New York Attorney Malpractice Blog

New York Attorney Malpractice Blog

A Small Case II

Posted in Legal Malpractice Cases

Sometimes short and concisely written opinions contain much information. Today, we continue with  Jefferson Apts., Inc. v Mauceri  2016 NY Slip Op 26230  Decided on July 25, 2016  Supreme Court, Queens County  Ritholtz, J. are simple.  An accounting firm is hired to oversee the basic accounting needs of a corporation.  Lots of money is missing.  It takes a while to figure out that there is a problem.  What happens to the professional negligence suit?

CPLR 3211 Motions

“To obtain a dismissal pursuant to CPLR 3211 (a) (1), the defendant must establish that the documentary evidence which forms the basis of the defense be such that it resolves all factual issues as a matter of law and conclusively disposes of the plaintiff’s claim (see, Leon v Martinez, 84 NY2d 83 [1994]; see also, Sheridan v Town of Orangetown, 21 AD3d 365 [2005]).

CPLR 3211(a)(7) permits the court to dismiss a complaint that fails to state a cause of action. The complaint must be liberally construed and the plaintiff given the benefit of every favorable inference (see, Leon v Martinez, 84 NY2d 83, supra; Aberbach v Biomedical Tissue Servs., Ltd., 48 AD3d 716 [2008]; Mitchell v TAM Equities, Inc., 27 AD3d 703 [2006]). The Court must also accept as true all of the facts alleged in the complaint and any factual submissions made in opposition to the motion (see, 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144 [2002]; Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409 [2001]; Alsol Enters., Ltd. v Premier Lincoln-Mercury, Inc., 11 AD3d 493 [2004]).

If a court can determine that the plaintiff is entitled to relief on any view of the facts stated, its inquiry is complete and the complaint must be declared legally sufficient (see, Campaign for Fiscal Equity, Inc. v State of New York, 86 NY2d 307, 318 [1995]; see also Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409 [2001]; Stucklen v Kabro Assoc., 18 AD3d 461 [2005]). Although factual allegations contained in the complaint are deemed true, bare legal conclusions and alleged facts that are flatly contradicted by the record are not entitled to a presumption of truth (see, Lutz v Caracappa, 35 AD3d 673, 674 [2006]; Matter of Loukoumi, Inc., 285 AD2d 595 [2001]; accord, Guggenheimer v. Ginzburg, 43 NY2d 268, 275 (1977) (“[T]he sole criterion is whether the pleading states a cause of action, and if from its four corners, factual allegations are discerned, which taken together, manifest any cause of action cognizable at law a motion for dismissal will fail.”); Sabre Real Estate Grp., LLC v. Ghazvini, 140 AD3d 724 [2016] (reversing complaint’s dismissal); Hooker v. Magill, 140 AD3d 589 [2016] (“Plaintiff’s pleadings and sworn statements in opposition to the motion, when viewed in the light most favorable to her and all reasonable inferences drawn in her favor, state a legally sufficient claim.”); Hutchison v. Kings Cty. Hosp. Ctr., 139 AD3d 673 [2016]; Fough v. Aug. Aichhorn Ctr. for Adolescent Residential Care, Inc., 139 AD3d 665 [2016]; Soldatenko v. Village of Scarsdale Zoning Bd. of Appeals, 138 AD3d 1002 [2016]; Fedele v. Qualified Pers. Residence Trust of Doris Rosen Margett, 137 AD3d 965 [2016]; Butler v. Magnet Sports & Entertainment Lounge, Inc., 135 AD3d 680, 680-681, lv. to appeal dismissed, 27 NY3d 1032 [2016]; E & D Grp., LLC v. Vialet, 134 AD3d 981, 982 [2015] (“[T]he criterion is whether the [plaintiff] has a cause of action, not whether he [or she] has stated one, and, unless it has been shown that a material fact as claimed by the [plaintiff] to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, dismissal should not eventuate.”); Sokol v. Leader, 74 AD3d 1180, 1180-1181 [2010] (“Whether a plaintiff can ultimately establish its allegations is not part of the calculus.”); Cooper v. 620 Props. Assocs., 242 AD2d 359, 360 [1997] (“If from the four corners of the complaint factual allegations are discerned which, taken together, manifest any cause of action cognizable at law, a motion to dismiss will fail.”).”

A Small Case Bears Many Lessons

Posted in Legal Malpractice Basics

Sometimes short and concisely written opinions contain much information.  The basics of  Jefferson Apts., Inc. v Mauceri  2016 NY Slip Op 26230  Decided on July 25, 2016  Supreme Court, Queens County  Ritholtz, J. are simple.  An accounting firm is hired to oversee the basic accounting needs of a corporation.  Lots of money is missing.  It takes a while to figure out that there is a problem.  What happens to the professional negligence suit?

Continuous representation: “The “continuous treatment” doctrine originated in medical malpractice cases to toll the running of the statute of limitations. This judicial exception was first encountered in 1902 in Gillette v. Tucker, 65 N.E. 865 (Ohio 1902). The Gillette court held that using the surgery date as the starting point for calculating the statute of limitations would improperly burden the victim by forcing her to sue the surgeon while her treatment continued or forego her cause of action. Id. at 871. Over 100 years later, the “continuous treatment” doctrine, adopted by the New York courts, has evolved to cover not only medical malpractice, but, under the name of the “continuous representation” doctrine, has been extended to other professions and occupations, [*2]such as accountants.

Proper analysis and application of the “continuous representation” doctrine tend to produce just results, as opposed to mindless invocation of a limitations defense. The instant motion deals, inter alia, with the application of the “continuous representation” doctrine as it relates to the tolling of the statute of limitations in an action alleging accountant or auditor malpractice.”

