Lee v. Hanley

Filed 8/20/15

IN THE SUPREME COURT OF CALIFORNIA

NANCY F. LEE, )

)

Plaintiff and Appellant, )

) S220775

v. )

) Ct.App. 4/3 G048501

WILLIAM B. HANLEY, )

) Orange County

Defendant and Respondent. ) Super. Ct. No. 30-2011-00532352

____________________________________)

Code of Civil Procedure section 340.6, subdivision (a) (hereafter section

340.6(a)) provides: ―An action against an attorney for a wrongful act or omission,

other than for actual fraud, arising in the performance of professional services

shall be commenced within one year after the plaintiff discovers, or through the

use of reasonable diligence should have discovered, the facts constituting the

wrongful act or omission . . . .‖ We granted review to decide whether an

attorney‘s refusal to return a former client‘s money after the client terminated the

representation was ―a wrongful act or omission . . . arising in the performance of

professional services‖ under section 340.6(a). We hold that section 340.6(a)

applies to a claim when the merits of the claim will necessarily depend on proof

that an attorney violated a professional obligation — that is, an obligation the

attorney has by virtue of being an attorney — in the course of providing

professional services. Such claims brought more than one year after the plaintiff

discovers or through reasonable diligence should have discovered the facts

underlying the claim are time-barred by section 340.6(a) unless the plaintiff

alleges actual fraud.

According to plaintiff Nancy Lee‘s second amended complaint, she

advanced defendant Attorney William Hanley funds to cover attorney‘s fees in

litigation, but Hanley 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(a). After concluding that section 340.6(a) applied to

Lee‘s claims and that she filed her complaint more than one year after Hanley

informed her that he would not return her money, the trial court sustained the

demurrer with leave to amend. Lee declined to file a further amended complaint,

and the trial court dismissed the case.

We conclude the trial court erred in sustaining the demurrer. In this

procedural posture, the trial court was required to construe all factual allegations

in the complaint in Lee‘s favor. Lee‘s allegations, if true, would show that Hanley

has violated certain professional obligations in the course of providing

professional services, and any claim based on his violation of these obligations is

time-barred. But the complaint can also be construed to allege a claim for

conversion whose ultimate proof at trial may not depend on the assertion that

Hanley violated a professional obligation. Thus, on at least one reasonable

construction of the complaint, at least one of Lee‘s claims is not time-barred. We

therefore affirm the Court of Appeal‘s judgment reversing the trial court‘s order

sustaining defendant‘s demurrer.

I.

―On review of the judgment of the Court of Appeal reversing the superior

court‘s order[] sustaining defendant[‘s] demurrer[], we examine the complaint de

novo to determine whether it alleges facts sufficient to state a cause of action

under any legal theory, such facts being assumed true for this purpose.‖ (McCall

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v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415.) Accordingly, we assume

the truth of the allegations in Lee‘s second amended complaint.

Lee retained Hanley to represent her in a civil litigation matter and over

several months 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. The matter settled on

January 25, 2010. On February 1, 2010, Hanley sent Lee a letter and an invoice

for legal services, both of which indicated that Lee had a credit balance of

$46,321.85. In April 2010, Lee telephoned Hanley to request a final billing

statement and a refund of her final credit balance. Hanley responded that Lee did

not have a credit balance and would not receive a refund.

On December 6, 2010, Lee and her new lawyer, Walter Wilson, each sent

Hanley a letter, terminating Hanley‘s services and demanding a refund of

$46,321.85 in unearned attorney‘s fees and approximately $10,000 in unused

expert witness fees. On December 28, 2010, Hanley returned $9,725 in unused

expert witness fees. He has not returned any unearned attorney‘s fees.

On December 21, 2011, over a year after sending her demand letter to

Hanley, Lee filed suit. Hanley demurred on the ground that Lee‘s lawsuit was

time-barred under section 340.6(a). Before the trial court ruled on the demurrer,

Lee filed her first amended complaint, so the trial court ruled that the demurrer

was moot. Hanley demurred to the first amended complaint on the same basis as

his original demurrer. Concluding that section 340.6 barred all of Lee‘s claims,

the trial court sustained the demurrer with leave to amend.

Lee filed a second amended complaint. The second amended complaint

alleged that Hanley ―provided appropriate legal services . . . and [Lee] did not

suffer any injury from said services . . . .‖ The second amended complaint further

alleged: ―On or about February 1, 2010, defendants sent to plaintiff the LAST

BILLING for fees/costs through the DISMISSAL . . . , offsetting their earned

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fees/costs against the WAR CHEST, informing plaintiff the remainder was a

‗credit balance‘ — after all professional services were completed — of $46,321.

