Katz v Beil  2016 NY Slip Op 05977  Decided on September 14, 2016  Appellate Division, Second Department is an unusually long Appellate Division case which is unusually full of discussion of the various standards for motions, amendments and summary judgment.  Read it as a primer on litigation standards.

1.”Contrary to the plaintiffs’ contention, the Supreme Court, in the order entered January 11, 2013, properly directed the dismissal of the cause of action to recover damages for accounting malpractice asserted against the Finkle defendants. In considering a motion to dismiss pursuant to CPLR 3211(a)(7), a court is required to accept the facts as alleged in the complaint as true, accord the plaintiffs the benefit of every favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory (see Leon v Martinez, 84 NY2d 83, 87-88). Applying that standard here, the amended complaint failed to adequately allege the existence of actual privity of contract between the plaintiffs and the Finkle defendants, or a relationship so close as to approach that of privity, sufficient to impose a professional duty upon the Finkle defendants for the benefit of the plaintiffs (see Credit Alliance Corp. v Arthur Andersen & Co., 65 NY2d 536, 551; Signature Bank v Holtz Rubenstein Reminick, LLP, 109 AD3d 465, 466-467; Ideal Steel Supply Corp. v Anza, 63 AD3d 884, 885). Inasmuch as the amended complaint failed to adequately allege the existence of a duty owed by the Finkle defendants to the plaintiffs, it failed to state a cause of action against [*3]the Finkle defendants for accounting malpractice.”

2.”The plaintiffs also contend that the Supreme Court, in the order entered November 4, 2013, should have granted those branches of their motion which were pursuant to CPLR 3025(b) for leave to amend the amended complaint to assert shareholders’ derivative causes of action on behalf of the Operating Corp., derivative causes of action on behalf of the Partnership, and causes of action against the individual defendants to recover damages for breach of a partnership agreement and for certain declaratory and injunctive relief. CPLR 3025(b) provides that leave to amend a pleading “shall be freely given.” Accordingly, “leave should be given where the amendment is neither palpably insufficient nor patently devoid of merit, and the delay in seeking amendment does not prejudice or surprise the opposing party” (US Bank, N.A. v Primiano, 140 AD3d 857, 857; see HSBC Bank v Picarelli, 110 AD3d 1031, 1032). “[T]he legal sufficiency or merits of a claim need not be examined unless such insufficiency or lack of merit is clear and free from doubt” (Edwards v 1234 Pac. Mgt., LLC, 139 AD3d 658, 659). “A determination whether to grant such leave is within the Supreme Court’s broad discretion, and the exercise of that discretion will not be lightly disturbed” (Gitlin v Chirinkin, 60 AD3d 901, 902; see Galanova v Safir, 127 AD3d 686, 687).”

3.”Contrary to the Supreme Court’s conclusion, the remaining proposed derivative causes of action, which were directed against the individual defendants, were not palpably insufficient nor patently devoid of merit (see Business Corporation Law § 626[a]; Partnership Law § 115; see also Bremond Houses, Inc. v Lemle & Wolfe, Inc., 129 AD3d 584, 584-585; Caprer v Nussbaum, 36 AD3d 176, 187-188; Benedict v Whitman Breed Abbott & Morgan, 282 AD2d 416, 418; Shea v Hambro Am., 200 AD2d 371, 371-372; Zacma Cleaners Corp. v Gimbel, 149 AD2d 585, 586; cf. Walsh v Wwebnet, Inc.,116 AD3d 845, 847-848). Furthermore, contrary to the contention of the individual defendants, the plaintiffs were not required to submit evidence to demonstrate the merit of their proposed causes of action since “[n]o evidentiary showing of merit is required under CPLR 3025(b)” (Lucido v Mancuso, 49 AD3d 220, 229; see Clarke v Laidlaw Tr., Inc., 125 AD3d 920, 922-923). If the defendants “wish[ ] to test the merits of the proposed added cause[s] of action . . . [they] may later move for summary judgment upon a proper showing” (Lucido v Mancuso, 49 AD3d at 229). In light of the individual defendants’ failure to establish that they were prejudiced or surprised by the plaintiffs’ delay in seeking these amendments, the court should have granted leave to amend the amended complaint to assert shareholders’ derivative causes of action on behalf of the Operating Corp. and derivative causes of action on behalf of the Partnership with respect to the first, third, fourth, fifth, sixth, seventh, and ninth proposed causes of action in the [*4]proposed second amended complaint against the individual defendants (see generally Blue Diamond Fuel Oil Corp. v Lev Mgt. Corp., 103 AD3d 675, 676).

