Western Riverside Council of Governments v. McKiernan CA2/7 ( 2023 )

Filed 5/25/23 Western Riverside Council of Governments v. McKiernan CA2/7
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IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SEVEN
WESTERN RIVERSIDE COUNCIL B322576
OF GOVERNMENTS,
(Riverside County
Plaintiff and Appellant, Super. Ct. No. RIC1707201)
v.
KIERNAN MCKIERNAN et al.,
Defendants and Respondents.
CITY OF BEAUMONT,
Cross-Complainant and (Riverside County
Appellant, Super. Ct. No. RIC1712042)
v.
KIERNAN MCKIERNAN et al.,
Cross-Defendants and
Respondents.
APPEAL from a judgment of the Superior Court of
Riverside County, John W. Vineyard, Judge. Reversed and
remanded with directions.
Best Best & Krieger, Jeffrey V. Dunn and Christopher
Pisano for Plaintiff and Appellant Western Riverside Council of
Governments.
Slovak Baron Empey Murphy & Pinkney, Shaun M.
Murphy, John O. Pinkney and Peter Nolan for Cross-
Complainant and Appellant City of Beaumont.
Procopio, Cory, Hargreaves & Savitch, Kendra J. Hall and
Laurence J. Phillips for Cross-Defendants and Respondents.
__________________________________
INTRODUCTION
This appeal involves two consolidated actions. In the first,
the City of Beaumont (City) filed a third amended cross-
complaint alleging Kieran McKiernan and Torcal, LLC (Torcal),
fraudulently caused hundreds of false invoices to be submitted to
the City for payment from 2012 to early 2016. In the second,
Western Riverside Council of Governments (WRCOG), as the
assignee of the City, filed a third amended complaint alleging the
same. The trial court sustained demurrers to the third amended
cross-complaint and the third amended complaint, ruling the
claims were barred by the statute of limitations.
We conclude the pleadings adequately allege McKiernan
and Torcal were properly substituted in for fictitiously named
Roes and Does. Accepting the allegations as true, as we must on
demurrer, the claims (with one exception) relate back to the filing
of the original cross-complaint and complaint in June 2017.
2
Except for the claims for conflict of interest, we cannot
conclusively determine from the face of the pleadings that the
claims are barred by the statute of limitations. We reverse the
judgment of dismissal and remand with directions to vacate the
order sustaining McKiernan and Torcal’s demurrers without
leave to amend and to consider the other grounds for the
demurrers that McKiernan and Torcal asserted but the trial
court did not reach.
FACTUAL AND PROCEDURAL BACKGROUND
A. Initial Pleadings in Urban Logic Consultants, Inc. v. City of
Beaumont, Case No. RIC1707201
Urban Logic Consultants, Inc. (ULC) sued the City for
breach of contract and other related causes of action, alleging the
City failed to pay invoices totaling $880,000. ULC’s complaint
has been dismissed and is not at issue in this appeal.
On June 19, 2017, the City filed a cross-complaint against
ULC, its former principals David Dillon, Ernest Egger, and
Deepak Moorjani, and Roes 1 through 50. The City alleged it
entered into consulting contracts with ULC in which ULC agreed
to provide management services to the City. Pursuant to those
contracts, Dillon, Egger, and Moorjani acted as the City’s
economic development director, director of planning, and public
works director, respectively. The City alleged that, while acting
in their capacity as City public officials, cross-defendants engaged
in a massive scheme to defraud the City out of millions of dollars.
The Roe cross-defendants allegedly participated in the fraud,
including by submitting false and fraudulent invoices. The cross-
complaint asserted 15 causes of action for violation of the False
3
Claims Act, fraud, breach of fiduciary duty, and other related
claims. The cross-complaint also alleged that the Roe cross-
defendants were alter egos of ULC and the other cross-
defendants.
Dillon, Egger, and Moorjani were criminally charged with
corruption and embezzlement arising out of the fraud. They
pleaded guilty to the charges and, according to the City, paid
$11 million in restitution. The City subsequently dismissed the
cross-complaint against them.
On August 19, 2019 and September 6, 2019, the City filed
amendments to its cross-complaint substituting McKiernan as
Roe 1 and Torcal as Roe 2. McKiernan and Torcal acknowledged
service of the summons and cross-complaint as Roes 1 and 2 on
November 14, 2019.
B. Initial Pleadings in Western Riverside Council of
Governments v. ULC, Case No. RIC1712042
On June 30, 2017, WRCOG filed a complaint against ULC,
Dillon, Egger, Moorjani, and Does 1 through 50 in a separate
action. The complaint asserted claims nearly identical to those
asserted by the City in its cross-complaint in the other action.
The City and WRCOG both alleged that the City had assigned its
claims to WRCOG, but ULC would not acknowledge the validity
of the assignment. Therefore, out of an abundance of caution, the
City filed its cross-complaint. The court consolidated the actions
on May 3, 2018.
On August 14, 2019 and September 16, 2019, WRCOG filed
amendments substituting McKiernan as Doe 1 and Torcal as
Doe 2. On November 14, 2019, counsel for McKiernan and Torcal
4
executed and returned acknowledgements of service of the
summons and complaint as Doe defendants.
C. First Round of Demurrers and Motions To Strike and First
Amended Pleadings
McKiernan and Torcal filed demurrers to the cross-
complaint and complaint and motions to strike the Roe and Doe
amendments.
On March 11, 2020, before the hearings on the motions,
WRCOG filed a first amended complaint. On March 24, 2020, the
court granted the City’s ex parte application for leave to file the
first amended cross-complaint, which the City filed on June 1,
2020.
Neither WRCOG’s first amended complaint nor the City’s
first amended cross-complaint expressly stated McKiernan and
Torcal were being named in their capacity as Roe and Doe cross-
defendants or defendants. The City’s first amended cross-
complaint included McKiernan and Torcal by name in the
caption; WRCOG’s first amended complaint asserted claims
against them without referring to them as Does.
The first amended pleadings alleged Torcal purchased ULC
in August 2012. McKiernan was the managing member of Torcal
and became ULC’s chief executive officer after the purchase. In
accordance with the allegations previously made against the Roes
and Does, the first amended pleadings alleged McKiernan and
Torcal submitted false and fraudulent invoices to the City, which
the City paid. The invoices included inflated charges and charges
for services that were never provided to the City. The fraudulent
invoices were approved by ULC’s former principals who had
stayed at the City as ULC contractors after the sale was
5
completed. The fraudulent billing continued after Dillion, Egger,
and Moorjani were terminated. The City and WRCOG did not
discover McKiernan and Torcal had been involved in the fraud
until 2019.
The first amended complaint and cross-complaint asserted
the same claims against McKiernan and Torcal that had
previously been asserted against Does and Roes 1 and 2:
violation of the False Claims Act, conflict of interest, intentional
misrepresentation based on fraudulent billing, civil conspiracy to
defraud, breach of fiduciary duty, breach of the duty of loyalty,
accounting, and negligence. The pleadings also asserted a claim
for breach of contract against McKiernan and Torcal that had not
previously been asserted against the Roes and Does.
D. Second Round of Demurrers and Motions To Strike
McKiernan and Torcal again filed demurrers and motions
to strike. In the demurrers, McKiernan and Torcal argued the
claims were not alleged with sufficient particularity and argued
generally (with scant analysis) that the claims were barred by the
statute of limitations because they did not relate back to the
filing of the original cross-complaint and complaint. They also
argued the City and WRCOG had abandoned the Roe and Doe
amendments by filing amended pleadings that named McKiernan
and Torcal directly.
