Patent and Trademark registrations are a very, very big part of the legal world, and even more important in the commercial sphere.  What happens when a fledgling cosmetics company hires a law firm to file a trademark, protect the product, and allow for the cosmetic company to start selling skin-care products, and it all goes wrong?

Kallista, S.A. v White & Williams LLP  2016 NY Slip Op 26009  Decided on January 7, 2016
Supreme Court, Westchester County  Scheinkman, J. covers many of the most important principals and doctrines of legal malpractice and Judiciary Law 487 in a concise and well-reasoned opinion.  Today we will discuss the Legal Malpractice issues and on Monday we will discuss the JL 487 issues.

“According to the Complaint, the allegations of which must be assumed as true for the purposes of this motion, Kallista is a Swiss corporation and has its principal place of business in Geneva (Affirmation of Howard I. Elman, Esq., dated October 2, 2015 [“Elman Aff”], Ex. 1, ¶4). Parodi is said to be a citizen of both Switzerland and the United States, residing in Switzerland (id. ¶5). The Law Firm is a Pennsylvania partnership and has maintained offices in Manhattan and in Pleasantville (id. ¶6). Friedberg is a member of the New York Bar, a resident of Scarsdale, and is a partner in the Law Firm’s Manhattan office (id. ¶8).

Kallista was established in April 2012 to engage in the production and sale of skincare products. A sister company, Etheria, S.A. (“Etheria”) was set up at the same time for the production and sale of hair care products. Both companies are managed by Parodi, and her husband, Pierre. Pierre is the owner of Kallista (id., ¶11).

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).

In September 2013, Parodi resigned from Proctor and Gamble, giving up a $250,000 annual salary and generous benefits (id. ¶21).

On November 15, 2013, Friedberg received an Office Action from USPTO stating that there was likelihood of confusion between the KALLISTE registration and the KALLISTA application, which were in the same class of products, and therefore the KALLISTA application was refused. Plaintiffs allege that Friedberg did not tell Kallista about this development and did not tell Kallista that the KALLISTE registration was a substantial legal threat to Kallista’s business since the KALLISTA mark posed a serious risk of infringement on the KALLISTE mark (id. ¶22).

Kallista, allegedly unaware of any trademark issues, successfully launched a KALLISTA product line in the United States in January 2014 (id. ¶23). On May 15, 2014, Friedberg filed a petition with the United States Trademark Trial and [*3]Appeal Board (the “Board”) to cancel the KALLISTE mark on the ground of fraud, and also filed a request to suspend the application for the KALLISTA mark. Friedberg is alleged to have taken these actions without informing Kallista or obtaining its consent (id. ¶24).

According to Plaintiffs, the petition to cancel was withdrawn after Kalliste threatened Rule 11 sanctions against Kallista. Friedberg then entered into negotiations with Kalliste for a coexistence agreement, which would have restricted the use of the KALLISTA mark to a small section of the relevant market. This was allegedly done without informing Kallista. Further, Friedberg sent a “harsh” and factually incorrect demand letter to Kalliste (id. ¶25).

On June 5, 2014, Defendants informed Kallista that the KALLISTA application was blocked by the KALLISTE trademark registration and recommended that the dispute be resolved through a coexistence agreement. In early July 2014, Friedberg informed Kallista that the Law Firm would give it a credit for up to $7500 of the costs of a coexistence agreement and apologized for “miscommunication” (id. ¶26). Subsequent efforts to negotiate a coexistence agreement failed.

On August 5, 2014, the Law Firm was relieved of further services by Kallista.”

“Kallista alleges that, in view of its inability to trademark the KALLISTA mark, it closed its business. Its distributors returned tens of thousands of dollars of KALLISTA products which cannot be sold. Kallista claims it invested over $900,000 in its business operations, which are not recoverable, and lost profits of more than $350,000 for 2014, 2015 and 2016. Parodi claims she lost income of at least $217,000 (id. ¶¶29-30).

The First Cause of Action is for legal malpractice and is asserted by both Plaintiffs as against both Defendants. It is alleged that Defendants breached a duty of care and skill by, among other things: failing to conduct an adequate trademark search in May 2012; failing to file and prosecute the KALLISTA trademark application in June 2012; failing to inquire into the status of the application and telling Kallista to proceed with sales in February 2013; concealing, until July 24, 2013, that no application had been filed; concealing that an Office Action had been received in November 2013 refusing the KALLISTA application; failing to advise Kallista that the KALLISTE registration posed a serious risk of infringement; delaying for six months a response to the Office Action and then filing a petition to cancel without Kallista’s consent and without an adequate investigation. Plaintiffs claim damages of “sunk” costs and expenses of $900,000 to Kallista, $350,000 in lost profits to Kallista, and $234,000 in lost income to Parodi (id. ¶¶31-37).

