Opinion
NOT TO BE PUBLISHED
Appeal from an order of dismissal of the Superior Court of Orange County No. 30-2008-00112288, Nancy Wieben Stock, Judge.
Crandall, Wade & Lowe, James L. Crandall, Edwin B. Brown, and Janet G. Harris for Plaintiffs and Appellants Richard Kelter and Rio Vista West, LLC.
Lewis Brisbois Bisgaard & Smith, Peter L. Garchie, Lisa W. Cooney, Ryan P. Garchie; Pietragallo Gordon Alfano Bosick & Raspanti, and Robert D’Anniballe, Jr., for Defendants and Respondents Kenneth R. Hartstein, Brian D. Hartstein, Economic Concepts, Inc., and ECI Pension Planners, LLC.
McDermott Will & Emery, Tyler J. Woods, Douglas E. Whitney, and John A. Litwinski for Defendants and Respondents Richard C. Smith and Bryan Cave, LLP.
OPINION
ARONSON, J.
Plaintiffs Richard Kelter and Rio Vista West, LLC (collectively, Kelter) established a pension plan designed to claim income tax deductions for the contributions he paid into the plan. The Internal Revenue Service (IRS) later audited the plan, found it constituted an illegal tax shelter not entitled to income tax benefits, and notified Kelter he owed back taxes, penalties, and interest on the tax deductions he took for plan contributions.
Kelter sued the insurance companies, pension planners, financial advisors, accountants, attorneys, and other professionals who developed and sold him the pension plan. Kelter alleged these defendants knew the pension plan featured characteristics the IRS looked for in illegal tax shelters, but nonetheless intentionally misrepresented that the plan qualified for preferential tax treatment, while concealing the significant tax risks associated with the plan. Kelter sought to recover his contributions to the plan, all back taxes, penalties, and interest the IRS assessed, and the fees and costs he incurred during the IRS audit.
Kelter appeals from an order of dismissal entered after the trial court sustained without leave to amend the demurrers of the following two groups of defendants Kelter alleged participated in developing and marketing the pension plan and represented him in the IRS audit: (1) Kenneth R. Hartstein, Brian D. Hartstein, Economic Concepts, Inc., and ECI Pension Planners, LLC (collectively, ECI) and (2) Richard C. Smith and Bryan Cave, LLP (collectively, Bryan Cave).
The trial court found the statute of limitations barred Kelter’s claims against ECI and Bryan Cave because they accrued when he established the pension plan and paid the first contribution. We disagree and conclude his claims did not accrue at that point because the contributions Kelter paid into the plan did not cause him any harm until the IRS made its final determination the plan constituted an illegal tax shelter. The trial court also sustained the demurrers on the alternative ground that Kelter failed to allege sufficient facts to state a breach of fiduciary duty claim against ECI or any claim against Bryan Cave. We agree with this alternative ruling. Accordingly, we affirm in part and reverse in part.
I
Because this appeal follows a sustained demurrer, we summarize the underlying facts as alleged in the complaint. (Landmark Screens, LLC v. Morgan, Lewis & Bockius, LLP (2010) 183 Cal.App.4th 238, 240.)
Internal Revenue Code section 412, subdivision (i), authorizes a defined benefits pension plan (Section 412(i) Plan or Plan) that allows an employer to hold in a trust an insurance policy on each plan participant’s life. The employer funds the trust to pay the life insurance premiums and receives a tax deduction for the premium payments. When a plan participant retires, the employer sells the insurance policy on that participant’s life and uses the proceeds to purchase an annuity. The revenue stream from the annuity pays the participant his or her retirement benefits.
Because all insurance premiums paid under Section 412(i) are tax deductible, taxpayers often used the Plan to shelter large amounts of income. The IRS responded by identifying certain misuses of section 412(i) Plans as “abusive” tax shelters not entitled to any income tax benefits. These misuses include funding a plan solely with a life insurance policy that (1) provides death benefits exceeding the amount allowed for an approved Section 412(i) Plan; (2) pays extremely high fees and commissions to the salespeople; and (3) carries exorbitant surrender charges that essentially require an employer to forfeit the plan’s assets if the employer terminates the policy early.
In the late 1990’s, a life insurance company (AmerUs Life Insurance Company), pension planner (ECI), and law firm (Bryan Cave) developed a defined benefits pension plan they called the Pendulum Plan. Although they were aware of the IRS’s position, AmerUs, ECI, and Bryan Cave designed the Pendulum Plan as a Section 412(i) Plan and funded it solely with life insurance policies displaying the characteristics the IRS looks for in an abusive tax shelter.
As early as 1999, AmerUs’s professional advisors warned the company that the IRS might consider the Pendulum Plan an abusive tax shelter. In June 2003, ECI announced it would stop marketing the Pendulum Plan in December 2003 due to widespread industry concerns that contributions to Pendulum Plans would not be tax deductible. Nonetheless, AmerUs and ECI later embarked on a nationwide campaign to market and sell Pendulum Plans as qualified Section 412(i) Plans without disclosing the significant risk that the IRS would audit an employer’s plan, find it abusive, and assess substantial back taxes, interest, and penalties against the employer.
