Shaoxing City Maolong Wuzhong Down Products, Ltd. v. Keehn & Associates, APC , 190 Cal. Rptr. 3d 90 ( 2015 )

Filed 6/25/15 Shaoxing City etc. Products v. Keehn & Associates CA2/2
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS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 This opinion has not been certified for publication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.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION TWO
SHAOXING CITY MAOLONG B256988
WUZHONG DOWN PRODUCTS, LTD.
et al., (Los Angeles County
Super. Ct. No. BC455229)
Plaintiffs and Appellants,
v.
KEEHN & ASSOCIATES, APC et al.,
Defendants and Respondents.
APPEAL from a judgment of the Superior Court of Los Angeles County.
Rolf M. Treu. Affirmed.
Timothy D. McGonigle for Plaintiffs and Appellants.
Petit Kohn Ingrassia & Lutz, Douglas A. Pettit, Valerie G. Hong, and
Matthew C. Smith, for Defendants and Respondents.
******
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A creditor retained attorneys to challenge another creditor’s lien after the debtor
declared bankruptcy. After the first creditor’s attorneys missed the deadline to
investigate and attack the lien, that creditor hired new counsel and entered into a
settlement with the debtor for less than the full amount of its debt. The creditor sued the
first attorneys for malpractice, and filed suit less than one year after the settlement but
more than one year after the missed deadline. The trial court granted summary judgment
to the attorneys, concluding that the lawsuit was untimely as a matter of law. We
conclude this was correct, and affirm.
FACTS AND PROCEDURAL HISTORY
An arbitrator determined that plaintiffs Shaoxing City Maolong Wuzhong Down
Products, Ltd. (Shaoxing) and Shui Yan Cheng’s (Cheng) (collectively, plaintiffs) were
entitled to a total of $5.35 million from Aeolus Down, Inc. (Aeolus), Wei Xu, and Wei
Dong (collectively, debtors). After the arbitrator issued its tentative ruling but before
plaintiffs obtained a judgment confirming the arbitration award, Aeolus entered into a
security agreement with Zhejiang Hengdi Bedding Co., Ltd. And Zhejiang Liuqiao
Feather Co., Ltd. (collectively, Zhejiang), and Zhejiang filed a blanket lien attaching to
all of Aeolus’s assets.
Soon after plaintiffs obtained the judgment, debtors filed for bankruptcy.
Plaintiffs hired defendants Keehn & Associates and L. Scott Keehn (collectively, Keehn)
as counsel in order to obtain discovery and challenge Zhejiang’s lien as a fraudulent
transfer. Pursuant to a stipulation of the parties, the bankruptcy court ordered that all
discovery and any challenges pertaining to Zhejiang’s lien be filed by an “Investigation
Termination Date” of October 7, 2009. The deadline came and went without Keehn
completing its discovery or filing any challenge to Zhejiang’s lien. On November 10,
2009, the bankruptcy court denied Keehn’s post-deadline request to retroactively extend
the deadline.
Within weeks, plaintiffs retained Landsberg and Associates and Ian Landsberg
(collectively, Landsberg) and formally substituted Landsberg for Keehn as their
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bankruptcy counsel. With Landsberg as counsel of record, plaintiffs engaged in
mediation with debtors and, on February 22, 2010, ultimately agreed to accept $3.75
million—$1.6 million less than the arbitration award.
On February 18, 2011, plaintiffs sued Keehn and Landsberg for malpractice. Each
set of defendants moved for summary judgment, and the trial court granted those
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motions. With respect to Keehn, the trial court held that plaintiffs’ lawsuit was untimely
as a matter of law because it was filed more than one year after the bankruptcy court
ruled that plaintiffs lost their right to challenge the Zhejiang lien. The court also rejected
plaintiffs’ argument that the limitations period was tolled due to Keehn’s continued
representation of them after substituting out as counsel.
Plaintiffs timely appeal.
DISCUSSION
We independently review whether the trial court properly granted summary
judgment due to the absence of any triable issue of material fact. (Code Civ. Proc.,
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§ 437c.) In doing so, we liberally construe the evidence in support of the party opposing
the motion, and resolve doubts against summary judgment and in favor of trial. (Ibid.;
Mt. Hawley Insurance Co. v. Lopez (2013) 215 Cal.App.4th 1385, 1393-1394.)
