Thompson v. Massarweh et al

Filing 23

ORDER GRANTING DEFENDANTS' MOTION TO DISMISS 6 . (Illston, Susan) (Filed on 11/22/2017)

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1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 RICHARD THOMPSON, Plaintiff, 8 9 10 United States District Court Northern District of California 11 Case No. 17-cv-05321-SI ORDER GRANTING DEFENDANTS' MOTION TO DISMISS v. WILLIAM A. MASSARWEH, et al., Re: Dkt. Nos. 6, 10 Defendants. 12 13 On November 17, 2017, the Court heard argument on defendants’ motion to dismiss under 14 Rule 12(b)(6) (Dkt. Nos. 6, 10). For the reasons set forth below, the Court GRANTS defendants’ 15 motion to dismiss with prejudice. 16 17 BACKGROUND 18 Defendants William A. Massarweh and The Law Offices of William A. Massarweh have 19 moved to dismiss plaintiff Richard Thompson’s complaint alleging professional malpractice, 20 breach of contract, breach of fiduciary duty, and negligence. MTD (Dkt. No. 10). 21 The following facts are drawn from the complaint, which the Court treats as true for the 22 purposes of this motion. On March 29, 2002, plaintiff executed a premarital agreement with his 23 then-fiancée, identifying plaintiff’s premarital assets as separate property. Compl. ¶ 7 (Dkt. No. 1- 24 1). After getting married in 2005, the couple hired defendants to prepare an estate plan. Id. ¶¶ 8- 25 9. Plaintiff alleges that the estate plan, executed August 19, 2005, eliminated his separate property 26 rights protected in the 2002 premarital agreement, and that defendant failed to (1) adequately 27 inform the plaintiff of this result or (2) advise plaintiff to seek independent counsel. Id. ¶¶ 16-18. 28 Plaintiff asserts that he would never have executed the 2005 documents had he known that they 1 would extinguish separate property rights in his premarital assets. Id. ¶ 24. The estate plan 2 documents included: “Revocation of Premarital Agreement,” which “explicitly revoked the 2002 3 Premarital Agreement” and eliminated separate property rights in all premarital assets; “Property 4 Agreement,” which converted all of the couple’s property to community property without 5 recognizing separate premarital property rights; “Assignment of Personal Property,” which 6 converted all of the couple’s personal property to a living trust without recognizing separate 7 premarital property rights; “Revocation of Joint Venture Agreement,” which converted all of the 8 couple’s property to community property without recognizing separate premarital property rights 1; 9 and the “Thompson-Grace Living Trust,” which transferred all of the couple’s property into a 10 living trust. Id. ¶¶ 11-15. United States District Court Northern District of California 11 In 2008, the couple again met with the defendants to restate and amend the living trust. Id. 12 ¶ 18. Plaintiff alleges that at this 2008 meeting, defendants again did not advise plaintiff to seek 13 independent legal advice regarding the effect of the 2005 estate plan on his 2002 premarital 14 agreement. Id. 15 Plaintiff’s now ex-wife filed a Petition for Dissolution of Marriage in Contra Costa County 16 in February 2015. Id. ¶ 19; Req. Jud. Not., Ex. 1 (Dkt. No. 17).2 On October 8, 2015, the Contra 17 Costa County Superior Court found that the Revocation of Premarital Agreement was a valid 18 transmutation to community property of the separate property covered by the 2002 premarital 19 agreement. Compl. ¶ 21. On April 11, 2016, after additional trial proceedings, the Superior Court 20 entered an order affirming the binding validity of the revocation document on separate premarital 21 22 23 24 25 26 27 28 1 The complaint titles this document “Revocation of Joint Venture Agreement.” Id. ¶ 14. However, this document itself, which plaintiff attached to his opposition brief as exhibit A, is actually titled “Revocation of Premarital Agreement.” Opp’n at 4. Hereafter in this order, it will be referred to as the Revocation of Premarital Agreement. 2 Defendants request judicial notice of the state court docket and the October 8, 2015 state court order after hearing. Dkt. No. 17. Plaintiff has not objected to this request. The Court finds these documents are “not subject to reasonable dispute because [they] . . . can be accurately and readily determined from sources whose accuracy cannot reasonably be questioned.” See Fed. R. Evid. 201(b)(2). The Court GRANTS defendants’ request for judicial notice. 