In big financial transactions, big law firm 1 may often interact with big law firm 2 in the generation of loan documents, opinion letters and the such.  Their interaction, viz-a-viz the clients (on both sides) may yield significant risk the law firms.

Bloostein v Morrison Cohen LLP  2017 NY Slip Op 30833(U)  April 21, 2017  Supreme Court, New York County  Docket Number: 651242/2012  Judge: Anil C. Singh is an example.  We discussed this case last year, several times but now the third-party motion practice seems to have come to an end.

“Plaintiffs in the main action (the “plaintiff investors”) allegedly engaged Morrison Cohen as attorneys to represent them in connection with a reinvestment transaction (the “Transaction”) designed by former third-party defendant Stonebridge Capital (“Stonebridge”). The advice rendered by Morrison Cohen to the investors form the basis for the main action. In the Second Amended Third-Party Complaint (“Third-party Complaint”), Morrison Cohen alleges that Stonebridge retained two law firms to represent their interests in the Transaction, including Brown Rudnick. The terms of Stonebridge’s retention of Brown Rudnick are set forth in the March 16, 2006 Stone bridge/ Brown Rudnick engagement letter (“Engagement Letter”). The Third-party Complaint further alleges that Brown Rudnick was the primary drafter of the documents that comprised the Transaction (the “Transaction Documents”). In addition to drafting the Transaction Documents, Brown Rudnick is also alleged to have issued a tax opinion letter to the plaintiff investors (the “Opinion Letter”). ”

“On or about January 9, 2015, Morrison Cohen commenced the third-party action against Stonebridge and Brown Rudnick. The Third-party Complaint interposes three causes of action: (1) indemnification and contribution as against Stonebridge (“First Cause of Action~’) (2) indemnification and contribution as against Brown Rudnick arising from the Opinion Letter (“Second Cause of Action”); and (3) indemnification and contribution as against Brown Rudnick concerning the Transaction Documents (“Third Cause of Action”). Stonebridge and Brown Rudnick, by their respective counsel, filed motions to dismiss the Third-party Complaint. By Order dated July 11, 2016, this Court granted Stonebridge’s motion to dismiss. Brown Rudnick’s motion to dismiss was granted as to indemnification, and denied as to contribution. Brown Rudnick brings this motion pursuant to CPLR §2221 seeking clarification of the Order. Brown Rudnick states that the contribution claim brought against it by Morrison Cohen concerned both the Opinion Letter and the Transaction Documents. The Order denied dismissal of the claim for contribution as to the Opinion Letter but did not explicitly address the Transaction Documents. ”

“The Court of Appeals has held that an intended third-party beneficiary relationship will be found where the following elements are met: ( 1) the existence of a valid and binding contract between other parties, (2) that the contract was intended for the benefit of the third-party; and (3) that the benefit to the third-party is sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate the third-party if the benefit is lost.” State of California Public Employees’ Retirement System v. Shearman & Sterling, 95 N.Y.2d 427, 434-35 (2000). The Court of Appeals has adopted the reasoning of the Restatement (Second) of Contracts as to the determination of an intended beneficiary. Fourth Ocean Putnam Corp. v. Interstate Wrecking Co., Inc., 66 N.Y.2d 38, 44 (1985) (quoting the Restatement). The Restatement states that:

“a beneficiary of a promise is an intended beneficiary if recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) … 1 ; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.”

Restatement (Second) of Contracts§ 302 (1981).

Here, Morrison Cohen has not pied any facts to show that Brown Rudnick and Stonebridge intended their Engagement Letter to be for the benefit of the plaintiff investors. The Engagement Letter itself states that, “[Unless] we expressly agree to provide additional services, our engagement is to represent solely Stonebridge Funding, LLC in connection with the specific matter set forth above.” Morrison Cohen’s contention that the preceding sentence proves otherwise is unavailing. Thepreceding sentence provides that Brown Rudnick was willing to have discussions about the representation of a party other than Stonebridge but it does not suggest that the Engagement Letter covered a third-party. Moreover, the circumstances surrounding the Transaction and the drafting of the Transaction Documents do not support Morrison Cohen’s argument that the benefit to the plaintiff investors was sufficiently immediate, rather than incidental. The contracts between the parties in this action are a result of sophisticated parties making arms-length decisions. The plaintiff investors contracted with Morrison Cohen for legal services. Stonebridge contracted with Brown Rudnick for legal services. The plaintiff investors and Brown Rudnick did not contract and there is no indication that they intended to rely on each other’s performance. There is nothing in the Engagement Letter which suggests an intent to benefit the plaintiff investors. Therefore, Morrison Cohen has failed to plead that Brown Rudnick owed the plaintiff investors a duty in preparation of the Transaction Documents. ”