“On a motion to dismiss a cause of action pursuant to CPLR 3211(a)(5) on the ground that it is time-barred, a defendant bears the initial burden of establishing, prima facie, that the time in which to sue has expired (see, Bill Kolb, Jr., Subaru, Inc. v LJ Rabinowitz, CPA, 117 AD3d 978 [2014]; Kennedy v H. Bruce Fischer, Esq., P.C., 78 AD3d 1016, 1017 [2010]). The burden then shifts to the plaintiff to raise a question of fact as to whether the statute of limitations was tolled or was otherwise inapplicable or whether the action was actually commenced within the applicable limitations period (see, Kitty Jie Yuan v 2368 W. 12th St., LLC, 119 AD3d 674 [2014]; Beizer v Hirsch, 116 AD3d 725 [2014]; Williams v New York City Health & Hosps. Corp., 84 AD3d 1358, 1359 [2011].

Negligence claims made against a non-medical professional, whether based in tort or contract, are governed by a three-year statute of limitations (see, CPLR 214(6); see also, In the Matter of the Arbitration of R.M. Kliment & Frances Halsband and McKinsey & Company, Inc., 3 NY3d 538 [2004]; Chase Scientific Research, Inc. v NIA Group, Inc, 96 NY2d 20 [2001]; Ackerman v Price Waterhouse, 84 NY2d 535 [1994]). As to the accounting malpractice claim, absent fraud, such a claim accrues when the harm occurs, which is “when all the facts necessary to the cause of action have occurred,” regardless of whether the plaintiff has yet become aware of the error (see, Ackerman v Price Waterhouse, 84 NY2d 535, supra; Mitschele v Schultz, 36 AD3d 249, 252 [2006]). Here, the alleged transactions on January 8, 2010, January 25, 2010 and February 9, 2010 would have been disclosed as a receivable in the financial statement for the year ending June 30, 2010, which was issued on February 7, 2011. With regards to these claims for auditing/accounting services rendered prior to June 17, 2012, they are dismissed.

The continuous representation doctrine tolls the running of the statute of limitations on a claim arising from the rendition of professional services only so long as the defendant continues to advise the client “in connection with the particular transaction which is the subject of the action and not merely during the continuation of a general [*3]professional relationship” (Zaref v Berk & Michaels, 192 AD2d 346, 348 [1993] [citations omitted]; see also, Transport Workers Union of Am. Local 100 AFL-CIO v Schwartz, 32 AD3d 710, 713 [2006]; CLP Leasing Co., LP v Nessen, 12 AD3d 226, 227 [2004]; Dignelli v Berman, 293 AD2d 565, 566 [2002]). Thus, unless services relating to the particular transaction sued upon were rendered within the limitation period, even the defendant’s “general and unfettered control of [the plaintiff’s] financial, tax and investment affairs is insufficient to sustain the timeliness” of the action (Zaref, 192 AD2d at 348). Stated otherwise, where a professional advises a client in “a series of discrete and severable transactions” (Parlato v Equitable Life Assur. Socy. of U.S., 299 AD2d 108, 115 [2002], lv. to appeal denied, 99 NY2d 508 [2003]), the performance of services in each successive transaction does not serve to toll the running of the statute of limitations on any claim arising from the prior transaction (see, Booth v Kriegel, 36 AD3d 312, 314 [2006]).

In this case, plaintiff does not dispute that the statute of limitations would be three years prior to the commencement of this action on June 17, 2015. Plaintiff disputes whether the financial statements for the period of July 1, 2010 and June 30, 2011 (“the 2011 Financial Statement”), prepared by Mauceri are within the statutory period. Plaintiff argues that the claim for the 2011 Financial Statements accrued on the day Mauceri issued it to the Board, on or about September 28, 2012. Page 1 of Mauceri’s report dated September 28, 2012, provides, as herein relevant, as follows:

Plaintiff correctly argues that the “recertification” of the 2011 financials by Mauceri in his financial statement dated September 28, 2012, constituted an undertaking to perform further work for the 2011 audit. The continuous representation doctrine tolls the statute of limitations where there is a mutual understanding of the need for further representation on the specific subject matter underlying the malpractice claim (McCoy v Feinman, 99 NY2d 295, 306 [2002]). Here, the recertification of the 2011 financials by Mauceri in his financial statement dated September 28, 2012, constituted an undertaking to perform further work on the 2011 audit.

The branch of the motion seeking dismissal of the professional malpractice claims based upon the audit performed on the 2011 financials by Mauceri is, therefore, denied. Plaintiff raised a question of fact as to whether the statute of limitations with regards to [*4]these transactions was tolled by the doctrine of continuous representation (see, Schwartz v Leaf, Salzman, Manganelli, Pfiel, & Tendler, LLP, 123 AD3d 901 [2014]; Howish v Perrotta, 84 AD3d 1312 [2011]; Symbol Tech., Inc. v Deloitte & Touche, LLP, 69 AD3d 191, 196 [2009]; Rehberger v Garguilo & Orzechowski, LLP, 50 AD3d 760[2008]). At a minimum there is an issue of fact as to whether Mauceri’s representation of plaintiff and the certification/recertification of the financial statement for the 2011 audit reflected a course of “continuous representation” intended to rectify or mitigate the initial act of alleged malpractice which occurred in connection with the preparation of the financials (see Weiss v Manfredi, 83 NY2d 974 [1994]; Kennedy v H. Bruce Fischer, Esq., 78 AD3d 1016 [2010]).”

A Sad Tale of Brothers, A Trust and Legal Malpractice Claims

Posted in Legal Malpractice Cases

If one reads enough litigation cases, the frequency of intra-family discord over money is striking.  If one speaks with potential clients, the frequency is even more striking.  Brother against brother, sibling against sibling and parents against children are more the norm than the exception.  Kaplan v Valley Natl. Bank  2016 NY Slip Op 51108(U)  Decided on July 20, 2016  Supreme Court, Suffolk County  Emerson, J. is as good an example as there is.

