Typically legal malpractice claims are limited to a triumvirate which include Legal Malpractice, Breach of Fiduciary Duty and Breach of Contract. Often, the Breach of Fiduciary Duty and Breach of Contract claims are dismissed as “duplicitive” of the Legal Malpractice claim.

Kohler v West End 84 Units LLC 2024 NY Slip Op 34215(U) November 26, 2024 Supreme Court, New York County Docket Number: Index No. 654985/2023 Judge: Lyle E. Frank is a most unusual legal malpractice (along with claims against non-attorneys), where rarely made claims against the lawfirm survive a motion to dismiss.

“Ms. Paulette Kohler (“Kohler”) has lived in one of the West End 84 Units LLC (“Landlord”) rent-controlled apartments for over seventy years. Ms. Kohler is currently 94 years old, widowed, and her only child died in 2020. In 2011, she met a Norwegian woman named Kjersti Inga Eggerud (“Eggerud”, collectively with Kohler “Plaintiffs”). The two women became friends, and on March 21, 2021, Ms. Kohler executed a Durable Power of Attorney, Health Care Proxy, and a Last Will & Testament that appointed Eggerud as her agent and sole beneficiary. These documents were executed by an attorney who had known Ms. Kohler for decades and they were duly witnessed and executed after it was confirmed that Ms. Kohler had the requisite mental capacity. The FBI Enters the Scene According to documents presented by Plaintiff, in June of 2021 an unknown person(s) contacted the FBI and alleged that Eggerud had engaged in elder abuse of Ms. Kohler. The FBI, according to these documents, conducted an initial assessment and attempted repeatedly to reach out to Ms. Kohler but she would not discuss the matter. In October, they called Eggerud and informed her of the report. Allegedly, on November 14 an FBI agent called Eggerud and informed her that the matter was closed and that there was no evidence against her. Then in December of 2021, the FBI closed the “Incident” and gave as a reason that the “[a]llegation could not be substantiated or is deemed mitigated at this time.” There are several issues of disputed fact as to whether the FBI ever sent an agent to Ms. Kohler’s apartment, what was said and done at such a meeting if it happened, and the extent to which the FBI communicated with various parties during this process. The Article 81 Guardianship Proceeding and Ultimate Reversal In late December 2021, Mrs. Kohler, who had just had surgery for an intestinal blockage, was transferred to the Riverside rehabilitation center for short term rehabilitation for recovery. Beginning in January of 2022, when Eggerud began attempting to enter Ms. Kohler’s apartment to prepare it for her release from Riverside, Landlord ( and others) refused Eggerud access to the apartment and declined to honor the power of attorney. The parties went back and forth on the matter, and in March of 2022 defendant Elizabeth Adinolfi (“Adinolfi”), a guardianship attorney employed by defendant Phillips Nizer LLP (“PN”, collectively with Adinolfi the “PNDefendants”), filed an Article 81 petition to appoint a Guardian over Ms. Kohler (the “Guardianship Proceeding”). The PN-Defendants were counsel for the Landlord, and Adinolfi claimed during the special proceeding that it was at least in part motivated by threats to file suit by Eggerud’ s counsel if the POA was not honored by Landlord. At this proceeding, Adinolfi also alleged, among other things, that Ms. Kohler lacked capacity at the time that she executed the POA and that Eggerud was under investigation from the FBI. In March the trial court granted the petition and appointed a temporary guardian over Mrs. Kohler, defendant Charles Barbuti (“Barbuti”). This decision was appealed, and the First Department overturned the decision in an order dated November 21, 2023 (the “Appeal Order”). That order reinstated the POA and health care proxy and vacated the temporary guardianship. Statement to NBC News An NBC News story about these events aired on October 14, 2022. Landlord prepared a statement for NBC (the “NBC Statement”) and made several claims about the alleged FBI investigation, Ms. Kohler’s financial affairs, and Eggerud’ s attempt to enter Ms. Kohler’s apartment with the POA. The Landlord claimed to have been motivated to initiate the guardianship proceedings “[i]n an effort to protect Mrs. Kohler” and that they were hesitant to give access to Ms. Kohler’s apartment to “someone under FBI investigation for financial abuse.” The resulting story, as well as a subsequent one on November 2, 2022, repeated allegations of possible elder abuse by Eggerud. The PN-Defendants claim to have been told by the FBI that they were “permitted to say: there are allegations that Ms. Kohler is a victim of financial fraud and that investigations are pending.” The Plaintiffs interpret this language as meaning that the PN-Defendants were not authorized to state that Eggerud was an FBI suspect in a financial fraud investigation, and the PN-Defendants interpret this language as meaning that they were permitted to state to the public that Eggerud was being investigated for elder abuse by the FBI. This Motion’s Procedural Posture Plaintiffs filed the present suit in November of 2023. They allege in the second amended complaint eighteen causes of action on behalf of Ms. Kohler and a further six on behalf of Eggerud. Broadly, the second amended complaint alleges a potential scheme to defraud Ms. Kohler of her rent-controlled apartment and various abuses of the guardianship process including alleged improper handling of Ms. Kohler’s finances during the temporary guardianship. The PNDefendants have brought the present motion to dismiss certain causes of action asserted against the PN-Defendants pursuant to the CPLR §§ 3016, 321 l(a)(l), (5), (7) and (g), as well as the N.Y. Civ. Rights Law§§ 70-A and 76-A. They have also moved for damages and sanctions against Eggerud and her counsel.”