In November 2003, Kelter met with a financial advisor who recommended a Pendulum Plan to take advantage of the income tax benefits it provided. The financial advisor used marketing materials AmerUs and ECI prepared to explain and sell a Pendulum Plan to Kelter. During the sales process, Kelter consulted ECI several times. ECI represented the Pendulum Plan complied with all federal tax laws and Kelter would receive a tax deduction for the life insurance premiums he paid to fund the plan.
In December 2003, Kelter established a Pendulum Plan entitled the Rio Vista West, LLC Defined Benefit Pension Plan (the Rio Plan). He purchased an AmerUs life insurance policy as the sole means to fund the Rio Plan. The policy’s terms included (1) a face value exceeding $6 million; (2) annual premiums exceeding $400,000; (3) a surrender charge exceeding $1.3 million; and (4) an annual “policy expense charge” exceeding $28,000. At no time did ECI or AmerUs advise Kelter about the tax risks associated with establishing the Rio Plan or that the Rio Plan featured all the characteristics the IRS looked for in an abusive Section 412(i) Plan.
Kelter alleged he purchased a single life insurance policy to fund the Rio Plan, but he did not allege how many employees participated in the Rio Plan or whether he participated. For example, he does not allege whether he was the only plan participant and the life insurance policy insured his life only, or whether multiple employees participated in the Rio Plan and the insurance policy insured each of their lives.
In February 2004, the IRS issued two revenue rulings and proposed regulations further defining the characteristics of an abusive Section 412(i) Plan. ECI told Kelter about the proposed regulations in March 2004, but both ECI and Bryan Cave assured Kelter the Rio Plan qualified as a legitimate Section 412(i) Plan and he should continue paying the life insurance premiums.
In April 2004, Kelter authorized Bryan Cave to seek an IRS determination on whether the Rio Plan complied with Internal Revenue Code provisions. In March 2005, the IRS issued a “favorable determination letter” regarding the Rio Plan. AmerUs, ECI, and Bryan Cave reassured Kelter the letter demonstrated the Rio Plan qualified as a Section 412(i) Plan. Kelter thereafter continued paying the life insurance premiums that funded the Rio Plan and continued to claim tax deductions for those payments. Kelter paid more than $1.6 million in premiums and costs on the Rio Plan.
In March 2006, the IRS notified Kelter it would audit the Rio Plan to determine whether it qualified as a Section 412(i) Plan. ECI continued to assure Kelter the Rio Plan qualified and recommended Kelter retain Bryan Cave to represent him during the IRS audit, which Kelter did in April 2006. In February 2007, the IRS notified Kelter it “initial[ly]” determined the Rio Plan did not meet the requirements for a Section 412(i) Plan. In June 2007, the IRS notified Kelter, “Our final position is that we consider your plan abusive because it fails to satisfy Code sections 412(i)(3).”
Kelter began negotiating with the IRS to reach an agreement on the amount of back taxes, penalties, and interest he owed because the Rio Plan failed to qualify as a Section 412(i) Plan. As of May 2009, when Kelter filed his most recent pleading in the trial court, he had not reached an agreement with the IRS, which had yet to assess a specific amount for back taxes, penalties, and interest.
In September 2008, Kelter filed this action against ECI, Bryan Cave, and the other professionals involved in developing and selling him the Pendulum Plan. The trial court sustained several demurrers to Kelter’s first three pleadings. The operative pleading is Kelter’s third amended complaint. It alleged claims against ECI and Bryan Cave for fraud, negligent misrepresentation, breach of fiduciary duty, and negligence. Kelter alleged ECI and Bryan Cave fraudulently induced him to establish the Rio Plan by misrepresenting it qualified as a Section 412(i) Plan and concealing the significant tax risks the plan posed.
ECI and Bryan Cave separately demurred, arguing the statute of limitations barred Kelter’s claims. ECI also argued Kelter failed to allege sufficient facts to state a breach of fiduciary duty claim against it, while Bryan Cave argued Kelter failed to allege sufficient facts to state any cause of action against it.
The trial court concluded the statute of limitations barred Kelter’s claims and sustained both demurrers without leave to amend. The trial court found Kelter’s claims accrued in December 2003 when he relied on “Defendants’ representations” to form the Rio Plan and pay the first premium on the life insurance policy. According to the trial court, Kelter discovered the facts giving rise to his claims no later than March 2004 when Kelter learned about the IRS revenue rulings and proposed regulations on abusive Section 412(i) Plans. The trial court also found Kelter failed to allege any basis to toll the statute of limitations or equitably estop ECI or Bryan Cave from asserting it as a defense. Finally, the trial court ruled Kelter failed to allege sufficient facts to state any cause of action.
Although ECI and Bryan Cave are the only defendants who are parties to this appeal, the trial court’s ruling covered five demurrers brought by 10 defendants. The trial court did not expressly apply its conclusion Kelter failed to state any cause of action to particular defendants, even though some defendants did not raise this issue. As stated above, although Bryan Cave argued Kelter failed to allege sufficient facts to state any claim, ECI argued Kelter failed to state a viable cause of action only on the breach of fiduciary duty claim.
