Normally when a legal malpractice case is settled, that’s the end of it.  Everyone walks away unhappy, but understanding the the dispute is finally over.  Not so in Clerico v Pollack
2017 NY Slip Op 01669  Decided on March 8, 2017  Appellate Division, Second Department.

Plaintiffs hired attorneys to sell a house.  The sale took place, but disbursements of the proceeds was challenged in a legal malpractice case.  That case was eventually settled.  Then a second legal malpractice case was commenced, on the theory that the attorneys had formed a group to buy and flip the house.  The house was flipped for a profit.  Did the release stop the second case?

“”Under the doctrine of res judicata, a disposition on the merits bars litigation between the same parties, or those in privity with them, of a cause of action arising out of the same transaction or series of transactions as a cause of action that either was raised or could have been raised in the prior proceeding'” (Bayer v City of New York, 115 AD3d 897, 898, quoting Abraham v Hermitage Ins. Co., 47 AD3d 855, 855). “Pursuant to the doctrine of res judicata, a valid final judgment, or a stipulation of settlement withdrawing a cause of action with prejudice,’ bars future actions between the same parties on the same cause of action” (Matter of Chiantella v Vishnick, 84 AD3d 797, 798 [internal citations omitted]; see CPLR 3217[a][2]; North Shore-Long Is. Jewish Health Sys., Inc. v Aetna US Healthcare, Inc., 27 AD3d 439, 440; Matter of State of New York v Seaport Manor A.C.F., 19 AD3d 609, 610).

Here, the Supreme Court erred when it determined that the instant action was barred by the doctrine of res judicata. At trial, the defendants did not proffer a stipulation of settlement or discontinuance showing that the plaintiffs withdrew the causes of action in the 2008 action “with prejudice” (see Maurischat v County of Nassau, 81 AD3d 793, 794; Maurischat v County of Nassau, 305 AD2d 470, 471). An action is not automatically terminated with prejudice merely because the parties reached a settlement (see Teitelbaum Holdings v Gold, 48 NY2d 51; Incorporated Vil. of Hewlett Harbor v Bouzalglo, 131 AD3d 512, 513; Salvador v Town of Lake George Zoning Bd., 130 AD3d 1334, 1335).

“Generally, a valid release constitutes a complete bar to an action on a claim that is the subject of the release” (Nucci v Nucci, 118 AD3d 762, 763). ” However, a release may not be read to cover matters which the parties did not intend to cover'” (id. at 763, quoting Desiderio v Geico Gen. Ins. Co., 107 AD3d 662, 663). “[I]ts meaning and coverage necessarily depend, as in the case of contracts generally, upon the controversy being settled and upon the purpose for which the release was actually given” (Cahill v Regan, 5 NY2d 292, 299; see Matter of Mercer, 141 AD3d 594, 597). Here, as the plaintiffs correctly contend, the subject release only covered the causes of action alleged in the plaintiffs’ 2008 complaint, which sought to recover sums allegedly owed in the first sale of the property, and did not encompass the causes of action set forth in the instant action, which seek, inter alia, to recover sums resulting from a second sale of the property by Tatiana Bell Corp.

Accordingly, the Supreme Court should have granted the plaintiffs’ motion pursuant to CPLR 4404(b) to set aside the decision and order dated May 20, 2015, which directed the dismissal of the action based upon the doctrine of res judicata. The matter must be remitted to the Supreme Court, Queens County, for a trial on the merits of the plaintiffs’ claims.”