Metropolitan News-Enterprise


Thursday, April 2, 2015


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C.A. Says Homeowners Waited Too Long to Sue Their Lawyers

Justices Say Plaintiffs Were on Inquiry Notice as to Alleged Fraudulent Misappropriation of Earthquake Settlement Funds




Homeowners claiming they were shortchanged in the settlement of their claims growing out of the 1994 Northridge earthquake waited too long to sue the high-powered law firms that represented them, the Court of Appeal for this district ruled yesterday.

Div. One affirmed judgment in favor of Shernoff Bidart Echeverria Bentley, Girardi | Keese, and Engstrom, Lipscomb & Lack. Los Angeles Superior Court Judge Debre Katz Weintraub sustained the firms’ demurrer to the lawsuit brought by a number of homeowners who participated in the mass settlement of claims against State Farm Insurance Company.

The settlement of claims by more than 90 families took place in 1997 and was overseen by retired Los Angeles Superior Court Judges Peter Smith and Arthur Baldonado, as special masters. In their 2012 complaint against the law firms, the plaintiffs alleged that a random sampling suggested that the attorneys had not disbursed to the claimants their entire share of the more than $100 million that State Farm paid to settle the case more than 14 years earlier, and that some $22 million remained unaccounted for.

Further Claims

The plaintiffs also claimed that their lawyers failed to inform them how the settlement was calculated, the total amount of the settlement being paid, and how the settlement would be distributed to each plaintiff.  They also alleged that the attorneys failed to provide a copy of the entire settlement agreement to plaintiffs, and had each plaintiff sign a signature page, and had violated a State Bar rule requiring prohibiting an attorney from settling a case without the clients’ informed consent.   

Katz ruled that the claims were speculative and untimely.

On appeal, the plaintiffs argued that they had presented timely claims of fraud under the related case of Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, which involved a single family of plaintiffs and a single defendant law firm. The Court of Appeal held that while Code of Civil Procedure §340.6 barred the plaintiffs’ claims for malpractice and breach of fiduciary duty, Probate Code §16460 allowed them three years from the date they received an accounting to sue for fraud.

Since the plaintiffs alleged they had not received an accounting, the court said, the cause of action was timely on the face of the complaint. Section 16460 applies to trust beneficiaries who allege they have been defrauded by their trustees or other fiduciaries.

C.A. Opinion

Justice Jeffrey Johnson, however, writing yesterday for the Court of Appeal, said the case was distinguishable from Prakashpalan.

“Nothing in Prakashpalan altered the time-worn principle that where there are facts sufficient to put one on inquiry notice, the fraud statute of limitations starts running even when the defendant is a fiduciary,” he wrote. “In the instant case, unlike in Prakashpalan, plaintiffs’ allegations in their complaint in combination with the exhibits attached to their complaint reveal facts that should have put plaintiffs on inquiry notice of their fraud claim against the defendant attorneys, thus starting the running of the fraud statute of limitations.”

Johnson explained that in the instant case, the pleadings definitively established that when the case was settled, the plaintiffs were put on notice that there was an allocation process for the settlement, that the retired judges appointed by the court were administering the process, and that once the settlement was allocated and paid, they would have no further rights against State Farm.  

“Even applying the three-year statute applicable to fraud claims…the statue would have begun to run no later than the date when the plaintiffs received their settlement checks,” the justice explained.

Nor, Johnson went on to say, do the plaintiffs have a viable claim based on the State Bar Act’s trust accounting requirements.

Issue Unresolved

It’s unclear, the justice explained, whether the act entitles a client who is party to an aggregate settlement to an accounting as to other clients’ shares.  “However, we need not decide the issue here, as the plaintiffs admit they signed an agreement knowing that they would not receive that information in connection with the settlement,” Johnson wrote.

Los Angeles Superior Court Judge Helen Bendix, sitting on assignment, concurred in Johnson’s opinion. Presiding Justice Frances Rothschild concurred separately, citing her dissent in Prakashpalan.

Attorneys on appeal were Peter R. Dion-Kindem of The Dion-Kindem Law Firm for the plaintiffs; Jeffrey I. Erhlich of The Erhlich Law Firm for Shernoff Bidart; and Thomas V. Girardi and Graham B. Lippsmith of Girardi | Keese and Robert J. Wolfe and Robert T. Bryson of Engstrom Lipscomb for their respective firms.

The case is Britton v. Girardi, 15 S.O.S. 1665.


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