practice tips BY THEODORE P. BYRNE AND ARMANDO M. GALVAN
The Statute of Limitations for Equitable Accounting Claims
SHOULD AN ATTORNEY BE CONCERNED about a letter from a former needs to state that 1) a former attorney-client relationship exists, which
client indicating that the client has ﬁled a complaint for accounting creates an agency and ﬁduciary relationship, and 2) an unknown bal-
regarding services that ceased years earlier? The lawyer may think the ance is due from the former attorney. One way that a plaintiff could
complaint is obviously time barred. In the equitable world of account- fail to properly plead is to allege facts that show that the sum being
ing claims, however, nothing is obvious, particularly in attorney-client sued for can be made certain by calculation.9 Although this mistake
relationships. Under current law, as complicated by various streams is unlikely, if it were made the case would be subject to demurrer, since
of case law, it is possible for overzealous plaintiffs’ attorneys to craft a complaint does not state a cause of action for an accounting when
a complaint that survives demurrer and probably even summary it shows that none is necessary.10
judgment and assert a stale, frivolous contract claim under the guise After the pleading stage, however, facts may show that the plain-
of an accounting action. tiff has sufficient information so that no accounting is necessary. This
The rule for pleading an accounting claim is simple enough: 1) the was the situation in Caldwell v. Caldwell,11 in which the court held
ﬁduciary relationship or other circumstances appropriate to the rem- that the evidence fell short of “proving this [accounting] cause of
edy must be established, and 2) a balance must be due from the defen- action.”
dant to the plaintiff that can only be ascertained by an accounting.1 The plaintiff at all times had full and free access to his own
The “other circumstances appropriate to the remedy” of an account- money, through bank accounts in his name and with full
ing include nonfiduciary contractual relationships requiring pay- access to and control over the books and records concerning
ment by one party to another of proﬁts or moneys received.2 This right the accounts in his name and with full access to and control
can be derived simply from the implied covenant of good faith and over the books and records concerning the receipts and expen-
fair dealing inherent in every contract in cases in which it can be said ditures of the property.12
that, without an accounting, there may be no way by which a party
entitled to a share in profits or specified funds could determine Statute of Limitations
whether there were any proﬁts or amounts due.3 Whether the value of a claim can only be ascertained by an account-
A ﬁduciary relationship can arise between a trustee and a bene- ing is one element of an accounting claim. Another is the statute of
ﬁciary,4 a principal and agent,5 among partners in a partnership, and limitations, which may vary. In an action for an accounting, “the
joint venturers in a joint venture.6 Illustrative of agency cases is nature of the right sued upon, not the form of action or relief
McRaven v. Dameron,7 a case involving a suit by former clients for demanded, determines the applicability of the statute of limita-
an accounting against their former attorney. tions.”13 The applicable statute of limitations will be the four-year
In McRaven, the clients brought an action against their former period provided in Code of Civil Procedure Section 343, the catch-
attorney to recover money that was received by the attorney while all limitations period, unless a different statute is warranted by the
acting in a ﬁduciary capacity but that he failed to deliver or account speciﬁc form of action.14 For example, if the primary purpose of the
for to the plaintiffs. The clients alleged that, after the attorney was action is to recover money under an oral contract, then the two-year
paid to handle two lawsuits that were later dismissed, “upon infor- limit under Code of Civil Procedure Section 339(1) may apply.15
mation and belief…[the attorney] received about” $8,000 “on account An attorney defendant can defeat a former client’s accounting claim
of said dismissals.” The trial court entered judgment in favor of the by presenting evidence that no money or property is owed to the client.
