When Might Their Lawyer be Your Lawyer?
Mr. San LLC v Zucker & Kwestel LLP 2012 NY Slip Op 32119(U) August 2, 2012 Sup Ct, Nassau County Docket Number: 601065/11 Judge: Stephen A. Bucaria is an interesting example of the "whose lawyer is it" question that frequently arises in the formation of new businesses.
"This is an action for aiding and abetting fraud. Plaintiffs invested substantial amounts of money with Gershon Barkany who held himself out as a financial advisor and real estate investor. Plaintiffs allege that Barkany represented that the money was to be used to fund real estate loans and other investments but Barkany was actually running a Ponzi scheme. Plaintiffs further allege that Barkany presented defendants Zucker & K westel LLP and Steven K westel as his attorneys in connection with the sham real estate transactions, and the firm accepted wire transfers of plaintiffs ' funds into its escrow account."
"Absent fraud, collusion, malicious acts, or other special circumstances, an attorney is not liable to third parties, for harm caused by professional negligence, unless there is a relationship sufficiently approaching privity between the attorney and the alleged client Schneider v Finman 15 NY3d 306 309 (2010)). This rule protects attorneys from legal malpractice suits by indeterminate classes of plaintiffs whose interests may be at odds with the interests of the acknowledged client (Id). Since an attorney-client relationship does not depend upon a formal retainer agreement or upon payment of a fee, the court must look to the words and actions of the parties (Moran v Hurst 32 AD3d 909, 911 (2d Dept 2006)). The unilateral belief of a plaintiff alone does not confer upon him or her the status of a client (Id). Plaintiffs allege that Barkany presented defendants as his attorneys, rather than the attorneys for the plaintiffs. An attorney for an organization is not the attorney for its members (Professional Conduct Rule 1. 13). However, it appears that no company had been formed at the time that plaintiffs made their investment. At the time that plaintiffs invested
their funds, their interests seemed aligned with Barkany , at least as to the expected profitability of the venture. Moreover, the fact that Kwestel borrowed money from Barkany suggests that there may have been collusion between client and attorney and perhaps even knowledge on Kwestel' s part as to Barkany s fraud upon the plaintiff. In these circumstances, the court must give plaintiffs the benefit of the possible favorable inference that an attorney-client relationship arose when defendants accepted plaintiffs ' money into their escrow account. Defendants' motion to dismiss plaintiffs ' malpractice claim for a defense founded upon documentary evidence and failure to state a cause of action is denied. Fiduciary liability is not dependent solely upon an agreement, but results when one of the parties is under a duty to act for or give advice for the benefit of the other upon matters within the scope of the relationship EBC I, Inc v Goldman Sachs 5 NY3d 11 , 19-
(2005)). An attorney for a limited liability company may have a fiduciary duty towards an individual member, at least with respect the member s share of distributions of the company's profits Kurtzman v Burgol 40 AD3d 588 (2d Dept 2007)). As noted, it appears that no company had been formed at the time that plaintiffs made their investment. Nevertheless, having accepted plaintiffs ' money into escrow , defendants may have had a fiduciary duty to make sure that the funds were applied to the real estate investment. Defendants' motion to dismiss plaintiffs ' breach of fiduciary duty claim for a founded upon documentary evidence and failure to state a cause of action is denied."