New York Attorney Malpractice Blog

New York Attorney Malpractice Blog

A Host of Mistakes, Small and Large in this Legal Malpractice Case

Posted in Legal Malpractice Cases

Kaplan v Khanna  2015 NY Slip Op 25158 [48 Misc 3d 665]  May 15, 2015  Braun, J. illustrates a virtual compendium of errors in litigation.  Starting with making up the names of statutes, and failing to serve a complaint within 120 days, trying to sue a criminal defense attorney for mistakes without “actual innocence alleged, each were cause for dismissal.  On Friday, we’ll look at the “satisfaction” and settlement issue.

“This is an action with two formally designated causes of action, for legal malpractice and breach of contract, plus numerous others mentioned by pro se plaintiff in his papers, in connection with defendant’s representation of plaintiff in a criminal prosecution in the United States District Court, District of New Jersey, in which plaintiff pleaded guilty. Defendant moves to dismiss the complaint, pursuant to CPLR 3211 (a) (8), because service of the summons and complaint was not completed within the required 120 days of filing thereof, in violation of CPLR 306-b, and for failure to state a cause of action under CPLR 3211 (a) (7). Plaintiff filed a “Counter Motion” “pursuant to NY State Court Rules L.R. 83.1,” “Rule 47-Jury Trials-Civil Actions,”[FN1] and “for Discovery.”[FN2]

[1] The first issue to determine is whether to apply New York or New Jersey law. Matters of procedure are to be{**48 Misc 3d at 667} determined under New York law (see Tanges v Heidelberg N. Am., 93 NY2d 48, 53 [1999]; Lerner v Prince, 119 AD3d 122, 127-128 [1st Dept 2014]). Whether the summons and complaint were timely served is a procedural issue under CPLR 306-b, a New York statute governing the time period of service of process to obtain personal jurisdiction over a party in a New York action (see Federal Ins. Co. v Fries, 78 Misc 2d 805, 808 [Civ Ct, NY County 1974] [“matters dealing with the conduct of the litigation are procedural”]). The summons and complaint were not timely served within the required 120 days under CPLR 306-b,[FN3] and plaintiff did not seek leave to extend the time in which to serve them and does not do so in his “Counter Motion” (see Qing Dong v Chen Mao Kao, 115 AD3d 839, 840 [2d Dept 2014]; Webb v Greater N.Y. Auto. Dealers Assn., Inc., 93 AD3d 561, 562 [1st Dept 2012]). Thus, the motion must be granted for this reason.

[2] As to whether the complaint alleges a cause of action, “[t]he first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved” (Matter of Allstate Ins. Co. [Stolarz—New Jersey Mfrs. Ins. Co.], 81 NY2d 219, 223 [1993]; see generally Cooney v Osgood Mach., 81 NY2d 66, 72-73 [1993]). Here, there is no conflict. Plaintiff’s complaint fails to state a cause of action under both New York and New Jersey law.

On a motion pursuant to CPLR 3211 (a) (7), a complaint must be liberally construed, the factual allegations therein must be accepted as true, the plaintiff must be given the benefit of all favorable inferences therefrom, and the court must decide only whether the facts alleged fall under any recognized legal theory (Miglino v Bally Total Fitness of Greater N.Y., Inc., 20 NY3d 342, 351 [2013]; Lee v Dow Jones & Co., Inc., 121 AD3d 548, 549 [1st Dept 2014];{**48 Misc 3d at 668} Siegmund Strauss, Inc. v East 149th Realty Corp., 104 AD3d 401, 403 [1st Dept 2013]). This motion also must be granted under CPLR 3211 (a) (7).

Where a plaintiff pleads guilty in an underlying criminal prosecution, expressly admitting his or her guilt, and that plea remains undisturbed, it precludes a legal malpractice claim as a matter of law (see Carmel v Lunney, 70 NY2d 169, 173 [1987] [“To state a cause of action for legal malpractice arising from negligent representation in a criminal proceeding, plaintiff must allege his innocence or a colorable claim of innocence of the underlying offense, for so long as the determination of his guilt of that offense remains undisturbed, no cause of action will lie. [*2]Here, because plaintiff’s conviction by plea of a misdemeanor violation of the Martin Act has not been successfully challenged, he can neither assert, nor establish, his innocence. He has thus failed to state a cause of action” (citation omitted)]; Alampi v Russo, 345 NJ Super 360, 371, 785 A2d 65, 72 [2001] [to permit the plaintiff in a legal malpractice action to “go behind his federal guilty plea . . . would undermine the integrity of the federal guilty plea in pursuit of a highly speculative thesis—that plaintiff would have achieved an ‘optimum outcome’ of no prosecution if his first attorney had in retrospect used different tactics”]).”

What Do You Claim, When You Can’t Claim Malpractice?

Posted in Legal Malpractice Cases

In a professional services setting, (in this case an accountant) when you can’t claim malpractice, you claim fraud.  Malpractice in this case was not possible to claim, because there was no privilty, and the paper documents ruled out “near privity.”

Israel Discount Bank of N.Y. v EisnerAmper LLP  2014 NY Slip Op 51620(U) [45 Misc 3d 1218(A)]  Decided on November 14, 2014  Supreme Court, New York County  Kornreich, J. demonstrates the importance of privity, and when a third-party may or may not rely on “near-privity.”