4.”The plaintiffs next contend that the Supreme Court erred in granting the Finkle defendants’ motion for summary judgment dismissing the cause of action alleging aiding and abetting breach of fiduciary duty, which was asserted against the Finkle defendants by the plaintiffs in their individual capacities. “A claim for aiding and abetting a breach of fiduciary duty requires: (1) a breach by a fiduciary of obligations to another, (2) that the defendant knowingly induced or participated in the breach, and (3) that plaintiff suffered damage as a result of the breach” (Kaufman v Cohen, 307 AD2d 113, 125; see Ginsburg Dev. Cos., LLC v Carbone, 134 AD3d 890, 893-894; AHA Sales, Inc. v Creative Bath Prods., Inc., 58 AD3d 6, 23). Here, the Finkle defendants established, prima facie, their entitlement to judgment as a matter of law by submitting evidence which demonstrated that they did not knowingly induce or participate in the alleged breaches of fiduciary duty (see IDX Capital, LLC v Phoenix Partners Group LLC, 19 NY3d 850, 851-852; Parklex Assoc. v Royal Capital Mkts. Corp., 118 AD3d 972). In opposition, the plaintiffs failed to raise a triable issue of fact (see generally Alvarez v Prospect Hosp., 68 NY2d 320, 324). Accordingly, the court properly granted the Finkle defendants’ motion for summary judgment dismissing the cause of action alleging aiding and abetting breach of fiduciary duty. In light of our determination on this point, we need not reach the Finkle defendants’ contention that the court erred, in the order entered January 11, 2013, in declining to dismiss that cause of action pursuant to CPLR 3211(a).”

5.”The Supreme Court’s application of the summary judgment standard constituted legal error. In the context of this pretrial motion for summary judgment, the individual defendants, as the moving parties, had the initial burden of proof (see CPLR 3212[b]; Hecker v Liebgold, 130 AD3d 572, 573). Accordingly, “[w]hile the ultimate burden of proof at trial will fall upon the plaintiff[s], a defendant seeking summary judgment bears the initial burden of demonstrating its entitlement to judgment as a matter of law by submitting evidentiary proof in admissible form” (Collado v Jiacono, 126 AD3d 927, 928; see Zuckerman v City of New York, 49 NY2d 557, 562). “On a summary judgment motion, a moving defendant does not meet its burden of affirmatively establishing its entitlement to summary judgment by merely pointing to gaps in the plaintiff’s case; rather, it must affirmatively demonstrate the merit of its defense” (Vanderhurst v Nobile, 130 AD3d 716, 717; see Spota v Love, 140 AD3d 730, 730-731; Setter v Fire Is. Ferries, Inc., 139 AD3d 840; Vaughn v Veolia Transp., Inc., 138 AD3d 979, 981). “It is equally well established that the motion should not be granted where the facts are in dispute, where conflicting inferences may be drawn from the evidence, or where there are issues of credibility” (Scott v Long Is. Power Auth., 294 AD2d 348, 348; see Ruiz v Griffin, 71 AD3d 1112, 1115).”

Professional negligence is not unlike legal malpractice…at least in the statute of limitations area.  There are strict rules, and waiting too long is fatal.  That’s what appeared to happen in Willis Ave Dev., LLC v Block 3400 Constr. Corp.  2016 NY Slip Op 05991  Decided on September 14,   2016 Appellate Division, Second Department.  This mix of professionals and non-professionals got into a fine mess, and years later is is not yet resolved.

“Sometime prior to 2001, the defendant Block 3400 Construction Corp. (hereinafter Block 3400) purchased a piece of undeveloped property located on Willis Avenue in Staten Island. The defendant Robert Arminante is Block 3400’s principal. The defendant Adam Krebushevski (hereinafter Adam), who is not a licensed professional, prepared a preliminary sketch for Arminante to illustrate what could be developed on the property. Subsequently, in about 2001, Arminante hired Adam’s son, the defendant Stanley Michael Krebushevski (hereinafter Stanley), who is an architect, to develop an architectural site plan for the property and to obtain approval of that plan by the New York City Department of Buildings (hereinafter the DOB). Stanley prepared the site plan and then subcontracted the job of obtaining approval of the site plan by the DOB to the defendant Edward Lauria, a licensed engineer, and his firm, the defendant Lauria Associates (hereinafter together Lauria). Lauria obtained the DOB’s approval of the site plan on February 4, 2004, and also obtained a building permit. On September 21, 2004, the plaintiff purchased the property from Block 3400 with the intent of developing it in accordance with the approved site plan. In October 2005, the building permit was revoked.

On August 20, 2007, the plaintiff commenced this action against Block 3400, Arminante, and Lauria, alleging that the site plan, upon which it had relied in purchasing the property, did not comply with zoning regulations. The plaintiff asserted causes of action against Lauria sounding in professional malpractice, negligent misrepresentation, and fraud. In an amended complaint dated August 20, 2009, the plaintiff added Stanley and Adam as defendants and asserted causes of action against them sounding in professional malpractice, negligent misrepresentation, and fraud. Stanley, Adam, and Lauria separately moved, inter alia, for summary judgment dismissing the amended complaint insofar as asserted against each of them. The Supreme Court granted those branches of the separate motions, and the plaintiff appeals.”

