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December 18, 2013 | Law Alert

Stueve Bros. Farms, LLC v. Berger Kahn (2013) 222 Cal.App.4th 303

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The Fourth District holds claims of serious wrongdoing are not barred by CCP § 340.6 because the four-year limitation period was tolled by continuous representation, and the one-year limitation period did not commence until discovery.

The heirs to the Stueve family Altadena Dairy fortune alleged attorney Raymond Novell, a lifelong friend of the family, partnered with Berger Kahn estate planning attorney Jay Wayne Allen to embezzle their fortune. Novell and Allen convinced the Stueves to avoid taxes by setting up a multitude of trusts where Novell acted as trustee. The heirs alleged Allen and Novell operated a Ponzi scheme through money laundering and sham loans.

After Earl Stueve’s death, Novell informed his widow there was no money in the estate. She then contacted another heir, Michael Meyer, who discovered the scope of the scheme seven months prior to filing the complaint.

The Court of Appeal held the CCP §340.6 four-year limitations period could not begin to run against Berger Kahn before Allen commenced his employment there. The four-year outside limitations period was not a bar to claims of wrongdoing that occurred within four years of filing the complaint. Moreover, the four-year period was tolled as to Berger Kahn under the continuous representation provision from the time Allen commenced employment until he left the firm.

The CCP §340.6 one-year limitations period did not bar Plaintiffs’ claims. Berger Kahn did not establish plaintiff discovered, or should have discovered, the facts alleged to constitute Berger Kahn’s wrongdoing more than one year prior to filing the complaint.

The Court rejected Berger Kahn’s argument the knowledge of Allen’s new firm, Buchalter Nemer, was imputed to Plaintiffs. This would eviscerate the CCP §340.6 “knew or should have known” rule. The Court also rejected Berger Kahn’s argument that Novell’s knowledge of Berger Kahn’s conduct was sufficient to trigger the one-year limitations. It would be absurd to presume Novell would disclose Berger Kahn’s misdeed to the Stueves, since it would expose his own wrongdoing.

Berger Kahn argued Novell, as trustee, was the only one with standing to file a lawsuit. Because he and Allen concocted the scheme, Novell could not allege fraud against Berger Kahn. The Court rejected this argument, reasoning the premise of the lawsuit is that Novell and Allen schemed and conspired together. Although Berger Kahn represented Novell, it had a duty not to commit an intentional tort, such as fraud, against the Stueves or any third party.

Comment: Courts are reluctant to dispose of cases alleging serious wrongdoing on the statute of limitations at the pleading stage.

Practice Area: Lawyers & Judges Defense Group
Attorney: John B. Sullivan

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