“Oak Rock, founded in 2001 by non-party John Murphy, is “a specialty asset-based lending company.” Complaint ¶¶ 12-13. Until the fraud at Oak Rock (discussed below) was discovered, Oak Rock was solely managed and controlled by Murphy. ¶ 12. Oak Rock makes “revolving asset-based loans” to installment financing dealers. ¶ 13. Simply put, Oak Rock [*2]funds the dealers’ financing and collateralizes that funding with the receivables in which the dealers have a security interest. Id. Oak Rock, in turn, finances its lending with credit facilities with a lower cost of debt than Oak Rock charges the dealers. ¶ 15. Thus, Oak Rock leverages its ability to obtain relatively low-cost debt and creates credit lines for merchants via the dealers, with the dealers doing the actual merchant lending. The merchant lending is secured by the merchants’ receivables, which is the collateral that flows upward to Oak Rock and its own financers, such as IDB, as the asset that backs this lending channel.

EisnerAmper issued unqualified Independent Auditors’ Reports on Oak Rock’s balance sheet and other financial statements for the years 2002 through 2011. ¶ 19. For 2002 through 2005, these audited reports were prepared by an EisnerAmper partner, Steve Singer. ¶ 20. Singer retired from EisnerAmper in 2006. ¶ 21. Thereafter, the audited repots were prepared by another partner, Steven Guzik. ¶ 22. Guzik, allegedly, “had virtually no experience in auditing asset based lenders.” ¶ 23. According to the complaint, at least four other EisnerAmper employees [see ¶¶ 24-27] also worked on Oak Rock audited reports, “[s]ome or all” of whom “lacked appropriate experience in auditing asset based lenders.” ¶ 28.

Each year, before EisnerAmper conducted its audit, Oak Rock signed substantially similar engagement letters. For instance, the engagement letter dated January 11, 2011 (for the 2010 audit) provided that “[t]he objective of [EisnerAmper’s] audit is to express an opinion about whether [Oak Rock’s] financial statements are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States [GAAP].” The engagement letter then explained that the audit would be conducted in accordance with generally accepted auditing standards (GAAS), which required that EisnerAmper “plan and perform the audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement whether caused by error or fraud. Accordingly, a material misstatement may remain undetected.” The engagement letter further provided that “[t]he engagement is being undertaken solely for [Oak Rock’s] benefit and the parties do not intend to provide contractual rights to any other person” [emphasis added]. The engagement letter also noted that “the financial statements are the responsibility of the management of [Oak Rock]” and that “[m]anagement is responsible for designing and implementing programs and controls to prevent and detect fraud.””

“In this action, IDB seeks to hold EisnerAmper liable for the false information in Oak Rock’s financial statements that IDB allegedly relied on in lending money to Oak Rock. It is undisputed that, each year, Oak Rock’s financial statements contained myriad inaccuracies, which are set forth extensively in the complaint. See, e.g., ¶ 90 (false statements in 2010 financial statements). However, as noted earlier, in a highly unusual (and possibly intentional) decision, the complaint does not identify the cause or causes of action being asserted against EisnerAmper. Rather, a long, detailed narrative is presented, spanning 96 pages. When the court first read the complaint, it was unsure what claims were being asserted, and assumed that, based on the nature of the accusations, IDB was attempting to assert a malpractice claim against EisnerAmper. EisnerAmper’s counsel, understandably, thought so as well, and devoted a significant portion of its moving brief to explain, quite correctly, why such a claim fails as a matter of law. In opposition, IDB claimed its complaint was misunderstood, and, in reality, was only a claim for fraud. Specifically, IDB alleges that EisnerAmper’s false statements in its audit reports about Oak Rock’s financials, which IDB claims were the result of a grossly negligent audit process, amount to actionable fraud.”

“Finally, it should be noted that, while not a basis for this decision, the recently filed adversary proceeding (brought by the Official Committee of Oak Rock’s unsecured creditors) against IDB in Oak Rock’s bankruptcy proceeding suggests that, even if this case survived dismissal, its viability would be very much in question. The recently unsealed adversary complaint [see In re: Oak Rock Financial LLC, Case No. 8-14-08231, Dkt. 21 (Bankr EDNY Oct. 6, 2014)][FN5] alleges that IDB “had more contact, control and information about [Oak Rock] than any other lender and was responsible for managing [Oak Rock’s] collateral.Id. ¶ 2 (emphasis added). The facts alleged in the adversary complaint, if true, would preclude an assertion of reasonable reliance and likely implicate the in pari delicto doctrine. See Kirschner v KPMG LLP, 15 NY3d 446, 464 (2010). Accordingly, it is

ORDERED that the motion to dismiss by defendant EisnerAmper LLP is granted, and the Clerk is directed to enter judgment dismissing the Complaint with prejudice.”

Yup, we screwed that up…so what?

Posted in Legal Malpractice Cases

Women’s Integrated Network, Inc. v Anderson Kill P.C.  2015 NY Slip Op 08500
Decided on November 19, 2015  Appellate Division, First Department illustrates the all-consuming aspect of legal malpractice that sets it aside from all other areas of the law…the “but for” need to prove what would have happened if the attorneys had not made the mistake.  Here, the mistake was failing to file a notice of appeal on time.  Notwithstanding this very serious error, the law firm still obtained dismissal.

