In this case, for the statute of limitations it makes a great deal of difference whether the work being performed by professionals (accountants) was by the month or by the tax year.  Calculation of the statute of limitations is strongly affected by this determination.

Lobel Chem. Corp. v Petitto   2016 NY Slip Op 30273(U)  February 16, 2016  Supreme Court, New York County  Docket Number: 653226/14  Judge: Kelly A. O’Neill Levy delves into how to calculate the statute.

“The first amended complaint (complaint) alleges that, in 1991, pursuant to an oral agreement, plaintiff, Lobel Chemical Corporation (Lobel or the Company) retained RSSMC to: 1) supervise Lobel’ s bookkeeper; 2) oversee the bookkeeping and accounting issues concerning its business and finances; and 3) prepare Lobel’s tax returns and represent the Company at tax audits. Petitto, a certified public accountant employed by RSSMC, provided accounting services for Lobel from the inception of the parties’ relationship (Anesh aff, exhibit A,~ 7). In 2004, Lobel’s longtime bookkeeper retired and Petitto recommended that the Company hire nonparty Meredith Conyers (Conyers), Lobel’s assistant bookkeeper, to fill the vacant position. Petitto also recommended that the Company install specialized accounting software (Peachtree) to assist Conyers in the preparation of reports for general accounting and tax preparation purposes (id., ~~ 13-15). According to plaintiff, it was Petitto’s responsibility to train Conyers in the use of Peachtree and to review the income and expense statements, bank statements, and bank reconciliations that Conyers provided (id.,~ 16). However, the complaint alleges that Petitto allowed Conyers to create a non-Peachtree methodology for listing uncleared checks and performing cash reconciliations, despite the fact that Peachtree had a built-in cash reconciliation report (id., ~ 17). Lobel contends that Petitto failed to address obvious discrepancies between Conyers’s monthly reconciliations and monthly bank statements and he failed to detect that Conyers’s monthly bank reconciliations did not balance (id., ~~ 18, 19). Because Conyers realized that Petitto was not reviewing her monthly reports, in November and December 2005, she forged the Company’s signature on three checks made payable to herself. After the checks cleared, they were either omitted or deleted from Peachtree (id.,~ 21 ). These omissions were not detected and, thereafter, between 2006 and 2013 Conyers forged checks, payable to herself, for more than $500,000. ”

“In 2011, Steven Lobel, the Company president, began questioning discrepancies between his own estimates of the Company’s gross profits and documents that Petitto was reviewing to determine operating expenses. Petitto explained that the discrepancies could be easily explained by simple adjustments between payables and receivables for a few items (Steven Lobel aff, ,-i 14). However, in 2012, when the Company reported a large, unexpected loss, Steven Lobel asked his sister, Rhona Lobel, the Company’s vice president, to look into the finances. Rhona Lobel began to monitor the Company’s cash flow more closely and in January 2014, she discovered Conyers’s embezzlement (id., ,-i 16, 17). In May 2014, Conyers was indicted on two counts of grand larceny and 43 counts of forgery. She pied guilty in April 2015. Lobel commenced this action in 2014 alleging accounting malpractice (first cause of action), fraud (second cause of action), unjust enrichment (third cause of action), breach of contract (fourth cause of action) and gross negligence (fifth cause of action).’ Lobel seeks to recoup the embezzled funds and the accounting fees paid to RSSMC. In addition, the Company seeks exemplary damages. ”

“The relevant statute of limitations is CPLR 214 (6), which provides that an action for non-medical professional malpractice must be commenced within three years of the date of accrual. “A claim accrues when the malpractice is committed, not when the client discovers it” (Williamson v PricewaterhouseCoopers LLP, 9 NY3d 1, 7-8 [2007]). However, the continuous representation doctrine tolls the statute of limitations in circumstances where the continuous representation is “in connection with the specific matter directly in dispute, and not merely the continuation of a general professional relationship” (Ackerman v Price Waterhouse, 252 AD2d 179, 205 [1st Dept 1998]). “The continuous representation … doctrine[] recognize[s] that a person seeking professional assistance has a right to repose confidence in the professional’s ability and good faith, and realistically cannot be expected to question and assess the techniques employed or the manner in which the services are rendered” (Williamson, 9 NY3d at 9 [internal citation and quotation marks omitted]). “[P]laintiffs [have] the burden of demonstrating that the continuous representation doctrine applie[ s ], or at least there [is] an issue of fact with respect thereto” (CLP Leasing Co., LP v Nessen, 12 AD3d 226, 227 [I5t Dept 2004]). Here, defendants contend that plaintiff used RSSMC’s services for annual tax preparation and auditing services, which constitute separate and discrete services for each year, and thus the application of the continuous representation doctrine is precluded (see Booth v Kriegel, 36 AD3d 312, 315 [1st Dept 2006] [where a professional advises a client in a series of discrete and severable transactions, the performance of services in each successive transaction does not toll the running of the statute of limitations]). According to defendants, all of Lobel’s claims that accrued prior to October 2011 are time-barred . However, in this case, Lobel has alleged evident.”

