National Air Cargo, Inc. v Jenner & Block, LLP  2022 NY Slip Op 01900 [203 AD3d 1655] March 18, 2022 Appellate Division, Fourth Department discusses two important issues:  scope of retainers and the effects of a bankruptcy filing.

“Memorandum: Plaintiff National Air Cargo, Inc. (NAC) is a freight forwarding company, and plaintiff National Air Cargo Holdings (NACH) owns NAC. Plaintiff Chris Alf is the principal shareholder of NAC and NACH and, at all relevant times, was the chair, chief executive officer, and president of NAC. NAC was found liable on a breach of contract claim in an underlying action against it in the United States District Court for the Central District of California. Plaintiffs commenced this action alleging, inter alia, professional negligence/legal malpractice and seeking damages purportedly arising from the representation of NAC by defendant Jenner & Block, LLP (JB) in the underlying action and the representation of NAC by defendant Harter, Secrest & Emery, LLP (HSE) in NAC’s subsequent bankruptcy proceeding. Plaintiffs alleged that JB and HSE negligently failed to review whether the judgment rendered against NAC in the underlying action was covered by the directors’ and officers’ liability insurance policies issued to NAC and to advise NAC accordingly. JB and HSE thereafter each moved pursuant to CPLR 3211 to dismiss plaintiffs’ complaint against them. In appeal No. 1, plaintiffs appeal from an order of Supreme Court that granted both motions. In appeal No. 2, plaintiffs appeal from a subsequent order of the same court that granted HSE’s motion. In appeal No. 3, plaintiffs appeal from an order and judgment of the same court that granted JB’s motion.”

“n appeal No. 2, we conclude that the court properly dismissed on the ground of documentary evidence the professional negligence/legal malpractice cause of action against HSE insofar as asserted by NAC (see CPLR 3211 [a] [1]). A motion to dismiss a complaint based on documentary evidence “may be appropriately granted only where the documentary evidence utterly refutes [the] plaintiff’s factual allegations, conclusively establishing a defense as a matter of law” (Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326 [2002]). In support of its motion, HSE submitted the engagement letter between HSE and NAC. “An attorney may not be held liable for failing to act outside the scope of a retainer” (Attallah v Milbank, Tweed, Hadley & McCloy, LLP, 168 AD3d 1026, 1028 [2d Dept 2019]; see AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 435 [2007]). Here, HSE met its burden of establishing by documentary evidence that the scope of its legal representation did not include a review of the insurance policies for possible coverage of the judgment in the underlying action. The engagement letter stated that HSE’s engagement did “not include responsibility either for review of [NAC’s] insurance policies to determine the possibility of coverage for any . . . claims that have [been] or may be asserted against [NAC] or for notification of [NAC’s] insurance carriers concerning the matter.” Because review of NAC’s liability insurance policies to determine their potential applicability to the judgment in the underlying action fell outside the scope of HSE’s engagement, the court properly granted HSE’s motion with respect to the professional negligence/legal malpractice cause of action against HSE insofar as asserted by NAC (see Turner v Irving Finkelstein & Meirowitz, LLP, 61 AD3d 849, 850 [2d Dept 2009]).

In appeal No. 3, we conclude that the court properly dismissed the professional negligence/legal malpractice cause of action against JB, insofar as asserted by NAC, on the ground of judicial estoppel. The “doctrine of judicial estoppel may bar a party from pursuing claims which were not listed in a previous bankruptcy proceeding” (Moran Enters., Inc. v Hurst, 160 AD3d 638, 640 [2d Dept 2018], lv denied 32 NY3d 908 [2018], rearg denied 32 NY3d 1195 [2019]; see Popadyn v Clark Constr. & Prop. Maintenance Servs., Inc., 49 AD3d 1335, 1336 [4th Dept 2008]). Here, at the time NAC filed for bankruptcy, it failed to list a potential legal malpractice claim against JB as an asset and obtained a bankruptcy discharge. We conclude that “[t]he failure of . . . [NAC] to disclose a cause of action as an asset in a prior bankruptcy proceeding, the existence of which [NAC] knew or should have known existed at the time, deprive[s] [NAC] of the legal capacity to sue subsequently on that cause of action” (Green v Associated Med. Professionals of NY, PLLC, 111 AD3d 1430, 1432 [4th Dept 2013] [internal quotation marks omitted]). Contrary to the court’s determination, however, JB failed to establish that the doctrine of judicial estoppel applies with respect to NACH or Alf, because JB failed to establish as a matter of law that NACH or Alf, as non-debtors, were in privity with NAC (see In re Avaya Inc., 573 BR 93, 103-104 [SD NY 2017]).”