Attorneys frequently have a business on the side.  After all, they think, I can do the legal work and reap the benefits.   In  Lee & Amtzis, LLP v American Guar. & Liab. Ins. Co.  2015 NY Slip Op 02919  Decided on April 7, 2015
Appellate Division, First Department  Gische, J., J. it did not work out well.

“Kurtin was a client of plaintiff Lee & Amtzis, LLP (law firm). She commenced an action in the Superior Court of New Jersey against the law firm, both partners individually, and Astoria Station, LLP (Kurtin v R. Randy Lee, Esq., et al., Super Ct, Somerset County, docket No. SOM-L-1098-10) (New Jersey action). In the New Jersey action, Kurtin asserted claims for breach of contract, non-payment of two promissory notes which she held and were made, respectively, in 2006 and 2010, and unjust enrichment based upon the non-payment of those notes. Kurtin also asserted claims for legal malpractice/negligence against the law firm and each of its named partners. In connection with her malpractice/negligence claims, Kurtin alleged that when she entered into these loans, Lee was not only the “managing member” of Astoria Station, he was also a practicing attorney and partner of the law firm, which had the same address as Astoria Station. Kurtin claimed that the attorneys had induced her to proceed with certain financial transactions in which they had a financial interest; they failed to recommend that she obtain independent legal counsel; they had allowed their legal services to her to be influenced by their own business ventures outside the practice of law; and the attorneys knew their interests and Kurtin’s interests were adverse.

Following motion practice in the New Jersey action, Kurtin prevailed on her promissory note claims, and in its decision dated and filed October 27, 2011, the court directed entry of a money judgment against Astoria Station and Lee in the amount of $1,332,739.25 on the 2006 note and a money judgment against Lee in the amount of $125,043.65 on the 2010 note (Kurtin v. R. Randy Lee, Esq., Super Ct, Somerset County, Oct. 23, 2011, Coyle, Jr., J.). Lee had signed the 2006 note on behalf of Astoria Station and also personally guaranteed its payment. In relevant part, the 2006 note states that it is a “replacement of all prior debts due to Jane Kurtin, together with accrued interest, from Leewood-Edgemere, LLC ^[FN1], R. Randy Lee and related entities, all of which are considered to be paid in full.” The 2006 note also refers to a condominium project underway “at the Astoria Station project in Queens,” stating that “pay down will be TWENTY FIVE THOUSAND DOLLARS ($25,000.00) at each unit closing.” The 2010 note represents a loan made by Kurtin to Lee personally.

The law firm and partners moved to dismiss the remaining malpractice/negligence claims in the New Jersey action, but that motion was denied. Subsequently the parties in the New Jersey action stipulated to stay the malpractice/negligence claims pending resolution of this declaratory judgment action.

In this action, plaintiffs seek a declaration that AGLIC has a contractual duty to defend them against the malpractice/negligence claims asserted by Kurtin in the New Jersey action. [*2]Plaintiffs were successful in their motion for summary judgment before Supreme Court, largely due to the motion court’s reliance on a prior decision by this Court in K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co. (91 AD3d 401 [1st Dept 2012]), which construed the identical policy language at issue here. Our decision, however, has since been reversed by the Court of Appeals ^[FN2] (K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co., 22 NY3d 578 [2014]) (K2). The Court of Appeals’ decision in K2 likewise requires a reversal of the motion court’s order and judgment (one paper) in plaintiffs’ favor and a judgment in favor of AGLIC, declaring that it does not have a duty to defend plaintiffs in the New Jersey action.

Here, we have a well developed record showing that plaintiffs’ activities on Kurtin’s behalf are of a hybrid nature and, therefore, excluded from coverage. It is undisputed that plaintiffs prepared the legal documents necessary to effectuate the loans, including the promissory notes. It is also undisputed that Lee was the managing member of Astoria Station and the obligor on the 2006 note which Lee also personally guaranteed. Lee, personally, was the borrower on the 2010 note. The proceeds from these financial transactions were used in connection with Astoria Station’s real estate development projects, indirectly which benefitted Lee, the managing member of that enterprise. Kurtin prevailed in the New Jersey action and obtained a money judgment for the nonpayment of the promissory notes. Her remaining claims of legal malpractice and negligence do not seek damages that are any different than the relief she already obtained in the New Jersey action. Applying New York law, as the New Jersey court has already found applies, Kurtin’s allegations, that she was not advised to get her own attorney, or that she should have had certain investment properties independently appraised, are generic claims that are insufficient to sustain a claim for legal malpractice (Schwartz v Olshan Grundman Frome & Rosenzweig, 302 AD2d 193 [1st Dept 2003]). Kurtin has not alleged any losses, other than the nonpayment of the notes, and those notes have now been reduced to judgments in her favor.

Lee was simultaneously serving two masters, Kurtin, his client, and a company of which he was a principal. This is precisely the situation that the policy’s Insured Status and Business Enterprise Exclusions exclude from coverage. Since Kurtin’s claims partly arise from the legal services the attorneys provided her with, but also from Lee’s status or activity for his company, Astoria Station, they are of a hybrid nature, and are not covered, meaning that AGLIC has no duty to defend plaintiffs in the New Jersey action.”