New York Attorney Malpractice Blog

New York Attorney Malpractice Blog

The Rare Legal Malpractice Trial and Even Rarer Defenses

Posted in Legal Malpractice Cases

Hattem v Smith  2017 NY Slip Op 02872  Decided on April 13, 2017  Appellate Division, Third Department is a rare legal malpractice tried to verdict.  It involves the sale of a business and the aftermath.  Even more rare were the “comparative fault” and “mitigation of damages” defenses.  Here is how the Third Department explains:

“Plaintiff commenced this legal malpractice action in 2007 and, following a jury trial, defendants were found liable and directed to pay damages. This Court upheld the verdict as to liability but, pointing to questions regarding plaintiff’s comparative fault that had not been submitted to the jury, remitted for a new trial on the issue of damages (111 AD3d 1107, 1109-1110 [2013]). The subsequent jury trial resulted in a verdict finding that plaintiff had sustained $318,000 in damages. The jury found that 35% of the damages had flowed from plaintiff’s negligence, however, and reduced the award by $90,000 due to his unreasonable failure to mitigate them after the fact. Plaintiff appeals from the judgment entered thereon, as well as orders by Supreme Court that denied his motion to set aside the verdict and granted defendants’ motion to direct entry of judgment.

We affirm. Plaintiff asserts that the verdict should have been set aside with regard to the finding of comparative fault and the reduction in damages for his failure to mitigate [FN1]. In reviewing a verdict, we “may examine the facts to determine whether the weight of the evidence comports with the verdict, or [we] may determine [whether] the evidence presented was insufficient as a matter of law” (Killon v Parrotta, 28 NY3d 101, 107 [2016]). A verdict is against the weight of the evidence “where ‘the evidence so preponderate[d] in favor of the [moving party] that [the verdict] could not have been reached on any fair interpretation of the evidence'” (Johnstone v First Class Mgt. of N.Y., LLC, 138 AD3d 1222, 1223 [2016], quoting Grassi v Ulrich, 87 NY2d 954, 956 [1996] [internal quotation marks and citations omitted]; see Killon v Parrotta, 28 NY3d at 107). In contrast, the evidence is legally insufficient to support a verdict “[w]here ‘there is simply no valid line of reasoning and permissible inferences which could possibly lead rational [people] to the conclusion reached by the jury on the basis of the evidence presented at trial'” (Longtin v Miller, 133 AD3d 939, 940 [2015], quoting Cohen v Hallmark Cards, 45 NY2d 493, 499 [1978]; see Killon v Parrotta, 28 NY3d at 108).

Here, Smith sent the sale documents to counsel for OSC in the expectation that they would be executed by OSC’s principals and returned to him for plaintiff to sign. Plaintiff was aware of the need for a UCC-1 and was counting on Smith to file one in order to perfect his security interest in JMF’s equipment. Plaintiff and OSC’s principals nevertheless traveled to an NBT branch at plaintiff’s suggestion and executed the documents together, at which time OSC’s principals borrowed the funds for the down payment from NBT and opened a line of credit that was secured by the assets of JMF. Plaintiff made no effort to consult with Smith as to the import of this state of affairs, and Smith, who remained ignorant of it, did not obtain the executed sale documents until after NBT had filed a UCC-1. Plaintiff, in other words, created a situation where NBT would have had a superior security interest on JMF’s equipment even if Smith had filed a UCC-1 in a timely manner (see UCC 9-317, 9-324). The jury was by no means irrational in finding from the foregoing that plaintiff’s actions were negligent and contributed to his losses. Moreover, deferring to the jury’s interpretation of the trial evidence and noting that a [*3]”determination of comparative negligence is wholly within [its] province,” we cannot say that the apportionment of 35% fault to plaintiff was against the weight of the evidence (Mannello v Town of Ulster, Post 1748, Am. Legion, 272 AD2d 804, 804-805 [2000]).

