 

TENTATIVE RULING:

 

For the reasons set forth herein, the demurrer of defendant Mark T. Coffin to the first amended complaint, and to all causes of action therein, is sustained with leave to amend. Plaintiff Grace Design Associates, Inc., shall file and serve its second amended complaint, if it elects to do so, on or before February 19, 2020.

 

 

Background:

 

Defendant Mark T. Coffin (Coffin) is an attorney. (First Amended Complaint [FAC], ¶ 4.)

 

In September 2010, Coffin and plaintiff Grace Design Associates, Inc. (GDA), entered into a written representation agreement by which Coffin through his law firm, Hardin & Coffin LLP, would “provide legal services in connection with reviewing and revising contracts and general business consultation.” (FAC, ¶ 9 & exhibit 1, ¶ 2.) Pursuant to this agreement, on October 11, 2010, after reviewing GDA’s documents and extensively discussing GDA’s business practices and internal operations, Coffin prepared and provided GDA with a legally compliant construction contract as well as an extensive analysis regarding the structure and substance of GDA’s contracts. (FAC, ¶ 14 & exhibit 2.) After the conclusion of his duties and obligations under the Contract, Coffin failed to return the remaining balance of GDA’s client-trust account as well as GDA’s confidential documents. (FAC, ¶ 15.)

 

On March 15, 2016, GDA entered into a home improvement contract with Thomas Monroe and Patricia Monroe (collectively, the Monroes) to provide design and construction landscape work at their residence in Santa Barbara. (FAC, ¶ 16 & exhibit 3.) A contract dispute subsequently arose between GDA and the Monroes. (FAC, ¶ 16.) The Monroes hired Coffin to represent them in this dispute. (FAC, ¶ 17.)

 

By letter dated June 20, 2016, Coffin wrote to GDA’s counsel, attorney Maria Plumtree, outlining multiple Home Improvement Contract requirement violations in GDA’s contract with the Monroes. (FAC, ¶ 18 & exhibit 4.) Coffin’s legal advice to GDA in 2010 was directly related to GDA’s compliance with Home Improvement Contract requirements. (FAC, ¶ 18.)

 

By letter dated June 21, 2016, Plumtree wrote to Coffin, stating that GDA did not consent to Coffin’s representation of the Monroes and demanding that Coffin immediately remove himself from this matter. (FAC, ¶ 19 & exhibit 5.) Coffin refused. (FAC, ¶ 19.)

 

To protect its confidential information from possibly being used against it, GDA expended substantial resources effectuating Coffin’s removal, including writing a letter, drafting a motion to disqualify Coffin in anticipation of impending litigation, and drafting a complaint including Coffin as a defendant for breach of fiduciary duty. (FAC, ¶ 20 & exhibits 5-7.)

 

On August 10, 2016, GDA filed a complaint against the Monroes for breach of contract and against Coffin for breach of fiduciary duty in Grace Design Associates, Inc., v. Monroe, et al., Santa Barbara County Superior Court case number 16CV03488 (the Monroe Action). (FAC, ¶ 23 & exhibit 7.)

 

On September 16, 2016, Coffin substituted out as counsel for the Monroes in the Monroe Action. (Coffin Request for Judicial Notice [RJN], exhibit 2.)

 

On September 23, 2016, Coffin filed a demurrer to the complaint in the Monroe Action. (RJN, exhibit 3.)

 

On October 24, 2016, the court sustained Coffin’s demurrer to the complaint in the Monroe Action with leave to amend. (RJN, exhibit 4.)

 

On November 3, 2016, GDA requested, and the court entered, dismissal without prejudice as to Coffin in the Monroe Action. (RJN, exhibit 5.)

 

On April 30, 2019, GDA filed a notice of settlement of the entire case in the Monroe Action. (RJN, exhibit 6.)

 

On August 29, 2019, GDA requested, and the court entered, dismissal with prejudice as to the remaining complaint in the Monroe Action. (RJN, exhibit 7.)

 

On June 20, 2019, GDA received a declaration from the Monroes that establishes that Coffin had disclosed confidential information about GDA to the Monroes while he was representing the Monroes. (FAC, ¶ 25 & exhibit 8.)