Mom puts her estate into a trust for the father, with the remained to the children.  Good so far?  It is a recipe for years of discord.  “The plaintiff’s mother, Marilyn Kaplan, executed a will in 1994, leaving her interest in the home that she shared with her husband, Donald, in trust to him and giving him a life estate therein (the “Jericho property”). She also left approximately $250,000 in cash and securities (the “Family Part Sum”) in trust to Donald to be used for his benefit. She appointed Donald and their two sons, Bruce and Daniel, as the trustees. Bruce and Daniel were also the remaindermen of the trust. The trust allowed Donald to withdraw up to 5% of the principal each year and allowed Bruce and Daniel to make discretionary withdrawals to ensure that Donald enjoyed the same standard of living that he enjoyed when Marilyn’s will was executed in 1994. Marilyn died shortly after executing the will. By 2005, the Family Part Sum was depleted and, except for the real property, there was no principal remaining in the trust.

The Jericho property was sold in 1997, and the trust used the proceeds of the sale to purchase a home in Melville, New York, which was sold in 2003. The trust used the proceeds of the second sale to purchase a two-thirds interest in another home in Melville (the “Altessa property”), the one-third owner of which was Donald’s second wife, Elaine Britvan. Elaine died in 2012, and the Altessa property was sold in 2013 for $1.33 million. Bruce was not advised of the sale. After the closing costs were paid, the proceeds of the sale were divided as follows: $174,310.28 to Bank of America to satisfy a mortgage on the property, $670,494.39 to the trust, and $422,410.33 to the Britvan estate. Donald and Daniel then opened a new trust account at Valley National Bank (the “Valley National account” or “trust account”) without making Bruce a signatory thereon and without disclosing to the bank that Bruce was a beneficiary and trustee of Marilyn’s trust. They deposited $670,494.39 into that account.[FN1] In January 2014, $83,500 was transferred from the Valley National account to Donald’s personal account. When Donald died in September 2014, there was approximately $588,000 remaining in the Valley National account. The balance was distributed to Bruce and Daniel pursuant to the terms of Marilyn’s will. On [*2]December 5, 2014, Bruce and Daniel executed a mutual release acknowledging their receipt of $212,500 and $360,500, respectively, and releasing each other from any and all claims with respect to the trust’s principal and accumulated interest. $15,000 was held in escrow to pay, inter alia, legal fees and other expenses. After the escrow was released, Bruce received another $6,500 for a total of $219,000.”

“The plaintiff’s claims against the Bodian defendants are based on their purported plan to siphon equity away from the House Trust to Donald for his personal use, culminating in the undisclosed sale of the Altessa property and diversion of the proceeds of the sale. The plaintiff alleges causes of action against the Bodian defendants sounding in conversion, aiding and abetting conversion, tortious interference with Marilyn’s will and trust, negligence, malpractice, and violation of Judiciary Law § 487.

To establish a cause of action for legal malpractice, the plaintiff must demonstrate the existence of an attorney-client relationship (see, Gleason v Chase, Sup Ct, Westchester County, Sept. 15, 2009, Scheinkman, J. [2009 WL 6849874] [and cases cited therein]). When the relationship of the parties fails to reveal actual privity or a relationship that closely resembles privity, no cause of action for malpractice exists (Id.). Privity does not depend on an express agreement or payment of a fee (Id.). Instead, courts look to the actions of the parties to ascertain the existence of such a relationship to see if there was an explicit undertaking to perform a specific task (Id.). In addition, the plaintiff must allege that the attorney was aware that his services were being used for a specific purpose, that the plaintiff relied upon those services, and that the attorney engaged in some conduct evincing an understanding of the plaintiff’s reliance (Id.).

Clearly the plaintiff, who was not even aware of the sale of the Altessa property, cannot demonstrate the existence of a relationship of actual privity, or even one that closely resembles privity, with the Bodian defendants. Instead, he argues that he had an attorney-client relationship with the Bodian defendants because he was a trustee of Marilyn’s trust.

Marilyn’s will gave the trustees the power “to sell any stock, bond, security, or other real or personal property.” When, as here, there are three or more trustees and nothing to the contrary in the will, a majority is needed to exercise a power (see, EPTL 10-10.7). Since Donald and Daniel were a majority of the three trustees, they properly exercised the power to sell the trust’s two-thirds share of the Altessa property, which was owned by the trust and the Britvan estate. The Bodian defendants represented the sellers in connection with the sale. Thus, any cause of action for malpractice arising out of the sale must be maintained by the trust and/or the Britvan estate. The plaintiff cannot commence an action on the trust’s behalf without the consent of the other surviving trustee. As previously discussed, when there are two surviving fiduciaries and nothing to the contrary in the will, the two fiduciaries must act together (see, EPTL 10-10.7). Since the plaintiff may not act alone on the trust’s behalf, he does not have standing to maintain an action against the Bodian defendants in connection with the sale.

The plaintiff argues that, at the very least, he had an attorney-client relationship with the Bodian defendants as a third-party remainder beneficiary of the trust.

