Lee v. Hanley

• Decision Date: 20 August 2015
• Docket Number: No. S220775.,S220775.
• Citation: 191 Cal.Rptr.3d 536,354 P.3d 334,61 Cal.4th 1225
• Court: California Supreme Court
• Parties: Nancy F. LEE, Plaintiff and Appellant, v. William B. HANLEY, Defendant and Respondent.

61 Cal.4th 1225

354 P.3d 334

191 Cal.Rptr.3d 536

Nancy F. LEE, Plaintiff and Appellant

v.William B. HANLEY, Defendant and Respondent.

No. S220775.

Supreme Court of California

Aug. 20, 2015.

Walter J. Wilson, San Francisco, for Plaintiff and Appellant.

Law Office of Dimitri P. Gross and Dimitri P. Gross, Irvine, 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.

Opinion

LIU, J.

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 v. PacifiCare of Cal., Inc. (2001) 25 Cal.4th 412, 415, 106 Cal.Rptr.2d 271, 21 P.3d 1189.) 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 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 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 Cal.App.4th 292, 312, 40 Cal.Rptr.3d 313, citing Bank of America v. Superior Court (1942) 20 Cal.2d 697, 703, 128 P.2d 357.) “ ‘ “A demurrer based on a statute of limitations will not lie where the action may be, but is not necessarily, barred. [Citation.] In order...