ROGER LINDMARK v. MILBERG WEISS LLP

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Court of Appeal, Second District, California.

ROGER M. LINDMARK, Plaintiff and Appellant, v. MILBERG WEISS LLP et al., Defendants and Respondents.

ROGER M. LINDMARK, Plaintiff and Appellant, v. HENRY T. HEUER et al., Defendants and Respondents.

B211388

Decided: June 23, 2010

Glickman & Glickman and Steven C. Glickman for Plaintiff and Appellant. Robie & Matthai, Edith R. Matthai and Steven S. Fleischman for Defendant and Respondent Milberg Weiss LLP. Shartsis Friese, Zesara C. Chan, Felicia A. Draper and Simone M. Katz-O'Neill for Defendant and Respondent Coughlin Stoia Geller Rudman & Robbins LLP. Goodin MacBride Squeri Day & Lamprey, LLP, Wayne T. Lamprey, Francine T. Radford and Anne Hayes Hartman for Defendant and Respondent Dennis J. Stewart. Prince & Heuer, Henry T. Heuer and Sunnie H. Han for Defendants and Respondents Henry T. Heuer and Prince & Heuer. no appearance for the Heuer defendants.   In this case, the various Milberg defendants demurred to the first amended complaint, which was filed on June 5, 2008, on the ground that the action is barred by the statute of limitations.   The demurrer was sustained and the statute of limitations is the sole issue in this appeal.   We will refer to B211388 as the Milberg appeal.

NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS

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This controversy revolves around the payment of an attorney's referral fee of $1,107,085.24 in March 2004.   The referral fee was generated by the settlement in October 2002 of Lindmark v. American Express Company in the United States District Court for the Central District of California (the federal class action).   The principal protagonists of this controversy are appellant Roger M. Lindmark and respondent Henry T. Heuer;  Lindmark and Heuer are both members of the California Bar. The referral fee was paid by the Milberg law firm,1 who represented the plaintiff class in the federal class action, to Heuer.   (All of the parties other than Heuer and Heuer & Prince are successors, in one form or another, of Milberg Weiss LLP and will be referred to collectively as Milberg or as the Milberg defendants.)   Lindmark claims that he had an agreement with Heuer under which Heuer was required to pass on the referral fee to Lindmark.

The action that is at stake in this appeal is for legal malpractice.   It was filed on February 14, 2008, and names the Milberg law firm in its various permutations, and Heuer and his law firm, Prince & Heuer (referred to hereafter sometimes as the Heuer defendants).   The principal issue in this appeal is whether the action is barred by the statute of limitations.

The background facts of this case have been stated lucidly in the 3

Before turning to the Court of Appeal's opinion in Lindmark I, we note that there are actually two separate appeals in this case.   In one, B211388, there is

Defaults were entered on May 1, 2008, as to the Heuer defendants.   These parties filed their motion to set aside the defaults on August 28, 2008, which was the same day that Milberg defendants' demurrer to the first amended complaint was sustained.   The defaults as to the Heuer defendants were set aside on October 20, 2008;  and on November 14, 2008, Lindmark filed a second amended complaint.4  In addition to repeating without change the allegations of the first amended complaint, the second amended complaint added the allegation that an attorney-client relationship continued between Heuer as the attorney and Lindmark as the client until January 22, 2007.   The Heuer defendants demurred to this complaint and this demurrer was also sustained without leave to amend.   The second appeal, B214044, also poses the statute of limitations issue.   In addition, this appeal also addresses the question whether the default against the Heuer defendants should have been set aside.   We will refer to B214044 as the Heuer appeal.

On July 7, 2009, we ordered both appeals to be heard concurrently.   We address and resolve both appeals in this opinion.   Parts 1, 2, 3, 4 and 9 in the Discussion of this opinion apply to both appeals;  parts 5, 6, 7 and 8 apply only to the Heuer appeal.   The balance of this opinion applies to both appeals.

We affirm both of the judgments from which the appeals have been taken.

BACKGROUND FACTS

We quote from the opinion of the Court of Appeal in Lindmark I.

“1. The Class Action and the Referral Fee.

“In 1999, Lindmark, who is an attorney, purchased a desktop copier using his American Express card.   A week later he returned the copier and received a full credit posted to his account.   However, American Express applied the credit against a transfer balance bearing zero percent interest, rather than against Lindmark's purchase balance which had a higher interest rate.   American Express refused to adjust the balance.

“Lindmark believed American Express's practice would form the basis of a class action, did research into law firms that handled class actions, and found the firm of Milberg, Weiss, which had gained notoriety prosecuting class actions on behalf of consumers.   In January 2000 he contacted the firm to see if the Milberg firm was interested in taking the case, and over the next several months he exchanged emails with the firm.