“A cause of action to recover damages against an architect for professional malpractice is governed by a three-year statute of limitations (see CPLR 214[6]; Matter of R.M. Kliment & Frances Halsband, Architects [McKinsey & Co., Inc.], 3 NY3d 538, 542; Vlahakis v Belcom Dev., LLC, 86 AD3d 567; Napoli v Moisan Architects, 77 AD3d 895). Such a cause of action accrues “upon the actual completion of the work to be performed and the consequent termination of the professional relationship” (Frank v Mazs Group, LLC, 30 AD3d 369, 370; see City School Dist. of City of Newburgh v Stubbins & Assoc., 85 NY2d 535, 538). However, “[t]he completion of an architect’s obligations must be viewed in light of the particular circumstances of the case” (Frank v Mazs Group, LLC, 30 AD3d at 370). Here, Stanley and Lauria established, prima facie, that the professional malpractice causes of action asserted against them accrued more than three years prior to commencement of the action (see Vlahakis v Belcom Dev., LLC, 86 AD3d at 568; Napoli v Moisan Architects, 77 AD3d at 895). Specifically, the causes of action against them accrued, at the latest, on February 4, 2004, when the site plan was approved by the DOB (see City School Dist. of City of Newburgh v Stubbins & Assoc., 85 NY2d at 538; Vlahakis v Belcom Dev., LLC, 86 AD3d at 568). Thus, Stanley and Lauria established their prima facie entitlement to judgment as a matter of law dismissing the professional malpractice causes of action asserted against them on the ground that those causes of action were time-barred. In opposition, the plaintiff failed to raise a triable issue of fact.

Since Adam was not a licensed professional, the cause of action sounding in professional malpractice asserted against him is governed by the three-year statute of limitations that is generally applicable to claims arising from injury to property (see CPLR 214[4]). “As a general principle, the statute of limitations begins to run when a cause of action accrues” (Hahn Automotive Warehouse, Inc. v American Zurich Ins. Co., 18 NY3d 765, 770). Here, the cause of action sounding in professional malpractice asserted against Adam accrued on September 21, 2004, the date of the closing of title, which is more than three years before he was added as a defendant. Accordingly, Adam established his prima facie entitlement to judgment as a matter of law dismissing the cause of action sounding in professional malpractice asserted against him on the ground that it was time-barred. In opposition, the plaintiff failed to raise a triable issue of fact.

Stanley, Adam, and Lauria also demonstrated their prima facie entitlement to judgment as a matter of law dismissing the negligent misrepresentation causes of action asserted against each of them (see Alvarez v Prospect Hosp., 68 NY2d 320, 324). These defendants submitted evidence establishing, prima facie, that the plaintiff was not a known party who relied upon the statements made in the architectural site plan (see Plaisir v Royal Home Sales, 81 AD3d 799, 801; Ford v Sivilli, 2 AD3d 773, 775). In opposition, the plaintiff failed to raise a triable issue of fact.

Moreover, Stanley, Adam, and Lauria established their prima facie entitlement to judgment as a matter of law dismissing the fraud cause of action insofar as asserted against each of them by demonstrating that the plaintiff did not justifiably rely on the alleged misrepresentations (see Danann Realty Corp. v Harris, 5 NY2d 317, 322; East End Cement & Stone, Inc. v Carnevale, 73 AD3d 974, 975; Urstadt Biddle Props., Inc. v Excelsior Realty Corp., 65 AD3d 1135, 1138). In opposition, the plaintiff failed to raise a triable issue of fact.”

Practitioners in the Judiciary Law § 487 field expect that they will always be facing an uphill battle.  Facebook, Inc. v DLA Piper LLP (US) is an example of just how uphill it is. Supreme Court denied a motion to dismiss.  The Appellate Division reversed and yesterday, the Court of Appeals refused to consider the issue, ending the saga.

Consider the facts (taken from the Appellate Division decision at 134 AD3d 610):

“On April 28, 2003, Ceglia hired Zuckerberg to design a website for a company called Street Fax, Inc. Ceglia and Zuckerberg executed a two-page contract (the Street Fax Contract) and Zuckerberg performed some work under the contract, although he was not paid in full by Ceglia.

In December 2003, Zuckerberg conceived of Facebook, which he launched on February 4, 2004.

On June 30, 2010, Ceglia, through defendant attorney Paul Argentieri, filed a complaint in Allegheny County Supreme Court against Facebook and Zuckerberg (the Ceglia action), alleging that on April 28, 2003, Zuckerberg and Ceglia purportedly entered into a “Work For Hire Contract.” This purported contract allegedly reflected Ceglia’s agreement to pay Zuckerberg for developing the Street Fax website and a separate website with the working title of “The Face Book,” and Ceglia’s purported acquisition of a 50% interest in the software, programming language and business interests derived from any expansion of The Face Book, along with an additional 1% interest for each day the website was delayed beyond January 1, 2004. At the time they filed the complaint, Ceglia’s representatives obtained an ex parte temporary restraining order (TRO) from the court restraining Facebook from transferring, selling, or assigning any assets owned by [*2]it. The TRO was served on Facebook on July 6, 2010, and expired on or before July 23, 2010.

On July 9, 2010, the case was removed to federal court based on diversity jurisdiction. From the outset of the litigation, Zuckerberg took the position that the Work For Hire Contract was a forgery and the Ceglia action was fraudulent.

In early 2011, Ceglia and Argentieri offered a contingency fee arrangement to various law firms via a “Lawsuit Overview” document, which mapped out the strategy and bases of the lawsuit. Several law firms, including the DLA Piper and the Lippes defendants, as well as Kasowitz, Benson, Torres and Friedman, LLP (Kasowitz), agreed to represent Ceglia.

