Conflicts and the Closely Held Corporation

Beachcomber Mgmt. Crystal Cove, LLC v. Superior Court, No. G054078 (D4d3 Jul. 28, 2017)

This case addresses the interpretation Rule of Professional Conduct 3-310—the rule on client conflicts—in the somewhat unusual context of a stockholder derivative action. 

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.

Stealing from Clients Is Not Professional Services

Lee v. Hanley, No. G048501 (D4d3 as modified,* August 8, 2014)

When you sue your attorney for refusing to return unused fees, what statute of limitations applies?  Is it the one-year limit in § 340.6, which applies to actions against attorneys alleging “a wrongful act or omission, other than for actual fraud, arising in the performance of professional services?” Or is it the longer periods that would ordinarily apply to claims for torts or breach of contract? The court notes a deep split in authority surrounding § 340.6, including several  recent cases. 

There are two broad approaches. One—bolstered by the legislative history, and general fairness—holds that § 340.6 applies to malpractice cases, not to garden variety torts committed in the course of practicing law. The other—taking a more literal reading—applies the statute broadly, to any claim, in tort or contract, arising from acts an attorney performs in his professional capacity, except for fraud.

The court here hedges a little, although it appears to adopt the second take. But it then nonetheless holds that § 340.6 does not necessarily apply. The court says “[i]f the wrongful act or omission at issue does not arise ‘in the performance of professional services,’ the statute is inapplicable.” Reading the complaint liberally, the facts suggest some theories that don’t implicate the attorney’s professional services. In particular, the court seems to think a conversion claim could steer clear of § 340.6. Of course, plaintiff didn’t plead conversion. Even so, she pleaded facts sufficient to allege it. And since demurrers attack facts and not labels, that is enough to for plaintiff to win a reversal in this appeal.

Reversed.

*On the parties’ petitions for rehearing, the court made some modifications that made the opinion a little less ambiguous. 

**Note: Given the split of authority, it is perhaps unsurprising that the Supreme Court granted review on October 1, 2014.