Absent a showing of fraud or collusion or of a malicious or tortious act, an attorney is not liable to third parties for purported injuries caused by services performed on behalf of a client or advice offered to that client (Four Finger Art Factory, Inc. v Dinicola, US Dist Ct, SDNY, Jan. 9, 2001, Koeltl, J. [2001 WL 21248] at *7 [and cases cited therein]). Liberally construing the complaint, accepting the alleged facts as true, and giving the plaintiff the benefit of every possible favorable inference (Leon v Martinez, 84 NY2d 83, 87-88), the court finds that the plaintiff’s allegations do not support an inference that the Bodian defendants acted in bad faith, committed fraud, or acted in an otherwise tortious or malicious way. The plaintiff’s allegations that the Bodian defendants colluded with Donald and Daniel to divert the proceeds of the sale of the Altessa property are conclusory and unsupported by the evidence. The record does not support an inference that the Bodian defendants acted other than in their capacity as attorneys for the trust and the Britvan estate. As previously discussed, Donald and Daniel, as two of the three trustees, had the power act on behalf of the trust and to sell its two-thirds share of the Altessa property. Moreover, the documentary evidence reflects that the proceeds of the sale were used to pay the expenses of the sale, the mortgage on the property, and the Britvan estate. The remaining funds were deposited into the Valley National trust account. There is no evidence in the record to suggest that the Bodian defendants retained any of the proceeds of the sale. When, as here, an attorney acts within the scope of an agency relationship and is not motivated by personal gain, the attorney is not liable to third parties (Four Finger Art Factory, supra, citing Kartiganer Assoc. v Town of New Windsor, 108 AD2d 898; see also Pancake v Franzoni, 149 AD2d 575). Accordingly, the eighth cause of action for malpractice is dismissed.

In view of the foregoing, the plaintiff’s remaining claims against the Bodian defendants, which arise from the same facts and allege the same damages, are also dismissed. Accordingly, the ninth cause of action is dismissed, and the fourth through seventh causes of action are dismissed insofar as they are asserted against the Bodian defendants.”

Sophisticated Parties, Complex Facts, No Legal Malpractice Case

Posted in Legal Malpractice Cases

Can there be a more complex financial undertaking than getting involved in new stock offerings for a China coal company?  The due diligence was assigned to the defendants as well as Kroll Investigators.  Kroll seems to have gotten it right, while both the attorneys and the client missed the most obvious notes written into the report.  Who might be liable?

Macquarie Capital (USA) Inc. v. Morrison & Foerster, LLP, Supreme Court, New York  County, Justice Saliann Scarpulla, Index No. 650988 works it way through various defenses.  There is no in pari delicto because this was negligence on everyone’s part, not fraud.  However, there is no proximate case, and the case is to be dismissed.

“Moreover, I find that the complaint must be dismissed because Macquarie has not sufficiently alleged a claim for legal malpractice, specifically, has failed sufficiently to allege proximate cause. A cause of action for legal malpractice requires “three essential elements: (1) the negligence of the attorney; (2) that the negligence was the proximate cause of the loss sustained; and (3) proof of actual damages.” Prudential Ins. Co. v. Dewey Ballantine, 170 A.D.2d 108, 114 (1st Dept. 1991) affd 80 N.Y.2d 377 (1992). To establish proximate cause, a plaintiff must demonstrate that but for the attorney’s negligence, he or she would have prevailed in the underlying matter or would not have sustained any ascertainable damages. The failure to establish proximate cause mandates the dismissal of a legal malpractice action, regardless of the attorney’s negligence. Brooks v. Lewin, 21 A.D.3d 731, 734 (1st Dept. 2005). Macquarie alleges that it hired Morrison, based on its expertise in China-related transactions, to perform due diligence for the transaction and to gain a full understanding of the operating and ownership structure of Puda and its subsidiaries. Macquarie further alleges that Morrison egregiously failed in its duty to carry out its assigned due diligence by neglecting to uncover a crucial component of Puda’s ownership structure, and also failing to pick up on the discovery made by Kroll as set forth in the Kroll Report. However, Morrison’s failures cannot be deemed to have proximately caused Macquarie’s damages, because Macquarie was also in possession of this critical information. See Ableco Fin. LLC v. Hilson, 109 A.D.3d 438 (l st Dept. 2013).

In light of the Court’s holding in the Ableco case that the legal malpractice claim should have been dismissed based on the information the plaintiff “indisputably possessed,” the legal malpractice claim here must be dismissed as well. The allegations of the complaint clearly state that Macquarie possessed the Kroll Report, and the crucial information contained therein, prior to the closing of the transaction. While Macquarie seeks to distinguish this case from Ableco, in that this case resolves a motion to dismiss and Ableco resolved a motion for summary judgment after the completion of discovery, the relevant evidence here was available and referenced in the complaint, specifically the Kroll Report, and was indisputably possessed by Macquarie prior to the closing. Macquarie further argues that proximate cause may ultimately be proven because discovery would reveal that it lacked “actual knowledge” of the subject information in the Kroll Report before the closing. However, in Ableco the Fi~st Department dismissed plaintiff’s malpractice claim based on plaintiff’s possession of the information, not plaintiff’s Subjective understanding of the significance of the information. As it is undisputed here that Macquarie had the information that it complains Morrison failed to uncover, the element of proximate cause cannot be proven, and the legal malpractice claim must be dismissed. “

What Was Pled, What Was Not Pled

Posted in Legal Malpractice Cases

Plaintiff pled a Judiciary Law § 487 claim, but it did not survive a motion to dismiss.  The Appellate Division reviews.  What did it have before it, and how does it proceed?

Gumarova v Law Offs. of Paul A. Boronow, P.C.  2015 NY Slip Op 05155 [129 AD3d 911]
June 17, 2015  Appellate Division, Second Department shows us that the pleadings have to connect a claim of deceit to actual damages, and that damages will definitely not be presumed.

“Judiciary Law § 487 provides that an attorney who “[i]s guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party” is guilty of a misdemeanor, and “forfeits to the party injured treble damages, to be recovered in a civil action.” “Since Judiciary Law § 487 authorizes an award of damages only to ‘the party injured,’ an injury to the plaintiff resulting from the alleged deceitful conduct of the defendant attorney is an essential element of a cause of action based on a violation of that statute” (Rozen v Russ & Russ, P.C., 76 AD3d 965, 968 [2010]).