“Defendants candidly concede that their failure to file a timely notice of appeal from the federal district court’s order granting the insurer’s motion for judgment on the pleadings in plaintiff’s declaratory judgment action against the insurer constituted a breach of their duty (see Darby & Darby v VSI Intl., 95 NY2d 308, 313 [2000]; see also Ocean Ships, Inc. v Stiles, 315 F3d 111, 117 [2d Cir 2002]). However, because plaintiff did not show that defendants’ negligence was a proximate cause of plaintiff’s losses, the motion court correctly dismissed this legal malpractice action (Kaminsky v Herrick, Feinstein LLP, 59 AD3d 1, 9 [1st Dept 2008], lv denied 12 NY3d 715 [2009]). Plaintiff failed to establish that its insurance contract covered the loss for which plaintiff sought coverage in the federal court declaratory judgment action (see Roundabout Theatre Co. v Continental Cas. Co., 302 AD2d 1, 6 [1st Dept 2002]). As the district court and the motion court found, plaintiff’s settlement of its former employee’s stock option [*2]action, which gave rise to the declaratory judgment action, is not a “Loss” as defined by the policy; the policy states in plain language that “Loss” does not include “payments for stock option or stock appreciation rights.”

It’s One Way Around the Privity Problem in Legal Malpractice

Posted in Legal Malpractice Cases

A restaurant is sold without the owner’s permission and it sues the attorney whom it says was involved in the sale.  That case is dismissed, apparently on the ground that there was no attorney-client relationship between the corporation and the attorney.  This illustrates the principal of privity which requires that there be an actual attorney-client relationship, whether reduced to a writing or not, between plaintiff and defendant in a legal malpractice setting.

What’s a litigant to do?  Ricatto v Mapliedi  2015 NY Slip Op 08401  Decided on November 18, 2015  Appellate Division, Second Department provides one answer.  The individual (and presumed owner of the shares of the corporation) sues in his own name, “doing business as” the corporation.

“In a prior action, J & J Metro Restaurant, Inc., and Michael Ricatto alleged, among other things, that the defendant Robert F. Giusti had committed legal malpractice in connection with the sale of a restaurant owned by J & J Metro Restaurant, Inc. In an order dated July 31, 2013, the Supreme Court granted that branch of the defendants’ motion which was pursuant to CPLR 3211(a) to dismiss the complaint in the prior action based upon the plaintiffs’ lack of standing. The plaintiffs’ motion for leave to reargue their opposition to that motion was subsequently denied.

Thereafter, Ricatto, doing business as J & J Metro Restaurant, commenced this action against, among others, Giusti, alleging the same causes of action as asserted in the prior action. As pertinent here, the complaint alleges that Riccatto was the owner of a restaurant which was sold without his permission and that Giusti committed legal malpractice in connection with the sale of the restaurant.

In the order appealed from, the Supreme Court granted that branch of Giusti’s motion which was pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against him as barred by the doctrine of res judicata, based upon the aforementioned orders issued in the prior action.

The doctrine of res judicata gives binding effect to the judgment of a court of [*2]competent jurisdiction and prevents the parties to an action, and those in privity with them, from subsequently relitigating any questions that were necessarily decided therein (see Moran Enters., Inc. v Hurst, 66 AD3d 972, 974). A party seeking to assert res judicata or claim preclusion must show the existence of a prior judgment on the merits (see Matter of Farkas v New York State Dept. of Civ. Serv., 114 AD2d 563, 554).

Here, Giusti has not demonstrated that a judgment on the merits exists between the same parties involving the same subject matter (see Laccone v Chalet, 128 AD3d 1020). Res judicata does not bar this action, as the disposition of the prior action was based upon a lack of standing only and the Supreme Court has not yet considered the merits of the allegations (see Landau, P.C. v LaRossa, Mitchell & Ross, 11 NY3d 8, 14; Matter of Schulz v State of New York, 81 NY2d 336). To the extent that Giusti argues, as an alternate ground for affirmance (see Parochial Bus Sys. v Board of Educ. of City of N.Y., 60 NY2d 539), that the complaint should be dismissed insofar as asserted against him as barred by the doctrine of collateral estoppel, which issue had been asserted by Giusti in support of his motion to dismiss the complaint insofar as asserted against him, this contention is without merit. The dismissal of the prior action for lack of standing was not made on the merits and, therefore, a different judgment in the instant action would not “destroy or impair rights or interests established” in the prior action (Conason v Megan Holding, LLC, 25 NY3d 1, 18).

Accordingly, the Supreme Court should have denied that branch of Giusti’s motion which was pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against him as barred by the doctrine of res judicata.”

Surreptitious Video of IME Blows Up Trial

Posted in Legal Malpractice Cases

This is not strictly a legal malpractice case, yet there are allusions within the appellate decision.  This case is a warning to attorneys who attend Independent Medical Examinations (a sometimes oxymoron because they are rarely independent, and sometimes not so medical) that they cannot surreptitiously record the exam.  In this case, with the extraordinary interference of a Supreme Court justice, the case blew up, will cost Plaintiff’s attorney some stupendous attorney fee and costs associated with a new trial, and generally did no one any good.

