ALDRICH, J.
Appellants R. Mahallati Dental Corporation, Soleimani Dental Corporation, and Soheil Alexander Soleimani appeal from a judgment following a grant of summary judgment in favor of attorney Lawrence Adelman in a transactional legal malpractice action. This action involves an alleged drafting error in an agreement Adelman prepared, and his subsequent testimony as a witness in arbitration proceedings arising from a dispute over the drafting error. The trial court concluded this action was barred by the one-year limitations period in Code of Civil Procedure section 340.6, subdivision (a)
This legal malpractice action arises from an alleged error in a shareholders agreement Adelman prepared. Adelman represented Soheil Alexander Soleimani's sister, Farah Soleimani, owner of F. Soleimani Dental Corporation, in the purchase of a dental practice from Ramin Mahallati and in the formation of the new corporate entity, R. Mahallati Dental Corporation (RMDC).
Adelman moved for summary judgment on the second amended complaint for legal malpractice on the grounds that the action was barred by the applicable statute of limitations (§ 340.6), and any claim for malpractice based upon his sworn testimony during the arbitration proceedings was barred by the litigation privilege (Civ. Code, § 47, subd. (b)).
In March 2002, Soleimani asked Adelman to prepare legal documents in connection with the purchase of Mahallati's dental practice. Soleimani told Adelman the negotiated terms for the purchase, which included the formation of a new corporation, RMDC, to acquire the practice. F. Soleimani Dental Corporation, a corporation wholly owned by Soleimani's sister Farah, would hold a 69 percent interest in RMDC, and Mahallati would hold the remaining 31 percent interest. The purchase price for the 69 percent interest was $375,000, paid in installments over a three-year period. At the end of the three-year period, Soleimani testified he told Adelman that Mahallati's 31 percent interest would be purchased according to a buyout formula calculated as 31 percent of 55 percent of the gross collections for the preceding year (hereafter referred to as the "buyout provision").
The first draft of the shareholders agreement did not reflect Soleimani's purported negotiated formula in the buyout provision. Instead, the draft recited the formula as 55 percent of the gross collections of RMDC for the preceding year. This alleged error also appeared in other provisions of the first draft.
Soleimani read the first draft and testified that he told Adelman there was an error in the formula recited in the buyout provision. Soleimani told Adelman the negotiated buyout formula was 31 percent of 55 percent of the gross collections of RMDC for the preceding year.
Soleimani checked the second draft of the shareholders agreement and saw that the negotiated buyout formula was correct in another provision that previously contained the error. Soleimani assumed the other errors, including the one in the buyout provision, had been corrected so that the negotiated formula was consistent throughout the shareholders agreement.
The buyout provision in the executed shareholders agreement does not reflect what Soleimani testified he told Adelman. Rather, it states the purchase price of Mahallati's shares "shall be fifty-five percent (55%) of the gross collections of the Company [RMDC] during the twelve (12) month period immediately preceding April 1, 2005."
Soleimani missed this alleged error in the buyout provision of the executed shareholders agreement.
After June or July 2002, Adelman did no more work on the Mahallati transaction. Adelman's billing records, however, reflect he worked for Soleimani on other corporate matters.
At the end of the three-year period, Mahallati received $288,365 for his remaining 31 percent interest in RMDC. The payment was calculated based upon Soleimani's purported negotiated buyout formula, not the formula in the executed shareholders agreement.
In July 2005, two months after receiving the payment, Mahallati made a demand for an additional $638,235. Soleimani testified that following Mahallati's demand, he discovered the error. Soleimani turned to Adelman to help him resolve the misunderstanding.
In September 2005, Mahallati filed a demand for arbitration, seeking to recover the additional money due under the shareholders agreement.
In June 2006, Adelman testified at the arbitration proceedings. His clients agreed to waive the attorney-client privilege with respect to his March 2002 notes, which reflected his conversation with Soleimani regarding the terms of the Mahallati transaction. The notes were discovered after Adelman had been relieved as trial counsel. These notes included an example of Soleimani's understanding of the negotiated buyout formula (31 percent of 55 percent). Adelman initially described his March 2002 notes in an e-mail to Soleimani as a "`smoking gun,' "interpreting them to support Soleimani's position that there was a mutual mistake in the buyout provision.