The Second Cause of Action is for fraudulent concealment. Plaintiffs claim that there was a conspiracy and “pattern and practice” to cover up and avoid disclosing Defendant’s legal malpractice. Plaintiffs assert that Defendants were under a fiduciary duty to disclose all of their acts and omissions constituting malpractice. The “pattern and practice” of fraudulent concealment is said to include: (a) concealing the failure to fail a trademark application for KALLISTA in February 2013; (b) withholding from Kallista and Parodi in July 2013 that the application had not been filed sooner and that it had only been filed in response to Kallista’s inquiry; (c) concealing the receipt of the [*4]Office Action; (d) failing to inform Kallista and Parodi that Defendants had filed a petition to cancel the KALLISTE registration based on fraud without telling Kallista in advance and without an adequate investigation; and (e) concealing from Kallista that Defendants had entered into negotiations for a coexistence agreement. Plaintiffs assert that, but for the fraudulent concealment, they would not have made any agreements with Defendants and would have obtained alternate counsel and taken other measures to mitigate the damages caused by the legal malpractice. Plaintiffs seek $1.4 million damages, including the “sunk costs” of Kallista, the lost profits of Kallista, and the lost income of Parodi. Plaintiffs claim that Defendants’ acts were knowing, intentional and were done wantonly with a high degree of moral turpitude (id. ¶¶38-43). Plaintiffs claim punitive damages should be awarded because “Plaintiffs were subjected to a cruel and unjust hardship by which their interests in receiving competent and conflict-free legal advice were brazenly attacked and stolen,” and such an award is necessary to punish Defendants and deter them from similar misconduct in the future (id. ¶44).

The Third Cause of Action is for breach of contract and is asserted as against the Law Firm only. Kallista claims it entered into an agreement for legal services with the Law Firm for legal services and that Parodi is a third party beneficiary of that agreement. In essence, Plaintiffs claim that the Law Firm breached the agreement by failing to provide competent legal services (id. ¶49).

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).”

“The Third Cause of Action alleges that the Law Firm breached its contract with Plaintiffs by: failing to conduct an adequate trademark search in May 2012 and failing to discover the existence of the KALLISTE mark; failing to timely file and prosecute the KALLISTA trademark application; failing to conduct a reasonable inquiry into the status of the KALLISTA trademark application; failing to conduct a competent trademark search in July 2013; concealing the receipt of the Office Action refusing the KALLISTA application; waiting six months to respond to the Office Action and then filing a petition to cancel the KALLISTE registration; and undertaking an unauthorized negotiation for a coexistence agreement (Complaint, ¶48). Each of these allegations is also asserted in the context of the First Cause of Action for legal malpractice (id., ¶33).

The breach of contract cause of action is premised on the assertion that the Law Firm “impliedly promised to provide competent legal services to prosecute a trademark application (Complaint, ¶46). A breach of contract claim premised on the attorney’s failure to exercise due care or to abide by general professional standards is nothing but a redundant pleading of a malpractice claim (see, e.g., Levine v Lacher & [*8]Lovell-Taylor, 256 AD2d 147 [1st Dept 1998]; Sage Realty Corp. v Proskauer Rose LLP, 251 AD2d 35 [1st Dept 1998]). The test is not whether the theory is the same; the test is whether the facts alleged and relief sought are the same (see Nevelson v Carro, Spanbock, Kaster & Cuiffo, 290 AD2d 399 [1st Dept 2002]).

To the extent that the Third Cause of Action for breach of contract arises from the same facts and seeks the same damages as the First Cause of Action for legal malpractice, the Third Cause of Action should be dismissed (Shaya B. Pacific, LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, L.L.P., 38 AD3d 34, 43 [2d Dept 2006]); Mecca v Shang, 258 AD2d 569 [2d Dept 1999], lv dismissed95 NY2d 791 [2000]).

The facts are the same in both causes of action. There is, however, one aspect of damages that is different. In the Third Cause of Action, Plaintiffs seek recovery for monies that they paid for purported legal services pursuant to the agreement (Complaint, ¶49). However, since the purpose of pecuniary damages in a legal malpractice action is to make the injured party whole, there is no reason to doubt that Plaintiffs may obtain recovery from Defendants for any fees paid that Defendants did not earn due to their malpractice (Mecca v Shang, 258 AD2d at 570; see Leach v Bailly, 57 AD3d 1286, 1289 [3d Dept 2008]). Since there is no distinction between the damages recoverable in legal malpractice and those sought in breach of contract, the Third Cause of Action shall [x] be dismissed.”

“The Second Cause of Action for fraudulent concealment should also be dismissed. A fraud cause of action, like a contract cause of action, that arises from the same facts as a legal malpractice cause of action is duplicative of the legal malpractice cause of action unless distinct damages are alleged (see, e.g., Postiglione v Castro, 119 AD3d 920 [2d Dept 2014]; Rupolo v Fish, 87 AD3d 684 [2d Dept 2011]); Financial Servs. Veh. Trust v Saad, 72 AD3d 1019 [2d Dept 2010]); Sitar v Sitar, 50 AD3d 667 [2d Dept 2008]; Iannucci v Kucker & Bruh, LLP, 42 AD3d 436 [2d Dept 2007]).”

