Prakashpalan v. Engstrom, Lipscomb & Lack

In Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, the Court held that the provisions of Probate Code section 16460 applied to claims for fraud where the attorney-fiduciary had failed to provide an accounting of an aggregate settlement. In Prakashpalan, the Prakashpalans alleged that the defendant law firm settled a lawsuit in November 1997 for 93 insureds of State Farm for claims arising out of the Northridge earthquake, but that the plaintiffs did not learn until February 2012 that the defendant had failed to fully and properly distribute $22 million of the settlement funds. The Prakashpalans alleged that they first suspected fraud when they had randomly contacted 17 of the plaintiffs in the litigation, and conducted a mathematical analysis of the settlement and of the overall litigation. Based on those discussions, the plaintiffs alleged a significant portion of the settlement funds had been withheld. The Prakashpalans did not allege that the settlement was presided over by retired judges, that they had signed a settlement agreement, or that their informed consent to the settlement was not obtained. (Id. at pp. 1114-1115.) The Prakashpalans sued the Engstrom firm and two of its attorneys on numerous theories. In Prakashpalan, supra, 223 Cal.App.4th 1105, we held that their fraud-based claims (those claims not covered by 340.6) were timely under Probate Code section 16460, which governs fiduciaries, and that until the Prakashpalans received an accounting that put them on notice that monies may have been wrongfully withheld, their claims did not accrue. As a result, the complaint filed in February 2012 was timely although the action had originally been settled in 1997 because the Prakashpalans alleged that they had not received any accounting. On that basis, we also found their claims were not barred as speculative because without the accounting, the Prakashpalans had no way of ascertaining whether funds had been improperly accounted for or withheld. (Id. at pp. 1124-1127.)