In August 2006, the arbitrators rejected Soleimani's claim of mistake and ruled in favor of Mahallati, awarding Mahallati $638,235 based upon the buyout provision in the executed shareholders agreement.
Soleimani filed this legal malpractice lawsuit against Adelman on April 2, 2007.
In its order granting summary judgment, the trial court concluded this action was barred by the one-year statute of limitations and by the litigation privilege. The trial court stated the undisputed facts established Soleimani "should have known" of the drafting error in the buyout provision in 2002 when he reviewed the drafts, and that the statute was not tolled because (1) actual injury occurred in April 2002 when the shareholders agreement was signed, and (2) Adelman did not continuously represent Soleimani because the representation ended when the Mahallati transaction was completed. As for the litigation privilege, any malpractice claim arising from Adelman's testimony during arbitration was barred as a matter of law.
Judgment was entered, and this appeal followed.
Review of a summary judgment is limited to determining, upon an independent examination of the evidence presented to the trial court, whether there is no genuine issue of material fact and the moving party is entitled to judgment as a matter of law. (Laclette v. Galindo (2010) 184 Cal.App.4th 919, 925-926.) Adelman, as a defendant moving for summary judgment on two affirmative defenses, bears the overall burden of persuasion that he had a complete defense to this action and there is no material fact for a reasonable trier of fact to find as to his defense. (See Aguilar v. Atlantic Richfield Co. (2001) 25 Cal.4th 826, 849-850 & fn. 1; Rancho Viejo v. Tres Amigos Viejos (2002) 100 Cal.App.4th 550, 557-558.) Moreover, since Adelman's statute of limitations defense is premised on the grounds that appellants cannot establish that either tolling provision applies, Adelman has the burden to negate tolling in his summary judgment motion, even though the burden of proof would be on the appellants at trial. (See Segura v. Brundage (1979) 91 Cal.App.3d 19, 28-29.)
Section 340.6 states two distinct and alternative limitations period. Section 340.6, subdivision (a), provides that a claim for legal malpractice must be brought 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, or four years from the date of the wrongful act or omission, whichever occurs first.
The one-year limitations period does not begin to run until the plaintiff has sustained actual injury. (§ 340.6, subd. (a) & (a)(1);
It is undisputed that Soleimani did not actually discover Adelman's purported error in drafting the buyout provision until July 2005. In light of this undisputed fact, even if we were also to accept as undisputed Adelman's contrary position that as of 2002, Soleimani constructively discovered the error, our inquiry would still focus on when appellants sustained actual injury.
"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. [Citations.]" (Jordache, supra, 18 Cal.4th at p. 743.) "[S]ection 340.6, subdivision (a)(1), will not toll the limitations period once the client can plead damages that could establish a cause of action for legal malpractice." (Ibid.)
Determining when actual injury occurs is ordinarily a question of fact, but when the material facts are undisputed, the issue can be resolved as a question of law for purposes of summary judgment. (Jordache, supra, 18 Cal.4th at p. 751.) "The determination of actual injury requires only a factual analysis of the claimed error and its consequences." (Id. at p. 752.) There is no "`bright line'" rule to resolve the question of "actual injury" in a given case. (Id. at p. 761, fn. 9.)
The parties contend there are two potential bases for actual injury from Adelman's purported negligence in drafting the buyout provision in the shareholders agreement. Citing pre-Jordache cases, including Turley v. Wooldridge (1991) 230 Cal.App.3d 586, Hensley v. Caietti (1993) 13 Cal.App.4th 1165, Foxborough v. Van Atta (1994) 26 Cal.App.4th 217, and Radovich v. Locke-Paddon (1995) 35 Cal.App.4th 946, Adelman contends (and the trial court agreed) that actual injury occurred in April 2002 when Soleimani signed the shareholders agreement. In the alternative, appellants contend actual injury occurred in July 2005 when Mahallati demanded additional payments under the buyout provision, and appellants incurred legal fees in connection with resolving the dispute arising from the error in the buyout provision.
