In the world of commercial litigation, intra-company claims often morph into legal malpractice cases. In LLCs one member may go against another member, in corporations, boards can split into majority/minority groups, each pitted against the other. When the LLC or the Corporation hired an attorney, to whom does that attorney owe an obligation? Put another way, who may sue that attorney for legal malpractice. Mirroring this question is whether a claim for breach of fiduciary duty can successfully be brought.
Exeter Law Group LLP v Wong 2016 NY Slip Op 32425(U) December 9, 2016 Supreme Court, New York County Docket Number: 161667/2014
Judge: Eileen A. Rakower takes a look at both of these questions, as will we.
The first counterclaim, asserting legal malpractice, alleges, “Exeter, Wong, Tan, and/or Tan Firm provided legal advice, services, and counseling to Counterclaim Plaintiffs [Day, Eisner, Immortalana and Salvaragen] relating to Immortalana and Salvaragen relating to corporate structuring and formation,” “each had an independent duty to counsel Immortalana and Salvaragen along with Day and Farias-Eisner in their capacity as individuals owning interests in each entity and as officers of each entity,” and “participated in, managed, supervised, directed, and controlled the legal representation of the corporate structuring and formation of Immortalana and Salvaragen, including taking steps to create each entity.”
“In seeking to dismiss the legal malpractice claim, the Exeter Parties argue that Day and Eisner lack standing to bring the legal malpractice claim “because as shareholders they had no standing to bring a direct action for injuries allegedly suffered by their corporations.” They further argue that Salvaragen and Immortalana lack standing to bring the claim because neither entity engaged Exeter or Wong, and no privity exists between them. Day, Eisner, Immortalana and Salvaregen, in tum, argue Day and Eisner “do not bring these claims as shareholders, but rather as individuals who were harmed when they relied on negligent representation by [Exeter and Wong] in structuring and forming their business ventures.” Day, Eisner, Immortalana and Salvaregen argue that Salvaragen and Immortalana have standing to bring the legal malpractice claim against the Exeter Parties because the Exeter Parties repeatedly undertook specific tasks on behalf of the corporate entities as reflected in the invoices and such services established an attorney-client relationship. ”
“”To determine whether an attorney-client relationship exists, a court must consider the parties’ actions.” (Pellegrino v Oppenheimer & Co., Inc., 49 A.D. 3d 94, 99 [1st Dept 2008] [citations omitted]). “[A]n attorney-client relationship is established where there is an explicit undertaking to perform a specific task.” (Id.). While the existence of an attorney-client relationship is not dependent upon the payment of a fee or an explicit agreement, a party cannot create the relationship based on his or her own beliefs or actions. (Id.). See Jane St. Co. v Rosenberg & Estis, P.C., 192 A.D. 2d 451, 451 [1st Dept 1993] (holding “[t]here is nothing in the record to indicate that defendant law firm either affirmatively led plaintiff to believe it was acting on plaintiffs behalf or knowingly allowed plaintiff to proceed under this misconception.”). In order to defeat a motion to dismiss, a party must plead facts showing the privity of an attorney-client relationship, or a relationship so close as to approach privity. (Cal. Pub. Employees Ret. Sys. v. Shearman & Sterling, 95 N.Y.2d 427, 434 [2000] [affirming dismissal of legal malpractice claim for failure to plead actual privity or “a relationship so close as to approach that of privity”]). To show “a relationship so close as to approach that of privity,” or “near privity,” “[t]he evidence must demonstrate “( 1) an awareness by the maker of the statement that it is to be used for a particular purpose; (2) reliance by a known party on the statement in furtherance of that purpose; and (3) some conduct by the maker of the statement linking it to the relying party and evincing its understanding of that reliance.” Cal. Pub. Employees, 95 N.Y.2d at 434. “To show ‘near privity,’ a plaintiff must allege that the attorney was aware that its services were used for a specific purpose·, that the plaintiff relied upon those services, and that the attorney demonstrated an understanding of the plaintiffs reliance.” Candela Entertainment, Inc. v. Davis & Gilbert, LLP, 39 Misc 3d 1232(A) [Sup Ct 2013]. Here, to the extent that Day and Eisner bring claims as individuals who were harmed when they relied on alleged negligent representation by Exeter and Wong in structuring and forming their business ventures, they have stated a claim for legal malpractice. With respect to Immortalana and Salvaregen’s claims for legal malpractice, the lack of a retainer agreement between them and Exeter is not dispositive on the issue of whether there was an attorney-client relationship. Furthermore, Exeter’s Amended Complaint asserts causes of action for unjust enrichment and quantum meruit, seeking to recover for legal services they provided. Accordingly, accepting all facts as alleged in the pleading to be true and according the nonmoving party to the benefit of every possible inference, the first counterclaim for legal malpractice stands.”