On August 24, 2020, the court sustained the demurrers
with leave to amend on the ground the claims were barred by the
statute of limitations. The motions to strike were taken off
calendar as moot. The court referred to Torcal and McKiernan as
Doe and Roe defendants and cross-defendants. The court
considered whether the Doe and Roe amendments were proper
6
under Code of Civil Procedure section 474, but the court’s
reasoning and conclusion are not clear. Because the court
analyzed the issue in the context of the demurrers, the court did
not make any factual findings.
The court then ruled the claims were barred by the statute
of limitations because the City and WRCOG had not sufficiently
alleged delayed discovery. The court did not explicitly consider
whether any alleged claims accrued during the statute of
limitations period with or without the benefit of any delayed
discovery or tolling.
E. Second Amended Pleadings and Third Round of Demurrers
The second amended cross-complaint and second amended
complaint were filed on September 14, 2020. The pleadings
alleged in greater detail how the City and WRCOG first learned
of McKiernan and Torcal’s involvement in the fraudulent scheme
in March and April 2019, and why they had not discovered the
wrongdoing earlier.
McKiernan and Torcal again filed demurrers, but this time
they did not file motions to strike. The court again sustained the
demurrers with leave to amend on the ground the claims were
barred by the statute of limitations.
F. The Operative Pleadings: The Third Amended Cross-
complaint and the Third Amended Complaint
On January 4, 2021, the City filed a third amended cross-
complaint and WRCOG filed a third amended complaint. These
are the operative pleadings at issue in this appeal. The City and
WRCOG allege the following facts.
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For more than two decades, cross-defendants ULC, Dillon,
Egger, and Moorjani perpetrated a fraudulent scheme in which,
among other things, they submitted false invoices for
unnecessary, overpriced and sometimes non-existent services.
The City learned of the fraud in May 2016 when prosecutors filed
felony criminal charges against Dillon, Egger, and Moorjani for
corruption and embezzlement arising out of their
misappropriation of City funds while acting as agents of the City.
The City’s relationship with ULC started in 1993. The City
had reduced the number of its full-time employees and replaced
them with consultants. The City entered into consulting
contracts with ULC in 1993 whereby ULC was to work with
another City contractor to administer and manage a financing
program for development in the City. Pursuant to the contracts,
Dillon became the City’s economic development director, Egger
became the City’s director of planning, and Moorjani became the
City’s public works director. Around the same time, the City
hired a consultant from another firm to serve as city manager.
Working in concert with the city manager, assistant city
manager, and city attorney, Dillon, Egger, and Moorjani engaged
in extensive self-dealing and diverted millions of dollars of City
funds to themselves and ULC. Among other things, between
1993 and 2015, ULC demanded and received payment for non-
existent or unnecessary engineer reports; unnecessary
engineering and design services; and fraudulently overpriced,
unnecessary or nonexistent waste-water treatment services.
In August 2012, Dillon, Egger, and Moorjani sold ULC to
Torcal. McKiernan was the managing member of Torcal, and
after the 2012 sale, he became the chief executive officer and
director of ULC. Dillon, Egger, and Moorjani continued to work
8
for ULC as independent contractors, and, in that capacity,
continued their wrongful scheme of embezzling money from the
City. Dillon, Egger, and Moorjani’s embezzlement continued
until mid-2015, when they stopped working for the City.
As the City later discovered, Torcal and McKiernan were
involved in the wrongful conduct against the City from the time
Torcal purchased ULC in 2012 to early 2016. During this time,
Torcal and McKiernan submitted hundreds of invoices for
payment to the City on behalf of ULC, most if not all of which
demanded payment for work that was not actually performed or
that was billed at grossly inflated rates. From 2012 to 2015,
these invoices were purportedly reviewed and approved for
payment by Dillon, Egger, and Moorjani in their capacities as
City officers. In addition to approving false and fraudulent
invoices for the work of other subcontractors of ULC, the former
ULC principals would review and approve the invoices submitted
by ULC for their own work, which was either not performed at all
or overbilled. In at least one instance, on April 4, 2014,
McKiernan submitted an invoice for construction work performed
on his own house, which Dillon, Egger, and Moorjani approved for
payment. McKiernan and Torcal continued the unlawful conduct
after Dillon, Egger, and Moorjani were terminated.
The third amended cross-complaint and third amended
complaint also allege ULC and Dillon, Egger, and Moorjani
perpetrated a scheme to avoid paying Transportation Uniform
Mitigation Fees (TUMF) to WRCOG. McKiernan and Torcal are
not alleged to have participated in that scheme so those
allegations are not summarized here.
The FBI and the Riverside County District Attorney’s
Office raided City Hall in mid-2015 and seized “all City records
9
dealing with ULC, as well as City computers.” As of mid-2015,
the City’s management team consisted of the city manager, city
attorney, city finance director, city economic development
director, city director of planning, and city director of public
works, all of whom were criminally charged and later pleaded
guilty. McKiernan and Torcal took advantage of the lack of
organization and the lack of institutional knowledge of an all-new
management team and continued to submit and obtain payment
based on fraudulent invoices.
The City alleges that before the district attorney’s office
filed the felony criminal complaints in May 2016 against ULC’s
original principals, the City “was unaware of the embezzlement
and other wrongdoing,” in part because Dillon, Egger, and
Moorjani, along with their co-conspirators, “held all of the top
City management positions” and “controlled all of the information
presented to the City Council.”
After the criminal charges were filed, the City commenced
numerous investigations, including against its outside auditors,
bond attorneys, and bond disclosure counsel. McKiernan and
Torcal were not among the targets of these investigations because
McKiernan persuasively presented himself as an innocent buyer
of ULC and a victim of the former principals’ wrongdoing. The
district attorney’s office also vouched for McKiernan, telling new
City officials that McKiernan was a “good guy” who had
cooperated in the criminal investigations. Further, the FBI and
the district attorney’s office had seized all documents related to
ULC, and therefore the City did not have the necessary
information to investigate individual ULC transactions.
In March and April 2019, while preparing for trial in this
matter against ULC, the City learned McKiernan and Torcal had
10
been involved in the illegal billing scheme perpetrated by Dillon,
Egger, and Moorjani and had continued the scheme until early
2016. The City conducted interviews with former ULC employees
and subconsultants, who informed the City’s legal counsel that
McKiernan had continued the wrongful billing scheme after
Dillon, Egger, and Moorjani had been terminated. The third
amended cross-complaint includes detailed allegations regarding
why the City did not suspect or discover the alleged wrongdoing
of Torcal and McKiernan earlier.
The third amended cross-complaint and third amended
complaint assert the following causes of action against
McKiernan and Torcal: violation of the False Claims Act (Gov.
Code, § 2650 et seq.); claim for recovery of funds based on
conflicts of interest; intentional misrepresentation–fraudulent
billing; civil conspiracy to defraud; breach of fiduciary duty;
breach of the duty of loyalty; breach of written contract; and
negligence. The City also asserts a claim for violation of the
Racketeer Influenced and Corrupt Organizations Act (RICO)
(18 U.S.C. § 1961).
Except for the claim for recovery of funds based on conflicts
of interest, each of these causes of action is based on the
allegations that McKiernan and Torcal caused hundreds of false
or fraudulent invoices to be presented to the City for payment
between 2012 and 2016. The conflict-of-interest claim is based on
an allegation that McKiernan had a conflict of interest in
facilitating the execution of the contract between ULC and the
City in 2013.
The operative pleadings also allege that McKiernan and
Torcal are alter egos of ULC.