On March 30, 2011, a forensic e-discovery consultant working with Kasowitz discovered the original Street Fax Contract on Ceglia’s computer hard drive and concluded it had been altered to create the “Work For Hire Contract” by adding references to Facebook. Kasowitz notified Argentieri of these findings several times and immediately withdrew as Ceglia’s counsel.

On April 11, 2011, the DLA Piper and the Lippes defendants (DLA-Lippes) filed an amended complaint in the Ceglia action repeating Ceglia’s claims against Facebook based on the Work For Hire Contract, and quoting, but not attaching, purported emails between Zuckerberg and Ceglia discussing the development of Facebook.

On April 13, 2011, Kasowitz sent a letter to the DLA-Lippes defendants, informing them that on March 30, it had seen documents on Ceglia’s computer that established that the Work For Hire Contract was a forgery and that it had communicated these findings to Argentieri on March 30, April 4, and April 12. The letter further stated that Kasowitz would agree, pending an investigation that defendant Vacco of Lippes Mathias had promised to undertake, to refrain from reporting its findings to the Federal Court.^[FN1] This investigation was indeed undertaken as discussed infra.

On June 2, the parties moved and cross-moved for expedited discovery concerning the Work For Hire Contract, complete with affidavits and expert evidence both for and against the authenticity of the contract. On June 29, on the eve of the hearing for expedited discovery, the DLA-Lippes defendants withdrew from the case without explanation.^[FN2] The Federal Magistrate ordered expedited discovery into the authenticity of the Work For Hire Contract and the purported emails.

During the expedited discovery period, Ceglia hired the Milberg defendants, which first entered an appearance on March 5, 2012. They moved to withdraw from representing Ceglia on May 20, 2012.

On November 26, 2012, Ceglia was indicted for mail and wire fraud as a result of his scheme to defraud plaintiffs. He subsequently fled the jurisdiction and is currently a fugitive.

On March 26, 2013, following discovery, the Federal Magistrate recommended that the District Court dismiss the Ceglia action with prejudice, finding that the Work for Hire Contract and purported emails were all forgeries and that the lawsuit was a massive fraud on the court. This recommendation was adopted by the District Court on March 25, 2014, and the complaint was dismissed.

Based on these factual allegations, plaintiffs commenced the instant action, asserting claims for malicious prosecution and attorney deceit against defendants-appellants (defendants), among others, alleging that they initiated the Ceglia lawsuit without probable cause, and [*3]thereafter continued it even as they knew, or reasonably should have known, that it was fraudulent, without merit, and based on fabricated evidence from the moment the original complaint was filed and at all times while the action was pending.”

”

We turn now to the Judiciary Law claims. Relief under a cause of action based upon Judiciary Law § 487 “is not lightly given” (Chowaiki & Co. Fine Art Ltd. v Lacher, 115 AD3d 600, 601 [1st Dept 2014]) and requires a showing of “egregious conduct or a chronic and extreme pattern of behavior” on the part of the defendant attorneys that caused damages (Savitt v Greenberg Traurig, LLP, 126 AD3d 506, 507 [1st Dept 2015]). Allegations regarding an act of deceit or intent to deceive must be stated with particularity (see Armstrong v Blank Rome LLP, 126 AD3d 427, 427 [1st Dept 2015]); the claim will be dismissed if the allegations as to scienter are conclusory and factually insufficient (see Briarpatch Ltd., L.P. v Frankfurt Garbus Klein & Selz, P.C., 13 AD3d 296, 297-298 [1st Dept 2004], lv denied 4 NY3d 707 [2005]; Agostini v Sobol, 304 AD2d 395, 396 [1st Dept 2003]).

Here, the allegations that defendants knew of Ceglia’s fraud are conclusory and not supported by the record. Although plaintiffs allege that the DLA-Lippes defendants had been advised by Kasowitz that the Work For Hire Contract was a forgery prior to the filing of the amended complaint in the Ceglia action on April 11, the record unequivocally shows that the Kasowitz letter to that effect was dated April 13, two days after the amended complaint was filed. There is nothing to indicate that this information had been communicated to the defendants prior to the issuance of that letter. Moreover, plaintiffs offer no support for their claim that defendants had actual knowledge of the fraudulent nature of the claim based on statements made to them by Ceglia. In fact, the opposite is true.”

Sadly, mistakes in a legal malpractice case seem to appear larger than in other areas of litigation.  “The cobbler’s child is shoeless” is an older variant of the same issue.  In Brown v Sanders
2016 NY Slip Op 05967 Decided on September 14, 2016 Appellate Division, Second Department we see a legal malpractice that was not served on the defendants.  No service…no case.

“In an action, inter alia, to recover damages for conversion and legal malpractice, the plaintiff appeals, as limited by her brief, from so much of an order of the Supreme Court, Kings County (Velasquez, J.), dated March 28, 2014, as granted that branch of the motion of the defendants Brauner Baron Rosenweig and Klein and David Brauner which was pursuant to CPLR 3211(a)(8) to dismiss the complaint insofar as asserted against them for lack of personal jurisdiction and denied her cross motion pursuant to CPLR 306-b to extend the time to serve the summons and complaint on those defendants.

