Law Offices of Kari L. Ley and Kari L. Ley for Plaintiffs and Appellants. McCormick, Barstow, Sheppard, Wayte & Carruth, Jerry D. Casheros, Kristi D. Marshall and Todd W. Baxter for Defendants and Respondents.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or ordered published for purposes of rule 8.1115. (Super. Ct. No. 14CECG00711)
APPEAL from a judgment of the Superior Court of Fresno County. Kristi Culver Kapetan, Judge. Law Offices of Kari L. Ley and Kari L. Ley for Plaintiffs and Appellants. McCormick, Barstow, Sheppard, Wayte & Carruth, Jerry D. Casheros, Kristi D. Marshall and Todd W. Baxter for Defendants and Respondents.
Plaintiffs and appellants, N. Robert Nielsen, Inc. and N. Robert Nielsen, Jr., filed the underlying action for breach of contract and negligence against defendants and respondents, accountants Moore, Grider & Company and Cory Bell. The trial court granted summary judgment in respondents' favor on the ground that the two-year statute of limitations for a claim based on an accountant's professional negligence barred the complaint.
Appellants contend the trial court erred because there were triable issues of material fact regarding when they discovered the alleged negligence and/or suffered damages. Appellants further argue that respondents did not properly raise the statute of limitations defense in their answer and that the trial court abused its discretion when it allowed respondents to amend that answer.
The trial court did not err as claimed by appellants. Therefore, the judgment will be affirmed.
The Nielsen family formed their corporation, N. Robert Nielsen, Inc., to conduct farming operations. Respondents are certified public accountants who have provided accounting, tax, and business advice to appellants since 2008.
The complaint alleges that in early 2011, Nielsen, Jr. considered selling the farming operations and sought respondents' professional advice regarding how to structure the transaction to minimize the taxes on the sale and how to maximize the net proceeds. The complaint further alleges that respondents prepared written projections showing that appellants would be able to pay off all debts and obligations, including state and federal taxes, account for the corporation's deferred income, reinvest a portion of the sales proceeds in like kind properties, buy out the other shareholders, and have approximately $400,000 in cash left over.
Relying on respondents' advice and projections, appellants sold the Nielsen farming operations. The sale closed on January 9, 2012. Nielsen, Jr. paid his family members for their N. Robert Nielsen, Inc. stock on January 11, 2012, from the proceeds of the sale.
On January 18, 2012, Nielsen, Jr. sent Cory Bell an email regarding his having less cash than he expected. Nielsen, Jr. stated:
" ... I'm a little concerned about the amount of cash left over after paying my parents and sisters. If I remember right, we had it figured out so there would be enough left over to pay the taxes. Maybe I'm not remembering right how much I am going to owe, but there sure wasn't much left over. I think in the neighborhood of 300,000 - 400,000. I have stopped acquiring replacement property until I can meet with you to make sure I am covered. I also need to plan my tax payments on the income that I used to pay off the two loans totaling 980,000. Give me a call please and we can schedule something."
Nielsen, Jr. met with Bell on March 21, 2012. The complaint alleges that during this meeting, Bell told Nielsen, Jr. his projections were apparently wrong and appellants would not have $400,000 in cash left over after the sale and reinvestment in like kind property. Instead, appellants would owe an additional $300,000 to $400,000 in federal and state taxes.
On March 10, 2014, appellants filed their complaint. Appellants stated causes of action for breach of contract, breach of the implied covenant of good faith and fair dealing, negligence, and negligent misrepresentation. According to appellants, respondents "breached the duties owed" to them by failing to properly analyze and structure the sale transaction, including providing accurate information and offering alternatives to minimize taxes and maximize the net proceeds.
Respondents deposed Nielsen, Jr. and questioned him regarding when he first became aware of the alleged accounting malpractice and resulting damages. Nielsen, Jr. testified that Bell told him he was going to be getting $400,000 net after paying off long-term debt, paying taxes, and buying out his family. Nielsen planned to use that money as an operating source as he got his new business established. When asked about the January 18, 2012, email he sent to Bell, Nielsen, Jr. explained he realized that, after paying his family for their stock and before paying any taxes, he only had $300,000 to $400,000 left. According to Nielsen, Jr., Bell projected in 2011 that he would owe $1.1 million in taxes. Nielsen, Jr. stated that he therefore stopped acquiring replacement property for the like kind exchange.
