Yesterday, we spoke about commercial litigation, intra-company claims and how minority shareholders can bring claims that attorneys for the corporation or the majority shareholders have wronged them. Yesterday, it was “legal malpractice.” Today it’s “breach of fiduciary duty.”
Exeter Law Group LLP v Wong 2016 NY Slip Op 32425(U) December 9, 2016 Supreme Court, New York County Docket Number: 161667/2014 Judge: Eileen A. Rakower.
“A client can state a claim for breach of fiduciary duty against an attorney by alleging “the existence of a fiduciary relationship, misconduct by the defendant, and damages that were caused by the defendant’s misconduct.” (Harbor Consultants Ltd. v Roth, 907 N.Y.S.2d 100, 100 [N.Y. Sup. Ct. 2010]). “As a fiduciary, an attorney is charged with a high degree of undivided loyalty to his [or her] client.” (Harbor Consultants, 907 N.Y.S.2d at 100). The second counterclaim alleges that Exeter and Wong, as the attorney of Day, Eisner, Immortalana and Salvaragen, “owed them a duty of undivided and undiluted loyalty” and “were required to keep certain information privileged and confidential.” It alleges that Exeter and Wong breached their fiduciary duty to them “by disclosing confidential and privileged information with A. Richard Golub (“Golub”), a known associate oflmmortalana’s principals … for the sole purpose of coercing one oflmmortalana’s owners, Kelly Day, to provide payment to Exeter.” More specifically, it alleges in April 2014, at Wong’s “instigat[ing], “Wong and Golub contacted Day by telephone” at which point “Golub began screaming and reprimanding Day for not paying Exeter and Wong” and “shouted at Day in an aggressive tone that Day’s ‘partners’ were ‘screwing her’ and that the company they had formed was a sham.” It alleges that “[t]he information Golub referred to in the telephone call with Day was information Wong and Exeter obtained while representing Counterclaim Plaintiffs” which Wong and Exeter disclosed to Golub “in order to coerce payment for monies they believe are owed to them.”
“Exeter and Wong seek to dismiss the second counterclaim under CPLR 321 l(a)(l) on the grounds that the engagement letter signed by the Day and Eisner in 2012 explicitly authorizes Exeter to confer with Mr. Golub. Here, the 2012 engagement, which is signed by Eisner and Day, letter provides, “Additionally, I will be consulting with Aaron Richard Golub, Esq., from the law office of Aaron Richard Golub, Esquire, P.C., whom You [Day and Eisner] already know.” While the 2012 engagement letter may permit Wong to consult with Mr. Golub on certain matters, it does not flatly contradict Eisner and Day’s allegations that Mr. Golub may have disclosed confidential communications that Day and Eisner did not – authorize. Furthermore, the alleged coercive nature of the communication may rise to the level of a breach of a fiduciary duty. Alternatively, Exeter and Wong seek to dismiss the second counterclaim under CPLR 321 l(a)(7) on the grounds that New York Rules of Professional Conduct (“NYRPC”) l.6(b)(4) and 1.6(b)(5)(ii) authorized Exeter and Wong to reveal client confidences in consulting with other lawyers. NYRPC l .6(b) provides, in relevant part, that a lawyer “may reveal or use confidential information to the extent that the lawyer reasonably believes necessary: (4) to secure legal advice about compliance with these Rules or other law by the lawyer, another lawyer associated with the lawyer’s firm or the law firm; ***[or] (5)(i)(ii) to establish or collect a fee . .. “(emphasis added). NYRPC 1.6, Comment 14, states “[p ]aragraph (b) permits disclosure only to the extent the lawyer reasonably believes the disclosure is necessary to accomplish one of the purposes specified in paragraphs (b )( 1) through (b )( 6).” Comment 14 to NYRPC 1. 6 further states that “[b ]efore making a disclosure, the lawyer should, where practicable, first seek to persuade the client to take suitable action to obviate the need for disclosure.” Here, while Exeter and Wong may have a defense based on NYRPC 1.6, it does not provide a basis to dismiss the Complaint based on a failure to state a claim at this juncture. Lastly, Exeter and Wong argues that the second counterclaim fails to state a claim because “[t]here is no private right of action for a violation of the Code of Professional Responsibility” under controlling First Department law.” “The violation of a disciplinary rule does not, without more, generate a cause of action.” (Schwartz v. Olshan Grundman Frame & Rosenzweig, 302 A.D.2d 193, 199 [1st Dep’t 2003]). However, a claim for breach of fiduciary duty can be stated where the defendant lawyer is alleged to have used confidential information to disadvantage a former client even though it was also a violation of disciplinary rules. (Sharbat v Law Offs. of Michael B. Wolk, P. C., 2011 WL 197825 (N.Y. Sup. Ct. Jan. 12, 2011).
Accordingly, Movants have failed to establish a basis for dismissal of the second counterclaim for breach of fiduciary, and the claim stands.”