The trial court entered an order sustaining the demurrers without leave to amend and dismissing ECI and Bryan Cave. This appeal followed.
II
Discussion
A. Standard of Review
“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 of the statute of limitations 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.]” (Marshall v. Gibson, Dunn & Crutcher (1995) 37 Cal.App.4th 1397, 1403.)
We review Kelter’s complaint de novo to determine whether it alleged facts sufficient to state a cause of action under any legal theory. (Koszdin v. State Comp. Ins. Fund (2010) 186 Cal.App.4th 480, 487.) “‘“We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.]...” [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.]... [Citation.]’” (Sprinkles v. Associated Indem. Corp. (2010) 188 Cal.App.4th 69, 75.)
B. The Trial Court Erred in Finding Kelter’s Claims Accrued in December 2003
In sustaining the demurrers on statute of limitations grounds, the trial court found Kelter’s causes of action accrued in December 2003, when Kelter first “parted with [his] money based upon Defendants’ alleged fraudulent representations.” We disagree. The premiums Kelter started paying in December 2003 did not cause him any harm until the IRS issued its final determination in June 2007 that disallowed Kelter’s tax deductions on the life insurance premiums for the Rio Plan.
A plaintiff must file a cause of action within the applicable limitations period. (Code Civ. Proc., § 312; Nogart v. Upjohn Co. (1999) 21 Cal.4th 383, 397.) “[S]tatutes of limitation do not begin to run until a cause of action accrues.” (Fox v. Ethicon Endo-Surgery, Inc. (2005) 35 Cal.4th 797, 806.) “‘Generally, a cause of action accrues... when a suit may be maintained. [Citations.] “Ordinarily this is when the wrongful act is done and the obligation or the liability arises, but it does not ‘accrue until the party owning it is entitled to begin and prosecute an action thereon.’” [Citation.] In other words, “[a] cause of action accrues ‘upon the occurrence of the last element essential to the cause of action.’” [Citations.]’ [Citation.]” (Howard Jarvis Taxpayers Assn. v. City of La Habra (2001) 25 Cal.4th 809, 815.)
“When damages are an element of a cause of action, the cause of action does not accrue until the damages have been sustained. [Citation.] ‘Mere threat of future harm, not yet realized, is not enough.’ [Citation.] ‘Basic public policy is best served by recognizing that damage is necessary to mature such a cause of action.’ [Citation.] Therefore, when the wrongful act does not result in immediate damage, ‘the cause of action does not accrue prior to the maturation of perceptible harm.’ [Citations.]” (City of Vista v. Robert Thomas Securities, Inc. (2000) 84 Cal.App.4th 882, 886-887 (City of Vista).)
“It is the fact of damage, rather than the amount, that is the relevant consideration. [Citation.] Consequently, [a plaintiff] may suffer ‘appreciable and actual harm’ before he or she sustains all, or even the greater part, of the damages occasioned by the [defendant’s conduct]. [Citation.]” (Van Dyke v. Dunker & Aced (1996) 46 Cal.App.4th 446, 452 (Van Dyke).)
“[S]peculative and contingent injuries are those that do not yet exist, as when [a defendant’s conduct] creates only a potential for harm in the future. [Citation.] An existing injury is not contingent or speculative simply because future events may affect its permanency or the amount of monetary damages eventually incurred. [Citations.] Thus, we must distinguish between an actual, existing injury that might be remedied or reduced in the future, and a speculative or contingent injury that might or might not arise in the future.” (Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 754, original italics (Jordache).)
Case law provides several examples how a defendant’s misconduct may create only the potential for harm because it is contingent on future events. (See, e.g., Williams v. Hilb, Rogal & Hobbs Ins. Services of California, Inc. (2009) 177 Cal.App.4th 624, 641-642 (Williams); City of Vista, supra, 84 Cal.App.4th at pp. 886-887; Garver v. Brace (1996) 47 Cal.App.4th 995, 999-1001 (Garver); Slavin v. Trout (1993) 18 Cal.App.4th 1536, 1540-1543 (Slavin); Walker v. Pacific Indemnity Co. (1960) 183 Cal.App.2d 513, 514-517 (Walker).)
In City of Vista, a city purchased investment securities known as interest only strips that paid the holder a percentage of the interest from a bond pool. The interest payments varied depending on whether market interest rates rose or fell. (City of Vista, supra, 84 Cal.App.4th at pp. 884-885.) More than five years after purchasing the securities, the city sued the securities dealer, alleging he misrepresented the nature of the investment. The trial court granted the dealer’s summary judgment motion on statute of limitations grounds. (Id. at pp. 885-886.)
The Court of Appeal reversed, finding a triable issue existed on when the city actually suffered harm. (City of Vista, supra, 84 Cal.App.4th at p. 887.) Purchasing the securities in reliance on the dealer’s misrepresentation created only the potential for future harm, which would occur if the interest payments it received over the securities’ term failed to cover the city’s initial investment and provide a reasonable return. Because the interest payments on the securities fluctuated over time, the city could not determine whether it would lose money and suffer appreciable harm until it approached the final interest payment. (Ibid.)
