Lansdale et al v. Rhoades

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NOT FOR PUBLICATION
UNITED STATES BANKRUPTCY COURT
CENTRAL DISTRICT OF CALIFORNIA—LOS ANGELES DIVISION
In re:
WILLIAM M. LANSDALE,
Debtor(s).
______________________________________
WILLIAM M. LANSDALE, SOUTHERN
CALIFORNIA FINANCIAL
CORPORATION, A CALIFORNIA
CORPORATION,
Plaintiff(s),
v.
RUFUS VON THULEN RHOADES,
Defendant(s).
CHAPTER 11
Case No.: 2:12-bk-45706-WB
Adv. No.: 2-12-ap-02463-WB
FINDINGS OF FACT AND CONCLUSIONS
OF LAW IN SUPPORT OF SUMMARY
JUDGMENT IN FAVOR OF DEFENDANT
RUFUS VON THULEN RHOADES
Date: February 11, 2014
Time: 2:00 P.M.
Courtroom: 1375
On October 24, 2012, William M. Lansdale (“Debtor”) filed a voluntary petition under
chapter 11 of the U.S. Bankruptcy Code. Debtor is the president and sole shareholder of
Southern California Financial Corporation (“SCFC”).
FILED & ENTERED
MAY 07 2014
CLERK U.S. BANKRUPTCY COURT
Central District of California
BY DEPUTY CLERK	bryant
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On November 13, 2012, Debtor and SCFC initiated this adversary proceeding by filing a
complaint against Rufus von Thulen Rhoades (“Rhoades”) seeking damages of $30,000,000
based upon Rhoades’ alleged legal malpractice.
On December 17, 2012, Rhoades filed a motion to dismiss the complaint, which Debtor
and SCFC jointly opposed. During a hearing on March 11, 2013, the court found that the legal
malpractice claim was held by SCFC alone. The court dismissed Debtor for lack of standing and
declined to exercise its discretion to abstain from the case.
On December 3, 2013, Rhoades filed a motion for summary judgment against SCFC.
During a hearing on February 11, 2014, the court granted the motion upon finding that SCFC’s
legal malpractice claim is time-barred pursuant to Cal. Code Civ. Proc. § 340.6. On March 4,
2014, Rhoades and SCFC consented to the entry of final orders and judgment by this court. This
judgment is final. 28 U.S.C. § 157(c)(2); see also In re Bellingham Ins. Agency, Inc., 702 F.3d
553, 557 (9th Cir. 2012) (cert. granted June 24, 2013). If it is found on appeal that this court
does not have jurisdiction to enter final judgment in this matter, this judgment shall be
considered a report and recommendation to the district court. See 28 U.S.C. § 157(c)(1). The
court now enters the following findings of fact and conclusions of law in support of its entry of
judgment for Rhoades. To the extent that any findings of fact are included under conclusions of
law, they shall be deemed findings of fact. To the extent that any conclusions of law are
included under findings of fact, they shall be deemed conclusions of law.
Finding of Facts
1. Debtor and several former partners developed the Marina Pacifica condominium
complex in Long Beach, California. Pursuant to agreement, the Marina Pacifica unit owners
agreed to pay Debtor and his partners an “Assignment Fee,” which was to be adjusted pursuant
to a predetermined formula in 2006 and 2021.
2. In 2006, as the first escalation date approached, a dispute arose between the HOA
and Debtor over calculation of the adjusted Assignment Fee. In the midst of this dispute,
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Rhoades as Debtor’s attorney caused SCFC to be created for the purpose of holding Debtor’s
interest in the Assignment Fee. Rhoades became SCFC’s Vice President and General Counsel
and then facilitated the transfer of Debtor’s interest in the Assignment Fee to SCFC on January
15, 2008.
3. In 2007, the California Legislature enacted the statutes codified at Section 1098
and 1098.5 of the Civil Code. These statutes required the recipient of any real property “transfer
fee” prior to January 1, 2008 to record a written notice of such transfer fee (“Notice”) with the
appropriate county recorder’s office on or before December 31, 2008. Rhoades did not record,
or otherwise counsel SCFC to record, a Notice of the Assignment Fee prior to the expiration of
the December 31, 2008 deadline.
4. On March 23, 2009, the HOA filed a lawsuit against Debtor and SCFC in Los
Angeles Superior Court (“HOA Action”) alleging, inter alia, that the Assignment Fee was
uncollectable because it was a “transfer fee” pursuant to § 1098.5 and SCFC did not record a
Notice of the Assignment Fee prior to the statutory deadline.
5. On July 31, 2010, Rhoades resigned as counsel for SCFC, which he confirmed in
a letter of resignation.
6. By October 2011, SCFC had incurred over $1,000,000 in attorneys’ fees
defending the HOA Action.
