Rallis v. Cassady, No. B127047.

CourtCalifornia Court of Appeals
Writing for the CourtCroskey
Citation100 Cal.Rptr.2d 763,84 Cal.App.4th 285
PartiesRallie P. RALLIS, Plaintiff and Appellant, v. Ralph CASSADY et al., Defendants and Respondents.
Decision Date24 October 2000
Docket NumberNo. B131724.,No. B127047.
100 Cal.Rptr.2d 763
84 Cal.App.4th 285
Rallie P. RALLIS, Plaintiff and Appellant,
v.
Ralph CASSADY et al., Defendants and Respondents.
No. B127047.
No. B131724.
Court of Appeal, Second District, Division 3.
October 24, 2000.
As Modified on Denial of Rehearing November 20, 2000.
Review Denied January 24, 2001.*

[100 Cal.Rptr.2d 766]

Bidna & Keys and Richard D. Keys, Newport Beach, for Plaintiff and Appellant.

Sheppard, Mullin, Richter & Hampton, Gregory A. Long, Los Angeles, and Kristine N. Locke, for Defendants and Respondents Morgan, Lewis & Bockius, Hahn & Cazier and Hahn, Cazier & Smaltz.

Law Offices of Baird Brown and Baird Brown, Los Angeles, for Defendants and Respondents Ralph Cassady, Cassady Corporation and Cassady & Klein.

Perkins, Coie and Douglas L. Thorpe, Santa Monica, for Defendant and Respondent Davis Wright Tremaine.

CROSKEY, J.


Plaintiff Rallie P. Rallis sued defendants Ralph Cassady, Cassady Corporation, Cassady & Klein, Morgan, Lewis & Bockius, LLP (Morgan Lewis), Hahn & Cazier, Hahn, Cazier & Smaltz, and Davis Wright Tremaine (Davis Wright) for legal malpractice in January 1995. Rallis seeks reversal of the summary judgments granted in favor of each of these defendants. The trial court was persuaded that Rallis had sustained "actual injury" more than one year prior to the date when he filed this action and therefore his claims were barred by the statute of limitations. In reaching that result, the trial court rejected Rallis's argument that the running of the statute had been tolled by the defendants' continued representation of Rallis in certain Florida litigation. It determined that the defendants had only represented corporations founded by Rallis in which he was an officer, director, and shareholder, but had not represented him personally.

We conclude that triable issues of fact exist as to the running of the statute of limitations, as to some of the claims asserted against some of the defendants. Because we conclude that Rallis suffered an "actual injury" from the transactional matters that he claims were negligently handled more than one year before he filed his complaint, all of those claims are time-barred. We reach this conclusion because we hold that litigation arising from a negligently handled transactional matter is not the same "specific subject matter" (Code Civ. Proa, § 340.6, subd. (a)(2)) and so a necessary condition for tolling based on continuous representation fails. Thus, Rallis can only proceed against those defendants who represented him during the Florida litigation, and only upon claims arising from acts of professional negligence committed in the handling of that

100 Cal.Rptr.2d 767

litigation.1 We therefore affirm in part and reverse in part.

FACTUAL AND PROCEDURAL BACKGROUND2

To resolve the issues raised in this appeal requires an understanding of some of the many legal activities undertaken by defendant Cassady on behalf of Rallis over a 25-year period. Our factual review therefore is necessarily lengthy, although we have limited our discussion of facts to those relevant to Rallis's claims in this litigation.

1. The California and Florida Corporations

Cassady served as legal counsel for Rallis personally and for several corporations and business entities founded by Rallis at various times during the 25 year period beginning in 1969. Cassady practiced with the defendant law firms at different times during that period.3

Rallis founded a California corporation named American Hi-Lift Corporation of California (Hi-Lift (Cal.)) in 1975 and a Florida corporation named Mark Equipment Center of South Florida (MEC) in 1982. Both companies were equipment dealers, and Cassady counseled and performed legal services for Rallis with respect to their incorporation. Rallis acquired another Florida corporation in 1983 and changed its name to American Hi-Lift Corporation, a Florida Corporation (Hi-Lift (Fla.)). Again, Cassady counseled Rallis and performed the necessary legal services in the transaction. In addition, Cassady advised Rallis that MEC and Hi-Lift (Fla.) were separate legal entities but could be operated together as one company, but did not advise him of the risks of doing so.4

Rallis was an officer, director, and, either directly or through other entities, a shareholder in each of these three corporations. Cassady was a five-percent shareholder in MEC and was corporate secretary for both of the Florida corporations. Lynn Pope was president of MEC, and Edward Moloney was its general manager and a ten-percent shareholder.

