Court Opinion

ID: 9913061
Source: CourtListenerOpinion
Date Created: 2023-12-26 20:02:03.474859+00
Date Added: 2024-06-11T13:06:57.153779
License: Public Domain

Filed 12/26/23 Peppertree Villages v. Lounsbery Ferguson Altona & Peak CA4/1
                 NOT TO BE PUBLISHED IN OFFICIAL REPORTS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 This opinion has not been certified for publication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.

                COURT OF APPEAL, FOURTH APPELLATE DISTRICT

                                                 DIVISION ONE

                                         STATE OF CALIFORNIA

PEPPERTREE VILLAGES 9 & 10, LLC                                      D080882
et al.,

         Plaintiffs and Appellants,
                                                                     (Super. Ct. No. 37-2020-
         v.                                                          00047053-CU-PN-NC)

LOUNSBERY FERGUSON ALTONA &
PEAK, LLP,

         Defendant and Respondent.

         APPEAL from a judgment of the Superior Court of San Diego County,
Cynthia A. Freeland, Judge. Reversed and remanded with directions.
         Law Offices of Robert S. Gerstein, Robert S. Gerstein; Law Offices of
James P. Wohl and James P. Wohl for Plaintiff and Appellant Duane
Urquhart.
         Wingert Grebing Brubaker & Juskie and Colin H. Walshok for
Defendant and Respondent.
                               INTRODUCTION
      Peppertree Villages 9 & 10, LLC, North Capital, Inc., Duane Urquhart,
and Walter Osgood (collectively, Peppertree) appeal from a judgment entered
following an order sustaining a demurrer against their complaint for legal
malpractice. The trial court ruled the alleged acts of malpractice were time-
barred and were subject to judicial estoppel. Because we conclude not all acts
of malpractice were time-barred or subject to judicial estoppel, we reverse.
              FACTUAL AND PROCEDURAL BACKGROUND
      Peppertree brought this legal malpractice action against Lounsbery
Ferguson Altona & Peak, LLP (LFAP). LFAP had represented Peppertree in
a suit brought by Meritage Homes of California, Inc. (Meritage) for breach of
contract and related claims. Peppertree and Meritage agreed to bifurcate
trial into two phases, with alter ego claims reserved for the second phase. In
July 2017, following the first phase of a bench trial, the trial court entered
judgment against Peppertree, awarding Meritage more than $6.1 million in
damages and interest. The judgment noted the alter ego claims remained
untried.

      Peppertree1 filed for Chapter 11 bankruptcy in August 2017, listing the
July 2017 judgment and legal fees owed to LFAP as liabilities. Peppertree
did not identify a legal malpractice claim against LFAP as an asset during
the bankruptcy proceedings. In November 2019, the bankruptcy court
approved Peppertree’s plan of reorganization.
      While the bankruptcy proceedings were ongoing, Peppertree retained
new counsel to appeal the July 2017 judgment. Peppertree filed its appeal

1    With the exception of appellant Walter Osgood, who did not file for
bankruptcy.

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from the July 2017 judgment in February 2018. LFAP did not appear in that
appeal, and the trial court relieved LFAP as counsel of record for Peppertree
in August 2018. We dismissed that appeal by Peppertree without prejudice
in December 2019 because we concluded the July 2017 judgment was not an
appealable final judgment. (See Meritage Homes of California, Inc. v.
Peppertree Village-VII, LLC (Dec. 20, 2019, D073088) [nonpub. opn.]

(Meritage Homes).)2
      Peppertree then filed this legal malpractice action against LFAP in
December 2020. Peppertree’s complaint alleged examples of malpractice
committed by LFAP leading up to and during the first phase of the bifurcated
trial. The complaint also alleged “the crowning . . . legal malpractice” by
LFAP was that “LFAP had never disclosed, discovered or devined [sic] that
the [July 2017] judgment adverse to [Peppertree] and for which LFAP had
represented [Peppertree], was not appealable because it was not a final
judgment.” Peppertree alleged this act of legal malpractice was not known to
it until Peppertree suffered the dismissal of its appeal from the July 2017
judgment.
      The complaint’s first cause of action for professional negligence
incorporated the above allegations by reference. It also alleged LFAP had (1)
“allowed a judgment to be entered against [Peppertree] which was utilized by
Meritage and appealed by [Peppertree], but which was not final”; (2)
“negligently undertook to assist, represent, advise, counsel and prepare legal
authority”; and (3) “ignored, omitted and/or misstated vital operative law,

2     We grant Peppertree’s request for judicial notice of this court’s
nonpublished opinion in Meritage Homes, which provides relevant
information about the action from which Peppertree’s malpractice allegations
originated.