11
G. The Demurrers
McKiernan and Torcal demurred to the third amended
cross-complaint and third amended complaint. In the demurrers,
they asserted that all claims were barred by the statute of
limitations because the claims did not relate back to the filing of
the original cross-complaint and complaint, and the allegations
were insufficient to support a claim of delayed discovery. As to
the relation back, they argued the Doe and Roe amendments
were defective and again vaguely suggested the Doe and Roe
claims were abandoned when the City and WRCOG named
McKiernan and Torcal directly in the first amended cross-
complaint and first amended complaint. They also claimed that
the allegations were insufficient to support each cause of action,
primarily because the allegations of fraud were not alleged with
sufficient particularity.
H. The Hearing and the Court’s Ruling
A hearing was held on March 15, 2021. The court heard
arguments and took the matters under submission.
On March 25, 2021, the court issued a written order
sustaining the demurrers without leave to amend on the ground
the claims were barred by the statute of limitations. The order
stated: “[B]oth the [third amended complaint] and the [third
amended cross-complaint] sufficiently plead the late discovery of
facts supporting the claims alleged. However, both pleadings fail
to allege facts that establish an inability to discover those facts
earlier than 2019, or reasonable diligence in investigating the
potential claims. The [d]elayed [d]iscovery [r]ule requires
pleading both facts establishing the time and manner of the late
12
discovery, and the inability to discover based on reasonable
diligence.”
The court explained: “Significantly, the discovery rule only
delays discovery until plaintiff has, or should have, inquiry notice
of the cause of action. [Citation.] The following facts
demonstrate at least inquiry notice to WRCOG[] and the City
since they knew: (1) the Dismissed Defendants engaged in
wrongful conduct as far back as 2010 when WRCOG filed its writ
of mandate against the City; (2) that Torcal and McKiernan
acquired Urban in 2012; (3) that Urban signed a new contract
with the City in 2013; (4) that WRCOG was aware that the
Dismissed Defendants committed wrongful acts after 2013;
(5) that WRCOG obtained a judgment in 2014 against the City
due to the conduct of the Dismissed Defendants; (6) that the FBI
raided the City’s offices in 2015 due to the conduct of the
Dismissed Defendants; and (7) that the Dismissed Defendants
were indicted in 2016.”1
The court further found the City and WRCOG had
sufficient opportunity to allege delayed discovery and had not
identified any additional facts they could allege to overcome the
purported defects identified by the court. Accordingly, the court
denied leave to amend.
I. The Appeal
The City and WRCOG filed notices of appeal on May 13,
2021, purporting to appeal from the March 25, 2021 order
sustaining the demurrers without leave to amend. That is not an
1 This portion of the court’s reasoning was contained in the
tentative ruling that was incorporated by reference in the court’s
final ruling.
13
appealable order. However, on August 24, 2021, the court
entered judgment of dismissal in favor of McKiernan and Torcal
and against the City and WRCOG. We treat the appeal as being
from the appealable judgment. (See Vibert v. Berger (1966)
64 Cal.2d 65, 68-69.)
DISCUSSION
A. Standard of Review
A demurrer tests the legal sufficiency of the factual
allegations contained in the operative complaint. “We
independently review the superior court’s ruling on a demurrer
and determine de novo whether the complaint alleges facts
sufficient to state a cause of action or discloses a complete
defense.” (Stella v. Asset Management Consultants, Inc. (2017)
8 Cal.App.5th 181, 190; accord, Ivanoff v. Bank of America, N.A.
(2017) 9 Cal.App.5th 719, 725.) “We assume the truth of properly
pleaded factual allegations, facts that reasonably can be inferred
from those expressly pleaded, and matters that are judicially
noticeable.” (Genis v. Schainbaum (2021) 66 Cal.App.5th 1007,
1015; accord, Ivanoff, at p. 725.) “‘“We treat the demurrer as
admitting all material facts properly [pleaded], but not
contentions, deductions or conclusions of fact or law.”’” (Mize v.
Mentor Worldwide LLC (2020) 51 Cal.App.5th 850, 858.)
Further, “[w]e liberally construe the pleading with a view to
substantial justice between the parties.” (Stella, at p. 190, citing
Code Civ. Proc., § 452.) ‘“[A] demurrer based on an affirmative
defense will be sustained only where the face of the complaint
discloses that the action is necessarily barred by the defense.’”
(Stella, at p. 191.)
14
If we conclude a demurrer was properly sustained, we
review the decision to deny leave to amend under the abuse of
discretion standard. (Smith v. County of Kern (1993)
20 Cal.App.4th 1826, 1830.) “Ordinarily it is an abuse of
discretion to sustain a general demurrer to a complaint without
leave to amend if there is a reasonable possibility the defect in
the complaint can be cured by amendment.” (Ibid.)
B. It Is Not Apparent from the Face of the Complaint That the
Claims Are Barred by the Statute of Limitations
“A complaint showing on its face that the cause of action is
barred by the statute of limitations is subject to general
demurrer.” (Basin Construction Corp. v. Department of Water &
Power (1988) 199 Cal.App.3d 819, 823.) “‘A demurrer based on a
statute of limitations will not lie where the action may be, but is
not necessarily, barred. [Citation.] In order for the bar . . . to be
raised by demurrer, the defect must clearly and affirmatively
appear on the face of the complaint; it is not enough that the
complaint shows that the action may be barred.”’ (Committee for
Green Foothills v. Santa Clara County Bd. of Supervisors (2010)
48 Cal.4th 32, 42.)
Here, again, the third amended pleadings allege
McKiernan and Torcal engaged in wrongdoing from 2012 to early
2016. The original cross-complaint and complaint were filed in
June 2017. The Roe and Doe amendments were filed in August
and September 2019. The first amended cross-complaint and
complaint were filed in June 2020 and March 2020, respectively;
the second amended cross-complaint and complaint in September
2020; and the third amended cross-complaint and complaint in
January 2021.
15
The statutes of limitations are as follows: for the False
Claims Act, six years for violations occurring after January 1,
2013 (Gov. Code, § 12654); for fraud, conspiracy to commit fraud,
breach of fiduciary duty, and breach of the duty of loyalty, three
years (Code Civ. Proc., § 338, subd. (d)); for breach of written
contract, four years (id., § 337); for negligence based on an
alleged breach of a professional duty, two years (id., § 339,
subd. 1); for conflicts of interest under Government Code
section 1090 et seq., four years (Gov. Code, § 1092, subd. (b)); and
for civil claims under the Racketeer Influenced and Corrupt
Organizations Act (RICO) (18 U.S.C. § 1961 et seq.), four years
(Agency Holding Corp. v. Malley-Duff & Associates, Inc. (1987)
483 U.S. 143, 156).
The six-year statute of limitations for violations of the
False Claims Act runs from the date of violation. (Gov. Code,
§ 12654.) For all other claims, the delayed discovery rule
postpones accrual under some circumstances.2
“Under the statute of limitations, a plaintiff must bring a
cause of action within the limitations period applicable thereto
after accrual of the cause of action.” (Norgart v. Upjohn Co.
(1999) 21 Cal.4th 383, 397). The timeliness of a claim is thus
2 See, e.g., Code of Civil Procedure section 338,
subdivision (d) (delayed discovery rule applies to fraud-based
claims); Goverment Code section 1092, subdivision (b)
(incorporating delayed discovery principles for conflict-of-interest
claims); April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d
805, 830 (delayed discovery rule applies to contract claims
involving fraud); Samuels v. Mix (1999) 22 Cal.4th 1, 9 (delayed
discovery rule applies to professional negligence claims under
some circumstances); Pincay v. Andrews (9th Cir. 2001) 238 F.3d
1106, 1109 (RICO).
16
generally determined by counting forward from the date of
accrual. In order to conclude from the face of the pleading that a
claim is barred by the statute of limitations, however, we would
have to conclude, as a matter of law, that no portion of the claim
accrued within the statute of limitations period, as measured
backward from the relevant filing date. (See, e.g., Cansino v.
