Warshaw Burstein, LLP v Colambda Tech., Inc. 2023 NY Slip Op 34435(U) December 14, 2023 Supreme Court, New York County Docket Number: Index No. 150283/2023
Judge: Louis L. Nock illustrates the oft repeated warning that attorney fee claims will always trigger a legal malpractice claim. Sometimes, as in this case, the legal malpractice claims pass a CPLR 3211 test and go on towards trial.

“Plaintiff law firm commenced this action seeking unpaid legal fees from its former client, defendant. Defendant brings six counterclaims, for breach of contract, legal malpractice, breach of fiduciary duty, violation of Judiciary Law § 487, fraud, and breach of the covenant of good faith and fair dealing. In summary, defendant alleges that it retained plaintiff to obtain approval for a reverse merger and ticker symbol change from the Financial Industry Regulatory Authority (“FINRA”). Plaintiff ultimately failed to garner FINRA approval. Defendant alleges that plaintiff advised it to undertake costly and unnecessary state level merger filings, failed to detect flaws in the underlying merger documents and disclosures that precluded FINRA approval, communicated with and employed a disbarred attorney in its representation of defendant, and disclosed privileged information regarding defendant to defendant’s business rivals. Plaintiff
now moves to dismiss all six counterclaims.”

“Turning to the malpractice claim, “[a]n action for legal malpractice requires proof of
three elements: (1) that the attorney was negligent; (2) that such negligence was a proximate cause of plaintiff’s losses; and (3) proof of actual damages” (Global Bus. Inst. v Rivkin Radler LLP, 101 AD3d 651 [1st Dept 2012]). Defendant adequately alleges several discrete acts of malpractice, specifically, that plaintiff failed to adequately examine the underlying merger documents and disclosures, failed to correct errors in those documents, and advised defendant to undertake costly and unnecessary work to effectuate the merger at the state level that plaintiff should have known was unnecessary in light of the unamended disclosures. Further, defendant
states that because of plaintiff’s conduct, FINRA never approved the merger and defendant incurred additional unnecessary costs. At the motion to dismiss stage, these allegations are sufficient to sustain the counterclaim.

The counterclaim for breach of fiduciary duty is also adequately pled. “To establish a
prima facie case for breach of fiduciary duty, a plaintiff must allege (1) the existence of a
fiduciary relationship, (2) misconduct by the defendant, and (3) damages directly caused by the defendant’s misconduct” (Village of Kiryas Joel v County of Orange, 144 AD3d 895, 898 [2d Dept 2016] [internal quotation marks and citations omitted]). While plaintiff correctly points out that there is a certain amount of overlap between this counterclaim and the legal malpractice counterclaim, the breach of fiduciary duty allegations primarily concern other conduct by plaintiff allegedly violative of the Rules of Professional Conduct; specifically, that plaintiff utilized a disbarred attorney as part of its work on defendant’s matter without telling defendant, and requiring defendant to pay fees for said disbarred attorney. In addition, plaintiff allegedly disclosed its invoices detailing work done for defendant to a third party. Plaintiff argues that the counterclaim should be dismissed in its entirety as duplicative, but misstates the specific allegations underlying each counterclaim. Thus, to the extent that the breach of fiduciary duty counterclaim is supported by independent allegations of misconduct, the court declines to dismiss it as duplicative.”