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New Court of Appeal Opinion: Statute of Limitations for Misappropriation of Settlement Funds Claim

The California Court of Appeal, Second Appellate District, Division One (LA), issued an opinion in Britton v. Girardi (Apr. 1, 2015, B249232) __ Cal.App.4th __, analyzing the statute of limitations in an action for misappropriation of and failure to account for settlement funds. (Slip opn., p. 2.) The Court of Appeal held that plaintiffs were barred by the applicable statute of limitations pursuant to Code of Civil Procedure sections 340.6 and 338 because plaintiffs pled facts showing they were on inquiry notice of the alleged misfeasance. (Id. at p. 18)

Plaintiffs were represented by defendant law firms and attorneys in connection with an action arising out of the 1994 Northridge earthquake. (Slip opn., p. 2.) The matter settled in 1997. Plaintiffs sued their attorneys alleging that a 2012 random sampling of awards in the action revealed defendant law firms had not properly disbursed or accounted for the settlement funds and had concealed this from plaintiffs. The trial court sustained defendants’ demurrers on the ground that plaintiffs’ claims were based on speculation and barred by the statute of limitations provided in sections 340.6 and 338. Plaintiffs appealed. (Ibid.)

The Court of Appeal stated that while the fraudulent concealment doctrine tolls the statute of limitations, to take advantage of this doctrine the plaintiff must show the substantive elements of fraud and an excuse for late discovery of the facts. (Slip opn., p. 13.) However, plaintiffs admitted the settlement was presided over by retired judge who provided them with an allocation process and a review of that allocation. (Id. at p. 16.) The Court of Appeal held sufficient facts were available to plaintiffs to trigger their inquiry duty. (Ibid.) The Court of Appeal affirmed the order sustaining defendants’ demurrers. (Id. at p. 18.)

In the concurring opinion, Presiding Justice Rothschild stated that although plaintiffs alleged wrongful acts or omissions, in order for their claims to be timely, plaintiffs must allege with particularity all of the facts constituting the substantive elements of fraud. (Concurring opinion, p. 1.)

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