Bank of America (2014) 224 Cal.App.4th 1462, 1472 [stating
plaintiff must plead that he did not discover and could not have
discovered the fraud at issue within three years prior to filing the
complaint].)
We first consider what the relevant filing date is for statute
of limitations purposes, that is, whether the claims in the third
amended pleadings relate back to an earlier filing date. We then
analyze each claim in turn to determine whether it is clear from
the face of the complaint that no portion of the claim accrued
during the statute of limitations period, as measured backward
from the filing date.
1. As alleged, the claims relate back to the original
pleadings
The parties disagree as to the operative filing date for
purposes of the statute of limitations analysis. The City and
WRCOG contend the claims relate back to the filing of the
original cross-complaint and complaint in June 2017; McKiernan
and Torcal contend the operative date is the filing of the first
amended pleadings in March and June 2020, or the third-
amended pleadings in January 2021.3
3 McKiernan and Torcal’s position on this issue has not been
consistent.
17
As with any demurrer, we accept as true the factual
allegations in determining whether the claims relate back to the
filing of the City’s original cross-complaint and WRCOG’s original
complaint.
Code of Civil Procedure section 474 provides: “When the
plaintiff is ignorant of the name of a defendant, he must state
that fact in the complaint . . . and such defendant may be
designated in any pleading or proceeding by any name, and when
his true name is discovered, the pleading or proceeding must be
amended accordingly.” “If the statute’s requirements are
satisfied, the amendment relates back[,] and the substituted
defendant is considered to have been a party from the action’s
start.” (Hahn v. New York Air Brake LLC (2022) 77 Cal.App.5th
895, 898.)
For claims in an amended complaint to relate back to the
filing of the original complaint under Code of Civil Procedure
section 474, the original complaint must name a Doe defendant in
the caption; allege the plaintiff is ignorant of the true name and
capacity of the Doe; and state a cause of action against the Doe.4
(Fireman’s Fund Ins. Co. v. Sparks Construction, Inc. (2004)
114 Cal.App.4th 1135, 1143.) Each of these elements is met here.
Further, the amended complaint must “(1) rest on the same
general set of facts, (2) involve the same injury, and (3) refer to
the same instrumentality, as the original one.” (Norgart v.
Upjohn Co., supra, 21 Cal.4th at p. 409; accord, Pointe San Diego
Residential Community, L.P. v. Procopio, Cory, Hargreaves &
Savitch, LLP (2011) 195 Cal.App.4th 265, 276.)
4 The same rules apply to cross-complaints and fictitiously
named Roe cross-defendants.
18
Here, the City and WRCOG sufficiently allege they were
genuinely ignorant of McKiernan’s and Torcal’s identities at the
time the original cross-complaint and complaint were filed.
Whether a plaintiff was genuinely ignorant of the name and
capacity of the Doe defendant is a question of fact that can be
determined on demurrer only if it is apparent from the face of the
complaint that the plaintiff actually knew of the facts giving rise
to a cause of action against the defendant at the time the original
complaint was filed. “The phrase ‘ignorant of the name of a
defendant’ [in Code of Civil Procedure section 474] is broadly
interpreted to mean not only ignorant of the defendant’s identity,
but also ignorant of the facts giving rise to a cause of action
against that defendant. [E]ven though the plaintiff knows of the
existence of the defendant sued by a fictitious name, and even
though the plaintiff knows the defendant’s actual identity (that
is, his name) the plaintiff is ‘ignorant’ within the meaning of the
statute if plaintiff lacks knowledge of that person’s connection
with the case or with [plaintiff’s] injuries.” (Fuller v. Tucker
(2000) 84 Cal.App.4th 1163, 1170 (Fuller), italics added.)
It does not matter for purposes of Code of Civil Procedure
section 474 whether the plaintiff could have discovered the
identity of the defendant and the role he or she played through
the exercise of due diligence. “‘The fact that the plaintiff had the
means to obtain knowledge is irrelevant.’” (Fuller, supra,
84 Cal.App.4th at p. 1170.) A plaintiff is entitled to the benefit of
section 474 even when the plaintiff’s ignorance arises from the
plaintiff’s own negligence. (Ibid.)
Here, the City and WRCOG allege in the original complaint
and cross-complaint that they were unaware of the true names
and capacities of the cross-defendants sued under the fictitious
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names. In the Roe and Doe amendments substituting McKiernan
and Torcal, the City and WRCOG alleged that they were ignorant
of the true names at the time of filing the original pleading and
that they subsequently discovered the true name. In the third
amended cross-complaint and third amended complaint, the City
and WRCOG alleged they did not learn McKiernan and Torcal
were involved in the billing fraud until 2019.
At the demurrer stage, we accept the allegations in the
pleadings as true. We cannot determine from the face of the
pleadings that the City and WRCOG actually knew of McKiernan
and Torcal’s involvement in the billing fraud at the time the
original pleadings were filed. Further, with the exception of the
conflict-of-interest claim, all the claims alleged in the third
amended cross-complaint and complaint arise out of the alleged
billing fraud.
Moreover, the allegations against McKiernan and Torcal in
the third amended pleadings arise out of the same general set of
facts as were alleged against the Roes and Does in the original
cross-complaint and complaint. The allegations in the new
pleadings involve the same injuries and instrumentalities as
were alleged in the original pleadings, that is, damage from the
payment of invoices for fraudulently inflated charges or for
services that were never provided at all. In the original
pleadings, the City and WRCOG allege the cross-defendants,
including the Roes and Does, submitted false and fraudulent
invoices through mid-2015. For example, the City’s original
cross-complaint alleged that cross-defendants and defendants
“facilitated the payment of City funds to ULC for grossly inflated
and fraudulent charges” and “caused ULC to seek and receive
payments for services which were not only unnecessary, but
20
which the City believes were never actually rendered despite the
fact that ULC was paid for such services.” The City also alleged
the cross-defendants “intentionally and knowingly submitted
false work reports and requests for payment to the City for work
with cross-defendants knew to be false and in excess of the actual
work performed.” Further, cross-defendants submitted “false
invoices and work reports to the City for non-existent services,
and . . . grossly overcharge[ed] the City for those professional
services that were actually rendered by cross-defendants.” The
same allegations are made against McKiernan and Torcal in the
third amended pleadings.
The third amended complaint and cross-complaint also
allege McKiernan and Torcal continued to submit fraudulent bills
after Dillon, Egger, and Moorjani were terminated in 2015 until
early 2016. These allegations fall within the scope of the general
allegations in the original pleadings. We cannot conclude, from
the face of the pleadings, that claims arising from allegedly
fraudulent acts from mid-2015 to 2016 do not also relate back to
the original cross-complaint and complaint.5
The third amended complaint and cross-complaint also
allege McKiernan and Torcal are alter egos of ULC, and further
allege the City and WRCOG learned of this only after they
5 To the extent any portion of the claims against McKiernan
and Torcal do not relate back, the relevant filing date for statute
of limitations purposes would be the date the Doe and Roe
amendments were filed. (Davis v. Marin (2000) 80 Cal.App.4th
380, 901 [treating the filing of a defective Doe amendment as the
filing of an amended complaint, thereby suggesting the date of
filing the Doe amendment is the operative date from which the
statute of limitations is calculated].) The Doe and Roe
amendments were filed in August and September 2019.
21
reviewed ULC’s financial disclosures in bankruptcy court. ULC
filed for bankruptcy in April 2019, and ULC filed its schedule of
assets and liabilities on May 6, 2019. The City and WRCOG
sufficiently allege they did not know McKiernan and Torcal were
alter egos of ULC at the time the original cross-complaint and
complaint were filed. The alter ego allegations also arise out of
the same facts as were alleged in the original pleadings; those
pleadings alleged the Roes and Does were alter egos of ULC.