“Defendants maintain that Parodi lacks standing to sue them for legal malpractice because she lacks privity with them. In this regard, the Complaint alleges that an agreement for legal services was entered into between Kallista, Etheria and the Law Firm (Complaint at ¶13). There is no claim that Parodi retained the Law Firm or Friedberg.

Insofar as Parodi is concerned, the Complaint alleges that she was a “co-founder” of Kallista (Complaint, ¶1), which was formed in 2012, and that she managed Kallista with her husband, who is the owner of Kallista (id. ¶11). According to the Complaint, at the time the Law Firm was retained in May 2012, Friedberg was aware that Parodi intended to leave her existing employment once the Kallista business became operational (id. ¶14). It is alleged that, in or about September 2013, Parodi resigned from her employment with Proctor & Gamble to help manage Kallista’s business and that, while at Proctor & Gamble, she earned a salary in excess of $250,000 CHF and a generous benefits package (id. ¶21). She claims a loss of this income (id. ¶30). While the First Cause of Action alleges that Defendants owed both [*11]Plaintiffs a duty use the degree of skill and care that is possessed by ordinary attorneys, there are no additional or further allegations as to why such a duty was owed to Parodi (id. ¶32).

“There is no claim that Parodi herself ever requested that Defendants give her any legal advice or give her any information as to the status of the Kallista trademark application. Indeed, even if such an allegation had been made, it would not, by itself, give rise to a “near privity” relationship sufficient to extend liability for malpractice to a non-client (see Leggiardo, Ltd. v Winston & Strawn, LLP, 119 AD3d 442 [1st Dept 2014]). There are simply no facts alleged that would make it foreseeable that Parodi was a third-party beneficiary of a contract made by the Law Firm with Kallista, a company which Parodi was not an owner, officer or employee (see Topor v Enbar, 15 Misc 3d 1139[A], 2007 WL 1501647 [Sup Ct, NY County 2007]).[FN10]

Accordingly, the First Cause of Action for malpractice shall be dismissed insofar as asserted by Parodi.”

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Andrew Lavoott Bluestone

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened…

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened his private law office and took his first legal malpractice case.

Since 1989, Bluestone has become a leader in the New York Plaintiff’s Legal Malpractice bar, handling a wide array of plaintiff’s legal malpractice cases arising from catastrophic personal injury, contracts, patents, commercial litigation, securities, matrimonial and custody issues, medical malpractice, insurance, product liability, real estate, landlord-tenant, foreclosures and has defended attorneys in a limited number of legal malpractice cases.

Bluestone also took an academic role in field, publishing the New York Attorney Malpractice Report from 2002-2004.  He started the “New York Attorney Malpractice Blog” in 2004, where he has published more than 4500 entries.

Mr. Bluestone has written 38 scholarly peer-reviewed articles concerning legal malpractice, many in the Outside Counsel column of the New York Law Journal. He has appeared as an Expert witness in multiple legal malpractice litigations.

Mr. Bluestone is an adjunct professor of law at St. John’s University College of Law, teaching Legal Malpractice.  Mr. Bluestone has argued legal malpractice cases in the Second Circuit, in the New York State Court of Appeals, each of the four New York Appellate Divisions, in all four of  the U.S. District Courts of New York and in Supreme Courts all over the state.  He has also been admitted pro haec vice in the states of Connecticut, New Jersey and Florida and was formally admitted to the US District Court of Connecticut and to its Bankruptcy Court all for legal malpractice matters. He has been retained by U.S. Trustees in legal malpractice cases from Bankruptcy Courts, and has represented municipalities, insurance companies, hedge funds, communications companies and international manufacturing firms. Mr. Bluestone regularly lectures in CLEs on legal malpractice.

Based upon his professional experience Bluestone was named a Diplomate and was Board Certified by the American Board of Professional Liability Attorneys in 2008 in Legal Malpractice. He remains Board Certified.  He was admitted to The Best Lawyers in America from 2012-2019.  He has been featured in Who’s Who in Law since 1993.

In the last years, Mr. Bluestone has been featured for two particularly noteworthy legal malpractice cases.  The first was a settlement of an $11.9 million dollar default legal malpractice case of Yeo v. Kasowitz, Benson, Torres & Friedman which was reported in the NYLJ on August 15, 2016. Most recently, Mr. Bluestone obtained a rare plaintiff’s verdict in a legal malpractice case on behalf of the City of White Plains v. Joseph Maria, reported in the NYLJ on February 14, 2017. It was the sole legal malpractice jury verdict in the State of New York for 2017.

Bluestone has been at the forefront of the development of legal malpractice principles and has contributed case law decisions, writing and lecturing which have been recognized by his peers.  He is regularly mentioned in academic writing, and his past cases are often cited in current legal malpractice decisions. He is recognized for his ample writings on Judiciary Law § 487, a 850 year old statute deriving from England which relates to attorney deceit.