 

“Plaintiff first discovered Coffin’s disclosure within the last year and could not have discovered the disclosure any sooner through the exercise of reasonable diligence.” (FAC, ¶ 28.)

 

On September 18, 2019, GDA filed its original complaint in this action asserting two causes of action: (1) negligence; and, (2) breach of fiduciary duty.

 

On October 28, 2019, Coffin filed his first demurrer to the original complaint in this action. On November 1, Coffin took off calendar the first demurrer and gave notice of a new hearing date for a yet-to-be filed demurrer. On November 5, Coffin filed his second demurrer to the original complaint.

 

On November 19, 2019, without the demurrer having been heard, GDA filed the FAC. The FAC asserts three causes of action: (1) negligence; (2) breach of fiduciary duty; and, (3) breach of contract.

 

On December 18, 2019, Coffin filed this demurrer to the FAC. Coffin argues that each cause of action is barred by the statute of limitations and that GDA has not sufficiently pleaded the causation and damages element of the cause of action for legal malpractice.

 

The demurrer is opposed by GDA.

 

Analysis:

 

“ ‘The rules by which the sufficiency of a complaint is tested against a general demurrer are well settled. We not only treat the demurrer as admitting all material facts properly pleaded, but also ‘give the complaint a reasonable interpretation, reading it as a whole and its parts in their context.’ ” (Zhang v. Superior Court (2013) 57 Cal.4th 364, 370, internal quotation marks and citations omitted.)

 

(1)       Request for Judicial Notice

 

In support of the demurrer, Coffin requests that the court take judicial notice of: (RJN, exhibit 1) the complaint in the Monroe Action; (exhibit 2) Coffin’s substitution of attorney in the Monroe Action; (exhibit 3) Coffin’s demurrer in the Monroe Action; (exhibit 4) the court’s minute order ruling on Coffin’s demurrer in the Monroe Action; (exhibit 5) the request for dismissal of Coffin from the Monroe Action; (exhibit 6) the notice of settlement filed in the Monroe Action; and, (exhibit 7) the request for full dismissal in the Monroe Action. The court grants these requests. (See Evid. Code, § 452, subd. (d)(1).) Judicial notice does not extend to the truth of factual matters set forth in court documents.

 

(2)       Statute of Limitations

 

Coffin argues that each of the causes of action of the FAC are barred by the one year statute of limitations applicable to professional negligence, Code of Civil Procedure section 340.6. GDA argues that section 340.6 does not apply to this action and that the applicable statute of limitation is the four year statute of section 343. GDA further argues that even if section 340.6 did apply, there are factual questions which prevent section 340.6 from resolving this issue on demurrer.

 

“ ‘ “A demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. [Citation.] In order for the bar ... to be raised by demurrer, the defect must clearly and affirmatively appear on the face of the complaint; it is not enough that the complaint shows that the action may be barred. [Citation.]” [Citation.]’ [Citation.]” (Committee for Green Foothills v. Santa Clara County Bd. of Supervisors (2010) 48 Cal.4th 32, 42.)

 

“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. … Except for a claim for which the plaintiff is required to establish the plaintiff's factual innocence, the time for commencement of legal action shall not exceed four years except that the period shall be tolled during the time that any of the following exist:

            “(1) The plaintiff has not sustained actual injury.

            “(2) The attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred.

            “(3) The attorney willfully conceals the facts constituting the wrongful act or omission when those facts are known to the attorney, except that this subdivision shall toll only the four-year limitation.

            “(4) The plaintiff is under a legal or physical disability that restricts the plaintiff’s ability to commence legal action.

            “(5) A dispute between the lawyer and client concerning fees, costs, or both is pending resolution under Article 13 (commencing with Section 6200) of Chapter 4 of Division 3 of the Business and Professions Code.” (Code Civ. Proc., § 340.6, subd. (a).)

 

None of the parties cite or discuss the most applicable case to the issue of whether section 340.6 applies to this action, Lee v. Hanley (2015) 61 Cal.4th 1225 (Lee). In Lee, the plaintiff alleged that she had advanced funds to the defendant attorney but that the attorney refused to return the unearned fees after the plaintiff terminated the representation. (Id. at p. 1229.) The attorney demurred and the trial court sustained the demurrer on the grounds that the one-year statute of limitations of section 340.6 applied. (Ibid.) The plaintiff declined further amendment, judgment of dismissal was entered, and the plaintiff appealed. (Id. at pp. 1229-1230.) At the Court of Appeal, the court determined that the plaintiff’s complaint could be construed as advancing a claim for conversion which the court found would not be subject to section 340.6 and would be timely under a different statute of limitations. (Id. at pp. 1231-1232.) The Court of Appeal reversed. (Id. at p. 1232.)

