In Pu v. Mitsopoulos, Supreme Court, New York County recalls what every CLE program tells its audience:  Fee suits invite legal malpractice counterclaims.  Invariably, the suing attorney says that the counterclaim has no merit, and that it is sour grapes, and motivated solely by a deadbeat who refuses to pay wholly justified legal fees for work well done.

Here, the situation seems just a little different.  Plaintiff represented defendants when a franchisor sued the defendant-pharmacist over unpaid royalties.  Defendant, who became educated through the litigation, arbitration, appeals and other proceedings, says that the franchisor never had the right to sue in NY courts; it was a foreign corporation doing business in NY and had not paid taxes.  Under Business Corporation Law section 1312, a foreign corporation which conducts business in the state without authority cannot maintain an action in the state, and any action initiated by that corporation must be dismissed.

So, reasons defendant, a simple motion to dismiss would have succeeded, and a debt of $ 231,000 would not have turned into a total debt of $ 1,2 Million.  Who is right?

Justice Feinman, for the Court, found that defendant’s counterclaims have merit, and has allowed the case to go forward.