[¶] Within a reasonable time after transmission of the LAST BILLING, but no

later than March 1, 2010, defendants should have paid plaintiff‘s credit balance to

plaintiff, but did not. [¶] As a direct and proximate result of defendants‘ and each

of their [sic] failure to return to plaintiff the unearned fees/costs, defendants were

unjustly enriched, and plaintiff lost, said $46,321. Plaintiff herein seeks the return

of said unearned funds. Plaintiff also seeks interest on said funds, at the legal rate

of 10% from March 1, 2010 through Judgment.‖

Hanley again demurred on section 340.6(a) grounds. The trial court issued

a tentative ruling sustaining the demurrer without leave to amend, stating that ―the

funds were advanced in connection with the performance of professional services

and the attorney was required to return the funds upon his discharge.‖ At oral

argument, Lee suggested that she could cure the defects in her complaint and

requested leave to amend. The trial court sustained the demurrer but allowed Lee

leave to amend by adding a count for fraud. When Lee did not file a further

amended complaint, the trial court dismissed the action with prejudice.

Lee appealed, arguing that section 340.6(a) does not apply to her claims. In

the alternative, she argued that the limitations period was tolled from December 6,

2010 to December 28, 2010 because Hanley continued to represent her until the

day he returned her unused expert witness fees. She also argued that the

limitations period did not begin to run until she discovered Hanley‘s belief that his

retention of her credit balance arose in the performance of professional services.

The Court of Appeal‘s opinion began by observing that section 340.6(a)

does not apply to every conceivable case in which a client alleges that an attorney

took actions that wronged him or her. For example, section 340.6(a) would not

bar a claim that an attorney stole money from a client‘s unattended purse, even if

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the client was in the attorney‘s office to discuss a lawsuit. A garden-variety theft

claim against an attorney alleges wrongful conduct, but that conduct does not arise

in the performance of professional services even if the client and the attorney were

discussing legal matters at the time the theft took place.

After reviewing the allegations in Lee‘s second amended complaint, the

Court of Appeal determined that the complaint could be construed to advance a

claim for conversion, and a claim for conversion is not relevantly different from a

claim for garden-variety theft. Thus, the court concluded, section 340.6(a) might

not bar Lee‘s lawsuit. The court explained: ―We do not know whether, on

remand, the facts as ultimately developed will show a theft of funds, an accounting

error, or something else. While a cause of action based on the theft or conversion

of client funds, for example, would not be subject to the section 340.6 statute of

limitations, a cause of action predicated on an accounting error could be.‖ Finding

that the trial court erred in sustaining the demurrer, the Court of Appeal reversed.

Finally, the Court of Appeal addressed Lee‘s tolling and date of discovery

arguments in case she continued to assert claims to which section 340.6(a) would

apply on remand. The court held that the statute of limitations began to run no

later than December 6, 2010, when Lee and her attorney sent Hanley a letter

terminating the representation. The court further held that, for purposes of section

340.6(a), the date of discovery is the date Lee discovered or should have

discovered Hanley‘s wrongful conduct, not the date she discovered Hanley‘s

belief that section 340.6(a) may apply to her lawsuit. We granted review.

II.

―When a demurrer is sustained with leave to amend, and the plaintiff

chooses not to amend but to stand on the complaint, an appeal from the ensuing

dismissal order may challenge the validity of the intermediate ruling sustaining the

demurrer.‖ (County of Santa Clara v. Atlantic Richfield Co. (2006) 137

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Cal.App.4th 292, 312, citing Bank of America v. Superior Court (1942) 20 Cal.2d

697, 703.) ― ‗ ―A demurrer based on a statute of limitations will not lie where the

action may be, but is not necessarily, barred. [Citation.] In order for the bar . . . to

be raised by demurrer, the defect must clearly and affirmatively appear on the face

of the complaint; it is not enough that the complaint shows that the action may be

barred.‖ ‘ ‖ (Committee for Green Foothills v. Santa Clara County Bd. of

Supervisors (2010) 48 Cal.4th 32, 42 (Committee for Green Foothills).)

We review de novo questions of statutory construction. (Imperial

Merchant Services, Inc. v. Hunt (2009) 47 Cal.4th 381, 387.) In doing so, ― ‗our

fundamental task is ―to ascertain the intent of the lawmakers so as to effectuate the

purpose of the statute.‖ . . . We begin by examining the statutory language because

it generally is the most reliable indicator of legislative intent. We give the

language its usual and ordinary meaning, and ―[i]f there is no ambiguity, then we

presume the lawmakers meant what they said, and the plain meaning of the

language governs.‖ . . . If, however, the statutory language is ambiguous, ―we may

resort to extrinsic sources, including the ostensible objects to be achieved and the

legislative history.‖ . . . Ultimately we choose the construction that comports most

closely with the apparent intent of the lawmakers, with a view to promoting rather

than defeating the general purpose of the statute.‘ ‖ (Mays v. City of Los Angeles

(2008) 43 Cal.4th 313, 321, citations omitted.)

