W. Riverside Council of Gov't.s v. McKiernan

1

WESTERN RIVERSIDE COUNCIL OF GOVERNMENTS, Plaintiff and Appellant, v. KIERNAN MCKIERNAN et al., Defendants and Respondents.

CITY OF BEAUMONT, Cross-Complainant and Appellant, v. KIERNAN MCKIERNAN et al., Cross-Defendants and Respondents.

B322576

California Court of Appeals, Second District, Seventh Division

May 25, 2023

NOT TO BE PUBLISHED

APPEAL from a judgment of the Superior Court of Riverside County Nos. RIC1707201, RIC1712042, John W. Vineyard, Judge.

Best Best &Krieger, Jeffrey V. Dunn and Christopher Pisano for Plaintiff and Appellant Western Riverside Council of Governments.

Slovak Baron Empey Murphy &Pinkney, Shaun M. Murphy, John O Pinkney and Peter Nolan for CrossComplainant and Appellant City of Beaumont.

Procopio, Cory, Hargreaves &Savitch, Kendra J. Hall and Laurence J. Phillips for Cross-Defendants and Respondents.

ESCALANTE, J. ^[*]

INTRODUCTION

This appeal involves two consolidated actions. In the first, the City of Beaumont (City) filed a third amended crosscomplaint alleging Kieran McKiernan and Torcal, LLC (Torcal) fraudulently caused hundreds of false invoices to be submitted to the City for payment from 2012 to early 2016. In the second, Western Riverside Council of Governments (WRCOG) as the assignee of the City, filed a third amended complaint alleging the same. The trial court sustained demurrers to the third amended cross-complaint and the third amended complaint, ruling the claims were barred by the statute of limitations.

We conclude the pleadings adequately allege McKiernan and Torcal were properly substituted in for fictitiously named Roes and Does. Accepting the allegations as true, as we must on demurrer, the claims (with one exception) relate back to the filing of the original cross-complaint and complaint in June 2017.

Except for the claims for conflict of interest, we cannot conclusively determine from the face of the pleadings that the claims are barred by the statute of limitations. We reverse the judgment of dismissal and remand with directions to vacate the order sustaining McKiernan and Torcal's demurrers without leave to amend and to consider the other grounds for the demurrers that McKiernan and Torcal asserted but the trial court did not reach.

FACTUAL AND PROCEDURAL BACKGROUND

A. Initial Pleadings in Urban Logic Consultants, Inc. v. City of Beaumont, Case No. RIC1707201

Urban Logic Consultants, Inc. (ULC) sued the City for breach of contract and other related causes of action, alleging the City failed to pay invoices totaling $880,000. ULC's complaint has been dismissed and is not at issue in this appeal.

On June 19, 2017, the City filed a cross-complaint against ULC, its former principals David Dillon, Ernest Egger, and Deepak Moorjani, and Roes 1 through 50. The City alleged it entered into consulting contracts with ULC in which ULC agreed to provide management services to the City. Pursuant to those contracts, Dillon, Egger, and Moorjani acted as the City's economic development director, director of planning, and public works director, respectively. The City alleged that, while acting in their capacity as City public officials, cross-defendants engaged in a massive scheme to defraud the City out of millions of dollars. The Roe cross-defendants allegedly participated in the fraud, including by submitting false and fraudulent invoices. The crosscomplaint asserted 15 causes of action for violation of the False Claims Act, fraud, breach of fiduciary duty, and other related claims. The cross-complaint also alleged that the Roe crossdefendants were alter egos of ULC and the other cross-defendants.

Dillon, Egger, and Moorjani were criminally charged with corruption and embezzlement arising out of the fraud. They pleaded guilty to the charges and, according to the City, paid $11 million in restitution. The City subsequently dismissed the cross-complaint against them.

On August 19, 2019 and September 6, 2019, the City filed amendments to its cross-complaint substituting McKiernan as Roe 1 and Torcal as Roe 2. McKiernan and Torcal acknowledged service of the summons and cross-complaint as Roes 1 and 2 on November 14, 2019.

B. Initial Pleadings in Western Riverside Council of Governments v. ULC, Case No. RIC1712042

On June 30, 2017, WRCOG filed a complaint against ULC, Dillon, Egger, Moorjani, and Does 1 through 50 in a separate action. The complaint asserted claims nearly identical to those asserted by the City in its cross-complaint in the other action. The City and WRCOG both alleged that the City had assigned its claims to WRCOG, but ULC would not acknowledge the validity of the assignment. Therefore, out of an abundance of caution, the City filed its cross-complaint. The court consolidated the actions on May 3, 2018.