“On July 28, 2000, Lindmark met with Dennis Stewart and Drew Hutton, partners at Milberg.   Stewart told him that the firm liked the case, and wanted to move forward.   Lindmark and Stewart disagree over the nature of their discussions concerning Lindmark's referral fee.   Stewart told Lindmark that Lindmark could receive a court-approved incentive fee and his distribution as a member of the proposed class.   Stewart did not suggest that Lindmark could receive a referral fee.   Stewart believed any such fee would constitute a conflict of interest and therefore Lindmark could not share in the attorneys' fees.   Lindmark contends he asked for a referral fee, and they agreed on a fee of 20 percent.   Lindmark told them he wanted the arrangement in writing.   Stewart told him that if Lindmark wanted it in writing, he needed to get a ‘trusted’ friend to act as the referring lawyer, and the matter could be written up as a formal Rule 2-200 [ ]  agreement.   Under the referral arrangement, Milberg would pay Lindmark's friend, who would turn over the money to Lindmark.

“On August 2, 2000, Lindmark signed a retainer agreement with the Milberg firm.   The agreement does not mention the referral fee.   Stewart testified the letter constituted the entire agreement of the Milberg firm with Lindmark.

“Lindmark asked Henry Heuer to be his trusted friend to act as nominee to receive any referral fee generated by the class action.   Lindmark and Heuer had enjoyed a professional relationship, and Heuer agreed to be Lindmark's nominee.6

“Lindmark and Heuer did not execute a written agreement concerning Heuer's agreement to be Lindmark's nominee.   Instead, Lindmark gave Heuer's name to the Milberg firm and Milberg sent a referral fee letter to Heuer;  the final agreement was signed on September 14, 2000.   Lindmark told Heuer the letter was incorrect because there was no consent by the client as required by Rule 2-200.   Lindmark prepared a revised referral fee agreement and sent it to Heuer.   Heuer prepared a revised letter on his own letterhead to be sent to Milberg incorporating most of Lindmark's suggested language.   The final letter, dated September 14, 2000, was signed by Lindmark, Heuer, and Stewart.

“According to Lindmark, Heuer did not have anything to do with the referral of the class action lawsuit to Milberg.   According to Heuer, he referred Lindmark to Milberg, and the 20 percent fee payable to him was for that referral.   Heuer denied the existence of an oral agreement, and Heuer did not know Lindmark was claiming any of the fee until Lindmark's February 10, 2004 letter.   At the time, Heuer had what he termed an ‘erroneous belief’ that he had an attorney-client relationship with Lindmark, although he was not performing any legal services for Lindmark.

“Lindmark served as the class representative for the class action, filed in federal court on August 15, 2000.   Lindmark's deposition was taken in the class action on December 19, 2000.   He was asked what he expected to receive in the case, to which he responded ‘Justice for Americans.’   Lindmark was not being totally serious, because although he wanted to benefit the public, that was not all he expected to receive from the class action.   No one ever asked if he was getting a referral fee.

“In May 2001, the class action went to mediation.   Joy Bull, a partner at Milberg, was brought in to work on the class settlement.   The class action was settled with a $30.5 million fund for class claimants, $5.15 million for Milberg in attorneys' fees, and a $500,000 charitable contribution.   Lindmark did not have any input into the class settlement, although he participated in the formation of a cy pres (charitable) trust, with a donation to go to St. John's University.   He received $10,000 for serving as class representative.   The final judgment ultimately allocated total attorneys' fees of $5,677,345.89 to Milberg;  20 percent of that amount, $1,107,085.24, was earmarked for Heuer.   On March 25, 2002, at the time of the settlement, Lindmark discussed with Milberg attorneys the possibility of having Heuer assign the referral fee to him.   The attorneys responded that would not be possible because of the Rule 2-200 letter agreement.   None of the papers filed with the court mentioned Lindmark's referral arrangement with Milberg.

“At the April 23, 2003 hearing on the settlement, an objector, Ed Cochran, appeared at the hearing.   Lindmark wanted Bull to object to Cochran's participation because he believed it could result in a delay in the payout of the settlement funds.   Bull did not know anything about Lindmark's referral fee, and told him she would look into it.   On July 17, 2003, Bull wrote to Lindmark to advise him that the referral fee was payable to no one other than to Heuer's firm, Prince & Heuer.

“Lindmark learned that Milberg had sent a check to Heuer in March 2004 when Heuer advised him of its receipt and suggested they get together to discuss it.   According to Lindmark, Heuer wanted to determine whether he could give Lindmark an IRS form 1099 for the funds, and whether anything in the federal rules prohibited the payout of a referral to the class representative.   Lindmark obtained a tax opinion letter concluding that it was proper for Heuer to give him a 1099.