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

Contrary to the plaintiff’s contention, the Supreme Court did not acquire personal jurisdiction over the defendants Brauner Baron Rosenweig and Klein and David Brauner (hereinafter together the Brauner defendants) when they first appeared by pre-answer motion in this action approximately one year after the action was commenced, since an objection to personal jurisdiction pursuant to CPLR 3211(a)(8) was asserted in their motion (see CPLR 320[b]; 3211[e]; Skyline Agency v Coppotelli, Inc., 117 AD2d 135, 140; cf. Countrywide Home Loans Servicing, LP v Albert, 78 AD3d 983, 984). Furthermore, the court properly granted that branch of the Brauner defendants’ motion which was pursuant to CPLR 3211(a)(8) to dismiss the complaint insofar as asserted against them for lack of personal jurisdiction, since it is undisputed that service upon the Brauner defendants was not made within 120 days after the filing of the summons and complaint (see CPLR 306-b).”

What happens when professionals take on a job, issue reports telling the client that all is well, only to have a governmental authority say that all is not well, and that the statutory reports understate a liability by $37 Million?

Leading Ins. Group Ins. Co., Ltd. v Friedman LLP 2016 NY Slip Op 30375(U) March 3, 2016
Supreme Court, New York County Docket Number: 651049/15 Judge: Saliann Scarpulla is one example.

“”LIGUSB is the U.S. Branch of a foreign insurance company and LIS is the United States Manager of LIGUSB pursuant to applicable New York law.” Licensed as an insurance company in New York, LIGUSB is monitored by the New York Department of Financial Services (“NYDFS”) and must submit annual financial statements (“Statutory Financial Statements”) that conform with New York’s Statutory Accounting Practices (“SAP”). The Statutory Financial Statements are required to be audited by an independent certified public accountant according to Generally Accepted Auditing Standards (“GAAS”) and SAP. The Statutory Financial Statements must be accompanied by the accountant’s opinion letter, “certifying, among other things, that the Statutory Financial Statements are fairly stated in all material respects in accordance with SAP.” The Statutory Financial Statements include a statement of the insurance company’s Joss reserves, which “include the estimated liability for investigating and settling unpaid insurance claims or losses, both known … and unknown.” LIG used an internal actuary to establish the loss reserves for LIGUSB ‘s 2012 Statutory Financial Statements. Pursuant to an engagement Jetter (“Engagement Letter”), dated October 24, 2012, Friedman agreed to perform an independent audit of LIGUSB ‘s Statutory Financial Statements for the year ending in December 21, 2012. In pertinent part, the Engagement Letter stated that: Friedman would “plan and perform the audit to obtain reasonable assurance about whether financial statements are free from material misstatement;” “[t]he objective of [the] audit is the expression of an opinion about whether [LIG’s] financial statements are fairly presented, in all material respects, in conformity with accounting practices prescribed or permitted by the [NYDFS];” and the “audit [would] be conducted in accordance with auditing standards generally accepted in the United States of America.” The Engagement Letter also contained the following qualifications, that: LIG “[was] responsible for establishing and maintaining internal controls, including monitoring ongoing activities;” “[b]ecause of the inherent limitations of an audit, combined with the inherent limitations of internal control, and because [Friedman would] not perform a detailed examination of all transactions, there [was] a risk that material misstatements may exist and not be detected by [Friedman], even though the audit is properly planned and performed in accordance with U.S. generally accepted auditing standards;” and the “audit is not designed to provide assurance on internal control or to identify deficiencies in internal control.” ”

“On or about May 3 I, 2013, Friedman delivered the final, audited Statutory Financial Statements and Schedules, provided an independent auditors’ report regarding these documents, and submitted its “Accountant’s Qualification an Internal Control letter to LIGUSB’s Board of Directors and Stockholders.” LIG alleges that it relied on Friedman’s representations to satisfy it “that (i) LIG’s internal controls and accounting policies, including its procedures and methods for establishing Joss reserves, were reasonable and appropriate and (ii) LIGUSB’s statutory financial statements were free of material misstatement and fairly presented LIGUSB ‘s statutory financial condition.” Subsequent to the 2012 audit, LIG avers that it used “Friedman to perform various other accounting, consulting, advisory and tax-related services, for which LIG paid Friedman substantial fees.” “On or around September 13, 2013, LIG again engaged Friedman to perform the independent audit of LIGUSB’s financial statements for the year end[ing] December 31, 2013.” In approximately October 2013, “NYDFS advised LIG that red flags existed in LIG’s loss reserve estimates in its recent financial statements and required that LIG engage an independent external actuary to conduct a peer review of LI G’s internal actuary’s findings at LIG’s own expense.” LIG complied and, in approximately February 2014, “LIG discovered that its carried loss reserves were inadequate, contrary to what Friedman had concluded and reported in connection with its audit.” According to LIG, because its prior loss reserves were considerably understated, it had “to take immediate action to increase its reserves by approximately $37,000,000” and to “take aggressive and immediate measures to increase and improve its related internal controls and procedures.”  ”

“LIG alleges that “[i]n or around April of 2014, LIG discontinued its use of Friedman’s services.” On approximately June 3, 2014, “Friedman announced to the NYDFS that it was withdrawing its 2012 audit opinion of LIGUSB.” LIG alleges that the withdrawal of Friedman’s opinion “was inconsistent with SAP and insurance industry standards concerning the correction of errors in financial statements previously filed with regulating authorities,” and that “Friedman also knew, or should have known, that its action to recall its audit opinion would be damaging to LIG.” ”

