Plaintiff law firm sues for unpaid fees. Knowingly, they wait more than three years after the end of the relationship to do so.  Client files a legal malpractice counterclaim.  Is it too late?  The answer is “kinda.”

Balanoff v Doscher  2016 NY Slip Op 04896  Decided on June 22, 2016  Appellate Division, Second Department reminds us that even a late counterclaim can serve as an offset to any recovery by plaintiff.

“The defendant retained the plaintiff to provide legal services, but subsequently discharged him. The defendant allegedly failed to pay legal fees due and owing to the plaintiff. The plaintiff commenced this action to recover the unpaid fees. The defendant asserted counterclaims alleging legal malpractice, breach of fiduciary duty, breach of contract, and disgorgement.

The Supreme Court erred in granting that branch of the plaintiff’s motion which was to dismiss the counterclaim alleging legal malpractice, to the extent that counterclaim seeks to offset any award of legal fees to the plaintiff. Pursuant to CPLR 214(6), the statute of limitations for a cause of action to recover damages for legal malpractice is three years. The statute of limitations begins to run when the cause of action accrues (see CPLR 203[a]). The defendant did not assert his counterclaim alleging legal malpractice until after the statute of limitations had expired.

However, pursuant to CPLR 203(d), the defendant is entitled to seek equitable recoupment in a counterclaim. That statute provides, “[a] defense or counterclaim is interposed when a pleading containing it is served. A defense or counterclaim is not barred if it was not barred at the time the claims asserted in the complaint were interposed, except that if the defense or counterclaim arose from the transactions, occurrences, or series of transactions or occurrences, upon which a claim asserted in the complaint depends, it is not barred to the extent of the demand in the complaint notwithstanding that it was barred at the time the claims asserted in the complaint [*2]were interposed” (CPLR 203[d] [emphasis added]).

Under CPLR 203(d), claims and defenses that arise out of the same transaction as a claim asserted in the complaint are not barred by the statute of limitations, even though an independent action by the defendant might have been time-barred at the time the action was commenced. This provision allows a defendant to assert an otherwise untimely claim which arose out of the same transactions alleged in the complaint, but only as a shield for recoupment purposes, and does not permit the defendant to obtain affirmative relief (see Carlson v Zimmerman, 63 AD3d 772; Harrington v Gage, 43 AD3d 1393; DeMille v DeMille, 5 AD3d 428). The defendant’s counterclaim alleging legal malpractice relates to the plaintiff’s performance under the same retainer agreement pursuant to which the plaintiff would recover, and therefore this counterclaim falls within the permissive ambit of CPLR 203(d) (see United States Fd. & Guar. Co. v Delmar Dev. Partners, LLC, 22 AD3d 1017; Enrico & Sons Contr. v Bridgemarket Assoc., 252 AD2d 429). However, the counterclaim is permitted only to the extent that it seeks to offset any award of legal fees to the plaintiff and not to the extent that it seeks affirmative relief.”