“The PN-Defendants move to dismiss the second amended complaint as to them on six grounds: 1) res judicata and collateral estoppel; 2) violation of the New York Anti-SLAPP law; 3) the litigation and fair reporting privileges; 4) failure to state a claim under CPLR §§ 3106 and 321 l(a)(7) as to the fraud and defamation claims; 5) failure to state a claim and statute of limitations as to the abuse of process claims; and finally 6) failure to state a claim as to the intentional and negligent infliction of emotional distress, Judiciary Law 487, tortious interference with contract, violation of the General Obligations Law, and aiding and abetting claims. For the reasons that follow, this motion is granted as to the third, fifth, seventh, ninth, tenth, fifteenth, sixteenth, and nineteenth causes of action and denied as to the rest. I: Res Judicata and Collateral Estoppel Do Not Bar Plaintifrs Claims In the appeal of the Guardianship Proceeding, Plaintiffs requested Rule 130 sanctions against the PN-Defendants for bringing the Guardianship Proceeding in bad faith or frivolously. The First Department in the Appeal Order declined to issue sanctions. Here, the PN-Defendants argue that this bars the underlying suit under the principle of res judicata. Their reasoning is that in that appeal, Plaintiffs made the same arguments regarding the basis used to support the Guardianship Proceeding allegations, knowledge of the FBI’ s involvement, and that the PNDefendants acted to cause harm to Ms. Kohler. By declining to issue sanctions, PN-Defendants argue, the Appeal Order bars a suit arising out of the same transactions and facts. Furthermore, they argue, here Plaintiff’s claims are barred by the principle of collateral estoppel because the Guardianship Proceeding’s factual findings and conclusions remain valid despite the Appeal Order. Plaintiffs argue that the suit is not barred by res judicata or collateral estoppel for several reasons, including that the First Department ordered fee shifting under the Mental Hygiene Law which is predicated on a finding of bad faith and that the court there only declined to issue to sanctions because it was not procedurally proper (it had not been briefed or moved for, simply asked for during oral argument), and did not reach the merits of a sanctions request. Res judicata or claim preclusion is “designed to provide finality in the resolution of disputes to assure that parties may not be vexed by further litigation.” Reilly v. Reid, 45 N.Y.2d 24, 28 (1978). It bars the re-litigation of the “same cause of action” that has had a valid and final judgment that “extinguishes the plaintiff’s claim.” Id., at 28-29. Here the PN-Defendants do not argue that Plaintiff had a claim or cause of action against them that was adjudicated in the Appeal Order, but rather that the Appeal Order, in declining to issue sanctions, made certain findings on the merit of allegations arising from the same set of circumstances. This is more properly called a collateral estoppel or issue preclusion matter, not claim preclusion. The PN-Defendants also argue that certain findings in the Guardianship Proceeding bar Plaintiffs’ current claims through collateral estoppel. This legal concept prevents the same issues, rather than causes of action, from being litigated and applied “only where the issue in the second action is identical to an issue which was raised, necessarily decided and material in the first action and the party who is being estopped had a full and fair opportunity to litigate the issue in the earlier action.” Simmons v. Trans Express Inc., 37 N.Y.3d 107, 112 (2021). The Court of Appeals has “cautioned against the mechanical application of issue preclusion” and directs courts to “examine the realities of litigation”. Id. At heart, the decision to apply collateral estoppel in a given case is whether relitigation of the issue should be allowed “in light of what are often competing policy considerations, including fairness to the parties, conservation of the resources of the court and the litigants, and the societal interests in consistent and accurate results.” Id. I(A): The Guardianship Proceeding Is Not a Basis for Collateral Estoppel and the First Department’s Appeal Order is Ambiguous as to the Extent it Estops the Plaintiffs from Asserting Improper Motive for Bringing the Guardianship Proceeding To begin with, the Guardianship Proceeding does not provide for collateral estoppel or res judicata because it was overturned on appeal. A “vacated decision accordingly lacks finality and cannot be given collateral estoppel effect.” Sage Realty Corp. v. Proskauer Rose LLP, 251 A.D .2d 3 5, 3 9 (1st Dept. 1998). The issue then becomes what, if anything, is precluded by the Appeal Order. This short decision includes language stating that there was “no evidence” that the POA was not duly executed and proper, and that there was “no evidence of financial impropriety” by Eggerud. It also, however, ends with the statement that “[a]lthough [Landlord] was ultimately unable to prove its allegations, the petition was not frivolous within the meaning of22 NYCRR § 130-1.l(c).” Matter ofGoldfein v. Kohler, 221 A.D.3d 500,502 (1st Dept. 2023). The PN-Defendants argue that this statement means that Plaintiffs are estopped from bringing the underlying suit at all because it “arises out of identical transactions and facts as those in the Guardianship Proceeding” and the suit should be dismissed in its entirety.”

