Apple Valley Unified School Dist. v. Vavrinek, Trine, Day & Co. (2002)

APPLE VALLEY UNIFIED SCHOOL DISTRICT, Plaintiff and Appellant, v. VAVRINEK, TRINE, DAY & CO., LLP, et al., Defendants and Respondents.

[Modification fn. * of opinion (98 Cal.App.4th 934) on denial of petition for rehearing.]

THE COURT.-

It is ordered that the opinion filed herein on May 29, 2002, be modified as follows:

1. The second sentence of the second paragraph on page 17 [98 Cal. App. 4th 947, advance report, lines 1-4 ] is modified to read:

By analogy to Van Dyke, the District sustained actual injury either at that point or after it suspected the error and suffered out-of-pocket losses by paying investigation and legal fees in an effort to determine the extent of the improper payments.

2. The portion of the opinion beginning with the second full paragraph on page 19 and ending with the first paragraph on page 22 [98 Cal. App. 4th 948, advance report, 2d full par.] is modified to read as follows:

Jordache strongly supports the ruling of the trial court in this case that the District suffered actual injury as a result of defendants' alleged negligence more than two years before December 2000. By that time, according to its complaint, the District had provided state funds to Cato II to which Cato II was not entitled, in reliance on defendants' misrepresentations. In an effort to determine the extent of the improper payments, the District was obliged, [99 Cal. App. 4th 815b] in March 1998 or before, to pay investigation and legal fees. The District also obligated itself, in its November 1998 agreement with Cato II, to cooperate in the expeditious reimbursement of any state funds improperly received.

The District's situation was analogous to that of the client in Jordache, which delayed in tendering coverage to its insurer due to the negligence of its attorneys. The Jordache court concluded the delay in tendering coverage injured the client, by increasing its cost to litigate the coverage claim, reducing the settlement value of the claim, and requiring the client to pay its own defense costs for several years. The court noted the "established rule that attorney fees incurred as a direct result of another's tort are recoverable damages. [Citations.]" Therefore, under the Jordache test for actual injury -- whether the plaintiff has sustained damages compensable in a malpractice action -- the attorney fees constituted actual injury which triggered the statute. (Jordache, supra, 18 Cal. 4th 739, 751.)

Investigation costs, like the attorney fees in Jordache, are recoverable tort damages under Civil Code section 3333. (Stearman v. Centex Homes (2000) 78 Cal. App. 4th 611, 625 [plaintiffs in construction defect case could recover as damages under section 3333 fees paid to "professionals who investigated the problems in order to formulate an appropriate repair plan"].) As in Jordache, therefore, the out-of-pocket expenses the District incurred when it engaged its accountant and legal counsel, in an effort to determine the extent of the improper payments and arrange for reimbursement of funds improperly received, constituted actual injury for limitations purposes.

At oral argument, the District contended for the first time that, since section 41344, which governs repayment by a school district of apportionment funds improperly received, did not go into effect until July 1999, the District had no liability for repayment and could not have suffered actual injury until at least that date. However, even before section 41344 came into effect, the Education Code provided for recoupment by the state of funds improperly received by a school district. Section 41341, enacted in 1976, provides that, if the amount apportioned to a school district exceeds the amount to which the district was entitled, the Superintendent of Public Instruction shall withhold the excess amount from the district's apportionment for the next fiscal year. (§ 41341, subd. (a)(1).) In this case, the improper apportionments represented not only money disbursed to Cato II, but also money which the District kept for itself. According to the record, [99 Cal. App. 4th 815c] when the District paid state apportionment funds to Cato II, it retained a part of those payments as a processing fee pursuant to its agreement with EFEP. fn. 5

The District contends section 41341 could not be applied to require withholding in this case because section 47610 generally exempts charter schools from the laws governing school districts. We do not think it follows from the fact that a charter school is exempt from laws governing school districts that a school district itself is exempt from any liability for reimbursement when it improperly receives and issues state funds to its charter school. But even if the District is correct, the District still sustained economic loss when it paid out-of-pocket expenses to determine the extent of the improper payments. Under Jordache, those expenses constituted actual injury for limitations purposes.

The fact that the District might have avoided liability to the state for the improper payments if the Controller had not pursued the matter, or if the District successfully appealed the Controller's decision, did not negate the injury. In Jordache, the client similarly might have avoided the consequences of its delay in tendering coverage to its insurer if the insurer had not invoked the defense of delay, or if the client had won the coverage action despite the defense. Yet the court held that possibility did not prevent a finding of actual injury for limitations purposes. (Jordache, supra, 18 Cal. 4th 739, 754.)

3. The first full paragraph on page 24 [98 Cal. App. 4th 951, advance report, 1st full par.] is modified to read:

Here, the District alleged it relied on defendants' alleged misrepresentations when it provided apportionment funds to Cato II: " . . . Defendants induced Plaintiff to process the attendance apportionment regarding student attendance at Cato satellites which taught religion, and caused the state to issue state apportionment funds to Cato through Plaintiff." The record shows the District took these actions at least as early as 1997. Under the authorities discussed ante, actual injury occurred no later than early 1998, when the District recognized the allegedly improper conduct and incurred out-of-pocket expenses to determine its extent. That the District may ultimately avoid liability for the improper payments through its pending appeal does not mean it did not suffer injury.

4. The second sentence of the third paragraph on page 27 [98 Cal. App. 4th 953, advance report, 4th par., lines 1-4] is modified to read: [99 Cal. App. 4th 815d]

Under that analysis, as we have discussed, the District suffered actual injury when it recognized the allegedly improper apportionment payments to Cato II and incurred expenses in an attempt to determine the extent of the improper conduct.

There is no change in the judgment.

Appellant's petition for rehearing is denied.

FN *. This modification requires the movement of text affecting pages 951-954 of the bound volume report.

FN 5. Section 47613 authorizes a chartering agency to charge a percentage of the revenue of a charter school as a fee for actual costs of supervisorial oversight of the charter school. (§ 47613, subd. (a).)