“Heuer disputed Lindmark's version of events, claiming that when he received a letter from Lindmark dated February 10, 2004, which discussed the imminent payout of the referral fee, it was the first time he learned of Lindmark's claim.   Because of that claim, Heuer called Lindmark to discuss the check after he had received it and deposited it into his trust account.   Heuer believed that he had referred Lindmark to Milberg and that the fee was due to Heuer for the referral.   Heuer wanted to research the ethical and legal propriety of giving Lindmark a portion of the referral, but asserted that they had no prior arrangement concerning disposition of the funds.   Heuer found the arrangement to be a ‘basic conflict of interest.’   He was also concerned about the tax consequences.   Heuer concluded that Lindmark was ‘grasping at straws' to find a way around ‘what was obvious to everyone, that he should not be sharing any of the attorneys” [sic ] fees.’

“Lindmark met with Heuer on March 28, 2004[,] to discuss the tax opinion letter.   According to Lindmark, it was the first time Heuer's partner Sunnie Han raised a question concerning the propriety of Lindmark receiving a referral fee.   However, Heuer told Lindmark he would receive the fee once the two issues (the 1099 and federal rules) were resolved.   Heuer also wanted to know what was in it for him.

“Lindmark next met with Heuer on May 6, 2004, regarding legal research Lindmark had done on class actions and fees paid to class representatives.   Heuer told Lindmark about financial problems he was having, and that he was being audited by the IRS. Heuer assured Lindmark that the funds would remain in his trust account.   In May 2004, Lindmark filed a complaint with the State Bar regarding Heuer's failure to promptly pay client funds held in trust.

“On September 15, 2004, Lindmark wrote to Heuer to inquire about the funds because he had not heard anything from him.   In January 2005, Heuer filed an interpleader complaint in state court.   Lindmark was never served with the lawsuit, and the matter was dismissed for lack of prosecution.   Heuer paid $550,000 in taxes on the referral fee.

In June 2005, the first federal indictment against the Milberg firm was handed down.   Lindmark first became aware of the criminal investigation against Milberg in June or July 2005.   On July 9, 2007, Milberg partner David J. Bershad pled guilty to conspiracy to obstruct justice, and agreed to forfeit $7 million.

“2. Lindmark's Action Against Heuer to Recover the Referral Fee.

“Lindmark filed his complaint to recover the referral fee on March 27, 2006.   The operative first amended complaint stated claims for conversion, breach of oral contract, breach of fiduciary duty, intentional misrepresentation, concealment, false promise, and constructive trust.   In January 2007, Heuer withdrew the funds from the trust account. [¶] ․ [¶]

“At trial, Lindmark argued the fee agreement was not illegal.   He contended that, at the time Milberg made the referral fee agreement with him, an attorney who did not represent the class could act as a class representative in a case that was not a common fund case.  (Phillips v. Joint Legislative Committee (5th Cir.1981) 637 F.2d 1014, 1023-1024.)   Because the fund in this case was not reduced by the payment of attorneys' fees or expenses, his referral fee was proper.   On that basis Lindmark distinguished Apple Computer, Inc. v [.] Superior Court (2005) 126 Cal.App.4th 1253, which repudiated Phillips, found it limited to its facts, and held an attorney could not serve as class representative and counsel even if the case was not a common fund case because even if fees were paid directly to the attorneys, such fees were an aspect of the class's recovery and the inherent conflict persisted.  (Id. at pp. 1271-1273.)   Lindmark argued that at the time the American Express action settled, California law did not preclude him from serving as both class representative and class counsel.  (Saxer v. Philip Morris, Inc. (1975) 54 Cal.App.3d 7, 18, fn. 1.)

“Heuer contended that Lindmark's claims were barred because the alleged kickback arrangement was illegal;  Lindmark could not serve as class representative and attorney at the same time;  and Lindmark had unclean hands because he denied the agreement before the District Court.   Lindmark responded to Heuer's unclean hands defense by asserting that any misconduct by Lindmark was connected solely to the Milberg referral fee and did not relate to his transactions with Heuer, who was not prejudiced in any event by Lindmark's unclean hands;  Heuer could [not] rely on the doctrine because the parties were not equally at fault because Heuer's conduct was more culpable.

“The trial court found for Heuer.   The court reasoned that although Lindmark prevailed on his claims, ‘equity prevents Lindmark from using the court system for recovery’ because Heuer had established the affirmative defenses of unclean hands and illegality.   In particular, the court found that Lindmark's secret fee agreement with Milberg was illegal and therefore void;  it further found that because one of the foundations of the nominee agreement between Lindmark and Heuer was the illegal referral fee from Milberg, that agreement was illegal as well.   In discussing unclean hands, the court noted that both parties had unclean hands, and that Heuer was in pari delicto with Lindmark because he refused to pay Lindmark the large referral fee, wanting to keep the money for himself.  ‘Heuer had done nothing to earn the fee․  [A]t some point Heuer had no intention of paying Lindmark, and the fee is a total windfall to him.   Heuer's hands are also unclean.’   Nonetheless, because Lindmark, not Heuer, had applied to the court for relief, and the doctrine of unclean hands was designed to protect the court's integrity, the court found for Heuer.   The court concluded that it would have preferred to award the money at issue to the class members, but because only these parties, and not the res, were before it, it could not do so.”  (Fn.omitted.)