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facts and issues, [and] failed to correctly apply California legal principles
available by way of research and investigation.” (Capitalization omitted.)
      LFAP demurred to Peppertree’s complaint on the grounds that the
malpractice claims were barred by judicial estoppel and the one-year statute
of limitations and failed for lack of standing. The trial court sustained the
demurrer, finding the causes of action were barred by judicial estoppel and by
the one-year statute of limitations. Regarding judicial estoppel, the court
found Peppertree’s failure to identify a potential claim for legal malpractice
against LFAP in the bankruptcy proceedings inconsistent with its later suit
against LFAP for alleged malpractice.
      As for the statute of limitations, the trial court found the claims of
malpractice were “predicated upon acts or omissions which occurred leading
up to and during the [first phase] trial.” It rejected Peppertree’s argument
that the December 2019 Meritage Homes opinion dismissing the appeal first
put them on notice of facts giving rise to the complaint. The court found the
longest the statute of limitations could have been tolled was until August 24,
2018, when LFAP was relieved as counsel, which was well more than a year
before Peppertree filed its complaint. The court denied Peppertree’s request
for leave to amend its complaint, concluding the deficiencies could not be
cured by amendment.
                                 DISCUSSION
      We review de novo an order sustaining a demurrer. (Pointe San Diego
Residential Community, L.P. v. Procopio, Cory, Hargreaves & Savitch, LLP
(2011) 195 Cal.App.4th 265, 274 (Pointe San Diego).) To survive a demurrer,
a complaint must state facts sufficient to constitute a cause of action. (Code

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Civ. Proc.,3 § 430.10, subd. (e).) In testing a complaint against a demurrer,
“we give the complaint a reasonable interpretation, reading it as a whole and
its parts in their context.” (Blank v. Kirwan (1985) 39 Cal.3d 311, 318.)
“[T]he facts alleged in the [complaint] are deemed to be true, however,
improbable they may be,” unless they are inconsistent with attached
documents or facts judicially noticed. (Del E. Webb Corp. v. Structural
Materials Co. (1981) 123 Cal.App.3d 593, 604 (Del E. Webb).)
      A demurrer cannot attack a portion of a cause of action. (PH II, Inc. v.
Superior Court (1995) 33 Cal.App.4th 1680, 1681–1682 (PH II).) Thus, “to
prevail on a demurrer based on the statute of limitations, a defendant must
establish the entire cause of action is untimely.” (Pointe San Diego, supra,
195 Cal.App.4th at p. 274.) Accordingly, “where a plaintiff sues a defendant
for legal malpractice alleging several distinct acts of malpractice with respect
to a single representation, a demurrer is properly granted on the basis of the
statute of limitations only if each alleged act of malpractice is time-barred.”
(Ibid.)
      Peppertree does not challenge the trial court’s ruling that the alleged
acts of malpractice before and during the first phase trial are barred by the
statute of limitations. It contends, however, the court erred in sustaining
LFAP’s demurrer because the “ ‘crowning’ ” act of legal malpractice—LFAP’s
failure to advise Peppertree the July 2017 judgment was not appealable—is
not barred by the statute of limitations and cannot be subject to judicial
estoppel. We agree.

3    All further undesignated statutory references are to the Code of Civil
Procedure.

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A.    The Statute of Limitations Does Not Bar All Alleged Acts of Malpractice
      Section 340.6 sets forth the statute of limitations for legal malpractice.
(Pointe San Diego, supra, 195 Cal.App.4th at p. 275.) It provides that any
“action against an attorney for a wrongful act or omission . . . arising in the
performance of professional services shall be commenced 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.”
(§ 340.6, subd. (a).) The one-year period is tolled until the plaintiff sustains
“actual injury” and the attorney no longer represents the plaintiff “regarding
the specific subject matter in which the alleged wrongful act or omission
occurred.” (Ibid.; Pointe San Diego, at p. 275.) “Actual 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
Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739, 743.)
      As Peppertree impliedly concedes, the statute of limitations bars all

alleged acts of malpractice before and during the first phase trial.4 Those
acts resulted in actual injury no later than July 2017, when the trial court
entered judgment against Peppertree for more than $6.1 million. The court
relieved LFAP as Peppertree’s attorney in August 2018, which marked the
end of the tolling of the statute of limitations. Peppertree then waited more
than two years before filing their malpractice action in December 2020. That

4     Although Peppertree’s counsel declined, at oral argument, to explicitly
concede the untimeliness of the allegations of malpractice that occurred
before and during the first phase trial, we note that Peppertree argued in its
reply brief “an amendment [of the complaint] limiting [its] causes of action to
LFAP’s malpractice in treating an interlocutory judgment as final could
reasonably render ineffective LFAP’s untimeliness defense.” (Italics added.)