“But Plaintiffs argue that there were several issues involved in the underlying suit not litigated at either the Guardianship Proceeding or the appeal of that proceeding. They also content that the part of the Appeals Order referring to frivolity merely expounds on statements made during oral argument that the First Department would not be issuing sanctions under NYCRR § 130 for bringing a frivolous suit because that issue had not been motioned for or briefed. There is an additional complication brought by the fact that the First Department also ordered fee shifting in this matter. The “underlying purpose of the fee-shifting provisions of the Mental Hygiene Law [are] to discourage frivolous petitions.” In re Petty, 256 A.D.2d 281,283 (1st Dept. 1998). In fact, it is an “improvident” exercise in discretion to order fee shifting under this provision when there is “a lack of evidence that the proceeding was brought in bad faith.” Matter of Marjorie T v. Sherwood, 84 A.D.3d 1255, 1255 (2nd Dept. 2011). Because this is a motion to dismiss brought by the PN-Defendants, the Plaintiffs are entitled to every favorable inference. At this stage of litigation, the ending statement in the Appeal Order could potentially be referring to the lack of motions or briefs relating to NYCRR § 130. There is a possible reasonable inference that the First Department had not decided on the merits regarding whether the Guardianship Proceeding was, at least to some degree, frivolously brought. It is not conclusively settled that the First Department decided on the merits that there had been no amount of bad faith connected to bringing that proceeding. Furthermore, under the balance of considerations that the Court of Appeals directs courts to consider in Simmons and given that there are allegations by Plaintiffs as to information about the role of the FBI in these matters that they have obtained after the Appeal Order was issued,the Court declines at this stage to say that the Appeal Order bars Plaintiffs from bringing their claims. Certainly, to extrapolate that sentence into an understanding that the present suit in its entirety, including as it does claims not actually litigated in the vacated Guardianship Proceeding and against parties who were not parties in that proceeding, would not be proper at this junction. Therefore, the motion to dismiss the second amended complaint on the grounds of res judicata and collateral estoppel is denied.”

We will discuss the remaining claims in the next edition.