LEE v. HANLEY

Respondent’s Petition for Review

Cal.August 26, 2014

S220775 SUPREME COURT Court of Appeal Case No. G048501 Superior Court Case No. 30-2011-00532352 AUG 26 2014 Frank A. VicGuire Glerk IN THE Deputy RS SUPREME COURT OF CALIFORNIA ¢32800) NancyF. Lee Plaintiff/Appellant, VS. William B. Hanley, Defendant/Respondent. After A Decision From The Court Of Appeal OfThe State Of California, Fourth Appellate District, Division Three Appeal from the Superior Court of Orange County The Honorable Robert J. Moss, Judge RESPONDENT?’S PETITION FOR REVIEW Dimitri P. Gross, Esq. (SBN 174347) LAW OFFICES OF DIMITRI P. GROSS 19200 Von Karman Avenue,Suite 900 Irvine, California 92612 (949) 788-1007 Telephone (888) 788-1045 Facsimile Email: dgross@dimitrigross.com Attorney for Respondent William B Hanley Court of Appeal Case No. G048501 Superior Court Case No. 30-201 1-00532352 IN THE SUPREME COURT OF CALIFORNIA Nancy F. Lee Plaintiff/Appellant, VS. William B. Hanley, Defendant/Respondent. After A Decision From The Court Of Appeal OfThe State Of California, Fourth Appellate District, Division Three Appeal from the Superior Court of Orange County The Honorable Robert J. Moss, Judge RESPONDENT?’S PETITION FOR REVIEW Dimitri P. Gross, Esq. (SBN 174347) LAW OFFICES OF DIMITRI P. GROSS 19200 Von Karman Avenue, Suite 900 Irvine, California 92612 (949) 788-1007 Telephone (888) 788-1045 Facsimile Email: dgross@dimitrigross.com Attorney for Respondent William B Hanley Il. If. IV. VI. VIL. VII. IX. Xl. TABLE OF CONTENTS INTRODUCTION|eececeseeeeeesessseeeseseesceacerseseeseessnecaeeessnasseeaes I STATEMENT OFISSUES...eccceceeccseceeseeeceeeeeeeeeeeestaesseeceeseseeees 3 SUMMARYOF ARGUMENT1.0... ceecceeccsseeseeeesceseeeeseneeneresesesseeas 4 SUMMARYOF FACTS AND PROCEDURALHISTORY............. 5 REHEARING WASDENIED; OPINION WAS MODIFIED........... 7 GROUNDSFOR REVIEW 0.0... ececceesesseseesesseeseseeesensesneaseseeseeeseesecaes 8 SUPREME COURT REVIEW IS NECESSARY TO RESOLVE THE ISSUE OF WHETHER A CLAIM FOR THE RETURN OF UNEARNED FEESIS SUBJECT TO SECTION 340.6 .................. 8 A. The Legislature Intended Section 340.6 to be Broadly COmstrule......cccccccccecccecccessssssseseccsessnacceseesesecseateceeescuceceseeeeeauaceces 8 B. Courts Have Interpreted Section 340.6 Broadly and Applied it to Any Action Against an Attorney (except for Fraud), Including Disputes Involving Client Funds........00....cccccececeeeeeeerees 11 C. How an Attorney Handles Client Funds is Part of the Attorney’s Professional Duties which “Arise in the Performance of Professional Services”........0.....ccscccesecececsceeeseceeeees 15 D. A Breach of Duties Involving Client Money Is ‘ ‘Legal Malpractice”........ccccccccecscccsssesseesscesessssssscessvescesesersseseeens 16 THE FOURTH DISTRICT’S INTERPRETATION OF SECTION 340.6 CARVES OUT AN EXCEPTION WHICHIS INCONSISTENT WITH THE STATUTORY LANUAGE AND THE LEGISLATIVE INTENT. IT WILL LEAD TO THE UNCERTAINY SECTION 340.6 WAS DESIGNED TO ELIMINATE0... cecceeccesscssceseeseesseeseessscesecssesaeesssecsaeceescesssesensessesss 17 A. Stolen Money From a Purse Analogyis Flawed ...........ccccccece 19 B. Fourth District Carves Out Exceptions to Section 340.6...............20 LEE SHOULD NOT HAVE BEEN GIVEN LEAVE TO ADD CONVERSION OR ANY OTHER THEORY...........:ccccecceeseeeeeee 24 SUPREME COURT REVIEW IS NECESSARY BECAUSE THERE IS DISAGREEMENT BETWEEN THE COURTS REGARDING THE PLAIN MEANINGOF THE STATUTE....... 25 CONCLUSION....oececcseccccccnesseseeeseceeseeceaesecseesecaeaeeseeteeaeneteesensees 26 CERTIFICATE OF COMPLIANCE.....ccccceecessssesssseeseeesesceseeseeseneeeseeseeees 27 TABLE OF AUTHORITIES Cases County ofSanta Clara v. Atlantic Richfield Co. (2006) 137 Cal-App.4th 292 oo... cccccceccesessececesceeeeeseecaeeeseseecerseneaeeeaeeses 24 Giraldo v. California Dept. ofCorrections & Rehabilitation (2008) 168 Cal.App.4th 231 ooo. cceccccceseeneceeceeeeneceseceaecesesseeeesseeneeeeenees 24 Lee v. Hanley (2014) 174 Cal.Rptr.3d 489; 227 Cal-App.4th 1295oo.passim Levin v. Graham & James (1995) 37 Cal.App.4th 798 ooo. ceceseseesneeseseceseeeeeesetsaceseenseeereeeenees passim Neel v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176ee eceecceeessceserereeetsneeseseeceeerseesaeeaseseeesseeatsaseneeaeeneeens 9 Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 CalApp.4th L105 oo. eeeeccececsecereeteeereesesseeeas 13, 14, 20, 21 Quintilliani v. Mannerino (1998) 62 Cal.App.4th 54 oo. ccccceeesssesseeeseeneseeeeeeeneeeeeeeescenseeeeesseees 11 Roger Cleveland GolfCo., Inc. v. Krane & Smith, APC (2014) 225 Cal.App.4th 660.0... ccccccesesseceeeseesseeeresseeeseeeneees 11, 12, 25 Schultz v. Harney (1994) 27 Cal.App.4th 1611] ceceeceeeccsesecceeeeeeeceeeeeesaeeeeeeeeeees 15, 16, 21 Sierra Club v. State Bd. ofForestry (1994) 7 Cal.4th 1215occceecceseestseaeceeesecseesecsesceneecseensseeeaeseesseeeeess 23 Southland v. Mechanical Constructors Corp. v. Nixen (1981) 119 CalApp.3d 417 ooo. ccccccccsseesetsecsseeseteeessseseeseaeeeeeeees passim Stoll v. Superior Court (1992) 9 CalApp.4th 1362.0... cceecccceccceceeeseeeseeseeeseeereeesseeeateeeees passim Vafi v. McCoskey (2011) 193 Cal.App.4th 874 oo... cccccccsecsessecteceseeceeesseeseneeneeees 11, 12, 25 Yee v. Cheung (2013) 220 CalApp.4th 184 oo... cee ecccseeereeeecsereeceneeteeeneeeees 10, 11, 12, 25 Statutes California Code of Civil Procedure section 340.6 ..........:esseeseeeseerecees passim California Code of Civil Procedure section 340.6 subdivision (a)............... 8 il Rules California Rules of Court, Rule 8.500 subd. (b)(1L).....ccceeccecseeeescsseseeneeees 8 California Rules of Prof. Conduct, Rule 3-700 (D)(2)......:..:ccssceseeeseseees 15 California Rules of Professional Conduct, Rule 4-100 (B)(1)..........cee 15 California Rules of Professional Conduct, Rule 4-100 (B)(3)..........c.cee 15 li INTRODUCTION This is a perfect case for review because there is a need for uniformity regarding the scope of California Code of Civil Procedure section 340.6,' andthe central issue presented is an importantoneaffecting the public and the entire legal industry. Appellant Nancy L. Lee (“Lee”) hired Respondent William B. Hanley (“Hanley”) to representherin litigation. She advanced moneyto Hanleyforlitigation fees and costs, and, after the litigation ended, Lee claims Hanley failed to return unearned fees. More than a year after she discovered her claims, Lee sued Hanley based onhisalleged failure to reimburse unearnedfees. Section 340.6 providesthat a// claims against an attorney for wrongful acts or omissions (exceptfor actual fraud) arising “in the performance ofprofessional services” must be brought within one year.’ Lee’s lawsuit, which is based on an attorney’s failure to reimburse funds advancedforlitigation, is subject to section 340.6. This is consistent with the Legislative intent and several cases interpreting section 340.6. Thetrial ' All statutory references will be to the Code of Civil Procedure unless otherwise indicated. * Hanley disputes Lee’s allegations in her pleadings, but for purposesofthis petition will present them as pled in Lee’s operative pleading. court agreed and,after giving Lee multiple opportunities to amend, dismissed her second amended complaint. The appellate court (the “Fourth District”) reversed the trial court and revived Lee’s stale claim. To support its holding, the Fourth District reasonedthat a client’s dispute with her attorney over client funds may support other causes of action which have a longerlimitations period.’ The answer, according to the Fourth District, requires litigation over whether the dispute involves a “theft of funds, an accounting error, or something else.”* The Fourth District’s published Opinion requires review becauseit (1) contradicts the Legislative intent behind section 340.6 and cases interpreting the statute; (2) carves out unnecessary, additional exceptions to section 340.6, even though the only statutory exception is for “actual fraud”; and (3) attempts to distinguish disputes involving so called “traditional attorney services”from how an attorney handlesclient funds, even though both sets of duties to the client are implicated and intertwined. The Opinion opensthe door for creative parties with stale claims to plead aroundsection 340.6 by alleging a dispute involvingclient funds. > E.g., conversion,theft, breach of fiduciary duty, commoncounts, etc. 4 Lee v. Hanley (2014) 174 Cal.Rptr.3d 489, 492; 227 Cal.App.4th 1295. (“Lee”) It will eviscerate section 340.6 and foster the very uncertainty the statute was designedto eliminate. IL. STATEMENT OFISSUES The central issue is whether a formerclient’s claim against her attorney for reimbursement of unearned attorney fees advanced in connection with a lawsuit is an action governed by the one-yearstatute of limitation for actions against attorneys as set forth in California Code of Civil Procedure section 340.6. The issue is presented in the following context: client signs a fee agreement with attorney to represent her on an hourly basis in litigation. The client’s litigation is settled and the client demands a refund of funds advancedfor the lawsuit. The client then sues the attorney, pleading various tort and contract claims