 

On review in the California Supreme Court, the Lee court first noted that the plaintiff’s complaint would be barred as untimely if the plaintiff’s claim is for “ ‘a wrongful act or omission, other than for actual fraud, arising in the performance of professional services’ within the meaning of section 340.6(a).” (Lee, supra, 61 Cal.4th at p. 1233.) “The statutory text does not by itself make clear whether the phrase ‘arising in the performance of professional services’ limits the scope of section 340.6(a) to legal malpractice claims or covers a broader range of wrongful acts or omissions that might arise during the attorney-client relationship.” (Ibid.) The court therefore addressed the meaning of “arising in the performance of professional services.”

 

The Lee court concluded “that section 340.6(a)’s time bar applies to claims whose merits necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services. In this context, 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 Rules of Professional Conduct. By contrast, as the Court of Appeal observed, section 340.6(a) 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, even if the theft occurs while the attorney and the victim are discussing the victim’s legal affairs. Section 340.6(a) also 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.’ [Citation.]” (Lee, supra, 61 Cal.4th at pp. 1236–1237.) “[T]he question is whether the claim, in order to succeed, necessarily depends on proof that an attorney violated a professional obligation as opposed to some generally applicable nonprofessional obligation.” (Id. at p. 1238.)

 

Applying this construction of section 340.6, the Lee court determined that the plaintiff’s complaint there was not necessarily barred because the allegations of the complaint may be construed as not depending upon proof of the violation of a professional obligation. (Lee, supra, 61 Cal.4th at p. 1238.) The court therefore affirmed the reversal of the trial court’s sustaining of the demurrer. (Id. at p. 1240.)

 

All of the cases cited by GDA to support the argument that section 340.6 did not apply pre-date Lee and do not address the rule explained by Lee. GDA’s first cause of action is for negligence expressly based upon professional duties owed to GDA by Coffin by virtue of the attorney-client relationship. (FAC, ¶¶ 30-31.) GDA’s second cause of action is for breach of fiduciary duties again by virtue of the attorney-client relationship. (FAC, ¶¶ 35-36.) These two causes of action clearly fall within the rule of Lee that proof of a professional obligation is required for the cause of action and so section 340.6 applies. GDA’s third cause of action is for breach of the attorney-client representation contract. There are two types of breaches alleged: failure to return unused retainer monies after termination and use of confidential information obtained by virtue of the attorney-client representation. (FAC, ¶ 43.) The former breach, like the breach of obligation discussed in Lee, may or may not require proof of a professional obligation; the latter breach requires proof of a professional obligation and hence section 340.6 applies to it.

 

With respect to the breach of contract claim for failure to return unused retainer money, the contract provision cited in the FAC states that “[a]ny unused deposit at the conclusion of our services will be refunded to Client.” (FAC, exhibit 1, ¶5B.) The last date alleged as to the conclusion of services under the contract was October 11, 2010. (FAC, ¶ 14.) The longest statute of limitation that may apply, absent tolling or delayed accrual, is four years. (Code Civ. Proc., §§ 337, subd. (a) [actions for breach of written contract], 343 [actions without an express limitations period].) Thus, regardless of what statute of limitation applies, the allegations of the FAC show that this aspect of the breach of contract claim would have accrued in October 2010 when the service concluded and repayment was not made pursuant to the terms of the contract. The complaint was filed in 2019, more than four years after the accrual of that aspect of the cause of action. As now pleaded, this aspect of the cause of action is barred by the statute of limitations.

 

The first and second causes of action, and the remainder of the third cause of action, are, under the rule of Lee, subject to section 340.6. GDA argues that even if section 340.6 applies generally, the complaint does not show that section 340.6 bars the action.