“Since the facts alleged in the complaint are accepted as true on a motion to dismiss and are viewed in a light most favorable to plaintiff, Lobel’s pleading is sufficient to establish that the parties mutually contemplated that RSSMC’s work would continue on a monthly basis and that Petitto’s work was not limited to annual tax preparation and audit review. The complaint alleges that from 2004 through 2013, Petitto advised Lobel regarding hiring a bookkeeper and installing the Peachtree software, and that the parties contemplated that Petitto would supervise the bookkeeper, perform monthly reconciliations and internal audits, and advise Steven Lobel on ongoing financial concerns and decisions facing the business enterprise (Anesh aff, exhibit A, ~~ 7, 16, 26, 27). Here, there was no written agreement that outlined the services to be provided. Rather, the parties appear to have contemplated an ongoing relationship that was based on trust and good faith. Accordingly, based on the pleadings and affidavits submitted on the motion to dismiss, the continuous representation doctrine applies and plaintiffs accounting malpractice claims for the years 2004 through October 11, 2011 are not time-barred.”

Clients hired attorneys to set up and oversee a trust.  The funding for the trust was from life insurance policies.  The attorneys were tasked with making sure the insurance policies stayed in effect.  Then…

Ianiro v Bachman  2015 NY Slip Op 06709 [131 AD3d 925]  September 2, 2015  Appellate Division, Second Department tells us that this case presents a well-pled cause of action.

“In an action to recover damages for legal malpractice, the defendant appeals from so much of an order of the Supreme Court, Rockland County (Garvey, J.), dated October 30, 2014, as denied that branch of her motion which was to dismiss the amended complaint insofar as asserted by the Trustees and Owners of the Lowell Babington and Toni Babington Irrevocable Trust pursuant to CPLR 3211 (a).

Ordered that the order is affirmed insofar as appealed from, with costs.

The defendant, who is a lawyer, was retained by the plaintiff Lowell Babington and his wife, Toni Babington, to create and fund a trust of which the plaintiffs Carol Ianiro, Thomas Babington, and Margaret Onody serve as trustees (hereinafter collectively the trustee plaintiffs). The trust was funded with several policies which insured the lives of Lowell and Toni and which were previously owned by the trustee plaintiffs. The plaintiffs allege that the defendant allowed one of the policies on the life of Toni, who is now deceased, to lapse due to nonpayment. The plaintiffs commenced this legal malpractice action to recover the amount of the face value of the policy from the defendant. The defendant moved to dismiss the amended complaint pursuant to CPLR 3211 (a), asserting, among other things, that the trustee plaintiffs lack legal standing to maintain this action. The Supreme Court, inter alia, denied that branch of the motion which was to dismiss the complaint insofar as asserted by the trustee plaintiffs as trustees and owners of the trust.

The Supreme Court properly denied that branch of the defendant’s motion which was pursuant to CPLR 3211 (a) (7) to dismiss the amended complaint insofar as asserted by the trustee plaintiffs. As the court correctly found, the trustee plaintiffs stand in a position analogous to that of the personal representative of an estate, and therefore, possess the requisite privity, or a relationship sufficiently approaching privity, to maintain an action alleging legal malpractice against the defendant (see generally Estate of Schneider v Finmann, 15 NY3d 306[2010]).