Division Seven concluded that the trial court properly denied the enforcement of the “nominee agreement,” i.e., the agreement between Lindmark and Heuer, because it was an illegal contract.

THE TRIAL COURT'S RULINGS

1. The Milberg Demurrer

The trial court noted that all parties agreed that the wrongful act or omission was the “giving of legal advice that [Lindmark] should use a friend as a ‘nominee’ with respect to the referral fee.   This happened in mid to late 2000.[T]he statute [Code of Civil Procedure section 340.6] ․ was tolled during the time that [Lindmark] had not yet sustained ‘actual injury.’ ”   Citing Jordache Enterprises, Inc. v. Brobeck, Phleger & Harrison (1998) 18 Cal.4th 739 (Jordache ), the court ruled that Lindmark sustained actual injury when he incurred attorney fees in his case against Heuer.   Since that action was filed in March 2006 and the instant case was filed on February 14, 2008, the statute of limitations barred the action.

2. The Heuer Demurrer

The court took note of the fact that an attorney-client relationship was alleged to have existed until January 22, 2007, and that the original complaint was filed on February 14, 2008.   The court ruled that if the Court of Appeal affirmed the trial court in Lindmark I,7 Lindmark should have discovered the malpractice when Heuer refused to pay Lindmark the referral fee.   The demurrer was sustained without leave to amend.

DISCUSSION

1. Code of Civil Procedure Section 340.6 and Jordache

The statute of limitations in an action against an attorney for a wrongful act or omission must be commenced within one year after the plaintiff discovers the facts constituting the wrongful act or omission, or four years from the date of the wrongful act or omission, whichever occurs first.8  Code of Civil Procedure section 340.6 (section 340.6) also provides that the statute is tolled during the time that the plaintiff has not sustained actual injury. (§ 340.6, subd. (a)(1).)

We turn to Jordache.   Jordache Enterprises, Inc., was initially represented by the firm of Brobeck, Phleger and Harrison (hereafter Brobeck) in a substantial action, referred to hereafter as the underlying action, filed in 1984.   In what would turn out to be the basis of the legal malpractice action against Brobeck, this firm wholly failed to inquire whether Jordache Enterprises had insurance coverage for the underlying action.  (Jordache, supra, 18 Cal.4th at pp. 744-745.)   Brobeck was substituted out in April 1987 and new counsel advised that there was potential insurance coverage.   Counsel notified Jordache Enterprises' insurance broker of the underlying, as well as two other, actions and asked the broker to submit the claims to the carriers.   Counsel also tendered the defense directly to the carriers.  (Id. at p. 745.)   In February 1988, Jordache Enterprises sued its carriers, who defended on the ground that notice of the underlying action was untimely.  (Ibid.) The insurance coverage suits were litigated until July 15, 1990, when they were settled;  the underlying action was settled in May 1990.  (Id. at p. 746.)   Jordache Enterprises filed its action against Brobeck on August 15, 1990.9

“Here, the undisputed facts established that Jordache sustained actual injury as a result of Brobeck's alleged neglect no later than December 1987.   By then, Jordache had lost millions of dollars-both in unpaid insurance benefits for defense costs in the Marciano action and in lost profits from diversion of investment funds to pay these defense costs.”  (Jordache, supra, 18 Cal.4th at p. 752.)   The court also found that Jordache Enterprises sustained actual injury when the carriers asserted as a defense that the claim was submitted late;  this both increased the costs of the insurance coverage litigation and diminished the recovery in that litigation.  (Id. at pp. 752-753.)

In light of the contentions advanced in this appeal, it is important to remark upon the fact that Jordache emphatically rejected the theory that, for the purposes of section 340.6, an adjudication by way of judgment or settlement is required before it could be found that Jordache Enterprises had sustained actual injury.   In doing so, the court was not announcing a new rule.10  The court held:  “As Adams established, the determination of actual injury does not necessarily require some form of adjudication, judgment, or settlement.  (Adams, supra, 11 Cal.4th at p. 591 (lead opn. of Arabian, J.);  id. at p. 595 (conc. opn. of Kennard, J.).)”  (Jordache, supra, 18 Cal.4th at p. 755.)   It is clear that the inquiry whether there has been actual injury for the purposes of section 340.6 is pragmatic and fact-driven.   The rule that actual injury is not predicated on a formal adjudication of liability is well established and has been consistently followed.  (E.g., Rice v. Crow (2000) 81 Cal.App.4th 725, 733;  Third Eye Blind, Inc. v. Near North Entertainment Ins. Services, LLP (2005) 127 Cal.App.4th 1311, 1322.)

