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California Law Update – December 2017

By December 22, 2017April 22nd, 2018Law Updates
  1. (Attorney Fees) Prevailing parties entitled to contractual attorney fees and costs even though underlying contracts that were basis for fees were declared void. California-American Water Co. v. Marina Coast Water District. (No. A146166, 146405, San Francisco County Super. Ct. No. CGC-13-528312, California Courts of Appeal, First Appellate District, Division One, November 15, 2017)
  2. (Statute of Limitations) Summary judgment in favor of defendants on basis of action’s untimeliness affirmed where limitations period commences upon plaintiffs’ suspicion of injury. Choi v. Sagemark Consulting. (No. H041569, Santa Clara County Super. Ct. No. 1-10-CV187143, California Courts of Appeal, Sixth Appellate District, December 11, 2017)
  3. (Privity/Duty) A special relationship does not exist absent privity between the parties sufficient to establish a duty of care under ‘Biakanja.’ Southern California Gas Co. v. First American Wholesale Lending Corporation et al. (No. B283606, JCCP No. 4861, California Courts of Appeal, Second Appellate District, Division Five, December 15, 2015)
  4. (Res Judicata) A prior judgment based on the statute of limitations is not ‘on the merits’ for purposes of barring claim under the doctrine of res judicata. Boyd v. Freeman. (No. B279246, Los Angeles County Super. Ct. No. BC588216, California Courts of Appeal, Second Appellate District, Division Four, December 20, 2017)

The above referenced matters have come to our attention during last month. Please find below a brief summary of these newly issued opinions.

  1. (Attorney Fees) Prevailing parties entitled to contractual attorney fees and costs even though underlying contracts that were basis for fees were declared void. California-American Water Co. v. Marina Coast Water District. (No. A146166, 146405, San Francisco County Super. Ct. No. CGC-13-528312, California Courts of Appeal, First Appellate District, Division One, November 15, 2017)

Plaintiff and defendant entered into various contracts concerning a water desalination project and agreed to award the prevailing party in “any action… arising from their agreement[s]” attorney fees and costs. The plaintiffs successfully sued to have the contracts declared void. The trial court entered orders awarding the plaintiff attorney fees and costs as the prevailing party under Code of Civil Procedure sections 1032 and 1717. Defendant contended that there was no basis to award fees under section 1717 because the contracts were declared void.

The appeals court affirmed the trial court’s ruling. Even if the underlying contracts were declared void, it did not preclude the plaintiff from recovering attorney’s fees and costs as the prevailing parties under section 1717. Section 1717(a) entitles the prevailing party to reasonable attorney fees and costs “in any action on a contract” specifically providing for fees and costs.

  1. (Statute of Limitations) Summary judgment in favor of defendants on basis of action’s untimeliness affirmed where limitations period commences upon plaintiffs’ suspicion of injury. Choi v. Sagemark Consulting. (No. H041569, Santa Clara County Super. Ct. No. 1-10-CV187143, California Courts of Appeal, Sixth Appellate District, December 11, 2017)

Plaintiffs sued defendant financial advisors with regard to a claim related to an investment in the plaintiffs’ retirement account. The plaintiffs sued their formal financial advisors alleging that the advisors were negligent and deceitful, among other things. Plaintiffs argued that the advisors advised them to establish the retirement account “even though [the advisors] knew, or should have known, that the plan was likely to invite IRS scrutiny.” The advisors successfully moved for summary judgment arguing that the plaintiffs’ action was time-barred. The court found that the statute of limitations began to run in 2007, when the plaintiffs received the advisors’ letter regarding the IRS penalties. On appeal, plaintiffs argued that the statute of limitations period began to run in 2010, when penalties were assessed, and not in 2007.

The appeals court affirmed the trial court’s ruling. A claim must be brought “within the limitations period after accrual of the cause of action.” The cause of action generally begins to accrue when a plaintiff has reason to suspect that they were injured by wrongdoing. The appeals court found that the 2007 letter informing the plaintiffs of the IRS penalties, among other things, gave the plaintiffs a reason to suspect that they were injured by their advisors wrongdoing. Thus, the limitations period commenced in 2007.

  1. (Privity/ Duty) A special relationship does not exist absent privity between the parties sufficient to establish a duty of care under ‘Biakanja.’ Southern California Gas Co. v. First American Wholesale Lending Corporation et al. (No. B283606, JCCP No. 4861, California Courts of Appeal, Second Appellate District, Division Five, December 15, 2015)

Seven businesses filed a lawsuit to recover damages for purely economic loss resulting from a massive natural gas leak at defendant’s facility. The businesses did not claim any injuries to person or property. The California Supreme Court has recognized plaintiffs may sue in negligence for economic loss alone. Such recovery has been limited to situations where a transaction between the defendant and another was intended to directly affect the plaintiff (a third party), who’s economic loss was a foreseeable consequence of the defendant’s negligence. As business plaintiffs, plaintiffs’ complaint lacked allegations of personal injury, property damage, or the requisite transaction, and therefore, defendant filed a demurrer to the causes of action based on negligence.

The trial court concluded that there was some uncertainty in the law and that defendant should bear all costs its accident caused and there was no bar to recovery for purely economic loss under negligence theories when the precipitating event is a mass tort. The demurrer was overruled and defendant petitioned for a writ of mandate. The appeals court concluded as a matter of law that defendant did not owe a duty to prevent business plaintiffs’ economic loss based on negligent conduct. Accordingly, the appeals court granted the petition for peremptory writ of mandate.

  1. (Res Judicata) A prior judgment based on the statute of limitations is not ‘on the merits’ for purposes of barring claim under the doctrine of res judicata. Boyd v. Freeman. (No. B279246, Los Angeles County Super. Ct. No. BC588216, California Courts of Appeal, Second Appellate District, Division Four, December 20, 2017)

In the underlying action, plaintiff asserted claims against defendant predicated on allegations of wrongful foreclosure. The trial court sustained the demurrer by the defendant to plaintiff’s first amended complaint without leave to amend, reasoning that the doctrine of res judicata barred her claims, in view of a judgment in favor of the plaintiff and against the defendant in a prior action. The appeals court concluded that the doctrine did not foreclose plaintiff’s claims because the prior judgment was not on the merits, but rather based on the statute of limitations. The appeals court therefore reversed and remanded for further proceedings.

Should you have any questions concerning these court decisions or desire a copy of any of them, please do not hesitate to contact our office.

Sincerely,

DUMMIT, BUCHHOLZ & TRAPP

SCOTT D. BUCHHOLZ ESQ.