against the attorney for allegedly refusing to return unearned attorney fees to client. The attorney demurrers based on the one-yearstatute of limitations. Thetrial court agrees and gives the client multiple opportunities to amend and plead actual fraud. Client refuses to plead a fraud cause of action. Judgmentis entered in favor of attorney. The Fourth District reverses, finding the allegations could be pled as claim for “conversion,” which has a two-yearstatute of limitations. Ti. SUMMARY OF ARGUMENT Prior to section 340.6, attorneys were exposed to numerous limitations periods and indeterminate liability. This created a crisis due to the expense of insurance premiumsand fear insurance companies would not write policies. Section 340.6 was intended to eliminate these problems by having a single, broad statute oflimitations to address all forms of attorney malfeasance except those involving actual fraud. Consistent with the Legislative intent, courts addressing section 340.6 have interpreted the statute broadly. Even wheretheclient alleges only fiduciary duty violationsor fee related issues, and doesnotallege acts below the “standard ofcare,” courts have found such claimsarestill governed bysection 340.6. The mannerin which an attorney handles client fundsis part of an attorney’s professional duties to a client. Even though the Legislature did not use the phrases “legal malpractice” or “professional negligence,”ethical violations regarding handling client money can support a “legal malpractice” action. And, legal malpractice, by any interpretation, is covered bysection 340.6. Byexcluding certain types ofdisputes involving client funds from section 340.6, the Fourth District engrafted an exception to section 340.6. The unintended consequencesofthis ruling can be widespread and significant. It will open the door for artful pleadings designed to avoid the one-yearstatute of limitations, requiring lawyers to defend against otherwise stale claims. This is precisely what Lee didin this case. IV. SUMMARYOF FACTS AND PROCEDURAL HISTORY Lee alleges she hired Hanley to represent her in a lawsuit, she advanced moneyto be used for fees and costs in the litigation, and after the litigation was over Hanleyfailed to return unearnedfees. Based onthese facts, on December6, 2010, Lee and her new lawyer terminated Hanley. On December21, 2011, more than a yearlater, Lee filed a complaint for reimbursementof fees advanced in connection with litigation. The complaint clearly alleges a wrongful act arising in performance of professional services. For example, Lee alleges: Pursuant to the attorney client relationship, defendants were to provide attorney services in the LAWSUITand wereto be paid a reasonable fee plus costs. [{]] By virtue of the attorney-client relationship, defendants . . . were entitled to a reasonable attorney’s fee only. For their services regarding the LAWSUIT,however, they stole from plaintiff $46,321, and their fees overall were otherwise unconscionable. (Clerk’s Transcript [“CT”] 25-37 {emphasis added].) Hanley demurred to the original complaint on the grounds the complaint wasbarred by section 340.6. (CT 83-94) According to Lee, the demurrer to the complaint was the first time Lee learned the one-year statute oflimitationsfor attorneys applied.” Prior to the hearing on the demurrer, Lee filed a first amended complaint. (CT 65-82) In an obviouseffort to avoid the one-yearstatute of limitations, Lee alleged causes of action for breach offiduciary duty, breach of contract, and common counts. Also, Lee’s subsequent pleadings not only eliminated language from the original complaint which clearly brought her claims within section 340.6, but added that she was “satisfied” with Hanley’s services and there was no legal malpractice. Hanley demurred to the first amended complaint asserting all causes of action, regardless of how named, were barred by the one-yearstatute of limitations. (CT 83-94) Thetrial court sustained the demurrerto the first amended complaint with leave to amend,finding all claims were barred by section 340.6. (CT 158) Lee filed a second amended complaint. (CT 161-189) Hanley demurred to the second amended complaint on the same grounds. (CT 190- > “At no time before February 28, 2011 (when appellant received the Demurrer to Complaint), did appellant have any knowledgeor suspicion that respondent claimed the advances were somehow “professional services,’ or that 340.6 applied.” Appellant’s Opening Brief (“AOB”), p. 49 (emphasis added). 221) Thetrial court issued a tentative ruling sustaining the demurrer without leave to amend.° At oral argument, Lee requested leave to amend, making various arguments how she could cure the defects including alleging fraud. The trial court gave Lee leaveto file a third amended complaint. (CT 717; 736- 745) Lee elected not to file a third amended complaint, conceding that she was “unwilling to plead fraud against [Hanley] . . . so was unable to further amend.” (AOBp.2) An unopposedex parte application resulted in an order dismissing the case with prejudice. (CT 792-795) V. REHEARING WAS DENIED; OPINION WAS MODIFIED On July 15, 2014, the Fourth District issued its published Opinion. (Appendix, Exh. 1) On August 8, 2014, the Fourth District issued an Order Modifying Opinion and Denying Petitions for Rehearing (“Modification Order’). There was no changein the judgment. (Appendix, Exh. 2) ° «FTee] claims that defendantfailed to return unearned fees she had advanced and also did not return unused funds advanced for experts soon enough. CCP §340.6 provides that an action against an attorney for a wrongful act ‘arising in the performanceofprofessional services shall be commencedwithin one year... .’ Here, the funds were advanced in connection with the performanceofprofessional services and the attorney wasrequired to return the funds uponhis discharge.” (CT 774) The case as modified is Lee v. Hanley (2014) 174 Cal.Rptr.3d 489; 227 Cal.App.4th 1295. VI. GROUNDSFOR REVIEW “The Supreme Court may order review of a Court of Appeal decision: ... When necessary to secure uniformity of decisionorto settle an important question of law.” (Cal. Rules ofCourt, rule 8.500 subd. (b)(1).) Vil. SUPREME COURT REVIEW IS NECESSARY TO RESOLVE THE ISSUE OF WHETHER A CLAIM FOR THE RETURN OF UNEARNED FEESIS SUBJECT TO SECTION340.6 Section 340.6 subdivision (a) provides a one-yearstatute of limitation for any action against an attorney (except actual fraud) arising performanceofprofessional services: “{a]n action against an attorney for a wrongful act or omission, other than for actual fraud, arising in the performance ofprofessional services shall be commenced within one year. ... (Emphasis added). A. The Legislature Intended Section 340.6 to be Broadly Construed Prior to section 340.6, attorneys were subject to different limitations periods depending on whetherthe cause of action was breachoforal contract, breach of written contract, fraud, tort, and so on. (Stoll v. Superior Court (1992) 9 Cal.App.4th 1362, 1367 (“Stoll”) [Before section 340.6 was enacted, the statute of limitations for legal malpractice varied uponthe plaintiff's choice of theory of liability.”]; see also, Lee’s Motion for Judicial Notice (“MJN”), Exh. 1, p. 36.) To make matters worse, attorneys were subject to open-ended liability due to the delayed discovery rule as established in Nee/ v. Magana, Olney, Levy, Cathcart & Gelfand (1971) 6 Cal.3d 176. These factors led to not only an increase in malpractice insurance premiums, but concern that insurance companies would stop writing policies for attorneys. The Legislature wanted to address this problem by enacting a single statute of limitations governing attorneys’ wrongful acts or omissions. (Stoll, supra, 9 Cal.App.4th at p. 1367.) According to several courts, the Legislature “reviewed and considered Mallen, Panacea or Pandora’s Box? A Statute of Limitations for Lawyers (1977) 52 State Bar Journal 22.” (Stoll at p. 1367.) Mallen’s article suggested language for the statute, including a version which excluded “actual fraud” and “breach of contract” from the one-yearperiod. The Legislature, however, deleted the reference to “breach of contract.” (Stoll, supra, 9 Cal.App.4th at p. 1368; Southland v. Mechanical Constructors Corp. v. Nixen (1981) 119 Cal.App.3d 417, 429 (“Southland”) [the Legislature “deleted the breach of a written contract exception from the proposal becauseit intended that section 340.6 apply to both tort and breach of contract malpractice actions.”’].) A draft version of the statute also included the phrase “alleged professional negligence.” (See MJN, Exh. 3, p. 49.) The Legislature, however, chose not to include limiting phrases such as “professional negligence”or “legal malpractice.” (See, e.g., Yee v. Cheung (2013) 220 Cal.App.4th 184, 196 (“Yee”) [“...the term ‘malpractice’ does not appear anywherein the statute. If the Legislature had wanted to limit section 340.6 to malpractice actions . . ., it could have done so... . The Legislature did not do this, and instead, enacted a broadly wordedstatute that limits the time within which any plaintiff may bring an action against an attorney for the attorney’s conduct ‘arising in the