2 1 assets. See id. ¶ 22. On June 2, 2016,3 the Superior Court ruled that the 2005 documents did not 2 preserve any right of reimbursement for the plaintiff for his premarital property. Opp’n at 1-2 3 (Dkt. No. 14). The final judgment for dissolution of marriage was filed November 23, 2016; 4 plaintiff filed an appeal of the order on reimbursement on November 29, 2016. Req. Jud. Not., 5 Ex. 1. The state court appeal remains pending. See id.; Opp’n at 5. 6 Plaintiff initially filed this suit alleging professional malpractice on September 6, 2016, in 7 Contra Costa County Superior Court. On September 13, 2017, defendants removed the case to 8 federal court on the basis of diversity jurisdiction. Not. of Removal (Dkt. No. 1). Defendants’ 9 motion to dismiss came on for hearing on November 17, 2017. For the reasons set forth below, 10 the Court GRANTS defendants’ motion with prejudice. United States District Court Northern District of California 11 LEGAL STANDARD 12 13 I. Rule 12(b)(6) 14 Under Federal Rule of Civil Procedure 12(b)(6), a district court must dismiss a complaint 15 if it fails to state a claim upon which relief can be granted. To survive a Rule 12(b)(6) motion to 16 dismiss, the plaintiff must allege “enough facts to state a claim to relief that is plausible on its 17 face.” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570 (2007). This “facial plausibility” standard 18 requires the plaintiff to allege facts that add up to “more than a sheer possibility that a defendant 19 has acted unlawfully.” Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009). While courts do not require 20 “heightened fact pleading of specifics,” a plaintiff must allege facts sufficient to “raise a right to 21 relief above the speculative level.” Twombly, 550 U.S. at 555, 570. 22 In deciding whether the plaintiff has stated a claim upon which relief can be granted, the 23 Court must assume that the plaintiff’s allegations are true and must draw all reasonable inferences 24 in the plaintiff’s favor. See Usher v. City of Los Angeles, 828 F.2d 556, 561 (9th Cir. 1987). 25 26 27 28 3 The complaint and plaintiff’s opposition variously list this date as June 2, July 2, and July 13, 2016. The state court docket, attached to the request for judicial notice, lists this date as June 2, 2016. For purposes of this motion, the difference between the June and July 2016 dates is not determinative. 3 1 However, the Court is not required to accept as true “allegations that are merely conclusory, 2 unwarranted deductions of fact, or unreasonable inferences.” In re Gilead Scis. Sec. Litig., 536 3 F.3d 1049, 1055 (9th Cir. 2008). As a general rule, the Court may not consider any materials 4 beyond the pleadings when ruling on a Rule 12(b)(6) motion. Lee v. City of Los Angeles, 250 F.3d 5 668, 688 (9th Cir. 2001). However, pursuant to Federal Rule of Evidence 201, the Court may take 6 judicial notice of “matters of public record,” such as prior court proceedings, without thereby 7 transforming the motion into a motion for summary judgment. Id. at 688-89. If the Court dismisses the complaint, it must then decide whether to grant leave to amend. 9 The Ninth Circuit has “repeatedly held that a district court should grant leave to amend even if no 10 request to amend the pleading was made, unless it determines that the pleading could not possibly 11 United States District Court Northern District of California 8 be cured by the allegation of other facts.” Lopez v. Smith, 203 F.3d 1122, 1130 (9th Cir. 2000) 12 (citations and internal quotation marks omitted). Dismissal of a complaint without leave to amend 13 is proper only if it is “absolutely clear that the deficiencies of the complaint could not be cured by 14 amendment.” Noll v. Carlson, 809 F.2d 1446, 1448 (9th Cir. 1987) (quoting Broughton v. Cutter 15 Labs., 622 F.2d 458, 460 (9th Cir. 1980)); see also Akhtar v. Mesa, 698 F.3d 1202, 1212 (9th Cir. 16 2012). 