As for plaintiff’s failure to mitigate damages, he recovered ownership and possession of JMF’s equipment and vehicles following the default of OSC in 2007. No vigorous action to enforce the federal tax liens or the NBT liens was underway and, as such, plaintiff’s then counsel suggested that he negotiate with the creditors, auction off some or all of the assets to satisfy the NBT and tax liens and keep the remaining proceeds. Plaintiff did not do so and, instead, enticed a third party into purchasing the commercial paper underlying the NBT lien as a prelude to redeeming it. Plaintiff still failed to auction off equipment or vehicles and did not fulfill his obligations under the agreement with the third party. Plaintiff’s inaction prompted the third party to commence a replevin action for all of the vehicles and equipment and, after plaintiff defaulted in appearance, the vehicles and equipment were awarded to the third party. A jury could readily find from the foregoing that plaintiff’s failure to sell some or all of the equipment and vehicles to satisfy the liens was unreasonable — and that the failure caused him to lose whatever assets or sale proceeds would have remained after satisfying the various liens — and the verdict with regard to mitigation was supported by legally sufficient proof and not against the weight of the evidence (see Pagnella v Action For a Better Community, 57 AD2d 1076, 1077 [1977]; see also Assouline Ritz1 LLC v Edward I. Mills & Assoc., Architects, PC, 91 AD3d 473, 474-475 [2012]).

Plaintiff’s remaining contentions deserve little discussion. His culpable conduct in acquiring JMF’s vehicles and equipment but failing to act to satisfy the liens on them “occurred after the alleged malpractice” and, as such, the jury was properly asked to separately consider it “in mitigation of damages” rather than as an aspect of comparative negligence (Schultz v Excelsior Orthopaedics, LLP, 129 AD3d 1606, 1608 [2015]; see Dombrowski v Moore, 299 AD2d 949, 951 [2002]). The jury’s finding that plaintiff had failed to mitigate his damages to the tune of $90,000 may be easily inferred from the difference between the found value of JMF’s equipment and vehicles and the liens that would have been satisfied had plaintiff sold some or all of those assets at auction. Supreme Court was lastly correct to issue a judgment that subtracted $90,000 from the already apportioned damages instead of vice versa, as doing otherwise would have disregarded the distinction between awarding those damages that flow from a defendant’s negligent conduct and reducing set damages that would have been lower but for the subsequent unreasonable conduct of a plaintiff (compare CPLR 1411 with Novko v State of New York, 285 AD2d 696, 697 [2001]).”



Solve This Riddle

Posted in Legal Malpractice Cases

One sentence in 3rd & 6th, LLC v Berg  2017 NY Slip Op 02768  Decided on April 12, 2017
Appellate Division, Second Department opinion says two things.  When does the statute of limitations commence?  When the negligent act takes place or when all the elements come together?

“An action to recover damages arising from legal malpractice must be commenced within three years, computed from the time the cause of action accrued to the time the claim is interposed (see CPLR 214[6]; McCoy v Feinman, 99 NY2d 295; Rakusin v Miano, 84 AD3d 1051; Tsafatinos v Lee David Auerbach, P.C., 80 AD3d 749). ” A legal malpractice claim accrues when all the facts necessary to the cause of action have occurred and an injured party can obtain relief in court. In most cases, this accrual time is measured from the day an actionable injury occurs, even if the aggrieved party is then ignorant of the wrong or injury. What is important is when the malpractice was committed, not when the client discovered it'” (Tantleff v Kestenbaum & Mark, 131 AD3d 955, 956, quoting McCoy v Feinman, 99 NY2d at 301). Continuous representation may toll the statute of limitations, but “only where there is a mutual understanding of the need for further representation on the specific subject matter underlying the malpractice claim” (McCoy v Feinman, 99 NY2d at 306; see Shumsky v Eisenstein, 96 NY2d 164; Tantleff v Kestenbaum & Mark, 131 AD3d at 956-957; Pittelli v Schulman, 128 AD2d 600, 601).

On a motion to dismiss a complaint as time-barred, a defendant must establish, prima facie, that the time in which to commence the action has expired. The burden then shifts to the plaintiff to raise a question of fact as to whether the statute of limitations is tolled or is otherwise inapplicable (see Bullfrog, LLC v Nolan, 102 AD3d 719; Rakusin v Miano, 84 AD3d 1051, 1052).