A claim for legal malpractice is timely only if filed “within one year after the
plaintiff discovers, or through the use of reasonable diligence should have discovered, the
facts constituting the wrongful act or omission,” and in no event more than “four years
from the date of the wrongful act or omission.” (§ 340.6, subd. (a).) This period is tolled
if, among other reasons, (1) “[t]he plaintiff has not sustained actual injury”
(§ 340.6, subd. (a)(1)), or (2) “[t]he attorney continues to represent the plaintiff regarding
the specific subject matter in which the alleged wrongful act or omission occurred”
1 Plaintiffs separately appealed the order granting summary judgment for
Landsberg. See B257823.
2 All further statutory references are to the Code of Civil Procedure unless otherwise
indicated.
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(§ 340.6, subd. (a)(2)). (See Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison
(1998) 18 Cal.4th 739, 742-743 (Jordache).)
Plaintiffs do not dispute that they discovered Keehn’s negligence more than one
year before filing this action. Instead, they assert that there are triable issues of fact as to
whether the statutory period was tolled under each of the two bases for tolling cited
above.
I. Actual Injury
Plaintiffs argue that the trial court erred in granting summary judgment because
they were not actually injured until the mediation concluded with an award that was $1.6
million less than they were owed (such that their lawsuit was timely filed within one year
of that date). Keehn responds that plaintiffs were actually injured either (1) when they
lost their right to challenge Zhejiang’s lien, or (2) when plaintiffs starting paying
Landsberg fees to try to repair the damage caused by Keehn’s alleged malpractice (see
Budd v. Nixen (1971) 6 Cal.3d 195, 201 [malpractice plaintiff injured when he pays
attorneys fees to new counsel], superseded on other grounds by § 340.6; Truong v.
Glasser (2009) 181 Cal.App.4th 102, 115 [“Plaintiffs first sustained actual injury when
they obtained and were obligated to pay new counsel to file a lawsuit seeking to escape
the consequences of [the earlier, alleged malpractice].”]). Because Keehn adduced no
evidence as to when plaintiffs incurred attorneys fees for Landsberg’s work, the propriety
of the trial court’s summary judgment ruling turns on whether plaintiffs were actually
injured when they lost their right to challenge Zhejiang’s lien or instead when they settled
for less than the full amount of their debt.
For purposes of section 340.6, “[a]ctual injury occurs when the client suffers any
loss or injury legally cognizable as damages in a legal malpractice action based on the
asserted errors or omissions.” (Jordache, supra, 18 Cal.4th at p. 743.) What matters is
“discovery of the fact of damage, not the amount.” (Laird v. Blacker (1992) 2 Cal.4th
606, 612 (Laird); Jordache, at p. 752 [“once the plaintiff suffers actual harm . . .
uncertainty as to the[] amount of damages” does not toll limitations period].) As long as
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that amount is more than nominal (Jordache, at p. 752; Adams v. Paul (1995) 11 Cal.4th
583, 589 (lead opn. of Arabian, J.)), actual injury exists even if the client has yet to
“sustain[] all, or even the greater part, of the damages occasioned by his attorney’s
negligence” (Budd, supra, 6 Cal.3d at p. 201); even if the client will encounter “difficulty
in proving damages” (Jordache, at p. 752); and even if that damage might be mitigated or
entirely eliminated in the future (Laird, at p. 614 [possibility of relief on appeal does not
eliminate “actual injury”]; Jordache, at p. 754 [“an existing injury is not contingent or
speculative simply because future events may affect its permanency . . .”];
Foxborough v. Van Atta (1994) 26 Cal.App.4th 217, 227 [same] (Foxborough); cf. Laird,
at p. 616 [confirming that injury need not be “‘irremediable’” to be “actual”]).
However, “actual injury” does not include “speculative and contingent
injuries . . . that do not yet exist . . . .” (Jordache, supra, 18 Cal.4th at p. 754; Adams,
supra, 11 Cal.4th at p. 590 (lead opn. of Arabian, J.) [actual injury does not exist where
“the attorney’s negligence may have created only the potential for future harm”]; see
International Engine Parts v. Fedderson & Co. (1995) 9 Cal.4th 606, 612 [tax
examiner’s proposed findings regarding tax deficiency are too speculative to constitute
“actual injury” arising from accountant malpractice because findings were only proposed
and were issued “prior to any determination of tax deficiency”].)