Moreover, the Supreme Court properly determined that the plaintiffs, in opposition [*2]to the defendant’s prima facie showing that the action was time-barred, raised a triable issue of fact as to the applicability of the continuous representation doctrine to toll the statute of limitations (see CPLR 203 [a]; 214 [6]; Pellati v Lite & Lite, 290 AD2d 544, 545 [2002];Kennedy v H. Bruce Fischer, Esq., P.C., 78 AD3d 1016, 1017 [2010]).”

Sometimes short and concisely written opinions contain much information. Today, we continue with  Jefferson Apts., Inc. v Mauceri  2016 NY Slip Op 26230  Decided on July 25, 2016  Supreme Court, Queens County  Ritholtz, J. are simple.  An accounting firm is hired to oversee the basic accounting needs of a corporation.  Lots of money is missing.  It takes a while to figure out that there is a problem.  What happens to the professional negligence suit?

CPLR 3211 Motions

“To obtain a dismissal pursuant to CPLR 3211 (a) (1), the defendant must establish that the documentary evidence which forms the basis of the defense be such that it resolves all factual issues as a matter of law and conclusively disposes of the plaintiff’s claim (see, Leon v Martinez, 84 NY2d 83 [1994]; see also, Sheridan v Town of Orangetown, 21 AD3d 365 [2005]).

CPLR 3211(a)(7) permits the court to dismiss a complaint that fails to state a cause of action. The complaint must be liberally construed and the plaintiff given the benefit of every favorable inference (see, Leon v Martinez, 84 NY2d 83, supra; Aberbach v Biomedical Tissue Servs., Ltd., 48 AD3d 716 [2008]; Mitchell v TAM Equities, Inc., 27 AD3d 703 [2006]). The Court must also accept as true all of the facts alleged in the complaint and any factual submissions made in opposition to the motion (see, 511 W. 232nd Owners Corp. v Jennifer Realty Co., 98 NY2d 144 [2002]; Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409 [2001]; Alsol Enters., Ltd. v Premier Lincoln-Mercury, Inc., 11 AD3d 493 [2004]).

If a court can determine that the plaintiff is entitled to relief on any view of the facts stated, its inquiry is complete and the complaint must be declared legally sufficient (see, Campaign for Fiscal Equity, Inc. v State of New York, 86 NY2d 307, 318 [1995]; see also Sokoloff v Harriman Estates Dev. Corp., 96 NY2d 409 [2001]; Stucklen v Kabro Assoc., 18 AD3d 461 [2005]). Although factual allegations contained in the complaint are deemed true, bare legal conclusions and alleged facts that are flatly contradicted by the record are not entitled to a presumption of truth (see, Lutz v Caracappa, 35 AD3d 673, 674 [2006]; Matter of Loukoumi, Inc., 285 AD2d 595 [2001]; accord, Guggenheimer v. Ginzburg, 43 NY2d 268, 275 (1977) (“[T]he sole criterion is whether the pleading states a cause of action, and if from its four corners, factual allegations are discerned, which taken together, manifest any cause of action cognizable at law a motion for dismissal will fail.”); Sabre Real Estate Grp., LLC v. Ghazvini, 140 AD3d 724 [2016] (reversing complaint’s dismissal); Hooker v. Magill, 140 AD3d 589 [2016] (“Plaintiff’s pleadings and sworn statements in opposition to the motion, when viewed in the light most favorable to her and all reasonable inferences drawn in her favor, state a legally sufficient claim.”); Hutchison v. Kings Cty. Hosp. Ctr., 139 AD3d 673 [2016]; Fough v. Aug. Aichhorn Ctr. for Adolescent Residential Care, Inc., 139 AD3d 665 [2016]; Soldatenko v. Village of Scarsdale Zoning Bd. of Appeals, 138 AD3d 1002 [2016]; Fedele v. Qualified Pers. Residence Trust of Doris Rosen Margett, 137 AD3d 965 [2016]; Butler v. Magnet Sports & Entertainment Lounge, Inc., 135 AD3d 680, 680-681, lv. to appeal dismissed, 27 NY3d 1032 [2016]; E & D Grp., LLC v. Vialet, 134 AD3d 981, 982 [2015] (“[T]he criterion is whether the [plaintiff] has a cause of action, not whether he [or she] has stated one, and, unless it has been shown that a material fact as claimed by the [plaintiff] to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, dismissal should not eventuate.”); Sokol v. Leader, 74 AD3d 1180, 1180-1181 [2010] (“Whether a plaintiff can ultimately establish its allegations is not part of the calculus.”); Cooper v. 620 Props. Assocs., 242 AD2d 359, 360 [1997] (“If from the four corners of the complaint factual allegations are discerned which, taken together, manifest any cause of action cognizable at law, a motion to dismiss will fail.”).”