In Slavin, the plaintiff loaned money in reliance on an appraisal showing the real property offered as security satisfied the loan-to-value ratio the plaintiff required. A few years later, the plaintiff sued the appraiser because the borrower defaulted and the property failed to provide sufficient security. The trial court found the statute of limitations barred the plaintiff’s negligence claim against the appraiser because the claim accrued when the plaintiff relied on the appraisal and made the loan, not when the property failed to provide adequate security. (Slavin, supra, 18 Cal.App.4th at pp. 1538 1539.)
The Court of Appeal reversed, finding the plaintiff did not suffer any actual harm at the time he relied on the appraisal. (Slavin, supra, 18 Cal.App.4th at pp. 1538, 1540.) Rather, the appraiser’s negligence in valuing the property “‘created only the potential for injury to the plaintiff. So long as the [borrowers] continued to meet their obligation under the promissory note, plaintiff had no need or right to resort to the security.’ [Citation.]” (Id. at p. 1540, original italics.) The Slavin court held the plaintiff did not suffer any actual injury, and its cause of action did not accrue, until the plaintiff completed the foreclosure sale and the proceeds proved inadequate to cover the loan’s outstanding balance. (Id. at p. 1543.)
In Williams, an insured sued its insurance broker for negligently securing an insurance policy without obtaining the coverages the insured requested. A third party later sued the insured and obtained a judgment exceeding the policy’s coverage limits. The Williams court held the insured’s claim against the broker did not accrue when the third party filed suit, but rather when judgment was entered against the insured in an amount exceeding the policy’s coverage. The insured did not suffer any actual injury until the insurance coverage proved inadequate. (Williams, supra, 177 Cal.App.4th at pp. 641-642; see also Walker, supra, 183 Cal.App.2d at pp. 514-517 [same result].)
Garver involved a claim for damages arising when a lender included an illegal, prepayment penalty clause in a promissory note. The borrowers’ claim against the lender did not accrue when they signed the note because they had not yet suffered any damages. The borrowers first suffered actual harm, and their cause of action accrued, when they prepaid the loan and the lender demanded the borrowers pay the prepayment penalty. (Garver, supra, 47 Cal.App.4th at pp. 1000-1001.)
Here, Kelter is in the same position as the plaintiffs in the foregoing cases. He made payments and altered his position in reliance on ECI’s and Bryan Cave’s representations, but suffered no actual harm at the time he did so. Kelter received exactly what he bargained for when he established the Rio Plan and paid premiums on the life insurance policy: A defined benefits pension plan funded by a life insurance policy and tax deductions for the premiums he paid on that policy. Kelter’s third amended complaint alleges in hindsight the premiums he paid were “exorbitant” and caused him harm. The premiums, however, did not prove to be “exorbitant” and did not harm Kelter until the IRS completed the audit and determined the premium payments provided Kelter no income tax benefits.
When Kelter established the Rio Plan, the premium payments were high by design because Kelter received a tax deduction for the premiums’ full amount. The greater the premium, the greater the tax benefit Kelter received. If the IRS had determined the Rio Plan qualified as a Section 412(i) Plan, the “exorbitant” premiums Kelter paid would not have caused him any harm. Undoubtedly, if Kelter had sued before the IRS found the Rio Plan to be an abusive tax shelter, ECI and Bryan Cave would have argued Kelter failed to state a cause of action because he could not allege he suffered any damages.
ECI and Bryan Cave argue Van Dyke and Apple Valley Unified School Dist. v. Vavrinek, Trine, Day & Co. (2002) 98 Cal.App.4th 934 (Apple Valley) support the trial court’s conclusion Kelter suffered actual harm in December 2003. Those cases, however, are distinguishable because the future events there affected only the amount of harm the plaintiffs suffered, not the fact they suffered harm.
In Van Dyke, the plaintiffs donated real property they owned in reliance on their accountant’s advice they would receive an immediate tax credit for the property’s full fair market value. After the plaintiffs donated the property, however, their accountant informed them he made a mistake and they would receive a tax deduction spread over several years. A later IRS audit reduced the plaintiffs’ tax liability, but the plaintiffs still paid more in taxes than their accountant originally represented. (Van Dyke, supra, 46 Cal.App.4th at pp. 448-450.)
The Court of Appeal found the plaintiffs’ claims against their accountant time barred because the plaintiffs suffered actual harm when they donated the property and paid more in taxes than their accountant initially advised. (Van Dyke, supra, 46 Cal.App.4th at pp. 455, 457.) Van Dyke rejected the plaintiffs’ contention their claims did not accrue until the IRS completed its audit: “The propriety of the tax advice [the plaintiffs] received from [their accountant] was not contingent on the outcome of the IRS audit. There was nothing speculative about the damages they suffered in 1991 as a result of the alleged erroneous advice regarding the benefits of donating their property to a charitable organization. The determination by the IRS in 1994 regarding [the plaintiffs’] 1990 tax liability merely resolved the extent of their loss.” (Id. at p. 455.)