A.

As noted, the claims in Lee‘s complaint cannot survive the demurrer if they

are for ―a wrongful act or omission, other than for actual fraud, arising in the

performance of professional services‖ within the meaning of section 340.6(a).

The statutory text does not by itself make clear whether the phrase ―arising in the

performance of professional services‖ limits the scope of section 340.6(a) to legal

malpractice claims or covers a broader range of wrongful acts or omissions that

6

might arise during the attorney-client relationship. Because the text is ambiguous

(see Roger Cleveland Golf Co., Inc. v. Krane & Smith, APC (2014) 225

Cal.App.4th 660, 678 (Roger Cleveland) [finding section 340.6(a) ambiguous]),

we proceed to examine the statute‘s purpose and legislative history.

The Legislature enacted section 340.6(a) in 1977 amid rising legal

malpractice insurance premiums. (See Mallen, Panacea or Pandora’s Box? A

Statute of Limitations for Lawyers (1977) 52 Cal. State Bar J. 22 (hereafter

Mallen) [―During the last year, insurance premiums of California attorneys have

increased from 100 per cent to almost 400 per cent.‖]; Hill, The Bar at Bay —

Malpractice Woes Hit Attorneys As Lawsuits Against Them Increase, Wall Street

Journal (Feb. 3, 1976) p. 1, col. 1; Beal Bank, SSB v. Arter & Hadden, LLP (2007)

42 Cal.4th 503, 510 (Beal Bank).) The increase in premiums was due in part to

two features of the law that had produced uncertainty surrounding the limitations

period for claims of legal malpractice.

First, our decisions in Neel v. Magana, Olney, Levy, Cathcart & Gelfand

(1971) 6 Cal.3d 176 and Budd v. Nixen (1971) 6 Cal.3d 195 held that a cause of

action for legal malpractice does not accrue until the client discovers, or should

have discovered, the facts establishing the elements of the cause of action. (Neel,

at p. 190; Budd, at p. 203.) These decisions made it difficult for attorneys and

insurers to determine when the limitations period for potential malpractice

lawsuits began to run.

Second, before 1977, the limitations periods for malpractice lawsuits

depended on the forms of action contained in a plaintiff‘s complaint. Lawsuits for

malpractice were subject to different limitations periods depending on whether the

plaintiff pleaded breach of a written contract (Code Civ. Proc., § 337 [four years]),

fraud (id., § 338 [three years]), or breach of an oral contract or a tort affecting

intangible property (id., § 339, subd. (1) [two years]). (See Sen. Com. on

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Judiciary, analysis of Assem. Bill No. 298 (1977–1978 Reg. Sess.) as amended

May 17, 1977, p. 2.) Under the old scheme, attorneys could not be certain of the

applicable limitations period for potential claims of malpractice.

The Legislature responded by enacting Assembly Bill No. 298 (1977–1978

Reg. Sess.), which added section 340.6 to the Code of Civil Procedure. (Hereafter

Assembly Bill 298.) The Legislature sought to ―reduce[] the cost of legal

malpractice insurance‖ and ―limit[] the open-endedness‖ of the various limitations

periods for claims against attorneys. (Sen. Democratic Caucus, Rep. on Assem.

Bill No. 298 (1977–1978 Reg. Sess.) as amended Aug. 17, 1977; see Stoll v.

Superior Court (1992) 9 Cal.App.4th 1362, 1368 (Stoll) [―The limitation of one

year was designed to counteract the potential of lengthy periods of potential

liability wrought by the adoption of the discovery rule, and thereby reduce the

costs of malpractice insurance.‖].)

The bill‘s evolution in the Legislature helps to further illuminate the

statute‘s purpose. As originally introduced on January 25, 1977, the proposed bill

provided in relevant part: ―In any action for damages against an attorney based

upon the attorney‘s alleged professional negligence, the time for the

commencement of action shall be three years after the date of the negligent act or

one year after the plaintiff discovers, or through the use of reasonable diligence

should have discovered, the damage, whichever first occurs.‖ (Assem. Bill.

No. 298 (1977–1978 Reg. Sess.) as introduced Jan. 25, 1977.) On May 9, 1977,

the bill was amended in the Assembly to read in relevant part: ―An action against

an attorney for a wrongful act or omission, other than for actual fraud, arising in

the performance of professional services shall be commenced within one year after

the plaintiff discovers, or through the use of reasonable diligence should have

discovered, the facts constituting the wrongful act or omission, or four years from

the date of the wrongful act or omission, whichever occurs first.‖ (Assem. Bill.