 

GDA points out the three issues raised by section 340.6: “With regard to whether the one-year limitations period precludes plaintiffs’ action, there are three issues that must be addressed: (1) did plaintiffs discover [defendant’s] wrongful act(s) or omission(s) more than one year prior to [the filing of the complaint]; (2) if discovery occurred, was the statute of limitations tolled because the attorney(s) at issue continued to represent plaintiffs; and (3) if discovery occurred, was the statute of limitations tolled because plaintiffs had not sustained actual injury at the time they discovered [defendant’s] wrongful act?” (Croucier v. Chavos (2012) 207 Cal.App.4th 1138, 1146.)

 

The basis for the professional negligence claims (whether denominated as negligence, breach of fiduciary duty, or breach of contract) is that Coffin breached his professional duties to GDA by his representation of the Monroes in the Monroe Action. (FAC, ¶¶ 16-23.) Coffin substituted out of the Monroe Action on September 16, 2016. This action was filed on September 18, 2019, more than one year after the alleged wrongful acts last occurred.

 

“Code of Civil Procedure ‘section 340.6(a) makes the plaintiff’s actual or constructive discovery of the defendant’s wrongdoing an element of its one-year-from-discovery limitations defense, it does not —nor does any other law—make the plaintiff’s actual or constructive discovery of the defendant’s wrongdoing an element of a prima facie claim for attorney malpractice. [Citation.]’ [Citation.] Put another way, ‘defendant, if he is to avail himself of the statute’s one-year-from-discovery limitation defense, has the burden of proving, under the “traditional allocation of the burden of proof” [citation], that plaintiff discovered or should have discovered the facts alleged to constitute defendant’s wrongdoing more than one year prior to filing [the] action.’ [Citation.]” (Stueve Bros. Farms, LLC v. Berger Kahn (2013) 222 Cal.App.4th 303, 315.)

 

The first of these three issues presented is whether the allegations in the complaint, or the matters judicially noticed, show that GDA “knew or should have known” about the alleged malpractice more than one year prior to the filing of the complaint. “ ‘It is well settled that the one-year limitations period of section 340.6 “ ‘is triggered by the client’s discovery of “the facts constituting the wrongful act or omission,” not by his discovery that such facts constitute professional negligence, i.e., by discovery that a particular legal theory is applicable based on the known facts. “It is irrelevant that the plaintiff is ignorant of his legal remedy or the legal theories underlying his cause of action.” ’ ” ’ [Citation.]” (Croucier v. Chavos, supra, 207 Cal.App.4th at p. 1146.)

 

The Monroe Action complaint, filed August 10, 2016, alleges that “Coffin has breached his duty to GDA because Coffin currently represents Tom and Patricia Monroe in matters adverse to GDA, even though during his prior representation of GDA, Coffin was privy to and/or obtained confidential GDA information that is material to this current matter, and his representation of the Monroes. [¶] Coffin has further breached his duty to GDA by disclosing confidential client communications and/or information to third parties regarding his prior representation of GDA.” (FAC, exhibit 7, ¶¶ 48-49, capitalization altered.) The Monroe Action complaint was filed on August 10, 2016. These allegations expressly state that, as of August 10, 2016, Coffin had breached his professional duties based upon the same conduct alleged in this action and therefore implies that GDA knew of such facts, which facts are not alleged on information and belief, at least as early as the date of the filing of the complaint in the Monroe Action. Thus, on the pleadings and judicially noticed matter now presented, GDA had discovered the wrongful acts and omissions more than one year prior to September 18, 2019.

 

The second of the three issues is tolling for continuing representation. The FAC alleges that Coffin’s representation of GDA had terminated prior to the filing of the complaint in the Monroe Action in 2016. (FAC, ¶¶ 17-20, 23 & exhibit 7, ¶ 47.) Tolling for continuing representation therefore does not apply to affect the timing calculations here.

 

The third of the three issues is tolling for lack of actual injury. “The test for actual injury under section 340.6 … is whether the plaintiff has sustained any damages compensable in an action, other than one for actual fraud, against an attorney for a wrongful act or omission arising in the performance of professional services.” (Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 751 (Jordache).) “Actual injury refers only to the legally cognizable damage necessary to assert the cause of action. There is no requirement that an adjudication or settlement must first confirm a causal nexus between the attorney’s error and the asserted injury. The determination of actual injury requires only a factual analysis of the claimed error and its consequences. The inquiry necessarily is more qualitative than quantitative because the fact of damage, rather than the amount, is the critical factor.” (Id. at p. 752.) The FAC alleges that, prior to the filing of the Monroe Action complaint, GDA “expended substantial resources effectuating Coffin’s removal.” (FAC, ¶ 20.) The FAC thus alleges that there was actual injury prior to the filing of the Monroe Action.

