The law firm is paid to safeguard escrow deposits in a film industry case.  Proceeds are misapplied and money is said to be missing.  Sue the lawfirm?  But…what about the agreement which states that the law firm in neither required to nor authorized to investigate?  What of the agreement that the escrow shall not be liable absent bad faith or willful disregard?

In Worldview Entertainment Holdings Inc. v Woodrow  2018 NY Slip Op 33372(U)
December 24, 2018  Supreme Court, New York County  Docket Number: 159948/2014,  Judge Melissa A. Crane holds that such exculpatory agreements may not be used by attorneys, who have a higher duty.

“The complaint alleges that Woodrow had primary responsibility for overseeing the financial, management, and employee relations affairs of Worldview, that he was the only person authorized to handle certain transactions with Worldview’s banks, creditors, and investors, and that he used his authority to misappropriate Worldview’s escrow monies. The complaint alleges that Woodrow defrauded Worldview out of at least $700,000 of escrow funds and that Goetz is liable for part of this sum, because Goetz, acting on Woodrow’s instructions, disbursed escrow monies to inappropriate recipients. Allegedly, Woodrow caused Goetz to pay money to Woodrow for his personal uses, to his mother’s estate, to his wife, to three debt collectors to satisfy Woodrow’s personal debts, and to an individual to settle a dispute for Woodrow. Allegedly, from May 2011 to May 2014, Goetz improperly disbursed $242,302 on Woodrow’s behalf, and perhaps more. ”

“Goetz argues that it is excuplated from plaintiffs’ claims under the provisions of the Film Fund Agreements. While exculpatory agreements have applied to escrow agents who were not attorneys (see Platinum Equity Advisors, LLC v SDI, Inc., 2014 WL 3670674, *4 [Sup Ct, NY County 2014]), these agreements are disfavored as to attorneys, particularly when the attorney drafted the agreement with the exculpatory provision (see Galasso, Langione, & Batter, LLP v Galasso, 53 Misc 3d 1202[A], 2016 NY Slip Op 51308[U], n 50 [Sup Ct, Nassau County 2016]). Boyajian drafted the Film Fund Agreements.

Both as escrow agent and as attorney, Goetz owed Worldview a fiduciary duty (Greenapple v Capital One, NA., 92 AD3d 548, 549 [l51 Dept 2012]; Ulico, 56 AD3d at 8). The attorney-client relationship comprises a “unique fiduciary reliance,” whereby the client is entitled to depend on the attorney “maintaining confidentiality, avoiding conflicts of interest, operating competently, safeguarding client property and honoring the clients’ interests over the lawyer’s” (Matter of Cooperman, 83 NY2d 465, 472 [1994]). “An agreement prospectively limiting a lawyer’s liability to a client for malpractice or other kinds of civil liability is unenforceable” (Restatement [Third] of the Law Governing Lawyers§ 54, Comment b).

Section 2 ( e) states that the escrow agent is released from liability provided that it holds the money in accordance with the agreement’s terms and pays such money to the “designated production company … ” This provision does not exculpate Goetz, because plaintiffs allege that Goetz paid at least some money other than to a production company. Goetz points out that the agreement does not require it to investigate any payments provided that the authorizing documents are correct and that the third-party investors and Worldview release Goetz against all claims arising out of Goetz following Woodrow’s instructions (,-r 2 [ e ]). Nonetheless, the court does not see how an attorney can be exculpated in regard to the misappropriation of funds, even if the attorney had no duty to investigate or did not benefit.

The Film Fund Agreements provide that the escrow agent is not liable for any act unless taken in bad faith, willful disregard of the agreement, or gross negligence (,-r 5). Goetz argues  that this provision means that it cannot be charged with negligence. As already stated, that is incorrect. “

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Andrew Lavoott Bluestone

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened…

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened his private law office and took his first legal malpractice case.

Since 1989, Bluestone has become a leader in the New York Plaintiff’s Legal Malpractice bar, handling a wide array of plaintiff’s legal malpractice cases arising from catastrophic personal injury, contracts, patents, commercial litigation, securities, matrimonial and custody issues, medical malpractice, insurance, product liability, real estate, landlord-tenant, foreclosures and has defended attorneys in a limited number of legal malpractice cases.

Bluestone also took an academic role in field, publishing the New York Attorney Malpractice Report from 2002-2004.  He started the “New York Attorney Malpractice Blog” in 2004, where he has published more than 4500 entries.

Mr. Bluestone has written 38 scholarly peer-reviewed articles concerning legal malpractice, many in the Outside Counsel column of the New York Law Journal. He has appeared as an Expert witness in multiple legal malpractice litigations.

Mr. Bluestone is an adjunct professor of law at St. John’s University College of Law, teaching Legal Malpractice.  Mr. Bluestone has argued legal malpractice cases in the Second Circuit, in the New York State Court of Appeals, each of the four New York Appellate Divisions, in all four of  the U.S. District Courts of New York and in Supreme Courts all over the state.  He has also been admitted pro haec vice in the states of Connecticut, New Jersey and Florida and was formally admitted to the US District Court of Connecticut and to its Bankruptcy Court all for legal malpractice matters. He has been retained by U.S. Trustees in legal malpractice cases from Bankruptcy Courts, and has represented municipalities, insurance companies, hedge funds, communications companies and international manufacturing firms. Mr. Bluestone regularly lectures in CLEs on legal malpractice.

Based upon his professional experience Bluestone was named a Diplomate and was Board Certified by the American Board of Professional Liability Attorneys in 2008 in Legal Malpractice. He remains Board Certified.  He was admitted to The Best Lawyers in America from 2012-2019.  He has been featured in Who’s Who in Law since 1993.

In the last years, Mr. Bluestone has been featured for two particularly noteworthy legal malpractice cases.  The first was a settlement of an $11.9 million dollar default legal malpractice case of Yeo v. Kasowitz, Benson, Torres & Friedman which was reported in the NYLJ on August 15, 2016. Most recently, Mr. Bluestone obtained a rare plaintiff’s verdict in a legal malpractice case on behalf of the City of White Plains v. Joseph Maria, reported in the NYLJ on February 14, 2017. It was the sole legal malpractice jury verdict in the State of New York for 2017.

Bluestone has been at the forefront of the development of legal malpractice principles and has contributed case law decisions, writing and lecturing which have been recognized by his peers.  He is regularly mentioned in academic writing, and his past cases are often cited in current legal malpractice decisions. He is recognized for his ample writings on Judiciary Law § 487, a 850 year old statute deriving from England which relates to attorney deceit.