We reject Adelman's contention that injury occurred in April 2002 at the time the shareholders agreement was signed. We do not read Adelman's cited authorities as establishing a bright line rule. Rather, the cited cases establish actual injury occurs upon the relinquishment of the right. In three of the cases, the right relinquished was based upon the terms of the contract. Turley v. Wooldridge, supra, 230 Cal.App.3d 586, involved a marital settlement agreement that stated it was effective on the date of execution, and thus the court rejected an argument that actual injury did not occur until the appellant had exhausted legal and equitable remedies to modify the final judgment of dissolution. (Id. at pp. 592-594.) Hensley v. Caietti, supra, 13 Cal.App.4th 1165, alleged tortious inducement on the part of the attorney, resulting in an unfavorable marital settlement agreement that imposed noncontingent obligations upon execution, making the contractual allocation effective immediately. (Id. at p. 1175.) Radovich v. Locke-Paddon, supra, 35 Cal.App.4th 946, held that a husband sustained actual injury when he signed a prenuptial agreement relinquishing his community property rights, not some 34 years later when his wife's attorneys allegedly failed to draft a new will awarding him his wife's property. (Id. at p. 977.)
Foxborough v. Van Atta, supra, 26 Cal.App.4th 217, a case in which Adelman relies on, refutes a bright line rule and illustrates that actual injury is the loss of a legal right, which does not always coincide with contract execution. In Foxborough, an attorney prepared an agreement involving a condominium development transaction with automatic development rights for the purchased property, but he allegedly failed to secure these rights without time constraints. (Id. at pp. 222-223.) The development rights expired after three years and before Foxborough developed the property. (Id. at p. 223.) The Foxborough court held actual injury, for purposes of the statute of limitations, occurred when the three-year period had expired, not when Foxborough signed the agreement (with the attorney's omission) or when Foxborough lost the litigation arising from the development rights. (Id. at p. 227.) During the three-year period, the attorney's alleged negligence created the potential for harm but when that period expired, Foxborough lost a right he had retained an attorney to secure. Thus, to analyze actual injury, we must also distinguish between "an actual, existing injury that might be remedied or reduced in the future, and a speculative or contingent injury that might or might not arise in the future." (Jordache, supra, 18 Cal.4th at p. 754.)
Based upon these authorities, appellants' loss of a legal right did not occur in 2002 when the shareholders agreement was executed. While the buyout provision on its face appeared unambiguous at the time the parties signed the shareholders agreement, the obligation under the buyout provision did not come due until three years later. When that obligation came due, Soleimani claimed there was a drafting error that affected appellants' rights and obligations under the contract.
Fritz v. Ehrmann, supra, 136 Cal.App.4th 1374, a case Adelman attempts to distinguish, provides dispositive guidance in situations where a party may or may not claim the benefit of a contract omission or mistake. In Fritz v. Ehrmann, an attorney's drafting error omitted a key term addressing the repayment of deferred interest that had previously been negotiated by the parties in the first promissory note, but was inadvertently omitted from the second promissory note. (Id. at pp. 1378-1379.) Actual injury arising from this omission was speculative until the borrowers refused to repay the deferred interest, that is, to benefit from the omission. (Id. at p. 1383, 1386-1387; see also Callahan v. Gibson, Dunn & Crutcher LLP (2011) 194 Cal.App.4th 557, 570-574, petn. for review pending, petn. filed May 31, 2011.)
Like Fritz v. Ehrmann, appellants sustained actual injury in July 2005 when the error was discovered and Mahallati sought to benefit from the alleged mistake by demanding additional money. At that point, Soleimani lost a legal right associated with the Mahallati transaction that he had retained Adelman to secure in drafting the shareholders agreement. As a result of Mahallati's demand for additional money, appellants incurred legal fees to attempt to remedy the error. (See Adams v. Paul (1995) 11 Cal.4th 583, 590.) These fees are tort damages recoverable in a malpractice action and would constitute actual injury. Even Adelman acknowledges that July 2005 is an alternative date to establish actual injury. Therefore, the parties do not dispute that appellants sustained actual injury in July 2005. The filing of this lawsuit in April 2007, however, put it beyond the one-year limitations period unless the continuing representation tolling provision applies.
