Legal Malpractice Law Review : Professional Responsibility Case Summaries & Commentary : Bennett J. Wasserman : LegalMalpractice.com : Lawyer Malpractice & Legal Ethics

Nason v. Fisher, 36 A.D.3d 486; 828 N.Y.S.2d 51 (2007)

NY: Underlying Commercial Transaction

Student Contributor: Colleen Gaedcke

Facts: The plaintiff retained the defendant attorneys based on one of the defendant attorneys representation that he was experienced in handling commercial partnership cases. The plaintiff brought a cause of action against the defendant for false representation in violation of NY Judiciary Law section 487, but the court dismissed the action for the plaintiff’s failure to establish the statutory requirement of “chronic and extreme pattern of legal delinquency.” Additionally, the plaintiff also brought a legal malpractice claim against the defendants. The plaintiff’s claimed that the defendant’s alleged violation of Disciplinary Rules are evidence of malpractice.

Issue: Whether the court properly granted the defendant’s motion for summary judgment, dismissing the legal malpractice claim?

Ruling: Yes.

Lesson: Allegations of violations of Disciplinary Rules may be evidence of malpractice, however such a violation alone will not establish that the attorney’s conduct was the “but for” cause of the plaintiff’s loss.

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Gamer v. Ross, 2008 NY Slip Op. 2107 (App Div. 2d Dept)

NY: Underlying personal injury action; missing discovery causes summary judgment dismissing complain

Student Contributor: Josh Aronson

Facts: In the underlying case, the plaintiff was injured when he tripped and fell over wires and debris while roller skating on a public sidewalk adjacent to a construction site. The plaintiffs retained the defendants to commence a negligence action against the owner of the construction site as well as a contractor who had performed construction work on the site. Both of the plaintiff’s complaints were dismissed on summary judgment and motion to dismiss respectively. The plaintiff then brought action against the defendant to recover damages for legal malpractice, alleging that the defendants were negligent in their handling of the two underlying actions by failing to conduct proper discover that would have enabled them to successfully oppose the summary judgment and motion to dismiss. The defendant claims that the plaintiffs could not have succeeded in the underlying actions because the wires and construction debris over which the plaintiff tripped were open and obvious conditions that were not inherently dangerous. Furthermore, the defendant contends that the plaintiffs could not have succeeded in the underlying actions because they failed to adduce any evidence showing that the landowner of the construction site or its contractor caused or created the alleged dangerous condition.

Issue: Must the defendant in a legal malpractice action establish that their negligence would not have prevented the dismissal of the plaintiffs underlying actions?

Ruling: Yes. The court found that the landowner and its contractor would have had sufficient notice of the dangerous condition and therefore would have been liable for injuries resulting from its failure to correct the danger. As a result, the Court found that the burden was on the defendants in the malpractice action to establish that the missing discovery—which they failed to do, would not have prevented the dismissal of underlying actions.

Lesson: The defendant in a legal malpractice action must establish that “but for” the negligence claimed by the plaintiff, the outcome of the underlying action would not have changed.  

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730 J&J, LLC v. Polizzotto & Polizzotto, Esqs., Supreme Court of New York, Appellate Division, Second Department, January 12, 2010

Facts:  Plaintiff commenced a legal malpractice action to recover damages for the defendant attorneys' alleged failure to secure a deficiency judgment.  Defendants argued the action was time barred under New York's three year statute of limitations.  Plaintiff argued that the statute of limitations was tolled during the time Defendants continued to represent them in the underlying matter.

Issue:  Is the statute of limitations for legal malpractice matters tolled during the time the allegedly negligent attorney continues his representation? 

Ruling:  Yes.  A cause of action for legal malpractice accrues on the date the malpractice was committed.  Nevertheless, under the doctrine of "continuous representation," the statute of limitations is tolled while the attorney continues to represent the client in the same matter in which the malpractice allegedly occurred: 

The parties have a mutual understanding that further representation is needed with respect to the matter underlying the malpractice claim.

Lesson:  In New York, the three year statute of limitations in legal malpractice actions will be tolled where the purportedly negligent attorney continued his representation in the underlying matter after the malpractice was committed.

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Senate Ins. Co. v. Tamarack Am. 14 A.D.3d 922; 788 N.Y.S.2d 481 (2005)

NY Underlying Real Estate Transaction

Student Contributor: Natalie Resto

Facts: The attorney, who was employed full time by the Lawrence Group, Inc. as its general counsel, represented the plaintiff when it purchased some real estate property for $2,600,000. The Lawrence Group was a holding company for various insurance underwriting and agency components, which included the plaintiff. The Lawrence Group and the seller of the land later filed for bankruptcy. The plaintiff argued that because of the lien on the property it was out $2,600,000. The attorney then left the Lawrence Group and affiliated with a firm on an “of counsel” basis.
The plaintiff brought this legal malpractice action against the attorney. The attorney provided notice of the action to the defendant insurance company, which had issued a “claims made” policy to the firm. The defendant insurance company denied the coverage because it was provided “only to the extent such lawyer performs services on behalf of the named insurance,” and since the attorney rendered services as an employee of a corporation separate from the named insured, his acts fell within an exclusion contained in the policy. The defendant moved for summary judgment and the lower court granted the motion based on the policy language with respect to an attorney acting “of counsel.” The plaintiff appealed.

Issue: Does a policy issued to the law firm provide coverage for legal malpractice of an attorney who is affiliated with the law firm on an “of counsel” basis?

Ruling: Not when the policy at issue defined an “insured” to include, among others, “each lawyer acting as ‘of counsel,’ but only to the extent such lawyer performs services on behalf of the firm.” Id. at 923.

Lesson: New York’s Code of Professional Responsibility provides that the term “of counsel” nay be used “if there is a continuing relationship with a lawyer or law firm, other than as a partner or associate.”

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Sitar v. Sitar, 50 A.D.3d 667, 854 N.Y.S.2d 536 (2008)

NY Underlying Commercial Transaction: Conflicts of Interest

Student Contributor: Maninder (Meena) Saini

Facts: Client (plaintiff) brought an action against attorney and attorney's law firm (defendants), alleging legal malpractice. This action arose out of attorneys' representation of plaintiff in the sale of the plaintiff’s business to his son and daughter-in law. The attorney was a member of the plaintiff’s board of directors and acted as an attorney for both the plaintiff and his son in the transaction. The purchase price of the business was to be determined according to the profits made while under the control of the plaintiff’s son and daughter-in-law. The complaint alleged that the attorney was aware and did not disclose to the plaintiff that the new owners had engaged in unauthorized behavior that lowered the value of the business. The court granted the defendant’s motion to dismiss complaint for failure to state cause of action insofar as asserted against him and his law firm. The plaintiff then appealed.

Issue: Were the plaintiff’s allegations sufficient to state a cause of action to recover damages for legal malpractice?

Ruling: The appellate court held that the complaint  asserted  valid causes of actions for legal malpractice and breach of fiduciary duty because there was a conflict of interest since the attorney represented both sides of the underlying transaction and he was aware of important information that should have been disclosed to his client-plaintiff.   A legal malpractice action requires proof that the attorney “failed to exercise the ordinary and reasonable skill and knowledge commonly possessed by a member of the legal profession.”

Lesson: It is commonly known within the legal profession that a lawyer is considered to be a fiduciary to each client. A lawyer must consider carefully whether it is appropriate to  represent parties on both sides of a single transaction since  potential conflict of interests may materialize.  Unless the conflict is knowingly an voluntarily waived by all sides, it may be impossible for the attorney to proceed with representation.  In this case, the attorney had a duty to communicate to the plaintiff the information that adversely affected the plaintiff’s business. 

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Pechko v. Gendelman,  20 A.D.3d 404; 799 N.Y.S.2d 80 (2nd Dept. 2005)

NY Underlying Medical Malpractice Action

Student Contributor: Natalie Resto

Facts: The plaintiff underwent a mammogram while a patient with Doctor #1, who, she claimed, told her that the mammogram was normal. Later that year she underwent a mammogram with Doctor #2 and was diagnosed with cancer. The surgeon recalled seeing in the first mammogram certain “micro-calcifications” that were “suspicious of cancer.” The plaintiff sued Doctor #1 for medical malpractice. During the course of representation, the attorney who was representing her forwarded the mammogram films to a radiologist for evaluation, who before the evaluation misplaced them. The plaintiff then retained an appellate law firm to represent her in the medical malpractice action. Doctor  #1 moved for summary judgment arguing that the films constituted key evidence, and that the loss of that evidence irreparably prejudiced his ability to defend the action. The lower court granted the doctor’s summary judgment because the plaintiff failed to counter the motion with expert affidavits sufficient to create issues of fact. The plaintiff then brought this action against the law firm to recover damages for legal malpractice for failing to properly defend her against the summary judgment motion in the medical malpractice action.  The law firm argued that because it was not responsible for the loss of the mammogram film, which occurred before it was retained, its negligence was not the proximate cause of the plaintiff’s damages. The law firm moved for a motion to dismiss for failure to state a claim. The lower court denied it and the law firm appealed.

Issue: Was the law firm negligent in its representation of the plaintiffs in a medical malpractice action?

Ruling: Yes. The court found that the motion was properly denied because the absence of the mammogram films did not require the conclusion that the plaintiff would be unable to establish the law firm’s negligence. Here the firm did not rebut the plaintiff’s claim that they were negligent in failing to obtain secondary evidence concerning the films.

Lesson: Even when a court’s determination in an underlying medical malpractice action may be read as holding that the plaintiff will be unable to establish the merits of the medical malpractice action, that determination should not be given collateral estoppel effect against the plaintiff when he or she has alleged that the determination in the underlying action was the result of his or her attorney’s negligence.

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Boone v. Bender, Supreme Court of New York, Appellate Division, June 22, 2010

Facts:  Defendant attorneys represented the plaintiff in a matrimonial action which ended in a settlement.  Subsequently, the plaintiff commenced this malpractice action alleging that defendants compromised their level of advocacy and coerced her into entering into the settlement.  The defendants moved for summary judgment dismissing the complaint, and the Supreme Court denied the motion.  Defendants appealed.

Issue:  Can Plaintiff pursue a malpractice action after consenting to a settlement in the underlying matter? 

Ruling:  No. 

A claim for legal malpractice is viable, despite settlement of the underlying action, if it is alleged that settlement of the action was effectively compelled by the mistakes of counsel. 

Applying that standard to the instant case, however, the Court found that:

[T]he plaintiff was satisfied with the defendants' representation of her, that she had discussed the terms of the settlement with the defendants, that she understood that she would have the right to a trial if she did not wish to enter into the stipulation, that she had not been threatened or forced into entering into the stipulation, that she was entering into the stipulation voluntarily and of her own free will, that she had not taken any medications that would hamper her ability to understand the court proceedings, and that she had no additional questions for the defendants.

Accordingly, the Court concluded that plaintiff's subsequent "unhappiness" with the settlement did not rise to the level of legal malpractice.  Further, the Court found that the attorneys' reasonable exercise of judgment in pursuing settlement did not constitute malpractice, and the plaintiff's allegation that defendants did not pursue her claims "zealously" was mere speculation.

Lesson:  Conjecture, conclusory allegations of malpractice, and mere dissatisfaction concerning a settlement that was entered into voluntarily, do not constitute the necessary factual or legal basis upon which to pursue a subsequent action for professional negligence.

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Kahn v. Hart, 270 A.D.2d 231 (N.Y. App. Div. 2d Dep't 2000)

NY: Underlying loan transaction

Student Contributor: Melissa Goldberg

Facts: The Plaintiff commenced this action against Defendants alleging legal malpractice arising from representation on two loan transactions. The Plaintiff alleged that he did not learn until ten years later, after defaults on the loans, that Defendants failed to record two mortgages executed to secure the loans.

Issue: Was this action barred by the statute of limitations?

Result: the Plaintiff's claims of legal malpractice should have been dismissed as time-barred.
1) Pursuant to CPLR 214 (6), an action to recover damages for legal malpractice must be commenced within three years of the accrual of the claim;
2) A claim to recover damages for legal malpractice accrues when the malpractice is committed, not when it is discovered;
3) The legal malpractice complained of occurred more than three years before the commencement of this action, and the Statute of Limitations.