Here, the Supreme Court properly granted that branch of the defendants’ motion which was pursuant to CPLR 3211 (a) (7) to dismiss the cause of action alleging a violation of Judiciary Law § 487. The cause of action alleging a violation of Judiciary Law § 487 fails to sufficiently allege that the plaintiff suffered an injury proximately caused by any alleged deceit or collusion on the part of the defendants, and no such injury can reasonably be inferred from the allegations in the complaint (see Bohn v 176 W. 87th St. Owners Corp., 106 AD3d 598, 600 [2013]; Rozen v Russ & Russ, P.C., 76 AD3d at 968). Chambers, J.P., Hall, Cohen and Miller, JJ., concur.”

Contribution and Indemnity in Legal Malpractice

Posted in Uncategorized

Contribution is the concept that one party might owe another party the obligation to share in the bad times…and to be financially responsible for a claim or verdict against the first party.  It matters whether the claim is for tort or contract.  In legal malpractice the lines are blurred, but when the contribution is for claims arising from a contract, there is no right to contribution.

Bloostein v Morrison Cohen LLP   2016 NY Slip Op 31309(U)  July 11, 2016  Supreme Court, New York County  Docket Number: 651242/2012  Judge: Anil C. Singh, which we dicussed earlier this week has a nice opinion on contribution.

“Under New York law, there is no right to contribution in contract actions, either by common law or by the CPLR which limits contribution to “personal injury, injury to property or wrongful death. New York CPLR 1401. “[A] purely economic loss resulting from a breach of contract does not constitute an “injury to property” within the meaning of CPLR 1401.” See, Bd. of Educ. of Hudson City Sch. Dist. v Sargent, Webster, Crenshaw & Folley, 71 N.Y. 2d 21, 26 (1987); Structure Tone, Inc. v Universal Servs. Grp., Ltd., 87 AD3d 909, 911 (1st Dept 2011). If “a plaintiffs direct claims … seek only a contractual benefit of the bargain recovery, their tort language notwithstanding, contribution is unavailable.” Trump Vil. Section 3 v New York State Hous. Fin. Agency, 307 A.D. 2d 891, 897 (1st Dept 2003). Although CPLR 1401 requires the existence of tort liability, independent of a breach of contract, the mere existence of a contract does not preclude the possibility of tort liability. Landon v Kroll Lab. Specialists, Inc., 91 AD3d 79, 83 (2d Dept 2011) (“A person is not necessarily insulated from liability in tort merely because he or she is engaged in performing a contractual obligation.”) (citations omitted). ”

“The case against Stonebridge hinges on whether Stonebridge breached a duty to the plaintiff investors independent of the Stonebridge/Investor agreement. Here, Morrison Cohen argues that Stonebridge breached a fiduciary duty to the investors because it acted as their advisor. Additionally, Morrison Cohen argues that Stonebridge owed the investors “an independent duty to exercise reasonable care” as an expert and a financial services provider. ”

“Morrison Cohen also argues that Stonebridge, as an expert and financial service provider, had an independent duty to exercise reasonable care in this transaction. Here, Morrison Cohen has not alleged an independent duty to exercise reasonable care. In Sommer, the court held that “[a] legal duty independent of contractual obligations may be imposed by law as an incident to the parties’ relationship … [p ]rofessionals, common carriers and bailees, for example, may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties.” Further, the Court observed that “the nature of the injury, the manner in which the injury occurred and the resulting harm” are all relevant factors in considering whether claims for breach of contract and tort may exist side by side. However, the Court of Appeals have declined to extend Sommer to cases involving only economic harm. New York Univ. v Cont. Ins. Co., 87 N.Y. 2d 308, 314 (1995). ”

“Moreover, the touchstone for purposes of whether one can seek contribution is not the nature of the claim in the underlying complaint but the measure of damages sought therein. Children’s Corner Learning Ctr. v A. Miranda Contr. Corp., 64 A.D. 3d 318, 324 (1st Dept 2009); Sommer v. Federal Signal Corp, 79 N.Y.2d 540 (1992) (“the determination of whether a claim is grounded in contract or tort is the damages the plaintiff seeks”); In Fid. and Deposit Co. of Maryland v Levine, Levine & Meyrowitz, CPAs, P.C., 66 A.D. 3d 514, 515 (1st Dept 2009), the court held that because plaintiff seeks to recover against defendants for actions and omissions explicitly covered in the scope of a contract, and both causes of action seek the same measure of damages, defendants may not seek contribution against the third-party defendants, whether the causes of action are labeled breach of contract or malpractice. Here, the damages sought by plaintiff in the main action are purely economic damages. “

A Seizure, A Coffee Burn, A New Trial

Posted in Legal Malpractice Cases

The setting for this case is a medical malpractice case in Saratoga County.  The lesson of this case is that jury instructions are very, very important, and attorneys must do everything necessary to preserve objections to what they consider incorrect instructions.

Vallone v Saratoga Hosp.  2016 NY Slip Op 05526  Decided on July 14, 2016  Appellate Division, Third Department is rather a sad story.  Luckily for plaintiff, the Court intervened.