If one reads enough litigation cases, the frequency of intra-family discord over money is striking.  If one speaks with potential clients, the frequency is even more striking.  Brother against brother, sibling against sibling and parents against children are more the norm than the exception.  Kaplan v Valley Natl. Bank  2016 NY Slip Op 51108(U)  Decided on July 20, 2016  Supreme Court, Suffolk County  Emerson, J. is as good an example as there is.

Mom puts her estate into a trust for the father, with the remained to the children.  Good so far?  It is a recipe for years of discord.  “The plaintiff’s mother, Marilyn Kaplan, executed a will in 1994, leaving her interest in the home that she shared with her husband, Donald, in trust to him and giving him a life estate therein (the “Jericho property”). She also left approximately $250,000 in cash and securities (the “Family Part Sum”) in trust to Donald to be used for his benefit. She appointed Donald and their two sons, Bruce and Daniel, as the trustees. Bruce and Daniel were also the remaindermen of the trust. The trust allowed Donald to withdraw up to 5% of the principal each year and allowed Bruce and Daniel to make discretionary withdrawals to ensure that Donald enjoyed the same standard of living that he enjoyed when Marilyn’s will was executed in 1994. Marilyn died shortly after executing the will. By 2005, the Family Part Sum was depleted and, except for the real property, there was no principal remaining in the trust.

The Jericho property was sold in 1997, and the trust used the proceeds of the sale to purchase a home in Melville, New York, which was sold in 2003. The trust used the proceeds of the second sale to purchase a two-thirds interest in another home in Melville (the “Altessa property”), the one-third owner of which was Donald’s second wife, Elaine Britvan. Elaine died in 2012, and the Altessa property was sold in 2013 for $1.33 million. Bruce was not advised of the sale. After the closing costs were paid, the proceeds of the sale were divided as follows: $174,310.28 to Bank of America to satisfy a mortgage on the property, $670,494.39 to the trust, and $422,410.33 to the Britvan estate. Donald and Daniel then opened a new trust account at Valley National Bank (the “Valley National account” or “trust account”) without making Bruce a signatory thereon and without disclosing to the bank that Bruce was a beneficiary and trustee of Marilyn’s trust. They deposited $670,494.39 into that account.^[FN1] In January 2014, $83,500 was transferred from the Valley National account to Donald’s personal account. When Donald died in September 2014, there was approximately $588,000 remaining in the Valley National account. The balance was distributed to Bruce and Daniel pursuant to the terms of Marilyn’s will. On [*2]December 5, 2014, Bruce and Daniel executed a mutual release acknowledging their receipt of $212,500 and $360,500, respectively, and releasing each other from any and all claims with respect to the trust’s principal and accumulated interest. $15,000 was held in escrow to pay, inter alia, legal fees and other expenses. After the escrow was released, Bruce received another $6,500 for a total of $219,000.”

“The plaintiff’s claims against the Bodian defendants are based on their purported plan to siphon equity away from the House Trust to Donald for his personal use, culminating in the undisclosed sale of the Altessa property and diversion of the proceeds of the sale. The plaintiff alleges causes of action against the Bodian defendants sounding in conversion, aiding and abetting conversion, tortious interference with Marilyn’s will and trust, negligence, malpractice, and violation of Judiciary Law § 487.

To establish a cause of action for legal malpractice, the plaintiff must demonstrate the existence of an attorney-client relationship (see, Gleason v Chase, Sup Ct, Westchester County, Sept. 15, 2009, Scheinkman, J. [2009 WL 6849874] [and cases cited therein]). When the relationship of the parties fails to reveal actual privity or a relationship that closely resembles privity, no cause of action for malpractice exists (Id.). Privity does not depend on an express agreement or payment of a fee (Id.). Instead, courts look to the actions of the parties to ascertain the existence of such a relationship to see if there was an explicit undertaking to perform a specific task (Id.). In addition, the plaintiff must allege that the attorney was aware that his services were being used for a specific purpose, that the plaintiff relied upon those services, and that the attorney engaged in some conduct evincing an understanding of the plaintiff’s reliance (Id.).

