Continuing from yesterday, we discuss one of the largest  fraud – legal malpractice cases we have seen.Chambers v Weinstein 2014 NY Slip Op 51331(U)  Decided on August 22, 2014 Supreme Court, New York County Sherwood, J. 

Proskauer Rose LLP is involved in the case, and walks away with dismissal.The facts are set forth in yesterday’s blog post, and here is how  the case was decided for Proskauer.

"The Complaint alleges that 148 (through Weinstein) lent the Kahal Defendants $3.88 million. Complaint, ¶¶ 247-250. Weinstein then directed Kahal to pay $1 million of those funds to Proskauer as a retainer. Id. Proskauer knew or should have known that the funds were probably proceeds of his fraudulent activities. Id. The Complaint avers that Proskauer improperly retained and expended the funds for its benefit, and demands the return of funds. Id., ¶¶ 252-253. As noted, these allegations are largely based on the statements made by FBI Agent Ubellacker in the 2013 Action. Plaintiffs’ opposition, ¶¶ 79-81. In their opposition papers, Plaintiffs also attached a document, which purports to show the $1 million payment made by Kahal to Proskauer, in a credit/debit schedule. Id., exhibit O. In such regard, Plaintiffs contend that they are "entitled to the inference that all of the funds sent to [Kahal] by 148 were Plaintiffs’ funds." Id., ¶ 84.

A claim for conversion of money can be established "where there is a specific, identifiable fund and an obligation to return or otherwise treat in a particular manner the specific fund in question." Thys v Fortis Sec., LLC, 74 AD3d 546, 547 [1st Dept 2010] (internal quotation marks and citation omitted). "Although the action must be for recovery of a particular and definite sum of money, the specific bills need not be identified." Id. (citation omitted).The conversion claim fails. Despite the allegation that Proskauer "knew or should have known" that the money it received from Kahal were proceeds of Weinstein’s fraud, the Complaint does not establish that Proskauer knew or should have known that the money it received from Kahal were "specific, identifiable funds" belonging to Plaintiffs and, thus, had "an obligation to return [same to Plaintiffs] or otherwise treat in a particular manner the specific fund in question."


3.Accounting (25th Cause of Action)[FN3] The Complaint alleges that Proskauer accepted $1 million from Weinstein or "other persons for the benefit of" Weinstein, and seeks to have Proskauer "provide an accounting of all sums received directly or indirectly from or for the benefit of Defendant Weinstein," because such funds "belonged to and originated from Plaintiffs." Complaint, ¶¶ 257-259.
To establish an accounting claim, a plaintiff must show "a fiduciary relationship between plaintiff and defendants." AMP Servs. Ltd. v Walanpatrias Found., 34 AD3d 231, 233 [1st Dept 2006]. Here, the Complaint does not allege a fiduciary relationship between Plaintiffs and Proskauer. Yet, Plaintiffs argue that "Proskauer, as a law firm, is held to a higher obligation with respect to the monies of third parties in its possession than ordinary defendants Plaintiffs’ opposition, ¶ 90." They rely on Rule 1.15(a) of the Rules of Professional Conduct ("A lawyer in possession of any funds or other property belonging to another person . . . is a fiduciary . . .").

This argument has no foundation in law. The Court of Appeals has held that "an ethical violation will not, in and of itself, create a duty that gives rise to a cause of action that would otherwise not exist at law." Shapiro v McNeill, 92 NY2d 91, 97 [1998]. A fiduciary relationship arises "between two persons when one of them is under a duty to act for or to give advice for the benefit of another upon matters within the scope of the relation" or "when confidence is reposed on one side and there is resulting superiority and influence on the other." Eurycleia, 12 NY3d at 561 (citations omitted). Plaintiffs have not met either test in Eurycleia. Plaintiffs’ other argument that Proskauer’s withdrawal from its representation of Weinstein without completing same vitiates its entitlement to the retainer (Plaintiffs’ opposition, ¶¶ 88, 91) is baseless because Proskauer does not [*6]represent Plaintiffs in any action or proceeding. Thus, the accounting claim is dismissed.

5.Unjust Enrichment (30th Cause of Action)
"The essential inquiry in any action for unjust enrichment . . . is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered." Mandarin Trading Ltd. v Wildenstein, 16 NY3d 173, 182 [2011] (citation omitted). To establish this claim, a plaintiff must show: "(1) the other party was enriched, (2) at that party’s expense, and (3) that it is against equity and good conscience to permit [the other party] to retain what is sought to be recovered’." Id. at 182 (citations omitted). While privity is not required, the complaint must still


show there is a connection between the parties that is not "too attenuated." Id.
Similar to the fraudulent conveyance claim, the unjust enrichment claim is asserted against multiple defendants. The Complaint alleges that the defendants, including Proskauer, "accepted monies directly or indirectly from the transactions described herein" and the "retention of said monies would unjustly enrich said defendants." Complaint, ¶¶ 297-298. As to Proskauer, the Complaint seek a $1 million judgment. Moreover, Plaintiffs argue that because Proskauer kept the $1 million retainer to which they have made a claim, not requiring Proskauer, as a fiduciary, to return the funds would unjustly enrich Proskauer, particularly when it voluntarily withdrew as Weinstein’s [*7]counsel while keeping the unearned fee. Plaintiffs’ Opposition, ¶¶ 101-104.

Plaintiffs’ arguments are unavailing. As discussed above, Proskauer is not Plaintiffs’ fiduciary. The retainer was paid by Kahal, on behalf of Weinstein, Proskauer’s client. The fact that Plaintiffs have made a claim against the retainer does not establish that a benefit has been bestowed upon Proskauer. Also, the cases cited by Plaintiffs (Plaintiffs’ Opposition, ¶ 102) do not support their assertion because the plaintiffs in those cases bestowed a benefit directly upon the defendants. Here, the facts show that any benefit bestowed upon Proskauer came from the Kahal Defendants, not Plaintiffs. Thus, the unjust enrichment claim against Proskauer must be dismissed.