A Slight Turn-about in Fee Dispute and Legal Malpractice Issues

Often enough, Courts have applied res judicata broadly to the question of attorney fee disputes and a later legal malpractice issue.  As a blackletter rule, if an attorney asks the court to set a fee, and it does, that act bars plaintiff from bringing the legal malpractice case on the theory that fees may not be awarded if there has been legal malpractice, and so the award of the fee disposes of the question of whether there was legal malpractice.

In Soni v Pryor   2013 NY Slip Op 00324   Decided on January 23, 2013  Appellate Division,   Second Department a more nuanced approach was taken.  "plaintiffs retained the defendants to represent them in an action commenced against the plaintiffs alleging that the plaintiffs had engaged in certain wrongful acts as directors and officers of several corporations. The parties subsequently had a fee dispute, which was resolved in an arbitration proceeding conducted pursuant to part 137 of the Rules of the Chief Administrator of the Courts (22 NYCRR 137.0-137.12; hereinafter part 137). The panel of arbitrators awarded the defendants the sum of $48,103.75, the full amount in dispute, and the arbitration award was confirmed by the Supreme Court in a proceeding commenced pursuant to CPLR article 75. The plaintiffs subsequently commenced this action alleging that the defendants had committed legal malpractice and breach of contract by failing to investigate whether there were insurance policies issued to the corporations that would have covered the attorney's fees, defense costs, and loss incurred by the plaintiffs in the underlying action.

The Supreme Court should have denied that branch of the defendants' motion which was to dismiss the complaint on the ground that the complaint is barred by the doctrines of collateral estoppel and res judicata. Part 137 expressly provides that it does not apply to "claims involving substantial legal questions, including professional malpractice or misconduct" (22 NYCRR 137.1[b][3]). As such, the defendants failed to sustain their burden of demonstrating that all of the issues raised in the instant action which are or may be determinative thereof were necessarily decided in the arbitration proceeding, or in the proceeding to confirm the arbitration award (see Mahler v Campagna, 60 AD3d 1009, 1011-1012). Moreover, in opposition to the motion, the plaintiffs [*2]submitted an affidavit of the plaintiff Om P. Soni, in which he stated that the arbitration panel refused to consider issues regarding the quality of the legal services performed by the defendants, and this evidence was sufficient to demonstrate that, in any event, the plaintiffs lacked a full and fair opportunity to litigate the issues raised in the instant complaint (see id. at 1012). "



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