Claims based on alter ego therefore also relate back.
The one exception to the conclusion that the claims (as
alleged) relate back to the original filing date is the claim based
on a conflict of interest under Government Code section 1090.
The City and WRCOG allege McKiernan and Torcal violated
section 1090 because they were “responsible for designing and
developing the 2013 Contract” between ULC and the City and for
promoting the contract’s approval and execution by the City. The
City and WRCOG contend this was unlawful because McKiernan
and Torcal were financial beneficiaries under the contract.
Although it is not entirely clear what the City and WRCOG mean
by the term “financial beneficiary” in this context, it is plain from
the face of the original cross-complaint and complaint that the
City and WRCOG knew of McKiernan’s involvement in that
contract because he signed it on behalf of ULC. The City and
WRCOG have provided no explanation for why this claim would
relate back; they have not, for example, specifically alleged they
learned of McKiernan’s and Torcal’s financial interest in the
contract after the original cross-complaint was filed. This claim
was alleged against ULC in the original pleadings; it is apparent
from the face of the contract that the City and WRCOG knew of
22
McKiernan’s role as a signatory to the contract at the time the
original pleadings were filed.
For purposes of the conflict-of-interest claim, we therefore
conclude the relevant date for determining the timeliness of the
claim is the date the Doe and Roe amendments were filed in
August and September 2019. (See fn. 5.)
Except as to the conflict-of-interest claim, McKiernan and
Torcal’s arguments for why the claims do not relate back are not
persuasive. They incorrectly assert “[t]he general ignorance of
identity requirement for a complaint to relate back is reviewed
for substantial evidence.” The substantial evidence standard
applies to the review of factual findings; it does not apply here.
All the trial court’s rulings at issue in this appeal were on
demurrers. The court could not make, and did not purport to
make, any factual findings as to what the City or WRCOG
actually knew about McKiernan and Torcal’s alleged involvement
in the fraud at the time their original cross-complaint and
complaint were filed. The court was required to accept the
allegations of the third amended complaint and cross-complaint
as true.
McKiernan and Torcal also contend the City and WRCOG
forfeited the ability to rely on the Roe and Doe amendments
because after the Roe and Doe amendments were filed and
served, the City and WRCOG filed first amended pleadings that
did not specifically state that McKiernan and Torcal continued to
be sued in their capacity as Roes and Does. McKiernan and
Torcal repeatedly argued in the trial court that the Roe and Doe
amendments had been abandoned, but the trial court implicitly
rejected the argument by continuing to refer to them as Roes and
Does 1 and 2 in its written orders.
23
We find no error in the trial court’s implicit conclusion that
the Roe and Doe amendments had not been abandoned. The lack
of clarity in the first amended cross-complaint and complaint is
at worst a minor procedural defect that does not affect the
substantial rights of the parties. (See Code Civ. Proc., § 475
[“[t]he court must, in every stage of an action, disregard any . . .
defect[] in the pleadings . . . which . . . does not affect the
substantial rights of the parties”]; see also Woo v. Superior Court
(1999) 75 Cal.App.4th 169, 176-177 [allowing defect to be
corrected even when party wholly failed to comply with
procedures for substituting in a Doe defendant].) McKiernan and
Torcal were served with the summonses and cross-complaint and
complaint in their capacity as Roe and Doe cross-defendants and
defendants, and the City and WRCOG continued to argue the
claims against them related back to the filing of the original
pleadings. The trial court acted well within its discretion in
ignoring any minor procedural defect in the way the parties were
named in the amended pleadings and by continuing to treat
McKiernan and Torcal as Doe and Roe defendants and cross-
defendants. (See Streicher v. Tommy’s Electric Co. (1985)
164 Cal.App.3d 876, 885 [trial court abused its discretion by not
allowing plaintiff leave to cure defects in manner in which Doe
defendants were identified in amended complaint].)
Further, to the extent McKiernan and Torcal contend the
claims do not relate back because the City failed to exercise
sufficient diligence to discover their role in the alleged scheme by
the time the original pleadings were filed, the argument fails. “If
the actual knowledge test . . . is satisfied, it is irrelevant that
plaintiff was negligent or failed to exercise reasonable diligence in
not having discovered defendant’s identity or liability earlier:
24
‘[A] plaintiff will not be refused the right to use a Doe pleading
even where the plaintiff’s lack of actual knowledge is attributable
to plaintiff’s own negligence.’” (Grinnell Fire Protection Systems
Co. v. American Sav. & Loan Assn. (1986) 183 Cal.App.3d 352,
359.)
In sum, because the allegations are sufficient to support
relation back under Code of Civil Procedure section 474, the
relevant filing date for purposes of the statute of limitations
analysis is June 19, 2017 for the City’s cross-complaint and
June 30, 2017 for WRCOG’s complaint (except as to the conflict-
of-interest claim).
2. As alleged, the False Claims Act claim is not time
barred
Under Government Code section 12651, subdivision (a), any
person who, among other things, “[k]nowingly presents or causes
to be presented a false or fraudulent claim for payment or
approval” to an officer, employee, or agent of a political
subdivision of the state or who conspires to commit such an act is
liable for treble damages. Civil penalties may also be assessed.
A civil action may be brought by the political subdivision under
section 12652, subdivision (b)(1).
The statute of limitations is set forth in Government Code
section 12654. Since January 1, 2013, section 12654 has
provided: “A civil action under Section 12652 shall not be filed
more than six years after the date on which the violation of
Section 12651 is committed, or more than three years after the
date when facts material to the right of action are known or
reasonably should have been known by the Attorney General or
prosecuting authority with jurisdiction to act under this article,
25
but in no event more than 10 years after the date on which the
violation is committed, whichever of the aforementioned occurs
last.”6 (Italics added.) The submission of each false claim gives
rise to a separate violation (see Gov. Code, § 12651, subd. (a)),
and it thus follows that a new claim accrues for statute of
limitations purposes when a new false claim is submitted.
The parties agree the six-year statute of limitations applies
here. However, the six-year statute of limitations applies only to
false claims submitted on or after January 1, 2013. Claims based
on invoices submitted on or after that date are timely because the
original cross-complaint and complaint were filed in June 2017,
which is less than six years after January 1, 2013. The third
amended cross-complaint and the third amended complaint
allege McKiernan and Torcal submitted hundreds of invoices
from 2012 through 2016, “most if not all” of which “contained
excessive mark-ups[] and . . . requests for payments for work that
was not actually performed for the City.” Accepting the
allegations as true (as we must on demurrer), the City and
WRCOG’s claims based on alleged false and fraudulent invoices
submitted between 2013 and 2016 are not barred by the statute
6 Before January 1, 2013, the statute provided that a civil
action may not be filed “more than three years after the date of
discovery by the Attorney General or prosecuting authority with
jurisdiction to act under this article or, in any event, not more
than 10 years after the date on which the violation of
Section 12651 was committed.” (Gov. Code, § 12654, Stats. 2012,
ch. 647, § 6.) The parties do not discuss this version of the
statute. We do not need to consider how this statute would apply
to claims based on false invoices submitted before January 1,
2013 because the operative pleadings allege at least some of the
invoices at issue were submitted after January 1, 2013.
26
of limitations.7 Accordingly, the court erred in sustaining the
demurrer to this cause of action.
McKiernan and Torcal also demurred to this claim on the
ground that it was not pleaded with sufficient particularity. “As
in any action sounding in fraud, the allegations of a federal False
Claims Act complaint must be pleaded with particularity. The
complaint must plead the time, place, and contents of the false
representations, as well as the identity of the person making the
misrepresentation and what he obtained thereby.” (City of
Pomona v. Superior Court (2001) 89 Cal.App.4th 793, 803,
quotation marks omitted; State ex rel. Edelweiss Fund, LLC v.