On August 14, 2019 and September 16, 2019, WRCOG filed amendments substituting McKiernan as Doe 1 and Torcal as Doe 2. On November 14, 2019, counsel for McKiernan and Torcal executed and returned acknowledgements of service of the summons and complaint as Doe defendants.

C. First Round of Demurrers and Motions To Strike and First Amended Pleadings

McKiernan and Torcal filed demurrers to the crosscomplaint and complaint and motions to strike the Roe and Doe amendments.

On March 11, 2020, before the hearings on the motions, WRCOG filed a first amended complaint. On March 24, 2020, the court granted the City's ex parte application for leave to file the first amended cross-complaint, which the City filed on June 1, 2020.

Neither WRCOG's first amended complaint nor the City's first amended cross-complaint expressly stated McKiernan and Torcal were being named in their capacity as Roe and Doe crossdefendants or defendants. The City's first amended crosscomplaint included McKiernan and Torcal by name in the caption; WRCOG's first amended complaint asserted claims against them without referring to them as Does.

The first amended pleadings alleged Torcal purchased ULC in August 2012. McKiernan was the managing member of Torcal and became ULC's chief executive officer after the purchase. In accordance with the allegations previously made against the Roes and Does, the first amended pleadings alleged McKiernan and Torcal submitted false and fraudulent invoices to the City, which the City paid. The invoices included inflated charges and charges for services that were never provided to the City. The fraudulent invoices were approved by ULC's former principals who had stayed at the City as ULC contractors after the sale was completed. The fraudulent billing continued after Dillion, Egger, and Moorjani were terminated. The City and WRCOG did not discover McKiernan and Torcal had been involved in the fraud until 2019.

The first amended complaint and cross-complaint asserted the same claims against McKiernan and Torcal that had previously been asserted against Does and Roes 1 and 2: violation of the False Claims Act, conflict of interest, intentional misrepresentation based on fraudulent billing, civil conspiracy to defraud, breach of fiduciary duty, breach of the duty of loyalty, accounting, and negligence. The pleadings also asserted a claim for breach of contract against McKiernan and Torcal that had not previously been asserted against the Roes and Does.

D. Second Round of Demurrers and Motions To Strike

McKiernan and Torcal again filed demurrers and motions to strike. In the demurrers, McKiernan and Torcal argued the claims were not alleged with sufficient particularity and argued generally (with scant analysis) that the claims were barred by the statute of limitations because they did not relate back to the filing of the original cross-complaint and complaint. They also argued the City and WRCOG had abandoned the Roe and Doe amendments by filing amended pleadings that named McKiernan and Torcal directly.

On August 24, 2020, the court sustained the demurrers with leave to amend on the ground the claims were barred by the statute of limitations. The motions to strike were taken off calendar as moot. The court referred to Torcal and McKiernan as Doe and Roe defendants and cross-defendants. The court considered whether the Doe and Roe amendments were proper under Code of Civil Procedure section 474, but the court's reasoning and conclusion are not clear. Because the court analyzed the issue in the context of the demurrers, the court did not make any factual findings.

The court then ruled the claims were barred by the statute of limitations because the City and WRCOG had not sufficiently alleged delayed discovery. The court did not explicitly consider whether any alleged claims accrued during the statute of limitations period with or without the benefit of any delayed discovery or tolling.

E. Second Amended Pleadings and Third Round of Demurrers

The second amended cross-complaint and second amended complaint were filed on September 14, 2020. The pleadings alleged in greater detail how the City and WRCOG first learned of McKiernan and Torcal's involvement in the fraudulent scheme in March and April 2019, and why they had not discovered the wrongdoing earlier.

McKiernan and Torcal again filed demurrers, but this time they did not file motions to strike. The court again sustained the demurrers with leave to amend on the ground the claims were barred by the statute of limitations.

F. The Operative Pleadings: The Third Amended Crosscomplaint and the Third Amended Complaint

On January 4, 2021, the City filed a third amended crosscomplaint and WRCOG filed a third amended complaint. These are the operative pleadings at issue in this appeal. The City and WRCOG allege the following facts.

For more than two decades, cross-defendants ULC, Dillon, Egger and Moorjani perpetrated a fraudulent scheme in which, among other things, ...