performance of professional services.””] [Emphasis added].) Thus, the Legislature considered andrejected limiting language such as professional negligence, legal malpractice, and breach of contract, in 39 60favor ofbroader language: “wrongful act or omissions” “arising in the performanceofprofessional services.” By doing so, the “Legislature intended to enact a comprehensive, morerestrictive statute of limitations for practicing attorneys facing malpractice claims. The limitation of one year was designed to counteract the potential of lengthy periods ofpotential liability wrought by the adoption of the discovery rule, and thereby reduce 10 the costs of malpractice insurance. The only limitation of the one-year period wasfor actual fraud.” (Stoll, supra, 9 Cal.App.4th at p. 1368.) B. Courts Have Interpreted Section 340.6 Broadly and Applied it to Any Action Against an Attorney (except for Fraud), Including Disputes Involving Client Funds Although the Fourth District takes a narrow view ofsection 340.6, many courts have interpreted the phrase “wrongful act or omission . . arising in the performance of professional services” broadly. (See, e.g., Stoll, supra, 9 Cal.App.4th 1362 [applying section 340.6 to breach of fiduciary duty and other ethical violations]; Southland Mechanical Constructors Corp., supra, 119 Cal.App.3d at pp. 428-431 [applying section 340.6 to breach of contract cause ofaction; “the phrase ‘wrongful act or omission’ has nosingle, settled legal meaning.It is sometimes used interchangeably as a reference to both tortious and contractual wrongdoing.”]; Vafi v. McCoskey (2011) 193 Cal.App.4th 874, 880 (“Vafi’); Yee, supra, 220 Cal.App.4th at p. 194 [disagreed with in Roger Cleveland GolfCo., Inc. v. Krane & Smith, APC (2014) 225 Cal.App.4th 660, 668 (“Roger Cleveland’)]; Quintilliani v. Mannerino (1998) 62 Cal.App.4th 54, 69 [causes of action for breach of fiduciary, and negligent misrepresentation for pre-engagement promises, were covered under section 340.6].) In Yee, the court stated: 1] Theplain language of section 340.6 appliesto all actions, with the exception of those actions asserting actual fraud, that are brought against an attorney for that attorney’s wrongful act or omission... arising in the performance ofprofessional services.’ [Citations] The wordsof the statute are quite broad, but they are not ambiguous: any time a plaintiff brings an action against an attorney andalleges that attorney engaged in a wrongfulact or omission, other than fraud, in the attorney’s performanceofhis or her legal services, that action must be commenced within a year ....’ (Yee, supra, 220 Cal.App.4th at p. 194 [emphasis added].)’ Roger Cleveland disagreed with the holdings in Yee and Vafi that malicious prosecution actions are governed by section 340.6. However, even Roger Cleveland concluded: the Legislature’s use of ‘wrongful act or omission’ by an attorney arising in the performanceofprofessional services was intendedto include any legal theory related to a claim by a client orformer client against his or her attorney. ... (Roger Cleveland, supra, 225 Cal.App.4th at p. 680 [emphasis added].) Other courts applying section 340.6 to disputes over clientfunds and ethics violations have held that section 340.6 applies to such claims, regardlessofthetitle of the cause of action. (See, e.g., Stoll, supra, 9 Cal.App.4th 1362; Levin v. Graham & James (1995) 37 Cal.App.4th 798 ’ See also, Vafi, supra, 193 Cal.App.4th at p. 881 (section 340.6 applies to all actions, except those for actual fraud, brought against an attorney “for wrongful act or omission,” whicharise “in the performance of professional services.”). 12 (“Levin”); Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105 (“Prakashpalan’’).) In Stoll, an attorney wasretained by a corporationto help it locate and purchase a ski resort. The attorney did not disclose to the client he had already entered into a finder’s fee agreement with the ownerofa ski resort for the sale of the resort. After the sale was complete, the attorney obtained his finder’s fee. The corporation sued the attorney alleging he breached his fiduciary duties in violation of California Rules of Professional Conduct becauseofa pre-existing financial conflict of interest; an undisclosed relationship with anotherparty; failing to disclose a conflict of interest; and charging an ““unconscionable fee’” to the corporation. (Stoll, 9 Cal.App.4th at pp. 1365-1366.) Aswith Lee, the allegations in Sto// only related to ethical violations, as opposed to the attorney’s legal advice. The Soll court concluded: “although styled as a breach offiduciary duty, the misconduct alleged ... is nothing more than professional malpractice subject to the one- yearstatute.” (/d. at p. 1366.) In Levin, the client, trying to avoid losing a summary judgment motion, stated in oral argumentthat the case was “not a malpractice case at all, but merely a suit to recover unconscionable fees charged and paid.” (Levin, supra, 37 Cal.App.4th at pp. 802, 804-805.) This creative plea 13 (which is also similar to Lee’s amended pleading to avoid the statute) was rejected. The appellate court stated: Levin’s repeated assertion that one can assert a claim or state a cause ofaction for refund of unreasonable attorney fees (e.g., quantum meruit, money had and received) withoutalso alleging malpracticeis the first of a sea of red herrings beached on the pagesof his briefs. [{] In all cases other than actual fraud, whetherthe theory ofliability is based on the breach of an oral or written contract, a tort, or a breach of a fiduciary duty, the one-year statutory period applies. (id. at p. 805, citing Southland Mechanical Constructors Corp. v. Nixen (1981) 119 Cal.App.3d 417.) In Prakashpalan the court found the plaintiffs’ professional negligence and breach of fiduciary duty claims,arising from taking client settlement funds, were barred by section 340.6. The plaintiffs claimed (as does Lee) “holding of client trust funds is arguably not the rendering of professional services to which Code of Civil Procedure section 340.6 would apply.” (Prakashpalan, 223 Cal.App.4th at p. 1122.) The court rejected this argument, stating “the fundsin the trust account are settlement proceeds”and the attorneys conduct in holding such funds “arise out of the provision of professional services, namely, the settlement of the case onplaintiffs’ behalf.” (/d. at fn.4.) Asset forth below, how anattorney handles client funds, and other ethical duties, arises in performance of professional services. 14 C. How an Attorney Handles Client Fundsis Part of the Attorney’s Professional Duties which “Arise in the Performance of Professional Services” In the attorney-client relationship the attorney owes a host of duties to the client. This includes fiduciary duties to disclose conflicts and manageclient funds. (See, e.g., Cal. Rules ofProf. Conduct, Rule 3-700 (D)(2) [failure to return advanced fees]; Rule 4-100 (B)(1) [failure to notify client of receipt of funds]; Rule 4-100 (B)(3) [failure to render accounting]; Stoll, supra, at p. 1365, Schultz v. Harney (1994) 27 Cal.App.4th 1611, 1621 (“Schultz”).) A violation of an attorney’s fiduciary duties (e.g., a claim offailure to return unearned fees) is a “wrongful act or omission . . arising in the performance ofprofessional services.” Although “[t]here is no single, settled legal meaning of ‘wrongful’ act for purposes ofthe statute,’”® alleged double billing, padding, billing for unperformed work,or failing to return unearned fees are unquestionably “wrongful acts” of an attorney. By their genesis — the reason the funds werein the attorney’s possession — such “wrongful acts”arise “in the performanceofprofessional services.” It has to be, as the funds were transferred to the attorney for legal services. ®Southland Mechanical Constructors Corp., supra, 119 Cal.App.3d at p. 431. 15 D. A Breach of Duties Involving Client Money Is “Legal Malpractice” Evenifthe Legislature intended to limit section 340.6 only to “legal malpractice”or “professional negligence,” an ethics violationrelating to client moneyis a form of“legal malpractice.” The question in Schultz was whetherthe client sufficiently alleged “legal malpractice” against an attorney for charging excessive fees. As here, the client did not allege the attorney negligently performed legal services, but rather that he engaged in “self-dealing” by charging an “excessive and unlawful fee.” (Schultz, supra, 27 Cal.App.4th 1611 atp. 1621.) In addressing whetheran ethics violation over fees can support /egal malpractice the court held: While not a model of pleading, such an allegation is sufficient to charge an act of professional negligence. An attorney’s breach of the ethical duties of good faith and fidelity, which are owedby an attorney to his or her client, amounts to legal malpractice andis actionable. (/d. at p. 1621 [emphasis added].) Although Schultz did not address section 340.6, it demonstrates that an alleged violation offiduciary duties related to client money is a form of “legal malpractice.” And, it is beyond dispute that “legal malpractice” is covered by section 340.6. 