plaintiffs, and the California Supreme Court affirmed. The court If the lawsuit requests an accounting based on the accounting rela-
held that although “[t]he complaint may not be as speciﬁc with tionship—that is, a relationship whereby one party clearly has the duty
regard to the contract as it might be…it is sufficient according to a to handle, safeguard, and keep track of another’s moneys—without
number of decisions of the court.” The court concluded that the com- more, it should fail on the authority of Union Bank v. Superior
plaint sufficiently pleaded and the clients sufficiently proved that 1) Court (Demetry).16
the action was to recover money received by the attorney while act- As the court in Union Bank made clear, “No California decision
ing in the ﬁduciary capacity under a contract between the attorney holds that the existence of a complicated accounting relationship
and client, 2) the attorney received as the fruit of his representation between parties by itself permits the maintenance of a lawsuit between
certain moneys owed to the plaintiffs, and 3) the attorney failed to them when no money is owed or property must be returned.”17 In
deliver or account for the funds to the clients. In the opinion, there Union Bank, the plaintiff fatally admitted that the defendant took no
is no mention that the clients sued other than “for an accounting of inappropriate role in connection with the accounting relationship aris-
moneys” of which “plaintiffs were not informed…until within two ing out of the defendant’s administration of loan collections and
years before the commencement of the action.” At trial, “it was repossession of office equipment. The defendant was thus able to estab-
expressly stipulated that the two year statute of limitations did not”
bar maintenance of the suit.8 Theodore P. Byrne is a licensed CPA and an attorney practicing in Redondo
To ﬁle an accounting claim against a former attorney, a plaintiff Beach, and Armando M. Galvan is an attorney practicing in Los Angeles.
Los Angeles Lawyer April 2010 19
lish on summary judgment that it engaged in accounting action accrued and whether the no triable issue of fact regarding a defen-
no misconduct, because the plaintiff was written or oral agreement was in force at the dant’s contention that the suit is time barred.
never deprived of moneys or proﬁt, thereby time of the breach. Since the statute of limi- A defendant many times can indisputably
precluding a right to an accounting.18 tations generally begins to run at the time of establish when he or she received money
One complicating fact pattern arises when, the breach, facts are necessary to determine from the plaintiff. If the date of receipt of
as is often the case, the attorney-client rela- whether a claim for breach of oral or written funds is more than four years prior to the date
tionship begins with a written agreement to contract is time barred.19 the attorney ceased to work for and com-
provide speciﬁc services but the relationship Another complication occurs if the plain- municate with the client, and if the breach and
expands beyond them. In one common sce- tiff claims that the attorney mistakenly or related limitations period are based on a writ-
nario, an attorney agrees to prosecute a law- intentionally took a garnishment check dur- ten contract, the defendant may be able to
suit, is later asked to perform postjudgment ing the collections phase of the litigation. In establish that the claim is time barred. In
collection work without an additional writ- that instance, the three-year statute of limi- addition, courts have held that when services
ten agreement, and receives garnishment tations for an action for relief on the ground are rendered intermittently, the court may
checks as part of the collection work. It is of fraud or mistake may apply. “Fraud” in consider each service performed to be com-
unclear whether the oral or written contract this context includes actions for construc- plete and independent of the others, thereby
statute of limitations should apply when a tive fraud or mistake, which exists when con- leading to the conclusion that the statute
portion of the legal services is provided pur- duct, though not actually fraudulent, has the runs from the date each service is rendered.24
suant to a written agreement and a subsequent same consequences and effects of actual This date-of-service rule could apply when all
portion is provided under an oral contract. fraud.20 This rule has been applied in at least services under a written agreement have been
The applicable statute of limitations will one action to obtain an accounting.21 In such completed, but collections work outside the
often depend on the speciﬁc allegations in a a case, the accounting action would be time contract is later undertaken. In such a case,
complaint. For example, a complaint may barred if ﬁled more than three years after the date of accrual for a suit for an account-
state that the alleged wrongdoing is that cer- the alleged wrongful breach of duty.22 ing of moneys that the attorney collected
tain moneys received during the attorney- would be the date that the attorney rendered
client relationship were not accounted for, Date of Accrual the collections work.
placing at issue the reasonable value of the ser- This analysis becomes more complex when Other accrual rules might apply depend-
vices provided by the attorney. With this alle- the diverse accrual rules are considered. The ing on the circumstances. When a contract
gation, the plaintiff may argue that a bal- key question is when each underlying breach ﬁxes the time for performance, the statute of
ance is due from the defendant to the plaintiff of contract accrued. For a service contract, the limitations does not begin to run until the
that can only be ascertained by an account- date of accrual is ordinarily when the defen- expiration of that speciﬁc time.25 In contrast,
ing. Questions will arise as to the time of dant received the money.23 Application of if no time is specified in the contract, the
breach, which will determine when the this rule could warrant a ﬁnding that there is statute begins to run after the expiration of
a reasonable period.26
Alternatively, if the oral agreement to per-
form collections work is for an indefinite
period, the statute of limitations does not
begin to run until the services end.27 A plain-
tiff’s claim may thus be time barred if the last
invoices demonstrate that the most recent
collection work was more than two years
before the filing of the complaint. Under
these circumstances, the plaintiff is unable to
rely on contacts with the attorney that
occurred after the collection work was com-
An action for an accounting is equitable.