Clearly the plaintiff, who was not even aware of the sale of the Altessa property, cannot demonstrate the existence of a relationship of actual privity, or even one that closely resembles privity, with the Bodian defendants. Instead, he argues that he had an attorney-client relationship with the Bodian defendants because he was a trustee of Marilyn’s trust.

Marilyn’s will gave the trustees the power “to sell any stock, bond, security, or other real or personal property.” When, as here, there are three or more trustees and nothing to the contrary in the will, a majority is needed to exercise a power (see, EPTL 10-10.7). Since Donald and Daniel were a majority of the three trustees, they properly exercised the power to sell the trust’s two-thirds share of the Altessa property, which was owned by the trust and the Britvan estate. The Bodian defendants represented the sellers in connection with the sale. Thus, any cause of action for malpractice arising out of the sale must be maintained by the trust and/or the Britvan estate. The plaintiff cannot commence an action on the trust’s behalf without the consent of the other surviving trustee. As previously discussed, when there are two surviving fiduciaries and nothing to the contrary in the will, the two fiduciaries must act together (see, EPTL 10-10.7). Since the plaintiff may not act alone on the trust’s behalf, he does not have standing to maintain an action against the Bodian defendants in connection with the sale.

The plaintiff argues that, at the very least, he had an attorney-client relationship with the Bodian defendants as a third-party remainder beneficiary of the trust.

Absent a showing of fraud or collusion or of a malicious or tortious act, an attorney is not liable to third parties for purported injuries caused by services performed on behalf of a client or advice offered to that client (Four Finger Art Factory, Inc. v Dinicola, US Dist Ct, SDNY, Jan. 9, 2001, Koeltl, J. [2001 WL 21248] at *7 [and cases cited therein]). Liberally construing the complaint, accepting the alleged facts as true, and giving the plaintiff the benefit of every possible favorable inference (Leon v Martinez, 84 NY2d 83, 87-88), the court finds that the plaintiff’s allegations do not support an inference that the Bodian defendants acted in bad faith, committed fraud, or acted in an otherwise tortious or malicious way. The plaintiff’s allegations that the Bodian defendants colluded with Donald and Daniel to divert the proceeds of the sale of the Altessa property are conclusory and unsupported by the evidence. The record does not support an inference that the Bodian defendants acted other than in their capacity as attorneys for the trust and the Britvan estate. As previously discussed, Donald and Daniel, as two of the three trustees, had the power act on behalf of the trust and to sell its two-thirds share of the Altessa property. Moreover, the documentary evidence reflects that the proceeds of the sale were used to pay the expenses of the sale, the mortgage on the property, and the Britvan estate. The remaining funds were deposited into the Valley National trust account. There is no evidence in the record to suggest that the Bodian defendants retained any of the proceeds of the sale. When, as here, an attorney acts within the scope of an agency relationship and is not motivated by personal gain, the attorney is not liable to third parties (Four Finger Art Factory, supra, citing Kartiganer Assoc. v Town of New Windsor, 108 AD2d 898; see also Pancake v Franzoni, 149 AD2d 575). Accordingly, the eighth cause of action for malpractice is dismissed.

In view of the foregoing, the plaintiff’s remaining claims against the Bodian defendants, which arise from the same facts and allege the same damages, are also dismissed. Accordingly, the ninth cause of action is dismissed, and the fourth through seventh causes of action are dismissed insofar as they are asserted against the Bodian defendants.”

Can there be a more complex financial undertaking than getting involved in new stock offerings for a China coal company?  The due diligence was assigned to the defendants as well as Kroll Investigators.  Kroll seems to have gotten it right, while both the attorneys and the client missed the most obvious notes written into the report.  Who might be liable?

Macquarie Capital (USA) Inc. v. Morrison & Foerster, LLP, , Supreme Court, New York  County, Justice Saliann Scarpulla, Index No. 650988 works it way through various defenses.  There is no in pari delicto because this was negligence on everyone’s part, not fraud.  However, there is no proximate case, and the case is to be dismissed.