JPMorgan Chase & Co. (2023) 90 Cal.App.5th 1119 [discussing
the particularity requirement in a False Claims Act case].) The
trial court did not reach this ground, and we therefore remand to
the trial court for consideration of this issue in the first instance.
3. As alleged, the claim for intentional misrepresentation
is not time barred
The statute of limitations for a claim of fraud is three years
from accrual. (Code Civ. Proc., § 338, subd. (d).) A cause of
action for fraud “is not deemed to have accrued until the
discovery, by the aggrieved party, of the facts constituting the
fraud or mistake.” (Id. § 338, subd. (d).) Courts have interpreted
this provision to mean that the cause of action accrues when the
plaintiff discovers, or has reason to discover, the cause of action.
(Vera v. REL-BC, LLC (2021) 66 Cal.App.5th 57, 69.)
Thus, if any portion of the fraud claim accrued on or after
June 2014, the claim would be timely for statute of limitations
7 We express no opinion as to the application of the statute of
limitations for false claims submitted before 2013.
27
purposes. Three years after June 2014 is June 2017, the date of
filing of the original cross-complaint and complaint.8 As
discussed, the City and WRCOG allege McKiernan and Torcal
submitted hundreds of fraudulent invoices from 2012 to 2016.
For invoices submitted after June 2014, the claim is timely if the
submission of a new invoice gives rise to a separate cause of
action for fraud for statute of limitations purposes (such as under
the continuous accrual doctrine). For invoices submitted before
June 2014 (or for invoices both before and after June 2014 if a
new cause of action does not accrue on the submission of each
invoice), the claim is timely if the City did not have reason to
discover the cause of action before June 2014.
We cannot tell, as a matter of law, from the face of the
complaint, that no portion of the fraud claim accrued after June
2014. The third amended cross-complaint and complaint at least
generally allege that some of the fraudulent invoices were
submitted after June 2014, within the statute of limitations
period. The City and WRCOG may be able to prove the
submission of at least some of the post-June 2014 invoices
constituted a separate, independent act of fraud for statute of
limitations purposes.
For example, the City and WRCOG may be able to prove
the continuous accrual doctrine applies. Under that doctrine,
when a plaintiff alleges he or she was harmed by a series of
continual or recurring transactions, such as by the submission of
a series of invoices over time, a cause of action accrues each time
a wrongful act occurs, triggering a new limitations period.
(Aryeh v. Canon Business Solutions, Inc. (2013) 55 Cal.4th 1185,
8 In arriving at the June 2014 date, we count backward from
the date of filing, which is June 2017.
28
1199 (Aryeh) [new claim accrues upon submission of each
actionable invoice]; Gilkyson v. Disney Enterprises, Inc. (2016)
244 Cal.App.4th 1336, 1341 [continuous accrual doctrine applied
to obligation to pay royalties; each breach of the obligation to pay
royalties is separately actionable].) The effect of the doctrine is
that “a suit for relief may be partially time-barred as to older
events but timely as to those [acts of wrongdoing occurring]
within the applicable limitations period.” (Aryeh, at p. 1192.)9
“[T]he doctrine represents an equitable ‘response to the
inequities that would arise if the expiration of the limitations
period following a first breach of duty or instance of misconduct
were treated as sufficient to bar suit for any subsequent breach
or misconduct; [absent the doctrine,] parties engaged in long-
standing misfeasance would thereby obtain immunity in
9 In the briefing in the trial court, the City and WRCOG
assumed without analysis that if the claims related back to the
filing of the original cross-complaint and complaint, the claims
would be timely. Accordingly, they did not address the
application of the continuous accrual doctrine (but did address it
on appeal). Similarly, in the trial court briefing, McKiernan and
Torcal did not address whether the statute of limitations would
bar the entire claim when some, but not all, of the alleged acts
occurred within the statute of limitations period.
McKiernan and Torcal do not argue that the City and
WRCOG forfeited the continuous accrual argument by failing to
raise it below. Because this appeal presents a purely legal
question, we consider the argument here. (See Orange County
Water Dist. v. Sabic Innovative Plastics US, LLC (2017)
14 Cal.App.5th 343, 394 [court exercised its discretion to consider
the continuous accrual argument raised for the first time on
appeal because the argument presented a purely legal question].)
29
perpetuity from suit even for recent and ongoing misfeasance. In
addition, where misfeasance is ongoing, a defendant’s claim to
repose, the principal justification underlying the limitations
defense, is vitiated.’” (Gilkyson v. Disney Enterprises, Inc., supra,244 Cal.App.4th at pp. 1341-1342.) We cannot tell from the face
of the third amended pleadings that the doctrine would not apply
here, and we therefore cannot conclude at this stage of the
litigation that the fraud claim is barred by the statute of
limitations.10
Further, the City and WRCOG have adequately alleged
that the City could not have discovered the fraud until sometime
after June 2014, and that the claim therefore did not accrue
before that date. Again, a cause of action for fraud accrues when
the plaintiff discovers, or has reason to discover, the cause of
action. (Vera v. REL-BC, LLC, supra, 66 Cal.App.5th at p. 69.)
“A plaintiff has reason to discover a cause of action when he or
she has reason at least to suspect a factual basis for its elements.
[Citations.] Under the discovery rule, suspicion of one or more of
the elements of a cause of action, coupled with knowledge of any
remaining elements, will generally trigger the statute of
limitations period.” (Fox v. Ethicon Endo-Surgery, Inc. (2005)
35 Cal.4th 797, 807 (Fox), quotation marks omitted.) Under this
test, “we look to whether the plaintiffs have reason to at least
suspect that a type of wrongdoing has injured them.” (Ibid.)
10 The Aryeh court suggested the continuous accrual doctrine
would not apply to a fraud claim when the complaint “alleged a
single fraud committed at contract formation.” (See Aryeh, supra,55 Cal.4th at p. 1201.) We cannot tell at this stage in the
proceedings from the face of the complaint whether the fraud
claim here would fall into that category.
30
“[I]n order to employ the discovery rule to delay accrual of a
cause of action, a potential plaintiff who suspects that an injury
has been wrongfully caused must conduct a reasonable
investigation of all potential causes of that injury. If such an
investigation would have disclosed a factual basis for a cause of
action, the statute of limitations begins to run on that cause of
action when the investigation would have brought such
information to light. In order to adequately allege facts
supporting a theory of delayed discovery, the plaintiff must plead
that, despite diligent investigation of the circumstances of the
injury, he or she could not have reasonably discovered facts
supporting the cause of action within the applicable statute of
limitations period.” (Fox, supra, 35 Cal.4th at pp. 808-809.)
If an action is brought more than three years after
commission of the fraud, the plaintiff has the burden of pleading
and proving that he or she did not make and could not reasonably
have made the discovery until within three years prior to the
filing of his or her complaint. (Cansino v. Bank of America,
supra, 224 Cal.App.4th at p. 1472; see also Fox, supra, 35 Cal.4th
at p. 809.) Specifically, the plaintiff “‘must specifically plead facts
to show (1) the time and manner of discovery and (2) the inability
to have made earlier discovery despite reasonable diligence.’”
(Fox, at p. 808.)
The issue of “[w]hen a plaintiff reasonably should have
discovered facts for purposes of the accrual of a cause of action or
application of the delayed discovery rule is generally a question of
fact, properly decided as a matter of law only if the evidence (or,
in this case, the allegations in the complaint and facts properly
subject to judicial notice) can support only one reasonable
conclusion.” (Stella v. Asset Management Consultants, Inc.,
31
supra, 8 Cal.App.5th at p. 193; accord, Jolly v. Eli Lilly & Co.