Apple Valley involved a local school district that distributed state funds to a charter school in reliance on an accountant’s audit of the school’s daily attendance figures. Later, the district learned the charter school overstated its attendance figures and therefore garnered more state funds than it was entitled to receive. (Apple Valley, supra, 98 Cal.App.4th at p. 937.) The district hired an accountant and attorney to investigate and also notified the state Department of Education. The state conducted an independent audit and found the district liable for the amount improperly distributed to the charter school. The district filed an administrative appeal regarding the state’s audit that remained pending at the time the district filed a lawsuit against the accountant who prepared the original audit. The trial court found the statute of limitations barred the district’s claims against the accountant and the Court of Appeal affirmed. (Id. at pp. 939 941.)
On appeal, the district argued it did not suffer any harm until the state completed its audit and found the district responsible for the overpayment to the charter school. According to the district, any liability for the overpayment was merely speculative. (Apple Valley, supra, 98 Cal.App.4th at p. 944.) The Court of Appeal disagreed, finding the district suffered actual harm when it distributed funds to the charter school and incurred accounting and legal fees to investigate the overpayment. (Id. at pp. 937, 947.) The fact the audit and administrative appeal could affect the permanency or amount of the district’s liability for the overpayment did not change the fact the district suffered harm when it distributed the funds and incurred professional fees to investigate. (Id. at pp. 948-949.)
Thus, the audits in both Van Dyke and Apple Valley had the potential only to reduce the plaintiffs’ damages, but the audits would not change the fact the plaintiffs had suffered damages. In contrast, whether the premiums Kelter paid damaged him in any way depended on the IRS audit. If the IRS found the Rio Plan qualified as a Section 412(i) Plan, Kelter’s premium payments did not harm him. On the other hand, if the IRS found the Rio Plan did not qualify, the premium payments harmed Kelter. Unlike the plaintiffs in Van Dyke and Apple Valley, whether Kelter suffered any damages depended on the outcome of the audit.
We conclude the trial court erred in finding Kelter suffered actual harm in December 2003 when he paid the first life insurance premium for the Rio Plan. The premiums Kelter paid did not cause him any actual harm until June 2007 when the IRS completed the audit and made its final determination the Rio Plan did not qualify as a Section 412(i) Plan. Until that time, the premium payments provided only the potential for future harm.
The trial court also found the limitations period on Kelter’s claims started running not later than March 2004 when he learned about the IRS revenue rulings and proposed regulations on abusive Section 412(i) Plans. The trial court ruled this information put Kelter on notice the Rio Plan may not qualify as a Section 412(i) Plan and imposed a duty on Kelter to inquire about any potential claims. Discovering this information, however, did not start the limitations period because Kelter had not suffered any injury and therefore his claims had not accrued. “[T]he discovery rule may extend the statute of limitations, but it cannot decrease it, and a statute of limitations does not accrue until a cause of action is ‘complete with all of its elements, ’ including injury. [Citation.]” (Cleveland v. Internet Specialties West, Inc. (2009) 171 Cal.App.4th 24, 32.)
Kelter argues his claims did not accrue until June 2007 based on International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606 (Feddersen). Feddersen involved a claim against an accountant for professional negligence in preparing tax returns that resulted in an IRS audit and additional tax liability. (Id. at pp. 608-609.) The Supreme Court held the client did not suffer any actual harm for statute of limitations purposes until the IRS completed the audit and assessed additional taxes. (Id. at pp. 619-620.) The Supreme Court acknowledged that clients could suffer actual harm before that point, but to provide a bright-line rule it selected the completion of the audit as the accrual date. (Id. at pp. 621-622.)
The Supreme Court explained it decided a “narrow” issue (Feddersen, supra, 9 Cal.4th at p. 608) and later Supreme Court cases emphasized Feddersen involved “very narrowly drawn circumstances” (Adams v. Paul (1995) 11 Cal.4th 583, 588) and “did not articulate a rule of broad or general applicability” (Jordache, supra, 18 Cal.4th at p. 763). Other cases also limit Feddersen to accountant malpractice in preparing tax returns. (See, e.g., Van Dyke, supra, 46 Cal.App.4th at pp. 454-455; Apple Valley, supra, 98 Cal.App.4th at pp. 945-946.) We do the same and find Feddersen inapplicable because this action does not involve malpractice of an accountant. We base our decision on the other authorities discussed above, not Feddersen.
We express no opinion on whether an accrual date other than December 2003 or June 2007 could possibly apply to Kelter’s claims. The parties argued only those two dates — when Kelter made the first life insurance premium payment and the IRS issued its final audit determination — as the possible accrual dates. Of these two dates, we conclude June 2007 is the appropriate accrual date for the reasons set forth above.