We are consequently tasked with “distinguish[ing] between an actual, existing
injury that might be remedied or reduced in the future, and a speculative or contingent
injury that might or might not arise in the future.” (Jordache, supra, 18 Cal.4th at
p. 754.)
The undisputed facts point to the conclusion that the plaintiffs were actually
injured no later than November 10, 2009, for two reasons. First, that was the date upon
which the bankruptcy court definitively confirmed that plaintiffs lost their right to
challenge the Zhejiang lien. “The loss or diminution of a right or remedy constitutes
injury or damage.” (Jordache, supra, 18 Cal.4th at p. 744; accord, Adams, supra, 11
Cal.4th at pp. 591-592 (lead opn. of Arabian, J.).) Any uncertainty as to whether the
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Investigation Termination Date might be waived or extended (cf. Adams, at p. 598 (conc.
opn. of Kennard, J.) was dispelled when the debtor opposed plaintiffs’ motion to extend
the deadline and the bankruptcy court denied that motion and thereby cut off plaintiffs’
right to challenge the Zhejiang lien.
Second, and relatedly, the absence of a pending challenge to the Zhejiang lien
substantially weakened plaintiffs’ negotiating position in the ensuing mediation, and the
“los[s]” of “considerable settlement value” also constitutes “actual injury.” (Laird,
supra, 2 Cal.4th at p. 615; accord, Jordache, supra, 18 Cal.4th at pp. 743-744.) A litigant
who seeks to enforce a lien in bankruptcy court suffers actual injury when its negotiating
position is weakened by a bankruptcy trustee’s comment that the lien may not be
enforceable. (Village Nurseries v. Greenbaum (2002) 101 Cal.App.4th 26, 41-42
(Village Nurseries).) A litigant—like plaintiffs here—who seeks to challenge a lien in
bankruptcy court faces just as much, if not more, of a weakened negotiating position
when a bankruptcy judge definitively rules that any challenge to that lien is procedurally
barred.
Plaintiffs raise three further arguments. They contend that the question of actual
injury “raises an issue of fact” (Budd, supra, 6 Cal.3d at p. 198), and questions of fact are
ill suited for resolution on summary judgment. But where, as here, the “material facts are
undisputed, the trial court can resolve the matter [of actual injury] as a question of law in
conformity with summary judgment principles.” (Jordache, supra, 18 Cal.4th at p. 751;
Village Nurseries, supra, 101 Cal.App.4th at p. 40.) Plaintiffs also point us to
Tchorbadjian v. Western Home Ins. Co. (1995) 39 Cal.App.4th 1211, 1219 for the
proposition that “[t]he actual injury occurs in litigation malpractice when the malpractice
results in an adverse judgment or settlement in the underlying action.” But Tchorbadjian
did not involve the loss of a right or remedy preceding a judgment or settlement; in such
cases, and consonant with the authority cited above, “[t]here is no requirement that an
adjudication or settlement must first confirm a causal nexus between the attorney’s error
and the asserted injury.” (Jordache, at p. 752.) At oral argument, plaintiffs argued that
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they did not subjectively believe that they had suffered actual injury because Landsberg
assured them that they could attack the lien notwithstanding the bankruptcy court’s
definitive ruling to the contrary. But subjective belief is irrelevant to the question of
whether actual injury has been sustained. (Britton v. Girardi (2015) 235 Cal.App.4th
721, 733 [in assessing actual injury, “the fact of injury or damage need not be recognized
or noticed by the plaintiff.”].)
The trial court correctly decided that plaintiff’s malpractice claim was not tolled
until the completion of the mediation.
II. Continued Representation By Keehn
Plaintiffs alternatively argue that their malpractice claim was tolled—and
ostensibly remains tolled today—because one of Keehn’s employees told someone
working for Landsberg’s co-counsel that Keehn “would definitely continue to oversee the
transition of the case to Mr. Landsberg, and assist the new attorney (meaning Landsberg)
with his work on the case.”
