Privity, a concept which applies to almost no contractual relationships anymore, is the overriding reason that the legal malpractice claims in this case were dismissed.  Once upon a time, privity was necessary in order to win a products liability case.  No more is it necessary.  Once upon a time, privity was necessary in a variety of other contract cases.  Today, strict liability is the rule.  However, in legal malpractice cases, social and legal policy remain in place.

Magder v Lee  2015 NY Slip Op 32254(U)  November 23, 2015  Supreme Court, New York County
Docket Number: 653917/14  Judge: Saliann Scarpulla is the story of a movie production coming apart.

“2012, plaintiff and nonparty Quintin Cline (“Cline”) collaborated on a screenplay titled “Dining with Alex” (“screenplay”). On May 28, 2013, the United States Copyright Office issues a Certificate of Registration for the screenplay. In order to produce and distribute a feature film based on the screenplay (“project”), Magder entered discussions with Lee. Lee allegedly promised to secure 80 percent of the financing from Chinese investors, who would, in exchange, receive the right to distribute the film in China. Accordingly, MFCG, “the LLC vehicle Lee used to the [sic] finance the Project,” entered into a “Co-Production Agreement” (“CoProduction Agreement”) with Weishen (Shanghai) Film and Television Media Development LTD. (“Weishen”), the primary Chinese investor, regarding the production and distribution of the Chinese version of the film.

Magder, Lee and MFCG formed DWA to “serve as the vehicle for developing, financing, producing, distributing and otherwise engaging in transactions in connection with the Project.” Lee and plaintiff filed DWA’s Articles of Organization on May 23, 2014. Magder also recruited Bongirne to be a producer for the project. According to the complaint, in June 2014, Lee and Bongirne hired the Jacobson defendants as D WA’ s legal counsel. Allegedly, Magder first became aware of the engagement through an email from Jacobson, dated June 7, 2014, which “confirm[ed] the arrangement to retain MJPC.” Magder allegedly objected to the $100,000 retainer, but Lee signed the agreement without her and “Jacobson then held himself out to be not only DWA’s legal counsel, but as ‘production counsel.”‘ As alleged by Magder, “[a]lthough [she] did not approve of his engagement, upon Jacobson’s formal retention as DWA’s legal counsel, [Magder] requested that Jacobson keep her apprised of all communications regarding business arrangements and negotiations in connection to the Project.”

On June 12, 2014, Magder and Cline entered into a “Purchase Agreement” with MFCG (“purchase agreement”), pursuant to which MFCG agreed to pay $65,200 for the rights to the screenplay. Magder and Cline were to be paid pursuant to a payment schedule, which included a payment upon payment to Ross Katz (“Katz”), whom DW A hired to rewrite the script. The purchase agreement also provided: “[n]otwithstanding anything contained herein, it is understood and agreed that [MFCG’s] decision in connection with any and all creative decisions and business decisions in connection with the Picture shall be final and binding.” [many facts omitted here]

“The Jacobson defendants argue that the malpractice claim must be dismissed for lack of privity and failure to state actual damages proximately caused by the Jacobson defendants’ alleged negligence. Additionally, the Jacobson defendants assert that the complaint fails to states a claim for breach of fiduciary duty. “An action for legal malpractice requires proof of the attorney’s negligence, a showing that the negligence was the proximate cause of the plaintiffs loss or injury, and evidence of actual damages.” Pellegrino v File, 291AD2d60, 63 (1st Dept 2002). While “[p ]laintiff is not obliged to show, at this stage of the pleadings, that [she] actually sustained damages,” she must plead “allegations from which damages attributable to [defendant’s conduct] might be reasonably inferred.” lnKine Pharm. Co. v Coleman, 305 AD2d 151, 152 (1st Dept 2003) (internal quotation marks and citation omitted). “Moreover, [plaintiff] must plead specific factual allegations establishing that but for counsel’s deficient representation, there would have been a more favorable outcome to the underlying matter.” Dweck Law Firm v Mann, 283 AD2d 292, 293 (1st Dept 2001). Generally, “New York courts impose a strict privity requirement to claims of legal malpractice; an attorney is not liable to a third party for negligence in performing services on behalf of his client.” Lavanant v General Acc. Ins. Co. of Am., 164 AD2d 73, 81 ( 1990), afld 79 NY2d 623 ( 1992). However, courts will permit a malpractice claim, in the absence of privity, where the “relationship sufficiently approach[ es] privity,” (Estate of Schneider v Finmann, 15 NY3d 306, 309 [201 O]) or where a third party suffers harm as a result of “professional negligence in the presence of fraud, collusion, malicious acts or other special circumstances.” Good Old Days Tavern v Zwirn, 259 AD2d 300, 300(1st Dept 1999); see also Green v Fischbein Olivieri Rozenholc & Badillo, 119 AD2d 345, 350 (1st Dept 1986) (“an attorney may be held liable to a nonclient as a consequence of the attorney’s wrongful or improper exercise of authority, or where the attorney has committed fraud or collusion or a malicious or tortious act” [internal quotation marks and citations omitted]). A claim of fraud or collusion must be stated with particularity. CPLR 3016 (b ); see Griffith v Medical Quadrangle, 5 AD3d 151, 152 (1st Dept 2004). To establish a breach of fiduciary duty claim, a plaintiff must allege: (1) the existence of a fiduciary relationship; (2) misconduct by the defendant; and (3) damages. Burry v Madison Park Owner LLC, 84 AD3d 699, 700 (1st Dept 2011). Where the claim for breach of fiduciary duty is “premised on the same facts and seek[ s] the identical relief sought in the legal malpractice cause of action, [it] is redundant and should be dismissed.” Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 271 (1st Dept 2004); see also lnKine Pharm. Co., 305 AD2d at 152. Here, the complaint states that Jacobson was in an “attorney-client relationship with [DWA].” While plaintiff contends that, as a managing member of DWA, she may maintain a malpractice claim in her own right, “[i]t is well settled that a corporation’s attorney represents the corporate entity, not its shareholders or employees.” Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 562 (2009) (stating that a law firm’s representation of a “limited partnership, without more, did not give rise to a fiduciary duty to the limited partners”). Good Old Days Tavern (259 AD2d at 300), upon which plaintiff relies, does not require a different result. There, the court allowed the president and sole shareholder of a corporation to pursue a personal malpractice claim against the corporation’s attorney, because their relationship was “tantamount to one of contractual privity.” Id. at 300. Here, the complaint is devoid of allegations that Jacobson’s relationship with plaintiff approached privity and, in fact, plaintiff had her own attorney during the negotiations of the agreements and the subsequent dispute. Therefore, Good Old Days Tavern is distinguishable on its facts. The complaint fails to allege that an attorney-client relationship existed between Magder and the Jacobson defendants. ”