Lesson: This is a harsh rule for Plaintiffs. It does not matter when a Plaintiff learns of a potential legal malpractice action. It only matters when the malpractice occurs. 

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Middleton v. Kenny,286 A.D.2d 957;731 N.Y.S.2d 425 (4th Dept.2001)

NY:Underlying Personal Injury Action

Student Contributor: Natalie Resto

Facts: The plaintiff in the underlying action sued the architects, engineers and HVAC contractors for the alleged exposure to fumes and chemicals at their workplace. The appellate division dismissed the underlying action holding that the lower court abused its discretion in granting the plaintiff’s motion for an extension of time to file a note of issue after having been served with a 90-day demand pursuant to CPLR 3216. The defendant attorneys argued that the court erred in denying their cross motion seeking summary judgment because the plaintiff’s employer, not them, was the one responsible for the ventilation problem.

Issue: Did the attorneys submit evidence establishing as a matter of law that plaintiff would have been successful in the underlying action?

Ruling: No. The court found that the conflicting opinions of the experts presented issues of credibility to be determined by a trier of fact. The court held that the defendants were negligent in failing to respond to the 90-day demand and ordered a trial on the issues of proximate cause and damages.

Lesson: Even if the attorney can substantiate that someone else, here the employer, was liable for the plaintiff’s injuries, the attorneys still need to establish as a matter of law that the plaintiff would have been unsuccessful in the underlying action. 

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Pollicino v. Roemer & Featherstonhaugh, 277 A.D.2d 666; 716 N.Y.S.2d 416 (3rd Dept. 2000)

NY Underlying Personal Injury Action; Notice of Claim vs. municipality

Student Contributor: Natalie Resto

Facts: Plaintiff retained defendant law firm to represent him in a personal injury action against the New York City Transit Authority when he lost sight in his eye after a bus ran over a glass bottle causing a shard of glass to strike him in the eye. The notice of claim that the law firm actually served incorrectly listed the date of the accident, which was also repeated in the summons and complaint. About a month later the law firm amended the pleadings correcting the accident date but it made no motion to similarly amend the notice of claim until some three years after service of the erroneous notice of claim. The Transit Authority cross-moved to dismiss the complaint on the ground that the plaintiff’s notice of claim was defective and the action should be dismissed. The lower court denied the law firm’s motion to amend the notice of claim on the ground that the 4 ½-year delay in seeking to amend the notice of claim was prejudicial to the Transit Authority.
The plaintiff then commenced this malpractice suit against the law firm. The lower court granted the defendant law firm’s motion for summary judgment on the ground that the underlying decision holding that the plaintiff’s negligence action would have been dismissed regardless of the alleged malpractice, was entitled to preclusive effect. The plaintiff appealed.

Issue: Does collateral estoppel preclude the malpractice action?

Ruling: Here the court found that the lower court’s comment that the plaintiff’s action would have been dismissed was not entitled to preclusive effect because it was dicta and not necessary to resolve the issue. The court found that the law firm’s failure to serve a proper notice of claim was the error that required dismissal, and that the complaint was dismissed on that ground.

Lesson: To invoke the doctrine of collateral estoppel it must be shown that there is an identity of issue that has necessarily been decided in the prior litigation and which is decisive of the present action, and that the party sought to be estopped had a full and fair opportunity to contest the decision that is now claimed to be controlling.

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Estate of Nevelson v. Carro, Spanbock, Kaster et al. 259 A.D.2d 282; 686 N.Y.S.2d 404 (1st Dept.1999)

NY Underlying Estate Tax Matter

Student Contributor: Natalie Resto 

Facts: Plaintiff corporation was created upon the advice of defendant law firm for the purpose of organizing the financial affairs of Louise Nevelson, a deceased sculptor, and in an attempt to cause her artwork and the income from it to pass outside of her taxable estate. Nevelson’s son, who was also the executor of her estate, owned the corporation. This malpractice action arose after the IRS assessed millions of dollars in estate taxes against Nevelson’s estate and gift taxes against her son. After Nevelson’s death, the IRS determined that the corporation was a sham used to gift the decedent’s income and assets to her son, and that all the assets of the corporation should have been included in the sculptor’s gross estate. The plaintiffs claimed that the law firm never advised them of any risks of potential gift or estate tax liability that could arise based on the level of compensation that the corporation paid Nevelson.

Issue: Did the law firm depart from the requisite standard of care when they failed to adequately advise the plaintiffs that their failure to substantially compensate the decedent could result in adverse tax consequences under the plan that they recommended?

Ruling: Yes. The court found that here the defendants offered only conclusory, self-serving statements with no expert or other evidence that would establish that they did not depart from the requisite standard of care. The defendants had an obligation to do so. 

Lesson: The requirement that a plaintiff come forward with expert evidence on the professional’s duty of care may be dispensed with where ordinary experience of the fact finder provides sufficient basis for judging the adequacy of the professional service. Id. at 283; Kulak v. Nationwide Mut. Ins. Co., 40 NY2d 140, 148.

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Keller v. Loews Corp., 895 NYS 2d 376 (2nd Dept. 2010)

Facts:  In house counsel sued for religious discrimination after the termination of his employment.  The defendant counterclaimed for breach of fiduciary duty.  More specifically, the defendant alleged that counsel disclosed confidential information in his discrimination complaint.  The trial court dismissed the counterclaim on the ground that there is no fiduciary relationship between an employer and an at-will employee.

Issue:  Does in house counsel owe any fiduciary upon the termination of his at-will employment? 

Ruling:  Yes.

[A] lawyer, as one in a confidential relationship and as any fiduciary, is charged with a high degree of undivided loyalty to his client.  Indeed, the duty to preserve client confidences and secrets continues even after representation ends.  Thus, we conclude that an in-house attorney, his status as an at-will employee notwithstanding, owes his employer client a fiduciary duty.

Lesson:  In house counsel owes his client a fiduciary duty irrespective of his status as an "at-will employee".  The fiduciary duty continues even after termination of counsel's employment.

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Liberty Associates v. Etkin, 2010 NY Slip Op 225 (2nd Dept. Jan. 10, 2010)

Facts:  In March, 2002, the plaintiff, Liberty Associates, commenced an action to recover damages for legal malpractice against their former attorney. In January, 2003, the attorney's firm commenced an action against Liberty Associates in the Superior Court of New Jersey to recover fees for the legal services rendered. In 2004, during the pendency of the malpractice action, Liberty Associates and the attorney's firm settled the New Jersey fee dispute action, which was dismissed with prejudice. Upon learning of the settlement, the attorney moved for summary judgment dismissing the complaint in the malpractice action. The Supreme Court granted the attorney's motion.

Issue: Was Liberty Associates' pending malpractice claim against its former attorney barred by the doctrine of res judicata because of the dismissal of a separate action by the former attorney's firm to collect attorney's fees?

Ruling:  Yes.  

[T]he plaintiff's claim is barred by the doctrine of res judicata, which "precludes a party from litigating a claim where a judgment on the merits exists from a prior action between the same parties involving the same subject matter. A valid final judgment bars future actions between the same parties on the same cause of action, which includes "all other claims arising out of the same transaction or series of transactions . . . even if based upon different theories or if seeking a different remedy."

The Court further noted that a stipulation of discontinuance with prejudice without reservation of right or limitation of the claims disposed of is entitled to preclusive effect under the doctrine of res judicata.

Lesson:  Dismissal of one action involving the underlying matter, without an adequate reservation of rights, will preclude the client from pursing malpractice claims as to the same matter in a separately filed action. 

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Alaimo v. McGeorge, 893 N.Y.S.2d 331 (3rd Dept. 2010)

Underlying Personal Injury Action

Facts:  Plaintiffs initiated a pro-se personal injury action in 1999.  In May, 2004, Plaintiffs retained the defendant attorneys to prosecute their claims.  Approximately one month later, Plaintiffs' action was struck for failure to present a medical expert.  Plaintiffs were given one year to restore the case, but failed to timely comply.  Defendants subsequently refunded the retainer and terminated representation. 

Shortly thereafter, Plaintiffs moved to restore their complaint pro-se.  The Supreme Court denied the motion and dismissed the case with prejudice for failure to present a reasonable excuse for not refiling the personal injury action within the one year time limit.  The Court further noted that the reports from Plaintiffs' medical providers with the motion to reinstate "failed to establish any causal connection between any allegedly improper conduct [and the injuries complained of]."

Plaintiffs subsequently sued the defendant attorneys for legal malpractice.

Issue:  Is Plaintiffs' legal malpractice action barred by the doctrine of collateral estoppel, since the Court had already made a determination as to the Plaintiffs' inability to succeed in the underlying personal injury matter?  Did Plaintiffs state a cause of action for legal malpractice in light of the Supreme Court's finding that they failed to establish proximate cause?

Ruling:  Plaintiffs stated a cause of action for legal malpractice and the doctrine of collateral estoppel did not apply. 

The Appellate Division explained the elements of collateral estoppel:

• An identical issue decided in the prior action that is decisive of the instant action; and
• The party to be precluded from relitigating the issue had a full and fair opportunity to contest the prior determination.

The Court ruled that collateral estoppel did not apply, since Plaintiffs' motion to reinstate the case required a showing of merit sufficient to establish a triable issue of fact, and that in that setting conclusory allegations are insufficient.  In contrast, on defendants' motion to dismiss, even conclusory allegations with respect to the medical evidence are deemed to be true.  Accordingly, defendants failed to establish that the showing of proximate cause as to Plaintiffs' alleged injuries was identical in the underlying action and the malpractice action.

Similarly, although the medical evidence may not have been sufficient for purposes of the motion to reinstate the underlying matter, it was entitled to the benefit of every reasonable inference on a motion to dismiss for failure to state a claim.   

Lesson:  Where the plaintiff's burden of proof is heavier in the underlying action than in a preliminary motion in the malpractice action, plaintiff's claims will not be barred based upon its failure to meet a heavier burden in the underlying matter.  

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Mamorella v. Derkasch, 716 N.Y.S.2d 211(2000).

NY: Underlying employment law

Student Contributor: Jason Zemsky

Facts: Plaintiff Mamorella was appointed to a three-year probationary appointment as principal of the Auburn West Middle School. One year into her employment the Superintendent of Schools sent plaintiff a letter notifying her of his intention to terminate her probationary appointment. Plaintiff contacted Empire State Supervisors and Administrators Association (ESSAA), an association of local bargaining units of public school administrators and supervisors across the State, which represents the bargaining unit to which plaintiff belonged to represent her. Derkasch was assigned to her case and filed a grievance against the school, which was denied. The plaintiff commenced the instant action against Derkasch for legal malpractice and against ESSAA for the negligence of Derkasch under the doctrine of respondeat superior, based upon the alleged status of Derkasch as an employee of ESSAA. The court dismissed the plaintiff’s claims finding that Derkasch was an independent contractor and that ESSAA cannot be held liable for negligent acts of an independent contractor. The plaintiff appealed.

Issue: Can an attorney who performs services on behalf of a union be held liable to individual members of the union where the services at issue constitute a part of the collective bargaining process?

Ruling: No. the plaintiff's legal malpractice claim is preempted by Federal labor law, and that attorneys who perform services for and on behalf of a union may not be held liable for malpractice to individuals where the services performed constitute part of the collective bargaining process.

Lesson: An attorney who is handling a labor grievance on behalf of a union as part of the collective bargaining process has not entered into an ‘attorney-client’ relationship in the ordinary sense with the particular union member who is asserting the underlying grievance.
 

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Proskauer Rose Goetz & Mendelsohn LLP v. Munao, 270 A.D.2d 150 (N.Y. App. Div. 1st Dep't 2000)

NY Underlying business transaction

Student Contributor: Melissa Goldberg

Facts: In April 1991, Plaintiff allegedly gave Defendants negligent advice that they could shelter income through a certain joint venture. Plaintiff filed a summons with notice in October 1996, and served a complaint in December 1996, to which Defendants responded, in January 1997, with an answer containing counterclaims alleging the negligent advice. October 8, 1996 therefore marks the timeliness of the claims.

Issue: Which Statute of Limitations applied to this cause of action?

Result: Claims subject to six-year statute of limitations. The newly enacted three years statute does not bar it.

