Two items caught our notice this morning, and though unrelated, sound a similar theme.  Fraud on the Court in one and feigned issues of fact in the other compliment the idea of how the truth divining process happens in litigation. Somehow, even creakily, the process of cross-examination and discovery seem to work.

In Scheuer v. General Motors, this morning’s New York Law Journal, in an article by Mark Hamblett reports that Judge Furman basically called a halt to the case to look at whether Mr. & Mrs. Scheuer had committed  “fraud on the court and on the jury” in possibly misrepresenting their injuries and the financial consequences of those injuries by having “altered or fabricated a $ 441,431 check stub from the federal government’s retirement account” and fooling around with text messages.  Things, as one might guess, are not going well for plaintiff in this case.

Not as bad for plaintiff in Law Off. of Zachary R. Greenhill, P.C. v Liberty Ins. Underwriters, Inc.  2016 NY Slip Op 30078(U)  January 7, 2016  Supreme Court, New York County  Docket Number: 650414/2014  Judge: Charles E. Ramos, the case nevertheless hit a brick wall, where the judge found that: “At issue is whether there is a triable dispute regarding Mr. Greenhill’s status as an officer, partner, and/or manager of Dwight China. In the Underlying Action, Mr. Greenhill plainly admitted in his pleadings and sworn testimony to being President of Dwight China (Affirmation of Kevin Mattessich [“Mattessich affu], Ex. A, ~21; Mattessich aff, Ex. E, ~41). Greenhill’s statements to the contrary in the affidavits filed in this action are merely attempts to create a feigned issue of fact. Moreover, Mr. Greenhill himself produced documents in the Underlying Action that he had signed in his capacity as President of Dwight China (Mattessich aff, Ex. E, ¶41).

The judge went on to say: “Greenhill is attempting to feign an issue of fact regarding the Greenhills’ equity interest in Dwight China by contradicting prior admissions in the Underlying Action. These prior admissions, proffered through affidavit testimony, constitute findings of fact. Mr. Greenhill’s own admissions in the Underlying Action, and not his most recent affidavits, are undisputed facts for purposes of this §3212 motion (see Harty, 294 AD2d at 298; Rubin, 305 NY at 306).”

Reem Contr. v Altschul & Altschul  2016 NY Slip Op 30059(U)  January 12, 2016  Supreme Court, New York County  Docket Number: 104202/2011  Judge: Kelly O’Neill Levy  is an example of the odd situation in which a legal malpractice case is a catalog of procedural errors.  Defendants do not answer, then obtain an extension and then do not answer a second time.  Litigants die, but their estates are not substituted.  Unsigned affidavits are submitted.  Out-of-state (NJ) forms are submitted which are alien to NY practice.  Whatever…Justice Levy straightens it all out.

“Plaintiffs commenced this action for legal malpractice alleging that the Defendants inadequately and incompetently represented them in a prior ERISA action before the District Court for the Southern District of New York (the “ERISA Matter”). [* 1] On April 7, 2011 Plaintiff filed a summons and verified complaint and on April 21, 2011, personally served Defendants’ law firm. Defendants failed to file their answer within the thirty days required by CPLR 3012( c ). The Plaintiff then consented to Defendants serving a late answer, which defendants failed to do. Thereafter, on December 22, 20 I 1, Plaintiffs filed their first motion for default judgment. Defendants cross-moved to dismiss Plaintiffs’ legal malpractice claim for improper service of process. On May 30, 2012, the court (Singh, J.) denied Defendants’ motion to dismiss after finding service proper. The court further denied Plaintiffs’ first motion for default judgment finding that the allegations in the complaint taken with the verification in the petition were insufficient to make out a claim for malpractice. Defendants subsequently appealed the denial of the motion to dismiss. On May 20, 2014, the Appellate Division, First Department unanimously affirmed the trial court’s decision, finding that Defendants were properly served on April 21, 2011. On January 3~, 2015, Plaintiffs filed a second motion for default judgment. Shortly thereafter, Defendants filed their answer and cross-motion and requested discovery. Plaintiffs filed several additional motions. Each is discussed below. ”