17 18 II. Cal. Civ. Proc. Code § 340.6 19 California Code of Civil Procedure Section 340.6, as amended in 2009, outlines the statute 20 of limitations for all actions against attorneys for wrongful conduct in performing their profession, 21 other than actual fraud. Cal. Civ. Proc. Code § 340.6(a). A claim arising out of such misconduct 22 must be brought “one year after the plaintiff discovers, or through the use of reasonable diligence 23 should have discovered, the facts constituting the wrongful act or omission, or four years from the 24 date of the wrongful act or omission, whichever occurs first.” Id. The statute thus puts limitations 25 on the common law discovery rule, protecting the defendant from litigation brought long after the 26 plaintiff gains actual or constructive knowledge. See Samuels v. Mix, 989 P.2d 701, 707 (Cal. 27 1999). 28 The statute allows for tolling, however, if “[t]he plaintiff has not sustained actual injury.” 4 1 Cal. Civ. Proc. Code § 340.6(a)(1). The test for actual injury under section 340.6 is “whether the 2 plaintiff has sustained any damages compensable in an action, other than one for actual fraud, 3 against an attorney for a wrongful act or omission arising in the performance of professional 4 services.” Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison, 958 P.2d 1062, 1071 (Cal. 5 1998). Determining the timing of actual injury is generally a question of fact. Adams v. Paul, 904 6 P.2d 1205, 1208 (Cal. 1995). When the underlying facts are undisputed, however, the trial court 7 may resolve the question as a matter of law, in accordance with the principles of summary 8 judgment. Id. at 1211. 9 DISCUSSION 10 United States District Court Northern District of California 11 Defendants argue that California Code of Civil Procedure Section 340.6 bars plaintiff’s 12 claims. MTD at 2. Defendants contend that the actual injury occurred in August 2005, when 13 plaintiff executed the estate plan documents, and thus the statute of limitations bars claims brought 14 after August 2009. Id. at 8. In their reply brief, defendants argue that plaintiff also allowed more 15 than one year to pass between gaining knowledge of the injury and filing the lawsuit. Reply at 4 16 n.1 (Dkt. No. 16). Plaintiff states that, “In the underlying Dissolution of Marriage Action, [he] 17 became aware, for the first time, that he had suffered ‘actual injury’ on July 2, 2016, . . . when the 18 Family Law Court ruled for the first time that he could not assert any Family Code Section 2640 19 reimbursement claims for his premarital separate property assets because of the 2005 Revocation 20 Document he signed.”4 Opp’n at 3. 21 22 I. Actual injury 23 Defendants argue that the “actual injury” occurred on August 19, 2005, when the plaintiff 24 signed the estate plan documents. MTD at 11. Plaintiff argues that the date of actual injury is 25 26 27 28 4 Family Code Section 2640 provides for a spouse to be reimbursed for separate property contributions to acquisitions of both (a) community property and (b) the other spouse’s separate property during marriage unless there is a written waiver or a transmutation of the right to reimbursement. Cal. Fam. Code § 2640. 5 1 June 2 or July 2, 2016.5 Opp’n at 1-3. In plaintiff’s view, Family Code Section 2640 was not 2 triggered until the filing of the dissolution of marriage proceedings, and June 2, 2016, was the first 3 time he learned that the 2005 document barred his reimbursement claims and thus marks the time 4 of actual injury. Id. at 2, 12. Defendants respond that plaintiff’s argument concedes that the 5 injury occurred in 2005. See Reply at 3. Prior to the legislature’s passage of Section 340.6, the California Supreme Court held that 7 a cause of action for legal malpractice would not accrue until a plaintiff had suffered “appreciable” 8 harm that was “irremediable.” Radovich v. Locke-Paddon, 41 Cal. Rptr. 2d 573, 587 (Ct. App. 9 1995) (citing Budd v. Nixen, 491 P.2d 433 (Cal. 1971)). In enacting Section 340.6, the legislature 10 implicitly rejected the “irremediable” requirement, instead focusing on injury that had, in fact, 11 United States District Court Northern District of California 6 occurred. See id. (citing Laird v. Blacker, 828 P.2d 691, 693 (Cal. 1992)). Section 340.6 was 12 intended as “legislative relief” for attorneys from the indefinite threat of litigation they could face 13 with no limit on when a plaintiff could sue for discovering alleged malpractice. Samuels, 989 P.2d 14 at 708. To that end, the statute, “even absent discovery, absolutely cuts off actions after a 15 specified period (‘four years from the date of the wrongful act or omission’) . . . .” Id. 16 The statute of limitations on professional malpractice allows for tolling until “actual 17 injury” occurs. Cal. Civ. Proc. Code § 340.6(a)(1). There are no bright-line rules about what 18 constitutes an “actual injury”; each case should be determined in light of its facts and 19 circumstances. 