“While amended CPLR 214 (6), which reduced what would have been a six-year Statute of Limitations in this case to three years, applies to claims, such as these, interposed after its effective date of September 4, 1996, due process requires that such claims be entertained if brought within a reasonable time after September 4, 1996--clearly the case here, where the claims were presumably interposed only one month, and actually interposed only four months, after September 4, 1996.” 

Lesson: The Statute of Limitations in New York is now three years. 

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 Oster v. Kirschner, et al 2010 NY Slip Op. 05981 (App Div, 1st Dept. 7-6-2010)

NY: Underlying Private  investment

FACTS: A NJ law firm, Lum, Danzis, Drasco & Positan,LLC lost its bid to stay out of a NY law suit brought by investors in a private investment  plan named Cobalt,  which turned out to be a Ponzi scheme  operated by a convicted felon with the help of an admitted criminal with numerous convictions for securities violations and  who was banned from the securities industry.  Investors lost over $22 million. As Cobalt's attorneys,  the law firm is accused of preparing the private placement memorandum  (PPM) which failed to disclose the criminal histories  of the investment's managers, although the Firm's attorneys were aware of it.  Also, the PPM allegedly contained other affirmative misrepresentations to which plaintiffs pointed in their "aiding and abetting" , fraud and breach of fiduciary duty Complaint. The Law Firm also served as the  escrow agent for the investment transactions. The Law Firm "did not seriously dispute that they had knowledge of [their clients'] criminal backgrounds." It just claimed that knowledge and the knowledge of misrepresentations in the PPMs--"the admitted vehicle by which investment in the Ponzi scheme was carried out--does not sufficiently allege actual knowledge..."

ISSUE: Does the Complaint adequately plead fraud, or should the trial court's dismissal of the Complaint be reversed?

HELD: Order dismissing Complaint reversed. Complaint re-instsated.

1. A plaintiff alleging an aiding and abetting fraud claim must allege the existence of he underlying fraud, actual knowledge and substantial assistance.  Actual knowledge of fraud can be "discerned from surrounding circumstances."

2. The Law Firm's preparation of the PPM, including, significantly, a backdated amendment to it that showed the investment managers criminal past which it had not previously disclosed, constitutes "substantial assistance."

The PPMs authored by defendant attorneys were the means by which the Cobalt...entities were able to solicit funds for ...[the] Ponzi scheme. The PPM is the very mechanism by which investments such as Cobalt are placed in the marketplace, and the admitted "but for" cause of plaintiff's investment losses. Yet defendants assert that "loss causation" is lacking because it has not been adequately pleaded that defendant attorneys had actual knowledge that their clients--whom they admittedly knew to be criminals, banned from the securities industry for engaging in fraudulent investment schemes--would operate...Cobalt...as a Ponzi scheme. If the facts and circumstances herein do not support an inference of actual knowledge, then it is doubtful that any action for aiding-and-abetting fraud could be sustained against any attorney, who, like defendant attorneys, consciously chose to look the other way when their clients asked them to prepare the PPM...To say that defendant attorneys merely furnished legal services to help solicit investments in...Cobalt..., and did not have knowledge of the fraud they helped perpetrate...[is] simply not tenable. The Court cannot and will not endorse what is essentially a "see no evil, hear no evil" approach. 

LESSON:  Is the NY Court expanding the duty of vigilance of the lawyer regarding disclosure of information that non-clients should be entitled to know?  Will there be an appeal from this ruling? Let's wait and see. 

For an interesting NJ case involving a different NJ law firm also involved in composing a "defective" PPM, see Profit Sharing Trust v. Lampf Lipkind, 630 A.2d 1191 (1993).

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Estate of Schneider v. Finmann, Court of Appeals of New York, June 17, 2010

Facts: The defendant attorney represented decedent Saul Schneider from April 2000 to his death in October 2006. In April 2000, the decedent purchased a $1 million life insurance policy. Over several years, he transferred ownership of that property from himself to an entity of which he was principal owner, then to another entity of which he was principal owner and then, in 2005, back to himself. At his death in October 2006, the proceeds of the insurance policy were included as part of his gross taxable estate.

The decedent's estate commenced this malpractice action in 2007, alleging that defendant negligently advised the decedent to transfer, or failed to advise the decedent not to transfer, the policy which resulted in an increased estate tax liability.

The New York Supreme Court granted defendant's motion to dismiss the complaint for failure to state a cause of action. The Appellate Division affirmed, holding that, in the absence of privity, an estate may not maintain an action for legal malpractice. The estate appealed.

Issue: Whether the estate can hold the decedent's estate planning attorney liable for damages resulting from negligent representation that causes enhanced estate tax liability?

Ruling: Yes.

Privity, or a relationship sufficiently approaching privity, exists between the personal representative of an estate and the estate planning attorney. We agree with the Texas Supreme Court that the estate essentially stands in the shoes of a decedent and, therefore, has the capacity to maintain the malpractice claim on the estate's behalf. The personal representative of an estate should not be prevented from raising a negligent estate planning claim against the attorney who caused harm to the estate. The attorney estate planner surely knows that minimizing the tax burden of the estate is one of the central tasks entrusted to the professional.

The Court did note, however, that strict privity remains a bar against beneficiaries' and other third-party individuals' estate planning malpractice claims absent fraud or other circumstances, since such claims would lead to "uncertainty and limitless liability".

Lesson: Privity is not a bar to an estate's legal malpractice lawsuit against the decedent's purportedly negligent attorney.

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Benaquista v. Burke, Supreme Court of New York, Appellate Division, Third Department, June 10, 2010

Facts: Plaintiff and his mother co-owned various corporations and the Defendant attorney represented the corporation in various matters. In December 2002, Plaintiff's mother and corporate entities commenced a suit against Plaintiff for misappropriation of corporate funds. Defendant represented the mother and corporate entities against the Plaintiff in this underlying litigation. Plaintiff subsequently commenced this legal malpractice action alleging that he had utilized the Defendant's services concerning business issues with his mother, and in doing so, had revealed confidential information. Plaintiff further alleged that he had suffered damages as a result of the Defendant's decision to utilize the confidential information to institute the underlying lawsuit.
Defendant moved for summary judgment prior to the end of discovery, and argued that Plaintiff's complaint failed to state a cause of action for legal malpractice.

Issue: Is summary judgment for failure to state a claim appropriate in legal malpractice actions prior to the close of discovery?

Ruling: Yes. Defendant met this burden by proffering a sworn affidavit, alleging that his firm had represented plaintiff's mother and the corporations prior to his representation of plaintiff — which consisted only of the incorporation of a business owned by plaintiff — and that no conflict of interest existed. In addition, the plaintiff's bill of particulars failed to specifically identify any personal or confidential information used by the defendant against plaintiff or any damages suffered by plaintiff. Plaintiff's only opposition to defendant's cross motion was an attorney affirmation and various documents which consisted primarily of billing records:

Inasmuch as plaintiff failed to proffer any sworn allegations of an individual with personal knowledge of the relevant facts and the documents submitted were not in admissible form, his opposition was insufficient to sustain his burden of raising a triable issue of fact to defeat defendant's entitlement to judgment as a matter of law.

Accordingly, Supreme Court of New York, Appellate Division, affirmed the trial court's summary judgment dismissing Plaintiff's legal malpractice complaint.

Lesson: In New York, a plaintiff will not be able to defeat a motion for summary judgment, or obtain discovery on a claim for legal malpractice, without pointing to a concrete issue of fact that remains undecided after consideration of the parties' affidavits and other documentary evidence.

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Yousian v. Eisenberg, 34 A.D.3d 228 (2006)

NY Underlying Medical Malpractice Action

Student Contributor: Ally Shuster

Facts: Plaintiff went to hospital complaining of gastrointestinal pain. Over the next few months, Plaintiff underwent a series of tests in order to diagnose his condition. He underwent a sonogram, the results of which showed that he had stones in his gallbladder. Subsequently, he underwent surgery and was left with debilitating pain that he alleges to be a result of the surgery. Plaintiff retained Defendants and sued for medical malpractice. The Defendant attorneys failed to timely re-calendar the case, which is the  basis for this legal malpractice claim.

Issue: Is there a valid legal malpractice claim?

Ruling: No. There is no issue of fact as to whether the treatment Plaintiff received at the Hospital constituted medical malpractice.

Lesson: In order to win a legal malpractice claim, a Plaintiff MUST prove that he could win the underlying case. Although it was troubling that Defendant attorneys failed to timely re-calendar the case, Plaintiff did not prove that he would have been successful in the underlying case but for the Defendant attorneys’ negligence.

“In order to prevail in a legal malpractice suit, the clients must prove that their former attorneys were negligent and that they could have prevailed and recovered a judgment but for that negligence.” Tanel v. Kreitzer & Vogelman, 293 A.D.2d 420
 

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Leder v. Spiegel  31 AD3d 266, aff'd 9 N.Y.3d 836, 872 N.E.2d 1194 N.Y., 2007

NY Underlying probate

Student Contributor: Ryan O'Donnell

Facts: Defendant represented plaintiff in an underlying probate matter. Rather than accept a settlement offer, plaintiff decided to continue at trial, where they were unsuccessful in challenging the will. The plaintiff bases his malpractice claim on defendant’s advice on the prospect of success in the underlying case, and that he would have accepted the settlement were it not for his attorney’s advice. There was no documentary evidence that shows that plaintiff refused to settle strictly based on defendant’s advice.

Issue: Is an attorney liable for legal malpractice if he was not the proximate cause of the client’s damages, even if he negligently represented his client?

Ruling: No.

"In order to sustain a claim for legal malpractice, a plaintiff must establish both that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to a plaintiff, and that the plaintiff would have succeeded on the merits of the underlying action 'but for' the attorney's negligence"

The failure to demonstrate proximate cause mandates the dismissal of a legal malpractice action regardless of whether the attorney was negligent. Since there was no evidence that the defendant’s advice was the sole basis for refusing the settlement, the defendant was not the proximate cause of the plaintiff’s loss, the defendant attorney was not liable for malpractice.

The Lesson: Even an attorney who negligently represents his client will not be liable for malpractice if he is not the “but for” cause of the client’s damages. To establish liability based on the loss of a settlement opportunity, the plaintiff must prove that but for the attorney’s negligence he would have accepted the settlement offer. A court will not rely on bare allegations of fact by a plaintiff without documentary evidence to prove proximate cause.

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Thompson v. Seligman 53 A.D.3d 1019, 863 N.Y.S.2d 285 (A.D. 3 Dept., 2008).

NY: Litigation, Duty to Investigate

Student Contributor: Ryan O'Donnell

Facts: Plaintiff was employed by AMFAC Recreational Services, Inc. AMFAC regularly provided cleaning services to the Gideon Putnam Hotel. While performing her duties cleaning at the Gideon, plaintiff suffered injuries and retained defendant attorney to represent her in a workman’s compensation claim. When plaintiff inquired about a possible claim for pain and suffering against the Gideon, defendant advised her that she could not pursue a claim, based on his mistaken belief that plaintiff was employed by the hotel. Plaintiff then consulted with a different attorney who advised her that she did have a claim against the Gideon, except for that the statute of limitations had expired.

Issue: Can a mistaken assumption by an attorney give rise to a legal malpractice claim?

Ruling: Yes.

“An attorney has the responsibility to investigate and prepare every phase of his or her client’s case.”

There was sufficient documentation that stated plaintiff’s employer was AMFAC, not the Gideon. Had defendant made the appropriate inquiry he would have known that plaintiff was not employed by the Gideon, and that plaintiff could have a third party claim against the Gideon for pain and suffering. The defendant’s failure to investigate the availability of a third party claim by plaintiff raises a question of fact whether the defendant exercised an appropriate duty of care to the client.

The Lesson: As an attorney, you have the responsibility to investigate and prepare every phase of your client’s case. If there is information that will further the interests of your client that is easily ascertainable, and you fail to use such information, you have breached your duty of care to your client. Unless the client actively misrepresents information to you, you can be liable for malpractice if your mistaken assumption would have been corrected by further inquiry. 

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Erdman v. Dell 50 A.D.3d 627, 854 N.Y.S.2d 755 N.Y.A.D. 2 Dept., 2008.