A plaintiff who is aware of, and has been actually injured by, attorney malpractice
in a matter need not file suit for malpractice while that attorney is still representing him
on the same “specific subject matter.” (§ 340.6, subd. (a)(2); Truong, supra, 181
Cal.App.4th at p. 116; cf. Foxborough, supra, 26 Cal.App.4th at pp. 228-229 [no tolling
where “an attorney’s subsequent role is only tangentially related to the legal
representation the attorney provided to the plaintiff”].) In deciding whether an attorney
continues to represent a client, we do not focus “on the client’s subjective beliefs”;
instead, we objectively examine “‘evidence of an ongoing mutual relationship and of
activities in furtherance of the relationship.’” (Truong, supra, 181 Cal.App.4th at p. 116,
quoting Worthington v. Rusconi (1994) 29 Cal.App.4th 1488, 1498; Lockley v. Law
Office of Cantrell, Green, Pekich, Cruz & McCort (2001) 91 Cal.App.4th 875, 887.)
Where an attorney unilaterally withdraws or abandons his client, “the
representation ends when the client actually has or reasonably should have no expectation
that the attorney will provide legal services.” (Gonzalez v. Kalu (2006) 140 Cal.App.4th
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21, 30 (Gonzalez).) But where, as here, the attorney has been formally substituted out as
counsel, that act of substitution ordinarily ends the relationship (id. at p. 28; accord,
Laclette v. Galindo (2010) 184 Cal.App.4th 919, 927; Gurkewitz v. Haberman (1982)
137 Cal.App.3d 328, 332-333 (Gurkewitz)), although the relationship can continue—
notwithstanding the withdrawal and substitution—if the objective evidence shows that
the attorney continues to provide legal advice or services (Nielsen v. Beck (2007) 157
Cal.App.4th 1041, 1052 (Nielsen)).
In this case, the undisputed evidence establishes that plaintiffs’ relationship with
Keehn ended when Landsberg substituted in as counsel. The sole evidence of a
continuing relationship after that point in time is the statement of a Keehn employee that
Keehn would “oversee the transition” and “assist” Landsberg “with his work on the
case.” Whether or not this statement is hearsay when recounted under oath by plaintiff
Cheng (who heard the statement from co-counsel’s employee), it was also recounted
under oath by co-counsel’s employee herself and is not hearsay when presented through
her.
However, this statement alone does not establish a continuing attorney-client
relationship. Assisting the transition from one attorney to another is not providing
assistance on the same subject matter. (Foxborough, supra, 26 Cal.App.4th at pp. 228-
229; Gurkewitz, supra, 137 Cal.App.3d at p. 334.) And the undisputed evidence—as
well as counsel’s concession at oral argument—establishes that Keehn provided no legal
services or representation after Keehn was substituted out as counsel. It is undisputed
that Keehn provided no advice to plaintiffs or to Landsberg; they performed no work for
them; they sent no bills for legal services relating to ongoing representation; they never
appeared for plaintiffs and never negotiated on plaintiffs’ behalf; they never even spoke
or communicated with Landsberg or plaintiffs regarding the pending bankruptcy case.
Such acts are required for there to be a continuing attorney-client relationship. (See
Gurkewitz, at p. 334 [negotiating on behalf of client]; Nielsen, supra, 157 Cal.App.4th at
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p. 1052 [providing legal advice to client on same matter]; O’Neill v. Tichy (1993) 19
Cal.App.4th 114, 121 [billing client for work on same matter].)
Because “there was no evidence that the attorney had taken any steps on behalf of
the client” (Truong, supra, 181 Cal.App.4th at p. 117), the isolated statement of one of
Keehn’s attorneys following Keehn’s withdrawal and substitution is insufficient as a
matter of law to constitute continued representation.
In sum, the one-year statute of limitations began to run on November 10, 2009,
and had expired by the time plaintiffs filed their lawsuit in February 2011.
DISPOSITION
The judgment in favor of Keehn is affirmed. Keehn is entitled to costs on appeal.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS.
_______________________, J.
HOFFSTADT
We concur:
____________________________, P. J.
BOREN
____________________________, J.
CHAVEZ
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