20 California Supreme Court has rejected a categorical approach, specifically rejecting the theory that 21 final adjudication on an issue is necessary in malpractice cases involving litigation. 22 958 P.2d at 1070. Foxborough v. Van Atta, 31 Cal. Rptr. 2d 525, 529 (Ct. App. 1994). The Jordache, 23 In Hensley v. Caietti, the California Court of Appeal found that actual injury occurred at 24 the time of the stipulation to a marital settlement agreement, not at the later time a dissolution 25 judgment was entered. 16 Cal. Rptr. 2d 837, 843 (Ct. App. 1993). The trial court had approved 26 the settlement and declared that it was effective immediately. Id. The binding contract allocating 27 28 5 See n.2, supra. 6 1 marital property “altered jural relations” and thus injured the plaintiff the moment it became 2 enforceable. Id. The appellate court explained that “[n]egligent legal advice which induces a 3 client to enter into a binding contract resolving marital property and support issues results in actual 4 injury at the point of entry.” Id. Similarly, in Turley v. Wooldridge, the Court of Appeal found that Turley suffered “actual 6 injury” when she executed a 1992 marriage settlement agreement that granted her less than half of 7 her share in community property and provided for inadequate spousal support. 281 Cal. Rptr. 441, 8 445 (Ct. App. 1991). The Court of Appeal rejected Turley’s argument that she suffered “actual 9 injury” six months after the entry of final judgment of dissolution of marriage, when the injury 10 became “irremediable.” Id. at 443. Turley could have but did not pursue any legal or equitable 11 United States District Court Northern District of California 5 remedies within the appropriate timeframe to challenge the agreement. Id. at 445. The execution 12 of the agreement itself marked the injury, so the four-year statute of limitations barred her 1997 13 suit. Id. 14 Actual injury requires legally cognizable damages. Jordache, 958 P.2d at 1071. In 15 Jordache, the California Supreme Court held that the plaintiff clothing company suffered actual 16 injury by incurring costs defending litigation that insurance would have covered, but for the 17 negligent advice of their attorney. Id at 1703. Jordache’s attorney allegedly failed to provide 18 timely notice to Jordache’s insurers of a lawsuit filed against Jordache. 6 Id. at 1066-67. The 19 attorney’s negligence diminished Jordache’s rights to liability insurance benefits, allowing the 20 insurer to raise a “late notice” defense that increased Jordache’s litigation costs. Id. at 1065. The 21 California Supreme Court clarified that Jordache need not have waited until the settlement of its 22 claims against the insurer to pursue a malpractice suit: “the determination of actual injury does not 23 necessarily require some form of adjudication, judgment, or settlement.” Id. at 1073. Jordache 24 had already suffered losses before the end of litigation, and section 340.6 “will not toll the 25 limitations period once the client can plead damages that could establish a cause of action for legal 26 6 27 28 This was a negligent omission, not a negligent prediction of the outcome of adjudication. Id. at 1706; cf. Sirott v. Latts, 8 Cal. Rptr. 2d 206 (Ct. App. 1992) (finding malpractice where an attorney negligently advised his client that an insurance premium would be found unconstitutional). 7 1 malpractice.” Id. at 1065. The timing of damages, rather than the end of litigation, was thus more 2 determinative for finding “actual injury.” 3 A plaintiff’s discovery of the wrongdoing is not necessary to find actual injury. In Radovich v. Locke-Patton, the Court of Appeal concluded that actual injury occurred at the time 5 the couple signed their 1957 prenuptial agreement, even though the husband only experienced the 6 effects of the agreement upon his wife’s death in 1991. 