Based on the complaint and Nielsen, Jr.'s deposition testimony and email to Bell, respondents moved for summary judgment. According to respondents, this undisputed evidence demonstrated that Nielsen, Jr. knew about the alleged negligence and damages no later than January 2012. Therefore, respondents argued, the two-year statute of limitations applicable to professional negligence barred the complaint filed on March 10, 2014.
In opposition to this motion, appellants submitted Nielsen, Jr.'s declaration disputing that his January 18, 2012, email to Bell demonstrated he knew, or should have known, that Bell failed to provide accurate tax projections. Rather, Nielsen, Jr. declared, he was "simply asking Cory Bell to meet with me and go over the numbers." According to Nielsen, Jr., he "did not learn or even suspect that Cory Bell had possibly provided [him] with inaccurate tax projections until approximately March 21, 2012, when [he] met with Cory Bell."
Appellants further opposed the summary judgment motion on the ground that respondents did not properly raise the statute of limitations as an affirmative defense. Respondents' answer states "These Answering Defendants allege that each cause of action set forth in the Complaint is barred by the statute of limitations as set forth in Code of Civil Procedure § 739(1), among others." Appellants pointed out that no such statute exists.
In response, respondents moved to amend their answer to correct the typographical error. Respondents requested the court to allow amendment to properly interpose Code of Civil Procedure section "339" instead of "739."
The trial court granted the summary judgment motion finding that Nielsen, Jr.'s deposition testimony and email clearly established that Nielsen, Jr. knew as of January 18, 2012, that respondents' projections were wrong and that the $1.1 million in taxes were coming due and he did not have the money to pay them. The trial court found Nielsen, Jr.'s declaration contradicted his prior discovery responses without adequate explanation and therefore ruled it was insufficient to overcome summary judgment. The trial court also granted respondents' motion to amend their answer.
1. The trial court properly granted respondents' summary judgment motion.
a. Standard of review.
A party moving for summary judgment bears the burden of persuading the trial court that there is no triable issue of material fact and that he or she is entitled to judgment as a matter of law. (Brown v. Ransweiler (2009) 171 Cal.App.4th 516, 525 (Brown).) Once the moving party meets this initial burden, the burden shifts to the opposing party to establish, through competent and admissible evidence, that a triable issue of material fact still remains. If the moving party establishes the right to the entry of judgment as a matter of law, summary judgment will be granted. (Ibid.)
On appeal, the reviewing court must assume the role of the trial court and reassess the merits of the motion. (Brantley v. Pisaro (1996) 42 Cal.App.4th 1591, 1601.) The appellate court applies the same legal standard as the trial court to determine whether there are any genuine issues of material fact or whether the moving party is entitled to judgment as a matter of law. The court must determine whether the moving party's showing satisfies his or her burden of proof and justifies a judgment in the moving party's favor. (Brown, supra, 171 Cal.App.4th at p. 526.) In doing so, the appellate court must view the evidence and the reasonable inferences therefrom in the light most favorable to the party opposing the summary judgment motion. (Essex Ins. Co. v. Heck (2010) 186 Cal.App.4th 1513, 1522.)
b. Accountant malpractice.
The two-year statute of limitations contained in Code of Civil Procedure section 339, subdivision 1 applies to accounting malpractice claims. (Curtis v. Kellogg & Andelson (1999) 73 Cal.App.4th 492, 499.)
An accountant malpractice cause of action "specifically accrues 'on discovery of the loss or damage suffered by the aggrieved party,' but until the client suffers damage or actual injury from the negligence, a cause of action for professional negligence cannot be established." (International Engine Parts, Inc. v. Feddersen & Co. (1995) 9 Cal.4th 606, 608.) Accordingly, such cause of action accrues when the client discovers, or should discover, the facts essential to the malpractice claim. (Van Dyke v. Dunker & Aced (1996) 46 Cal.App.4th 446, 451 (Van Dyke).) "The 'discovery rule' assumes that all conditions of accrual of the action—including harm—exist, but nevertheless postpones commencement of the litigation period until the client actually discovered his injury and its negligent cause or could have discovered injury and cause through the exercise of reasonable diligence." (Ibid.)
Moreover, it is irrelevant that the client is ignorant of his or her legal remedy or the legal theories underlying the cause of action. Rather, if one has suffered appreciable harm and knows or suspects that professional blundering is its cause, the fact that an attorney has not yet advised the client does not postpone the commencement of the limitations period. (Gutierrez v. Mofid (1985) 39 Cal.3d 892, 898 (Gutierrez).)