Here, the defendants established, prima facie, that the action was time-barred by demonstrating that the closing for the sale of the business took place in December 2009, while the action was commenced in March 2014 (see Bullfrog, LLC v Nolan, 102 AD3d at 720; Rakusin v Miano, 84 AD3d at 1052). In opposition, the plaintiff failed to raise a question of fact as to whether continuous representation tolled the statute of limitations (see McCoy v Feinman, 99 NY2d at 306; Bullfrog, LLC v Nolan, 102 AD3d at 720).

Good Idea…Not Enough Evidence

Posted in Legal Malpractice Cases

Overbilling by an attorney as the basis of a breach of fiduciary duty claim.  It’s a good idea.  The Breach claim will not be dismissed as duplicitive, a positive finding leads to significant damages.  All-in-all not too bad?

In Genesis Merchant Partners, LP v Gilbride, Tusa, Last & Spellane LLC 
2017 NY Slip Op 02753  Decided on April 11, 2017  Appellate Division, First Department it did not work out so well.

“Defendants’ alleged failure to disclose their legal malpractice does not give rise to a separate action for breach of fiduciary duty (Garnett v Fox, Horan & Camerini, LLP, 82 AD3d 435, 436 [1st Dept 2011]). Plaintiffs have not sufficiently alleged defendants’ overbilling to support a separate cause of action (cf. Cherry Hill Mkt. Corp. v Cozen O’Connor P.C., 118 AD3d 514, 514 [1st Dept 2014] [breach of fiduciary duty claim was not duplicative where, among other things, the plaintiffs alleged that the defendants had overbilled the plaintiffs]).

Some Basics on Fees and Judiciary Law 475

Posted in Legal Malpractice Basics

We go on and on about Judiciary Law 487, but today’s post is about a different statute, Judiciary Law 475, which regulates attorney fees.  Here are some basics: There has to be a settlement in open court and no signed writing reflecting that the client authorized the purported settlement.  Hence, no lien.

Baker v Restaurant Depot  2017 NY Slip Op 02615  Decided on April 5, 2017  Appellate Division, Second Department holds that:

“”[A] stipulation is generally binding on parties that have legal capacity to negotiate, do in fact freely negotiate their agreement and either reduce their stipulation to a properly subscribed writing or enter the stipulation orally on the record in open court” (McCoy v Feinman, 99 NY2d 295, 302; see CPLR 2104; Vlassis v Corines, 247 AD2d 609, 610). Here, there was no stipulation made in open court, and the Strassman firm failed to proffer a signed writing reflecting a settlement or any clear indicia that the plaintiff actually authorized the purported settlement (see CPLR 2104; McCoy v Feinman, 99 NY2d at 302; cf. Sprint Communications Co. L.P. v Jasco Trading, Inc., 5 F Supp 3d 323, 333 [ED NY]). Without a settlement or a verdict, there was no “favorable result of litigation” in which the Strassman firm had a security interest. Thus, the Strassman firm was not entitled to confirmation of the purported settlement or an attorney’s lien pursuant to Judiciary Law § 475 (see Chadbourne & Parke, LLP v AB Recur Finans, 18 AD3d 222, 223; cf. Wasserman v Wasserman, 119 AD3d 932, 933).”

In Architect’s Malpractice Cases Time Is Measured Differently

Posted in Legal Malpractice Cases

In legal malpractice, the statute of limitations commences with the negligent act, which may be tolled for continuous representation.  With architects it is different, as shown in New York City School Constr. Auth. v Ennead Architects LLP  2017 NY Slip Op 02387  Decided on March 28, 2017  Appellate Division, First Department.

“On this CPLR 3211(a)(5) motion, defendant did not meet its initial burden of “establishing, prima facie, that the time in which to sue has expired” (Benn v Benn, 82 AD3d 548, 548 [1st Dept 2011]). A cause of action to recover damages against an architect for professional malpractice is governed by a three-year statute of limitations, which accrues upon “termination of the professional relationship” — that is, when it “completes its performance of significant (i.e., non-ministerial) duties under the parties’ contract” (Sendar Dev. Co., LLC v CMA Design Studio P.C., 68 AD3d 500, 503 [1st Dept 2009]). As this action was brought on February 27, 2015, plaintiff’s claims were timely so long as they accrued on or after February 27, 2012.