“Here, Friedman contends that the complaint fails to specify how Friedman allegedly deviated from acceptable standards of practice. In particular, it points to the allegation that a subsequent, independent actuary identified certain “red flags” that Friedman “inexplicably failed to identify,” without identifying those red flags or describing what Friedman should have done differently. However, the complaint contains numerous allegation detailing the ways in which LIG believes Friedman deviated from professional standards of care, including that it failed to comply with GAAS and SAP by, among other things, failing to implement appropriate and adequate audit procedure to verify the accuracy of the Statutory Financial Statements. See complaint, ilil 6, 37-41, 57, 59-63, 98-101. Moreover, this is a pre-answer motion to dismiss. Therefore, LIG need not “pro[ ve] that there was a departure from accepted standards of practice,” but rather, it need only make the necessary allegations. See D.D. Hamilton Textiles, 269 AD2d at 214- 215 (finding, in the context of a motion for summary judgment, that plaintiffs failed to prove defendant accountant’s work fell below applicable standards of care); see also EEC I, Inc., 5 NY3d at 19. Ultimately, LIG alleges that Friedman failed to identify deficiencies with LI G’s loss reserves; whether this failure “was [due to] a departure from professional accounting standards … is a question that requires expert evidence for its resolution.” Berg v Eisner LLP, 94 AD3d 496, 496 (1st Dept 2012) (reversing dismissal). “

Plattsburgh Hous. Auth. v Cantwell  2015 NY Slip Op 51832(U) [49 Misc 3d 1221(A)] Decided on September 23, 2015 Supreme Court, Clinton County  Muller, J. is the story of an upstate  city which had a housing authority.  Once upon a time it hired an attorney to be its outside counsel.  Then she was hired as a general counsel.  Her pay ramped up.  Then the Executive director retired and the general counsel asked to be considered.  At the end of this progression, the general counsel had been appointed both GC and Executive Director, and the pay had now gone through the roof.  Was this a breach of fiduciary duty?

“Following this meeting, defendant drafted a “Plattsburgh Housing Authority Executive Director Employment Agreement” (hereinafter the Employment Agreement) and gave it to Morris for his review. Morris then raised certain concerns including, inter alia, that the termination provision in the Employment Agreement did not give plaintiff “the option to renew or not renew [the] contract” at the conclusion of every term. According to Morris, “[defendant] advised [him] that she included a provision that either party could terminate the [Employment Agreement] upon [60]-days notice,” which alleviated his concern. The Employment Agreement was then executed on October 1, 2011, with both Morris and Lucia signing on plaintiff’s behalf.

Defendant began working as Executive Director on that same date, shadowing Lucia until her retirement on December 31, 201l. During this transition period, defendant continued to serve as General Counsel with the Board’s knowledge and consent. With that said, the Board apparently believed that defendant would no longer hold the position of General Counsel once she became the sole Executive Director on January 1, 2012. She continued to do so, however, and from October 1, 2011 to September 2012 she was paid a salary of $84,831.00 per year as Executive Director and $42,342.00 per year as General Counsel, for a total annual salary of $127,173.00.

At some point prior to September 2012, defendant reviewed plaintiff’s Basic Salary Schedule and advised Jean Etesse, plaintiff’s in-house accountant, that her rate of pay should be higher as a result of her 14 years of service with the organization. In this regard, the Employment Agreement provided that, as “compensation for services rendered by Employee as Executive Director . . . , the Authority agrees to pay the Employee a starting salary of $85,000.00 to be placed on the on the [sic] Plattsburgh Housing Authority Basic Salary Schedule, . . . .” Several paragraphs later, the Employment Agreement then states that, “[f]or purposes of benefits calculations the Employee shall be considered to have 14 years of service with the Employer as of 12/30/11 . . . .” According to plaintiff, defendant interpreted this provision as applying to her compensation and advised Etesse that her starting salary should have been more than $85,000.00. [*3]Morris then authorized this increase in salary — allegedly feeling “bound by the terms of the [Employment] Agreement” — and defendant’s salary as Executive Director was increased to $108,807.00 per year and her salary as General Counsel was increased to $50,332.00 per year, for a total annual salary of $159,139.00. Defendant further directed Etesse to make the salary increase retroactive to her October 1, 2011 start date and, as a result, was paid a lump sum of $32,454.01.”

“With respect to the first cause of action alleging a breach of fiduciary duty, “the attorney-client relationship imposes on the attorney [t]he duty to deal fairly, honestly and with undivided loyalty . . . including maintaining confidentiality, avoiding conflicts of interest, operating competently, safeguarding client property and honoring the clients’ interests over the lawyer’s'” (Country Club Partners, LLC v Goldman, 79 AD3d 1389, 1391 [2010], quoting Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1, 9 [2008] [internal quotation marks and citations omitted]; see Krouner v Koplovitz, 175 AD2d 531, 532 [1991]). “To recover on its claim, plaintiff is required to prove both the breach of a duty owed to it and damages sustained as a result'” (Country Club Partners, LLC v Goldman, 79 AD3d at 1391, quoting Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d at 10 [citation omitted]). “That is, a client must establish actual and ascertainable damages that would not have occurred but for the attorney’s conduct” (Country Club Partners, LLC v Goldman, 79 AD3d at 1391 [citations and internal quotation marks omitted]).