Bermejo v New York City Health & Hosps. Corp.  2015 NY Slip Op 08374  Decided on November 18, 2015  Appellate Division, Second Department  Roman, J., J. is an extraordinary read, and not just for the facts.  For any trial lawyer, the colloquy and arc of events before Supreme Court, Queens County are not only realistic, they are the stuff of nightmares.

The decision is over 25pp. so we cannot re-print enough to give you the entire story.  Here is the gist:

“Prior to the trial on the issue of damages in this personal injury action, the plaintiff’s trial attorney surreptitiously videotaped an independent medical examination (hereinafter IME) conducted by an orthopedist retained by the defendant Ibex Construction, LLC (hereinafter Ibex). The attorney failed to disclose the existence of that recording to defense counsel, and then revealed its existence for the first time at trial, during redirect examination of his own paralegal, who took the witness stand to testify as to the brevity of the orthopedist’s examination of [*2]the plaintiff. This resulted in the declaration of a mistrial, and the orthopedist subsequently declared that he was not willing to testify at the new trial. Since Ibex and the defendant Amsterdam & 76th Associates, LLC (hereinafter Amsterdam, and together the appellants), would be required to serve a subpoena upon the orthopedist to secure his testimony at the new trial, they separately moved, inter alia, for leave to have the plaintiff re-examined by an orthopedist of their own choosing, and for an award of costs against plaintiff’s counsel pursuant to 22 NYCRR 130-1.1. Justice Duane A. Hart of the Supreme Court, Queens County, denied those branches of the appellants’ separate motions.

These appeals require us to determine whether a plaintiff’s attorney must obtain approval from the court before making a video recording of an IME of the plaintiff, and whether CPLR 3101 requires that such a recording be disclosed to opposing counsel before trial. We answer both questions in the affirmative. We further conclude that the declaration of a mistrial in this case was attributable to the conduct of the plaintiff’s trial attorney. Moreover, we find that the orthopedist was unwilling to testify voluntarily at the new trial because of that conduct and because the Supreme Court repeatedly, without any basis in fact, accused the orthopedist of lying during his cross-examination. The court also repeatedly threatened to recommend that the District Attorney’s office prosecute the orthopedist for perjury. Accordingly, those branches of the appellants’ separate motions which were for leave to have the plaintiff re-examined by an orthopedist of their own choosing and for an award of costs against plaintiff’s counsel pursuant to 22 NYCRR 130-1.1 should have been granted, and we remit the matter to the Supreme Court, Queens County, before a different Justice, for further proceedings consistent herewith.”

“In sum, given the avalanche of errors that occurred in this case, we find that the appellants satisfied their burden of demonstrating unusual and unanticipated circumstances justifying an additional medical examination of the plaintiff by an orthopedist to be designated by them. Under the particular circumstances of this case, a second examination by a different physician is necessary “to ensure that the focus of the medical testimony will be on the nature and extent of plaintiff’s alleged injuries, rather than on any taint or irregularity [surrounding] the [prior] examination” (Orsos v Hudson Tr. Corp., 95 AD3d at 526).

Accordingly, the Supreme Court abused its discretion in denying those branches of the appellants’ motions which were to compel the plaintiff to submit to an additional orthopedic examination.”

“As the appellants correctly contend, the necessity for a mistrial was created by the conduct of plaintiff’s counsel, and was not to any extent attributable to any conduct of the appellants or their counsel. First, as discussed above, plaintiff’s counsel surreptitiously created a video recording of the second IME without providing any notice to the court or defense counsel, much less obtaining the court’s approval, as is required. Had counsel obtained approval, or at least provided notice, of the videotaping, the mistrial would not have occurred. Second, as discussed above, plaintiff’s counsel compounded the prejudice to the appellants by improperly failing to disclose the video recording to defense counsel, as was clearly required under CPLR 3101(i). Had counsel disclosed the recording, the mistrial would not have occurred. Third, plaintiff’s counsel chose to reveal the existence of the recording to the jury in a way that maximized its dramatic effect, and was unfair to the appellants. Notably, Mr. Hackett admitted that he consulted with other attorneys prior to his paralegal’s testimony regarding the admissibility of the undisclosed video recording. Mr. Hackett waited until his re-direct examination of his paralegal to reveal the recording’s existence, even though Ms. Ramirez had not been asked any questions on cross-examination regarding the duration of the second IME. This was improper.

In opposing those branches of the appellants’ motions which sought an award of costs against plaintiff’s counsel pursuant to 22 NYCRR 130-1.1, the plaintiff’s only argument as to why the appellants should be held accountable for precipitating the mistrial, and plaintiff’s counsel should not be, is that the mistrial was caused by Dr. Katz’s act of lying during his cross-examination. The Supreme Court appears to have ultimately adopted this view. This position is unsupportable since, as discussed above, Dr. Katz did not lie. Moreover, even if Dr. Katz had lied, that act would not be the proximate cause of the mistrial.