“On June 3, 2007, plaintiff sought treatment in the emergency room at defendant’s facility, complaining of a history of recurrent seizures. After he was placed on an examination table, his father brought him a cup of coffee. Plaintiff experienced another seizure and the hot coffee spilled into his lap, burning him. Later that day, plaintiff was admitted. Three days later, he was examined by a physician and diagnosed as suffering from second degree burns, and a plastic surgery consultation was requested. Upon examining plaintiff the

following day, the plastic surgeon diagnosed his injuries as second and third degree burns. Plaintiff was discharged the next day, with instructions to seek further treatment from a physician within one week and from a plastic surgeon within two weeks. Upon learning that plaintiff had been discharged, the plastic surgeon who had examined him directed his staff to contact plaintiff to arrange an office visit so that plaintiff could be seen more promptly; this visit occurred several days following his discharge. The plastic surgeon recommended a referral to a burn center, and plaintiff subsequently underwent debridement and skin grafting surgery. As a result of his burn injuries, plaintiff allegedly suffered permanent scarring, lost function, and continuing pain.

Plaintiff commenced this action alleging negligence and medical malpractice. At trial, plaintiff contended that, in light of plaintiff’s history of frequent seizures, defendant was negligent in permitting him to have coffee in the emergency room. Plaintiff further contended [*2]that defendant’s employees exacerbated plaintiff’s injuries and failed to comply with accepted standards of care by, among other things, failing to remove his clothes and cool his skin immediately after the coffee spill, and by discharging him prematurely. The jury returned a verdict finding that defendant was not negligent for allowing plaintiff to have coffee in the emergency room, but that defendant deviated from accepted standards of care in treating plaintiff’s burns, and that this was a substantial factor in causing harm to plaintiff. The jury further found that defendant deviated from accepted standards of care in discharging plaintiff prematurely, but that this was not a substantial factor in causing harm to him. Finally, the jury found that plaintiff was comparatively negligent in causing the coffee spill, and that his percentage of fault was 90%, while defendant’s was 10%. The jury rendered an award of damages in the sum of $25,000 to plaintiff for pain, suffering, and loss of enjoyment of life, to the date of the verdict, with no award for future damages. Plaintiff moved pursuant to CPLR 4404 (a) to set aside the verdict, and Supreme Court denied the motion. Plaintiff appeals from that order.”

“We reach a different conclusion as to the issue of plaintiff’s comparative negligence. The jury was instructed that, if it determined that defendant was negligent in causing plaintiff’s injuries, then it must also determine whether any negligence on plaintiff’s part contributed to causing the coffee spill. Plaintiff contends that this instruction was erroneous, as plaintiff’s responsibility, if any, for causing the coffee spill is irrelevant to defendant’s liability for its inadequate treatment of his burns after the spill occurred. A comparative negligence instruction is appropriate when there is evidence that a plaintiff may share responsibility for harm that was inflicted as a result of a defendant’s medical malpractice (see Elkins v Ferencz, 263 AD2d 372, 372-373 [1999]; see also DeCesare v Kaminski, 29 AD3d 379, 382 [2006], lv dismissed 7 NY3d 844 [2006]; Ogle v State of New York, 191 AD2d 878, 881 [1993]). However, no comparative negligence instruction should be given when a plaintiff’s alleged negligence preceded the alleged medical malpractice and is not otherwise alleged to have contributed to the harm resulting from the malpractice. A plaintiff’s prior conduct “is not relevant, since the defendant’s liability extends only to that portion of [the plaintiff’s] injuries attributable to the defendant’s malpractice” (DiMarco v New York City Health & Hosps. Corp., 247 AD2d 574, 576 [1998], lv denied 93 NY2d 807 [1999]; see Mendoza v Kaplowitz, 215 AD2d 735, 735-736 [1995]). Here, although there was evidence from which the jury could have found that plaintiff shared responsibility for the initial coffee spill, defendant made no claim at trial that plaintiff had any such shared responsibility for defendant’s subsequent deviations from the accepted standard of care in treating plaintiff’s injuries, nor was there any evidence adduced at trial from which the jury could have found that plaintiff shared such responsibility [FN1]. Accordingly, plaintiff contends that Supreme Court should have instructed the jury to consider plaintiff’s comparative negligence only if it found that defendant was negligent in allowing him to have hot coffee in the emergency room, and to exclude any consideration of comparative negligence from its findings on defendant’s subsequent malpractice.

At trial, plaintiff made a general objection to the comparative negligence instruction on the ground that there was no evidentiary basis for the charge, but neither requested that the jury be charged to exclude comparative negligence from its consideration of the malpractice claims nor objected to the proposed special verdict sheet. Thus, plaintiff failed to preserve this challenge to the instruction (see CPLR 4017, 4110-b; De Long v County of Erie, 60 NY2d 296, 306 [1983]; Curanovic v New York Cent. Mut. Fire Ins. Co., 22 AD3d 975, 975-976 [2005]). However, this Court may exercise its discretion to order a new trial when an unpreserved error in a jury charge is fundamental — that is, “so significant that the jury was prevented from fairly considering the issues at trial” (Pyptiuk v Kramer, 295 AD2d at 771 [internal quotation marks and citation omitted]; accord Ciarelli v Lynch, 22 AD3d 987, 989 [2005]; Curanovic v New York Cent. Mut. Fire Ins. Co., 22 AD3d at 976-977; see Martin v City of Cohoes, 37 NY2d 162, 165 [1975]). Here, the jury was neither instructed to limit its consideration of plaintiff’s comparative negligence, nor that defendant’s liability extended only to that portion of plaintiff’s injuries attributable to its malpractice. The jury was thus prevented from fairly considering the central issue of damages. The errors were further compounded by the failure to instruct the jury “to determine the total amount of damages sustained by plaintiff, undiminished by any percentage of fault” (Grant v Endy, 167 AD2d 807, 808 [1990]; see PJI 2:36.2). PJI 2:36 sets forth three essential steps to be followed by the jury in [*4]apportioning liability and calculating damages, and the third step — which instructs the jury to determine the total damage award without reference to any percentage of fault — is essential to avoid juror confusion and the risk of a double reduction of the plaintiff’s recovery (see Scaduto v Suarez, 150 AD2d 545, 547-548 [1989]; Luppino v Busher, 119 AD2d 554, 556 [1986]; 1A NY PJI3d 2:36, Comment, Mode of Trial [Bifurcated or Full] [Note: online treatise]). Here, it is impossible to determine whether the jury intended the amount that it awarded to represent the total damage award or plaintiff’s 10% share following the erroneous apportionment of fault. Accordingly, we find that the combined errors in the charge are fundamental, and that a new trial on the issue of plaintiff’s damages is warranted in the interest of justice (see Krigsfeld v Feldman, 115 AD3d 712, 712-713 [2014]; Ciarelli v Lynch, 22 AD3d at 989-990; Decker v Rassaert, 131 AD2d 626, 627 [1987]; DiGrazia v Castronova, 48 AD2d 249, 251-252 [1975]).”