Appellants contend there is a factual dispute as to whether the continuous representation tolling provision applies to toll the limitations period from July 2005 until April 20, 2006, when Adelman was relieved as lead counsel. (§ 340.6, subd. (a)(2).) It is undisputed that by July 2002, Adelman did no further work on the Mahallati transaction, but continued to represent Soleimani in other corporate matters. In July 2005, Soleimani contacted Adelman to attempt to resolve the dispute with Mahallati over the buyout provision in the shareholders agreement. Thus, the resolution of this issue turns on whether Soleimani's attempt to have Adelman fix the drafting error in 2005 constituted continuous representation on the same specific subject matter.
Continuous representation requires "`an ongoing relationship and activities in furtherance of the relationship.' [Citation.]" (Jocer Enterprises, Inc. v. Price (2010) 183 Cal.App.4th 559, 571.) "This `continuous representation' rule was adopted in order to `avoid the disruption of an attorney-client relationship by a lawsuit while enabling the attorney to correct or minimize an apparent error, and to prevent an attorney from defeating a malpractice cause of action by continuing to represent the client until the statutory period has expired.'" (Laird v. Blacker (1992) 2 Cal.4th 606, 618; see also Beal Bank, SSB v. Arter & Hadden, LLP (2007) 42 Cal.4th 503, 511.)
Neither the legislative history nor section 340.6 explicitly addresses a standard to determine when an attorney's representation of a client regarding a specific subject matter continues or when the representation ends. (Nielsen v. Beck (2007) 157 Cal.App.4th 1041, 1048-1049; Gonzalez v. Kalu (2006) 140 Cal.App.4th 21, 28 (Gonzalez).)
Adelman contends it is undisputed that his representation in the arbitration proceedings was unrelated to his completed tasks on the Mahallati transaction. To support this contention, Adelman principally relies on Panattoni v. Superior Court (1988) 203 Cal.App.3d 1092, and Foxborough v. Van Atta, supra, 26 Cal.App.4th 217, which he claims states the legal principle that an interruption between drafting a contract and a dispute arising from the terms of that contract is not the same specific subject matter for purposes of the continuous representation tolling provision. Neither case states this principle. Panattoni v. Superior Court, addressed whether separate tolling periods applied, the second starting anew when the attorney was rehired to reopen matters that had been previously litigated and resolved during the first representation. (Panattoni, at pp. 1097-1098.) Foxborough v. Van Atta, addressed a hiatus after the attorney-client relationship ended, and the attorney was rehired two years later as a consultant and expert in the litigation involving the attorney's drafting error.
Fritz v. Ehrmann, supra, 136 Cal.App.4th 1374, however, addressed whether the continuing representation tolling provision applies when there is a hiatus between drafting and a dispute over a contract term. Often, as is the case here, the mistakes in transactional documents may not manifest until performance becomes due. "The first impulse of a client who learns about a problem in a transactional document prepared by his or her attorney is to return to that attorney for an explanation or a fix." (Id. at p. 1390.) Thus, for purposes of the continuous representation tolling provision, even with a hiatus between drafting and discovery of the error, a client who comes to his or her attorney after the potential malpractice manifests itself, and before the statute of limitations has run in an attempt to rectify the problem or mitigate damages, falls within the tolling provision. (Id. at p. 1391.) This is so because the attorney's representation (or fix) affects the same legal right — the parties' contractual rights and obligations.
This understanding of continuous representation tolling in a transactional setting is consistent with the legislative purpose of the malpractice tolling provisions. (See Fritz v. Ehrmann, supra, 136 Cal.App.4th at p. 1390.) Any other application would require the attorney who made the mistake and is working hard to rectify the mistake to inform the client that the clock is ticking on a legal malpractice action. Unscrupulous attorneys would simply let the statute run. Thus, "[i]t would be incongruous to construe the legal malpractice scheme in a way that would compel only honest attorneys to face the consequences of their negligent actions." (Ibid.)