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exceeded the one-year limitations period for claims based on those alleged
acts of malpractice, making them time-barred.
      Peppertree, however, timely filed its claim that LFAP allegedly
committed malpractice by failing to disclose the non-appealability of the July
2017 judgment. Peppertree contends it did not discover and could not
reasonably discover this alleged act of malpractice until December 2019,
when this court dismissed the appeal without prejudice in Meritage Homes.
As a result, the statute of limitations for this alleged act of malpractice began
running in December 2019. Peppertree filed its complaint exactly one year
later, in compliance with the statute of limitations.
      LFAP contends it could not have committed malpractice in connection
with the appeal from the July 2017 judgment because it “had no involvement
in handling the appeal, did not file the notice of appeal and were not counsel
of record for the appeal.” That may be so, but these unsupported contentions
cannot be the basis for sustaining a demurrer. (See Del E. Webb, supra, 123
Cal.App.3d at p. 604.) Even assuming LFAP’s contentions can be proven,
they do not undermine Peppertree’s allegation in paragraph 16 of the
complaint (which we must assume is true at this juncture) that “the crowning
LFAP legal malpractice” was that “LFAP had never disclosed, discovered or
devined [sic]” the July 2017 judgment was not an appealable final judgment.
This allegation reasonably implies LFAP, following the judgment and before
the appeal, either provided incorrect advice or failed to provide correct advice
regarding the appealability of the judgment.
      LFAP contends the allegation in paragraph 16 conflicts with paragraph
10 of the complaint, which states the July 2017 judgment “was appealed by
[Peppertree] after termination of LFAP.” But paragraph 10 does not account
for all of the time between the July 2017 judgment and the filing of the

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appeal in February 2018. LFAP may have failed to “dislose[ ], discover[ ], or
devine[ ] [sic]” the unappealable nature of the July 2017 judgment, as
Peppertree alleges, in the period between the date of the judgment and the
date of LFAP’s termination. Moreover, neither party disputes LFAP
remained counsel of record for Peppertree until August 2018, well after the
judgment was appealed. Under a liberal reading of the complaint, the
allegations suffice to state a cause of action for legal malpractice. Because
one of the alleged acts of malpractice was not time-barred, the trial court
erred in sustaining LFAP’s demurrer based on the statute of limitations.
(See Pointe San Diego, supra, 195 Cal.App.4th at p. 274 [“a demurrer is
properly granted on the basis of the statute of limitations only if each alleged
act of malpractice is time-barred”].)
      A court “may . . . at any time in its discretion, and upon terms it deems
proper . . . [s]trike out all or any part of any pleading not drawn or filed in
conformity with the laws of this state.” (§ 436.) This is particularly
appropriate where “a portion of a cause of action [is] substantively defective
on the face of the complaint . . . such as a violation of the applicable statute of
limitations.” (PH II, supra, 33 Cal.App.4th at pp. 1682–1683.) “Although a
defendant may not demur to that portion, in such cases, the defendant should
not have to suffer discovery and navigate the often dense thicket of
proceedings in summary adjudication.” (Id. at p. 1682.) Accordingly, to
streamline the case on remand, we direct the trial court to strike all time-
barred allegations from Peppertree’s complaint, namely the alleged acts of

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malpractice before and during the first phase of trial.5 (See Caliber
Bodyworks, Inc. v. Superior Court (2005) 134 Cal.App.4th 365, 385 [directing
the trial court to strike portions of causes of action that were “clearly
objectionable” under applicable law].)
B.    Judicial Estoppel Does Not Apply to the Alleged Malpractice Involving
      Appealability of the July 2017 Judgment
      Judicial estoppel applies “when: (1) the same party has taken two
positions; (2) the positions were taken in judicial or quasi-judicial
administrative proceedings; (3) the party was successful in asserting the first
position (i.e., the tribunal adopted the position or accepted it as true); (4) the
two positions are totally inconsistent; and (5) the first position was not taken
as a result of ignorance, fraud, or mistake.” (Jackson v. County of Los
Angeles (1997) 60 Cal.App.4th 171, 183 (Jackson).)
      The trial court relied on judicial estoppel as an alternate ground to
sustain Peppertree’s demurrer. However, its order did not consider the
alleged malpractice regarding LFAP’s failure to disclose that the July 2017
judgment was not appealable. That allegation appeared in paragraph 16 of
Peppertree’s complaint. Although the court’s order cited and considered the
allegations of malpractice from paragraphs 12–15 of the complaint, all of
which occurred before or during the first phase trial, it did not cite or
consider paragraph 16.