Thus, we conclude that the conduct of plaintiff’s counsel was frivolous within the meaning of 22 NYCRR 130-1.1, and that the Supreme Court abused its discretion in denying those branches of the appellants’ motions which were for an award of costs against plaintiff’s counsel. The appellants are entitled to recover from Patrick J. Hackett and Constantinidis & Associates the costs they incurred in participating in the first trial on the issue of damages, as well as the costs they incurred in making and litigating the motions at issue on these appeals and in pursuing these appeals. Upon remittal, the Supreme Court should conduct a hearing to determine the total amount of such costs, as well as the proper apportionment of those costs as between Mr. Hackett and Constantinidis & Associates (see Preferred Equities Corp. v Ziegelman, 190 AD2d 659, 660).”

“Accordingly, the appeals by the defendant Ibex Construction, LLC, from the order and the amended order are dismissed, as those orders were superseded by the amended order and the second amended order, respectively, the second amended order is reversed insofar as appealed from, on the law, the order and the amended order are vacated, those branches of the motion of the defendant Ibex Construction, LLC, and the separate motion of the defendant Amsterdam & 76th Associates, LLC, which were for leave to have the plaintiff re-examined by an orthopedist of their own choosing, and for an award of costs against plaintiff’s counsel pursuant to 22 NYCRR 130-1.1, are granted, that branch of the motion of the defendant Amsterdam & 76th Associates, LLC, which was to disqualify plaintiff’s counsel based on a violation of rule 3.7 of the Rules of Professional Conduct is denied as academic, and the matter is remitted to the Supreme Court, Queens County, before a different Justice, for further proceedings consistent herewith.”


Arbitration Materials Discoverable in a Professional Malpractice Case

Posted in Legal Malpractice Cases

In a breach of contract and professional malpractice, plaintiff entered into a private mediation with a non-party, which affected its claim against Defendant.  May defendant obtain the arbitration documents in order to defend himself?  Answer:  yes.

City of Newburgh, N.Y. v Hauser  2015 NY Slip Op 02442 [126 AD3d 926]  March 25, 2015  Appellate Division, Second Department tells us that while arbitration materials may not be used as “evidence” they remain discoverable.

“The defendants sought to compel the plaintiff to produce certain documents submitted in a private mediation proceeding between the plaintiff and a nonparty. The subject documents are material and relevant to the defense of this action (see CPLR 3101; Andon v 302-304 Mott St. Assoc., 94 NY2d 740, 745-746 [2000]; Allen v Crowell-Collier Publ. Co., 21 NY2d 403, 406 [1968]; Yoshida v Hsueh-Chih Chin, 111 AD3d 704, 705-706 [2013]; Osowski v AMEC Constr. Mgt., Inc., 69 AD3d 99 [2009]; American Re-Ins. Co. v United States Fid. & Guar. Co., 19 AD3d 103 [2005]; Masterwear Corp. v Bernard, 3 AD3d 305 [2004]; Masterwear Corp. v Bernard, 298 AD2d 249 [2002]).

Contrary to the plaintiff’s contention, CPLR 4547 does not bar disclosure of the subject documents, as that statute is concerned with the admissibility of evidence, and does not limit the discoverability of evidence (see Matter of Town of Waterford v New York State Dept. of Envtl. Conservation, 77 AD3d 224, 233 [2010], mod on other grounds 18 NY3d 652 [2012]).”

Strict Liability? Strictly Out of Luck in a Legal Malpractice Case

Posted in Legal Malpractice Cases

“Strict liability” renders a defendant legally responsible for damage and losses regardless of culpability or intent, fault or negligence. In Tang v Marks  2015 NY Slip Op 08110  Decided on November 12, 2015  Appellate Division, First Department it rendered plaintiff unable to sue defendant for legal malpractice.

“Defendant Marks, an attorney, represented plaintiffs in an underlying federal court action in which plaintiffs were found strictly liable under the Lanham Act, and in which the federal court entered a $400,000 judgment against them. Plaintiffs subsequently brought a legal malpractice and breach of contract action against Marks, claiming that, but for Marks’s negligence, plaintiffs would have faced a lower judgment.

To sustain a cause of action for legal malpractice, a plaintiff must show “(1) that the attorney was negligent; (2) that such negligence was a proximate cause of plaintiff’s losses; and (3) proof of actual damages” (Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005], lv denied 6 NY3d 713 [2006]). “In order to establish proximate cause, a plaintiff must demonstrate that but for the attorney’s negligence, she would have prevailed in the underlying matter or would not have sustained any ascertainable damages” (id. [emphasis added]). “[S]peculation on future events [is] insufficient to establish that the defendant lawyer’s malpractice, if any, was a proximate cause of any such loss” (id. at 734-735).

Here, as plaintiffs were admittedly strictly liable in the underlying federal action, they are unable to show that they would have prevailed and that they would not have sustained any ascertainable damages.”

This Legal Malpractice Case Runs Afoul of Two Rules

Posted in Legal Malpractice Cases

McPhillips v Bauman  2015 NY Slip Op 08218  Decided on November 12, 2015  Appellate Division, Third Department is the very rare case in which the State defends a legal malpractice case.  Here, a host of prison employees and the state were sued for the death of an incarcerated prisoner .  The physician’s conduct was unfavorably reviewed by the Commission of Correction Medical Review Board, and he was then added to the law suit.  Although offered a settlement in which he did not pay or be held liable, he refused.  He then demanded that a private attorney be assigned to him.  While that motion was pending, his case was dismissed, and the reset of the matter was settled.