8

No. 298 (1977–1978 Reg. Sess.) as amended May 9, 1977.) Thus, the Assembly

replaced the bill‘s original phrase ―professional negligence‖ with the ultimately

enacted phrase ―wrongful act or omission, other than for actual fraud, arising in

the performance of professional services.‖

Although the legislative history does not explain the substitution, the

amended language can be traced to a proposal in a State Bar Journal article

submitted to the Assembly Committee on Judiciary around the time of the

amendment. (Assem. Com. on Judiciary, Dig. of Assem. Bill No. 298 (1977–1978

Reg. Sess.) as amended on Mar. 9, 1977, p. 3, citing Mallen, supra, 52 State Bar J.

22.) That article proposed a single statute of limitations applicable to legal

malpractice claims. The author suggested using the phrase ―[a]n action against an

attorney for a wrongful act or omission‖ rather than ―malpractice‖ because

― ‗malpractice‘ is not in itself a word of precise definition. Legal malpractice is

best stated in terms of the actual wrong: a wrongful act or omission occurring in

the rendition of professional services.‖ (Mallen, at p. 77.) We have previously

observed that Assembly Bill 298 ―dr[ew] heavily from‖ this article and was

―rewritten with Mallen‘s proposal as a template, borrowing verbatim‖ some of the

language appearing in Mallen‘s article. (Beal Bank, supra, 42 Cal.4th at p. 510.)

Thus, in enacting the final version of the bill, the Legislature intended to establish

a limitations period that would apply broadly to any claim concerning an

attorney‘s violation of his or her professional obligations in the course of

providing professional services regardless of how those claims were styled in the

plaintiff‘s complaint.

At the same time, the legislative history following the change continued to

indicate that the Legislature‘s primary focus was establishing a new limitations

period for legal malpractice. All legislative history subsequent to the May 9, 1977

amendment continued to speak of the bill as creating a statute of limitations for

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legal malpractice claims. (See, e.g., Assem. Com. on Judiciary, Dig. of Assem.

Bill No. 298 (1977–1978 Reg. Sess.) as amended May 9, 1977; Off. of Legal

Affairs, Enrolled Bill Rep. on Assem. Bill No. 298 (1977–1978 Reg. Sess.) Sept.

15, 1977; see also Roger Cleveland, supra, 225 Cal.App.4th at p. 681 [―all the

subsequent legislative material that we have reviewed referred to what became

section 340.6 as a statute of limitations for legal malpractice‖]; Southland

Mechanical Constructors Corp. v. Nixen (1981) 119 Cal.App.3d 417, 427

(Southland) [―From the time the statute was introduced in the Assembly to its

ultimate signing by the Governor, every legislative analysis on section 340.6 . . .

began with a review of existing statutes of limitation applicable to legal

malpractice actions, including section 337, subdivision (1) for actions based on a

written contract.‖], disapproved on other grounds, Laird v. Blacker (1992) 2

Cal.4th 606, 617.) Assembly Bill 298 passed the Senate on August 23, 1977 and

the Assembly on September 1, 1977.

In a letter urging Governor Brown to sign the bill, the bill‘s sponsor wrote:

―This bill creates a new statute of limitations for legal malpractice actions in an

effort to close off the present open-ended time frame allowed for such actions.‖

(Assemblyman Willie L. Brown, Jr., letter to Governor Edmund G. Brown, Jr.,

Aug. 31, 1977, p. 1.) Governor Brown approved Assembly Bill 298 on September

16, 1977.

B.

From the legislative history described above, we draw two conclusions

about the Legislature‘s purpose in enacting section 340.6(a). First, the Legislature

sought to eliminate the former limitations scheme‘s dependence on the way a

plaintiff styled his or her complaint. Analyses produced in committee identified

this dependence as one of the sources of uncertainty in the pre-1977 limitations

scheme. (Sen. Com. on Judiciary, analysis of Assem. Bill No. 298 (1977–1978

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Reg. Sess.) as amended May 17, 1977, p. 2.) Similarly, the State Bar Journal

article that outlined the amendment to the statutory text suggested that the statute

be ―stated in terms of the actual wrong‖ rather than in terms of a single cause of

action, i.e., professional negligence. (Mallen, supra, 52 Cal. State Bar J. at p. 77.)

Thus, Assembly Bill 298 consolidated the prior limitations periods applicable to

malpractice claims against attorneys. The Legislature enacted the statute so that

the applicable limitations period for such claims would turn on the conduct alleged

and ultimately proven, not on the way the complaint was styled. (See

Prakashpalan v. Engstrom, Lipscomb and Lack (2014) 223 Cal.App.4th 1105,

1121–1122 (Prakashpalan) [section 340.6(a) applies to a breach of fiduciary duty

claim]; Yee v. Cheung (2013) 220 Cal.App.4th 184, 195–196 [same for malicious

prosecution]; Vafi v. McCloskey (2011) 193 Cal.App.4th 874, 881–883 [same for

malicious prosecution]; Stoll, supra, 9 Cal.App.4th at p. 1366 [same for breach of

fiduciary duty]; Southland, supra, 119 Cal.App.3d at pp. 428–431 [same for

breach of contract].)

