Schrader v. Scott

• Court: California Court of Appeals
• Writing for the Court: TIMLIN; DABNEY, Acting P.J., and McDANIEL
• Citation: Schrader v. Scott, 11 Cal.Rptr.2d 433, 8 Cal.App.4th 1679 (Cal. App. 1992)
• Decision Date: 26 August 1992
• Docket Number: No. E008908,E008908
• Parties: John L. SCHRADER, et al., Plaintiffs and Appellants, v. Jack C. SCOTT, et al., Defendants and Respondents.

Page 433

11 Cal.Rptr.2d 433

8 Cal.App.4th 1679

John L. SCHRADER, et al., Plaintiffs and Appellants, v. Jack C. SCOTT, et al., Defendants and Respondents.

No. E008908.

Court of Appeal, Fourth District, Division 2, California.

August 26, 1992.

Certified for Partial Publication ^*

[8 Cal.App.4th 1681] Patrick A. McCall, Santa Ana, for plaintiffs and appellants.

Garrett & Tully and Stephen J. Tully, Pasadena, for defendants and respondents.

OPINION

TIMLIN, Associate Justice.

INTRODUCTION

Plaintiffs John L. Schrader and Joy A. Schrader (plaintiffs) appeal from the judgment entered in favor of defendants Jack C. Scott, Jack C. Scott, a professional corporation, Donald L. Rogers, Donald L. Rogers, a professional corporation, Richard D. Anderson, Dennis H. Malody II, Dennis H. Malody II, a professional corporation, and Rogers, Anderson, Malody and Scott (defendants). Plaintiffs had sued defendants for accountant malpractice, and the judgment was entered following defendants' successful motion for summary judgment, based on the theory that plaintiffs' action for malpractice was barred by the statute of limitations. Plaintiffs contended below, and contend on appeal, that the commencement of the statute of limitations for professional malpractice was tolled while they pursued their administrative remedies challenging adverse tax assessments by the Internal Revenue Service (IRS) and California Franchise Tax Board (FTB), and that therefore their action is not barred by the statute of limitations.

FACTS

Plaintiffs filed their complaint for breach of contract, fraud, and intentional and negligent misrepresentation against defendants on October 23, 1989. They filed their first amended complaint for breach of contract, negligence, breach of fiduciary duty, and negligent misrepresentation on January 12, 1990.

The following facts were agreed to be undisputed by the parties in connection with defendants' motion for summary judgment.

Between 1980 and 1982, defendants advised plaintiffs that investment in certain tax shelters known as "tax straddle partnerships" would reduce their income tax liability. In reliance on this advice, plaintiffs invested in three such tax straddle partnerships between 1980 and 1982, and claimed losses related to these investments on their income tax returns.

In 1982, plaintiffs became aware that the IRS was disallowing such loss deductions. In 1986, plaintiffs concluded that defendants had been negligent in advising them that they could reduce their tax liability by such investments. On December 16, 1986, plaintiffs paid the IRS and the FTB a total of over $240,000 in back taxes and interest related to the disallowance of tax straddle partnership losses which plaintiffs had previously deducted on their income tax returns.

In January 1987, plaintiffs terminated defendants as plaintiffs' accountants, because of their conclusion that they had been given negligent advice. At a meeting with Jack Scott a few weeks after their relationship with defendants had been terminated, plaintiffs told him they believed he had given them negligent advice. By March of 1987, plaintiffs had hired a new accountant and an attorney, and had paid to them fees for services involving resolution of their tax problems related to the tax straddle partnership deductions.

On or about April 6, 1987 and later in July 1987, plaintiffs received notices of final adjustment from the IRS disallowing their tax straddle partnership loss deductions.

In December 1988, plaintiffs and the IRS signed a closing agreement, which finally determined plaintiffs' administrative appeal with the IRS. However, as of October 1990, plaintiffs' FTB administrative appeal had not concluded.

Plaintiffs further contended, in connection with their opposition to the motion for summary judgment, that from 1982 to 1988, they had sought to negate the damages caused by defendants' negligent advice by pursuing administrative appellate remedies with the IRS, and that they anticipated that they might incur additional damages in the form of penalties to be levied by the FTB, again as the result of defendants' negligence.

Given the fact that plaintiffs' complaint was filed on October 23, 1989, defendants contended that plaintiffs' cause of action accrued, and ran from, no later than July 1987, when, in addition to having accused Scott of negligence, and retaining and paying another accountant and attorney to attempt to resolve the problem caused by such negligence, plaintiffs had also received a notice of final adjustment and deficiency from the IRS. Plaintiffs responded that even so, the running of the statute of limitations was tolled while they were exhausting their administrative remedies. The trial court agreed with defendants, and granted their motion for summary judgment, and then entered judgment accordingly.