If damage is the last element to occur in a malpractice action, the statute of limitations begins to run when the client suffers appreciable and actual harm from the malpractice, however uncertain in amount, that consists of more than nominal damages. (Laird v. Blacker (1992) 2 Cal.4th 606, 611 (Laird); City of San Diego v. U.S. Gypsum Co. (1994) 30 Cal.App.4th 575, 582.) The relevant consideration is the fact of damage rather than the amount. (Adams v. Paul (1995) 11 Cal.4th 583, 589.) Thus, the cause of action may accrue before the client sustains all, or even the greater part of, the damages caused by the professional negligence. (Laird, supra, 2 Cal.4th at p. 612.)
c. Appellants' causes of action accrued by January 2012.
The complaint alleges that Bell prepared written projections showing that appellants would be able to pay off all of the farming operation's debts and obligations, including state and federal taxes, account for the corporation's deferred income, reinvest a portion of the sales proceeds in like kind properties, and have approximately $400,000 in cash left over. Appellants further allege that they learned that Bell's projections were apparently wrong and that they would not have $400,000 in cash left over when Nielsen, Jr. met with Bell on March 21, 2012.
The trial court found that the email sent by Nielsen, Jr. to Bell on January 18, 2012, and Nielsen, Jr.'s deposition testimony explaining this email clearly established that Nielsen, Jr. knew as of January 18, 2012, that respondents' projections were wrong. As discussed above, the email expressed Nielsen, Jr.'s concern regarding how little money he had left after paying his family members for their stock and before paying taxes. Because of this shortfall, Nielsen, Jr. stated he had "stopped acquiring replacement property until I can meet with you to make sure I am covered."
When Nielsen, Jr. was asked about this email during his deposition, he explained he realized that, after paying his family $5.2 million for their stock and before paying any taxes, he only had $300,000 to $400,000 left. According to Nielsen, Jr., Bell projected in 2011 that he would owe $1.1 million in taxes and have $400,000 left after paying those taxes. Nielsen, Jr. stated that he therefore stopped acquiring replacement property for the like kind exchange.
This evidence consisting of Nielsen, Jr.'s own writing and testimony, unequivocally demonstrates that appellants discovered they had suffered appreciable and actual harm, although uncertain in amount, as of January 18, 2012. When Nielsen, Jr. wrote that email to Bell it was after the sale had been completed and Nielsen had paid his family for their stock. At that time, it was clear that Bell's projections had been inaccurate and that appellants were not going to clear $400,000 in cash after paying the farming operation's obligations and the taxes. At that point, Nielsen, Jr. had to change his investment strategy by ceasing acquisition of replacement properties.
Appellants argue there exists a triable issue of fact on when they discovered the alleged negligence based on the declaration submitted by Nielsen, Jr. in opposition to respondents' motion. As discussed above, Nielsen, Jr. declared that when he sent the January 18, 2012 email he was "simply asking Cory Bell to meet with me and go over the numbers." According to Nielsen, Jr., he "did not learn or even suspect that Cory Bell had possibly provided [him] with inaccurate tax projections until approximately March 21, 2012, when [he] met with Cory Bell."
Appellants note that courts must liberally construe declarations in opposition to summary judgment motions and that such motions are normally considered as true in determining whether a triable issue of fact exists. (AARTS Productions, Inc. v. Crocker National Bank (1986) 179 Cal.App.3d 1061, 1065.) Appellants further assert the trial court erred when it disregarded this declaration.
However, when the party opposing summary judgment has made an admission or concession in discovery that demonstrates there is no triable factual issue, certain of the stern requirements applicable to declarations in a normal case are relaxed or altered. (D'Amico v. Board of Medical Examiners (1974) 11 Cal.3d 1, 21.) Relevant admissions obtained in the context of an established pretrial procedure whose purpose is to elicit facts are entitled to, and should receive, a kind of deference not normally accorded evidentiary allegations in affidavits. (Id. at p. 22.) Thus, if a plaintiff's deposition establishes certain facts, a court may disregard a conflicting declaration prepared for purposes of a summary judgment motion. (Jacobs v. Fire Ins. Exchange (1995) 36 Cal.App.4th 1258, 1270.)