First:  “This action followed in July 2013 with plaintiff alleging three bases for malpractice: defendant ignored a conflict of interest; defendant neglected to keep the 2010 memorandum confidential or seek redaction of the strongly worded unfavorable parts thereof; and defendant failed to inform plaintiff in a timely fashion of the existence of the 2010 memorandum (which he asserts he did not know about until 2013) so that he could have pursued a defamation action. He sought damages for injury to his professional reputation and mental anguish. Defendant moved to dismiss the complaint. Supreme Court granted the motion and this appeal ensued.

We affirm. Elements of a cause of action for legal malpractice include the existence of an attorney-client relationship (see Arnold v Devane, 123 AD3d 1202, 1203 [2014]), 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” (Dombrowski v Bulson, 19 NY3d 347, 350 [2012] [internal quotation marks and citations omitted]; see Hyman v Burgess, 125 AD3d 1213, 1215 [2015]). It is undisputed that the federal action against plaintiff was dismissed with no admission of wrongdoing by him, as well as no monetary payment or liability by plaintiff. Although his treatment of inmates with asthma is purportedly now more closely monitored, there is no allegation that plaintiff lost his state job or suffered any economic harm in his employment. Plaintiff’s complaint did not allege pecuniary damages and “‘the established rule limit[s] recovery in legal malpractice actions to pecuniary damages'” (Kaufman v Medical Liab. Mut. Ins. Co., 121 AD3d 1459, 1460 [2014], lv denied 25 NY3d 906 [2015], quoting Dombrowski v Bulson, 19 NY3d at 352).

Second: “Even if there was a conflict of interest constituting an ethical violation as alleged by plaintiff, such a violation would not give rise to a viable legal malpractice claim absent pecuniary damages (see Guiles v Simser, 35 AD3d 1054, 1055-1056 [2006]). The absence of such damages is also fatal to the alleged disclosure error and, moreover, we recently held that the disclosed memorandum was “clearly pertinent” to the pending federal action and defendant’s disclosure thereof was “shielded by absolute privilege” (McPhillips v State of New York, 129 AD3d at 1362). Plaintiff urges that he does not need to allege pecuniary damages regarding defendant’s failure to advise of a potential defamation action because that potential action involved statements that tended to impugn his professional ability (see Schindler v Mejias, 100 AD3d 1315, 1316 [2012]). However, we need not directly address that issue because we agree with Supreme Court that, under the circumstances of this case, defendant did not have a duty in his representation pursuant to Public Officers Law § 17 to advise plaintiff of a potential separate private action involving nonparties (see Matter of O’Brien v Spitzer, 7 NY3d 239, 243 [2006] [“The purpose of Public Officers Law § 17 is, in essence, to provide insurance against litigation”]; Frontier Ins. Co. v State of New York, 87 NY2d 864, 867 [1995]). The remaining issues are either academic or unavailing.”


Ratification, Collateral Estoppel and Legal Malpractice

Posted in Uncategorized

A constant in legal malpractice litigation is the fact that it always arises from a former representation of the client by the attorney.  How does the underlying record influence or limit the scope of legal malpractice.  Take the example of a company getting information from its attorney and acting on that information.  Assume that the company makes certain decisions which it later claims were influenced by attorney malpractice.  Are they bound by those decisions, or can they argue that they are not bound, because they acted on negligent advice.

The answer, as in all important legal questions is, “sometimes.”   Wachtell, Lipton, Rosen & Katz v CVR Energy, Inc.  2015 NY Slip Op 30270(U)  February 24, 2015  Supreme Court, New York County  Docket Number: 654343/2013 Judge: O. Peter Sherwood is a good example.  The board of this company agreed to a first set and a second set of retainer agreements with banks. The board later claimed that they would not have ratified the second retainer agreement if their attorney had not misled them.


When a party has the option to void an agreement, it ratifies, or affirms, the agreement by affirmatively validating the contract, or by failing to speak or act after discovering its rights (In re Marketxt Holdings Corp., 361 BR 369, 402 [Bankr SDNY 2007] [applying New York law]; Schenck v State Line Tel. Co., 238 NY 308, 313 [1924]). IfCVR’s Board had full knowledge of the fee terms 5 [* 5] of the Second Engagement Letters and failed to object or take immediate action to void the agreements, it ratified those agreements, and is responsible for fulfilling its obligations. Further, CVR’s ratification of the Second Engagement Letters would mean its obligation to pay the Banks pursuant to those agreements could not be caused by any negligence by Wach tell. Therefore, if CVR ratified the Second Engagement Letters, the chain of causation is broken between the alleged negligence and the alleged damages, and the counterclaim must be dismissed. In the Bank Actions, this court determined that CVR ratified the Second Engagement Letters. CVR is collaterally estopped from arguing that there was no ratification.