C. Kelter’s Claims Against ECI
1. The Statute of Limitations Does Not Bar the Claims Against ECI
Kelter alleged four causes of action against ECI: fraud, negligent misrepresentation, breach of fiduciary duty, and negligence. The parties agree Kelter’s claims are subject to either a two- or three-year limitations period depending on the claim. (Code Civ. Proc., §§ 338, subd. (d), 339, subd. 1.) Kelter filed this action less than two years after the June 2007 accrual date and therefore his claims are timely regardless of which limitations period applies. The trial court erred in finding Kelter’s claims against ECI time barred.
2. Kelter Failed to Adequately Allege a Breach of Fiduciary Duty Claim Against ECI
The trial court sustained ECI’s demurrer to the breach of fiduciary duty claim on the alternative ground that Kelter failed to allege sufficient facts to establish a fiduciary relationship existed between Kelter and ECI or that ECI breached any existing fiduciary duty. We agree.
The trial court’s order sustaining all demurrers is ambiguous because it failed to explain whether its ruling was based on Kelter’s failure to allege sufficient facts to state any cause of action against all defendants. ECI did not claim that Kelter failed to allege sufficient facts to state fraud, negligent misrepresentation, or negligence claims against ECI. Accordingly, we construe the trial court’s order as applying to Kelter’s claim for breach of fiduciary duty only.
The operative complaint alleged ECI “is a product marketing and consulting firm having a specialty in qualified pension plans” and “owed a fiduciary duty to [Kelter] arising from the consulting nature of the relationship between the parties with respect to the care and investment of [Kelter’s] funds.” Kelter, however, failed to provide any argument or authority explaining how this “consulting” relationship constituted a fiduciary relationship. Neither case Kelter cited involved a relationship analogous to the “consulting” relationship Kelter alleged he had with ECI. (LaMonte v. Sanwa Bank California (1996) 45 Cal.App.4th 509, 524; Wolf v. Superior Court (2003) 107 Cal.App.4th 25, 29 (Wolf).)
Kelter cited Wolf for its definition of a fiduciary relationship: “A fiduciary relationship is ‘“any relation existing between parties to a transaction wherein one of the parties is in duty bound to act with the utmost good faith for the benefit of the other party. Such a relation ordinarily arises where a confidence is reposed by one person in the integrity of another, and in such a relation the party in whom the confidence is reposed, if he voluntarily accepts or assumes to accept the confidence, can take no advantage from his acts relating to the interest of the other party without the latter’s knowledge or consent....”’ [Citations.]” (Wolf, supra, 107 Cal.App.4th at pp. 29-30.) Kelter, however, provides no explanation, and does not allege any facts showing, how his “consulting relationship” with ECI satisfies this definition. Wolf involved an arm’s length contractual relationship providing one party with a “right to contingent compensation in the form of a percentage of future revenues in the control of the other contracting party” and concluded the parties did not have a fiduciary relationship. (Id. at p. 27.) Here, Kelter alleged no facts showing ECI accepted or assumed any confidence Kelter sought to repose in it so as to create a fiduciary relationship.
Vague conclusory allegations that a fiduciary relationship existed are insufficient absent authority showing the parties established a recognized fiduciary relationship. We conclude the trial court properly sustained ECI’s demurrer to the breach of fiduciary duty cause of action.
D. Kelter’s Claims Against Bryan Cave
1. The Statute of Limitations Does Not Bar the Claims Against Bryan Cave
Kelter alleged the same four causes of action against Bryan Cave that it alleged against ECI: fraud, negligent misrepresentation, breach of fiduciary duty, and negligence. All parties agree Kelter’s fraud claim is subject to a three-year limitations period. (Code Civ. Proc., § 338, subd. (d).) Code of Civil Procedure section 340.6 (section 340.6), which generally provides a one-year limitations period for claims against attorneys acting in their professional capacity, does not apply because it expressly excludes claims for actual fraud. Kelter timely asserted his fraud claim against Bryan Cave because he filed suit less than three years after the June 2007 accrual date.
Section 340.6, however, provides the limitations period governing Kelter’s remaining claims against Bryan Cave. (Quintilliani v. Mannerino (1998) 62 Cal.App.4th 54, 69 [applying section 340.6 to a negligent misrepresentation claim]; Levin v. Graham & James (1995) 37 Cal.App.4th 798, 805 [“whether the theory of liability is based on the breach of an oral or written contract, a tort, or a breach of a fiduciary duty, ” section 340.6 applies].) That section requires a plaintiff to file suit not later than four years after the attorney’s wrongful act or omission or one year after discovering the wrongful act or omission, whichever occurs first. (§ 340.6, subd. (a).) The limitations period is tolled, however, while the “attorney continues to represent the plaintiff regarding the specific subject matter in which the alleged wrongful act or omission occurred.” (§ 340.6, subd. (a)(2).)
The third amended complaint alleges Bryan Cave represented Kelter on the IRS audit and that representation continued “[t]hrough the date of the commencement of this action, ” as Kelter and Bryan Cave negotiated with the IRS over the amount of back taxes, penalties, and interest the IRS would assess. Kelter’s negligent misrepresentation, breach of fiduciary duty, and negligence claims are based, at least in part, on Bryan Cave’s failure to disclose to Kelter it had an actual conflict of interest because it participated in developing the Pendulum Plan and continued to represent ECI.