Second, the version of the bill that the Legislature ultimately adopted was

designed to give Assembly Bill 298 a broader sweep than its original language

would have provided. As a result of the May 9, 1977 amendment, the statute

applies not only to actions for professional negligence but to any action alleging

wrongful conduct, other than actual fraud, arising in the performance of

professional services. At the same time, the Legislature continued to make clear

that its primary purpose was to address the growing cost of malpractice lawsuits.

That is why committee reports and analyses throughout the legislative process

focused on rising legal malpractice insurance premiums. Thus, while section

340.6(a) applies to claims other than strictly professional negligence claims, it

does not apply to claims that do not depend on proof that the attorney violated a

professional obligation.

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In light of these observations, we conclude that section 340.6(a)‘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.

In this context, a ―professional obligation‖ is an obligation that an attorney has by

virtue of being an attorney, such as 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. By contrast, as the Court of Appeal

observed, section 340.6(a) does not bar a claim for wrongdoing — for example,

garden-variety theft — that does not require proof that the attorney has violated a

professional obligation, even if the theft occurs while the attorney and the victim

are discussing the victim‘s legal affairs. Section 340.6(a) also does not bar a claim

arising from an attorney‘s performance of services that are not ―professional

services,‖ meaning ―services performed by an attorney which can be judged

against the skill, prudence and diligence commonly possessed by other attorneys.‖

(Quintilliani v. Mannerino (1998) 62 Cal.App.4th 54, 64 (Quintilliani).)

Both parties disagree, at least in part, with this holding. Lee observes that

the Legislature in enacting section 340.6(a) was primarily concerned with legal

malpractice. In her view, section 340.6(a) applies only when an attorney is ―acting

as an attorney‖ — that is, only when an attorney performs services that require a

license to practice law. Lee thus urges us to distinguish between legal and

nonlegal services, and to hold that section 340.6(a) does not apply to claims based

on an attorney‘s provision of nonlegal services that are merely incidental to the

practice of law. Because safely keeping and timely returning client funds is

merely incidental to a lawyer‘s provision of legal services, Lee argues, section

340.6(a) does not apply to her lawsuit.

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This view falters on the statutory text, which speaks of wrongful conduct

―arising in the performance of professional services,‖ not merely legal services.

(§ 340.6(a), italics added.) To be sure, section 340.6(a) does not apply to claims

involving an attorney‘s provision of services unrelated to the practice of law, such

as concert promotion. (See Quintilliani, supra, 62 Cal.App.4th at p. 64.) But the

attorney-client relationship often requires attorneys to provide nonlegal

professional services such as accounting, bookkeeping, and holding property in

trust. (See Prakashpalan, supra, 223 Cal.App.4th at p. 1122, fn. 4.) Indeed, the

training and regulation that make the practice of law a profession, as well as the

grounds on which an attorney may be disciplined as an attorney, include

professional obligations that go beyond duties of competence associated with

dispensing legal advice or advocating for clients in dispute resolution. (See, e.g.,

Cal. Rules of Prof. Conduct, rule 4-100 [governing an attorney‘s handling of a

client‘s property].) In light of the Legislature‘s intent that section 340.6(a) cover

more than claims for legal malpractice, the term ―professional services‖ is best

understood to include nonlegal services governed by an attorney‘s professional

obligations.

Hanley urges us to construe section 340.6(a) to apply to all forms of

attorney misconduct, except actual fraud, that occur during the attorney-client

relationship or entail the violation of a professional obligation. Although the

Legislature intended section 340.6(a) to apply to most lawsuits between clients

and their attorneys, so as to reduce the uncertainty driving the cost of malpractice

insurance premiums (ante, at pp. 7–8), Hanley‘s proposed construction sweeps too

broadly.

Misconduct does not ―aris[e] in‖ the performance of professional services

for purposes of section 340.6(a) merely because it occurs during the period of

legal representation or because the representation brought the parties together and

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thus provided the attorney the opportunity to engage in the misconduct. To hold

otherwise would imply that section 340.6(a) bars claims unrelated to the

Legislature‘s purposes in enacting section 340.6(a) — for example, claims that an

attorney stole from or sexually battered his client while the attorney was providing

legal advice. Nor does section 340.6(a) necessarily apply whenever a plaintiff‘s

allegations, if true, would entail a violation of an attorney‘s professional

obligations. The obligations that an attorney has by virtue of being an attorney are

varied and often overlap with obligations that all persons subject to California‘s

laws have. For example, everyone has an obligation not to sexually batter others

(see Civ. Code, § 1708.5, subd. (a)), but attorneys also have a professional

obligation not to do so in the particular context of the attorney-client relationship

(see Cal. Rules of Prof. Conduct, rule 3-120). 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.