Here, defendant continued to carry out its contractual duties well after February of 2012 by, for example, assisting plaintiff with obtaining a final certificate of occupancy (see e.g. Seradilla v Lords Corp., 50 AD3d 345, 346 [1st Dept 2008]). Defendant was contractually obligated to review “as built” drawings under the relevant agreement, which it continued to do after February of 2012 (Parsons, Brickerhoff, Quade & Douglas, Inc. v EnergyPro Constr. Partners, 271 AD2d 233, 234 [1st Dept 2000]). The provisions of the parties’ contract that the IAS court relied upon in determining that the parties’ relationship ended in 2009 when the work was “substantially completed” were at best ambiguous, and certainly not sufficient to satisfy defendant’s threshold burden of establishing untimeliness (Benn, 82 AD3d at 548; Rosalie Estates v Colonia Ins. Co., 227 AD2d 335, 336 [1st Dept 1996]).

As an alternative holding, we conclude that the continuous representation doctrine toll applies, at least with respect to defendant’s attempts after February 2012 to remedy the faulty design of the custom etched-glass windows (City of New York v Castro-Blanco, Piscioneri & Assoc., 222 AD2d 226, 227-228 [1st Dept 1995]). Defendant does not dispute that it performed these services within three years of the action being commenced.”

A Lenient View of Continuous Representation

Posted in Legal Malpractice Cases

Continuous representation tolls the running of the statute of limitations, and requires the dual mutual understanding that more work is required to be undertaken after the act of malpractice, and that there continues to be a relationship of trust and confidence between attorney and client.

Everyone agrees on those two principles, but the application can be strict or lenient.  Here is a lenient application in Stein Indus., Inc. v Certilman Balin Adler & Hyman, LLP 
2017 NY Slip Op 02688 Decided on April 5, 2017 Appellate Division, Second Department.

“In March 2010, the plaintiff Andrew Stein retained the defendant law firm to represent him in connection with the purchase of his brother’s interest in several companies, including the plaintiff Stein Industries, Inc. (hereinafter Stein Industries). The closing of the transaction occurred in April 2010. On March 27, 2015, the plaintiffs commenced this action against the defendant, inter alia, to recover damages for legal malpractice, alleging that the employees of Stein Industries were members of a union and that the defendant failed to discover that, upon the sale of the business, an “Unfunded Vested Pension Liability” became due and owing to the union, which caused the plaintiffs to be damaged in the sum of $500,000. In the order appealed from, the Supreme Court, inter alia, granted that branch of the defendant’s motion which was pursuant to CPLR 3211(a)(5) to dismiss, as time-barred, the first cause of action, which was to recover damages for professional negligence, and the second cause of action, which was to recover damages for legal malpractice.”

“Here, the defendant satisfied its initial burden by demonstrating, prima facie, that the alleged legal malpractice occurred more than three years before this action was commenced in March 2015 (see Kennedy v H. Bruce Fischer, Esq., P.C., 78 AD3d 1016, 1017). In opposition, however, the plaintiffs raised a question of fact as to whether the applicable statute of limitations was tolled by the continuous representation doctrine. The plaintiffs submitted Andrew Stein’s affidavit, in which he averred that he met with members of the defendant on July 26, 2012, to determine how to rectify the pension liability issue. Andrew indicated that he was not satisfied with their recommendations concerning how to rectify the issue and directed them to formulate another idea. Andrew’s affidavit was sufficient to raise a question of fact as to whether the defendant engaged in a course of continuous representation intended to rectify or mitigate the initial act of alleged malpractice (see Melnick v Farrell, 128 AD3d 1371, 1372; DeStaso v Condon Resnick, LLP, 90 AD3d 809, 812-813; Gravel v Cicola, 297 AD2d 620, 621).

Accordingly, the Supreme Court should have denied that branch of the defendant’s motion which was pursuant to CPLR 3211(a)(5) to dismiss the first and second causes of action.”

A Massive Fraud; A Legal Malpractice Claim Too Late

Posted in Legal Malpractice Cases

A massive stock fraud involving Chinese coal, and a US stock offering involved an opinion letter by defendant law firm.  The opinion letter overlooked a red flag, a huge red flag.  Nevertheless, too much time went by, and the claims were all dismissed on the statute of limitations and duplicitive pleading.

