Kallista, S.A. v White & Williams LLP 2016 NY Slip Op 2609 Decided on January 7, 2016 Supreme Court, Westchester County Scheinkman, J. discusses legal malpractice and Judiciary Law 487. Last week we discussed the legal malpractice aspect of the case.
“This action arises out of claims that the Law Firm committed legal malpractice, and then fraudulently concealed its misconduct, in its representation of Kallista in relation to certain trademark registration applications. The action was commenced by the filing of the Summons and Complaint on August 4, 2015.”
“Plaintiffs allege that, in late March and early April 2012, Kallista initially consulted with Friedberg regarding the preparation of a trademark application for the name “KALLISTA” for skincare products in the United States. Friedberg was also [*2]consulted regarding a trademark application for the name “ETHERIA”) for hair care products in the United States (id. ¶12). On May 2, 2012, Kallista, Etheria, and the Law Firm entered into an agreement pursuant to which the Law Firm was to perform legal services for both companies, including the preparation and processing of the two trademarks (id. ¶13). In May 2012, Parodi was employed as a senior executive of Proctor & Gamble and Friedberg knew that she intended to leave that position as soon as the Kallista business was operational (id. ¶14).
Plaintiffs assert that, as early as November 2011, Kalliste Oraganics, Inc. (“Kalliste”) branded soap and skincare products which were sold throughout the United States under the name “KALLISTE”. Plaintiffs say that a full and complete trademark search would have revealed the existence of the Kalliste product line (id. ¶¶15, 20). Despite this, on June 1, 2012, Friedberg reported to Kallista that his search of certain data bases indicated a low level of risk, that it was not necessary to do a full trademark search, and that he believed that the marks were available. On June 18, 2012, Kallista instructed Friedberg to proceed with registration for both marks (id. ¶16).
Plaintiffs assert that Defendants did not proceed with the trademark applications, even though they invoiced Kallista for the cost of the applications and falsely represented that the applications had been filed (id. ¶¶16-17). In February, 2013, Kallista asked Friedberg about the status of the applications and, in particular, as to whether Kallista products could be sold before the end of the summer and whether there was any risk. Friedberg allegedly advised that selling should start as soon as possible because the registration could not be finalized until that was done (id. ¶17). On July 24, 2013, Kallista wrote to Friedberg as to the status of the trademarks, noting that a regulatory agency had informed Kallista that the KALLISTA mark had not been registered. Friedberg is alleged to have responded by filing applications for both Etheria and Kallista that day (id. ¶18).
Plainitffs allege that Defendants did not perform a trademark search of the United States Patent and Trademark Office ( USPTO”) database and that, if such a search had been conducted, it would have been revealed that Kalliste Organics, Inc. (“Kalliste”) had a trademark application for KALLISTE. Kalliste asserted in its application that it first used the KALLISTE mark in 2008. Registration of Kalliste’s trademark was issued on October 15, 2013 (id. ¶20).”
“The Fourth Cause of Action is for violation of Section 487 of the Judiciary Law. Plaintiffs claim that Defendants violated Section 487 by filing and prosecuting a fraud action on behalf of Kallista (the petition to cancel the KALLISTE mark) without informing Kallista or obtaining its consent and without conducting an adequate investigation. This action is said to be part of a larger scheme to mislead Plaintiffs, which persisted for more than a year and which “amounts to an extreme pattern of legal delinquency.” It is claimed that, by the filing of the petition to cancel without an adequate investigation, Defendants intended to deceive the Board and also Kallista, Parodi, and Kalliste (id. ¶¶50-53).”
“Section 487 of the Judiciary Law provides, in relevant part, 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, in addition to the punishment for such crime, forfeits to treble damages to the injured party, recoverable in a civil action.
The statute provides for a cause of action against an attorney in two circumstances: (a) where the alleged deceit or collusion with the intent to deceive any part occurred in a pending judicial proceeding; or (b) where deception is directed against a court and the deception relates to either a prior judicial proceeding or one which may be commenced in the future (see, e.g., Singer v Whitman & Ransom, 83 AD2d 862 [2d Dept 1981]). This statutory construction dates back to the 1884 decision of the Court of Appeals in Looff v Lawton (97 NY 478, 482 [1884]), where in construing the predecessor statute, the Court stated:
The “party” referred to is clearly a party to an action pending in a court in reference to which the deceit is practiced, and not a person outside, not connected with the same at the time or with the court.