MEC terminated Moloney's employment in 1984. Moloney disputed his discharge and demanded the rescission of his purchase of MEC stock. Cassady advised the corporation with respect to its dispute with Moloney both before and after it escalated into litigation against MEC in the Florida state court in 1987.

100 Cal.Rptr.2d 768

2. The Sale of Assets of MEC and Hi-Lift (Fla.) and Sale of Stock of Hi-Lift (Cal.)

Prior to Moloney's initiation of that litigation, however, the directors and a majority of the shareholders in MEC and Hi-Lift (Fla.) approved the sale of all of the assets of both corporations in 1986. Cassady advised the two corporations concerning the transaction and effected the sale. The sales proceeds were distributed to the shareholders in exchange for their shares of stock which were then canceled, but the two corporations were not formally dissolved. As a result of this transaction, Moloney was the only remaining shareholder of MEC. He had not received any prior notice of the asset sale, did not tender his shares, and therefore did not receive any part of the sales proceeds.

Cassady also represented Rallis and Pope in the sale of their stock in Hi-Lift (Cal.) in February 1988 (about four months after Moloney filed his Florida action). Based on Cassady's advice, Rallis and Pope both agreed to personally indemnify and defend the purchaser of the stock against any liability that might arise (and be imposed upon Hi-Lift (Cal.) ) in Moloney's law suit.

3. The Florida Litigation

Moloney sued MEC, Cassady, and Pope in Florida state court in October 1987 (hereafter, the Florida litigation). The purpose of this action was to compel MEC to allow him to inspect its books and records and to recover damages for the defendants' refusal to allow an inspection and breach of fiduciary duty with respect to a corporate opportunity. MEC retained a Florida attorney to represent the corporation and its officers, Cassady and Pope. It is important to note that while MEC was a named defendant in this action, Rallis was not.

The court ordered an inspection of the corporate records, determined that Moloney was the sole remaining shareholder of MEC, and then, on Moloney's motion, allowed MEC to be renamed as a plaintiff in June 1990. Moloney then amended the complaint in July 1990 to name MEC as a party plaintiff (rather than as a defendant) and added Rallis and Hi-Lift (Cal.) as defendants in new causes of action for breach of fiduciary duty and other claims in which it was alleged that the defendants had caused injury to MEC. By this time, of course, the Hi-Lift (Cal.) stock had been sold (in February 1988) to a third party who, as already indicated, had received a promise of indemnity from Rallis for any liability imposed on Hi-Lift (Cal.) in the Florida litigation.

In order to at least partially address this indemnity burden, Rallis and Pope agreed, in May 1991, that Pope would receive all of the proceeds from the sale of their stock in Hi-Lift (Cal.) up to $300,000. By this agreement, Rallis gave up his right to receive his share of those proceeds in exchange for Pope's promise to indemnify and defend Rallis and the other defendants in the Florida litigation (including Hi-Lift (Cal.)), and to indemnify and defend Rallis against any liability arising from the Hi-Lift (Cal.) stock sale, including liability arising from their 1988 indemnity agreement given to the purchaser of that stock. Subsequently, in November 1993, both Rallis and Pope, in partial discharge of their 1988 agreement to provide that indemnity, accepted the tender of the defense of Hi-Lift (Cal.) in the Florida litigation.

Several different Florida law firms represented the named defendants in the Florida litigation from July 1990 to August 1993. For part of that period, the defendants were unrepresented. Rallis did not communicate with those attorneys, however, but only communicated with and relied on Cassady with respect to his defense. In August 1993, Pope retained new Florida counsel to jointly represent himself,

100 Cal.Rptr.2d 769

Cassady, Rallis, and Hi-Lift (Cal.).5

The Florida litigation went to trial and the jury returned a verdict in January 1994, awarding MEC $831,428 in compensatory and punitive damages against Rallis for breach of fiduciary duty and $429,000 in compensatory and punitive damages against Hi-Lift (Cal.) for breach of fiduciary duty. The court entered a judgment accordingly in May 1994. That judgment was affirmed on appeal in relevant part.

4. Rallis's Complaint

Rallis sued Cassady and the other defendants for legal malpractice in January 1995.6 His second amended complaint alleges malpractice and other causes of action7 arising from the various business transactions summarized above (hereafter, the prior matters) and from the Florida litigation.

5. The Initial Summary Judgment Motions

Cassady, Cassady Corporation, and Cassady & Klein moved for summary judgment or summary adjudication in May 1998 on the grounds that they did not represent Rallis personally in the Florida litigation or the prior matters (i.e., that they had represented only the corporate entities) and that the claims were barred by the statute of limitations. Contemporaneously, Morgan Lewis, Hahn & Cazier, and Hahn, Cazier & Smaltz also moved for summary judgment or summary adjudication in May 1998 on nearly identical grounds, except that they conceded that they...

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