“”To establish a prima facie case of legal malpractice, plaintiffs must establish that they would have been successful in the underlying action.” Abramovich v. Harris, 227 A.D.2d 1000, 1000 (4th Dep’t 1996). In support of their motion, Plaintiffs submit the report of Stanley A. Epstein, Esq. dated January 21, 2015, who in an unsigned letter, opined that in their representation of the plaintiffs in the ERISA action, the defendants failed to exercise the ordinary reasonable skill and knowledge required by counsel in such matters and that but for defendants’ negligence, the plaintiffs would not have been held liable. Here, the expert report submitted was not in the form of an affidavit and an affidavit of Mr. Epstein with certification of merit were submitted for the first time only in plaintiffs’ reply brief. ”

“That determination is the law of the case, see G!ytTWill Investments, N. V v. Shearson Lehman Hutton, 216 A.D.2d 78, 79 (I st Dep’t 1995), and without any additional support from plaintiffs in admissible form submitted in a timely manner, the court denies the motion for default judgment. See Courtney v. Port Authority of NY and NJ, 34 A.D.3d 716, 718 (2d Dep’t 2006)(motion court properly exercised its discretion in declining to consider an untimely expert affidavit submitted after an identical expert affirmation had already been submitted), Ho v. Brackley, 69 A.D.3d 533, 534 (I st Dep’t 20 I O)(motion court properly declined to consider sur-reply affirmation of legal expert). Defendants cross-move for dismissal of the action, asserting, among other things, that there is a conflict of interest between plaintiffs Reem Contracting and Plaintiff Szapiro and Plaintiff Reem Plumbing and Plaintiff Steven Stein and that Plaintiffs failed to substitute the Estate of Steven Stein following the death of Mr. Stein. They further move for a traverse hearing. The court finds dismissal inappropriate and denies the cross-motion in its entirety. Defendants have failed to establish a conflict of interest that would disqualify plaintiffs’ counsel, Mandelbaum Salsburg, from representing the Reem plaintiffs. See generally Abselet v. Satra Realty, 85 A.D.3d 1406, 1407 (3d Dep’t 2011). Furthermore, as set forth more fully below, defendants have not shown that plaintiffs’ delay in moving to substitute for Steven Stein prejudiced them as they had not yet answered at the time of Mr. Stein’s death. The portion of the cross-motion seeking a traverse hearing is denied. In its Order dated May 20, 2014, the First Department affirmed Justice Singh ‘s decision and order and found defendants’ denial of proper service unavailing. As that determination is binding on this court, the court denies Defendants’ request for a traverse hearing . ”

“Finally, Plaintiffs seek a protective order, pursuant to CPLR 3103(a), to prevent them from being compelled to respond to Defendants’ interrogatories and document requests filed on February 12, 2015, limiting the number of interrogatories to 25, and finding that the deposition of plaintiff Jona Szapiro should not be taken at all or relieving Mr. Szapiro from providing all documents related to plaintiffs’ claims. Pursuant to Local Rule I 0, “prior to making a discovery motion, counsel shall consult one another in a good faith effort to resolve any discovery disputes (see Uniform Rule 202.7).”2 Plaintiffs concede here that they have not submitted an affidavit describing a good faith effort { to resolve the dispute, arguing that such an affirmation is not applicable due to defendants’ untimely request for discovery. The court finds that reason unavailing. In light of plaintiffs’ failure to show that a good faith effort was made and the omission of the objectionable interrogatories and document requests as an exhibit to the motion, the court denies the motion. See Cerreta v. N..! Trans. Corp., 251 A.D.2d 190, 191 (I st Dep’t 1998). The court has considered the remainder of the arguments in the aforementioned motions and finds them to be without merit.”

There have been lingering questions about procedural aspects of Judiciary Law 487 that have never been completely explained.  One earlier question, answered in 2014 was the length of the statute of limitations, 3 years or 6 years. That question was answered by the Court of Appeals  and is 6 years.

Melcher v Greenberg Traurig LLP  2016 NY Slip Op 00274  Decided on January 19, 2016
Appellate Division, First Department in its various “iterations” has been a fountainhead of rules in Judiciary Law §487 law.  Today, on remand after the Court of Appeals, and after motion practice in the Supreme Court, the First Department explains when a 487 claim has to be made in the underlying case and when it may be brought in a plenary action.

“Turning now to defendants’ Judiciary Law § 487 argument, we find that under the circumstances presented, it was proper for Melcher to assert a Judiciary Law § 487 claim in a separate action, rather than seeking leave to assert a claim against the attorney defendants in the Apollo action.