16 Here, the faulty assumption is that legal malpractice arises only if the attorney botched the “case”or “transaction.” But, legal malpractice can be based on a breach of the numerous duties an attorney owesa client, including the attorney’s failure to properly accountfor client funds. Regardless of Lee’s artful pleading designed to avoid the statute of limitations, she alleges Hanley committed ethical and fiduciary violations regarding handling her money. This is a form of legal malpractice within section 340.6. Vil. THE FOURTH DISTRICT’S INTERPRETATION OF SECTION 340.6 CARVES OUT AN EXCEPTION WHICH IS INCONSISTENT WITH THE STATUTORY LANUAGE AND THE LEGISLATIVE INTENT. IT WILL LEAD TO THE UNCERTAINY SECTION 340.6 WAS DESIGNED TO ELIMINATE Even though Lee advanced moneyfor professional services, the Fourth District declined to acknowledge that a dispute over unearned fees arises in the performance of professional services. Instead it offered alternative theories of recovery which maybealleged, including “theft” “conversion” and “money had and received.” The Fourth District stated: For example, if a client leaves her purse unattended in the attorney’s office and the attorney takes money from it, would wesay that act arose in the performanceoflegal services? How differentis it if, whenthe legal services have been completed and the attorney’s representation has been terminated, the attorney keeps the unearned fees belonging to the client? To steal from a client is not to render legal 17 services to him or her. Weholdthat, to the extent a claim is construed as a wrongful act not arising in the performanceoflegal services, such as garden variety theft or conversion, section 340.6 is inapplicable. [{]] We do not know whether, on remand,the facts as ultimately developed will show a theft offunds, an accounting error, or something else. While a cause ofaction based on the theft or conversion ofclient funds,for example, would not be subject to the section 340.6 statute oflimitations, a cause ofaction predicated on an accounting error could be. (Lee, 174 Cal.Rptr.3d at p. 492.) [{] When weliberally construe the second amended complaint we see that, despite Lee’s form of pleading, she has madefactual allegations adequateto state a cause ofactionfor conversion, for example. [Citations] .... We do not mean to imply that Lee’s causes of action other than conversion are necessarily barred by the section 340.6 statute of limitations. (/d. at p. 498.) It is clear the Fourth District was troubled with Lee’s allegations against Hanley. Although the Fourth District’s disdain for Lee’s untested allegations is understandable, in justifying the judgmentof reversal the Fourth District (1) created an exception to section 340.6 that is inconsistent with the statute and (2) departed from cases holding fee disputes are subject to section 340.6 and the Legislative intent behind the broadly worded statute. The published Opinion hasthe potential to completely upend section 340.6. 18 A. Stolen Money From a Purse Analogyis Flawed The Fourth District’s stolen-money-from-a-purse analogyis flawed. Gardenvariety theft, such as stealing money from a purse, would not be conduct that arises “in the performance of professional services.” There is no relationship in place where the client voluntary advancesfees to the attorney for legal services. If the analogyis taken to its logical conclusion, most fee disputes would be outside the scope of section 340.6 because,at their core, most disputes over client money,at least from the client’s perspective, involve some elementof “theft” of “client’s money” (padding, double billing, billing for unperformed work). Althoughthe gist of these types of claims may support several causes of action (breach of fiduciary duty, breach of contract, conversion), such allegations are subject to section 340.6 because they arise in performanceofthe attorney’s duties to the client. Also, if a party alleges the billing dispute is due to fraud, then the statute has afraud exception. There is no reason to create additional exceptions such as“theft” or “conversion.”” As discussed below, the * Lee alleged Hanley “stole” the advanced fees which is a form of fraud. However, Leefailed to allege “fraud.” 19 Fourth District went beyond the only exception in section 340.6 and suggested a “conversion”theory of recovery. ° B. Fourth District Carves Out Exceptions to Section 340.6 The Fourth District reasoned that an attorney’s failure to return unearnedfees is potentially outside the scope of professional services and may support conversion or other causes ofaction. First, the position that disputes over client funds are outside the scope ofsection 340.6 has been rejected by courts which have weighedin on the issue. In Stoll, which is not addressed by the Fourth District, the client there, as here, did not to the object attorney’s services, but objected to ethics violations regarding conflicts and an unconscionable fee. Ashere, the client sued for “breach offiduciary” — a cause of action subject to a different limitations period — to get around the one-year period. (Stoll at pp. 1365-1366.) The court held the one-year statute applied, even though the claim related to fee dispute and ethics violations. Ud; see also Levin, 37 Cal.App.4th at pp. 802 [the client stated it was not a malpractice case, but a case for the return of unreasonable fees]; Prakashpalan, 223 Cal.App.4th 1105 [the money was deliveredto the trust account during ° Tt bears repeating that Lee chosenotto allege “fraud” against Hanley even thoughthetrial court gave her numerousopportunities to do SO. 20 representation, but the dispute arose years later]; Schultz, 27 Cal.App.4th at p. 1621 [the client wassatisfied with the settlement, but alleged the lawyer charged an excessive fee. Such an allegation supported a legal malpractice cause ofaction].) Although the Fourth District did not address Stoll, it tried to finely distinguished Levin and Prakashpalan to support its conclusion. The Fourth Districtstated: The critical point, however, is that those cases do not state that the statute applies wheneveran attorney commits any tort of any nature. Rather, they include the qualification, as set forth plainly in the statute, that the wrongful act or omission must be one “arising in the performance ofprofessional services. (Lee, 174 Cal.Rptr.3d p. 496.) The Fourth District takes an overly-narrow view of “wrongful act” “arising in the performance of professional services.” The failure of an attorney to return unearned fees and unused expert witness fees (which Lee voluntarily advancedas part of the attorney’s representation) is an alleged wrongful act or omission arising in the performance ofprofessional services. It strains reason to conclude it is anythingelse. The Fourth District also distinguished Prakashpalan because the failure to deliver client settlement funds in that case arose from the attorney’s duty to distribute settlement proceeds. (Lee, 174 Cal.Rptr.3dp. 496.) Although the way the money ended-upin the attorney’s account may 21 be different, the duties to the client regarding client funds are the same. But, according to the stolen-money-from-a-purse analogy, the attorney in Prakashpalanstill “stole” the client’s “money,” which, but for section 340.6, could support several causes of action with longer limitations period. Second,in finding Lee’s claimspotentially outside section 340.6, the Fourth District found it significant that Lee (1) did not allege malpractice, 1.e., was satisfied with Hanley’s “services” in the litigation and (2) the fee dispute occurredafter the litigation ended. (Lee, 174 Cal.Rptr.3d at p. 495.) That Lee was“satisfied” with the “actual services”(e.g., litigation), but dissatisfied when Hanley did not return funds she claims were unearned is a red-herring and problematic distinction. Handling client fundsis intertwined with the attorney’s services, arises in the performance of professional services, and can form an independentbasis of a malpractice claim. Every dispute over client funds will involve, to a greater or lesser degree, an analysis of the attorney’s professional services to the client. Trying to parse the “services,” distinguish the type of “taking”(e.g., accounting error, conversion), and then attach a separate statute of limitations will open the door for creative attorneys to resurrect stale claims by pleading aroundthe statute of limitations: allege the attorney’s services 22 were adequate, but the over-billing was conversion, breach of fiduciary duty, common counts, or someother cause of action which has a longer limitations period. And, isn’t that what Lee did here? She filed an untimely complaint alleging an unconscionable fee; her lawyer discovered the lawsuit was untimely only after receiving Hanley’s demurrer; and then Lee scrambled to resurrect a stale claim by carefully alleging facts and causes of action specifically designed to circumvent the application of section 340.6. In reversing the trial court, the Fourth District created another exception to section 340.6. Not only is this impermissible," it is unnecessary. The statute already has an exception for actual fraud. If the client believes the attorney “stole” money advancedin the litigation, as here, the client can allege fraud. Lee had four opportunities to allege fraud, but she chose notto. In short, requiring parties to litigate whether otherwisestale claims are subject to section 340.6 defeats the purposeofthe statute. It will lead to the very uncertainty section 340.6 was intendedto prevent: multiple '' <(T/f exemptions are specified in a statute, we may not imply additional exemptions unlessthere is a clear legislative intent to the contrary.” (Sierra Club v. State Bd. ofForestry (1994) 7 Cal.4th 1215, 1230; Stoll at p. 1369 [“the trial court essentially engrafted a second limitation on the one-year period for malpractice which happensto involve a breach offiduciary duty.”].) 