Murray v Morrison & Foerster LLP  2017 NY Slip Op 30602(U)  March 28, 2017
Supreme Court, New York County  Docket Number: 651024/2016  Judge: Saliann Scarpulla holds that the statute ran long before the case was commenced.

“Puda Coal, Inc. (“Puda”) was a Delaware corporation listed on the New York Stock fa~.change, which conducted its operations in China through Shanxi Puda Coal Group Co., Ltd. (“Shanxi Coal”). Puda reported in public filings that it owned a 90 percent interest in Shanxi Coal. In the Fall of2010, Puda hired plaintiff Brean, Murray, Carret & Co. (“Brean”) along with Macquarie Capital (USA) Inc. (“Macquarie”), to underwrite a public offering of Puda stock in the U.S. market to be conducted in December 2010. According to the allegations of the complaint, in November 2010, Macquarie hired Morrison, a law firm with substantial China-related expertise, as counsel for all underwriters, to conduct due diligence for the transaction and to provide legal advice regarding the offering. Macquarie also h~red international private investigation firm, Kroll Inc. (“Kroll”) to investigate the character, integrity and reputation of the individuals associated with Puda. Brean was not aware ofMacquarie’s retention of Kroll at the time of the offering or for years thereafter. Kroll issued a report on December 2, 2010 (“the Kroll Report”), which disclosed that Puda did not own a 90 percent interest in Shanxi Coal, in contradiction of Puda’s public representations and reports. In fact, in September 2009, Puda’ s 90 percent ownership in Shanxi Coal had been transferred to Ming Zhao, who was Chairman of Puda’s Board.ofDirectors, a major Puda shareholder, and an 8 percent owner of Shanxi Coal. Puda conducted two public offerings in 2010 without disclosing the change in ownership structure. Puda raised millions of dollars from investors selling shares in what was essentially an empty shell company. Kroll provided th~ Kroll Report to Macquarie via William Fang, an associate, who, on December 2, 2010, emailed the report to several other members of the Macquarie deal team, and then forwarded it to Morrison with a cover email that indicated “no red flags were identified.” Neither Macquarie nor Morrison picked up on the finding in the Kroll report that Puda did not, in fact, own a 90 percent interest in Shanxi Coal. ”

“The statute of limitations for malpractice is three years, and the limitations period begins to run on the day an actionable injury occurs, even if the aggrieved party is then ignorant of the wrong or injury. CPLR 214; McCoy y. Feinman, 99 N.Y.2d 295, 301 (2002). The doctrine of equitable estoppel is an extraordinary remedy which may bar a defendant from asserting a statute oflimitations defense, when the plaintiff was prevented from filing an action within the applicable time period due to its reason~~le reliance on defendant’s fraud, misrepresentations or deception. Putter v. North Shore Univ. Hosp., 7 N.Y.3d 548 (2006); Pahlad v. Brustman, 33 A.D.3d 518, 519 (1st Dept. 2006) affd 8 N.Y.2d 901 (2007). The party seeking estoppel must demonstrate due diligence on its part in trying to ascertain the facts and commence this action. Walker v. New York City Health & Hosps. Corp., 36 A.D.3d 509 (1st Dept. 2007). Equita.ble estoppel will not toll a limitations statute, however, where a plaintiff possesses timely knowledge sufficient to have placed it under a duty to make inquiry and ascertain all the relevant facts prior to the expiration of the applicable statute oflimitations. Rite Aid Corp. v. Grass, 48 A.D.3d 363 (1st Dept. 2008). At oral argument, Br~an acknowledged that its malpractice claim accrued in December 2010, when the Puda public offering of stock occurred. It was then on inquiry notice of a potential malpractice claim as of April 2011, when Puda’s fraud was disclosed to the public. At that time, and certainly shortly thereafter when the first class action lawsuit was commenced against it, Brean was charged with making further inquiry and ascertaining all relevant facts and possible failures that occurred on Morrison’s part in failing to discover Puda’s actual ownership interest in Shanxi. ”