Escrow Agents, Attorneys and Breach of Fiduciary Duty

Posted in Legal Malpractice Basics

The conduct is not easily explainable.  A law firm is hired to become escrow agent for a real estate venture, and to earn fees while preparing and filing mortgages.  Inexplicably, the law firm simply stops filing the mortgages.  The result is predictable.

TSR Group, LLC v Levitin  2016 NY Slip Op 31322(U)  July 13, 2016  Supreme Court, New York County  Docket Number: 651356/2015  Judge: Eileen A. Rakower.  The judge explains breach of fiduciary duty in the escrow holding situation.

“This action arises from a business venture between plaintiff, TSR Group, LLC (“TSR” or “plaintiff’) and non-parties Stuart Bienenstock, Judah Bloch, and Ariel Gantz, involving the acquisition, renovation, stabilization, and conversion of commercial real estate in New Jersey into residential condominiums. Plaintiff alleges that defendants Jeffrey Levitin, Esq., and Levitin & Associates, P.C. (collectively, “defendants”) released from escrow approximately $2.1 million of plaintiff’s funds and delivered such funds to defendants’ other clients or third parties without plaintiff’s authorization and without ensuring that mortgages over certain properties were recorded on behalf of plaintiff equal to the full amount of plaintiff’s loan and investment. Plaintiff asserts causes of action for breach of fiduciary duty, breach of contract, fraud, negligent misrepresentation, conversion, legal malpractice, conspiracy, aiding and abetting tortious conduct, failure to return property following bailment, negligence, and accounting.”

“An escrow is generally defined as a written instrument entrusted by a grantor to a third party agent or trustee who, in accordance with instructions, subsequently delivers the instrument to the grantee once certain conditions are met. See 99 Commercial St., Inc. v. Goldberg, 811 F. Supp. 900, 905 (S.D.N.Y. 1993). Although the strict definition limits the subject of escrow to written instruments, money deposited with a third person and to be delivered to the beneficiary upon the happening of an event or the performance of a condition may also be treated as an escrow, with the same rules of other escrow agreements applying. 55 N.Y. Jur. 2d Escrows§ 2; Falk v. Goodman, 7 N.Y.2d 87 (1959); Matter of Burton, 200 A.D.2d 324, 327 (1st Dept. 1994) (“When parties to a real estate transaction agree that the lawyer of one party or another will hold money in escrow it is not either party’s money to disburse at will.”). No precise form of words is necessary to constitute an escrow; conversely, calling a transaction an escrow does not make it one. Farago v. Burke, 262 N.Y. 229, 233 (1933). An escrow agreement requires: (a) an agreement as to the subject matter and delivery of the instrument or funds; (b) a third-party depositary; ( c) delivery of the instrument or funds to a third party depositary, to be held conditioned upon the performance of some act or occurrence of some event; and (d) relinquishment of the instrument or funds by the grantor. See Menkis v. Whitestone Sav. & Loan Ass ‘n, 78 Misc. 2d 329, 330-31 (Nassau Cnty. Dist. Ct. 197 4 ). An escrow agreement does not have to be in writing. Russell v. Demandville Mortgage Corp., 815 N.Y.S.2d 496 (Kings Cnty. Sup. Ct. 2006). Generally, whether an escrow has been created depends on the intention of the parties, which is a question of fact. Clark v. Gifford, 1833 WL 3077 (N.Y. Sup. Ct. 1833). An escrow agent has contractual duty to comply with the escrow agreement, and additionally becomes a trustee of anyone with a beneficial interest in the trust with the duty not to deliver the escrow to anyone except upon strict compliance with the conditions imposed. Takayama v. Schaefer, 240 A.D.2d 21, 25, 669 N.Y.S.2d 656, 659 (1998) (internal citations and quotations omitted); Animalfeeds Int’! Inc. v. Banco Espirito Santo E Comercial De Lisboa, 420 N.Y.S.2d 954, 957 (Sup. Ct. 1979) (“An escrow agreement, while imposing a fiduciary relationship, and assuming some of the characteristics of a trust, is in essence a contractual undertaking[.]”); Grinblat v. Taubenblat, 107 A.D.2d 735, 736 (2d Dept. 1985) (escrow agent is charged with duty not to deliver escrow funds except upon strict compliance with conditions imposed and is subject to damages for his failure to so act). The purpose of an escrow is to assure the carrying out of an obligation already contracted for and in furtherance of the obligation the promisor deposits money, goods, or documents to an escrow agent who agrees to part with it only on a specified condition. Nat ‘l Union Fire Ins. Co. Pittsburgh, Pa. v. Proskauer Rose Goetz & Mendelsohn, 634 N.Y.S.2d 609, 614 (Sup. Ct. 1994), ajf’d sub nom. Nat’! Union Fire Ins. Co. of Pittsburgh, Pennsylvania v. Proskauer, Rose Goetz & Mendelsohn, 227 A.D.2d 106 (1st Dept. 1996). Upon delivery of the subject of the escrow to the escrow agent, “the escrow agent becomes the fiduciary of both parties and owes them the highest kind of loyalty.” Muscara v. Lamberti, 133 A.D.2d 362, 363 (2d Dept. 1987). ”

