Gallet Dreyer & Berkey, LLP v Basile  2013 NY Slip Op 30101(U)  January 16, 2013  Supreme Court, New York County  Docket Number: 109687/11  Judge: Donna M. Mills is a recently decided case that touches on three themes.  The first is legal malpractice cases after settlement, the second is privity and the third is hindsight.  Plaintiffs move forward with many but not all of their claims still alive.

"H&P was retained in 2006 to represent Ms. Holm in an existing Surrogate’s Court  action seeking to revoke an irrevocable trust into which the bulk of Ms. Holm’s assets had been transferred. That action was commenced two months after Ms. Holm married the significantly younger Mr. Basile, and her sons, as trustees, fought the revocation. Gallet was initially retained by Mr. Basile to defend him at a deposition in the Surrogate’s Court Case.

The Surrogate’s Court matter was concluded with all parties entering into a Stipulation of Settlement while a motion for summary judgment by Holm’s sons was pending. The Stipulation provided for the payment of costs associated with Ms. Holm’s living expenses on a monthly basis as well as a cash allowance per month to be paid from the Trust. With respect to a farm property located in New Jersey (the “Farm”) that was transferred to her sons by Ms. Holm in 2002 and 2003, the Stipulation specifically acknowledged the validity of that transfer and specified that Trust funds were not to be used for the upkeep of the Farm, and discontinued an action commenced by summons with notice relating to the transfer of the Farm. A complaint was never filed in that matter
and Ms. Holm never retained H&P to perform any services with respect to that matter. The stipulation also addressed various loans made by Ms. Holm to her sons, setting forth the rates of interest, and that the loans were forgiven upon her death. The Stipulation further provided for the distribution of Ms. Holm’s estate upon her death, one-third to each son and one-third to Mr. Basile with applicable reductions for each. Also pursuant to the settlement, the Trust was to be funded by a refinance of Ms. Holm’s apartment. The crux 6f the allegations in the third-party complaint is that in hindsight, the settlement of the underlying Surrogate’s Court action, allegedly constituted malpractice.

As is set forth in the third-party complaint, Gallet was initially retained by Mr. Basile to defend him at a deposition in the Surrogate’s Court Case. Mr. Basile executed a retainer agreement for the legal service of his own separate and independent, in connection with the lawsuit commenced by his wife, Ms. Holm in the Surrogate’s Court. The third-party complaint admits that while Ms. Holm retained HBP, Basile retained Gallet as his attorneys. The complaint further admits that while Ms. Holm was invoiced for legal services by H&P, Mr. Basile was invoiced for legal services by Gallet.
In opposition to the motion to dismiss, Mr. Basile argues, inter alia, that H&P was his counsel by virtue of a “joint representation” of Ms. Holm and Mr. Basile by both H&P and Gallet. Mr. Basile argues that H&P communicated nearly exclusively with him regarding litigation of the Surrogate Court Case, the State Court Case and related matters. Mr. Basile annexes e mails purporting to show that H&P established a relationship in privity, or sufficiently near privity, to support his malpractice cause of action against it.

“[A] relationship of near privity may … be sufficient to sustain a legal malpractice claim” only in cases where there is negligent misrepresentation ( Federal Ins. Co. v North American Specialty Insurance Co., 47 A.D.3d at 60, 847 N.Y.S.2d 7) and, here, although the third-party complaint alleges that Gallet and H&P made negligent misrepresentations upon which the third-party plaintiffs relied, in light of the fact that the third-party plaintiffs were separately represented by counsel, any justifiable reliance on the purported negligent misrepresentation can only be directed at their own retained counsel. Moreover, contrary to the contention of third-party plaintiffs, their unilateral belief that they had an attorney client relationship with each others counsel, in addition to their own, does not by itself confer upon them the status of clients of their spouses’ counsel.
Since Ms. Holm and Mr. Basile clearly had separate representation in the underlying litigations, they cannot now argue that they were in privity or near-privity with each others lawyers, notwithstanding the fact that both law firms worked closely together and engaged in discussions and decisions jointly. As such, the documentary evidence submitted in support of the third-party defendants’ motion to dismiss, clearly proves that Gallet solely represented Mr. Basile in the underlying actions, and that H&P solely represented Ms. Holm.

According to the third-party complaint, H&P and Gallet’s purported malpractice arises from three instances of alleged negligence: (I) the purported failure to conduct due diligence relating to the ownership of the apartment; (2) the failure to prosecute the Supreme Court Action; and (3) that they were forced to enter into the Stipulation of Settlement which caused them to lose access to certain assets. “A claim for legal malpractice is viable, despite settlement of the underlying action, if it is alleged that the settlement of the action was effectively compelled by the mistakes of counsel” ( Bernstein v. Oppenheim & Co., P.C., 160A.D.2d 428,430,554 N.Y.S.2d 487 [I 9901 [citation omitted] ). The third-party complaint alleges that, but for third-party defendants’ negligence in failing to conduct due diligence and the consequential erroneous advice based on this failure, third-party plaintiffs would not have executed the stipulation in the Surrogates Court action, and would have received either a higher settlement or trial verdict. These allegations are sufficient to withstand a CPLR 321 I (a)(7) motion."