“First, it is well settled that concealment by a professional, or failure to disclose his or her own malpractice, does not give rise to a cause of action in fraud or deceit separate and different from the customary malpractice action, thereby entitling the plaintiff to bring his action within the longer period limited for such claims. Weiss v. Manfredi, 83 N.Y.2d 974 (1994); Simcuski v. Saeli, 44 N.Y.2d 442, 452 (1978). Here, Brean filed its malpractice complaint, and only after.Morrison moved to dismiss the complaint on statute of limitations grounds, did Brean file an amended complaint alleging fraud. Brean’ s allegation of Morrison’s concealment of its malpractice by resigning as counsel does not give rise to a claim for fraud. Further, the remaining basis for the fraud claim is duplicative of the legal malpractice claim because it arose from the same underlying facts and alleged similar damages. See Dinho/er v Medical Liab. Mut. Ins; Co., 92 A.D.3d 480 (Pt Dept. 2012). The key to determining whether a claim is duplicative of one for malpractice is discerning the essence of each claim. Johnson v. Proskauer Rose LLP, 129 A,D.3d 59, 68 (Pt Dept. 2015). In the remaining basis for its fraud claim, Brean alleges that Morrison made misrepresentations in the opinion letter, ‘in “affirmatively represent[ing] to Plaintiff that the firm had completed the work necessary in order to form its opinion” when in fact, it was issued with actual or .constructive knowledge of its falsity. Its malpractice claim states that Morrison was negligent in conducting its due diligence and in issuing its opinion letter without discovering Puda’s true ownership in ~hanxi. The allegations in both of those claims arise from the same underlying facts and allege similar damages. “

Sometimes Older Cases Age Like Fine Wine

Posted in Legal Malpractice Cases

Schiller v Bender, Burrows & Rosenthal, LLP  2014 NY Slip Op 02422 [116 AD3d 756]  April 9, 2014  Appellate Division, Second Department is a case in which plaintiff argued that he was misled by his matrimonial attorneys and settled the case in a situation where he was “effectively compelled” to settle.  The AD did not like that argument, and affirmed the dismissal.

Today, in Carbone v Brenizer  2017 NY Slip Op 02574  Decided on March 31, 2017  Appellate Division, Fourth Department we see basically the same fact pattern, and the same settlement position, with an opposite result.  The AD quoted Schiller.

“We agree with plaintiff that Supreme Court erred in granting defendants’ motion to dismiss to the extent they relied on CPLR 3211 (a) (1). A court may grant such a motion “only where the documentary evidence utterly refutes plaintiff’s factual allegations, conclusively establishing a defense as a matter of law” (Goshen v Mut. Life Ins. Co. of N.Y., 98 NY2d 314, 326; see Vassenelli v City of Syracuse, 138 AD3d 1471, 1473). In an action alleging legal malpractice during the course of an underlying action that resulted in a settlement, “the focus becomes whether settlement of the action was effectively compelled by the mistakes of counsel’ ” (Chamberlain, D’Amanda, Oppenheimer & Greenfield, LLP v Wilson, 136 AD3d 1326, 1328, lv dismissed 28 NY3d 942). In her affidavit in opposition to the motion, plaintiff stated that defendants advised her that an investigation into her ex-husband’s financial assets would be a costly and lengthy process, but did not explain that she could apply to the court for her ex-husband to bear the costs of the investigation. As a result, plaintiff was convinced that she could not afford to conduct an investigation and settled the matter without knowing what she was giving up. Thus, although the settlement agreement in the underlying action contained a comprehensive waiver of plaintiff’s rights, we conclude that the language of that waiver does not conclusively establish that plaintiff was not effectively compelled to settle by defendants’ allegedly deficient representation (see Schiller v Bender, Burrows & Rosenthal, LLP, 116 AD3d 756, 757; see generally CPLR 3211 [a] [1]).

To the extent that defendants moved in the alternative to dismiss the action as barred by the three-year statute of limitations for legal malpractice actions (see CPLR 214 [6]; 3211 [a] [5]), we agree with plaintiff that defendants are not entitled to that alternative relief. ” The continuous representation doctrine tolls the statute of limitations . . . where there is a mutual understanding of the need for further representation on the specific subject matter underlying the [*2]malpractice claim’ ” (Zorn v Gilbert, 8 NY3d 933, 934; see R. Brooks Assoc., Inc. v Harter Secrest & Emery LLP, 91 AD3d 1330, 1331). Regardless of when plaintiff’s claim accrued, defendants’ representation of plaintiff in the underlying action ended, at the earliest, upon entry of the judgment of divorce in June 2014 (see Zorn, 8 NY3d at 934; Gaslow v Phillips Nizer Benjamin Krim & Ballon, 286 AD2d 703, 706, lv dismissed 97 NY2d 700).”