Here, the Court finds that plaintiff has established its prima facie entitlement to judgment as a matter of law relative to its first cause of action. Defendant was undisputably employed as General Counsel to plaintiff at all relevant times and, in her capacity as General Counsel, had a duty to deal with plaintiff fairly, honestly and with undivided loyalty. Morris states under oath that defendant drafted the Employment Agreement and presented it to him for review without recommending that plaintiff retain independent counsel to review it prior to signature. Morris [*5]further states under oath that defendant later interpreted the Employment Agreement as providing for an increase in her salary, again without recommending that the issue be reviewed by independent counsel. There was a blatant conflict of interest in both instances that defendant either failed to recognize or simply ignored. Plaintiff has further demonstrated actual and ascertainable damages.

In opposition, defendant contends that she was not acting as General Counsel to plaintiff when she drafted the Employment Agreement. Rather, she was negotiating the terms of her employment as Executive Director and acting solely on her own behalf. According to defendant, plaintiff was well aware of this fact. Interestingly, Lucia has submitted an affidavit in support of this contention, stating as follows:

“At no time did Mr. Morris ever state to me that he believed that when Lori was negotiating her contract that she was acting on behalf of the Plattsburgh Housing Authority or providing housing authority legal advice as its counsel in negotiating and preparing the contract. I signed the contract at the instruction of Mr. Morris and I understood and believed it was clear that Lori was acting for herself on one side of the negotiating table and Mr. Morris was representing the housing authority on the other side of the negotiating table.”

Lucia further states that Morris was aware that defendant would be acting as both the Executive Director and General Counsel following January 1, 2012, and in fact directed her to contact “the executive director of another housing agency, [who] was also an attorney . . . to discuss the role of Executive Director/attorney.” She did so and then reported back to Morris, informing him that “it was [her] understanding that HUD did not approve of a housing authority having an employee hold two full-time positions.”

Defendant next contends that her increase in salary did not require contract interpretation but, rather, resulted from application of plaintiff’s normal policies and procedures. In this regard, Lucia states as follows:

“An issue has been raised about Lori Cantwell’s salary as Executive Director. As long as I had been with the Plattsburgh Housing Authority, it was always the policy and practice of the organization that management personnel would receive longevity pay according to the longevity schedule maintained by the organization. . . .

“It was also the policy and practice of the Plattsburgh Housing Authority that when a person moved from one management position to another, their longevity time would follow to the new position. . . . This practice was followed for all employees moving from one management position to another.

“Lori Cantwell was in the management pay category in her position as Attorney to the Plattsburgh Housing Authority. Thus, when she was named as the Executive Director of the Authority, she was credited the longevity she had earned in her capacity of Attorney as was established practice.”

Thus, according to Lucia, defendant was appropriately given credit for 14 years of service [*6]— dating back to 1997 when she was retained as counsel — and her salary was appropriately increased based upon plaintiff’s longevity schedule.

Under the circumstances, the Court finds that defendant has raised an issue of fact as to whether she breached her fiduciary duty to plaintiff. If in fact defendant was not acting in her capacity as General Counsel when she drafted the Employment Agreement and plaintiff was aware of this, then she may not have violated her fiduciary duty to plaintiff (see Kallman v Krupnick, 67 AD3d 1093, 1095 [2009], lv denied 14 NY3d 703 [2010]; Beltrone v General Schuyler & Co., 252 AD2d 640, 641 [1998]; see Greene v Greene, 56 NY2d at 92—93, 451 N.Y.S.2d 46, 436 N.E.2d 496). To the extent that Morris reached out to the Executive Director of another housing agency who was also an attorney, there appears to be some question in this regard. Similarly, if defendant’s increase in salary resulted not from an interpretation of her Employment Agreement but rather from application of plaintiff’s normal policies and procedures, then again — she may not have violated her fiduciary duty. Given the standard applicable to motions for summary judgment — issue finding and not issue determination — the Court declines to grant plaintiff summary judgment as a matter of law relative to its first cause of action.^[FN2]“

A big construction of a supermarket is marred when the floor settles in an unsettling manner.  The architect is sued, and motion practice ensues.  It appears that there is a limitation of liability agreement which would severely undermine the case against the architect…or is there?  This case highlights the necessity of using more words, rather than fewer words in contracts.  It’s all about Schedule A.

Maines Paper & Food Serv., Inc. v Keystone Assoc., Architects, Engrs., & Surveyors, LLC   2015 NY Slip Op 09346 [134 AD3d 1340]  December 17, 2015  Appellate Division, Third Department  reaches the conclusion that more is needed to dismiss the case.

