Lee v. Hanley
61 Cal. 4th 1225
| Cal. | 2015Background
- Lee advanced $120,000 to Hanley ($110,000 for fees/costs; $10,000 for expert fees). After settlement, Hanley’s February 1, 2010 billing indicated a $46,321.85 credit balance; he later refused to refund it.
- Lee and new counsel terminated Hanley on December 6, 2010 and demanded return of the credit; Hanley returned only $9,725 (expert fees) on December 28, 2010 and kept the alleged unearned fees.
- Lee sued on December 21, 2011 (over one year after the termination demand). Hanley demurred under Code Civ. Proc. § 340.6(a) (one‑year discovery rule for actions against attorneys for wrongful acts arising in performance of professional services, except actual fraud).
- The trial court sustained the demurrer (with leave to amend), Lee declined to further amend, and the case was dismissed; the Court of Appeal reversed, and the Supreme Court granted review.
- The Supreme Court framed the key question as whether § 340.6(a) applies to a claim based on an attorney’s refusal to return a former client’s money and clarified the proper test for when § 340.6(a) bars claims against attorneys.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether § 340.6(a) applies to an attorney’s refusal to return unearned fees | Lee: § 340.6(a) applies only to acts that require the practice of law; returning funds is incidental and not governed by § 340.6(a) | Hanley: § 340.6(a) covers most client-attorney disputes; refusal to return fees arises in performance of professional services and is barred | § 340.6(a) applies to claims whose merits necessarily depend on proof that the attorney violated a professional obligation in providing professional services; it does not categorically bar garden‑variety theft/conversion claims that can be proved without relying on professional‑duty violations |
| Whether a conversion claim can avoid § 340.6(a) | Lee: conversion claim (garden‑variety wrongful exercise of dominion) may not depend on professional obligations and thus is outside § 340.6(a) | Hanley: artful pleading should not defeat § 340.6(a); substance controls | Court: At pleading stage, Lee’s complaint could reasonably be construed as a conversion claim that does not necessarily depend on proof of a professional‑duty breach; demurrer improperly sustained |
| Whether applicability turns on pleading label or on ultimate proof | Lee: statute should be limited to “acting as an attorney” (services requiring a law license) | Hanley: statute should reach virtually all misconduct in attorney‑client relationship except actual fraud | Court: Look to whether claim necessarily depends on proving violation of a professional obligation (not merely the label); statute was intended to cover broadly claims about professional obligations but not unrelated garden‑variety wrongdoing |
| Accrual/discovery date and tolling (alternative issues addressed by Court of Appeal) | Lee: limitations tolled until Dec. 28, 2010 (return of some funds) or began when she discovered Hanley’s assertion that retention arose from performance of professional services | Hanley: limitations ran no later than Dec. 6, 2010 (date of termination/demand) | Court of Appeal (affirmed in part): limitations began no later than Dec. 6, 2010; discovery is discovery of wrongful conduct, not discovery of legal theory that § 340.6(a) applies; Supreme Court did not reverse this guidance on accrual in this procedural posture |
Key Cases Cited
- Neel v. Magana, Olney, Levy, Cathcart & Gelfand, 6 Cal.3d 176 (Cal. 1971) (discovery rule for malpractice accrual under pre‑section 340.6 law)
- Budd v. Nixen, 6 Cal.3d 195 (Cal. 1971) (same discovery accrual principle)
- Beal Bank, SSB v. Arter & Hadden, LLP, 42 Cal.4th 503 (Cal. 2007) (discusses legislative context and insurance‑cost concerns motivating § 340.6)
- Quintilliani v. Mannerino, 62 Cal.App.4th 54 (Cal. Ct. App. 1998) (definition of "professional services" and limits where services are unrelated to practice of law)
- Roger Cleveland Golf Co., Inc. v. Krane & Smith, APC, 225 Cal.App.4th 660 (Cal. Ct. App. 2014) (construed § 340.6(a) narrowly as professional negligence statute; disapproved to extent inconsistent)
- Committee for Green Foothills v. Santa Clara County Bd. of Supervisors, 48 Cal.4th 32 (Cal. 2010) (statute‑of‑limitations demurrer standard: demurrer lies only if bar clearly appears on face of complaint)