Reflexive Legal Malpractice Claims
It is often said (and sometimes sanctimoniously) that the legal malpractice claimant is simply trying to gain an advantage, or to avoid paying legal fees. Here, in Matter of Price ; 2011 NY Slip Op 05814; Appellate Division, Second Department we see a different use of the claim. "Respondent" is an attorney-escrow agent.
"In or about September and October 2005, SDLH was engaged in negotiations to sell its business to Great South Bay Automotive, Inc. (hereinafter Great South Bay). At or about that time, the respondent represented SDLH. Great South Bay, whose principals were Robert Gerstacker and Rob Despres, was represented by Richard Bartel.
Prior to the closing, a Notification of Sale, Transfer, or Assignment of Bulk, dated September 20, 2005 (hereinafter the Notification), was sent to the New York State Department of Taxation and Finance (hereinafter the DTF). The respondent was listed in the Notification as escrow agent in connection with the sale of SDLH. [*2]
At the closing, the respondent signed an escrow agreement wherein he acknowledged, inter alia, that he received a check payable to himself, as attorney, in the amount of $82,393.02. From this money, the respondent further acknowledged that he would undertake to satisfy "the State, Suffolk Auto and Exhaust Warehouse." The reference to "the State" in the escrow agreement was to a tax liability owed by SDLH to New York State.
In or about February 2006, New York State issued a Notice of Determination assessing $58,890.03 against Great South Bay for the unpaid taxes of SDLH. By order to show cause, summons, and verified complaint dated April 26, 2006, Great South Bay and its principals commenced an action in the Supreme Court, Suffolk County, against SDLH, its principals, and the respondent entitled Great South Bay Automotive, Inc. v SDLH Automotive Inc., under Index No. 12040/06. The complaint alleged, inter alia, breach of contract due to the failure of SDLH and the respondent to satisfy the tax liability owed to New York State. In addition, there were causes of action to recover damages for fraud and breach of fiduciary obligations on the part of the respondent, as escrow agent, based upon his failure to satisfy the tax liability pursuant to the escrow agreement.
The respondent represented SDLH, its principals, and himself in the action. On behalf of SDLH and himself, the respondent submitted a verified answer sworn to on May 23, 2006. He thereafter submitted an affidavit in opposition to the order to show cause, sworn to on May 24, 2006, on behalf of SDLH and himself. In his affidavit in opposition, the respondent asserted, inter alia, that "at no time did your deponent receive any money from sales tax. There was no known debt to the State." The respondent further asserted that, pursuant to the Agreement for the sale of SDLH, he was required to hold only $1,000 in escrow to guarantee that SDLH received a release from New York State in connection with "unpaid sales tax" due. Great South Bay moved for summary judgment by notice of motion dated September 14, 2006.
By summons and third-party complaint dated September 25, 2006, and October 3, 2006, respectively, the respondent commenced a third-party action on his own behalf against Richard Bartel, attorney for Great South Bay, and its principals, entitled Price v Bartel. The respondent [*3]alleged, inter alia, that Bartel committed legal malpractice in his representation of Great South Bay in its purchase of SDLH.
The order also dismissed the third-party action, reciting that the third-party complaint "fails to state any cognizable cause of action and . . . Price lacks standing to assert certain claims." Specifically, the Supreme Court stated that "Price's claim for malpractice must fail because he lacks standing to assert such claim against Bartel as he was not in an attorney-client relationship with him. Moreover, on the merits, Price has failed to set forth any of the elements of a prima facie case of legal malpractice [citations omitted]."