What Exactly Is Covered by Malpractice Insurance?

Posted in Legal Malpractice Cases

Vogel v American Guar. & Liab. Ins. Co.  2017 NY Slip Op 02462  Decided on March 29, 2017 Appellate Division, Second Department is the story of a fight between a law firm and its insurer, which will be going to trial.  Did the carrier have to defend this case of legal malpractice which arose over escrowed funds?

“In an action, inter alia, to recover damages for breach of a legal malpractice insurance policy and for a judgment declaring that the plaintiffs are covered under that policy, (1) the defendant American Guarantee & Liability Insurance Company appeals from so much of an order of the Supreme Court, Nassau County (Bruno, J.), dated July 20, 2014, as denied those branches of its motion, made jointly with the defendant Zurich American Insurance Company, which were for summary judgment dismissing the first and second causes of action in the second amended complaint insofar as asserted against those defendants and thereupon searched the record and awarded the plaintiffs summary judgment on the first and second causes of action in the second amended complaint insofar as asserted against those defendants, and (2) the defendants American Guarantee & Liability Insurance Company and Zurich American Insurance Company appeal from a judgment of the same court (Marber, J.) dated November 18, 2014, which, upon the order, is in favor of the plaintiffs and against them in the principal sum of $781,475.39. The plaintiffs cross-appeal, as limited by their brief, from (1) so much of the same order as granted that branch of the motion of the defendants American Guarantee & Liability Insurance Company and Zurich American Insurance Company which was for summary dismissing the third cause of action in the second amended complaint insofar as asserted against them, and (2) so much of the same judgment as failed to award them certain interest.”

“”[A]n insurer can be relieved of its duty to defend if it establishes as a matter of law that there is no possible factual or legal basis on which it might eventually be obligated to indemnify its insured under any policy provision” (Allstate Ins. Co. v Zuk, 78 NY2d 41, 45; see Cumberland Farms, Inc. v Tower Group, Inc., 137 AD3d 1068, 1070). “To be relieved of its duty to defend on the basis of a policy exclusion, the insurer bears the heavy burden of demonstrating that the allegations of the complaint [in the underlying action] cast the pleadings wholly within that exclusion, that the exclusion is subject to no other reasonable interpretation, and that there is no possible factual or legal basis upon which the insurer may eventually be held obligated to indemnify the insured under any policy provision” (Frontier Insulation Contrs. v Merchants Mut. Ins. Co., 91 NY2d 169, 175; see 492 Kings Realty, LLC v 506 Kings, LLC, 88 AD3d 941, 943; Exeter Bldg. Corp. v Scottsdale Ins. Co., 79 AD3d 927, 929).

The language of the policy determines the coverage (see Mount Vernon Fire Ins. Co. v Creative Hous., 88 NY2d 347; Certain Underwriters at Lloyd’s London Subscribing to Policy No. SYN-1000263 v Lacher & Lovell-Taylor, P.C., 112 AD3d 434, 434-435; Utica First Ins. Co. v Star-Brite Painting & Paperhanging, 36 AD3d 794, 795-796; Shapiro v OneBeacon Ins. Co., 34 AD3d 259).

Here, in moving for summary judgment, AG/Zurich did not eliminate all triable issues of fact relating to the issue of its duty to defend or indemnify the plaintiffs in the underlying action (see Cumberland Farms, Inc., v Tower Group, Inc., 137 AD3d at 1071; Soho Plaza Corp. v Birnbaum, 108 AD3d 518, 522; Franklin Dev. Co., Inc., v Atlantic Mut. Ins. Co., 60 AD3d at 901). Since AG/Zurich failed to meet its burden as movant, it is not necessary to review the sufficiency of the plaintiffs’ opposition papers. Accordingly, the Supreme Court properly denied AG/Zurich’s motion for summary judgment dismissing the first and second causes of action in the second amended complaint.