NY Undelrying personal injury; worksite accident; scaffolding

Student Contributor: Ryan O'Donnell

Facts: Client filed a legal malpractice suit against attorney arising out of the attorney’s representation of client in an underlying NY Labor Law  § 240 (1) action. Plaintiff was injured while working on a scaffold doing pipe work in a building at 100 Broadway. Defendant’s mistaken brought an action against the owners of the building at 100 Pine street. By the time the mistake was realized, the statute of limitations had already expired. There was some questions as to whether the plaintiff had followed certain safety precautions that may have helped avoid the accident, and whether plaintiff had secured safety locks on the wheels of the scaffolding that may have prevented the accident.

Issue: Is an attorney liable for malpractice if he is not the proximate cause of the plaintiff’s damages, even if the attorney negligently allowed for the statute of limitations to expire?

Ruling: No. "In an action to recover damages for legal malpractice, a plaintiff must demonstrate that the attorney 'failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession' and that the attorney's breach of this duty proximately caused the plaintiff to sustain actual and ascertainable damages" An attorney is not liable for damages to his client if he was not the proximate cause of those damages. Since there were questionable issues of fact as to what the proximate cause of the accident was, the defendant’s conduct was not a proximate cause of plaintiff’s damages.

Lesson: Summary judgment for legal malpractice liability is precluded if there is a genuine issue of material facts of proximate cause in the underlying action. But  even if an attorney fails to name a proper party as a defendant and the  statute of limitations expires, the  attorney is not liable for malpractice if a plaintiff can not prove that but for the attorney’s failure to file a timely suit the client would have succeeded in the underlying cause of action.

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In re Estate of Remsen, 99 Misc. 2d 92 (N.Y. Sur. Ct. 1979)

NY Underlying Will Transaction

Student Contributor: Melissa Goldberg

Facts: Decedent died leaving a last will and testament in which she distributed her residuary estate in equal shares to her two sisters, the Plaintiffs and to eight nieces and nephews and one relative by marriage. Plaintiffs retained an attorney whose firm had represented the decedent's family for a long period. His duties were to represent them in the administration of this estate, including probate of decedent's will, preparing and filing tax proceedings and terminating the estate by formal or informal means, depending upon the agreement of the parties. For more than eight months, no action was taken to probate the decedent's will. The present proceeding to determine the fee of the former attorney, after his dismissal by Plaintiffs as their attorney, when he apparently refused or was otherwise unable to represent them at the scheduled title closing in the sale of the decedent's residence. Plaintiffs claimed that their former attorney unduly delayed the probate of the decedent's will, delayed the payment of the funeral expenses and other debts, and taxes and caused the loss of interest income.

Issue: Were the Plaintiffs correct in raising the issue of their former attorney’s ability to provide prompt legal services in a proceeded to fix and determine attorney fees within Surrogate’s Court?

The Result: Plaintiffs of an estate acted properly in raising the issue of their former attorney's inability to provide prompt legal services in a proceeding to fix and determine the attorney's fees as their failure to raise the issue at this proceeding might bar a subsequent malpractice claim.

The Lesson: The jurisdiction of the Surrogate’s Court is not so limited that it cannot determine the issues of malpractice of an attorney whose services and competence are relied upon by a lay fiduciary in the administration of an estate.

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Montes v. Rosenzweig, 21 A.D.3d 460, 800 N.Y.S.2d 444 (N.Y. App. Div. 2005)

NY Underlying Litigation: Wrongful Death and Negligence

Student Contributor: John Anzalone

Facts: Decedent retained Defendant Attorney to represent her in her claim against a building owner after she was injured by a faulty elevator. Decedent shortly thereafter died from complications from her injuries before an action was commenced against the building owner. Defendant brought suit on her estate's behalf, but failed to get letters of administration. Consequently, the suit was dismissed for lack of standing. After failing in his attempts to obtain letters of administration, Defendant told Plaintiffs that he was withdrawing and that the action had been dismissed. However, Defendant continued to represent the Plaintiffs in their attempts to get letters of administration so that they could sue the building owner. Defendant later told Plaintiffs that a suit against the building owner had become practically impossible to maintain because the statute of limitations that had run several years earlier. Plaintiffs sued Defendant Attorney. The case was dismissed based on time bar and failure to state a cause of action.

Issue: Was the statute of limitations tolled by the "continuous representation doctrine?"

The Ruling: In reversing the lower court, the Appellate Division held that the "continuous representation doctrine" tolled the statute of limitations, based on the following considerations:
1) The "continuous representation doctrine" tolls the three year statue of limitations doctrine period in the matter in which the alleged malpractice occurred.
2) The doctrine is triggered when there is a "continuing attorney-client relationship" after the malpractice occurs.
3) Here, the defendant continued to represent the Plaintiffs after first failing to obtains letters of administration to bring the negligence and wrongful death suits,
4) The alleged malpractice occurred because Defendant failed to obtain letters of administration before both statue of limitations expired.
5) After the malpractice occurred, Defendant allegedly led the plaintiffs to believe that a suit could still be filed against building owner if the letters of administration were obtained.
6) The Defendant did not inform the plaintiffs until well after the statute of limitations against the attorney had run that it was practically impossible from the Plaintiffs to sue the building owner.

The Lesson: Although the statute of limitations may have run for a malpractice claim against an attorney, that period may be tolled if the Attorney continually represents the plaintiff during the period after the cause of action accrues.
 

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Boomer v. Gross, 34 A.D.3d 1096, 825 N.Y.S.2d 171 (N.Y. App. Div. 2006)

NY Underlying Criminal Defense

Student Contributor: John Anzalone

Facts: Defendant attorney was paid by Plaintiff's stepfather to help file a motion on behalf of criminal defendant Plaintiff. Defendant concluded that the motion he was asked to help file would be frivolous and offered to refund "some or all" of the payments made to him. Plaintiff was convicted of several crimes including attempted murder. Plaintiff' brought a legal malpractice suit against Defendant that was dismissed.

Issue: Can the Plaintiff sue an Attorney who did not represent him at trial for legal malpractice in a criminal case if his conviction has not been overturned?

The Ruling: In affirming the lower courts grant of summary judgment for Defendant, the Court held that Plaintiff could not sue the attorney, based on the following considerations:
1) It is a "well-settled principle" that criminal defendants cannot sue attorneys for legal malpractice in their criminal cases if they were found guilty and that determination was not subsequently disturbed.
2) This principle is applicable to attorneys who represent the defendants at the criminal trial and those that represent the defendants solely outside of the court room.

The Lesson: The undisturbed determination of the plaintiff's guilt is a complete defense to a claim for legal malpractice in a criminal case. These plaintiffs cannot sue their attorneys for malpractice. This applies to all attorneys who do work for criminal defendants and is not limited to their trial attorneys.
 

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Waggoner v. Caruso, 2009 NY Slip Op 6739 (1st Dept. Sep. 29, 2009)

Underlying Commerical Matter

Facts:  Plaintiff Waggoner retained Attorney Caruso to trace and attach the assets of Suisse Security Bank and Trust ("SSBT") and British Trade and Commerce Bank ("BTBC") in an effort to recover $10 million.  Caruso attached SSBT's property to the extent of $3 million.  He asked Waggoner, however, to sign an affidavit stating that he had recovered approximately $7.7 million.  In the meantime, BTBC's chairman, Rodolfo Requena, pleaded guilty to federal money laundering charges and Caruso, allegedly, agreed to represent Requena without disclosure to Waggoner.  Waggoner subsequently filed a suit for legal malpractice, fraud, breach of fiduciary duty, fraud, and conspiracy to commit fraud against Caruso, his firm, and his previous employer, Pillsbury Winthrop ("Pillsbury").        

Pillsbury argued that Waggoner's claim for legal malpractice was time-barred, since their representation had terminated more than three years prior to the date the malpractice suit was instituted.

Issue:  Can a former client bring a suit for malpractice against a firm more than three after the firm's representation has been terminated, in the event the client continues to be represented in the same matter by an attorney previously employed at the firm? 

Ruling:  Yes.  In New York, a legal malpractice action must be commenced within three years of accrual.  Accrual occurs when the malpractice is committed. A client, however, "cannot be expected to jeopardize a pending case or relationship with an attorney during the period that the attorney continues to handle the case".  Since "an attorney-client relationship would certainly be jeopardized by a client's allegation that his or her attorney committed malpractice", the statute is tolled as to a malpractice claim against a law firm where the attorney who handled the case continues to represent the client in the same matter. 

Lesson:  Under the "doctrine of continuous representation", the statute of limitations is tolled while representation on the same matter is ongoing by the same attorney at a new law firm.

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Steinberg v. Schnapp, 2010 NY Slip Op 02991 (1st Dept. April 13, 2010)

Underlying Probate Matter

Facts: Steinberg and Schnapp, both attorneys practicing independently, undertook the representation of another attorney, Borstein. Borstein had retained Steinberg and Schnapp to represent him with respect to “all legal proceedings and asset administration concerning the wills, assets and estate of the late Isi Fischzang”. More specifically, Borstein’s retainer agreement provided that Steinberg was “the general counsel…with respect to all litigation proceedings concerning the wills, assets, and estate”.

Soon after the commencement of the representation, however, Steinberg instituted an action against Schnapp for quantum meruit and interference with an advantageous economic relationship. Essentially, Steinberg alleged that Schnapp fired him to shift the blame for delays in the probate action that upset Borstein.

Issue: Where two attorneys are retained by an executor, one as trial counsel and the other as “Of Counsel”, should “Of Counsel” be permitted to seek his fees from trial counsel?

Ruling: No. The Court resorted to principled of contract law to resolve Steinberg’s claim, and held that the written documents evidenced that Steinberg’s client was the estate, not Schnapp:

In this case Steinberg has sought to recover compensation for his services from a party who did not have any obligation to compensate him – his co-counsel – with whom he was clearly not in privity. There is not even a suggestion that the estate is an undisclosed principal, in which case liability might attach to Schnapp, under time-honored principles.

The Court further held that Steinberg’s claims would fail in any event, since “[a]s a general rule, where there is a contractual relationship between a lawyer and client, the client has the right to terminate the attorney-client relationship at any time with or without cause”:

At best, Steinberg is suggesting that Schnapp made an inaccurate statement about the quality of Steinberg’s work, which statement led Borstein to terminate the attorney relation, a relationship that is terminable at will, in any event. Such statements would be neither tortious nor criminal.

Lesson: An attorney cannot seek compensation for services rendered from co-counsel, even where co-counsel’s representations allegedly led the client to terminate the representation. A client can terminate the attorney-client relationship at will. The attorney can seek to recover compensation for his services only from his former client.

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Sayeh v. 66 Madison Ave. Apt. Corp., 2010 NY Slip Op 03844 (1st Dept. May 6, 2010)

Underlying Commercial Transaction

Facts: Plaintiff, an owner of seven apartments in a coop, sought to purchase an eighth unit. Plaintiff’s application to purchase the eight unit was disapproved by the coop board members, despite an exclusion in the proprietary lease for a stockholder-to-stockholder exemption from the requirements of board approval for assignment of shares. Plaintiff, subsequently, commenced an action for legal malpractice and intentional tort against the coop’s attorney, Silberman.

Issue: Was Silberman liable to Sayeh for alleged damages sustained by the coop’s wrongful disapproval of his application to purchase an additional unit?

Ruling: No. The Court dismissed Sayeh’s claim for legal malpractice against Silberman, since “there [was] no evidence of privity or near privity to support the imposition of [such] a claim”. The Court also dismissed the claim for intentional tort, since there was no evidence of “collusion, malice, or fraud to warrant the imposition of liability”.

Lesson: An attorney will not be held liable to a third-party with whom he has no attorney-client relationship, nor any reason to suspect that the third-party is relying on him for advice.

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Ryan v. Powers & Santola, LLP, 2010 NY Slip Op 03827 (3^rd Dept. May 6, 2010)

Underlying Personal Injury Action

Facts:  Plaintiff Ryan was struck on the head by highchair while dining at a restaurant.  He then retained Powers & Santola to represent him in a negligence action against the restaurant. 