“In 2009, plaintiff retained defendant to perform architectural consulting services related to the construction of a new supermarket. Following the completion of construction, plaintiff’s employees discovered that the supermarket floor had begun to settle in an irregular manner. Thereafter, plaintiff commenced this action sounding in breach of contract and professional malpractice, alleging that the floor defect stemmed from construction methods that were inappropriate for the conditions at the site. Following joinder of issue, defendant moved for partial summary judgment on the issue of damages, arguing that, in the event that it was found liable, the prospective damages should be capped by application of a limitation of liability clause. This clause was contained within a schedule purportedly attached or incorporated into the parties’ contract (hereinafter Schedule A). Supreme Court denied defendant’s motion, finding that triable issues of fact existed as to whether Schedule A—and the limitation of liability clause contained therein—was included in the parties’ contract. Defendant appeals.

Defendant submits that Supreme Court erred in that the evidence established as a matter of law that plaintiff received Schedule A, or, in the alternative, that Schedule A was incorporated [*2]into the contract by reference. The proponent of a motion for summary judgment bears the initial burden of showing the absence of material issues of fact; once made, the burden shifts to the opposing party “to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact” (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]; see Phoenix Signal & Elec. Corp. v New York State Thruway Auth., 90 AD3d 1394, 1396 [2011]). In support of its motion, defendant submitted the parties’ contract with an attached Schedule A containing a limitation of liability clause. The contract states that “[t]his Proposal, along with the attached Standard Terms and Conditions, Schedule A, Schedule B, and the Billing Rate Schedule represents the entire understanding between the Client and Architect.” Defendant also submitted an affidavit from its managing member in which he asserts that Schedule A “[was] attached to, and a part of, [defendant’s] agreement with [plaintiff].” He further stated that it is defendant’s normal business practice for it to send an accompanying copy of Schedule A to all prospective clients whenever a proposed contract is sent. These submissions met defendant’s prima facie burden, and thus required plaintiff to demonstrate triable issues of fact.”

“The doctrine of incorporation by reference “is grounded on the premise that the material to be incorporated is so well known to the contracting parties that a mere reference to it is sufficient” (Chiacchia v National Westminster Bank, 124 AD2d 626, 628 [1986]). The document is required to also be described in the contract such that it is identifiable “ ’beyond all reasonable doubt’ ” (Kenner v Avis Rent A Car Sys., 254 AD2d 704, 704 [1998], quoting Matter of Board of Commrs. of Washington Park of City of Albany, 52 NY 131, 134 [1873]; accord Unclaimed Prop. Recovery Serv., Inc. v UBS PaineWebber Inc., 58 AD3d 526, 526 [2009]). Here, defendant failed to submit any evidence to show that the Schedule A referenced in the contract was understood by the parties to be coextensive with the Schedule A attached to the prior unexecuted contracts. Instead, as set forth above, the evidence submitted undermines this assertion. Thus, viewing the evidence in the light most favorable to plaintiff (see e.g. William J. Jenack Estate Appraisers & Auctioneers, Inc. v Rabizadeh, 22 NY3d 470, 475 [2013]), we find that defendant failed to conclusively establish as a matter of law that Schedule A was sufficiently identified in the executed contract so as to be incorporated by reference (see County of Orange v Carrier Corp., 57 AD3d 601, 602 [2008]; Kenner v Avis Rent A Car Sys., 254 AD2d at 704-705; Chiacchia v National Westminster Bank, 124 AD2d at 628).”

Plaintiffs signed a consent agreement with the IRS agreeing to more than  $ 1.5 Million as well as civil fraud and negligence penalties.  That’s a lot of money.  The attorneys who represented them continued on for a period of time and then wrapped up the IRS matter.  Plaintiffs sued, and faced both a statute of limitations defense as well as a strategic choice defense.  They ultimately lost on the strategic choice issue.  Tantleff v Kestenbaum & Mark  2015 NY Slip Op 06720 [131 AD3d 955]
September 2, 2015  Appellate Division, Second Department  discusses the concept that the clients were fully informed and agreed to a difficult strategic choice.

“In any event, even if this action were timely commenced, the defendants established their prima facie entitlement to judgment as a matter of law by demonstrating that their recommendation that the plaintiffs execute the consent agreement was a reasonable strategic decision (see Leon Petroleum, LLC v Carl S. Levine & Assoc., P.C., 122 AD3d 686 [2014]; Keeley v Tracy, 301 AD2d 502 [2003]; Hart v Carro, Spanbock, Kaster & Cuiffo, 211 AD2d 617 [1995]). Furthermore, the defendants demonstrated that the recommendation was made after extensive discussions with the plaintiffs, who agreed to the course of action (see Noone v Stieglitz, 59 AD3d 505 [2009]; Holschauer v Fisher, 5 AD3d 553 [2004]; cf. Estate of Nevelson v Carro, Spanbock, Kaster & Cuiffo, 259 AD2d 282 [1999]). In opposition, the plaintiffs offered no evidence to raise a triable issue of fact as to whether the recommendation “was an unreasonable course of action that constituted legal malpractice” (Keeley v Tracy, 301 AD2d at 503; see Leon Petroleum, LLC v Carl S. Levine & Assoc., P.C., 122 AD3d at 687). The plaintiffs’ claims amounted to nothing more than their present dissatisfaction with the defendants’ strategic choice and thus, did not support a malpractice claim as a matter of law (see Pere v St. Onge, 15 AD3d 465, 466 [2005]; Zarin v Reid & Priest, 184 AD2d 385, 385 [1992]).”