Collateral Estoppel

“Collateral estoppel, or issue preclusion, ‘precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party … , whether or not the tribunals or causes of action are the same’ ” (Parker v Blauvelt Volunteer Fire Co., Inc., 93 NY2d 343, 349 [1999], quoting Ryan v New York Tel. Co., 62 NY2d 494, 500 [ 1984 ]). “The doctrine applies if the issue in the second action is identical to an issue which was raised, necessarily decided and material in the first action, and the plaintiff had a full and fair opportunity to litigate the issue in the earlier action” (Parker v Blauvelt Volunteer Fire Co., 93 NY2d at 349). Collateral estoppel will only be applied “to matters actually litigated and determined in a prior action” (Kaufman v Eli Lilly and Co., 65 NY2d 449, 456 [ 1985] [internal quotation marks omitted] citing Restatement [Second] of Judgements §27). In the Bank Actions, this court determined, on motions for summary judgment, that the Board, with knowledge of the fee terms, ratified the Second Engagement Letters. The undisputed facts there were that the Board “passed a resolution authorizing CVR to pay all fees incurred” pursuant to the Second Engagement Letters on April 18, 2012, that the amounts to be paid under those agreements were made explicitly clear to the Board later that same day, and that the Board made no objection to the Second Engagement Letters, either on that day or at the May 4, 2012, meeting when the board approved the minutes of the April 18, 2012 meeting (Bank Action Decisions at 7). At that point, regardless of Wachtell’s alleged prior misrepresentations, failures to provide information, or CVR’s original intentions regarding engaging the Banks, it was undisputed that the Board had all of the relevant information and ratified the Second Engagement Letters. That issue 6 [* 6] was necessary and material in the Bank Actions, it was thoroughly litigated,2 and the parties here are estopped from rearguing that point. CVR suggests the ratification be disregarded for this action because Wachtell ‘s malpractice caused the ratification by “the creation of inaccurate minutes and vague resolutions that failed to specify the amounts to be owed thereunder,” or failing to suggest CVR revoke the ratification and (CVR Opp. at 15). The cases relied upon by CVR in support of its arguments are distinguishable, and do not apply to these facts. In Avon Dev. Enterprises Corp. v Samnick, the First Department declined to apply collateral estoppel to preclude a malpractice claim because the issue in dispute was a pure question of law, unlike the question of ratification, here (see 286 AD2d 581, 582 [I st Dept 200 I]). In Houraney v Burton & Assoc., P. C., the plaintiff had alleged the defendant, acting as counsel in a prior lawsuit, failed to plead certain claims and made various errors at trial (08 CV 2688 CBA LB, 2010 WL 3926907, at *7 [EDNY Sept. 7, 2010] report and recommendation adopted, 08-CV-2688 CBA LB, 2011 WL 710269 [EDNY Feb. 22, 2011]). That court held collateral estoppel did not apply to the question of whether the defendant had been negligent, as that question had not been at issue in the previous litigation (id.). Here, collateral estoppel applies to the question of CVR’s ratification, which was fully litigated in the Bank Actions, not to the question of Wachtell’s negligence. Additionally, the malpractice alleged in each of the cases cited by CVR occurred in an underlying litigation. Here, no malpractice is alleged to have occurred in the litigation of the Bank Actions. CVR does not argue that the Bank Action Decisions were the result of Wachtell’s negligence. Therefore, CVR is not being “precluded from rearguing issues decided adversely to [it] because of [Wachtell’s] negligence” (id.). Schwarz v Shapiro is closer to the facts in this case (202 AD2d 187 [I st Dept 1994 ]). Schwartz sued his former attorney, Shapiro. Shapiro had drafted a letter agreement for Schwartz. In an earlier decision, the Appellate Division First Department had determined that Schwartz could not rescind the agreement because he had ratified it and accepted its benefits. As that court noted subsequently, “the doctrine of collateral estoppel prevents the plaintiff from now claiming that the agreement which he ratified and accepted did not express his understanding. Accordingly, the 2 The issue is currently under appeal. 7 [* 7] agreement cannot now serve as the basis for a claim of ma! practice or other misdeeds on the part of the attorney who drafted the agreement” (id. citing Schwartz v Public Administrator o.f County of Bronx, 24 NY2d 65 [ 1969]). Here, CVR, while in possession of all of the relevant information about the fee terms, ratified the Second Engagement Letters. CVR also accepted the benefits of the Banks’ work performed pursuant to those agreements. Accordingly, New York State law precludes CVR claiming its attorney’s malpractice caused it to enter into those agreements (see id.). As CVR alleges those agreements are the sole source of its damages, it has failed to allege the causation element of a malpractice claim. “

Too Big To Fail? Not In This Legal Malpractice Situation

Posted in Legal Malpractice Cases

The scope of legal malpractice litigation is wide, and sometimes surprisingly deep.  Wachtell, Lipton, Rosen & Katz v CVR Energy, Inc.  2015 NY Slip Op 30270(U)  February 24, 2015
Supreme Court, New York County  Docket Number: 654343/2013  Judge: O. Peter Sherwood is a case that involves Carl Ichan, huge sums of money and a starkly stated claim of legal malpractice.  It involves litigation in Kansas, the Southern District, and this case in Supreme Court, New York County.