Thus, the continuing representation provision in section 340.6 tolled the limitations period on these three claims until Kelter filed this action. These claims are also based on additional acts and omissions that did not arise from Bryan Cave’s representation of Kelter in the IRS audit. A demurrer, however, does not lie to part of a cause of action. (Kong v. City of Hawaiian Gardens Redevelopment Agency (2002) 108 Cal.App.4th 1028, 1047.) Even if some of these acts forming part of the claim are time barred, the trial court erred in sustaining Bryan Cave’s demurrer because the claims are not time barred in their entirety
2. Kelter Failed to Allege Facts Stating Any Claim Against Bryan Cave
The trial court also sustained Bryan Cave’s demurrer on the alternative ground Kelter failed to allege sufficient facts to state a cause of action against Bryan Cave. We agree.
In his opening brief, Kelter argues he alleged sufficient facts to state a fraud claim against Bryan Cave, but he failed to explain how he adequately alleged a negligent misrepresentation, breach of fiduciary duty, or negligence claim. Kelter did argue he adequately alleged these claims against ECI, but failed to make any argument how these claims survive against Bryan Cave. ECI and Bryan Cave are separate defendants that had distinct relationships with Kelter and engaged in different conduct. Kelter therefore waived any challenge he had to the trial court’s ruling on these three claims by failing to argue the issue in his opening brief. (Shaw v. Hughes Aircraft Co. (2000) 83 Cal.App.4th 1336, 1345, fn. 6 [“We decline to consider the argument under the rule that an appellant’s failure to raise an issue in its opening brief waives it on appeal”].)
In his reply, Kelter offers some brief, conclusory argument regarding why he adequately alleged negligent misrepresentation, breach of fiduciary duty, and negligence claims against Bryan Cave. But “[i]t is improper to raise new contentions in the reply brief. Therefore, the contention is forfeited.” (Inyo Citizens for Better Planning v. Inyo County Bd. of Supervisors (2009) 180 Cal.App.4th 1, 14, fn. 2.)
Kelter’s fraud claim against Bryan Cave fares no better. The elements of fraud are well established: “(1) a misrepresentation, which includes a concealment or nondisclosure; (2) knowledge of the falsity of the misrepresentation, i.e., scienter; (3) intent to induce reliance on the misrepresentation; (4) justifiable reliance; and (5) resulting damages.” (Cadlo v. Owen-Illinois, Inc. (2004) 125 Cal.App.4th 513, 519.) When concealment is the basis for the claim, the plaintiff must establish the defendant had a duty to disclose the concealed fact. (Levine v. Blue Shield of California (2010) 189 Cal.App.4th 1117, 1126-1127.)
“‘In California, fraud must be pled specifically; general and conclusory allegations do not suffice. [Citations.] “Thus ‘“the policy of liberal construction of the pleadings... will not ordinarily be invoked to sustain a pleading defective in any material respect.”’ [Citation.] This particularity requirement necessitates pleading facts which ‘show how, when, where, to whom, and by what means the representations were tendered.’”’ [Citation.]” (Small v. Fritz Companies, Inc. (2003) 30 Cal.4th 167, 184, original italics.)
Kelter failed to adequately allege a fraud claim under these standards. He vaguely alleged Bryan Cave committed fraud by assisting ECI and AmerUs in developing the Pendulum Plan and preparing “the Plan documents with the express knowledge and intent they would be used to market, sell and establish ‘abusive’ plans.” Kelter, however, failed to allege any specific representation Bryan Cave made to induce him to establish the Rio Plan. Indeed, Kelter does not allege he relied on any particular “Plan document[]” Bryan Cave prepared in establishing the Rio Plan, let alone any particular statement in any “Plan document[].” Kelter established the Rio Plan in December 2003, but his first communication with Bryan Cave did not occur until April 2004 when Kelter authorized Bryan Cave to seek a “determination letter” from the IRS. Kelter did not allege Bryan Cave made any representations at that time. Thus, Kelter’s allegations actually show Bryan Cave made no representation to Kelter before he established the Rio Plan.
To the extent Kelter seeks to rely on any representation Bryan Cave made in the opinion letter it provided when ECI created the Pendulum Plan in 1999, Kelter failed to identify any specific misrepresentation in the letter to support his claim. Consequently, he cannot allege he justifiably relied on the opinion letter in establishing the Rio Plan. The letter, prepared more than four years before Kelter established the Rio Plan, states that it is intended only for ECI and addressed the single issue of the Pendulum Plan’s general structure. Furthermore, the letter warned a Pendulum Plan may not be appropriate for all employers and not all employers would qualify for its tax benefits. The letter advises employers to consult their own tax advisors because whether any particular plan qualifies as a Section 412(i) Plan depends on how each employer operates its plan. Given the letter’s clear statements and limitations regarding the opinions it expressed, Kelter could not justifiably rely on the letter as a misrepresentation inducing him to form the Rio Plan. (Cf. Hinesley v. Oakshade Town Center (2005) 135 Cal.App.4th 289, 302-303.)
