Direct and Derivative Claims in Malpractice

Standing in legal malpractice cases is determined by the question of privity.  Privity comes in several flavors.  One is whether there is a contract between client and attorney, written, oral, or implied.  If there is a contract, (even if the contract is implied from the factual representation which takes place), then that particular question of privity is answered.  The second flavor is reached when a question of whether a corporation or an individual has hired the attorney.  Sometimes the legal malpractice cases resembles a shareholder derivative claim, and may be dismissed for lack of standing.

In an analogous case involving accountants,Serano v Lipper  2013 NY Slip Op 30871(U)  April 24, 2013  Supreme Court,New York County,  Docket Number: 604396/2002  Judge: Shirley Werner Kornreich discusses this issue:

"“New York courts impose  a strict privity requirement to claims of malpractice: an accountant is not liable to a third party [or negligence in performing services on behalf of his client.  Lavanant v. General Acc. Ins.Co of America, 164 AD2d 73, 81 ( 1st Dept, 1990).  However, “while privity of contract is generally necessary to stale a cause of action for malpractice liability is extended to third parties, not in privity, for harm caused by professional negligence in the presence of fraud, collusion, malicious acts or other special circumstances.  Good Old Days Tavern, Inc. v. Swirn, 259 AD2d 300 (1st Dept, 1999).

l’he Appellate Division, First Department, has adopted Delaware’s Tooley standard to
determine if a claim is direct or derivative.  See Udell v. Gilbert, 99 AD3d 108, 113-114 (1st Dept, 2012).  Under Tooley, the question of whether a claim is direct or derivative :must turn solely on the following questions: 1 ) who suffered the alleged harm (the corporation or the suing
stockholders, individually); and (2) who would receive the benefit of any recovery or other
remedy (the corporation or the stockholders, individually. Tooley v. Donaldson, Lufkin & Jenrette, Inc.  845 A2d 1031, 1033 (Del, 2004).

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