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James D. Crosby, Attorney at Law. Complex and General Business Litigation and Trial Representation. San Diego, California. O: (619) 450-4149 C: (858) 705-0083 Email: crosby@crosbyattorney.com

“…an attorney does not provide a service to the client by stealing his or her money.” Lee v. Hanley – The 4th District Weighs in on CCP 340.6.

James D. Crosby, Attorney at Law - Complex and General Business Litigation and Trial Representation - San Diego, California

In an opinion that will put a broad grin on the faces of plaintiff malpractice attorneys across the state, the Fourth District Court of Appeal held this week in Lee v. Hanley (G048501) that the Code of Civil Procedure Section 340.6 one year statute of limitations for attorney malpractice may not apply in cases involving a client claim for return of attorneys fees retained by the attorney. The court distinguished leading cases applying section 340.6 and analyzed the legislative history of the statute. But, the basic premise of the opinion is stated by the court as follows:

“Here, we find the words of the statute to be plain and unambiguous. They provide the applicable statute of limitations for an action based on “a wrongful act or omission, other than for actual fraud, arising in the performance of professional services . . . .” (§ 340.6.) So, if the wrongful act or omission at issue arises “in the performance of professional services,” the statute applies. If the wrongful act or omission at issue does not arise “in the performance of professional services,” the statute is inapplicable. As we have already stated, an attorney does not provide a service to the client by stealing his or her money.”

While I share in the Court’s obvious revulsion towards an attorney stealing a client’s money, I think the opinion, especially in its repeated reference to the tort of conversion as one area where the one-year statute may not apply, is problematic. And it will certainly be used by plaintiff’s attorneys to attempt to break open the one year statute in any malpractice case involving a claim for the return of fees, including those where the attorney hasn’t stolen anything or done anything wrong.

This was a demurrer case. In its analysis of the complaint at issue, the Court stated the following:

The second amended complaint in the matter before us alleged that, after Attorney Hanley’s services with respect to the settled litigation had been fully completed,he knowingly refused to release money belonging to Lee, which he himself had characterized as her “credit balance.” When we liberally construe the second amended complaint we see that, despite Lee’s form of pleading, she has made factual allegation adequate to state a cause of action for conversion, for example. (Welcon Electronics, Inc. v. Mora (2014) 223 Cal. App. 4th 202, 208-209, 215-216 [wrongful exercise of dominion over identifiable sum of money belonging to another].) 

To me, this is a troubling passage and subject to much potential abuse by smart attorneys with otherwise stale claims. Seems like the case could be used to extend the limitation period beyond one year in any matter involving fees – like when the client wants a refund of fees already earned. Couldn’t the client just claim the attorney is not entitled to the fees, sue for conversion and then, based on Lee v. Hanley, push the applicable statute to 2 or 3 years?

But, conversion is an odd bird – it can be an intentional tort but it can also be just a general intent exercise of dominion or control over another’s property. “Conversion is a strict liability tort. The foundation of the action rests neither in the knowledge nor the intent of the defendant. Instead, the tort consists in the breach of an absolute duty; the act of conversion itself is tortious. Therefore, questions of the defendant’s good faith, lack of knowledge, and motive are ordinarily immaterial.” Los Angeles Federal Credit Union v. Madatyn (2012) 209 Cal.App.4th 1383, 1387. “Conversion must be knowingly or intentionally done, but a wrongful intent is not necessary. Because the act must be knowingly done, ‘neither negligence, active or passive, nor a breach of contract, even though it result in injury to, or loss of, specific property, constitutes a conversion.’ It follows therefore that mistake, good faith, and due care are ordinarily immaterial, and cannot be set up as defenses in an action for conversion.” Taylor v. Forte Hotels International (1991) 235 Cal.App.3d 1119, 1124. Under Lee v. Hanley, a careful drafter with a stale claim but a story involving client money, will sue, claim “conversion” and maybe get past demurrer on an otherwise time-barred claim – but, on a claim based on a strict liability tort where the attorney’s good-faith, mistake and due care are meaningless. Conversion is not always theft and not always “wrongful” in the traditional sense.

I  understand the court’s concern about disreputable lawyers absconding with client monies. I share it, as most all lawyers do. And the simple phrase “…an attorney does not provide a service to the client by stealing his or her money” makes sense. But, this is a case where the law of unintended consequences may trap a lot of fine attorneys, who have good faith disputes with clients over earned fees, into defending what would otherwise be stale claims and losing the statutorily-mandated protection accorded by Section 340.6.

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