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July 15, 2014

Lee v. Hanley (2014) 227 Cal.App.4th 1295

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The Supreme Court will review a case from the Fourth District holding a claim for return of unearned fees is not governed by the statute of limitations applicable to attorney professional services, C.C.P. § 340.6.

Nancy F. Lee hired William B. Hanley to represent her in civil litigation, and paid him advance fees. More than a year after terminating Hanley, Lee sued him for return of unearned attorney’s fees.  The trial court sustained Hanley demurrer, reasoning the claim was time barred by C.C.P. § 340.6.

Section 340.6 applies to an attorney’s wrongful act or omission “arising in the performance of professional services.” Lee argued Hanley’s legal services had terminated by the time he retained the unearned fees.  Retaining unearned fees is not providing legal services, and § 340.6 should not bar her claim. 

Hanley argued Lee’s allegations were similar to a claim for unconscionable attorneys’ fees, which is essentially a claim for legal malpractice, according to precedent. The Court disagreed, noting Lee was satisfied with Hanley’s services, and her claim for a return of unearned fees was not based on malpractice or unconscionability.

The Court also differed with Hanley’s argument that his retention of fees was similar to holding and distributing settlement funds, which another court held arises out of the provision of legal services. An advance of fees for future performance of legal services is not related to an attorney’s performance of services.

Although § 340.6 applies to claims against attorneys regardless of whether the claim is in contract or tort, the statute includes the qualification that the wrongful act or omission must arise out of the performance of professional services, and this limit is dictated by plain meaning of the statute. The legislative intent was the statute would apply specifically to malpractice claims.

Not every conceivable act an attorney takes that affects a client arises out of professional services. Because Lee alleged Hanley stole from her, § 340.6 was not applicable.

Comment: While the result seems correct, hopefully the Supreme Court will confine this exception to its facts. Otherwise, expect claimants filing beyond the statute of limitations to argue their claims are unrelated to legal services, and that a longer statute of limitations should apply.

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