23 limitations period, indeterminate liability, and increased insurance premiums. IX. LEE SHOULD NOT HAVE BEEN GIVEN LEAVE TO ADD CONVERSION OR ANY OTHER THEORY Whileit is not entirely clear from the Opinion, it appears the Fourth District gave Lee an opportunity to plead conversion and othertheories, 7 even though she chose not to plead fraud or conversion. “When a demurrer is sustained with leave to amendbutplaintiff elects not to amend,it is presumedon appeal that the complaintstates as strong a case as possible.” (Giraldo v. California Dept. ofCorrections & Rehabilitation (2008) 168 Cal.App.4th 231, 252 [emphasis added]; County ofSanta Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 312.) The allegations of the second amended complaint are controlling and the best Lee can do by her ownelection. Based on the face ofthe pleading, the second amended complaintstates only claimsarising in the performance of professional services. The Fourth District suggests the allegations of the second amended complaint would support alternative theories(e.g., fraud and conversion). First, it does not matter what “cause of action”is alleged. Unlessit is actual fraud it is within the scope of section 340.6. "2 (Lee, supra, 174 Cal.Rptr.3d p. 498.) 24 Second, Lee had multiple opportunities to allege fraud, conversion, or theft. She chose not to, allowing the case to be dismissed with prejudice. X. SUPREME COURT REVIEW IS NECESSARY BECAUSE THERE IS DISAGREEMENT BETWEEN THE COURTS REGARDING THE PLAIN MEANING OF THE STATUTE Many courts that have addressed the application of section 340.6 have weighed in on the whether the language of section 340.6 is unambiguous. There is disagreement. Some courts foundthe statute to be plain and unambiguous. (Lee, supra, 174 Cal.Rptr.3d at p. 497; Vafi, supra, 193 Cal.App.4th at p. 881 [“Based onits plain language, section 340.6 appliesto all actions, except those for actual fraud, brought against an attorney ‘for a wrongful act or omission” whicharise “in the performance ofprofessional services.”]; Yee, supra, 220 Cal.App.4th at p. 194 [“The wordsofthe statute are quite broad, but they are not ambiguous.) Other courts have found the statute to be unclear or ambiguous. (Roger Cleveland, supra, 225 Cal.App.4th at p. 678 [“While the Vafi and Yee courts find no ambiguity in the plain languageof section 340.6, subdivision (a), we do.”]; Southland Mechanical Constructors Corp., supra, 119 Cal.App.3d at 427; Stoll, supra, 9 Cal.App.4th at p. 1368.) 25 XI. CONCLUSION For the foregoing reasons, Respondent William B. Hanley requests that the Court grant this petition in its entirety. Dated: August 25, 2014 LAW-QFFICES OF DIMITRI P. GROSS zeNee_ ey / / Age -PpimitriP. Gross L Respondent William B. Hanley 26 CERTIFICATE OF COMPLIANCE Counsel of Record hereby certifies that pursuant to Rule 8.504 of California Rules of Court, the enclosed brief of Respondent was produced using 13-pointtype, including footnotes and contains approximately 5,122 words, which is less than the 8,400 words permitted by this rule. Counsel relies on the word count of the computer program usedto preparethis brief. Dated: August 25, 2014 LAW OFFICES OF DIMITRI P. GROSS © DimitrfP. Gross ~ Respondent William B. Hanley 27 PROOF OF SERVICE STATE OF CALIFORNIA, COUNTY OF ORANGE I am employed in the County of Orange, State of California. I am overthe age of 18 and not a party to the within action; my business address is: 19200 Von Karman Avenue, Suite 900, Irvine, California 92612. On August 25, 2014, I served the foregoing documentdescribed as RESPONDENT?’S PETITION FOR REVIEW ontheinterested parties in this action as follows: Walter J. Wilson, Esq. 333 West Broadway, Ste. 200 Long Beach, California 90802 Attorneyfor Appellant Nancy F. Lee Clerk of Court of Appeal: Clerk of the Court P.O. Box 22055 Orange County Superior Court Santa Ana, CA 92702 700 Civic Center Drive West Santa Ana, CA 92701 (X) Iam readily familiar with Law Offices of Dimitri P. Gross' practice for collection and processing of correspondence for mailing with the United States Postal Service. Pursuant to such practice,all correspondenceis deposited with the United States Postal Service in the ordinary course of business on the date it is generated. I know that the envelope was sealed and, with postage thereon fully prepaid, placed for collection and mailing on this date, following ordinary businesspractices in the United States and mailed at Irvine, California. (_) Personal service was made by DDS Attorney Service to the person(s) and address(es) as follows: (X) (State) I declare under penalty of perjury underthe lawsofthe State of California that the aboveis true and correct. Executed August 25, 2014,at Irvin&, California, 28 COURT OF APPEAL- 4TH DIST DIV 3 FILED Jul 15, 2014 Deputy Clerk: D. Massey CERTIFIED FOR PUBLICATION IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATEDISTRICT DIVISION THREE NANCYF. LEE, Plaintiff and Appellant, G048501 V. (Super. Ct. No. 30-201 1-00532352) WILLIAM B. HANLEY, OPINION Defendant and Respondent. Appeal from a judgmentof the Superior Court of Orange County, Robert J. Moss,Judge. Reversed. Walter J. Wilson for Plaintiff and Appellant. Law Offices of Dimitri P. Gross and Dimitri P. Gross for Defendant and Respondent. Plaintiff and appellant Nancy F. Lee hired Attorney William B. Hanleyto representherin certain civil litigation. After the litigation settled, Lee sought a refund of unearned attorney fees and unused expert witness fees she had advanced to Attorney Hanley. Not having received a refund, Lee hired Attorney Walter J. Wilson and terminatedthe services of Attorney Hanley. Attorney Hanleythereafter refunded certain expert witness fees, but no attorney fees. More thana yearafter hiring Attorney Wilson, Leefiled a lawsuit against Attorney Hanley seeking the return of attorney fees. Attorney Hanleyfiled a demurrer to Lee’s second amended complaint, based on the one-yearstatute of limitations contained in Code of Civil Procedure section 340.6.! The court sustained the demurrer and dismissed the action with prejudice. Lee appeals. Wereverse. Section 340.6 provides the statute of limitations for an action based on “a wrongfulact or omission, other than for actualfraud, arising in the performance of professional services ....” According to the plain wording ofthe statute, to the extent the wrongful act or omission in question arises “in the performanceofprofessional services,” the statute applies; to the extent the wrongful act or omission in question does not arise “in the performanceofprofessional services,” the statute is inapplicable. This notwithstanding, it seemsthat almostany time a client brings an action against his or her attorney the wrongfulact in question is construed as one arising in the performanceoflegalservices, such that section 340.6 applies. But surely it cannot be the case that every conceivableact an attorney maytake that affects his or herclient is one arising in the performanceof legal services. For example,if a client leaves her purse unattendedin the attorney’s office and the attorney takes moneyfromit, would we say that act arose in the performanceof legal services? How differentisit if, when the legal services have been completedandthe attorney’s representation has been terminated, the 1 All subsequentstatutory referencesare to the Code of Civil Procedure unless otherwise specifically stated. attorney keeps the unearned fees belonging to the client? To steal from client is not to renderlegal services to him or her. Wehold that, to the extent a claim is construed as a wrongfulact notarising in the performanceof legal services, such as garden variety theft or conversion, section 340.6 is inapplicable. The matter before us was resolved at the demurrer stage, before the facts were developed. However, the “[rJesolution ofa statute of limitations defense normally is a factual question .... [Citation.]” (City ofSan Diego v. U.S. Gypsum Co. (1994) 30 Cal.App.4th 575, 582; Baright v. Willis (1984) 151 Cal.App.3d 303, 311.) Here, the facts alleged in Lee’s second amended complaint could be construedas givingrise to a cause of action for the theft or conversionof an identifiable sum of money belonging toher. This being the case, we cannot say that Lee’s second amended complaint demonstrates clearly and affirmatively on its face that her action is necessarily barred by the section 340.6 statute of limitations. (Stueve Bros. Farms, LLC v. Berger Kahn (2013) 222 Cal.App.4th 303, 321 (Stweve Bros. Farms).) Because this action has not reached a point where the court can determine whether the wrongfulact in question arosein the performanceoflegal services, and thus, whetheror not section 340.6 applies, the demurrer should not have been sustained. I FACTS In her second amended complaint, Lee allegedthat the litigation Attorney Hanley had handledforher settled on January 25, 2010, the lawsuit was dismissed three days later, and Attorney Hanley did no further work on the matter thereafter. Attached to her second amended complaint were copies of a February 1, 2010 letter from Attorney Hanley to Lee and a February 1, 2010 invoice for legal services. The letter stated that Lee had a credit balance of $46,321.85 and the invoice so reflected. The invoice itemized work performed in January 2010, including the drafting of a settlement agreement and coverletter on January 18, 2010. Lee also alleged that in April 2010, she telephoned 3 Attorney Hanley and asked fora final billing statement and a return of her unused funds but that Attorney Hanley, in a harsh manner,told her she had nocredit balance and would receive no refund. On December6, 2010, Lee and Attorney Wilson eachsenta letter to Attorney Hanley demanding the refund of $46,321.85 in unearnedattorneyfees plus approximately $10,000 in unused expert witness fees. By these letters, Lee terminated the services of Attorney Hanley and she and Attorney Wilson each informed him that Attorney Wilson would pursuethe collection of the monies owed by Attorney Hanley to Lee and also would handle any remaining matters associated withthe settled litigation. In her second amended complaint, Lee also alleged that, on or about December 28, 2010, Attorney Hanley returned $9,725 in unused expert witness fees. However, he never returned the $46,321.85 in unearnedattorneyfees. On December 21, 2011, Leefiled herinitial complaint against Attorney Hanley. Attorney Hanley filed a demurrer basedon the one-yearstatute oflimitations. (§ 340.6.) However, before that demurrer was heard, Lee filed a first amended complaint. The court ruled that the demurrer was moot. Attorney Hanley filed a demurrerto the first amended complaint, also on the basis ofthe statute of limitations. The court sustained the demurrer with leave to amend. Lee then filed her second amended complaint and Attorney Hanleyfiled another demurrer, again based on thestatute of limitations. The court sustained the demurrer with leave to file a further amended complaint. In her openingbrief on appeal, Lee represents, albeit withoutcitation to the record, that the court sustained the demurrer with respect to all grounds other than fraud, but gave Lee leave to amend with respect to allegations based on fraud. Lee also states that because she “was unwilling to plead fraud against” Hanley, she did notfile a further amended complaint. The court dismissed her action with prejudice. ll DISCUSSION A. Preliminary Matter—Requestfor Judicial Notice: Lee has filed a requestfor judicial notice, in which she asks this court to take notice of (1) certain portionsofthe legislative history of section 340.6, and (2) certain correspondence concerning her complaintto the State Bar of California about Attorney Hanley. Attorney Hanley opposes the motion. He says Lee failed to put the documents in question before the trial court and they are, in any event, irrelevant to the issues raised in this appeal. Thefact that Lee did not addressthe legislative history of section 340.6 in the trial court does not mean she maynotraise it on appeal from a judgmentof dismissal following the sustaining of a demurrer. “An appellate court may .. . consider new theories on appealfrom the sustaining of a demurerto challenge or justify the ruling. As a general rule a party is not permitted to . . . raise new issues not presentedin thetrial court. [Citation.] . .. However,‘a litigant may raise for the first time on appeala pure question of law whichis presented by undisputed facts.’ [Citations.] A demurreris directed to the face of a complaint (Code Civ. Proc., § 430.30, subd. (a)) andit raises only questions of law [citations]. Thus an appellant challenging the sustaining of a general demurrer may changehisor her theory on appeal[citation], and an appellate court can affirm or reversethe ruling on new grounds. [Citations.] After all, we review the validity of the ruling and not the reasonsgiven. [Citation.]” (B & P Development Corp. v. City ofSaratoga (1986) 185 Cal.App.3d 949, 959.) In this case, the properinterpretation of section 340.6 is a question of law and this court may considerthe legislative history of section 340.6 in addressing the issue. Consequently, we grant Lee’s request to take judicial notice of the portionsofthe legislative history attached as exhibits 1 through 3 to her request. However, the correspondence concerning the State Bar investigation of Lee’s complaint about Attorney Hanleyis irrelevant to the determination ofthe issues on appeal. Consequently, we deny Lee’s requestto take judicial notice of the documents attached as exhibit 4 to her request. B. StandardofReview: “We review de novo an order sustaining a demurrer to determine whether the complaintalleges facts sufficient to state a cause of action. [Citation.]” (Yee v. Cheung (2013) 220 Cal.App.4th 184, 192 (Yee), criticized on anotherpoint in Roger Cleveland GolfCo., Inc. v. Krane & Smith, APC (2014) 225 Cal.App.4th 660, 668, 677 (Roger Cleveland) [statute inapplicable to malicious prosecution claims].) “When a demurreris sustained without leave to amend, ‘we decide whetherthereis a reasonable possibility that the defect can be cured by amendment:ifit can be, the trial court has abusedits discretion and wereverse; if not, there has been no abuseofdiscretion and we affirm. [Citations.] The burden ofproving such reasonable possibility is squarely on the plaintiff.’ [Citation.]” (Yee, supra, 220 Cal.App.4th at p. 193.) “““A demurrer based on a statute of limitations will not lie where the action maybe,but is not necessarily, barred. [Citation.] In order for the bar . . . to be raised by demurrer, the defect must clearly and affirmatively appear of the face of the complaint; it is not enough that the complaint showsthatthe action may bebarred. [Citation.]’ [Citation.]” [Citation.]’ [Citations.]” (Steve Bros. Farms, supra, 222 Cal.App.4th at p. 321.2) 2 Weaddress the issues framed by the parties. In Stueve Bros. Farms, supra, 222 Cal.App.4th 303, we were not asked to address whether section 340.6 was simply inapplicable to causes of action based on the misappropriation ofclient assets. 6 C. Section 340.6: Section 340.6, subdivision (a) provides: “(a) An action against an attorney for a wrongfulact or omission,other than for actual fraud, arising in the performance of professionalservices shall be commenced within one yearafterthe plaintiff discovers, or through the use of reasonablediligence should have discovered, the facts constituting the wrongful act or omission,or four years from the date of the wrongful act or omission, whicheveroccursfirst. .. [I]n no event shall the time for commencementoflegal action exceed four years except that the period shall be tolled during the timethat any of the following exist: [{] . . . [{] (2) The attorney continues to represent the plaintiff regarding the specific subject matter in whichthe alleged wrongful act or omission occurred. [4] (3) The attorney willfully conceals the facts constituting the wrongful act or omission whensuchfacts are knownto the attorney, except that this subdivision shalltoll only the four-yearlimitation. . . .” D. PerformanceofProfessional Services: (1) Levin and Prakashpalan Cases— Lee argues that the plain wording of section 340.6 showsthestatute is inapplicable to her case. She says Attorney Hanley completed his legal work whenthe litigation he was handling wassettled and the case was dismissed. Any actions he took thereafter, including the wrongful keeping of the money belonging to her, were not part of the performanceofprofessionalservices, because the performance of professional services had terminated. Shealso contendsthat the misappropriationofclient funds cannot be construed as the performanceof professional services, no matter what the timing. Attorney Hanleydisagrees, citing Levin v. Graham & James(1995) 37 Cal.App.4th 798 (Levin) and Prakashpalan v. Engstrom, Lipscomb & Lack (2014) 223 Cal.App.4th 1105 (Prakashpalan). In Levin,the plaintiff stated causes ofaction for malpractice, identified unconscionable attorney fees as an aspect of malpractice, and requested a refund of unconscionable attorney fees as a remedy for malpractice. Under the facts of the case, the court rejected the assertion that a claim of unconscionable attorney fees wasanything other than a claim for malpractice, subject to section 340.6. The court observedthat the plaintiff had asserted no claim independent of attorney malpractice, such as money had and received, and had not suggested anotherstatute of limitations. (Levin, supra, 37 Cal.App.4th at pp. 804-805.) According to Attorney Hanley, Levin, supra, 37 Cal.App.4th 798 shows that Lee’s claim for a refund of attorney fees is subject to the