“As noted above, it is well settled that an escrow agent owes the parties to the transaction a fiduciary duty. Greenapple v. Capital One, NA., 92 A.D.3d 548, 549 (1st Dept. 2012); Talansky v. Schulman, 2 A.D.3d 355, 359 (1st Dept. 2003). As a fiduciary, the escrow agent has a strict obligation to protect the rights of the parties for whom the agent acts as escrowee. Grinblat v. Taubenblat, 107 A.D.2d 735, 736 (2d Dept. 1985). An escrow agent “can be held liable for breach of the escrow agreement and breach of fiduciary duty as escrowee.” Takayama v. Schaefer, 240 A.D.2d 21, 25 (2d Dept. 1998) (internal citations omitted). “

The Opinion Letter and Legal Malpractice

Posted in Legal Malpractice Cases

One of the unique elements of legal malpractice is the requirement of privity.  Privity of contract (or representation) is an ancient concept, which states that only those in direct contract may be held responsible for harm.  It is the opposite of generalized tort liability.  Familiar to law students, privity giving way to generalized tort liability can be seen clearly in the product liability world.  For example, a kid who was injured in old washer/dryers was unable to sue the manufacturer for a long time because they lacked privity of contract with the seller/distributor/manufacturer.  That gradually changed to tort liability for a dangerous product.

In Bloostein v Morrison Cohen LLP   2016 NY Slip Op 31309(U)  July 11, 2016  Supreme Court, New York County Docket Number: 651242/2012  Judge: Anil C. Singh we see the same issue with the law firm which issued an opinion letter upon which the investors relied.  None had a direct privity relationship with the law firm.

“The third-party complaint also seeks contribution from Brown Rudnick. There is no dispute that Brown Rudnick did not have direct privity with the plaintiff investors. However, Morrison Cohen claims that Brown Rudnick breached its duty of care to the plaintiff investors and ultimately did have a relationship approaching privity in issuing an Opinion Letter which contained false representations of what the default trigger rating would be. Exhibit E. Morrison Cohen cites to Millennium I’mport, LLC v Reed Smith LLP, 104 AD3d 190, 194 (1st Dept 2013) which held that, “[i]t is well settled that attorneys may be liable for their negligence both to those with whom they have actual privity of contract and to those with whom the relationship is ‘so close as to approach that of privity. It also cites to Prudential Ins. Co. v Dewey, 80 N.Y. 2d 383-85 (1992), where, in the context of opinion letters, the Court of Appeals has held that a relationship “approaching privity” exists between the drafting attorney and a non-client recipient where there is: “(1) an awareness by the maker of the statement that it is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance.” In Prudential, the court found that the relationship between lender and the law firm representing borrower was sufficiently close to support liability for law firm’s alleged negligent creation of an opinion letter regarding the effect of restructuring of loan transaction and the transmission of that letter to the creditor for its own use. In particular, the court found that the law firm knew that letter was to be used by lender in deciding whether to permit debt restructuring, the lender unquestionably relied on the opinion letter in agreeing to that restructuring, and the law firm addressed and sent the opinion letter directly to lender. Similarly, here, Brown Rudnick was aware that its Opinion Letter was to be used for the purpose of the Transaction. It also addressed and directly sent the Opinion Letter to each of the investors. The Letter also states at page 34 that, “this Opinion may not be relied upon except with respect to the consequences discussed herein” and “this Opinion may be relied upon and used by the parties listed in Schedule A”. Schedule A includes the plaintiff investors. Brown Rudnick contends that Morrison Cohen does not set forth sufficient facts tending to show that by issuing the Opinion Letter, the investors were caused to execute the transaction documents containing the revised rating trigger. However, in order to state a claim for contribution, Morrison Cohen need only allege that Brown Rudnick’s tortious conduct contributed to the injury alleged by the investors – not that Brown Rudnick’s conduct was the sole cause of the injury. Schauer v Joyce, 54 N.Y. 2d 1, 5 (1981). Therefore, Morrison Cohen’s claims for contribution against Stonebridge are dismissed. Brown Rudnick’s motion to dismiss the claims based on contribution is denied. “

Down But Not Out, Continued

Posted in Legal Malpractice Cases

Last week we looked at the statute of limitations in legal malpractice and how that interacted with CPLR 203 which allowed a counterclaim as an offset.  Lewis, Brisbois, Bisgaard & Smith, LLP v Law Firm of Howard Mann  2016 NY Slip Op 05487  Decided on July 13, 2016
Appellate Division, Second Department also has a claim for Judiciary Law 487 which survived the motion.  We (anecdotally) think there is a trend towards more consideration of these JL 487 claims in the past year.

“The ninth counterclaim and the fourth cause of action in the third-party complaint, alleging a violation of Judiciary Law § 487, stated cognizable claims and, thus, the Supreme Court did not err in declining to direct that they be dismissed pursuant to CPLR 3211(a)(7) (see Palmieri v Biggiani, 108 AD3d 604; Sabalza v Salgado, 85 AD3d 436; Izko Sportswear Co., Inc. v Flaum, 25 AD3d 534; cf. Schiller v Bender, Burrows & Rosenthal, LLP, 116 AD3d 756). For the same reason, the court also properly denied dismissal of the seventh counterclaim and the second cause of action in the third-party complaint, which alleged that the plaintiff and the third-party defendants improperly withheld portions of the defendants’ litigation file in the underlying action (see Matter of Sage Realty Corp. v Proskauer, Rose Goetz & Mendelsohn, 91 NY2d 30).”

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