Judiciary Law § 487(1) provides, among other things, that an attorney who is “guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party . . . forfeits to the party injured treble damages, to be recovered in a civil action.” A plaintiff may bring an action to recover damages for attorney deceit regardless of whether the attorney’s deceit was successful (Amalfitano v Rosenberg, 12 NY3d 8 [2009]). Further, the plaintiff in a section 487 case may recover the legal expenses incurred as a proximate result of a material misrepresentation in a prior action (see Pomerance v McGrath, 124 AD3d 481, 485 [1st Dept 2015], lv dismissed 25 NY3d 1038 [2015]).

First of all, we do not credit defendants’ argument that because Melcher raised the same claims in his motions in the Apollo action, he is now precluded from asserting a section 487 claim in this action — that is, that Melcher is improperly engaging in “claim splitting.” A party invoking the narrow doctrine against splitting a cause of action must show that the challenged claim raised in the second action is based upon the same liability in the prior action, and that the claim was ascertainable when the prior action was commenced (see Murray, Hollander, Sullivan & Bass v HEM Research, 111 AD2d 63, 66 [1st Dept 1985]; Solow v Avon Prods., 56 AD2d 785 [1st Dept 1977], affd 44 NY2d 711 [1978]). However, if the liabilities or claims alleged in the two actions arise from different sources, instruments, or agreements, the claim splitting doctrine does not apply (see Murray, Hollander, Sullivan & Bass, 111 AD2d at 66-67; see also 1050 Tenants Corp. v Lapidus, 118 AD3d 560, 560-561 [1st Dept 2014]).

Here, Melcher alleged in the Apollo action that Apollo Management and Fradd breached a contract and engaged in fraud by preventing him from receiving partnership profits. The basis for Melcher’s attorney deceit claim against GT and Corwin did not arise until after Fradd had burned the amendment, while the Apollo action was pending. Therefore, the claims asserted against Fradd and Apollo Management in the Apollo action did not arise from the same nucleus of facts as the section 487 claim in this action. On the contrary, the remedy sought against the defendant attorneys in this case is entirely distinct from the remedy sought against their former clients in the Apollo action. Indeed, the Judiciary Law claim did not even exist when plaintiff commenced the Apollo action (see 1050 Tenants, 118 AD3d at 560-561). Accordingly, plaintiff is not claim splitting when he brings section 487 claims against GT and Corwin in this action.

Nor is plaintiff collaterally estopped from litigating the issue of the alleged deceit in this [*4]action, as that issue was never fully litigated and decided in the Apollo action (see Kaufman v Eli Lilly & Co., 65 NY2d 449, 455-456 [1985]; Americorp Fin., L.L.C. v Venkany, Inc., 102 AD3d 516, 516 [1st Dept 2013]). To be sure, Melcher made a motion to strike defendants’ pleadings in the Apollo action on the basis that the disputed amendment was a fabrication (see Melcher v Apollo Med. Fund Mgt. L.L.C., 52 AD3d 244, 245 [1st Dept 2008]). However, a motion is not a cause of action, but rather, is a request for relief; the complaint in the Apollo action never contained a cause of action alleging that the defendants had relied on a fabricated document (see Melcher, 105 AD3d at 19). Moreover, this Court explicitly found on the postverdict appeal that plaintiff’s “allegations of fraud and deceit remain[ed] unaddressed” because the defendants had decided not to rely on the allegedly fabricated document (id. at 25). The matter was therefore remitted for an evidentiary hearing on those issues. But before the hearing could take place, Melcher reached a settlement with Fradd, specifically excluding the pending Judiciary Law § 487 claim against defendants here.

Similarly, it is true that Melcher, in the Apollo action, moved to disqualify GT and Corwin for their alleged fraud on the court. Nonetheless, Melcher never amended his complaint in that action to include “fraud on the court” claims predicated upon section 487. Defendants also never sought to consolidate this action with the Apollo action while they were both pending, even though they were before the same judge. Under these circumstances, defendants cannot advance a credible argument that the matter has already been fully litigated and decided.

Finally, defendants argue that according to our case law, a Judiciary Law § 487 claim brought in a separate action must be dismissed because a plaintiff’s remedy lies exclusively in the underlying lawsuit itself. Hence, defendants argue, Melcher should have moved under CPLR 5015 to vacate the civil judgment in the Apollo action on the ground of fraud, rather than beginning a second plenary action collaterally attacking the judgment in the Apollo action.

