While theft by an attorney may be many things, it is questionable whether it might be called legal malpractice. In B & R Consol., L.L.C. v Zurich Am. Ins. Co. 2011 NY Slip Op 51142(U) ; Decided on June 22, 2011 ; Supreme Court, Nassau County ; DeStefano, J. we see an upside-down mirror image of the usual legal malpractice case. Here plaintiff’s attorneys are well known legal malpractice defense counsel, plaintiff in the underlying legal malpractice case is suing the malpractice insurer, and the argument is over whether the insurance policy covers the alleged acts. Here, for the moment it does.
"In an action filed on November 6, 2008, encaptioned B & R Consolidated, L.L.C. v Frederic A. Powell, Esq. and Robin Powell, Index No. 020049/08 (the "underlying action"), B & R asserted, inter alia, causes of action in fraud, unjust enrichment, conversion, breach of contract, and breach of fiduciary duty based upon an admission by attorney Frederick A. Powell ("Powell") that he "stole four hundred and fifty thousand ($450,000.00) dollars of B & R’s money from his escrow account for other personal projects’" and did this "without any authorization from B & R" (Ex. "1" to Plaintiff’s Opposition). Specifically, it was alleged in the complaint that:
Unbeknownst to B & R, [Powell] received the money from the repayment of a mortgage owned by B & R in June of 2007. [Powell] neglected to inform B & R that the money had been received until September 2008, more than an entire year later! Instead, [Powell] made periodic payments to B & R under the guise of interest payments being made by a third party on the mortgage held by B & R
Accordingly, the Court finds unrebutted plaintiff’s proof that Powell took possession of funds belonging to the plaintiff, hid that fact from it, and then lost or misappropriated those funds for his own use. This constitutes an established breach of fiduciary duty owed to B & R by Powell as its attorney. Further, damages resulting from that breach have been shown as a result of the [*4]misappropriation of the clients’ funds, which is distinct from any claim for negligence or legal malpractice. Summary judgment therefore is granted to the plaintiff on its third and fifth causes of action, breach of "the fiduciary duty of care", and "of loyalty", as they most closely comport with the foregoing authority regarding breach of fiduciary duty generally. The Court notes that such a breach would also allow for a recovery for any attorney’s fees that were improperly charged as being incident the to [sic] breach rendering the continued pursuit of the negligence and malpractice causes of action unnecessary. Summary judgment is therefore denied as to these claims. "
"The Insurer argues that liability in the underlying action was not based upon Powell’s rendition of legal services but, rather, on his misappropriation of B & R’s funds and, thus, the Insurer has no obligation to indemnify. In the underlying action, Justice Palmieri stated in his decision that "the amended complaint is framed in terms of negligence, malpractice, and breach of fiduciary duty to Powell. This in turn is premised on bad advice from Powell as attorney and a failure to keep B & R informed of the true status of its loan to Lyons" (Ex. "7" to Plaintiff’s Opposition at p. 5).
Under the circumstances, and considering that the causes of action asserting breach of fiduciary duty are based upon the same facts constituting the causes of action alleging negligence and legal malpractice, it cannot be said as a matter of law that Powell’s conduct falls outside the scope of risk covered by the policy (Ex. "7" to Plaintiff’s Opposition at p 8; see Ulico Casualty Co., v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1 [1st Dept 2008]; Burkhart, Wexler & Hirschberg, LLP v Liberty Insurance Underwriters, Inc., 60 AD3d 884 [2d Dept 2009]).[FN3] "