Thursday, May 28, 2020
Court of Appeal:
Emailing of Form to Client Did Not Cause ‘Definitive Cessation’ of Continuing Representation, Ashmann-Gerst Says; Former Client to Receive Leave to Amend Malpractice Complaint
By a MetNews Staff Writer
Tolling of the one-year statute of limitation for bringing a legal malpractice action based on continued representation after the alleged harm was discovered did not end upon the defendant lawyers emailing a substitution of attorney form but, rather, expired when the client signed that form, the Court of Appeal for this district has held.
Although the issue was apparently one of first impression, the opinion, by Justice Judith Ashmann-Gerst of this district’s Div. Two, was not certified for publication.
Ashmann-Gerst recited in the opinion, filed Tuesday, that tolling ends when there is a “definitive cessation” of the attorney-client relationship. The question was when that cessation occurred in the relationship between plaintiff Deborah Johannes and the defendants, certified bankruptcy specialists Gregory M. Salvato and Joseph Boufadel and the Salvato Law Offices.
Los Angeles Superior Court Judge Stephanie Bowick, in sustaining demurrers without leave to amend, set that date at Dec. 6, 2016, when the Salvato firm transmitted the form to Johannes’s new lawyer, evincing its an unwillingness to provide further representation. Johannes’s malpractice action was filed on Dec. 8, 2017—two days too late, Bowick found.
That’s not necessarily so, Ashmann-Gerst said, declaring that while the demurrer was properly sustained, leave to amend should have been granted. She explained that based on the record before her court, “it would appear that the date that Johannes actually signed the… substitution of counsel form” is what constitutes a “definitive cessation” of the attorney-client relationship.
“Because Johannes may be able to allege that she signed on (or after) December 8, 2016—exactly one year before she filed the complaint in this action—denial of leave to amend…was an abuse of discretion,” she wrote.
Although Ashmann-Gerst did not cite any precedent for the proposition that the signing of the form terminates an attorney-client relationship, and not the sending of it, she did dispute the relevance of a precedent cited by the defendants. They pointed to the Third District Court of Appeal’s Jan. 31, 2017 decision in Flake v. Neumiller & Beardslee in which it was held that a motion to withdraw as counsel constitutes an end to tolling.
“Defendants equate the formal service of a presumably complete motion to withdraw in Flake—which marked the end of continuous representation tolling—to Salvato’s act of e-mailing a substitution of attorney form to another attorney to provide to Johannes for her signature. We find these acts readily distinguishable.”
Background of Dispute
Services of the Salvato firm were engaged by Johannes on Jan. 20, 2014, to pursue her contention in the U.S. Bankruptcy Court for the Southern District of California that the man to whom she had just been divorced after 18 years of marriage had “strategically filed” for Chapter 11 protection in order to deprive her of her just share of the yet-to-be-divided marital estate.
An intended division had been set forth in a Dec. 20, 2013 Los Angeles Superior Court proposed statement of decision. The ex-husband filed for bankruptcy on Jan. 4, 2014 for the purpose, Johannes alleged in the Bankruptcy Court, of skirting that tentative disposition.
In her Los Angeles Superior Court malpractice complaint, Johannes averred that on Nov. 15, 2015, Salvato and Boufadel informed her that the Bankruptcy Court had rejected her contentions and “implied” they could do nothing more for her. She filed a notice of appeal, in pro per, four days later (according to U.S. District Court records—or two days later, as Tuesday’s Court of Appeal opinion says).
The Bankruptcy Court in 2015 approved the substitution of another attorney, specifying that the substitution applied to the “Appeal Only.” On Dec. 9, 2016, that court approved the substitution of Johannes as counsel for herself in the “Bankruptcy Case.”
Johannes, in suing the lawyers in Los Angeles Superior Court, contended that rulings in the Bankruptcy Court showed that their “repeated failure to meet filing deadlines and to disclose information favorable” to her cause resulted in an adverse outcome there.
(The Bankruptcy Court found that, with the adjustments made by it, Johannes came out better than under the Superior Court’s final division-of-assets decision on May 8, 2014; the District Court on April 21, 2017, in affirming the Bankruptcy Court’s confirmation of the ex-husband’s reorganization plan, agreed.)
In her first amended complaint, Johannes details 25 alleged derelictions by the defendants. These include a purported failure to timely submit claims resulting in the “[d]enial of legal fees and expenses, resulting in loss of $470,305.67.”