“This dispute arises out of the same transaction as the related actions; Goldman Sachs & Co. v CVR Energy, Inc. (Index No. 652149/2012) and Deutsche Bank Securities, Inc. v CVR Energy (Index No. 652800/2012) (the Bank Actions). In January 2012, CVR Energy, Inc. (CVR) learned that Carl Icahn and his affiliated companies (collectively, Icahn) had acquired a substantial minority interest in CVR. CVR believed Icahn was preparing to acquire or influence control over CVR. CVR wanted to resist this attempt. Wachtell was CVR’s counsel. CVR hired Goldman Sachs and Deutsche Bank (the Banks) to act as CVR’s financial advisors. CVR entered into initial agreements with each of the Banks. The agreements were embodied in letters of engagement (the Initial Engagement Letters). ”

“Each Initial Engagement Letter provided for flat rate fees, applicable in a variety of transactions or situations in which CVR may become involved, and for reimbursement of each Bank’s reasonable out-of-pocket expenses. In each Initial Engagement Letter, the contracting parties anticipated that, in the event of a sale or similar transaction, the parties would enter into a second agreement governing the specific transaction and setting forth new fee provisions. After Icahn announced a tender offer for outstanding CVR stock, each Bank advised CVR that it required a new fee arrangement. CVR then entered into a new engagement letter with each Bank (the Second Engagement Letters). The Second Engagement Letters confirmed CVR’s retention of the Banks to provide advisory and investment banking services to CVR and its Board relating to Icahn’s attempt to obtain control over CVR. Each letter also set forth schedules of flat rate fees, including an independence fee, an announcement fee, a proxy contest fee, and a termination fee, and fees based upon a percentage of the value CVR stock, such as a sale transaction fee and a success fee, each payable upon different triggering events and dates, among other terms. CVR claims the Board was never aware the Second Engagement Letters were operative and did not understand the terms of those agreements. Mr. Frank Pici, CVR’s Chief Financial Officer, signed the Second Engagement Letters on behalf of CVR. Mr. Edmund Gross, General Counsel of CVR, was also aware of the Second Engagement Letters, but did not understand that the Banks would earn the fee for a successful sale if the Icahn tender offer succeeded (counterclaim, ~ 28). CVR’s counterclaim alleges Wachtell “failed to advise CVR that under the terms of the [Second Engagement Letters], CVR would face claims by [the Banks] for $36 million even if [Icahn] acquired control of CVR … , double the fees that [the Banks] would charge if CVR remained independent” (counterclaim,~ 3). CVR claims it would not have agreed to the Second Engagement Letters if it had understood the fee term (id.). ”

“CVR did not pay the Banks, and litigation followed. The Banks began the Bank Actions, seeking their fees pursuant to the Second Engagement Letters. On October 24, 2013, CVR sued Wachtell and two individual partners of the firm for legal malpractice in the United States District Court for the District of Kansas (the “Federal Action”), claiming that Wachtell advised it poorly about how much it could end up owing Deutsche Bank and Goldman Sachs. That action was removed to the Southern District of New York. Meanwhile, on December 18, 2013, Wachtell filed this action with claims for (I) a declaratory judgment stating that Wachtell’s representation of CVR was consistent with the standards of the legal profession and caused no loss to CVR; (2) breach of a protective order and agreement regarding the production of documents against all defendants, claiming that documents produced by Wachtell pursuant to protective orders in the Bank Actions were improperly disclosed to Icahn and used in the Federal Action; and (3) abuse of process, claiming defendants were using the Bank Actions and the Federal Action to harass and elicit funds from Wachtell. ”

“To state a claim for legal malpractice, a plaintiff must allege negligence of the attorney, which was the proximate cause of the loss sustained, and proof of actual damages (Reibman v Senie, 302 AD2d 290 [1st Dept 2003]; Schwartz v Olshan Grundman Frome & Rosenzweig, 302 AD2d 193, 198 [1st Dept 2003]). To show proximate cause, a plaintiff must demonstrate that “but for” the attorney’s negligence, the plaintiff would not have sustained any “ascertainable damages” (Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005], lv denied 6 NY3d 713 [2006]; Reibman, 302 AD2d at 290-291 ). Wachtell does not dispute that the counterclaim alleges negligence and damages. CVR alleges that Wachtell failed to provide CVR with information about the Second Engagement Letters, failed to “competently represent CVR in negotiating fair and appropriate fee terms,” falsified the minutes of a board meeting to make it appear that Wachtell had provided information about the Second Engagement Letters, and failed to represent CVR’s best interests with respect to the fee terms in the Second Engagement Letters (answer and counterclaim, NYSCEF Doc. No. 42, at ii 44). CVR claims the amounts it will be required to pay the Banks are its damages. Wachtell argues that because the Board ratified the Second Engagement Letters, CVR’s allegation that Wachtell’s negligence proximately caused CVR’s damages must fail. ”

“Here, CVR, while in possession of all of the relevant information about the fee terms, ratified the Second Engagement Letters. CVR also accepted the benefits of the Banks’ work performed pursuant to those agreements. Accordingly, New York State law precludes CVR claiming its attorney’s malpractice caused it to enter into those agreements (see id.). As CVR alleges those agreements are the sole source of its damages, it has failed to allege the causation element of a malpractice claim.”