Hanley maintains that when an attorney‘s professional obligations overlap

with generally applicable obligations, today‘s holding can be exploited by artful

pleading. He argues, for example, that a claim most naturally understood as an

ordinary fee dispute, based on alleged deficiencies in the attorney‘s performance,

can be styled as a claim for conversion. But plaintiffs involved in ordinary fee

disputes cannot evade the statute as Hanley suggests. Proper pleading requires a

complaint to contain a ―statement of the facts constituting the cause of action, in

ordinary and concise language.‖ (Code Civ. Proc., § 425.10, subd. (a)(1).)

Further, the attorney or party filing the complaint must certify that the facts stated

in the complaint ―have evidentiary support.‖ (Id., § 128.7, subd. (b)(3).) These

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requirements force parties ―to give fair notice of their claims to opposing parties

so they can defend‖ (Ameron Internat. Corp. v. Insurance Co. of State of

Pennsylvania (2010) 50 Cal.4th 1370, 1384) and to ― ‗ ―set forth the essential facts

of [the] case with reasonable precision and with particularity sufficient to acquaint

a defendant with the nature, source and extent of [the] cause of action‖ ‘ ‖

(Doheny Park Terrace Homeowners Assn., Inc. v. Truck Ins. Exchange (2005) 132

Cal.App.4th 1076, 1099). 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. (See Levin v. Graham & James (1995) 37 Cal.App.4th 798,

803–805 [section 340.6(a) barred claim that law firm charged unconscionable fees

because claim was based on allegation that firm provided deficient legal

services].) To be sure, a plaintiff in an ordinary fee dispute could attempt to evade

dismissal by omitting the underlying factual basis for a conversion claim. (Cf. dis.

opn., post, at p. 3.) But most such attempts will fall victim to the requirement that

a complaint provide facts that give fair notice to the opposing party. And even if

such a claim does survive the dismissal stage, it cannot survive summary

judgment. Section 340.6(a) applies as soon as discovery makes clear that the

claim‘s underlying basis consists of evidence that the attorney provided deficient

professional services.

Finally, Hanley objects that today‘s holding creates an exception to section

340.6(a) even though ―actual fraud‖ is the only exception provided in the statute.

―[I]f exemptions are specified in a statute, we may not imply additional

exemptions unless there is a clear legislative intent to the contrary.‖ (Sierra Club

v. State Bd. of Forestry (1994) 7 Cal.4th 1215, 1230.) But our decision does not

exempt from section 340.6(a)‘s ambit any ―action against an attorney for a

15

wrongful act or omission, other than for actual fraud, arising in the performance of

professional services.‖ Instead, our decision explains the meaning of that

language: Section 340.6(a) applies to claims that necessarily depend on proof that

an attorney violated a professional obligation in the course of providing

professional services unless the claim is for actual fraud.

Our holding today is in tension with statements in Roger Cleveland, supra,

225 Cal.App.4th 660, 677 [reading section 340.6(a) ―as a professional negligence

statute‖] and David Welch Co. v. Erskine & Tulley (1988) 203 Cal.App.3d 884,

893 [―[W]here a cause of action is based on a defendant‘s breach of its fiduciary

duties, the four-year catchall statute set forth in Code of Civil Procedure section

343 applies.‖].) We disapprove those decisions to the extent they are inconsistent

with this opinion.

C.

The posture of this case requires us to assume the truth of the allegations in

Lee‘s complaint. In that posture, we conclude that the trial court erred in

sustaining the demurrer on section 340.6(a) grounds because, based solely on the

allegations in the relevant complaint, Lee‘s lawsuit is not necessarily barred.

(Committee for Green Foothills, supra, 48 Cal.4th at p. 42.)

― ‗ ―Conversion is the wrongful exercise of dominion over the property of

another. The elements of a conversion claim are: (1) the plaintiff‘s ownership or

right to possession of the property; (2) the defendant‘s conversion by a wrongful

act or disposition of property rights; and (3) damages. . . .‖ ‘ ‖ (Welco Electronics,

Inc. v. Mora (2014) 223 Cal.App.4th 202, 208.) Lee‘s complaint may be

construed to allege that Hanley is liable for conversion for simply refusing to

return an identifiable sum of Lee‘s money. Thus, at least one of Lee‘s claims does

not necessarily depend on proof that Hanley violated a professional obligation in

the course of providing professional services. Of course, Lee‘s allegations, if true,

16

may also establish that Hanley has violated certain professional obligations, such

as the duty to refund unearned fees at the termination of the representation (Cal.

