Ethics in Brief

Ethics in Brief is designed to present ethical issues that practitioners might well face on a daily basis. It is a service of the Legal Ethics Committee of the San Diego County Bar Association.

Legal Mal Mystery: When Is the Claim Barred?

The question of when a legal malpractice claim is barred by the applicable statute of limitations can be mystifying.  A recent California Supreme Court decision (Lee v. Hanley, case no. S22705, filed August 21, 2015) attempts to provide an answer.  But does it end up making it even more complicated? 

As alleged in the second amended complaint, client Lee employed attorney Hanley in litigation and paid him $110,000 in advanced attorney’s fees and costs, including $10,000 for expert witness fees over a period of months.  The litigation settled on January 25, 2010.  On February 1, 2010, Hanley sent Lee an invoice showing a credit balance of $46,321.85.  In April 2010, Lee telephoned Hanley to request a final statement of account and a refund of unearned fees.  Hanley then told her that she did not have a credit balance and would not receive a refund.  Lee and her new lawyer both sent Hanley letters on December 6, 2010 terminating his representation and demanding refund of $46,321.85 in unearned fees and $10,000 in costs.  Hanley refunded $9,725 in unearned costs on December 28, 2010.

Lee filed an action against Hanley on December 21, 2011.  Hanley successfully demurred based on the one year statute of limitations contained in Code of Civil Procedure section 340.6.  The section applies to “an action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services.”  Lee’s termination of Hanley’s representation triggered a duty under Rule of Professional Conduct 3-700(D)(2).

Determining when a claim subject to section 340.6 is barred can be complicated and downright mysterious.  The one year statute of limitations begins to run when the “plaintiff discovers, or through the use of reasonable diligence should have discovered, the facts constituting the wrongful act or omission.”  On top of that, there are tolling provisions, the most significant being that time is tolled if the plaintiff has not sustained “actual” injury and while the attorney continues to represent the plaintiff in the particular matter.   There is much case law that attempts to sort out when injury “actually” occurs and how the tolling provisions are applied.

Lee argued to the court of appeal that Hanley continued to represent her until he returned the $9,725 in costs to her and also 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. But the winning argument was that section 340.6 did not apply at all.

Section 340.6 on its own terms applies only to an act of omission “arising in the performance of professional services” other than actual fraud.  After a close examination of the Legislative history of the section, the Supreme Court held 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 one 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.”

The Court of Appeal and the California Supreme Court both concluded that Lee’s second amended complaint could be construed as a claim for “garden variety” conversion of funds.  It did not depend on a showing that Hanley also violated Rule of Professional Conduct 3-700(D)(2), which would be evidence of a breach of fiduciary duty, although the facts might establish that as well.  Based on the judicial policy to construe pleadings liberally, Lee survived to fight another day.

The Lee decision clarifies the scope of what kind of claims are covered by section 340.6.  At the same time, it adds another question to the already complicated analysis of whether a legal malpractice claim is time barred: can the plaintiff’s complaint be construed to state a cause of action for some “garden variety” tort or even a claim for services that are not professional services that takes it outside the scope of section 340.6?

– David Cameron Carr

**No portion of this summary is intended to constitute legal advice. Be sure to perform independent research and analysis. Any views expressed are those of the author only and not of the SDCBA or its Legal Ethics Committee.**