Brother and friend have a Canon brand office automation equipment business.  Problem is that they have criminal records and Canon won’t work with them.  They turn to Sister, who is an employee of the company.  She gets all the stock, and with it, all the debts.  Brother and friend have the right to buy back the stock for $ 10,000.  It all ends badly for the sister.  When the law firm represents Brother, Sister and Friend, is it legal malpractice?

Mattiucci v Brach Eichler, LLC  2014 NY Slip Op 32324(U)  August 21, 2014  Supreme Court, New York County  Docket Number: 152238/14  Judge: Nancy M. Bannon says no, it is not legal malpractice.

"In this action seeking damages for legal malpractice, the plaintiff, who agreed to be named sole shareholder, director, and officer of a corporation, complains that the defendant  attorneys were negligent in allowing her to do so and, notwithstanding a signed waiver, complains that the defendants had a conflict of interest in simultaneously representing her  business partners. The defendants move to dismiss the complaint on the grounds of failure to state a cause of action (CPLR 3211 [a][?)) and upon documentary evidence (CPLR 3211 [a][1])   The motion is granted.

On December 4, 2008, the plaintiff, Catherine Mattiucci, along with her brother Anthony  Grimaldi, and a third individual, Steve Hernandez, retained defendant Jay Freireich, an attorney, to represent them regarding the acquisition of a company called EZ Docs, Inc. ("EZ Docs") from Empire Technology Inc., a separate company owned by Grimaldi and Hernandez. EZ Docs is in the business of selling Canon brand office automation equipment. the parties acknowledge that Canon was unwilling to permit Grimaldi or Hernandez to have any ownership interest in a Canon licensed dealership due to their criminal records. Therefore, defendant Freireich prepared an Option to Purchase Stock Agreement which provided that plaintiff owned 100% of the common stock of EZ Docs., and granted the exclusive option to Grimaldi and Hernandez to purchase all of EZ Docs’ stock for $10,000. On March 19, 2009, the plaintiff, Grimaldi, and Hernandez executed a retainer agreement which read in pertinent part: [* 1]"You do hereby acknowledge that you have requested this office to represent you with respect to your interests and you understand that I represent all three of you in this matter. You understand and are fully aware that, based upon the
circumstances of such representation your separate interests may be adverse to  the other’s interests and that you each have the opportunity to be represented by separate counsel.
Notwithstanding such possible adversity of interest and conflict, you do desire  this office to represent you in connection with your interests. You understand that at any time, you may terminate this office’s representation of you and retain separate counsel to represent your interests. Further this office may likewise terminate our representation of you in the event we believe it is impossible to represent you due to your adverse interests." Due to the plaintiff’s concerns over her exposure to claims from creditors and taxing authorities as sole shareholder, director, and officer of EZ Docs, Freireich prepared an indemnification agreement. The agreement provided that Grimaldi and Hernandez would indemnify the plaintiff for "any and all liability to make payments under any obligation arising by and through her retention of shares, directorship or acting as officer" of EZ Docs. Defendant Freireich then prepared a Nominee Declaration which provided that the plaintiff acted as nominee for Grimaldi and Hernandez because Canon was not willing to grant any ownership interest in a Canon licensed dealership to Grimaldi or Hernandez.

According to the plaintiff, she was actually a mere employee of the company while Grimaldi and Hernandez were the shareholders, officers, and directors. However, beginning in 2011, she was sued as an officer, director, and shareholder of EZ Docs, Inc. in a number of suits alleging fraud and other causes of action. In addition to incurring legal fees in defending these actions, plaintiff received K-1s from EZ Docs Inc. attributing distributions to her as income which she did not actually receive. In November 2011, Grimaldi and Hernandez terminated the plaintiff’s employment and she was unable to collect unemployment insurance benefits due to her documented position as sole shareholder, director, and officer of the company.

Finally, an "applicable principle in this case is that a [party] cannot benefit from [her] own wrongdoing." Zumpano v Quinn, 6 NY3d 666, 685 (2006). The plaintiff knowingly participated in a scheme to acquire a business with her brother and friend and then, when the arrangement she agreed to resulted, not unexpectedly, in her being named as a defendant in legal actions against the company and being ousted by her partners, turned to her attorneys for relief by claiming they committed malpractice by allowing her to participate in that arrangement, notwithstanding her signed waivers. To allow the action to proceed would be to countenance this scheme, and the court declines to do so. In any event, as discussed above, the plaintiff fails to sufficiently allege the essential elements of a claim of malpractice. "