As discussed above, Nielsen, Jr.'s email and deposition testimony clearly establish that he was aware of, or should have been aware of, the factual basis of his claim by January 18, 2012. This evidence belies Nielsen, Jr.'s claim in his declaration that he did not learn that Bell provided inaccurate projections until March 21, 2012. Because Nielsen, Jr.'s declaration conflicts with his deposition testimony, we disregard it. Therefore, his contradictory declaration does not create a triable issue of material fact.
Appellants contend that there were four separate negligent acts and that each claim has its own statute of limitations. In addition to the erroneous tax and net proceeds projections, appellants claim respondents failed to properly advise appellants regarding the options for structuring the payments to Nielsen, Jr.'s family, the deferred crop income, and the ability to exchange the farming vehicles and equipment.
However, as discussed above, a professional negligence cause of action accrues when the client discovers, or should discover, the facts essential to the malpractice claim and the client suffers appreciable harm. (Van Dyke, supra, 46 Cal.App.4th at p. 451.) Further, it is irrelevant that the client is ignorant of his or her legal remedy or the legal theories underlying the cause of action. The statute of limitations starts running upon the discovery of facts essential to a claim, not their legal significance. (Gutierrez, supra, 39 Cal.3d at pp. 897-898)
"The gravamen of a complaint and the nature of the right sued upon, rather than the form of the action, is relevant for purposes of statute of limitations analysis." (Pointe San Diego Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP (2011) 195 Cal.App.4th 265, 274.) Here, appellants allege one primary right, i.e., the right to be free of negligence by their accountants in connection with the January 2012 sale of the farming operations. According to appellants, respondents committed accounting malpractice by failing to properly analyze, structure, and advise on that sale.
" 'The violation of one primary right constitutes a single cause of action.' " (Cyr v. McGovran (2012) 206 Cal.App.4th 645, 652.) Thus, appellants cannot split this negligence cause of action into several causes of action accruing at different times depending on when appellants learned from their lawyer that they received incorrect advice. (Ibid.) Rather, all causes of action accrued when Nielsen, Jr. became aware of the alleged negligence and suffered appreciable harm, i.e., no later than January 18, 2012. Moreover, it is irrelevant that appellants may not have sustained all, or even the greater part of, the damages caused by the professional negligence as of that date. (Laird, supra, 2 Cal.4th at p. 612.)
In sum, appellants' causes of action accrued no later than January 18, 2012. Therefore, the statute of limitations bars the complaint filed on March 10, 2014. 2. The trial court properly granted respondents' motion to amend the answer.
As noted above, appellants opposed respondents' summary judgment motion on the ground that respondents did not properly raise the statute of limitations as an affirmative defense. Respondents' answer alleges that appellants' causes of action are "barred by the statute of limitations as set forth in Code of Civil Procedure § 739(1), among others." Appellants pointed out that no such statute exists.
Respondents moved to amend their answer to correct the typographical error to interpose Code of Civil Procedure section "339" instead of "739." The trial court granted the motion. Appellants contend the trial court erred because respondents offered insufficient evidence to support their motion.
The trial court "may, in furtherance of justice, and on any terms as may be proper," allow a party to amend any pleading to correct a mistake. (Code Civ. Proc., § 473.) Code of Civil Procedure section 576 further provides that "[a]ny judge, at any time before or after commencement of trial, in the furtherance of justice, and upon such terms as may be proper, may allow the amendment of any pleading ...."
Thus, the trial court has discretion to permit amendment to pleadings at any time in the proceedings. (City of Stanton v. Cox (1989) 207 Cal.App.3d 1557, 1563.) The policy is for courts to exercise this discretion liberally. (Berman v. Bromberg (1997) 56 Cal.App.4th 936, 945.) Accordingly, the appellate court will uphold the trial court's ruling unless a manifest or gross abuse of discretion is shown. Moreover, the burden is on the plaintiff to demonstrate that such an abuse of discretion occurred. (Ibid.)
Here, appellants characterize this issue as a long-running cover-up of the wrongly cited statute. However, when respondents alleged in their answer that the statute of limitations barred the complaint under "Code of Civil Procedure § 739(1), among others," it is clear that the wrong cite was simply a typographical error that respondents were unaware of. Appellants have not argued that they were either prejudiced or misled in any way by the error. Accordingly, appellants have not met their burden of demonstrating the trial court abused its discretion when it permitted the amendment.
The judgment is affirmed. Respondents are awarded their costs on appeal.
LEVY, Acting P.J. WE CONCUR: /s/_________
GOMES, J. /s/_________