A suit may be brought to require the defen-
dant to account for missing money or prop-
erty received or held by the defendant.
However, if the accounting results in a ﬁnd-
ing that an overpayment of a certain sum of
money was made by the client to the attor-
ney, can the court award damages in that
amount against the attorney, effectively con-
verting the case to a breach of contract case
at law, even after the suit was tried in equity
in a bench trial?
Historically, courts have held that due
process requires notice to the defendant of the
degree of ﬁnancial liability faced in a legal
action.28 It would seem that no damages
could be awarded in a suit in equity—such as
a claim for an accounting—if the complaint
has failed to allege a suit at law.
20 Los Angeles Lawyer April 2010
An attorney wishing to limit exposure to
an equitable accounting claim should clearly
delineate the services to be provided to the
Does LACBA have
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quent work is to be performed, a separate
written agreement should be created that
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Finally, at the conclusion of each scope of on a number of subjects that
impact your practice.
work covered by a written agreement with the
client, the attorney should send the client a let- Update your records online at
ter conﬁrming that all services pursuant to the www.lacba.org/myaccount or
agreement have been performed and that the call Member Services at 213.896.6560.
attorney-client relationship has ended. The let-
ter should also include a detailed accounting
of all moneys received and expended during
the engagement, and request the client’s
prompt response if the client has any ques-
1 See, e.g., Stillwell v. Trutanich, 178 Cal. App. 2d 614
2 McClain v. Octagon Plaza, LLC, 159 Cal. App. 4th
784, 805 (2008), review denied (2008).
4 Green v. Brooks, 81 Cal. 328, 333 (1889).
5 McRaven v. Dameron, 82 Cal. 57, 62 (1889).
6 April Enters. v. KTTV, 147 Cal. App. 3d 805, 818
(1983) (partnership dissolution); Menefee v. Oxnam,
42 Cal. App. 81, 85 (1919) (joint venture).
7 McRaven, 82 Cal. at 62.
9 Saint James Church of Christ Holiness v. Superior
Court, 135 Cal. App. 2d 352, 359 (1955).
10 Id.; see also Union Bank v. Superior Court (Demetry),
31 Cal. App. 4th 573, 593-94 (1995) (citing Saint
James Church of Christ Holiness, 135 Cal. App. 2d at
11 Caldwell v. Caldwell, 80 Cal. App. 2d 378, 383
13 Jefferson v. J. E. French Co., 54 Cal. 2d 717, 718
14 People v. Taliaferro, 149 Cal. App. 2d 822, 825
(1957), disapproved on other ground (to extent case
implies that four-year statute always applies to account-
ing claim); Jefferson, 54 Cal. 2d at 719.
15 See Estate of Peebles, 27 Cal. App. 3d 163, 166
(1972) (quoting and restating the rule in Jefferson, 54
Cal. 2d at 718).
16 Union Bank v. Superior Court (Demetry), 31 Cal.
App. 4th 573, 593-94 (1995) (citing Saint James
Church of Christ Holiness v. Superior Court, 135 Cal.
App. 2d 352, 359 (1955)).
17 Id. at 594.
19 United Paciﬁc Reliance Ins. Co. v. DiDominico, 173
Cal. App. 3d 673, 675 (1985).
20 Day v. Greene, 59 Cal. 2d 404, 406 (1963) (If con-
structive fraud is the gravamen of an action, the fact
that a breach of contract is involved is not decisive.).
21 Lataillade v. Orena, 91 Cal. 565, 566 (1891).
22 CODE CIV. PROC. §338(d).
23 Tabata v. Murane, 24 Cal. 2d 221, 223 (1944).
24 Johnstone v. E & J Mfg. Co., 45 Cal. App. 586, 588
25 Richter v. Union Land & Stock Co., 129 Cal. 367,
26 Brennan v. Ford, 46 Cal. 7, 9 (1873).
27 Wax v. Adair, 16 Cal. App. 2d 393, 394 (1936).
28 Ely v. Gray, 224 Cal. App. 3d 1257, 1262 (1990).
Los Angeles Lawyer April 2010 21