one-yearstatute of limitations contained in section 340.6. However, that case is distinguishable from the one before us. The court in Levin did not addresseither a demurrerora situation where the plaintiff had asserted a cause ofaction other than malpractice. Furthermore, it did not purport to address all possible claims with respect to attorney fees, such as claimsoftheft or conversion. | Here, Lee expressed hergeneral satisfaction with Attorney Hanley’s performanceofservices. Herclaim that the credit balance belonged to her was not based on either malpractice or the unconscionability of the fee. Rather, she simply sought the return of money belongingto her, on various causes of action, including money had and received. Levin, supra, 37 Cal.App.4th 798 simply does not control. Weturn now to Prakashpalan, supra, 223 Cal.App.4th 1105. In thatcase, the plaintiffs alleged that the defendantlaw firm settled a class action lawsuit for 93 insureds in November 1997, but that the plaintiffs, as class members, did not learn until February 2012 that the defendanthad failed to fully and properly distribute $22 million of the settlement funds. (/d. at pp. 1114-1115.) Thetrial court sustained the defendant’s demurrerto the second amended complaint. (/d. at p. 1119.) The appellate court affirmed in part and reversed in part. (/d. at pp. 1137-1138.) The appellate court held that the plaintiffs’ malpractice and breach of fiduciary causesof action, based on the alleged wrongful withholding ofthe settlement funds, were barred by section 340.6. (Prakashpalan, supra, 223 Cal.App.4th at p. 1122.) The court stated: “Plaintiffs assert that the holding of settlement funds doesnotarise out of the provision of professional services and thusthat section 340.6 does not apply for that reason. Wedisagree,asin this case, the funds in the trust accountare settlement proceeds, [defendant’s] conduct in holding such fundsarises out of the provision of professional services, namely, the settlement of the case on plaintiffs’ behalf.” (/d. at p. 1122, fn. 4.) According to Attorney Hanley, Prakashpalan, supra, 223 Cal.App.4th 1105 showsthat when an attorney collects moniesin the performanceofprofessional services and a claim later arises over the retention or disbursementof those monies, the claim is one subject to section 340.6. Where in Prakashpalan the issue was the attorneys’ failure to properly or fully distribute settlement funds collected in the performanceofprofessional services, in the matter before us, Attorney Hanley observes, the issueis the attorney’s failure to properly orfully distribute legal fees collected in the performanceofprofessional services. Wesee a difference in the two situations, however. An attorney’s collection of settlement funds anddistribution of those funds to the litigants entitled theretois clearly part of the performanceofthe legal service of settling the lawsuit. However,an attorney’s receipt of a client advancefor the future performanceoflegal services does not constitute the attorney’s performanceofthose services. True enough, various cases have broadly stated that section 340.6 applies irrespective of whether the theory ofliability is based on breach of contractor tort. The court in Levin, for example, stated: “Indeed, for any wrongful act or omission of an attorneyarising in the performanceofprofessional services, an action must be commenced within one yearafter the client discoversor through the use of reasonable 9 diligence should have discovered the facts constituting the wrongfulact or omission. In all cases other than actual fraud, whetherthe theory ofliability is based on the breach of an oral or written contract, a tort, or a breachofa fiduciary duty, the one-year statutory period applies. [Citation.]” (Levin, supra, 37 Cal.App.4th at p. 805.) Similarly, the court in Yee, supra, 220 Cal.App.4th 184, stated: “The phrase “wrongful act or omission”?is ‘used interchangeably as a referenceto both tortious and contractual wrongdoing.’ [Citation.]” (Id. at pp. 194-195.) Thecritical point, however, is that those cases do notstate that the statute applies wheneveran attorney commits any tort of any nature. Rather, they include the qualification, as set forth plainly in the statute, that the wrongful act or omission must be one “arising in the performanceofprofessional services.” (See, e.g., Levin, supra, 37 Cal.App.4th at p. 805; Yee, supra, 220 Cal.App.4th at pp. 194-195.) (2) Legislative history— Lee arguesthatthe legislative history of section 340.6 showsthestatute wasintended to apply only to malpractice claims. We observethat the point was recently addressed in Roger Cleveland, supra, 225 Cal.App.4th 660. The court in Roger Cleveland, supra, 225 Cal.App.4th 660criticized the decisions in Yee, supra, 220 Cal.App.4th 184 and Vafi v. McCloskey (2011) 193 Cal.App.4th 874 (Va/i) to the effect that section 340.6 applies to malicious prosecution claims. The Roger Clevelandcourt held, for various reasonsnot importanthere, that the statute of limitations of section 335.1 is the one that applies to those claims. (Roger Cleveland, supra, 225 Cal.App.4th at p. 668.) It stated, inter alia: “Based uponthe plain language ofsection 340.6, subdivision (a), we conclude the Legislature’s use of “wrongful act or omission’by an attorney arising in the performanceofprofessional services was intended to include anylegaltheoryrelated to a claim by a client or former client againsthis or her attorney, and nota claim bya third party, alleging the attorney 10 maliciously prosecuted an action against the plaintiff.” (Roger Cleveland, supra, 225 Cal.App.4th at p. 680.) In addition, the court in Roger Cleveland, supra, 225 Cal.App.4th 660 observedthatits interpretation was consistent with the legislative history of section 340.6. It construed the legislative history ofthe statute, despite the plain wording ofthe statute, to reflect a legislative intent to apply the one-yearstatute oflimitationsto malpractice claims specifically. (/d. at pp. 680-682.) The court noted that Assembly Bill No. 298 ((1977-1978 Reg. Sess.) as introduced Jan. 25, 1977) originally proposed a limitations period applicable “‘[iJn any action for damagesagainst an attorney based uponthe attorney’s alleged professional negligence.’” (Roger Cleveland, supra, 225 Cal.App.4th at p. 681, fn. omitted.) However, commentator Ronald E. Mallen suggested using the phrase “‘wrongfulact or omission occurring in the rendition of professional services’” because the concept of attorney malpractice was difficult to define. (/bid.) He further suggestedthat the limitations period be inapplicable to acts of actual fraud. (bid) Asthe court in Roger Cleveland, supra, 225 Cal.App.4th 660 explained in somedetail, the suggested language “wrongful act or omission” wasthereafter included in the proposedlegislation, although various communicationsandlegislative materials regarding the proposedlegislation continuedto referto the bill as pertaining to the statute oflimitations for attorney malpractice actions. (/d. at pp. 681-682.) The court concluded: “Ourreview ofthe legislative history indicates the Legislature intended to create a specially tailoredstatute of limitations for legal malpractice actions... .” (Id. at p. 682.) (3) Plain meaning— This notwithstanding, the courts have for years looked to the wording of the statute as ultimately adopted, pertaining to “a wrongful act or omission, other than for actual fraud,arising in the performanceof professional services” (§ 340.6), and applied it 11 to allegations of wrongful acts or omissions other than malpractice. (See,e.g., Vafi, supra, 193 Cal.App.4th 874 [malicious prosecution].) “Theprinciples of statutory analysis are well established. ‘“[W]e must look first to the wordsofthestatute, ‘because they generally provide the mostreliable indicatoroflegislative intent.’ [Citation.] If the statutory language is clear and unambiguousour inquiry ends. ‘If there is no ambiguity in the language, we presume the Legislature meant whatit said andthe plain meaning of the statute governs.’ [Citations.] In reading statutes, we are mindful that words are to be given their plain and commonsense meaning. [Citation.]” [Citation.] Thus, we “avoid a construction that would produce absurd consequences, which wepresume the Legislature did not intend. [Citation.]” [Citation.]’ [Citation.]” (Jd. at p. 880.) Here, wefind the wordsofthe 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 ofprofessional services ....” (§ 340.6.) So, if the wrongful act or omissionat issue arises “in the performance of professional services,” the statute applies. If the wrongful act or omission at issue doesnotarise “in the performanceofprofessional services,” the statute is inapplicable. As wehave alreadystated, an attorney does not provide a service to the client by stealing his or her money. As we havestated, the second amended complaintin the matter before us included causes of action for breach of contract, breach of fiduciary duty, unjust enrichment, money had andreceived, and an equitable right to the return of unused funds. It did notassert causesofaction for theft, conversion, or fraud. However, webristle against cutting offa litigant’s claims because of inartful or sloppy pleading. (See, e.g., Barquis v. Merchants Collection Assn. (1972) 7 Cal.3d 94, 103 (Barquis); Maclsaacv. Pozzo (1945) 26 Cal.2d 809, 816 (Maclsaac).) Rather, we liberally construe his or her pleading with a view to achieving substantial justice. (Yue v. City ofAuburn (1992) 3 Cal.App.4th 751, 756-757.) Even ifa litigantis 12 inarticulate with respectto the relief sought, he or she is “nevertheless entitled to any relief warranted by the facts pleaded, and[the] failure to ask for the properrelief is not fatal to [his or her] cause. [Citations.]” (Maclsaac v. Pozzo, supra, 26 Cal.2d at p. 815.) Moreover, “we are notlimited to plaintiffs’ theory of recovery in testing the sufficiency of their complaint against a demurrer, but instead must determineif the factual allegationsofthe complaint are adequateto state a causeofaction under any legal theory. The courts of this state have, of course, long since departed from holding a plaintiff strictly to the ‘form ofaction’ he has pleaded and instead have adopted the more flexible approach of examiningthe facts alleged to determine if a demurrer should be sustained. [Citations.]” (Barquis, supra, 7 Cal.3d at p. 103.) The second amended complaint in the matter before us alleged that, after Attorney Hanley’s services with respectto the settled litigation had been fully completed, he knowingly refusedto 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 ofpleading, she has made factual allegations adequate to state a causeofaction for conversion, for example. (Welco 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].) As wehavealready noted, “‘““‘A demurrer based on a statute oflimitations will not lie where the action may be,butis not necessarily, barred. [Citation.] In order for the bar . . . to be raised by demurrer, the defect must clearly and affirmatively appear of the face of the complaint;it is not enough that the complaint showsthatthe action may be barred. [Citation.]’ [Citation.]” [Citation.]’ [Citations.]” (Stueve Bros. Farms, supra, 222 Cal.App.4th at p. 321.) Here, we cannot say that Lee’s second amended complaint demonstrates clearly and affirmatively on its face that her action is necessarily barred by thestatute oflimitations. It is simply prematureat this point to concludethat Lee cannotallege “facts sufficient to state a cause of action under any possible legal 13 theory” (City ofDinuba v. County ofTulare (2007) 41 Cal.4th 859, 870) that will survive the bar of the one-yearstatute oflimitations. E. Remaining Arguments: (1) Introduction— Weaddress Lee’s tolling and date of discovery arguments, in case on remand andfurther developmentofthe facts, she continuesto assert causes ofaction to which section 340.6 applies. However, we do not address Lee’s argumentthat section 340.6 is unconstitutional as applied, due to herfailure to provide any legal authority in support of that argument. (Rodenv. AmerisourceBergen Corp. (2010) 186 Cal.App.4th 620, 648-649.) We also do not address arguments Leeraisedfor thefirst time in her reply brief. (Schubert v. Reynolds (2002) 95 Cal.App.4th 100, 108.) (2) Tolling— Lee says that, even though she and Attorney Wilson each sent termination letters to Attorney Hanley on December6, 2010, Attorney Hanley continuedto represent her until he delivered to her the December 28, 2010 check for the refund of unused expert witness fees, because the delivery of the check was an act in representation of her as her attorney. This is, of course, contrary to her assertion, in other portionsofherbriefing on appeal, that all professional services were terminated whenthesettled litigation was dismissed. In anyevent,it is clear, for the purposesof the tolling provision of section 340.6, that Attorney Hanley’s services were terminated no later than December6, 2010, and that the one-year statute beganto run nolater than that date. (Stueve Bros. Farms, supra, 222 Cal.App.4th at p. 314.) (3) Date ofDiscovery— Lee also states she did not discover Attorney Hanley claimedthatthe taking of her moneyarosein the performanceofprofessional services and that section 340.6 applied, until Attorney Wilson received the February 29, 2012 demurrer to her complaint. 14 Although Lee does notarticulate the significance of her statement, we gather she views the date she discovered Attorney Hanley’s legal theory as having somebearing upon the triggering of the statute oflimitations. It does not. While the date of discovery of an attorney’s alleged wrongfulact is relevant to a determination of the running ofthe statute oflimitations undersection 340.6, the date of discovery of the attorney’s legal defenseis not. (Cf. Croucier v. Chavos (2012) 207 Cal.App.4th 1138, 1146 [plaintiff's ignorance of legal theories is irrelevant].) Ul DISPOSITION The judgment ofdismissal is reversed. Lee shall recover her costs on appeal. MOORE,J. WE CONCUR: BEDSWORTH, ACTINGP.J. THOMPSON,J. 15 COURT OF APPEAL- 4TH DIST DIV 3 FILED Aug 08, 2014 IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA FOURTH APPELLATEDISTRICT DIVISION THREE NANCYF. LEE, Plaintiff and Appellant, G048501 V. (Super. Ct. No. 30-201 1-00532352) WILLIAM B. HANLEY, ORDER MODIFYING OPINION AND DENYINGPETITIONS FOR Defendant and Respondent. REHEARING [NO CHANGEIN JUDGMENT] On the court’s own motion, the opinionfiled in this case on July 15, 2014 is hereby ORDERED modified as follows: 1. Onpage 3 of the opinion,after the sentence reading, “We hold that, to the extent a claim is construed as a wrongful act notarising in the performance of legal services, such as garden variety theft or conversion, section 340.6 is inapplicable[,]” add the following footnote: “Ofcourse, by so stating, we do not mean to imply that those are the only two causes of action to which the statute does not apply.” 2. Onpage 3, delete the first full paragraph. Substitute the following paragraph: “The gist of Lee’s second amended complaint wasthat, after Attorney Hanley’s services to her had been terminated, he wrongfully refused to return money belonging to her. In other words, her lawsuit as framed wasbased on the purported acts or omissions of Attorney Hanley that did notarise in the performance of professional services to her. The matter before us wasresolved at the demurrer stage, before the facts were developed. Wedo not know whether, on remand,the facts as ultimately developed will show a theft of funds, an accountingerror, or something else. While a cause of action based onthe theft or conversion ofclient funds, for example, would not be subject to the section 340.6 statute oflimitations, a cause of action predicated on an accounting error could be. The ‘[rJesolution ofa statute of limitations defense normally is a factual question .... [Citation.]’ (City ofSan Diegov. U.S. Gypsum Co. (1994) 30 Cal.App.4th 575, 582; Baright v. Willis (1984) 151 Cal.App.3d 303, 311.) Here, we cannotsay that Lee’s second amended complaint demonstrates clearly and affirmatively on its face that her action is necessarily barred by the section 340.6 statute oflimitations. (Stueve Bros. Farms, LLC v. Berger Kahn (2013) 222 Cal.App.4th 303, 321 (Stueve Bros. Farms).) This being the case, the court erred in sustaining the demurrer.” 3. On page 6, add the following sentenceasthe last sentence of the second full paragraph: ““When a demurreris sustained with leave to amend, andtheplaintiff choosesnot to amendbutto stand on the complaint, an appealfrom the ensuing dismissal order maychallenge the validity of the intermediate ruling sustaining the demurrer. [Citation.]’ (County ofSanta Clara v. Atlantic Richfield Co. (2006) 137 Cal.App.4th 292, 312.)” 4. Onpage 9,in the first sentence ofthe first full paragraph,insert the word “duty” between the words “fiduciary”and “causes.” 5. On page 12, delete the paragraph reading: “As we havestated, the second amended complaint in the matter before us included causesofaction for breach of contract, breach offiduciary duty, unjust enrichment, money had and received, and an equitable rightto the return of unused funds. It did not assert causes of action for theft, conversion, or fraud.” 6. On page 12, delete the first two wordsof the paragraph beginning, “However, we” and substitute the word “We.” 7. Changethefirst citation appearing on page 13 to read: “(Maclsaac, supra, 26 Cal.2d at p. 815.)” 8. Onpage 13, add the following languageat the end ofthe secondfull paragraph: “Giventhis, her second amended complaint wassufficient to withstand a demurrer. We do not mean to imply that Lee’s causes of action other than conversionare necessarily barred by the section 340.6 statute of limitations. As westated at the outset, whether the facts ultimately will show that Attorney Hanley’s acts or omissions supporting Lee’s various causes of action were acts or omissionsarising in the performanceofprofessional services is a matter yet to be determined.” 9. Delete the last sentence of the paragraph which begins on page 13 and ends on page 14. There is no change in the judgment. Appellant Nancy F. Lee and respondent William B. Hanley eachfiled a petition for rehearing on July 30, 2014. Eachofthe petitions for rehearing is DENIED. MOORE,J. WE CONCUR: BEDSWORTH,ACTINGP.J. THOMPSON,J.