2. The Allegations of the Operative Complaints

In addressing the question whether the statute of limitations bars this action, we limit ourselves to the allegations of the first and second amended complaints;  the allegations we address here are identical in the two complaints.11

The complaint alleges that Lindmark retained the defendants 12 to represent him in the federal class action as plaintiff and class representative.  “In addition, [Lindmark] retained and employed defendants to give [Lindmark] advice on said case and to advise [Lindmark] of the appropriate means for securing [Lindmark's] referral fee as an attorney referring himself and the class to defendants.”   The complaint goes on to state that the defendants advised Lindmark to have a trusted friend “act as nominee or the referring attorney on the case, with the understanding that the referral fee would then be paid over to [Lindmark] from said nominee.”   Lindmark chose Heuer as the “nominee.”   In or about March 2004 the defendants “paid a total referral fee of $1,107,085.24 to [Lindmark's] nominee.   Thereafter, the nominee refused to turn over said funds to [Lindmark].”   The complaint then sets forth that Lindmark filed an action against Heuer on March 27, 2006, and that the trial court in that case ruled that Heuer had breached his fiduciary duty “to turn the funds over to [Lindmark] as his principal pursuant to the nominee agreement.”

Until the decision of the trial court in Lindmark I on October 18, 2007, Lindmark “did not know, nor was there any reasonable basis for believing ․ that the legal advice ․ given by defendants to enter into the referral fee agreement and nominee agreement was in any way wrong, illegal, improper, unethical or in violation of any statute, case law or State Bar Rule.” Now follows a rather confusing yet important sentence:  “This is so because of the more than reasonable actual discovery which [Lindmark] conducted into the facts and law of the legality of the agreements upon first learning in or about March 2004 from defendant Heuer of his objections and concerns that the agreements were illegal or a fraud upon the Federal Court, or unethical in any way up to the time of trial against Heuer conducted in August 2007 through the post trial closing briefs until the court's Decision was rendered on October 18, 2007.”   (Italics added.) 13  Lindmark did not suffer actual injury “until his ‘primary right’ to correct and proper legal advice and analysis of the agreements had been determined to have been violated by the defendants when Judge James Chalfant [the trial judge in Lindmark I ] ruled on Heuer's affirmative defenses.”   The complaint goes on to allege at some length that Lindmark believed the fee referral “nominee” agreements to be valid because other lawyers so advised him and his own research confirmed this.

Particularly noteworthy for the purposes of this appeal is the further allegation of the complaint that Lindmark filed a complaint with the State Bar on May 12, 2004, because Heuer had failed to pay Lindmark client funds in violation of State Bar former rule 4-100(B)(1).   This rule requires an attorney to promptly notify a client of the receipt of the client's funds.

3. Lindmark Knew the Facts of the Wrongful Act by May 2004

According to the allegations of the complaint, by May 2004 it was clear that (1) Milberg had paid Heuer the referral fee of $1,107,085.24;  (2) Heuer was holding this sum;  (3) Heuer refused to pay this sum to Lindmark;  and (4) accepting, as we must,14 the factual allegations of the complaint as true, it was Lindmark who referred the case to Milberg and it was therefore Lindmark and not Heuer who was entitled to the referral fee.   In fact, as we have noted (see fn. 13, ante ), the complaint appears to concede that Lindmark knew by March 2004 that Heuer was not going to turn over the referral fee to Lindmark.

Section 340.6 provides that an action for legal malpractice must be brought within one year after the plaintiff discovers the facts constituting the wrongful act or omission.  (See fn. 8, ante.)   The wrongful act for the purposes of this action is the assertedly negligent manner in which the defendants structured the payment of the referral fees.   That is, because of the defendants' negligence, Lindmark was deprived of the referral fee.

One would think that it is hardly debatable that not being paid $1,107,085.24, despite being clearly entitled to that sum, clearly put Lindmark on notice that the respondents had done something wrong, i.e., he knew the facts of the alleged wrong.   That is, from Lindmark's perspective in May 2004, he was “clearly entitled” because it was he, and not Heuer, who had referred the case to Milberg.   While we agree, of course, with the trial court's ruling on the Milberg demurrer that Lindmark sustained actual injury when he initiated his action against Heuer because he incurred legal fees at that time, we think it is palpably clear that by May 2004, Lindmark had sustained not only an actual, but also a rather massive injury.   We note that the trial court's ruling on the Heuer demurrer was that Lindmark should have discovered the alleged malpractice when Heuer refused to hand over the referral fee.

4. The Theory That Lindmark Sustained Actual Injury Only upon the Entry of Judgment Is Fundamentally Flawed

As the excerpts that we have quoted from the complaint show, Lindmark's theory, at least per the complaint, is that he sustained actual injury only upon the entry of judgment in the trial court in his case against Heuer.   This theory is expressly rejected not only in Jordache but also in Adams, supra, 11 Cal.4th at page 591, and in other appellate decisions that we have cited.   Adjudication by way of judgment or settlement is not required for actual injury.