In response to the defendants’ motion to compel production of a verified bill of particulars and responses to outstanding discovery demands, the trial court issued an order in the underlying action providing that the matter would be dismissed if Ryan failed to provide the outstanding discovery.  Although Ryan eventually served discovery responses, a number of responses required more specific answers.  The trial court, thereafter, extended the discovery schedule twice with a conditional order that the action would be dismissed if plaintiff continued to fail to provide responses.  Ryan failed to comply and the matter was in fact dismissed. 

Subsequently, Ryan commenced a legal malpractice action against Powers & Santola for “failing to follow court orders…consenting to conditional orders…and failing to move to vacate the dismissal order”.  Ryan moved for partial summary judgment on the issue of liability. 

Issue:  Is Ryan’s alleged failure to cooperate with counsel in preparing discovery responses a viable defense to his action for legal malpractice?

Ruling:  Yes.  The Court held that:

A claim of legal malpractice will be sustained if the plaintiff establishes…that [he] would have succeeded on the merits of the underlying action but for the attorney’s negligence…We agree…that the plaintiff’s conclusory assertions – that ‘but for’ defendants’ alleged negligence, they ‘would have been able to prosecute all causes of action to a successful outcome’ – failed to establish their prima facie entitlement to summary judgment…There are questions of fact as to whether plaintiff failed to cooperate with defendants in providing them with information and documents necessary for motion practice after the underlying action was dismissed.

Lesson: A former client’s failure to cooperate is a question of fact in assessing the liability of the attorney in a malpractice action.  Failure to cooperate, more likely than not, would prevent plaintiff from establishing that “but for” his former counsel’s malpractice, he would have prevailed in the underlying action.   

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Wright v. Meyers & Spencer, LLP, 849 N.Y.S.2d 274 (N.Y. App. Div. 2d Dep't 2007)

NY Underlying Bankruptcy Action

Student Contributor: Melissa Goldberg

Facts: This is an action for legal malpractice arising out of Defendants' representation of Plaintiff in a bankruptcy proceeding. Plaintiff alleges in the verified complaint that he made a transfer to his “daughter” Plaintiff and this disclosed in the bankruptcy petition. The bankruptcy trustee brought an adversarial proceeding alleging that the transfer was fraudulent because it was made within one year of the filing of the bankruptcy proceeding. Plaintiff claimed that the Defendants should have advised Plaintiff to delay filing for bankruptcy until one year after the transfer was made to avoid the adversarial proceeding.

Issue: Does the Plaintiff have standing to file this suit against the Defendants?

Result: No, the Plaintiff did not have standing because
• Any legal malpractice cause of action necessarily accrued prior to the filing of the Plaintiff's bankruptcy petition so,
• Upon commencement of the Plaintiff's bankruptcy proceeding, the malpractice cause of action became "property of the estate" pursuant to the Bankruptcy Code.

Lesson: In a Bankruptcy action, any cause of action that arises prior to a bankruptcy proceeding beginning is property of the estate and not the individual. Only a person with standing can sue.

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Birnbaum v. Misiano, 52 A.D.3d 632, 861 N.Y.S.2d 711

NY: Underlying loan; uncollectiblility

Student Contributor: Michael H. Park

Facts: Attorney represented plaintiff in a series of loans made to a third party whom the attorney knew socially. The third party provided watches as collateral on the loans. At no time over the course of the 21 months in which the loans were issued did the attorney recommend that plaintiff get an appraisal as to the value of the watches. Eventually, it was discovered that the watches were worthless, and the plaintiff brought a legal malpractice action against the attorney for failing to ensure that the loans were adequately collateralized. The attorney moved to dismiss on the grounds that the plaintiff failed to prove that the attorney's actions were the proximate cause of his damages because the plaintiff could not show that a judgment was obtained against the third party that could not be collected. The trial court dismissed the complaint and the plaintiff appealed.

Issue: Does the lack of an uncollectable judgment against a party in an underlying action preclude a plaintiff from going after their attorney for legal malpractice?

Ruling: No. In reversing the Supreme Court, Nassau County, the Appellate Division, Second Department held that the complaint was improperly dismissed for the following reasons:
1) The burden of the plaintiff is to show that the attorney did not “exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession, and that the attorney's breach of that duty proximately caused the plaintiff to sustain actual and ascertainable damages”.
2) There is nothing to suggest that because the plaintiff has not pursued an action against the third party to whom money was loaned and that a judgment obtained against the third party would be uncollectable, Plaintiff will be unable to prove that the attorney's conduct was the proximate cause of their damages.

Lesson: Even if a plaintiff does not pursue a cause of action against the party in the underlying action, they can still bring a legal malpractice claim against the attorney who represented them. Just because there exists the possibility of recovering money against another party does not eliminate the attorney as a proximate cause of the plaintiff's damages.

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Rechberger v. Scolaro, Shulman, Cohen, Fetter & Burstein, P.C., 45 A.D.3d 1453, 848 N.Y.S.2d 459 (2007)

NY: Business losses allegedly attributed to malpractice.

Student Contributor: Michael Park

Facts: Plaintiff was a shareholder in a corporation represented by an attorney. Through the course of business, the plaintiff lost money in his investment in the corporation. The plaintiff then brought a legal malpractice suit against attorney alleging that the attorney's conduct was the cause of the investment loss. The attorney moved to dismiss the complaint on the grounds of no attorney-client relationship and the trial court denied the motion. The attorney then appealed.

Issue: Did the trial court err in denying the motion to dismiss for lack of attorney-client relationship?

Ruling: Yes. In reversing the ruling by the Supreme Court, Wyoming County, the Appellate Division, Fourth Department held for the attorney for the following reasons:
1) An individual’s belief that he had an attorney-client relationship with a lawyer does not necessarily “confer upon him the status of a client”. In a legal malpractice action, an attorney-client relationship must be established.
2) Furthermore, while the plaintiff was a shareholder in the corporation represented by attorney this does not necessarily mean they had an attorney-client relationship. The plaintiff failed to produce documentary evidence that the relationship with the attorney rose to the level of an attorney-client relationship.

Lesson: A shareholder in a corporation does not necessarily enjoy an attorney-client relationship with a lawyer who represents that corporation because that person is a shareholder. Furthermore, more than a mere belief by the client that they have an attorney-client relationship with a lawyer is needed to prove the existence of that relationship.

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Nelson v. Kalathara, 48 A.D.3d 528, 853 N.Y.S.2d 89 (2008)

NY: Underlying litigation, privity. 

Student Contributor: Michael Park

Facts: An incapacitated person had a guardian assigned to them and their property. The plaintiff, who happened to be the previous guardian’s brother, eventually replaced the guardian. However, the previous guardian entered into a contract to sell property belonging to the incapacitated person and retained an attorney to represent him. The purchaser also retained an attorney and the sale went through successfully. However, the plaintiff discovered the sale and brought an action against the purchaser's attorney alleging that he committed legal malpractice in handling the real estate sale. The purchaser's attorney then made a motion to dismiss for lack of privity, which was denied by the trial court. The attorney then appealed.

Issue: Did the trial court properly rule that privity was not required between the purchaser's attorney and the plaintiff in the legal malpractice action?

Ruling: No. In reversing the ruling of the Supreme Court, Westchester County, the Appellate Division, Second Department held that the purchaser's attorney's motion was improperly denied for the following reason:

There is an exception to the privity rule required in legal malpractice actions. This exception states that if an attorney's behavior could be categorized as fraud, collusion, malicious acts, or other special circumstances, then no privity is required or simply a showing of near-privity is all that is required to link the attorney to the damaged party.

Lesson: A third party to an attorney's alleged legal malpractice does not need to establish privity if it can be established that the attorney's conduct constituted fraud, collusion, malicious acts, or other special circumstances. In the absence of those conditions, the third party must establish privity with the attorney to be able to bring a legal malpractice claim.

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Cobalt Multifamily Investors I, LLC v. Shapiro, 2009 WL 2058530 (S.D.N.Y. July 15, 2009)

Facts:  Receiver for the defunct Cobalt Multifamily Investors I, LLC entities (“Cobalt”) filed suit against three sets of attorneys and their law firms for malpractice, looting, aiding and abetting conversion, conversion, unjust enrichment, breach of fiduciary duty, and breach of contract.  

The defendants moved to dismiss for lack of standing under the Wagoner Rule and the Court granted their motion.  The Wagoner Rule provides that a bankrupt corporation, and by extension, an entity that stands in the corporation’s shoes, lacks standing to assert claims against third parties for defrauding the corporation where the third parties assisted corporate managers in committing the alleged fraud. The Court rejected the Receiver’s argument that the adverse interest exception applied and granted the motion to dismiss, holding that the managers’ misconduct provided at least some financial benefit to the Cobalt entities, and therefore, they did not totally abandon the interests of the corporation, and were not acting entirely for their own or another’s purpose.  The Receiver filed a Motion for Reconsideration.  

Issue:  Did the Receiver have standing to bring a professional malpractice claim against the law firm defendants on behalf of Cobalt?

Ruling:  The Receiver had standing to bring a malpractice suit on behalf of the defunct entity. 

Applicability of the Adverse Interest Exception to the Wagoner Rule:

In granting the Motion for Reconsideration, the Court rejected the notion that a benefit to the corporation from the wrongdoer’s conduct precludes application of the adverse interest exception, and instead held that a corporation’s manager can totally abandon a corporation’s interests even if the manager’s actions somehow benefit the corporation because the relevant inquiry is whether the manager intended to benefit the corporation. 

Under this standard, the Court agreed that the Receiver’s allegations supported the conclusion that Cobalt’s managers had the intent to totally abandon Cobalt’s interests by utilizing investor funds for their personal benefit.  

The Court rejected the attorneys’ argument that the adverse interest exception is inapplicable because the managers set up a corporation expressly for the purpose of defrauding outsiders and by doing exactly that, they actually furthered the corporation’s interests:

Implicit in this argument is the view that the interests of the corporation should be defined solely by considering the interests of the managers, and not by considering the interests of the shareholders as well. Law Firm Defendants offer no compelling legal support for this position. Moreover, this position runs contrary to basic principles of corporate law that take into account the interests of the shareholders when defining the interest of the corporation.

Applicability of the Sole Actor Rule to the Adverse Interest Exception:

The Law Firm Defendants argued that even if the adverse interest exception applied to the Wagoner Rule, the sole actor rule would still preclude the Receiver’s standing to bring claims against them. The sole actor rule is an exception to the adverse interest principle and applies where the principal and agent are one and the same. In such instances, the agent’s knowledge is imputed to the principal, unless the corporation had owners or managers who were innocent of the fraud. 

The Court held that the sole actor rule would not prevent the Receiver from pursing his claims against the Law Firm Defendants, since the corporation (the principal) had 300 innocent shareholders versus three fraudulent managers. More importantly, the shareholders had the authority to stop the fraud, and would have done so had they known about it.

The Law Firm Defendants argued that the managers dominated and controlled the corporation, and therefore, the sole actor rule must apply notwithstanding the innocent shareholders. The Court found no merit to this argument, however, since the managers of Cobalt did not have “complete control”, i.e. the shareholders had the authority to remove them.

Lesson:  A Receiver will be allowed to bring professional malpractice claims where he can establish the insiders' intent to benefit themselves at the expense of the corporation and its shareholders.

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Shaw v. Manufacturers Hanover Trust Co.,  68 N.Y.2d 172, 499 N.E.2d 864(App. Div.1986)

NY: Underlying  Personal Injury Action--Fee Dispute

Student Contributor: Candice L. Deaner

Facts: The Plaintiff brought a personal injury claim and retained the law firm  on a contingent fee basis. The agreement did not mention appeals. After the trial ended in a verdict for the defendant, the Plaintiff wanted to appeal. The law firm agreed, on the condition that Plaintiff advance the litigation expenses. Plaintiff refused and retained new counsel and eventually obtained an award of $1.5 million in the retrial. The original law firm then sought to collect on the award and the client objected.

Issue: Whether an attorney can collect on a contingency fee agreement when the terms of representation were not clearly stated?

Ruling: The New York State Court of Appeals denied the fee request.

1)  Retainer agreements should be clear on the scope of representation. The Court said,

"The importance of an attorney's clear agreement with a client as to the essential terms of representation cannot be overstated. The client should be fully informed of all relevant facts and the basis of the fee charges, especially in contingent fee arrangements.”