5      Because we conclude the trial court erred in sustaining LFAP’s
demurrer, we need not address Peppertree’s alternative argument that the
court abused its discretion in denying Peppertree’s motion for leave to amend
its complaint. Our direction to the court to strike all time-barred malpractice
allegations has the same effect as Peppertree’s proposed amendment. (See
fn. 4, ante.)

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      In contrast to the other alleged acts of malpractice,6 Peppertree was
unaware of LFAP’s alleged malpractice regarding the appealability of the
July 2017 judgment when it filed for bankruptcy in August 2017 and when its
reorganization plan was approved in November 2019. According to its
complaint, Peppertree did not learn the judgment was unappealable until
December 2019, when this court dismissed Peppertree’s appeal in Meritage
Homes. Thus, it could not have listed that malpractice claim in its
bankruptcy schedules. Judicial estoppel cannot apply to that claim because
Peppertree could not take a position on it in the bankruptcy proceeding. (See
Jackson, supra, 60 Cal.App.4th at p. 183 [judicial estoppel requires that “the
same party has taken two positions”].) As “[a] demurrer does not lie to a
portion of a cause of action,” the court erred in sustaining LFAP’s demurrer
on the basis of judicial estoppel, which did not apply to all alleged acts of
malpractice. (PH II, supra, 33 Cal.App.4th at p. 1682.)
C.    Peppertree Has Standing as a Chapter 11 Debtor in Possession
      LFAP revives its argument that Peppertree lacks standing, which the
trial court rejected. LFAP contends Peppertree’s cause of action for legal
malpractice became property of the Chapter 11 bankruptcy estate, thereby
depriving Peppertree of standing to bring suit against LFAP. We disagree.
      “The widely accepted rule is that after a person files for bankruptcy
protection, any causes of action previously possessed by that person become

6     Peppertree also requested we take judicial notice of its “Seventh
Amended Joint Chapter 11 Plan of Reorganization” in the bankruptcy
proceeding, which it uses to support an argument that it reserved from
bankruptcy its malpractice claims for acts preceding and during the trial. As
we have already concluded those claims are time-barred, we deny this
request.

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the property of the bankrupt estate.” (Cloud v. Northrop Grumman Corp.
(1998) 67 Cal.App.4th 995, 1001.) However, “[C]hapter 11 debtors, acting in
the capacity of debtor in possession performing the duties of the trustee, do
have authority to control property of the estate before plan confirmation.”
(Diamond Z Trailer, Inc. v. JZ L.L.C (In re JZ L.L.C.) (Bankr. 9th Cir. 2007)
371 B.R. 412, 418 (In re JZ).) They “also have such authority after plan
confirmation,” unless the order confirming the plan provides otherwise.
(Ibid.; 11 U.S.C. § 1141(b).) Thus, Chapter 11 debtors in possession have
“standing to sue on causes of action that are property of the estate.” (In re
JZ, at p. 418; California Aviation, Inc. v. Leeds (1991) 233 Cal.App.3d 724,
729.)
        LFAP concedes that Peppertree had the powers of a trustee as a
Chapter 11 debtor in possession. But LFAP does not point to anything in the
order confirming Peppertree’s plan of reorganization that vested the legal
malpractice cause of action anywhere other than with Peppertree.
Accordingly, throughout and following the bankruptcy proceedings,
Peppertree maintained authority over the legal malpractice cause of action.
Peppertree has standing to sue LFAP. (In re JZ, supra, 371 B.R. at p. 419
[“When property of the estate has been vested in the debtor, it cannot be said
that the [C]hapter 11 debtor has no standing after the case is closed.”].)

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                                 DISPOSITION
      The judgment is reversed, and the matter is remanded with directions
to the trial court to strike the portions of Peppertree’s complaint that contain
time-barred allegations, namely the alleged acts of malpractice before and
during the first phase of trial. Each party shall bear its own costs on appeal.
(Cal. Rules of Court, rule 8.278(a)(5).)

                                                                          DO, J.

WE CONCUR:

DATO, Acting P. J.

BUCHANAN, J.

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