5. Lindmark's Contentions Advanced in the Milberg Appeal Are Without Merit

Lindmark contends that the statute of limitations was tolled because Milberg never disclosed to Lindmark the “on-going criminal investigation of its firm relating to the paying of ‘kick-backs' to class representatives․”  This contention is based on subdivision (a)(3) of section 340.6.15

This is a non sequitur.   The ongoing criminal investigation of kick-back schemes has no connection to the payment of the referral fee.   And, in any event, this tolling provision applies only to the four-year limitation.   That limitation does not apply to this case.

The limitation that applies here is the one providing that an action must be commenced within one year after the plaintiff discovers the facts constituting the wrongful act or omission.   That occurred latest in May 2004, when Lindmark reported Heuer to the State Bar for withholding his, Lindmark's, funds.

Lindmark claims that he only discovered the defendants' malpractice when judgment was entered by the trial court in Lindmark I. This contradicts the allegations of the complaint.   Those allegations show that by May 2004 Lindmark knew that the so-called “nominee agreement” would not be honored and that Heuer intended to retain the referral fee.   These are the “facts constituting the wrongful act or omission” (§ 340.6);  the trial court's judgment in Lindmark I is not Heuer's wrongful act or omission.

Lindmark is off the mark in contending that this case involves the delayed discovery rule.   That Heuer would not turn over the referral fee and therefore breached the alleged “nominee agreement” was known by May 2004, in fact by March of that year.   That is, the “discovery” of these facts took place in March or May 2004.   That the trial court in Lindmark I concluded in 2008 that the “nominee agreement” was not enforceable only confirmed what Lindmark had lived with since March 2004:  he was not getting the referral fee.

Lindmark contends that he could not file his legal malpractice action because until Lindmark I was decided by the trial court, “all information reasonably available to [Lindmark] indicated that Respondents had done nothing wrong.”   (Underscoring omitted.)   This is not what the complaint alleges.   The complaint clearly sets forth that in March 2004 Heuer refused to turn over the referral fee;  in fact, in May 2004 Lindmark accused Heuer of wrongdoing in his State Bar complaint.   Moreover, in Lindmark I, Lindmark accused Heuer of conversion, breach of fiduciary duty, intentional misrepresentation, concealment and of making false promises, which is quite a laundry list of sins-and hardly evidence that Heuer “had done nothing wrong.”

Lindmark contends that he was required to demonstrate to the satisfaction of the trial court in Lindmark I that Heuer was wrong in retaining the referral fee before he could file his malpractice action.   This makes no sense.   The malpractice action is predicated on the alleged negligence of Milberg and Heuer in advising Lindmark that the nominee agreement was enforceable.   That Heuer either denied the existence of the nominee agreement or believed it to be unenforceable was painfully obvious by May 2004.   The circumstance that in 2008 a court would conclude that Lindmark had unclean hands simply has no connection with the alleged act of malpractice.

The court in Jordache concluded that Brobeck's negligence gave the insurance carriers the “objectively viable defense” that the delay in informing the carriers prejudiced the carriers.  (Jordache, supra, 18 Cal.4th at p. 761.)   Lindmark claims that because there was no objectively viable defense in this case, Jordache does not apply.   Unfortunately, this is another non sequitur.   The existence of an objectively viable defense was evidence, in Jordache, of actual injury to Jordache Enterprises.   But in this case there is no need to inquire whether Heuer had a defense to the action that Lindmark filed in March 2006.   Actual injury to Lindmark accrued two years before the action was filed.   It is also true that the “objectively viable defense” in Jordache was a form of actual injury spawned by the facts of that particular case.  Jordache 's key holdings that there must be actual injury and that it is not necessary that the injury results from a judgment or settlement are not dependent on finding this particular form of harm.

Lindmark contends that unclean hands has no application to this case because he never lied about the nominee agreement.   In the first place, Lindmark is precluded from relitigating that issue because it has been resolved in Lindmark I. Secondly, the doctrine of unclean hands is completely irrelevant when it comes to the question whether the statute of limitations has run.

6. The Two Additional Causes of Action Alleged in the Second Amended Complaint Are Also Barred by the Statute of Limitations

The second amended complaint added a cause of action for legal malpractice against the Heuer defendants and a cause of action for breach of fiduciary duty against the same defendants.   In substance, these causes of action simply restated in abbreviated form the claim that Heuer negligently advised Lindmark that the “nominee agreement” was valid and that Heuer breached his fiduciary duty to Lindmark by retaining the referral fee.   The only new allegation was that the attorney-client relationship lasted until January 22, 2007, when Heuer withdrew the referral fee from the client trust account.   Obviously, this allegation leads nowhere since even under these facts the original complaint was filed three weeks too late.

Our conclusion that Lindmark sustained actual injury by May 2004, set forth in part 3, ante, applies with equal force to the additional causes of action set forth in the second amended complaint.