That figure is nine cents less than the total of fees paid to Salvato (the immediate past Italian American Lawyers Association president), $292,881.52; to family law attorney Patricia Phillips (a former Los Angeles County Bar Association president), $106,152.24; and to forensic CPA Mark Kohn, $71,272.00.
The pleading also alleges the lawyers “[f]iled amended claim 14 months late, resulting in denial of $242,000 litigation discount” based on diminution of the value of assets based on the threat of litigation.
Ashmann-Gerst pointed to three alternative dates on which, according to the defendants, their representation of Johannes ended:
•Nov. 15, 2015 when, according to the first amended complaint, they “implied that they could be of no further assistance to” her and “[a]bandoned” her by advising that they “could no longer represent her with less than a week remaining to file an appeal in a complex case with volumes of documents.” Ashmann-Gerst responded:
“Neither of these allegations conclusively establishes that the representative relationship had concluded for all purposes in the bankruptcy matter, as opposed to just the appeal.”
•October 2016 when an adversarial relationship developed upon Johannes sending an email advising the defendants “that she was pursuing a claim against them.” Ashmann-Gerst said:
“Whether these events signified the end of the representation for the purpose of continuous representation tolling—particularly in light of the fact that a substitution of attorney form in the underlying bankruptcy case had yet to be filed—is a question of fact that cannot be resolved on demurrer.”
•Dec. 6, 2016 when they sent a substitution of attorney form. “They do not aver on appeal that either Johannes or Salvato actually signed the substitution form on December 6, 2016, even though the date appears next to both signatures,” the jurist wrote.
“Rather, they contend that it is ‘a distinction without a difference’ whether Johannes signed the form on December 8, 2016, as she claims on appeal, because the relevant date is when the substitution was transmitted by Salvato, as that act placed Johannes ‘on notice that [defendants] would not be providing any further representation.’ ”
Ashmann-Gerst expressed her disagreement “that Flake compels such a conclusion.”
Ashmann-Gerst said that Bowick erred in concluding that two other causes of action—for breach of fiduciary duty and breach of contract—had to fall because they were duplicative of the cause of action for malpractice.
“There is a split of authority regarding whether a demurrer may be properly sustained on the ground that a cause of action is duplicative,” she wrote, adding:
“We need not wade into this dispute because Johannes’s breach of fiduciary duty and breach of contract causes of action are not duplicative of her legal malpractice cause of action.”
She went on to say:
“Johannes alleged that, by virtue of their attorney-client relationship, a fiduciary relationship existed between her and defendants. Defendants breached their ‘fiduciary obligation to disclose’ their acts of legal malpractice to Johannes, which caused her to suffer damages. These allegations are sufficient to state a cause of action distinct from legal malpractice based on defendants’ breach of their duty to keep Johannes reasonably informed about significant developments in the bankruptcy case.”
Breach of Contract
Allegations that Salvato breached his duty under the retainer agreement to arbitrate their fee dispute “are sufficient to state a breach of contract cause of action distinct from legal malpractice or breach of fiduciary duty,” Ashmann-Gerst said.
The one-year statute of limitation applicable to the malpractice action also pertains to the other causes of action, she noted, saying that the statute is tolled as to the alleged breach of fiduciary duty until the time Johannes signed the substitution of attorney form, and that leave to amend must, on remand, be granted.
“Because it is not clear from the first amended complaint or matters properly subject to judicial notice when Salvato’s refusal [to arbitrate] occurred,” the opinion says, “the demurrer based on the statute of limitations as to the breach of contract cause of action against Salvato should have been overruled.”
The opinion affirms the judgment of dismissal in favor of Boufadel on that cause of action because he was not a signatory to the retainer agreement.
The case is Johannes v. Salvato, B293421.
Attorneys on appeal were Beverly Hills attorney Randall A. Spencer for Johannes and Kenneth C. Feldman and Barry Zoller of the downtown Los Angeles firm of Lewis Brisbois Bisgaard & Smith for Salvato, his downtown Los Angeles firm, and Boufadel.
The Ninth U.S. Circuit Court of Appeals on Feb. 13, 2019, affirmed the 2017 decision by District Court Judge Anthony J. Battaglia of the Southern District of California upholding the Bankruptcy Court’s confirmation of Patrick Allen Johannes’s bankruptcy reorganization plan.
“The plan was not proposed in bad faith,” the Ninth Circuit’s memorandum opinion says. “Deborah does not dispute that Patrick was insolvent, and there is no evidence the plan harasses Deborah.”
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