7. On October 7, 2011, Judge Patrick T. Madden issued a Tentative Decision in the
HOA Action. The court found that the Assignment Fee was a “transfer fee” as defined under
Cal. Civ. Code § 1098 and therefore subject to the notice requirements of Cal. Civ. Code §
1098.5. Because SCFC did not record written notice of the Assignment Fee before December
31, 2008, Judge Madden held the Assignment Fee was “not collectable commencing January 1,
2009 and thereafter.”
8. On November 14, 2011, Judge Madden entered a Statement of Decision adopting
its Tentative Decision issued on October 7, 2011 as his final ruling for Phases I and II of the
HOA Action. Because there were issues remaining to be resolved in Phase IV of the HOA
Action, Judge Madden did not enter judgment for the HOA at that time.
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9. On October 24, 2012, Debtor filed a voluntary petition for chapter 11 relief.
10. On November 9, 2012, this Court entered an order granting the HOA relief from
the automatic stay to prosecute the HOA Action to final judgment pursuant to the terms a
stipulation between Debtor, SCFC, and the HOA.
11. On November 13, 2012, SCFC and Debtor (who is now a non-party) filed the
complaint that initiated this adversary proceeding, alleging that Rhoades committed legal
malpractice by not advising SCFC to record a Notice of the Assignment Fee prior to December
31, 2008 deadline.
12. On July 23, 2013, Judge Madden entered final judgment in the HOA Action in
favor of the HOA and against SCFC and Debtor.
Conclusions of Law
1. SCFC’s complaint for legal malpractice is time-barred. Claims for legal
malpractice must be filed within one year from when the former client discovers the acts
constituting the alleged malpractice, or four years from the date of the wrongful act or omission,
whichever occurs first. Cal. Code Civ. Proc. § 340.6(a). The limitations period may be tolled
until the former plaintiff suffers an “actual injury,” Cal. Code Civ. Proc. § 340.6(a)(1), or while
the attorney continues to represent the former client regarding the specific subject matter in
which the alleged wrongful act or omission occurred, Cal. Code Civ. Proc. § 340.6(a)(2).
2. Here, Rhoades’ alleged wrongful act was his failure to record, or to advise SCFC
to record, a Notice of the Assignment Fee prior to a statutory deadline of December 31, 2008.
SCFC first became aware of the alleged malpractice claim when the HOA Litigation was
commenced on March 23, 2009. If the limitations period were not tolled, the limitations period
would have ended on March 23, 2010.
3. The limitations period was tolled until SCFC suffered an “actual injury” from
Rhoades’ alleged malpractice. Under California Code of Civil Procedure § 340.6(a)(1) , an
“actual injury” includes any legally cognizable damage necessary to assert the cause of action.
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Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison, 18 Cal.4th 739, 752 (1998).
Attorney’s fees paid to a second attorney to remedy or reduce the consequences of the first
attorney’s negligence may be recoverable as damages, and thus trigger the commencement of the
statute of limitation. See e.g., Budd v. Nixen, 6 Cal.3d 195, 202 (1971); Sirott v. Latts, 6
Cal.App.4th 923, 928 (1992); Bennett v. McCall, 19 Cal.App.4th 122, 128 (1993); Kovacevich
v. MicKinney & Wainwright, 16 Cal.App.4th 337, 344 (1993); Croucier v. Chavos, 207
Cal.App.4th 1138, 1150 (2012). Furthermore, “[t]here is no requirement that an adjudication or
settlement must first confirm a causal nexus between the attorney's error and the asserted injury.
The determination of actual injury requires only a factual analysis of the claimed error and its
consequences. The inquiry necessarily is more qualitative than quantitative because the fact of
damage, rather than the amount, is the critical factor.” Jordache, 18 Cal.4th at 752.
4. Here, SCFC had incurred over $1,000,000 in attorneys’ fees defending the HOA
Action by October 1, 2011. These attorneys’ fees constitute an “actual injury” for purposes of
Cal. Code Civ. Proc. § 340.6(a)(1). Resolution of the HOA Action, whether by adjudication or
settlement, was not required for SCFC’s attorneys’ fees to constitute an “actual injury.”
Jordache, 18 Cal.4th at 752. Therefore, pursuant to subsection (a)(1), the statute of limitations
was tolled until October 2011 and expired in October 2012.
5. Section 340.6(a)(2) did not toll the limitations period beyond October 2011
because Rhoades’ representation of SCFC ended on July 31, 2010. Thus, the termination of
Rhoades’ representation would only have tolled the statute of limitations until July 31, 2011.
6. SCFC’s complaint is untimely because it was filed on November 13, 2012, after
the limitations period expired October 1, 2012. Pursuant to California Code of Civil Procedure §
340.6, SCFC’s complaint against Rhoades is time-barred and Rhoades is entitled to judgment as
a matter of law.
//
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7. Having found that SCFC’s complaint is time-barred by the statute of limitations,
the Court does not make any findings or conclusions as to whether SCFC is also barred from
prosecuting this action because it was required to litigate the legal malpractice claim as a
compulsory cross-complaint in prior litigation between the parties regarding Rhoades’ legal fees.
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Date: May 7, 2014
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