We reject this argument. In contrast to the situations in the cases on which defendants rely, Melcher does not, in fact, seek by this action to collaterally attack any prior adverse judgment or order on the ground that it was procured by fraud; if that were the case, the appropriate remedy generally would be to seek vacatur under CPLR 5015 (see e.g. Yalkowsky v Century Apts. Assoc., 215 AD2d 214, 215 [1st Dept 1995] [plaintiff alleged that the defendant’s attorney in a Civil Court proceeding had made a misrepresentation to the Civil Court, resulting in dismissal of the plaintiff’s constructive eviction claim]; see also Melnitzky v Owen, 19 AD3d 201 [1st Dept 2005] [section 487 claim properly dismissed where the plaintiff claimed that the defendant deceived Civil Court, which was hearing his malicious prosecution claim, by concealing rulings by Supreme Court]). Instead, plaintiff here seeks to recover lost time value of money and the excess legal expenses incurred in the Apollo action as a proximate result of defendants’ alleged deceit; this course of action is permissible in a separate action under the Judiciary Law (Amalfitano, 12 NY3d at 15).

The language of section 487 supports this conclusion, because that section does not require that the claim be asserted in the same action in which the violation occurred. Rather, the section simply provides that an attorney who has practiced a deception will be liable for treble damages “to be recovered in a civil action” (see Four Star Stage Light. v Merrick, 56 AD2d 767, 768 [1st Dept 1977] [holding that a section 487 claim brought in a second action should survive a motion to dismiss because it was adequately pleaded]; see also Pomerance v McGrath, 124 AD3d at 485 [finding that “it was not improper for plaintiff to bring a Judiciary Law § 487 claim in this action even though it is based on alleged deceit in a prior action,” but denying leave to add this claim on other grounds]; Armstrong v Blank Rome LLP, 126 AD3d 427 [1st Dept 2015] [section 487 claim brought in a second action alleging an undisclosed conflict of interest for an attorney who represented a litigant in divorce proceedings was adequately pleaded and should survive a motion to dismiss]). In fact, a court may not grant a motion for leave to amend a complaint to add a section 487 claim in the action in which the violation occurs, particularly if adding that claim would “require the disqualification of counsel and prejudice [the defendant’s] right to be represented by attorneys of its choice” (360 W. 11th LLC v ACG Credit Co. II, LLC, 90 AD3d 552, 554 [1st Dept 2011]). Those very concerns would, in fact, have been present in this case.

Our decision in Zimmerman v Kohn (125 AD3d 413 [1st Dept 2015], lv denied 25 NY3d 907 [2015]) does not compel a different result. In that case, the IAS court dismissed the section 487 claim on the basis that the plaintiffs’ remedy for a violation of that section lay exclusively in the underlying federal action, not in a separate plenary action (Zimmerman v Kohn, 2014 WL 1490936, *2-3 [Sup Ct, NY County, April 11, 2014, No. 652826113]). However, on appeal, this Court did not address that issue at all. Instead, we held only that dismissal of the section 487 claim was warranted because the plaintiffs, after settling the prior action, paid their counsel based on a contingency fee arrangement, and therefore could not show that the defendants’ misrepresentations proximately caused them any injury (Zimmerman, 125 AD3d at 414).”

In a continuing review of last years Judiciary Law 487 cases, we see the Second Department refusing to consider a JL 487 case where the proximate damages are unclear, or cannot be reasonably inferred.  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 finds that “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.”

Kallista, S.A. v White & Williams LLP   2016 NY Slip Op 2609  Decided on January 7, 2016  Supreme Court, Westchester County  Scheinkman, J. discusses legal malpractice and Judiciary Law 487.  Last week we discussed the legal malpractice aspect of the case.

“This action arises out of claims that the Law Firm committed legal malpractice, and then fraudulently concealed its misconduct, in its representation of Kallista in relation to certain trademark registration applications. The action was commenced by the filing of the Summons and Complaint on August 4, 2015.”

“Plaintiffs allege that, in late March and early April 2012, Kallista initially consulted with Friedberg regarding the preparation of a trademark application for the name “KALLISTA” for skincare products in the United States. Friedberg was also [*2]consulted regarding a trademark application for the name “ETHERIA”) for hair care products in the United States (id. ¶12). On May 2, 2012, Kallista, Etheria, and the Law Firm entered into an agreement pursuant to which the Law Firm was to perform legal services for both companies, including the preparation and processing of the two trademarks (id. ¶13). In May 2012, Parodi was employed as a senior executive of Proctor & Gamble and Friedberg knew that she intended to leave that position as soon as the Kallista business was operational (id. ¶14).