We recognize that Fritz v. Ehrmann, supra, 136 Cal.App.4th 1374, assumed the attorney's attempt to fix his alleged error related to the same subject matter, and the emphasis was on continuous representation. (Id. at pp. 1387-1391.) The subject of the litigation involved the parties' contractual rights and obligation arising from the contract the attorney drafted. No analysis on whether this constituted the same specific subject matter was necessary. The same is true here — the arbitration arose from an alleged drafting error in the buyout provision of the shareholders agreement Adelman prepared in the Mahallati transaction, which affected the parties' contractual rights and obligations.
In this case, the trial court erred by concluding there was no triable issue related to the continuous representation tolling provision. The supporting evidence establishes Soleimani contacted Adelman in July 2005 after performance came due when he discovered the error, and Mahallati demanded additional payments based upon what Soleimani believed was an error in the negotiated formula recited in the buyout provision. Within the limitations period, Soleimani turned to Adelman as the drafter of the shareholders agreement and objectively believed Adelman could help resolve the misunderstanding. Adelman represented Soleimani and various corporate entities in the arbitration proceedings until he was relieved as lead counsel on April 20, 2006. The complaint was filed on April 2, 2007, within the one-year period. Thus, based upon this evidence, Adelman did not establish as a matter of law his statute of limitations defense.
In light of this ruling, we do not address appellants' additional arguments for reversal.
A second injury giving rise to this malpractice action allegedly occurred during the arbitration proceedings when Adelman testified contrary to Soleimani's litigation position. Adelman's testimony in the arbitration proceedings is governed by the litigation privilege.
The litigation privilege protects witnesses from tort liability, with the exception of malicious prosecution, for any communication made in judicial or quasi-judicial proceedings by litigants and other participants to achieve the objects of the litigation. (Civ. Code, § 47, subd. (b); Silberg v. Anderson (1990) 50 Cal.3d 205, 212; Kolar v. Donahue, McIntosh & Hammerton (2006) 145 Cal.App.4th 1532, 1540-1541.) Statements made in the course of a private, contractual arbitration proceeding are protected by the litigation privilege. (Moore v. Conliffe (1994) 7 Cal.4th 634, 638, 643-644.)
Appellants contend the litigation privilege does not apply in malpractice actions. This statement is too broad. The litigation privilege does not apply to expert witnesses who are sued for malpractice by their clients based upon the expert's testimony at trial. (Mattco Forge, Inc. v. Arthur Young & Co. (1992) 5 Cal.App.4th 392, 404, 406.) The litigation privilege also does not apply to malpractice actions by clients against their attorneys based upon the attorneys' litigation acts or omissions. (Kolar v. Donahue, McIntosh & Hammerton, supra, 145 Cal.App.4th at p. 1541.) Under these circumstances, the litigation privilege is not well-served; the litigation privilege encourages witnesses to testify truthfully without the fear of retaliatory lawsuits and shielding an expert or an attorney from a malpractice suit by their own client would not further this purpose. (Ibid.)
Appellants' malpractice claim does not involve Adelman as an expert witness or Adelman's litigation acts or omissions. Adelman's successor, not Adelman, made the decision to call Adelman as a percipient witness, not as an expert witness. The litigation privilege protects Adelman from retaliatory lawsuits arising from his arbitration testimony. Adelman met his burden to establish the defense.
Appellants did not meet their burden to raise a triable issue of fact. Thus, Adelman is entitled to judgment as a matter of law to the extent this malpractice action is based upon his testimony as a percipient witness during the arbitration proceedings.
The judgment granting summary judgment is reversed only insofar as a triable issue of fact exists as to whether the continuous representation tolling provision bars Adelman's statute of limitations defense.
Although Adelman moved for summary judgment on the lack of causation, the trial court did not rule on this issue. Rather than ruling on Adelman's arguments for the first time on appeal, we remand the case for the trial court to do so. (State Farm General Ins. Co. v. Wells Fargo Bank, N.A. (2006) 143 Cal.App.4th 1098, 1119-1120.)
The judgment is reversed, and the matter remanded for further proceedings not inconsistent with this opinion. Each party to bear their own costs on appeal.
We concur:
CROSKEY, Acting P. J.
KITCHING, J.
