Thursday, September 10, 2015

A Law Licence Is Necessary, But Not Sufficient, to Invoke CCP § 340.6

Lee v. Hanley, No. S220775 (Cal. Aug. 20, 2015)

Code of Civil Procedure § 340.6 provides a one-year-from-discovery statute of limitations in an “action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance of professional services[.]” As reported here, here, here, here, here, and here, there is a longstanding split of authority over how broadly to read the statute, particularly with respect to certain torts that, if committed by anyone other than an attorney, might have a much longer limitations period. 

Some courts have read the statute literally, to include, for instance, a malicious prosecution action against a lawyer. Others, including the case on review here, have looked to the spirit of the statute and limited its application to cases of attorney professional negligence. The California Supreme Court stepped in to resolve the split.

The Court, Justice Liu writing, joined by Chief Justice Cantil-Sakauye and Justices Werdegar, Cuellar, and Kruger, takes a somewhat subtle middle-of-the road approach that hasn’t appeared—to my knowledge—in a prior court of appeal case. Focusing on the text of the statute and related legislative and drafting history, the court draws two conclusions regarding the legislative intent behind § 340.6. First, the bill was meant to eliminate prior discrepancies that conditioned the statute of limitations for complaints against attorneys on the form of the plaintiff’s pleading, i.e., with different limitations periods depending on whether the claim sounded in breach of contract, breach of fiduciary duty, etc. The Legislature clearly intended to enact a unified limitations period in passing § 340.6. Second, in using the phrase “arising in the performance of professional services,” the Legislature intended to sweep more broadly than just actions for attorney malpractice. (A prior version of the bill had been confined to malpractice.) That said, although § 340.6 applies beyond attorney malpractice, “it does not apply to claims that do not depend on proof that the attorney violated a professional obligation.” (emphasis original).

As the court explains, 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.” This includes professional services ancillary, but related, to the practice of law, such as bookkeeping, accounting, and holding client property in trust. It does not, however, apply to garden variety wrong, such as stealing from a client, even when that wrongdoing occurs in the course of an attorney-client relationship. And when an attorney’s professional and garden variety obligations overlap, § 340.6 applies only when succeeding on the claim necessarily entails proof that “an attorney violated a professional obligation as opposed to some generally applicable nonprofessional obligation.”  The court gives the example of sexual battery, which every person is obliged to refrain from, see Civ. Code § 1708.5(a), but which attorneys have a particular professional obligation to avoid in the context of an attorney-client relationship, see Cal. R. Prof. Cond. 3-120.  Section 340.6 would apply to a sexual battery only if some aspect of the claim necessarily required proof of the violation of a professional obligation that is particular to attorneys.

Turning to the facts of the case, which involve an allegation of conversion of client funds, the court holds that Plaintiffs claims are not necessarily barred by § 340.6. If the claim is just failure to return a specific sum of money, that doesn’t meet the test because even if that violates professional obligations such as the duty to return unearned client funds, Cal. R. Prof. Cond. 3-700(D), proof of the violation of the professional duty would not be necessary to the claim. On the other hand, if proof depended on an obligation particular to attorneys—if, for instance, the attorney kept the money due to an unconscionable fee agreement, Cal. R. Prof. Cond. 4-200—§ 340.6 might apply. Since the case was at the demurrer stage, it is just too soon to know.

Justice Corrigan, joined by Justice Chin, dissents. She says the Court’s test is too loosey-goosy and that it will give rise to the form over substance problem that was the issue before the passage of § 340.6. And since the majority’s test is based on the ultimate evidentiary proof, it also makes it too hard to weed out time-barred complaints on demurrer. Under Justice Corrigan’s analysis, § 340.6 should generally apply, absent fraud, so long as the acts at issue were performed by the attorney in the course of rendering professional services. If those acts are also prohibited by some generally applicable standard of conduct, such that they afford attorneys with a special statute of limitations, tough luck. That’s what the Legislature intended.

Court of appeal affirmed, on a different rationale.

Interestingly, the court here decided to grant review of a case with a somewhat different fact pattern than the norm. Many of the cases addressing § 340.6 are malicious prosecution cases. But if I’m reading the opinion correctly, those cases don’t merit the application of § 340.6 because the general obligation to refrain from bringing suit without probably cause is enough to get to liability, even though attorneys have special obligations to abstain from advocacy inconsistent with the truth, see Cal. R. Prof. Cond. 5-200(A).

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