CA Supreme Court Expands Scope of Lawyers’ Statute of Limitations to Non-Legal Malpractice Claims – Confusion Predicted for Law and Motion Judges

In Lee v. Hanley (S220775 – Filed 8/20/2015), the California Supreme Court clarified the meaning of Code of Civil Procedure section 340.6 by holding that its limitations period applies to claims against attorneys “whose merits necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services.” Although it resolved a district split by finding that the statute governs for non-legal malpractice claims against attorneys including those of non-clients, by having the statute’s applicability “turn on the conduct alleged and ultimately proven, not on the way the complaint was styled,” this 5-2 decision also increased the specter of creative pleading and lengthy litigation.

In Lee, the client had advanced $120,000 to cover attorney’s fees, costs and expert witness fees for the underlying litigation. After the case settled, the attorney advised the client that she had a credit balance of approximately $46,000. In response to her demand for a refund, the attorney then advised the client that she did not have a credit balance. More than one year later, the client filed suit to recover the $46,000, plus interest. The trial court sustained the attorney’s demurrer based on the one-year statute of limitations in section 340.6. The appellate court, however, reversed, reasoning that the client’s claim could be construed as one for conversion, in which case section 340.6 would not apply.

The Supreme Court framed the issue as whether the “ambiguous” wording in section 340.6(a) – i.e., the phrase “wrongful act or omission … arising from the performance of professional services” – “limits [its] scope to legal malpractice claims or covers a broader range of wrongful acts or omissions that might arise during the attorney-client relationship.” Based on the legislative history, the Court explained that the Legislature passed section 340.6 in response to rising legal malpractice premiums and “so that the applicable limitations period for [malpractice] claims would turn on the conduct alleged and ultimately proven, not on the way the complaint was styled.” It then issued a new rule: “[S]ection 340.6’s time bar applies to claims whose merits necessarily depend on proof that an attorney violated a professional obligation in the course of providing professional services.” (Emphasis added.) A “professional obligation” is one an attorney has by virtue of being an attorney and encompasses “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.” In contrast, section 340.6(a) does not apply where the claim arises from the performance of services that are not “professional services” and, thus, do not require comparison to the skill, prudence and diligence commonly possessed by other attorneys.

Applying this rule, the Court affirmed the reversal of the trial court’s decision, agreeing with the appellate court that the client’s allegations could be construed as a conversion claim. It reasoned that at least one claim “does not necessarily depend on proof that [the attorney] violated a professional obligation in the course of providing professional services.” Yet, it also acknowledged that the attorney might have violated the professional obligation to refund unearned fees. Nonetheless, the Court found that the parties needed to develop the facts before a determination of whether section 340.6 applies.

Lee confirms that section 340.6(a) applies not only to legal malpractice claims but, in fact, also governs non-client claims against attorneys – e.g., malicious prosecution. However, as the Dissent argued, the Court’s rule also narrows the class of claims to which section 340.6 applies by predicating it on “the conduct alleged and ultimately proven.” This invites artful pleading from a plaintiff seeking to avoid section 340.6 and “elevate[s] the form of the plaintiff’s cause of action over the substance of the defendant’s wrongful conduct.” The Court dismissed this consequence by arguing that a time-barred claim will not survive summary judgment and that an attorney must certify that the complaint has evidentiary support. Yet, seeking summary judgment or sanctions involves great expense that could otherwise be avoided. Taking the facts in Lee as an example, the attorney allegedly refused to return the client’s fee advance. Regardless of how it is labeled and the ultimate proof presented, could there be any question that this “wrongdoing” arose from the performance of professional services? The Dissent’s proposed rule – i.e., that “section 340.6 governs any claim against an attorney, except for actual fraud, that is based on the attorney’s wrongful conduct in performing professional services” – appears to be more in line with the intent of the Legislature’s enactment of section 340.6. In addition, the reference to the Rules of Professional Conduct as a foundation for the application of section 340.6 also suggests that with its current composition, this Court may be leaning towards finding that an alleged violation of the Rules could, without more, suffice to establish a departure from the standard of care.

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August 25, 2015