Rules of Prof. Conduct, rule 3-700(D)(2)), just as an allegation of garden-variety

theft, if true, may also establish a violation of an attorney‘s duty to act with loyalty

and good faith toward a client. But because Lee‘s claim of conversion does not

necessarily depend on proof that Hanley violated a professional obligation, her suit

is not barred by section 340.6(a).

We do not suggest that Hanley is in fact liable for conversion. At this

stage, we do not know whether Hanley disputes that he owes Lee the money she

claims (perhaps they had previously agreed that Hanley could keep any leftover

portion of the advance), whether Hanley made a bookkeeping error in handling

Lee‘s money, or whether Hanley misspent Lee‘s money or decided to keep it for

no good reason. If, for example, Lee‘s claim turns out to hinge on proof that

Hanley kept her money pursuant to an unconscionable fee agreement (Cal. Rules

of Prof. Conduct, rule 4-200) or that Hanley did not properly preserve client funds

(id., rule 4-100), her claim may be barred by section 340.6(a). At this stage,

however, without any development of the facts, we cannot conclude that section

340.6(a) necessarily bars Lee‘s claim.

17

CONCLUSION

For the reasons above, we affirm the Court of Appeal‘s reversal of the trial

court‘s judgment sustaining the demurrer.

LIU, J.

WE CONCUR:

CANTIL-SAKAUYE, C. J.

WERDEGAR, J.

CUÉLLAR, J.

KRUGER, J.

18

DISSENTING OPINION BY CORRIGAN, J.

In my view, the applicability of Code of Civil Procedure section 340.61 is

largely resolved by the language of the statute, which the majority opinion

discusses only sparingly.

Section 340.6 states, in relevant part: ―An action against an attorney for a

wrongful act or omission, other than for actual fraud, arising in the performance of

professional services shall be commenced within one year‖ after the plaintiff‘s

discovery of the wrongful act or four years after the date of the wrongful act.

―Arising in the performance of professional services‖ modifies ―wrongful act or

omission,‖ describing the type of conduct that triggers the statute. This court has

construed similar language in the anti-SLAPP2 statute. Section 425.16 authorizes

a motion to strike for ―[a] cause of action against a person arising from any act of

that person in furtherance of the person‘s right of petition or free speech . . . .‖

(Id., subd. (b)(1).) We explained that ―arising from‖ in section 425.16 means that

the cause of action must be based on conduct in furtherance of the defendant‘s

right of petition or free speech. (City of Cotati v. Cashman (2002) 29 Cal.4th 69,

78.) Applying the same construction here, a cause of action subject to

section 340.6 must be based on an attorney‘s conduct in performing a professional

service.

1 All statutory references are to the Code of Civil Procedure.

2 The acronym stands for strategic lawsuits against public participation. (See

Canan & Pring, Strategic Lawsuits Against Public Participation (1988) 35 Soc.

Probs. 506.)

1

From a plain reading of the statutory language, I would hold 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. It

does not matter how the claim is specifically pleaded or what proof is ultimately

necessary to support it. What matters is the nature of the alleged wrongdoing:

Was the conduct logically encompassed in the attorney‘s performance of

professional services? If so, section 340.6 requires that any claim based on that

conduct be brought within one year of discovery or four years of the conduct. If

not, some other limitations period applies.

Legislative history is consistent with this interpretation. As the majority

opinion ably demonstrates, the Legislature‘s intent in enacting section 340.6 was

―to establish a limitations period that would apply broadly to any claim concerning

an attorney‘s violation of his or her professional obligations in the course of

providing professional services regardless of how those claims were styled in the

plaintiff’s complaint.‖ (Maj. opn., ante, at p. 9, italics added.) To instill certainty

and reduce legal malpractice premiums, the Legislature drafted section 340.6 to

focus on the nature of the attorney‘s alleged wrongdoing, rather than how it is

labeled in a cause of action. (See maj. opn., ante, at pp. 10-11.)

I generally agree with the majority‘s assessment of legislative intent. It

goes astray, however, in defining the test for when section 340.6 applies. The

majority recognizes that the Legislature sought to remove the limitation scheme‘s

dependence on how a claim is pleaded. (Maj. opn., ante, at p. 10.) In place of

―pleadings,‖ however, the majority would simply substitute ―pleadings and proof.‖

The majority thus holds that applicability of the statute turns on ―the conduct

alleged and ultimately proven‖ (id. at p. 11, italics added) and extends only to

―claims whose merits necessarily depend on proof that an attorney violated a

professional obligation in the course of providing professional services‖ (id. at

p. 12, italics added). This formulation has no apparent basis in the statute‘s

language or legislative history. By focusing on ―ultimate[]‖ or ―necessar[y]‖

2

proof, the majority effectively narrows the class of claims to which section 340.6

applies. That is a line for the Legislature to draw, not this court.