Thus, to make out a claim under the statute the deceit complained of must have occurred during a judicial proceeding to which the plaintiff was a party (Bankers Trust Co. v Cerrato, Sweeney, Cohn, Stahl & Vaccaro, 187 AD2d 384 [1st Dept 1992]); accord, Henry v Brenner, 271 AD2d 647 [2d Dept 2000]; Beshara v Little, 215 AD2d 823 [3d Dept 1995]). Thus, the alleged creation of a false affidavit in support of an insurance claim was not within the statute since the affidavit was not filed in support of a pending lawsuit (Gelmin v Quicke, 224 AD2d 481 [2d Dept 1996] [that the affidavit was produced in response to discovery demands by plaintiff did not bring the affidavit within the statute]).
Here, in the Fourth Cause of Action, Plaintiffs allege that Defendants violated Section 487 “by filing and prosecuting a fraud action on behalf of Kallista (the Petition to Cancel against Kalliste), without informing Kallista or obtaining its consent, and without conducting an adequate investigation of the merits of the claim.” Plaintiffs contend that this was part of a bigger plan to mislead them which amounts to an extreme pattern of delinquency. Plaintiffs allege that by filing the petition, Defendants intended to deceive the Board, Kallista, Parodi and Kalliste.
The petition to cancel the KALLISTE registration was not brought before a court. It was brought before an administrative agency, the United States Trademark Trial and Appeal Board, which is part of the United States Patent and Trademark Office, a federal agency within the United States Department of Commerce (35 USC §1; 15 USC §1067).[FN7]
There is no authoritative precedent for construing Section 487 to impose liability for deceit committed in the course of an administrative proceeding.[FN8]
The Court concludes that Judiciary Law Section 487 does not apply to the filing of a petition with an administrative agency, whether state or federal. Section 487 is a unique statute deriving from a statute of ancient origin in the criminal law (see Amalfitano v Rosenberg, 12 NY3d 8, 14 [2009]). It is intended to regulate, through criminal and civil sanctions, the practice of law in the courts and to protect the integrity of the truth-seeking process of the courts (see Schertenleib v Traum, 589 F2d 1156, 1166 [2d Cir 1978]).
There is a genuine debate as to whether the court proceedings reached by Section 487 are limited to proceedings in New York state courts or extend further to court proceedings in other places (compare Schertenleib v Traum, 589 F2d at 1166; Alliance Network, LLC v Sidley Austin LLP, 43 Misc 3d 848 [Sup Ct, NY County 2014]; Cinao v Reers, 27 Misc 3d 195 [Sup Ct, Kings County 2006]). However, the statute specifically provides criminal and civil sanctions for deception upon the “court”. Doubtless, the statute was enacted before the advent of extensive use of administrative tribunals to adjudicate administrative matters. However, the statute has never been amended to include administrative tribunals. Administrative tribunals are not themselves courts.
It would be an undue construction of the statute to read it so expansively as to bring administrative tribunals within its reach. If the statute were so read, then the statute could be found to reach a multitude of agencies, ranging from federal agencies, to state agencies, to municipal agencies. Further, it is not always necessary for a person who represents a party before an agency to be an attorney; indeed, admission to practice as an attorney may not itself be sufficient to qualify a person to represent a party before an administrative agency. Whether the statute is to be expanded to cover deception before administrative agencies, and if so, whether such coverage should be limited to attorneys, are matters for the Legislature.
The statute is best analyzed in the criminal law context and not within the framework of comparable civil torts (see Amalfitano v Rosenberg, 12 NY3d at 14). In [*10]the criminal law, where two constructions of a criminal statute are plausible, the one more favorable to the defendant should be adopted in accordance with the rule of lenity (People v Golb, 23 NY3d 455, 468 [2013], rearg denied 24 NY3d 932, cert denied __ US __, 135 S Ct 1009 [2015]). Thus, even if it is assumed that it is equally plausible to construe “court” as used in Section 487 to include an administrative tribunal as it is to exclude an administrative tribunal, the latter construction should be preferred.
Further, specifically addressing the facts in this case, the United States Patent and Trademark Office is empowered to regulate and govern the recognition and conduct of “agents, attorneys or other persons representing applicants or other parties before the Office” (35 USC §2[b][2][D]). A person who practices before the Office need not be a member of the New York Bar, though if he or she is a member of the New York Bar, he or she is subject to discipline by the New York authorities (Kroll v Finnerty, 242 F3d 1359, 1365-1366 (Fed Cir 2001). But this Court sees no valid basis in the history of the statute, or in the precedents applying it, for construing the statute as imposing criminal and civil liabilities upon an attorney who engages in deceit before this federal agency.
For these reasons, the Fourth Cause of Action shall be dismissed. In view of this determination, it is not necessary to reach the question whether the Law Firm may be held liable under Section 487.[FN9]“