(1988) 44 Cal.3d 1103, 1112.)
Here, the City and WRCOG adequately allege the City, in
the exercise of reasonable diligence, could not have discovered the
fraud before June 2014. Until mid-2015, the City’s top
managers—including the city manager, assistant city manager,
finance director, city attorney, city economic development
director, city director of planning, and city director of public
works—were part of the conspiracy to defraud the City. As of
June 2014, they were all still in those roles at the City; they later
pleaded guilty to criminal charges arising from their role in the
fraud. These managers concealed their wrongdoing from the City
Council, which did not suspect any potential misconduct until
April 2015, when the FBI and the Riverside County District
Attorney’s Office executed search warrants on the City.
These allegations are sufficient to withstand a demurrer on
the delayed discovery issue. Each of the members of the
management team listed above owed fiduciary duties to the City.
(See, e.g., County of San Bernardino v. Walsh (2007)
158 Cal.App.4th 533, 543 [chief administrative officer of a county
owes fiduciary duties to the county].) “‘Where a fiduciary
obligation is present, the courts have recognized a postponement
of the accrual of the cause of action until the beneficiary has
knowledge or notice of the act constituting a breach of fidelity.
[Citations.] The existence of a trust relationship limits the duty
of inquiry. “Thus, when a potential plaintiff is in a fiduciary
relationship with another individual, that plaintiff’s burden of
discovery is reduced and he is entitled to rely on the statements
and advice provided by the fiduciary.”’” (WA Southwest 2, LLC v.
First American Title Ins. Co. (2015) 240 Cal.App.4th 148, 157.)
32
What the City Council should have been able to discover under
those circumstances is a highly factual issue that cannot be
determined from the face of the pleadings. In addition, given the
facts alleged here, there may be complicated factual issues
involving whose knowledge should be considered in determining
whether the City, as an entity, had inquiry notice. We cannot
conclude as a matter of law that the City should have discovered
the fraud by June 2014.
We specifically cannot conclude, as a matter of law, that
the City was on inquiry notice of the billing fraud from the fact
WRCOG had previously sued the City for wrongdoing arising out
of the payment of TUMF fees. The City alleges its city attorney
was in on the fraud and lied to the City Council about the
litigation. Further, we cannot conclude from the face of the
complaint that the issues regarding the TUMF fees were
sufficiently related to the billing fraud issues such that inquiry
notice as to fraud in connection with the TUMF fees would be
sufficient to constitute inquiry notice regarding the billing fraud.
The trial court did not analyze whether the allegations
were sufficient to support a delayed accrual date of June 2014.
Rather, the court considered whether the City and WRCOG had
sufficiently alleged they could not have discovered the fraud as of
the date of the filing of the Roe and Doe amendments in 2019.
That is not the correct inquiry for at least three reasons. First, as
discussed, the City and WRCOG have sufficiently alleged the
claims relate back to the filing of the original complaint and
cross-complaint in June 2017. Second, a plaintiff has three years
from the date the claims should have been discovered to file suit;
thus, whether the City and WRCOG could have discovered the
33
fraud has to be considered in light of the City’s knowledge three
years before the filing date, not as of the date of filing.
Third, the court improperly considered whether WRCOG
was on inquiry notice. The only relevant question is whether the
City (and not WRCOG) had such notice. WRCOG sues as the
assignee of the City; the assignment was made in 2017. WRCOG
steps into the shoes of the City as the assignee, taking the
assignor’s rights and remedies. (See Johnson v. County of Fresno
(2003) 111 Cal.App.4th 1087, 1097.) Any knowledge that
WRCOG had regarding wrongdoing by City officials before the
City’s assignment of its claims is relevant only to the extent it
sheds light on whether the City had inquiry notice.
In sum, the trial court erred in sustaining the demurrer to
the fraud cause of action on statute of limitations grounds.
As with the False Claims Act claim, McKiernan and Torcal
also demurred to this cause of action on the ground it was not
alleged with sufficient particularity. The trial court did not reach
this issue. We reverse and remand for consideration of the issue,
along with any other grounds raised in the demurrers the court
did not reach.
4. As alleged, the claims for civil conspiracy to defraud,
breach of fiduciary duty, and breach of the duty of
loyalty are not time barred
The claims for civil conspiracy to defraud, breach of
fiduciary duty and breach of the duty of loyalty all sound in
fraud. The statute of limitations for each is therefore three years
under Code of Civil Procedure section 338, subdivision (d). (See
American Master Lease LLC v. Idanta Partners, Ltd. (2014)
225 Cal.App.4th 1451, 1479 [where gravamen of breach of
34
fiduciary duty claim is fraud, statute of limitations is three
years]; Filmservice Laboratories, Inc. v. Harvey Bernhard
Enterprises, Inc. (1989) 208 Cal.App.3d 1297, 1309 [statute of
limitations for conspiracy is based on the underlying cause of
action].) These claims, as alleged, are not time barred for the
same reason the fraud claim is not time barred. The City and
WRCOG adequately allege facts supporting the conclusion that
the City could not have reasonably discovered the claims before
June 2014.
As with the other claims, McKiernan and Torcal raised
certain challenges to these claims that the trial court did not
reach. We reverse and remand for consideration of the remaining
issues.
5. As alleged, the claim for negligence is not time barred
Although it is not entirely clear, the claim of negligence
seems to be based on a theory that McKiernan and Torcal owed a
professional duty of care to the City arising out of their
relationship with ULC, and that they breached the duty by
negligently allowing the invoices for unnecessary, overpriced or
non-existent services to be submitted for payment from 2012 to
2016.11 A claim for professional negligence is governed by the
two-year statute of limitations in Code of Civil Procedure
section 339, subdivision 1. (International Engine Parts, Inc. v.
Feddersen & Co. (1995) 9 Cal.4th 606, 608 [applying § 339,
subd. 1, to a claim of professional negligence by an accountant].)
The delayed discovery rule applies to claims of professional
negligence. (Id. at pp. 613-615.)
11 We express no opinion as to whether any such duty existed.
35
As discussed, the City and WRCOG have adequately
alleged the claim relates back to the filing of the original cross-
complaint and complaint on June 19 and June 30, 2017. Thus,
the negligence claim is timely if it accrued on or after June 19 or
June 30, 2015.
The pleadings allege McKiernan and Torcal’s negligence
continued until early 2016. As with the fraud-based causes of
action, we cannot conclusively determine, as a matter of law, that
claims based on negligence occurring after June 2015 would not
be subject to the continuous accrual doctrine. Again, the
continuous accrual doctrine would allow the City and WRCOG to
pursue claims for “actionable wrongs for which the statute of
limitations has not yet expired, even if earlier wrongs would be
barred.” (Orange County Water Dist. v. Sabic Innovative Plastics
US, LLC (2017) 14 Cal.App.5th 343, 395 [applying the continuous
accrual doctrine to a negligence cause of action].) “Under the
doctrine of continuous accrual, if any [of the alleged] negligent
acts occurred within the statute of limitations, the cause of action
is not barred.” (Id. at p. 396.) Because it cannot be determined
from the face of the third amended cross-complaint and third
amended complaint that the claim for negligence is completely
barred by the statute of limitations, the trial court erred in
sustaining the demurrer to this claim on statute of limitations
grounds.
We therefore need not address whether the City and
WRCOG have sufficiently alleged they could not have discovered
the wrongdoing by June 2015.
We reverse and remand for consideration of the remaining
challenges to this claim that the trial court did not reach.