 

In opposition, GDA argues that there was a lack of actual injury because GDA’s injuries depended upon the outcome of the Monroe Action, which was not resolved until 2019. GDA cites Radovich v. Locke-Paddon (1995) 35 Cal.App.4th 946, 972 (Radovich): “When the issue of actual injury will or may be resolved in a dispute-resolution proceeding separate from the malpractice action itself, the more recent cases have manifested unwillingness to find sufficient empirical certainty before initial disposition (by settlement, judgment, or otherwise) of the separate proceeding, and neither the occurrence nor the cost of the separate proceeding will itself be regarded as ‘actual injury.’ ” In support of this proposition, the Radovich court cited to ITT Small Business Finance Corp. v. Niles (1994) 9 Cal.4th 245 (ITT) as an example to explain that “ ‘in transactional legal malpractice cases, when the adequacy of the documentation is the subject of dispute, an action for attorney malpractice accrues on entry of adverse judgment, settlement, or dismissal of the underlying action.’ [Citation.] The Supreme Court reasoned that ‘[h]ad ITT prevailed in the adversary proceeding, it would have suffered no “actual injury” from the initial attorney’s preparation of the loan documents ...’ [citation], and that the ‘initial legal fees incurred by ITT were not sufficient “actual injury” within the meaning of section 340.6(a)(1) because at the time the proceeding was filed and ITT hired counsel to defend the loan documentation, there was no actual harm attributable to malpractice.’ [Citation.]” (Radovich, supra, 35 Cal.App.4th at p. 972.)

 

Radovich was decided in 1995 and ITT was decided in 1994. In 1998, the California Supreme Court decided Jordache, which overruled the decision in ITT and the rule relied upon by Radovich: “We are now convinced, however, that the rules ITT advanced cannot be reconciled with the particularized factual inquiry required to determine actual injury under section 340.6 in accord with [Budd v. Nixen (1971) 6 Cal.3d 195], [Adams v. Paul (1995) 11 Cal.4th 583], and our decision in this case.” (Jordache, supra, 18 Cal.4th at p. 763.) “The facts of each case must be examined in light of the specific attorney errors the plaintiff in each case alleges. Consequently, the rule that applies when a plaintiff sustains actual injury from malpractice in transactional matters cannot differ from the rule that applies when claims involve other areas of legal advice and services. The resolution of litigation related to alleged malpractice may or may not mark the point at which a plaintiff first sustains actual injury under section 340.6. The statutory scheme cannot accommodate a peremptory rule that declares otherwise. Accordingly, because ITT employed criteria for determining actual injury under section 340.6 that conflict with the principles reaffirmed in this opinion, we overrule it.” (Ibid.)“Actual 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.)

 

GDA alleges that actual injury in the nature of legally cognizable damages had been suffered prior to the filing of the complaint in the Monroe Action and, indeed, the complaint in the Monroe Action itself alleges that such damages had been sustained. (FAC, exhibit 7, ¶ 44.) “The loss or diminution of a right or remedy constitutes injury or damage. [Citation.] Neither uncertainty of amount nor difficulty of proof renders that injury speculative or inchoate.” (Jordache, supra, 18 Cal.4th at p. 744.) The alleged fact that it was not until after the conclusion of the Monroe Action in 2019 that GDA was able to establish actual disclosure of confidences is not relevant to when GDA first suffered actual injury because of Coffin’s allege breach of professional obligations.

 

The allegations of the FAC show that the causes of action, as pleaded, are barred by the applicable statute of limitations. The demurrer to each of the causes of action will be sustained. It is unclear that GDA can truthfully allege any of these causes of action as timely filed within the statute of limitations. However, this is the first complaint upon which the court has ruled on a demurrer and GDA requests leave to amend. Leave to amend will be granted for GDA to state its best case if it chooses to do so.

 

This result makes it unnecessary for the court to address other arguments made as grounds for demurrer.

 

 
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