41 Cal. Rptr. 2d at 591. The plaintiff’s 7 community property interest “would have been of real and immediate benefit to Radovich 8 ‘[t]hroughout the thirty-four years of the marriage,’ and it follows that the agreement by which he 9 ostensibly relinquished any community-property right . . . caused him immediate and actual injury 10 throughout the same thirty-four years” and not just upon his wife’s death. Id. at 590. The four- 11 United States District Court Northern District of California 4 year statute of limitations is an “occurrence” period that applies regardless of when the plaintiff 12 discovers the underlying facts. Id. at 585. The court need only assess plaintiff’s discovery of the 13 facts when applying the alternative one-year discovery period under Section 340.6. Id. 14 Here, all of plaintiff’s claims stem from the execution of the 2005 estate plan documents. 15 Those documents, according to plaintiff’s own complaint, revoked the 2002 premarital agreement 16 and converted his and his ex-wife’s property into community property. See Compl. ¶¶ 11-14. At 17 that time, plaintiff was deprived of his property rights, similar to the plaintiffs in Hensley, Turley, 18 and Radovich, where the binding contract marked the point of actual injury for statute of 19 limitations purposes.7 See 16 Cal. Rptr. 2d 837; 281 Cal. Rptr. 441. At the moment plaintiff 20 signed the 2005 estate plan documents, he could have brought suit for professional malpractice. 21 See Jordache, 958 P.2d at 1065. This is true even if plaintiff only felt the monetary results of the 22 alleged misconduct years later, when dissolution proceedings began. See Radovich, 41 Cal. Rptr. 23 2d at 590. 24 The Court therefore concludes that plaintiff’s actual injury, for purposes of Section 340.6, 25 occurred on August 19, 2005, when the parties executed the estate plan. Even if plaintiff did not 26 7 27 28 At the hearing, plaintiff argued that this Court should not consider Radovich because that case was decided before the California Supreme Court’s decision in Jordache. The Court finds that the approach taken by the Radovich court is consistent with the Jordache opinion and that, given the similarity in facts to those presented here, the Radovich opinion remains persuasive. 8 1 discover the actual injury until later, as he contends, the four-year limitations period “is indeed 2 an occurrence period which will run whether or not the plaintiff has discovered the malpractice.” 3 Id. at 586 (emphasis added). Under California law, either the one-year or four-year limitations 4 period applies to professional malpractice claims, “whichever occurs first.” Cal. Civ. Proc. Code 5 § 340.6(a). Given the Court’s determination on “actual injury,” the four-year statute of limitations bars 7 plaintiff from bringing this claim after August 19, 2009. Accordingly, the Court need not reach 8 the parties’ arguments regarding any one-year statute of limitations since, if applicable, that time 9 period would close well after August 2009. See Opp’n at 5 (arguing that plaintiff first had 10 knowledge of alleged misconduct in June 2016); Reply at 4 n.1 (arguing that plaintiff had 11 United States District Court Northern District of California 6 knowledge during dissolution proceedings that begin in February 2015). 12 Because the underlying facts regarding when plaintiff signed the estate planning 13 documents are undisputed, no amendment could cure the complaint’s deficiency. The Court 14 accordingly GRANTS the motion to dismiss with prejudice. 15 16 II. Request to Stay Proceedings 17 Plaintiff alternatively seeks to stay these proceedings, pending the outcome of his appeal in 18 state court. Opp’n at 3. The Court declines to stay this case. As the defendants rightly note, 19 having found that the actual injury occurred in 2005, the statute of limitations bars plaintiff’s 20 claims. See Reply at 9. Only if this Court found that the determination of actual injury depended 21 on the state court’s final adjudication on the 2005 documents would a request to stay be relevant. 22 23 24 25 26 /// 27 /// 28 /// 9 CONCLUSION 1 2 3 For the foregoing reasons and for good cause shown, the Court hereby GRANTS defendants’ motion to dismiss with prejudice. 4 5 6 7 8 IT IS SO ORDERED. Dated: November 22, 2017 ______________________________________ SUSAN ILLSTON United States District Judge 9 10 United States District Court Northern District of California 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 10

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