2) The contract should be viewed in a light most favorable to the client. The court held “Had the client maintained that the retainer agreement required respondent's representation through conclusion of the matter, that would have been the mandated interpretation. But here, the client has asserted that the contract terminated upon entry of an adverse judgment. We hold that the agreement must be construed so to provide."

3) The court found that the agreement only spoke of adjudicating the claim. Even if the contract applied to an appeal, the law firm breached the contract by insisting on an additional term for handling the appeal; namely, advancing  expenses. The retainer agreement only addressed the computation of the ultimate fee, it made no provision for expenses.

The Lesson: Retainer agreements should contain clear language stating the legal services to be provided. The attorney should be sure that the client understands the scope of the attorney’s representation.. Attorney’s can safeguard themselves by including any and all limitations in writing, so that there is no question as to what the scope of employment was from the beginning of the attorney/client relationship.

Note: From a malpractice viewpoint, a clear "scope of the engagement" clause is critical to protecting the lawyer from liability for services that are beyond the scope of the engagement.

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Rechberger v. Scolaro, Shulman, Cohen, Fetter & Burstein, P.C., 45 A.D.3d 1453, 848 N.Y.S.2d 459 (2007)

NY Underlying Commercial Transactions

Student Contributor: Maninder (Meena) Saini

Facts: Plaintiff (Rechberger) filed a lawsuit against defendant (law firm), alleging legal malpractice. Plaintiff was seeking damages for investment losses arising from the defendant’s malpractice. The plaintiff contended that defendant's representation of a corporation of which plaintiff was a shareholder establishes that defendant had an attorney-client relationship with plaintiff.

Issue: Does an attorney’s representation of a corporation establish an attorney-client relationship with its investors/shareholders?

Holding: The Appellate court held that the defendant lacked an attorney-client relationship with plaintiff. A “unilateral belief by parties that they had an attorney-client relationship with an attorney does not by itself confer upon them the status of clients,” for purpose of a legal malpractice action. The plaintiff’s complaint was dismissed.

Rule: A unilateral belief by one party that an attorney-client relationship exits is not dispositive of the actual existence of such a relationship. To succeed on an action for legal malpractice, a plaintiff must prove, among other things, the existence of an attorney-client relationship.

Lesson: This case illustrates the principal of privity between individuals, corporations and attorneys. An attorney is not liable to plaintiff for damages in a legal malpractice action unless the attorney and the plaintiff had a direct attorney-client relationship. In this case, the defendants met its burden by establishing that it had no attorney-client relationship with plaintiffs.

NOTE: See also, RPC 1.13 Organization as the Client, where the representation by a lawyer of an entity is separate and distinct from its members. That Rule applies, with few exceptions, to business entities and shareholders, partners or members.  

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Sash v. Schwartz,  2007 WL 30042 (S.D.N.Y. 2007).

N.Y. underlying criminal conviction

Student contributor: Cheryl Neuman

Facts: Plaintiff was represented by defendant attorney in a criminal proceeding. Plaintiff was arrested for unlawfully possessing and producing N.Y.P.D. badges and selling counterfeit police badges. He was also arrested for possession of counterfeit bar code stickers for merchandise at K-Mart stores. After appearing before the magistrate judge, plaintiff pled guilty to two counts. He was  sentenced to eight years of supervised release. The Second Circuit affirmed the conviction but decreased the supervised release to three years. Plaintiff was also indicted for fraud, arising from filing false insurance documents claiming that his wife had been killed in the World Trade Center attacks on 9/11. Plaintiff claims that but-for defendant’s negligent representation, he would not have pled guilty to the various crimes with which he was charged.

Issue: Is the defendant liable to the plaintiff for legal malpractice?

Ruling: No, the defendant is not liable to the plaintiff for legal malpractice because a criminal defendant must show that the alleged legal malpractice was the “cause of the conviction.” Claudio v. Heller, 119 Misc.2d 432 (N.Y. Sup. Ct. 1983). The standard for a criminal defense malpractice claim differs from the standard for civil legal malpractice.  A plaintiff must allege his innocence of the underlying offense to successfully bring a legal malpractice case against his attorney in an underlying criminal proceeding. The elements of a malpractice case in N.Y. are:
1) A duty
2) A breach of the duty, and
3) Proof that actual damages were proximately caused by breach of the duty

Lesson: “A criminal defendant may be able to prove that but for the action of his counsel he would have invoked the 5th amendment or succeeded in suppressing evidence.” Carmel, 70 N.Y.S.2d 173. A criminal defendant, however, who pled guilty or was found to be guilty, cannot assert his innocence. It is for that reason that a criminally convicted plaintiff cannot bring a legal malpractice cause of action under these circumstances. Had the conviction been overturned or vacated, then plaintiff’s claim might  not have been barred.

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Baccash v. Sayegh, 862 N.Y.S.2d 564 (App. Div. 2008); 53 A.D.3d 636.

Student contributor: Cheryl Neuman

N.Y. underlying business acquisition

Facts: Plaintiff owned Iman Bridal Couture, Inc. and retained Defendant lawyer to represent her in connection with buying the “Peggy Peters’” trade name. Peggy Peters was another bridal boutique located near plaintiff’s store. Plaintiff wanted to buy the trade name so that she could open a bridal boutique under the Peggy Peters name. The defendant, however, told plaintiff that she would have to buy all the inventory in order to buy the Peggy Peters trade name. The plaintiff agreed to that arrangement, but unbeknownst to the plaintiff, defendant negotiated a stock purchase rather than an asset purchase of Peggy Peters. The plaintiff didn’t read the stock purchase agreement because she trusted and relied on defendant. Plaintiff subsequently sued defendant for legal malpractice because he negotiated a stock purchase agreement rather than an asset agreement, as they had agreed.

Issue: Whether defendant is liable to plaintiff for legal malpractice because he negotiated a stock purchase agreement instead of an asset purchase agreement?

Ruling: Defendant is not liable to plaintiff for legal malpractice because the plaintiff’s proof was insufficient to establish that she sustained actual damages as a result of the defendant’s conduct.

In an action to recover damages for legal malpractice, a plaintiff must demonstrate that the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession and that the attorney’s breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages.  (citing, Rudolf v. Shayne, Dachs, Stanisci, Corker, & Sauer, 8 N.Y.3d 483 (App. Div. 2007).

Lesson:  The plaintiff paid off the debts of Peggy Peters through Iman Bridal Couture. This fact, however, was not dispositive in ascertaining damages because the court stated, “Although it is undisputed that the plaintiff is Bridal Couture’s sole officer and shareholder, a corporation has a separate legal existence from its shareholder even when the corporation is wholly owned by a single individual,” such as in this case. 

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Rudolf v. Shayne, Dachs, Stanisci, Corker, & Sauer,8 N.Y.3d 438; 867 N.E.2d 385 (2007).

N.Y. underlying personal injury action

Student contributor: Cheryl Neuman

Facts: Plaintiff was walking across Sunrise Highway when he was struck by a car. He suffered personal injuries and retained defendants to represent him in his case against the driver. There was a traffic signal that controlled the intersection where the accident occurred. There was conflicted testimony as to whether plaintiff was in the crosswalk at the time that the car struck him. Defendants requested, at the completion of testimony, that the court should instruct the jury regarding the statutory requirements of Vehicle and Traffic Law § 1151. Section 1151 concerns intersections without traffic signals. The provision also imposes a duty on pedestrians not to “suddenly leave a curb or other place of safety and walk or run into the path of a vehicle which is so close that it is impractical for the driver to yield.” The jury returned a verdict that both plaintiff and driver were negligent, apportioning 50% of the liability to each party. Plaintiff retained new counsel to set aside the verdict, claiming that the court gave the wrong charge to the jury.

Issue: Whether it was legal malpractice for the defendants to request a jury charge of §1151, when §1111 was the appropriate section that defendants should have requested?

Ruling: Yes, the failure to object to the §1151 jury charge and not to request §1111 was legal malpractice. Section 1111 applies to intersections regulated by traffic signals and grants pedestrians “facing any steady green signal the right of way within a crosswalk.” The erroneous charge was a fundamental error requiring a new trial because it affected the jury’s consideration of the plaintiff’s liability.

Lesson: Damages in a legal malpractice case are designed to make the injured client whole. A plaintiff’s damages may include litigation expenses incurred in attempt to avoid, minimize, or reduce the damage caused by the attorney’s wrongful conduct. The plaintiff in this case was therefore entitled to litigation expenses he incurred in the legal malpractice lawsuit. 

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Garten v. Shearman & Sterling LLP, 859 N.Y.S.2d 80 (N.Y. App. Div. 1st Dep't 2008)

Student Contributor: Melissa Goldberg

NY: Underlying Commercial  Real Estate Transaction

The Facts: Plaintiff stated a cause of action for legal malpractice by alleging that "but for" Defendant's failure to prepare and procure documents necessary to provide him with a first-priority security interest, he would have been able to recover the amounts owed to him by the defaulting borrower. The agreement between Plaintiff and Defendant mentioned the  "Documentation relating to Security Agreement".  Defendant's closing documents checklist included "[e]vidence that all other action that the Lender may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement has been taken (including, without limitation, UCC-3 termination statements)."

Issue:
1) Did the Defendant commit legal malpractice by failing to prepare and procure documents that would be necessary to provide Plaintiff with a first priority security interest?

Ruling:
1) The documentary evidence did not establish a defense because Defendant was obligated not only to prepare the loan documents, but also to protect Plaintiff's expectation that the agreement that he would hold a senior security interest was effective.
• Neither the borrower's failure to repay the loan nor the senior creditors' eventual failure to act honorably and adhere to the understanding that their liens were to be junior to Plaintiff's relieves Defendant of potential liability for its negligence.
• The Plaintiff is not responsible for his own loss simply because he executed the documents that Defendant prepared for him.

Lesson: Generally, the actions of other parties do not relieve a Defendant’s liability for its own legal malpractice. A lawyer has a duty to protect his client’s interests, first and foremost. 

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West Vil. Assoc. LP v. Balber Pickard et al.,  PC, 854 N.Y.S.2d 340 (App. Div. 1st Dep't 2008)

NY Underlying Real Estate Action

Student Contributor: Melissa Goldberg

Facts: Plaintiff alleged that Defendant failed to take appropriate steps to assure property would be free from rent regulation. Plaintiff claims that she received ongoing advice regarding rent regulation from the Defendant.

Issue: Was the Plaintiff barred by the statute of limitations?

Ruling:  No.  Under the "continuous representation" doctrine, a client cannot reasonably be expected to assess the quality of the professional service while it is still in progress. The continuous representation doctrine is "generally limited to the course of representation concerning a specific legal matter," Here,
1. The Plaintiff’s complaint went beyond mere allegations that Defendants continuously represented Plaintiffs in a general professional relationship after the specific act of malpractice occurred.
2. The Plaintiff specifically alleged the continued advice they received from Defendants regarding rent regulation.

Lesson: A legal malpractice claim accrues when the malpractice is committed, not when the client discovers it. To fall under the continuous representation doctrine, the pleading must assert more than simply an extended general relationship between the professional and client, and the facts are required to demonstrate continued representation in the specific matter directly under dispute.

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Heartbreak Cabaret Corp. v. Cruz & Toledo Restaurant Corp., 699 F.Supp. 1066 (S.D.N.Y. 1988)

Underlying Action: Purchase of Real Property

Student Contributor: Candice L. Deaner

Facts: Attorney represented a corporation in negotiations for a nightclub. In the course of negotiations, the attorney also began to represent defendants who were the owner’s of the lease where the club was intended to be. The venture between the parties quickly became bitter and resulted in litigation. Soon after, the corporation brought suit against the attorney for breach of fiduciary duty; however, when the corporation brought this claim against the attorney, they immediately moved to disqualify any testimony that attorney may proffer in his own defense, using the protection of the attorney client privilege.

Issue: Whether an attorney may be excused from the duty of confidentiality when using the communications to defend against a legal malpractice claim

Ruling: The District Court used the following factors to dismiss the corporation’s claim:
1) Disciplinary Rule 4-101(c) provides:

“A lawyer may reveal … Confidences or secrets necessary … to defend himself or his employees or associates against an accusation of wrongful conduct.”