DISCUSSION

I. Standard of Appellate Review

Plaintiffs urge that the proper standard of appellate review regarding an appeal from a summary judgment is an independent review of the evidence by the appellate court. Defendants disagree and assert the standard is whether the trial court abused its discretion in granting the motion. We agree with the majority view that independent review is the correct standard. (See discussion of different standards in Eisenberg et al., Cal.Practice Guide: Civil Appeals and Writs (The Rutter Group 1989) pp 8.164-8.168.) The inappropriateness of an abuse of discretion standard of review is clearly stated in Saldana v. Globe-Weis Systems Co. (1991) 233 Cal.App.3d 1505, 1515, 285 Cal.Rptr. 385: "Adherence to such standard is not required. Except for the provision in Code of Civil Procedure section 437c, subdivision (e) (see fn. 3 ante ) there is no discretion to be exercised by a trial court in considering a motion for summary judgment. Therefore, any error made, if made at all, is one of law, not of discretion. In reviewing an order on a summary judgment, the reviewing court employs the same process as the trial court in determining whether, as a matter of law, summary judgment was appropriate. It is procedurally and legally incorrect to claim that a trial court has abused its discretion in such circumstances. (Street v. Superior Court (1990) 224 Cal.App.3d 1397, 1402 [274 Cal.Rptr. 595].)"

The general standard is that when reviewing a judgment based on an order granting summary judgment, the appellate court undertakes an independent review of the evidence presented to the trial court to determine whether no triable issues of fact were presented. (Saldana v. Globe-Weis Systems Co., supra, 233 Cal.App.3d 1505, 1511, 1515, 285 Cal.Rptr. 385.) First, the reviewing court identifies the issues framed by the pleadings, because the motion must be based on the issues as so framed. (Id. at pp. 1513-1514, 285 Cal.Rptr. 385.) Second, the court determines whether the moving party, if the plaintiff, has established all of the elements necessary to his or her cause or causes of action and negated every defense raised by defendant, (United Community Church v. Garcin (1991) 231 Cal.App.3d 327, 338, 282 Cal.Rptr. 368) or, if the moving party is the defendant, whether the moving party either has negated at least one element of each of the plaintiff's causes of action, or has established every single element of a complete defense to plaintiff's cause or causes of action. (Saldana v. Globe-Weis Systems Co., supra, 233 Cal.App.3d 1505, 1513-1514, 285 Cal.Rptr. 385; DeRosa v. Transamerica Title Ins. Co. (1989) 213 Cal.App.3d 1390, 1397, 262 Cal.Rptr. 370.) Finally, if the moving party has established a prima facie basis for judgment in its favor, the court considers whether the opposing party has demonstrated that a triable issue of material fact exists so as to preclude summary judgment. (Saldana v. Globe-Weis Systems Co., supra, 233 Cal.App.3d 1505, 1513-1514, 285 Cal.Rptr. 385.)

Here, because there is no dispute over the facts regarding the sole basis for defendants' motion for summary judgment--expiration of the statute of limitations--the only dispute is over the legal effect and significance of the undisputed facts, which is a pure matter of law. (Saldana v. Globe-Weis Systems, Inc., supra, 233 Cal.App.3d at p. 1513, 285 Cal.Rptr. 385.)

II. Tolling of Statute of Limitations

In this particular case, there is no dispute over whether or when plaintiffs knew or should have known of the wrongful acts constituting the breach or breaches of defendants' professional duties toward plaintiffs. At the latest it was in 1986. Therefore, the dispositive issues in this appeal are (1) whether the statute of limitations for the alleged causes of action against defendants for accountant malpractice based on faulty tax advice began to run when plaintiffs sustained actual or appreciable harm as a result of such negligence, or (2) whether the commencement date was tolled until defendants' professional negligence, which caused the harm, had become irremediable and (3) whether "irremediability" would occur only when the administrative appeals concerning plaintiffs' tax liability had been finally exhausted and resolved by the IRS and FTB.

Plaintiffs rely on Robinson v. McGinn (1987) 195 Cal.App.3d 66, 240 Cal.Rptr. 423, a legal malpractice case, not an accountant malpractice case, and the line of cases on which Robinson is based for the proposition that the statute of limitations was "tolled" ¹ until the harm caused by defendants' alleged wrongful acts became irremediable, which in turn they define as not occurring until after their final tax liability was determined administratively by the IRS and FTB. However, after the briefs in this case had been filed, the California Supreme Court decided Laird v. Blacker (1992) 2 Cal.4th 606, 7 Cal.Rptr.2d 550, 828 P.2d 691 and held that when, in 1977, the Legislature adopted Code of Civil Procedure section 340.6 regarding the statute of limitations as to legal malpractice, it implicitly rejected the term...