7. Lindmark's Contentions Advanced in the Heuer Appeal Are Without Merit

Lindmark's contentions regarding the statute of limitations issue in the Heuer appeal largely duplicate his contentions in the Milberg appeal.   We note them only briefly in this part.

The claim that, as far as Lindmark was concerned, Heuer had done nothing wrong until the trial court in Lindmark I declared the “nominee agreement” to be unlawful and unenforceable is belied by the allegations of the complaint that reflect that Lindmark was fully aware by May 2004 of the fact that Heuer refused to pay Lindmark the referral fee.

Lindmark repeats the contention that, under the delayed discovery rule, he only found out in 2008 from the trial court in Lindmark I that Heuer's advice was wrong.   But, as we have seen, the “discovery” of the fact that Heuer denied any obligation to hand over to Lindmark the referral came in early 2004 and was not “delayed” past that point.

In this appeal, Lindmark flatly claims that the four-year period set forth in section 340.6 applies.   This is patently without merit.   It is either one year from discovery of the facts constituting the wrongful act or four years from the wrongful act “whichever occurs first.” (§ 340.6, subd. (a), italics added.)

8. The Trial Court Did Not Abuse Its Discretion in Vacating the Defaults of the Heuer Defendants

A trial court's order granting relief under Code of Civil Procedure section 473 is reversible only for an abuse of discretion.  (Shamblin v. Brattain (1988) 44 Cal.3d 474, 478.)

In this case, the trial court found that the substituted service did not comply with the statute as the complaint was not left with a person who was “apparently in charge” of Heuer's office.16

The facts amply support this ruling.   Heuer's office at the time was at 2029 Century Park East, a 44-story building, on the 25th floor.   The process server was stopped at the loading dock by two building security personnel who told him that neither one of them was authorized to accept service for Heuer and that the papers could not be left on the premises.   The process server put the summons and complaint on a desk, told the security personnel that the papers were now their responsibility and left the premises.   As it turned out, the papers disappeared a few hours after the process server left them.

Not only is there no abuse of discretion here, the trial court's decision was without a doubt correct.   There is not a shred of evidence that either security guard was in charge of Heuer's office;  all the evidence is expressly to the contrary.   Indeed, the process server was told that the security guards were not authorized to accept service, which certainly means that they were not Heuer's agents for purposes of service of process.  (Summers v. McClanahan (2006) 140 Cal.App.4th 403, 412 [the principal-agent relationship must be close and enduring enough to make it highly probable the defendant will receive actual notice].)   While Lindmark states that “service was performed exactly as required,” we think that the service here was the paradigm of how not to effect substituted service.

9. Conclusion

The fact of the matter is that this malpractice action should have been filed at the latest May 2005, and possibly even by March 2005.   Everything that appears in the first and second amended complaint was known by May 2004.

Lindmark requests that we take additional evidence on appeal.   The evidence that he requests we should consider are reporter's transcripts of hearings in the trial court in Lindmark I on January 30, 2007, and January 18, 2008.   Allegedly, these hearings bear on the question whether collateral estoppel can be asserted in this case as to issues litigated and resolved in Lindmark I. We see no need to consider whether collateral estoppel applies since this appeal can be, and is, resolved without applying the Lindmark I judgment preclusively in this case.   Accordingly, the request is denied.

All in all, it is to be hoped that we have written the final lines of this story.

DISPOSITION

The judgments are affirmed.   Respondents are to recover their costs on appeal in B211388 and B214044.

We concur:

FOOTNOTES

FN1. Milberg refers to the law firm known at various times as Milberg Weiss LLP, Milberg Weiss Bershad Hynes & Lerach LLP, Milberg Weiss Bershad & Schulman LLP, and Milberg Weiss & Bershad LLP..  FN1. Milberg refers to the law firm known at various times as Milberg Weiss LLP, Milberg Weiss Bershad Hynes & Lerach LLP, Milberg Weiss Bershad & Schulman LLP, and Milberg Weiss & Bershad LLP.

FN2. Lindmark v. Heuer was filed on March 27, 2006..  FN2. Lindmark v. Heuer was filed on March 27, 2006.

FN3. An unpublished opinion may be cited when “the opinion is relevant under the doctrines of law of the case, res judicata, or collateral estoppels․”  (Cal. Rules of Court, rule 8.1115(b)(1).).  FN3. An unpublished opinion may be cited when “the opinion is relevant under the doctrines of law of the case, res judicata, or collateral estoppels․”  (Cal. Rules of Court, rule 8.1115(b)(1).)

FN4. The Milberg defendants were formally dismissed on September 2, 2008..  FN4. The Milberg defendants were formally dismissed on September 2, 2008.

FOOTNOTE.  FN[ ]. “California State Bar Rules of Professional Conduct, Rule 2-200 provides in relevant part that ‘(A) A member shall not divide a fee for legal services with a lawyer who is not a partner of, associate of, or shareholder with the member unless:  [¶] (1) the client has consented in writing thereto after a full disclosure has been made in writing that a division of fees will be made and the terms of such division.’