36
6. As alleged, the conflict-of-interest claim is time barred
As previously discussed, the City and WRCOG allege
McKiernan and Torcal violated Government Code section 1090
which provides in relevant part: “(a) [C]ity officers or employees
shall not be financially interested in any contract made by them
in their official capacity. . . . [¶] (b) An individual shall not aid or
abet a . . . city officer or employee in violating subdivision (a).”
The terms “officer” and “employee” include “outside advisors with
responsibilities for public contracting similar to those belonging
to formal officers” or “formal employees.” (People v. Superior
Court (Sahlolbei) (2017) 3 Cal.5th 230, 237.) Further, the words
“officer” and “employee” include corporate consultants with the
requisite responsibility. (Davis v. Fresno Unified School Dist.
(2015) 237 Cal.App.4th 261, 300.) McKiernan and Torcal do not
dispute the statute of limitations for a claim under section 1090
is four years.
The City alleges “the December 2013 [c]ontract between the
City and cross-defendant ULC is voidable under [s]ection 1090
because cross-defendants[] McKiernan and Torcal . . . were
responsible for designing and developing the 2013 [c]ontract, and
for promoting its approval and execution by the City, which they
did in their capacities as ‘public officials’ as that term is defined
in Government Code section 1090. [Citation.] These cross-
defendants[] . . . were also financial beneficiaries under the 2013
[c]ontract.” As discussed, this claim does not relate back to the
filing of the original cross-complaint and complaint because
McKiernan’s identity is apparent from the face of the contract
and the fact he would benefit from the contract would also have
been known.
37
The City has not adequately alleged why it was not aware
of the alleged conflict of interest at the time the contract was
executed. Although it is not entirely clear, the City and WRCOG
seem to be alleging the contract itself gave rise to the conflict of
interest. The City and WRCOG have not alleged that the City
Council was not aware of the nature of the contract and ULC’s
role in implementing it from the day the contract was signed.
Again, the agreement was executed in December 2013. As
alleged, the claim accrued at the time the agreement was
executed. Four years after December 2013 is December 2017.
Because the claim does not relate back, the relevant date by
which timeliness is measured is the date of filing the Roe and
Doe amendments in August and September 2019. As that is
more than four years after the claim accrued, the trial court
properly sustained the demurrer to this claim.
However, because the trial court did not expressly address
the deficiencies in the allegations regarding delayed discovery
specifically with respect to this claim, we conclude the City and
WRCOG should be provided with an opportunity to amend
(assuming the claim survives the other challenges that the trial
court has not yet addressed).
7. As alleged, the claim for breach of written contract is
not time barred
The statute of limitations for breach of a written contract is
four years. (Code Civ. Proc., § 337, subd. (a).) The delayed
discovery rule postpones accrual of a breach of contract claim
under some circumstances, such as when the breach involves
fraud. (April Enterprises, Inc. v. KTTV (1983) 147 Cal.App.3d
805, 830.)
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Measured backward, four years before the date of filing of
the original complaint and cross-complaint is June 2013. Thus,
the breach of contract claim is timely if the claim accrued on or
after June 2013. The claim for breach of the December 17, 2013
contract necessarily accrued after June 2013 since the contract
was not in existence in June 2013.
As with the other claims, we remand for consideration of
the other bases for the demurrer not reached by the trial court.
8. As alleged, the RICO claim is not time barred
The City asserts a claim for violation of the federal
Racketeer Influenced and Corrupt Organizations Act (RICO).
(18 U.S.C. § 1961 et seq.) To state a claim for a civil RICO
violation, a plaintiff must allege “(1) conduct (2) of an enterprise
(3) through a pattern (4) of racketeering activity.” (See Charles J.
Vacanti, M.D., Inc. v. State Comp. Ins. Fund (2001) 24 Cal.4th
800, 826.) “For an act or omission to qualify as racketeering
activity, it must be included in the list of activities set forth in
title 18, United States Code section 1961, subdivision (1).”
(Gervase v. Superior Court (1995) 31 Cal.App.4th 1218, 1232.)
The statute of limitations for a RICO claim is four years.
(See Agency Holding Corp. v. Malley-Duff & Associates, Inc.,
supra, 483 U.S. at p. 156.) The “‘civil RICO limitations period
begins to run when a plaintiff knows or should know the injury
that underlies his cause of action.’” (Pincay v. Andrews (9th Cir.
2001) 238 F.3d 1106, 1109.) The claim accrues even if the
plaintiff does not discover the injury is caused by a pattern of
racketeering activity. (Rotella v. Wood (2000) 528 U.S. 549, 555.)
39
The “separate accrual” doctrine applies to civil RICO
claims.12 “[I]f a new RICO predicate act gives rise to a new and
independent injury, the statute of limitations clock will start over
for the damages caused by the new act.” (Lehman v. Lucom (11th
Cir. 2013) 727 F.3d 1326, 1330-1331 (Lehman), citing Klehr v.
A.O. Smith Corp. (1997) 521 U.S. 179, 190 (Klehr); see also
Love v. National Medical Enterprises (5th Cir. 2000) 230 F.3d
765, 772-774; Bankers Trust Co. v. Rhoades (2d Cir. 1988)
859 F.2d 1096, 1102.) “At the same time . . . the ‘plaintiff cannot
use an independent, new predicate act as a bootstrap to recover
for injuries caused by other earlier predicate acts that took place
outside the limitations period.’” (Lehman, at p. 1331, quoting
Klehr, at p. 190.) To constitute a new predicate act that will
restart the statute of limitations, the act “must be a new and
independent act that is not merely a reaffirmation of a previous
act” and “[i]t must inflict new and accumulating injury on the
plaintiff.” (Pace Industries, Inc. v. Three Phoenix Co. (9th Cir.
1987) 813 F.2d 234, 238, italics added; accord, Grimmett v. Brown
(9th Cir. 1996) 75 F.3d 506, 513.)
The RICO claim is based at least in part on the same
allegedly false and fraudulent invoices as the other fraud-based
claims. We again count backward from the date of filing because
if any portion of the claim accrued four years prior to the filing
date, it is not barred by the statute of limitations. Four years
prior to the filing of the City’s cross-complaint is June 2013. The
third amended cross-complaint alleges at least some of the
fraudulent invoices were submitted after that date. We cannot
12 The term “separate accrual” is used in the RICO context, as
opposed to the term “continuous accrual” that is used in other
contexts.
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conclude, as a matter of law, from the face of the third amended
cross-complaint, that those acts of fraud could not constitute new
and independent acts giving rise to a new injury for statute of
limitations purposes. The trial court thus erred in sustaining the
demurrer to this claim on statute of limitations grounds.
As with the other claims, the court did not reach other
issues raised in the demurrer, such as whether the RICO claim
was alleged with sufficient particularity. We reverse and remand
to the trial court for consideration of those issues in the first
instance.
DISPOSITION
The judgment is reversed and the matter is remanded with
directions to vacate the order sustaining McKiernan’s and
Torcal’s demurrers without leave to amend. The trial court is
directed to consider the remaining grounds for the demurrers
that it did not reach. To the extent the demurrers were based on
the statute of limitations, the trial court is directed to enter a
new order (1) overruling the demurrers on the claims for violation
of the False Claims Act, intentional misrepresentation, civil
conspiracy, breach of fiduciary duty, breach of the duty of loyalty,
breach of contract, negligence, and RICO; and (2) sustaining the
demurrers with leave to amend on the conflict of interest claims
(unless the court concludes there are other grounds on which to
sustain the demurrer to the conflict of interest claims without
leave to amend). The City and WRCOG are to recover their costs
on appeal.
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The Request for Judicial Notice filed by McKiernan and
Torcal on May 2, 2023 is denied.
ESCALANTE, J.*
We concur:
SEGAL, Acting P. J.
FEUER, J.
* Judge of the Los Angeles County Superior Court, assigned
by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
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