“Moreover, I find that the complaint must be dismissed because Macquarie has not sufficiently alleged a claim for legal malpractice, specifically, has failed sufficiently to allege proximate cause. A cause of action for legal malpractice requires “three essential elements: (1) the negligence of the attorney; (2) that the negligence was the proximate cause of the loss sustained; and (3) proof of actual damages.” Prudential Ins. Co. v. Dewey Ballantine, 170 A.D.2d 108, 114 (1st Dept. 1991) affd 80 N.Y.2d 377 (1992). To establish proximate cause, a plaintiff must demonstrate that but for the attorney’s negligence, he or she would have prevailed in the underlying matter or would not have sustained any ascertainable damages. The failure to establish proximate cause mandates the dismissal of a legal malpractice action, regardless of the attorney’s negligence. Brooks v. Lewin, 21 A.D.3d 731, 734 (1st Dept. 2005). Macquarie alleges that it hired Morrison, based on its expertise in China-related transactions, to perform due diligence for the transaction and to gain a full understanding of the operating and ownership structure of Puda and its subsidiaries. Macquarie further alleges that Morrison egregiously failed in its duty to carry out its assigned due diligence by neglecting to uncover a crucial component of Puda’s ownership structure, and also failing to pick up on the discovery made by Kroll as set forth in the Kroll Report. However, Morrison’s failures cannot be deemed to have proximately caused Macquarie’s damages, because Macquarie was also in possession of this critical information. See Ableco Fin. LLC v. Hilson, 109 A.D.3d 438 (l st Dept. 2013).

In light of the Court’s holding in the Ableco case that the legal malpractice claim should have been dismissed based on the information the plaintiff “indisputably possessed,” the legal malpractice claim here must be dismissed as well. The allegations of the complaint clearly state that Macquarie possessed the Kroll Report, and the crucial information contained therein, prior to the closing of the transaction. While Macquarie seeks to distinguish this case from Ableco, in that this case resolves a motion to dismiss and Ableco resolved a motion for summary judgment after the completion of discovery, the relevant evidence here was available and referenced in the complaint, specifically the Kroll Report, and was indisputably possessed by Macquarie prior to the closing. Macquarie further argues that proximate cause may ultimately be proven because discovery would reveal that it lacked “actual knowledge” of the subject information in the Kroll Report before the closing. However, in Ableco the Fi~st Department dismissed plaintiff’s malpractice claim based on plaintiff’s possession of the information, not plaintiff’s Subjective understanding of the significance of the information. As it is undisputed here that Macquarie had the information that it complains Morrison failed to uncover, the element of proximate cause cannot be proven, and the legal malpractice claim must be dismissed. “

Plaintiff pled a Judiciary Law § 487 claim, but it did not survive a motion to dismiss.  The Appellate Division reviews.  What did it have before it, and how does it proceed?

Gumarova v Law Offs. of Paul A. Boronow, P.C.  2015 NY Slip Op 05155 [129 AD3d 911]
June 17, 2015  Appellate Division, Second Department shows us that the pleadings have to connect a claim of deceit to actual damages, and that damages will definitely not be presumed.

“Judiciary Law § 487 provides that an attorney who “[i]s guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party” is guilty of a misdemeanor, and “forfeits to the party injured treble damages, to be recovered in a civil action.” “Since Judiciary Law § 487 authorizes an award of damages only to ‘the party injured,’ an injury to the plaintiff resulting from the alleged deceitful conduct of the defendant attorney is an essential element of a cause of action based on a violation of that statute” (Rozen v Russ & Russ, P.C., 76 AD3d 965, 968 [2010]).

Here, the Supreme Court properly granted that branch of the defendants’ motion which was pursuant to CPLR 3211 (a) (7) to dismiss the cause of action alleging a violation of Judiciary Law § 487. The cause of action alleging a violation of Judiciary Law § 487 fails to sufficiently allege that the plaintiff suffered an injury proximately caused by any alleged deceit or collusion on the part of the defendants, and no such injury can reasonably be inferred from the allegations in the complaint (see Bohn v 176 W. 87th St. Owners Corp., 106 AD3d 598, 600 [2013]; Rozen v Russ & Russ, P.C., 76 AD3d at 968). Chambers, J.P., Hall, Cohen and Miller, JJ., concur.”