Moreover, in all but the most straightforward malpractice cases, the

majority‘s rule will make it difficult or impossible for untimely claims against

attorneys to be resolved before trial. How can one predict what proof will be

necessary to support a claim before the plaintiff tries her case? Except for factual

questions surrounding when a plaintiff has discovered injury or wrongdoing, there

appears to be no other context in which the applicability of a limitations statute is

governed by the plaintiff‘s ultimate proof. A delay in resolving statute of

limitations defenses cannot be squared with the legislative goals of providing

certainty and reducing the costs associated with malpractice lawsuits (see maj.

opn., ante, at pp. 10-11).

The greatest problem with the majority‘s interpretation, however, is how

little it differs from the pleadings-based triggers that section 340.6 replaced.

Although couched in language of proof, rather than pleadings, the majority‘s rule

continues to elevate the form of the plaintiff‘s cause of action over the substance

of the defendant‘s wrongful conduct. Application of the rule here shows why this

is so. After the one-year limitations period in section 340.6 expired, Lee sued

Hanley for breach of contract, breach of fiduciary duty, and related equitable

violations. The majority concedes these claims are barred but concludes dismissal

was improper because Lee might be able to plead a viable claim for conversion on

remand. Thus, despite clear legislative intent ―to eliminate the former limitations

scheme‘s dependence on the way a plaintiff styled his or her complaint‖ (maj.

opn., ante, at p. 10), the majority opinion suggests a plaintiff can avoid

section 340.6 by labeling her claim a different way. To be sure, the majority gives

assurances that the statute‘s application will ultimately depend on the nature of a

plaintiff‘s proof, not just her pleading. However, if Lee can prove conversion

without referring too much to Hanley‘s professional violations, her claim would

appear unbarred by section 340.6. Exactly how much a plaintiff‘s proof can touch

3

upon or concern an attorney‘s professional obligations without triggering the

statute is left unclear.

A straightforward interpretation of section 340.6 would avoid artful

attempts at evasion and would allow untimely claims to be dismissed before

expenses mount in discovery and trial. A straightforward reading of the statute

makes clear that what matters is the nature of the wrongful conduct alleged.

Specifically, to ―aris[e] in the performance of professional services‖ (§ 340.6), the

wrongful conduct must have some close and logical relationship to those

professional services.3

Here, Lee hired Hanley to represent her in civil litigation. She paid him to

do so, advancing fees and costs. The lawsuit settled, and Lee now alleges Hanley

did not return a large portion of unused fees. The present dispute directly relates

to whether Hanley acted wrongfully in keeping the money. Hanley was paid in

advance for his performance of legal services. As the pending State Bar

disciplinary action against him indicates, he arguably violated professional rules

by failing to return the unused advances. Hanley‘s alleged wrongful acts ―ar[ose]

in the performance of professional services‖ (§ 340.6) because they were closely

and logically related to his service as Lee‘s attorney. Accordingly, regardless of

whether Lee could style her complaint some other way, I would uphold the

judgment of the trial court finding her claims against Hanley barred by

section 340.6.

CORRIGAN, J.

I CONCUR:

CHIN, J.

3 It seems unlikely that sexual battery or outright theft could ever be closely

or logically connected to the performance of legal services. (See maj. opn., ante,

at p. 14.) A broader interpretation of the statute need not lead to such absurd

results.

4

See next page for addresses and telephone numbers for counsel who argued in Supreme Court.

Name of Opinion Lee v Hanley

__________________________________________________________________________________

Unpublished Opinion

Original Appeal

Original Proceeding

Review Granted XXX 227 Cal.App.4th 1295

Rehearing Granted

__________________________________________________________________________________

Opinion No. S220775

Date Filed: August 20, 2015

__________________________________________________________________________________

Court: Superior

County: Orange

Judge: Robert J. Moss

__________________________________________________________________________________

Counsel:

Walter J. Wilson for Plaintiff and Appellant.

Law Office of Dimitri P. Gross and Dimitri P. Gross for Defendant and Respondent.

Meyers Nave, Buchalter Nemer and Harry W.R. Chamberlain II for Association of Southern California

Defense Counsel as Amicus Curiae on behalf of Defendant and Respondent.

1

Counsel who argued in Supreme Court (not intended for publication with opinion):

Walter J. Wilson

333 West Broadway, Suite 200

Long Beach, CA 90802

(562) 432-3388

Dimitri P. Gross

Law Office of Dimitri P. Gross

19200 Von Karman Avenue, Suite 900

Irvine, CA 92612

(949) 788-1007

Harry W.R. Chamberlain II

Buchalter Nemer

1000 Wilshire Boulevard, Suite 1500

Los Angeles, CA 90017

(213) 891-0700

2