2) The court reasoned that “as a matter of common sense, when a former client sues his former attorney, the client places the attorney in a position where previously confidential communications must be revealed to trial counsel defending the attorney in the suit.” The court held that this is necessary to provide an attorney a reasonable opportunity to defend against such a professional criticism.

Lesson: An attorney defending against a claim of legal malpractice is relieved of  the duty of confidentiality for the purposes of defending himself. This exclusion does not render an attorney immune from his duty to his former client with regard to disclosures to third parties. In such an instance, the attorney may still barred from disclosing client confidences to a third party.

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Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537 (2nd Cir. 1994)

NY Underlying Representation: Prospective Purchase of Bankrupt Company's Assets

Student Contributor: John Anzalone

Facts: Defendant Law firm represented Plaintiff through an agent in her attempt to purchase the assets of a bankrupt company. Problems occurred with the deal and the Agent was dismissed by the Plaintiff. Agent then told Firm that he wanted to buy the assets of the bankrupt company. Despite knowing that Plaintiff still sought to purchase the assets, Firm told Plaintiff that it would represent Agent in his attempt to purchase the assets. Plaintiff objected to this subsequent representation of Agent. Agent outbid Plaintiff with Firm's assistance. The jury found that Firm's representation of Plaintiff's Agent breached its fiduciary duties to her and was a "substantial factor in preventing her from obtaining assets she sought in the transaction."

Issue: Was the determination that Firm breached its duty to its former client by representing Plaintiff's agent in the same transaction incorrect?

Ruling: In affirming the lower court, the Second Circuit held that the Firm breached its fiduciary duty to Plaintiff, based on the following considerations:
1) Firm committed a serious breach of its fiduciary duties to Plaintiff as a former client by representing a party with interests adverse to the Plaintiff in the same transaction.
2) The nature of this breach triggers the prophylactic rule so plaintiff has to prove that Firms' actions were a substantial factor in its damages instead of the normal requirement of proximate cause.
3) The jury could have found that Firm's action were a substantial factor in Agent purchasing the assets rather than Plaintiff because their presence could have given Agent more credibility. The jury could have found that the deal moved forward because Agent and Firm agreed to use Plaintiff's money in an escrow account for Agent's purchase too. This potential usage also could have been held as interfering with Plaintiff's negotiations because she had to take action to protect her funds from usage by her former agent.
4) There was factual evidence supporting that Firm used confidential information gained from Plaintiff in its representation of Agent because it knew that Plaintiff was not willing to bid higher than she had previously stated to them. 

Lesson: If an attorney or a law firm is alleged to have breached their fiduciary duty to the client they are subject to the prophylactic rule that will make it easier for a plaintiff to prove the proximate cause element of the legal malpractice cause of action. The burden will be reduced from “but for” to “substantial factor”.

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Thompson v. Seligman 53 A.D.3d 1019, 863 N.Y.S.2d 285 (N.Y.A.D. 3 Dept., 2008)

NY: Underlying personal injury; workers compensation

Student Contributor: Ryan M. O'Donnell

Facts: Plaintiff was employed by AMFAC Recreational Services, Inc. AMFAC regularly provided cleaning services to the Gideon Putnam Hotel. While performing her duties cleaning at the Gideon, plaintiff suffered injuries and retained defendant attorney to represent her in a workman’s compensation claim. When plaintiff inquired about a possible claim for pain and suffering against the Gideon, defendant advised her that she could not pursue a claim, based on his mistaken belief that plaintiff was employed by the hotel. Plaintiff then consulted with a different attorney who advised her that she did have a claim against the Gideon, except for that the statute of limitations had expired.

 Issue: Can a mistaken assumption by an attorney give rise to a legal malpractice claim?

Ruling: Yes.

“An attorney has the responsibility to investigate and prepare every phase of his or her client’s case.”

There was sufficient documentation that stated plaintiff’s employer was AMFAC, not the Gideon. Had defendant made the appropriate inquiry he would have known that plaintiff was not employed by the Gideon, and that plaintiff could have a third party claim against the Gideon for pain and suffering. The defendant’s failure to investigate the availability of a third party claim by plaintiff raises a question of fact whether the defendant exercised an appropriate duty of care to the client. 

Lesson: As an attorney, you have the responsibility to investigate and prepare every phase of your client’s case. If there is information that will further the interests of your client that is easily ascertainable, and you fail to use such information, you have breached your duty of care to your client. Unless the client actively misrepresents information to you, you can be liable for malpractice if your mistaken assumption would have been corrected by further inquiry.

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 Lafasciano v. Lorber, 823 N.Y.S.2d 427, (2006)

NY Underlying matrimonial action; holding marital assets in trust

Student Contributor: Jason Zemsky

Facts: During a matrimonial action between the Lafascianos, the Supreme Court determined that the proceeds of the sale of certain real property owned by a closely held family corporation, was marital property. Lorber, the attorney who represented the sale placed the proceeds in a non-interest bearing escrow account. The court then ruled that the money Lorber placed in the trust account should be divided equally among the Lafascianos. The wife, Carla M. Lafasciano, sued Lorber for legal malpractice claiming that he had failed to put that money in an interest bearing account. Lorber moved for Summary Judgment which the trial court granted.

Issue: Does a lawyer commit legal malpractice by not placing sale proceeds in an interest bearing account?

Ruling: Affirmed. The plaintiff failed to prove that the court directed Lorber to place the sale proceeds in an interest bearing account and Judiciary Law § 497(4) allowed Lorber to place the proceeds in a non-interest bearing escrow account.

Lesson:   It might have been prudent for the lawyer to deposit the  proceeds into an interest bearing escrow account pending resolution of any dispute.  But would that have avoided the legal malpractice action?  Maybe yes. Maybe no.   RPC 1.15 "Safekeeping of Property" provides guidance.  Otherwise, Court Rules generally do not require Attorney Trust Accounts to be interest bearing.  

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Leder v. Spiegel 9 N.Y.3d 836, 872 N.E.2d 1194 (2007)

NY: Underlying Will Contest

Student Contributor: Ryan O'Donnell

Facts: Defendant represented plaintiff in an underlying probate matter. Rather than accept a settlement offer, plaintiff decided to continue to trial, where they were unsuccessful in challenging the will. The plaintiff bases his malpractice claim on defendant’s advice on the prospect of success in the underlying case, and that he would have accepted the settlement were it not for his attorney’s advice. There was no documentary evidence showing that plaintiff refused to settle strictly based on defendant’s advice.

Issue: Is an attorney liable for legal malpractice if he was not the proximate cause of the client’s damages, even if he negligently represented his client?

Ruling: No.

"In order to sustain a claim for legal malpractice, a plaintiff must establish both that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to a plaintiff, and that the plaintiff would have succeeded on the merits of the underlying action 'but for' the attorney's negligence"

The failure to demonstrate proximate cause mandates the dismissal of a legal malpractice action regardless of whether the attorney was negligent. Since there was no evidence that the defendant’s advice was the sole basis for refusing the settlement, the defendant was not the proximate cause of the plaintiff’s loss, the defendant attorney was not liable for malpractice.

Lesson: Even an attorney who negligently represents his client will not be liable for malpractice if he is not the “but for” cause of the client’s damages. To establish liability based on the loss of a settlement opportunity, the plaintiff must prove that but for the attorney’s negligence he would have accepted the settlement offer. A court will not rely on bare allegations of fact by a plaintiff without documentary evidence to prove proximate cause. 

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Adamopoulos v. Liotti, 708 N.Y.S.2d 706, (2000)

NY Underlying tort action

Student Contributor: Jason Zemsky

Facts: Plaintiff was injured when she tripped and fell on a stair case at an LIRR station. The plaintiff retained the defendant to represent her in the action, but the defendant failed to timely commence an action on her behalf. The plaintiff then brought an action for legal malpractice against the defendants. The Defendants filed a motion to dismiss, which was denied.

Issue: Did genuine issues of materials facts exist that the plaintiff could have proved to prevail if the defendant had timely commenced an action?

Ruling: Affirmed.

“To state a claim for legal malpractice, the plaintiff must show that the defendants failed to exercise the skill commonly exercised by an ordinary member of the legal community, that such negligence was the proximate cause of damages, and that ‘but for’ such negligence the plaintiff would have prevailed on the underlying action.”

Contrary to the defendants' contention, it cannot be concluded as a matter of law that the defect in the staircase was of such a trivial nature that it could not have given rise to a legal liability on the part of the LIRR. There is an issue as to whether or not the plaintiff would have prevailed against the LIRR had the defendants filed a timely action.  

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Lawrence v. Miller 48 A.D.3d 1, 853 N.Y.S.2d 1 (1st Dept., 2007)

Student Contributor: Maninder (Meena) Saini

NY Underlying Estate Litigation-Attorney fees

Facts: A husband passed away and left the estate to respondent-wife and their three children. The will was admitted to probate in January 1982. The respondent (Lawrence) retained the Graubard law firm on an hourly basis to represent her in connection with the estate. Respondent was billed over $18 million in legal fees over a 22-year lengthy dispute over the estate. Throughout the years, more than $350 million in distributions were made to the beneficiaries. To conclude the litigation, a $60 million settlement was offered but the respondent declined. The respondent then renegotiated the existing agreement with the law firm. The law firm would continue to get an hourly rate, but there was an annual cap of 1.2 million. In addition, the agreement contained a 40% contingency fee provision for any additional monies that were distributed to the beneficiaries. Months later, the law firm reached a settlement agreement for approximately $104.8 million. The respondent refused to pay the law firm the 40% of the additional $40 million it obtained. The law firm filed a petition to compel payment. The respondent then brought a lawsuit for, inter alia, breach of fiduciary duty.

Issue: Whether the revised contract that contained a contingency fee of 40% of any future monies distributed to the beneficiaries is unconscionable on its face.

Ruling: The court found that a 40% contingent legal fee of $40 million for five months work was not unconscionable on its face, especially following years of litigation. Thus, the law firm did not breach any fiduciary duties.

 “Any determination of unconscionability generally requires a showing of both procedural and substantive unconscionability, requiring an examination of the contract formation process and the alleged lack of meaningful choice.”

Lesson: Should it be unconscionable for an attorney to place high contingency fees in the retainer agreement when the attorney is investing his time and risking collecting nothing in the event of a loss? The attorney must demonstrate that he did not exploit the situation and that the client understood the terms of the agreement. Even though it may seem excessive at first blush, the circumstances underlying the agreement must be fully evaluated. Agreements are to be enforced when no deception is involved in making the contract between competent adults. 

Editor's Note: The "bottom line" is given all the circumstances, the fee must be reasonable. RPC 1.5 (a). 

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Leder v. Spiegel, 9 N.Y.3d 836, 840 N.Y.S.2d 888 ( 2007)

Student Contributor: Maninder (Meena) Saini

NY Underlying will contest

Facts: Plaintiff (attorney) unsuccessfully represented defendants (clients) in a will proceeding and the defendants refused to compensate the plaintiff for the work done on their behalf. The plaintiff then petitioned for legal fees. The defendants counterclaimed for legal malpractice, alleging that “but for” the plaintiff’s negligent representation, which was failing to anticipate that certain evidence would be inadmissible, they would have settled. The plaintiff moved for an order dismissing the defendants’ counterclaim. The lower court dismissed the defendants’ counterclaim. Defendants appealed.

Issue: Did the defendants allege a prima facie case of legal malpractice?

Holding: The appellate division held that the defendants’ counterclaim alleging that the plaintiff failed to anticipate the court’s evidentiary ruling does not establish proximate cause. The plaintiff actively encouraged the defendants to settle but they refused to accept it. Thus, the defendants failed to make a prima facie case of legal malpractice. The lower court’s decision was affirmed.

Rule: “In order to sustain a legal malpractice claim, a client must establish that the attorney failed to exercise ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages, and that the client would have succeeded on the merits of the underlying action “but for” the attorney's negligence.”
Lesson: The plaintiff must be able to show that the attorney’s negligence was the proximate cause of the damages. The dismissal of a legal malpractice action is warranted if the plaintiff fails to demonstrate proximate cause regardless of whether the attorney was negligent. 

