Monday, October 6, 2014

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Supreme Court to Consider Statute of Limitations in Attorney Fee Cases

By a MetNews Staff Writer

The California Supreme Court has agreed to decide whether the one-year statute of limitations for suits over attorney negligence necessarily applies to an action for failure to return unearned fees.

The justices, at their weekly conference in San Francisco Wednesday, unanimously granted review in Lee v. Hanley (2014) 227 Cal. App. 4th 1295, decided by the Fourth District Court of Appeal, Div. Three, on July 15.

The panel reinstated an ex-client’s claim that her attorney notified her that she had an unexpended advance payment of more than $46,000, but then refused to return the money. “We hold that, to the extent a claim is construed as a wrongful act not arising in the performance of legal services, such as garden variety theft or conversion, [Code of Civil Procedure] section 340.6 is inapplicable,” Justice Eileen Moore wrote for the court.

The statute applies to an action based on “a wrongful act or omission, other than for actual fraud, arising in the performance of professional services.” Because Nancy F. Lee’s complaint against Newport Beach attorney William B. Hanley could be construed as raising a claim for conversion or a similar tort, it was error for Orange Superior Court Judge Robert J. Moss to sustain a demurrer, Moore said.

Lee filed suit on Dec. 21, 2011. Her second amended complaint alleges that the case in which Hanley represented her settled on Jan. 25, 2010, and that she received a letter and an invoice from Hanley about a week later.

Both the letter and invoice stated that she had a credit balance of $46,321.85, she alleged. But when she called and asked for her refund, she said, she was told that she wouldn’t get one.

She then retained her current attorney, Walter J. Wilson, and both she and he sent letters on Dec. 6, 2010 demanding return of the credit balance, plus nearly $10,000 in unexpended expert witness fees. The latter was returned, she said, but no part of the unexpended attorney fees was refunded.

Hanley argued that because the action arose from legal representation, and there was no allegation of fraud, the one-year statute applied on the face of the complaint. The justice disagreed.

“…[S]urely it cannot be the case that every conceivable act an attorney may take that affects his or her client is one arising in the performance of legal services,” Moore wrote, citing as an example a hypothetical attorney’s theft from his client’s unattended purse.

She distinguished Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105, in which the plaintiffs alleged, more than 14 years after the settlement of a class action, that the defendant law firm failed to distribute the settlement proceeds. The Court of Appeal held that §340.6 barred the plaintiffs’ claims for malpractice and breach of fiduciary duty.

Moore said the cases were different.

“An attorney’s collection of settlement funds and distribution of those funds to the litigants entitled thereto is clearly part of the performance of the legal service of settling the lawsuit,” she explained. “However, an attorney’s receipt of a client advance for the future performance of legal services does not constitute the attorney’s performance of those services.”

She cited Roger Cleveland Golf Co., Inc. v. Krane & Smith, APC (2014) 225 Cal.App.4th 660, which held §340.6 inapplicable to a malicious prosecution suit arising from an attorney’s representation of a client, saying the legislative intent was to apply the statute solely to malpractice claims.

Moore acknowledged that the plaintiff did not assert causes of action for fraud, conversion, or theft, but said the pleading should be liberally construed.