Mediation Message No. 113



Lee v. Hanley (Aug. 20, 2015) case no. S220775, 2015 Cal. LEXIS 5630 holds that an attorney’s refusal to return a former client’s money upon demand does not come within the one-year statute of limitations in C.C.P. sec. 340.6, subd. (a) if the refusal can be construed as a conversion and, therefore, was not part of the attorney’s professional services.

In Lee v. Hanley, Lee alleged that she had retained Hanley to represent her in a civil litigation matter and had advanced Hanley $110,000 to be used for attorney’s fees and costs as well as $10,000 to be used for expert witness fees. After the matter settled, Hanley sent Lee an invoice for legal services, which indicated that she had a credit balance of $46,321.85. Lee then requested a refund of the $41,321.85, which Hanley refused to provide. Hanley eventually gave her $9,725 in unused expert witness fees. More than a year after demanding her money, Lee sued Hanley, alleging, in part, that she had advanced Hanley funds to cover attorney’s fees in litigation and that Hanley had refused to return unearned attorney’s fees after Lee terminated the representation. Hanley demurred on the ground that the lawsuit was barred by section 340.6, subd. (a). The trial court dismissed the case after sustaining Hanley’s demurrer. The appellate court reversed the order of dismissal.

Lee v. Hanley first observes that section 340.6, subd. (a) bars violations of professional obligations older than one-year, unless the plaintiff alleges actual fraud, in the course of providing professional services, “that is, an obligation the attorney has by virtue of being an attorney—in the course of providing professional services.” (Emphasis in the original.) Such professional services include “fiduciary obligations, the obligation to perform competently, the obligation to perform the services contemplated in a legal services contract into which an attorney has entered, and the obligations embodied in the Rules of Professional Conduct.” The Court also found that the term “professional services,” which it defined as “services performed by an attorney which can be judged against the skill, prudence and diligence commonly possessed by other attorneys,” “is best understood to include nonlegal services governed by an attorney’s professional obligations.” Those services include “accounting, bookkeeping, and holding property in trust.”

In contrast, in affirming the Court of Appeal decision, Lee v. Hanley held that sec. 340.6, subd. (a) does not apply “to claims other than strictly professional negligence claims, … that do not depend on proof that the attorney violated a professional obligation.” (Emphasis in the original.) In other words, “For purposes of section 340.6(a), the question is not simply whether a claim alleges misconduct that entails the violation of a professional obligation. Rather, the question is whether the claim, in order to succeed, necessarily depends on proof that an attorney violated a professional obligation as opposed to some generally applicable nonprofessional obligation.” An attorney’s action is not a legal service “merely because it occurs during the period of legal representation or because the representation brought the parties together and thus provided the attorney the opportunity to engage in the misconduct.” For example, the Court explained, a claim that an attorney stole from a client or sexually battered a client would not be time barred “merely because it occur(ed) during the period of legal representation or because the representation brought the parties together and thus provided the attorney the opportunity to engage in the misconduct.” Under that reasoning, the refusal to return legal fees, although it occurred during the legal representation, can be interpreted as a conversion, if pled properly.

Lee v. Hanley dismisses the argument that “when an attorney’s professional obligations overlap with generally applicable obligations, today’s holding can be exploited by artful pleading” because “(p)roper pleading requires a complaint to contain a ‘statement of the facts constituting the cause of action, in ordinary and concise language’” and “the attorney or party filing the complaint must certify that the facts stated in the complaint ‘have evidentiary support.’” Thus, “If the facts stated in the complaint show that the basis for the plaintiff’s conversion claim is that an attorney provided deficient legal services, then the plaintiff’s claim will depend on proof that the attorney violated a professional obligation in the course of providing professional services and will thus be time-barred.” Accordingly, “even if such a claim does survive the dismissal (e.g., demurrer) stage, it cannot survive summary judgment.”

MDM’s observation: Lee v. Hanley paints an idealistic picture that litigants shall always follow the rules when pleading legal malpractice causes of action and that trial courts will easily see through creative pleading that attempts to nullify sec. 340.6, subd. (a). The reality is that neither expectation will always occur and Lee v. Hanley will often cause legal malpractice litigation to be more complex and that court calendars will be more clogged by expensive and time consuming motions for summary judgment, which many state court judges do not like or have the time to properly adjudicate. The increased expense will now include a new category of legal expertise, which is whether the attorney’s alleged violative conduct was, or was not, part of his or her professional obligations.

Judge Michael D. Marcus (Ret.)
ADR Services, Inc.
1900 Avenue of the Stars, Suite 250
Los Angeles, California 90067
(310) 201-0010

Copyright Michael D. Marcus, August 2015

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