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Milbank, Tweed, Hadley & McCloy v. Boon, 13 F.3d 537 (2nd Cir. 1994)

NY Underlying Commercial Action/Conflict of Interest

Student Contributor: John Anzalone

Facts: Defendant law firm represented Plaintiff, through an agent, in her attempt to purchase the assets of a bankrupt company. Eventually, however, Plaintiff dismissed the agent. The agent, thereafter, advised Defendant law firm of his interest in purchasing the assets of the same bankrupt company.

Despite being fully aware that Plaintiff still sought to purchase the assets, Defendant law firm informed the Plaintiff that it would represent the agent in his attempt to purchase the assets, and despite Plaintiff’s objections, proceeded with the representation. Ultimately, the agent outbid Plaintiff with the firm's assistance.

The jury found that the firm's representation of Plaintiff's agent breached its fiduciary duties to her and was a "substantial factor in preventing her from obtaining assets she sought in the transaction."

Issue: Did the firm breach its duty to Plaintiff by representing her former agent in the same transaction?

Ruling: In affirming the lower court, the Second Circuit held that the firm had breached its fiduciary duty to Plaintiff, and reasoned as follows:

1. The firm committed a serious breach of its fiduciary duties to Plaintiff by representing a party with interests adverse to the Plaintiff in the same transaction.
2. The nature of this breach triggers the prophylactic rule so that, instead of establishing proximate cause, plaintiff has to prove only that the firm’s actions were a substantial factor in the resulting damages.
3. Here, the substantial factor test was satisfied given the likelihood that (a) the agent and the firm conspired to use Plaintiff’s escrow funds for the agent’s purchase of the bankrupt entity’s assets; (b) this conspiracy interfered with Plaintiff’s negotiations to purchase the same assets; and (c) the firm and the agent conspired to use confidential information regarding Plaintiff’s bid.

Lesson: If an attorney or a law firm terminates its relationship with one client and commences an engagement with another party with directly adverse interests in the same transaction, they will be subject to the “prophylactic rule” which makes it easier for a plaintiff to prove malpractice by substituting the usual "but for" causation in fact  requirement with the “substantial factor” test.

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Wallenstein v. Cohen, 45 A.D.3d 674, 845 N.Y.S.2d 428 (App. Div. 2007)

NY Underlying  Fee Arbitration

Student Contributor: Maninder (Meena) Saini

Facts: Defendant-attorneys represented the plaintiff-client in a matrimonial action that resulted in a judgement for divorce pursuant to a stipulation of settlement. The plaintiff then complained to the grievance committee that the defendants over-charged her for their services and did not protect her interests. The case was transferred to Fee Arbitration. During the arbitration, it was found that defendants were entitled to the fees, which they sought. Two years later, the plaintiff commenced an action, alleging that defendants charged excessive fees and committed legal malpractice in representing plaintiff.

Issue: Can plaintiff re-litigate the issue of excessive attorney’s fees that was formerly resolved in arbitration?

Ruling: The Appellate Division held in this case that the action was barred by fee arbitration award and by collateral estoppel because all of the allegations in the complaint were “reasonably and plainly comprehended to be within the scope of the dispute submitted to arbitration.”

[T]he determination fixing the value of the defendants' services necessarily determined that there was no malpractice.

Lesson: If the excessive fee allegation in the complaint was resolved by previous arbitration, the fee awarded to the attorney during arbitration may ultimately conclude that there is no malpractice. This is a fact sensitive ruling.  The  jurisdiction of the Fee Arbitration Committees in New Jersey, however, does not extend to deciding issues of legal malpractice, even if they are raised in the fee arbitration proceeding. 

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Darby & Darby, P.C. v. VSI International, Inc. 95 N.Y.2d 308 (2000)

NY Underlying insurance coverage

Student Contributor: Maninder (Meena) Saini

Facts: Defendant (VSI International Inc.), a Florida corporation retained plaintiff (Darby & Darby) a New York law firm to represent it in two Florida lawsuits. Even though defendant paid a portion of a substantial legal bill, the defendant still owed nearly $200,000 in outstanding legal fees. Plaintiff moved to withdraw as counsel because the defendants did not pay them. The plaintiff was relieved as counsel in October 1993. In August 1996, plaintiff commenced an action to recover the outstanding amount in legal fees, plus interest and incidental costs. The defendant then asserted a counterclaim, alleging the plaintiff committed legal malpractice and breached a fiduciary duty by failing to advise defendant that its then-existing general liability insurance policy could have covered defendant’s litigation expenses.

Issue: Does a NY law firm specializing in patent litigation,  retained to defend a corporate client in a Florida patent infringment action have a duty to advise the client about possible insurance coverage to cover the cost of litigation?

Ruling:

 ...attorneys should familiarize themselves with current legal developments so that they can make informed judgments and effectivey counsel their clients... However, [the law firm] should not be held liable for failing to advise [the client] about a novel and questionable theory pertaining to their insurance coverage.

In a legal  malpractice action, a party must demonstrate that an attorney failed to employ “the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession”. What is reasonable skill and knowledge is to be determined at the time of representation.

Lesson: The standard of reasonable care applicable even to specialist-attorneys does not require attorneys to comply with   novel and questionable theories of law. An attorney only has a duty to represent a client in a manner that is reasonable and consistent with the law, as it existed at the time of representation.

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Leffler v. Mills, 285 A.D.2d 774 (3 Dept. 2001)

Underlying NY Probate Action

Student Contributor: Marina Kritikos

Facts: Plaintiffs were beneficiaries of a will. They had hired the defendant attorney to probate the will. As part of his duties, the attorney paid state estate taxes due by the beneficiaries, but failed to timely pay the federal taxes due. Although the attorney then secured an extension to pay the federal taxes by January 1, 1995, he failed to actually make the payment until November 6, 1995. As a result, the Internal Revenue Services charged penalties and interest in the amount of $158,853.33 to the estate. Plaintiffs subsequently discharged the attorney, and in December 1998, brought an action for legal malpractice. Both Plaintiffs and the defendant attorney filed motions for summary judgment. The trial court ruled in favor of the Plaintiffs, and the attorney appealed that ruling.

Issue: Did the lower court correctly grant Plaintiffs’ motion for summary judgment in light of New York’s three-year statute of limitation for the filing of legal malpractice actions?

Ruling: The lower court erred in granting Plaintiffs’ motion for summary judgment. There is a three-year statute of limitations for legal malpractice actions which may be tolled if there is “ clear indicia of an ongoing continuous, developing, and dependent relationship between the client and the attorney.” The Supreme Court of New York, Appellate Division, Third Department, found the evidence to be insufficient to establish a continuing relationship as a matter of law, despite the fact that the attorney was listed as “attorney of record” for the estate on an accounting dated January,1996 and federal and state estate income tax returns dated April, 1996.

Lesson: Although the court will toll the three-year statute of limitations for legal malpractice actions, the extension will only be granted where there exists clear, unequivocal evidence of an ongoing attorney-client relationship and continued dependence and reliance on the attorney with regard to the matter that was, purportedly, negligently handled.

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Katz v. Herzfeld & Rubin, P.C., 853 N.Y.S.2d 104 (2 Dept. 2008)

NY Underlying Personal Injury Action

Student Contributor:  Jason Klein

Facts: Plaintiffs retained Defendant attorneys as counsel for a personal injury action which was eventually settled. Subsequently, Plaintiffs commenced an action for legal malpractice alleging that Defendants refused to pursue a claim for loss of income, and as a result, Plaintiffs were forced to settle their personal injury action for an amount far below what they could have recovered. Defendants filed a motion to dismiss arguing that because Plaintiffs dismissed Defendants and hired new counsel five months prior to settling, the Defendants’ actions did not proximately cause the alleged damages. The trial court granted the Defendants’ motion to dismiss and Plaintiffs appealed

Issue: Did the trial court properly grant Defendants’ Motion to Dismiss in light of Plaintiff’s decision to terminate their representation five months in advance of the settlement of which they now complained?

Ruling: Yes. Successor counsel had been retained in a timely fashion and had every opportunity to protect the Plaintiff’s rights in advance of the time of their decision to enter into a settlement.

Lesson: Plaintiffs had sufficient time in which to pursue its claims with successor counsel, and therefore, could not establish that any alleged damages resulting from their decision to settle were proximately caused by the acts or omissions of their former counsel.

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Daly v. Peace, 863 N.Y.S.2d 770, 2008 N.Y. Slip Op. 06955 (2 Dept.)

NY Underlying criminal action

Student Contributor: Angela Ignelzi

Facts: Plaintiff brought an action against his former defense attorney for legal malpractice after, allegedly, being wrongfully convicted. The attorney made a motion to dismiss plaintiff’s complaint on the grounds that the client could not prove he was innocent of the charges brought against him in the underlying action. The trial court granted the attorney’s complaint and plaintiff appealed the dismissal.

Issue: Did the trial court correctly dismiss plaintiff’s malpractice complaint because of his inability to prove his innocence with regard to the claims asserted against him in the underlying action?

Ruling: The Supreme Court of New York, Appellate Division, Second Department, held that:

(1) The trial court has correctly assessed that the plaintiff could not establish his innocence with regard to the charges made against him in the underlying action, and, therefore

(2) The Plaintiff had no cause of action for legal malpractice against his criminal defense attorney, unless and until he ultimately succeeded in his attempts to have the underlying conviction reversed.

Lesson: A former client, even in an underlying criminal action, can only prevail on a claim for legal malpractice by successfully applying the “suit within a suit” method: No presumption of innocence is available to those convicted in the first place, purportedly, as a result of negligent representation.

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Campagnola v. Mulholland, Minion & Roe, (pdf)
76 N.Y.2d 38 (N.Y. 1990); 555 N.E.2d 611

N.Y. Underlying personal injury action

Student Contributor: Jason Klein

Facts: Plaintiff was struck by a car while working as a crossing guard and was permanently disabled. Plaintiff retained Defendant to pursue a claim for personal injuries and agreed to a contingency fee of one third for any money recovered. The owner of the car that struck Plaintiff was insured for only  $10,000. Plaintiff herself was insured under a Government issued policy for underinsured benefits for $100,000. The Government policy required consent prior to the settlement of any claim against the person deemed responsible for the insured’s injuries. Defendant failed to notify the Government insurance company before settling with the car owner for $10,000, of which $3,150 was deducted as a fee and $550 for expenses. When Plaintiff submitted a claim under the Government issued policy, her claim was denied because the settlement with the car owner was made without consent. Plaintiff commenced this action against Defendant seeking $100,000 in damages for malpractice and Defendant asserted an affirmative defense to reduce any recovered damages by the amount Defendant would have received as attorneys’ fees and expenses in the personal injury action.

Issue: In a malpractice action against an attorney, can the attorney deduct the “hypothetical” fee that would have been payable to the attorney in the underlying action?

Ruling: No. An attorneys’ malpractice constitutes a failure to honor faithfully the loyalty owed to a client. Thus, the plaintiff’s recoverable damages are not limited by a deduction for the fee that she would have paid the defendant had the defendant  properly performed the contract of representation.

The Lesson: A reduction in the plaintiff’s recovery  equal to what the attorney would have earned but for his negligence, is impermissible because a negligent attorney is precluded from collecting a fee. 

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Daly v. Peace,54 A.D.3d 801, 863 N.Y.S.2d 770, 2008 N.Y. Slip Op. 06955

NY Underlying defense of criminal  action

Student Contributor: Angela M. Ignelzi

Facts: Plaintiff-Client brought an action against his Attorney who had represented him in defending a prior criminal action where he was convicted. Client sought to recover damages for legal malpractice. Attorney made a motion to dismiss the complaint on the grounds that the client could not prove he was innocent. Client appealed the dismissal of his Complaint.

Issue: Was the motion Court correct in dismissing the Client’s malpractice complaint?

Ruling: The Appellate Division (2nd Department), held that:

•  Client could not establish his innocence of the underlying criminal charge
•  Client has no cause of action for legal malpractice against his criminal defense attorney, unless he was ultimately successful in his attempts to have the underlying conviction reversed and he proves his innocence.

Lesson: To prove that his lawyer's allegedly negligent conduct in defending him in an underlying criminal case was the proximate cause of his damage, i.e., his wrongful conviction, the client must have his conviction reversed and he must prove his innocence of the underlying criminal charges. 

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