However, there are triable issues of fact relating to Vogel’s alleged negligent supervision of the escrow account, and the application of the policy provisions to the circumstances, such that it was not established as a matter of law that the allegations in the complaint require AG/Zurich to defend and indemnity the plaintiffs (see Soho Plaza Corp. v Birnbaum, 108 AD3d at 522; Franklin Dev. Co., Inc. v Atlantic Mut. Ins. Co., 60 AD3d at 901). Accordingly, the Supreme Court erred in searching the record and awarding summary judgment to the plaintiffs on the first and second causes of action.”

Chapter 13 Bankruptcy, Capacity and Near Privity

Posted in Legal Malpractice Cases

Filing a petition in bankruptcy falls into three well-settled paths, Chapters 7,11 and 13.  The rules and the effects of such a filing vary strongly between them.  In a legal malpractice case, the debtor loses its capacity to sue and damages which might go to the litigant now go to the trustee.  As Nicke v Schwartzapfel Partners, P.C.  2017 NY Slip Op 02437  Decided on March 29, 2017   Appellate Division, Second Department shows us, Chapter 13 is different.

“In contrast to Chapter 7 proceedings, the object of a Chapter 13 proceeding is the [*3]rehabilitation of the debtor under a plan that adjusts debts owed to creditors by the debtor’s regular periodic payments derived principally from income. Thus, in a Chapter 13 proceeding, a debtor generally retains his property, if he so proposes, and seeks court confirmation of a plan to repay his debts over a three- to five-year period (see 11 USC §§ 1306[b]; 1322, 1327[b]). Payments under a Chapter 13 plan are usually made from a debtor’s “future earnings or other future income” (11 USC § 1322[a][1]). “Accordingly, the Chapter 13 estate from which creditors may be paid includes both the debtor’s property at the time of his bankruptcy petition, and any wages and property acquired after filing” (Harris v Viegelahn, __US __, __, 135 S Ct 1829, 1835; see 11 USC § 1306[a]). Assets acquired after a Chapter 13 plan is confirmed by the court are not included as property of the estate, unless they are necessary to maintain the plan (see 11 USC §§ 1306[a]; 1326), or the trustee seeks a modification of the plan to remedy a substantial change in the debtor’s income or expenses that was not anticipated at the time of the confirmation hearing (see 11 USC § 1329[a]; In re Solis, 172 BR 530, 532 [Bankr SD NY]). Unlike Chapter 7 proceedings, there is no separation of the estate property from the debtor under a Chapter 13 proceeding, except to the extent that the plan, as confirmed by order of the court, places control over an asset in the hands of the trustee (see Harris v Viegelahn, __ US at __, 135 S Ct at 1835). This is the basis for the conclusion that, while Chapters 7 and 11 debtors lose capacity to maintain civil suits, Chapter 13 debtors do not (see Giovinco v Goldman, 276 AD2d 469; Olick v Parker & Parsley Petroleum Co., 145 F3d at 515-516). Thus, a Chapter 13 debtor keeps all, or at the very least some, of the income and property he or she acquires during the administration of the repayment plan. Accordingly, in this action, it was never the bankruptcy estate, or its creditors, that was damaged by a decrease in the amount awarded in the underlying personal injury action due to the alleged conduct of the defendants. Only the plaintiffs had an interest in the recovery of damages in the personal injury action (see Olick v Parker & Parsley Petroleum Co., 145 F3d at 516). Moreover, it was the plaintiffs and the defendants who were engaged in a face-to-face relationship in the underlying personal injury action and to the extent the defendants allegedly breached a duty in that action the foreseeable harm was to the plaintiffs, not the trustee or the bankruptcy estate. Thus, under the circumstances presented here, the relationship of the plaintiffs to the personal injury action is unique and demands an exception to the general rule regarding privity (see Baer v Broder, 86 AD2d 881).

Accordingly, the Supreme Court erred in granting those branches of the defendants’ separate motions which were pursuant to CPLR 3211(a)(3) to dismiss the complaint insofar as asserted against each of them for lack of capacity and/or standing to sue.”