The trial court granted Bryan Cave’s request to judicially notice the opinion letter. We may judicially notice all matters properly noticed by the trial court, and do so here. (Evid. Code, § 459, subd. (a).) The opinion letter is properly subject to judicial notice as a fact or proposition not reasonably subject to dispute and capable of immediate and accurate determination by resort to sources of reasonably indisputable accuracy. (Evid. Code, § 452, subd. (h); Ingram v. Flippo (1999) 74 Cal.App.4th 1280, 1285, fn. 3.) The third amended complaint repeatedly refers to and relies on the opinion letter and Kelter does not oppose Bryan Cave’s request for judicial notice. (Ibid.)
Kelter’s fraud claim also vaguely alleged Bryan Cave concealed or failed to disclose to Kelter that the Rio Plan did not qualify as a Section 412(i) Plan. Kelter, however, failed to allege any facts establishing Bryan Cave owed him a duty to disclose anything regarding the Rio Plan. Kelter alleged ECI and Bryan Cave defrauded him into establishing the Rio Plan in December 2003, but Kelter did not then have any relationship with Bryan Cave. Kelter’s first contact with Bryan Cave occurred in April 2004 when Kelter authorized the firm to seek an IRS “determination letter” regarding the Rio Plan. Kelter later retained Bryan Cave in April 2006 to represent him on the IRS audit. Kelter therefore failed to show that Bryan Cave had a duty in December 2003 to disclose information to him at a time when their relationship did not exist. Furthermore, assuming their relationship gave rise to a duty to disclose anything regarding the Rio Plan (which Kelter did not establish), Kelter does not specifically allege he suffered any harm.
Finally, Kelter alleged Bryan Cave represented him on the IRS audit without disclosing the actual conflict of interest that arose from Bryan Cave’s participation in developing the Pendulum Plan and ongoing representation of ECI. Kelter, however, does not allege or explain how this failure to disclose caused him any damage. Kelter seeks to recover the damages he suffered because he formed the Rio Plan. When he retained Bryan Cave in 2006, Kelter, ECI, and Bryan Cave shared the same goal in convincing the IRS the Rio Plan qualified as a Section 412(i) Plan. Moreover, Bryan Cave’s engagement letter alerted Kelter that a potential conflict existed because Bryan Cave participated in developing the Pendulum Plan and it continued to represent ECI.
In sum, Kelter’s vague and conclusory allegations regarding fraud and concealment failed to adequately state a claim against Bryan Cave. The trial court properly sustained Bryan Cave’s demurrer on this ground.
E. The Trial Court Did Not Err in Denying Kelter Leave to Amend
Kelter bore the burden to show a reasonable possibility existed that he could amend his pleading to cure the foregoing defects. (Rakestraw v. California Physicians’ Service (2000) 81 Cal.App.4th 39, 43.) To satisfy that burden, Kelter had to “‘show in what manner he can amend his complaint and how that amendment will change the legal effect of his pleading.’ [Citation.] The assertion of an abstract right to amend does not satisfy this burden. [Citation.] The plaintiff must clearly and specifically set forth the ‘applicable substantive law’ [citation] and the legal basis for amendment, i.e., the elements of the cause of action and authority for it. Further, the plaintiff must set forth factual allegations that sufficiently state all required elements of that cause of action. [Citations.].... [¶] The burden of showing that a reasonable possibility exists that amendment can cure the defects remains with the plaintiff; neither the trial court nor this court will rewrite a complaint. [Citation.] Where the appellant offers no allegations to support the possibility of amendment and no legal authority showing the viability of new causes of action, there is no basis for finding the trial court abused its discretion when it sustained the demurrer without leave to amend. [Citations.]” (Id. at pp. 43-44.)
Kelter claims he can amend his pleading to cure any alleged defect, but the only amendment he proposes is to add “the names of the individuals on behalf of Defendants who made representations to the Plaintiffs.” Adding those names will not cure the defects discussed above. Kelter also asserts a discovery stay in the action hampered his efforts to obtain information necessary to state his claims, but he fails to explain how that stay impacted his ability to state any cause of action. For example, he fails to explain how the discovery stay prevented him from alleging facts to show he had a fiduciary relationship with ECI or that Bryan Cave had a duty to disclose any information to Kelter at the time he established the Rio Plan. The facts necessary to support Kelter’s claims are within his knowledge to the extent they exist. We therefore conclude the trial court properly denied Kelter leave to file a fifth complaint in this action.
III
Disposition
The order sustaining Richard C. Smith and Bryan Cave’s demurrer without leave to amend and dismissing them from this action is affirmed. The order sustaining ECI’s demurrer without leave to amend and dismissing it from this action is reversed and the matter remanded to the trial court for further proceedings. On remand, the trial court shall enter a new order sustaining ECI’s demurrer without leave to amend on the breach of fiduciary duty claim, but overruling the demurrer on all other claims. Smith and Bryan Cave shall recover their costs on appeal from Kelter. As between ECI and Kelter, the parties shall bear their own costs.
WE CONCUR: BEDSWORTH, ACTING P. J., FYBEL, J.