FN6. “At trial, Heuer denied discussing the referral fee with Lindmark, or that he agreed to be Lindmark's nominee..  FN6. “At trial, Heuer denied discussing the referral fee with Lindmark, or that he agreed to be Lindmark's nominee.

FN7. The court ruled on the demurrer to the second amended complaint on January 26, 2009;  the Court of Appeal's opinion was filed on October 20, 2009..  FN7. The court ruled on the demurrer to the second amended complaint on January 26, 2009;  the Court of Appeal's opinion was filed on October 20, 2009.

FN8. “An action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced 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.”  (Code Civ. Proc., § 340.6, subd. (a).).  FN8. “An action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services shall be commenced 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.”  (Code Civ. Proc., § 340.6, subd. (a).)

FN9. Actually the action was filed on February 14, 1991, but under an agreement between Jordache Enterprises and Brobeck that had tolled the action, the suit was deemed filed as of August 15, 1990..  FN9. Actually the action was filed on February 14, 1991, but under an agreement between Jordache Enterprises and Brobeck that had tolled the action, the suit was deemed filed as of August 15, 1990.

FN10. “This court most recently considered the actual injury provision in Adams v. Paul (1995) 11 Cal.4th 583 (Adams ).  Adams reconfirmed the following:  (1) determining actual injury is predominantly a factual inquiry;  (2) actual injury may occur without any prior adjudication, judgment, or settlement;  (3) nominal damages, speculative harm, and the mere threat of future harm are not actual injury;  and (4) the relevant consideration is the fact of damage, not the amount.  (Id. at pp. 585-586, 589, 591-592 (lead opn. of Arabian, J.);  id. at pp. 595-596 (conc. opn. of Kennard, J.).)   These propositions follow from Budd v. Nixen (1971) 6 Cal.3d 195 ․, which the Legislature intended to codify in section 340.6.  (Laird v. Blacker (1992) 2 Cal.4th 606, 611.)”   (Jordache, supra, 18 Cal.4th at p. 743.).  FN10. “This court most recently considered the actual injury provision in Adams v. Paul (1995) 11 Cal.4th 583 (Adams ).  Adams reconfirmed the following:  (1) determining actual injury is predominantly a factual inquiry;  (2) actual injury may occur without any prior adjudication, judgment, or settlement;  (3) nominal damages, speculative harm, and the mere threat of future harm are not actual injury;  and (4) the relevant consideration is the fact of damage, not the amount.  (Id. at pp. 585-586, 589, 591-592 (lead opn. of Arabian, J.);  id. at pp. 595-596 (conc. opn. of Kennard, J.).)   These propositions follow from Budd v. Nixen (1971) 6 Cal.3d 195 ․, which the Legislature intended to codify in section 340.6.  (Laird v. Blacker (1992) 2 Cal.4th 606, 611.)”   (Jordache, supra, 18 Cal.4th at p. 743.)

FN11. It should be kept in mind that the first amended complaint is the subject of the Milberg appeal and the second amended complaint underlies the Heuer appeal..  FN11. It should be kept in mind that the first amended complaint is the subject of the Milberg appeal and the second amended complaint underlies the Heuer appeal.

FN12. It is to be remembered that practically speaking there are really only two defendants in these complaints:  the Milberg firm in its various editions and Heuer..  FN12. It is to be remembered that practically speaking there are really only two defendants in these complaints:  the Milberg firm in its various editions and Heuer.

FN13. The italicized portion of this sentence appears to concede that Lindmark was fully on notice by March 2004 that Heuer would not turn over the referral fee paid by Milberg.   We return to this point in part 3, post..  FN13. The italicized portion of this sentence appears to concede that Lindmark was fully on notice by March 2004 that Heuer would not turn over the referral fee paid by Milberg.   We return to this point in part 3, post.

FN14. City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 449..  FN14. City of Atascadero v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1998) 68 Cal.App.4th 445, 449.

FN15. The statute of limitations is tolled when “[t]he attorney willfully conceals the facts constituting the wrongful act or omission when such facts are known to the attorney, except that this subdivision shall toll only the four-year limitation.” (§ 340.6, subd. (a)(3).).  FN15. The statute of limitations is tolled when “[t]he attorney willfully conceals the facts constituting the wrongful act or omission when such facts are known to the attorney, except that this subdivision shall toll only the four-year limitation.” (§ 340.6, subd. (a)(3).)

FN16. The statute is Code of Civil Procedure section 415.20, subdivision (a), which provides that a summons and complaint may be served by leaving them with a person who is apparently in charge of the defendant's office..  FN16. The statute is Code of Civil Procedure section 415.20, subdivision (a), which provides that a summons and complaint may be served by leaving them with a person who is apparently in charge of the defendant's office.

BIGELOW, P. J. GRIMES, J.