Plaintiffs assert that, as early as November 2011, Kalliste Oraganics, Inc. (“Kalliste”) branded soap and skincare products which were sold throughout the United States under the name “KALLISTE”. Plaintiffs say that a full and complete trademark search would have revealed the existence of the Kalliste product line (id. ¶¶15, 20). Despite this, on June 1, 2012, Friedberg reported to Kallista that his search of certain data bases indicated a low level of risk, that it was not necessary to do a full trademark search, and that he believed that the marks were available. On June 18, 2012, Kallista instructed Friedberg to proceed with registration for both marks (id. ¶16).

Plaintiffs assert that Defendants did not proceed with the trademark applications, even though they invoiced Kallista for the cost of the applications and falsely represented that the applications had been filed (id. ¶¶16-17). In February, 2013, Kallista asked Friedberg about the status of the applications and, in particular, as to whether Kallista products could be sold before the end of the summer and whether there was any risk. Friedberg allegedly advised that selling should start as soon as possible because the registration could not be finalized until that was done (id. ¶17). On July 24, 2013, Kallista wrote to Friedberg as to the status of the trademarks, noting that a regulatory agency had informed Kallista that the KALLISTA mark had not been registered. Friedberg is alleged to have responded by filing applications for both Etheria and Kallista that day (id. ¶18).

Plainitffs allege that Defendants did not perform a trademark search of the United States Patent and Trademark Office ( USPTO”) database and that, if such a search had been conducted, it would have been revealed that Kalliste Organics, Inc. (“Kalliste”) had a trademark application for KALLISTE. Kalliste asserted in its application that it first used the KALLISTE mark in 2008. Registration of Kalliste’s trademark was issued on October 15, 2013 (id. ¶20).”

“The Fourth Cause of Action is for violation of Section 487 of the Judiciary Law. Plaintiffs claim that Defendants violated Section 487 by filing and prosecuting a fraud action on behalf of Kallista (the petition to cancel the KALLISTE mark) without informing Kallista or obtaining its consent and without conducting an adequate investigation. This action is said to be part of a larger scheme to mislead Plaintiffs, which persisted for more than a year and which “amounts to an extreme pattern of legal delinquency.” It is claimed that, by the filing of the petition to cancel without an adequate investigation, Defendants intended to deceive the Board and also Kallista, Parodi, and Kalliste (id. ¶¶50-53).”

“Section 487 of the Judiciary Law provides, in relevant part, 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, in addition to the punishment for such crime, forfeits to treble damages to the injured party, recoverable in a civil action.

The statute provides for a cause of action against an attorney in two circumstances: (a) where the alleged deceit or collusion with the intent to deceive any part occurred in a pending judicial proceeding; or (b) where deception is directed against a court and the deception relates to either a prior judicial proceeding or one which may be commenced in the future (see, e.g., Singer v Whitman & Ransom, 83 AD2d 862 [2d Dept 1981]). This statutory construction dates back to the 1884 decision of the Court of Appeals in Looff v Lawton (97 NY 478, 482 [1884]), where in construing the predecessor statute, the Court stated:

The “party” referred to is clearly a party to an action pending in a court in reference to which the deceit is practiced, and not a person outside, not connected with the same at the time or with the court.

Thus, to make out a claim under the statute the deceit complained of must have occurred during a judicial proceeding to which the plaintiff was a party (Bankers Trust Co. v Cerrato, Sweeney, Cohn, Stahl & Vaccaro, 187 AD2d 384 [1st Dept 1992]); accord, Henry v Brenner, 271 AD2d 647 [2d Dept 2000]; Beshara v Little, 215 AD2d 823 [3d Dept 1995]). Thus, the alleged creation of a false affidavit in support of an insurance claim was not within the statute since the affidavit was not filed in support of a pending lawsuit (Gelmin v Quicke, 224 AD2d 481 [2d Dept 1996] [that the affidavit was produced in response to discovery demands by plaintiff did not bring the affidavit within the statute]).

Here, in the Fourth Cause of Action, Plaintiffs allege that Defendants violated Section 487 “by filing and prosecuting a fraud action on behalf of Kallista (the Petition to Cancel against Kalliste), without informing Kallista or obtaining its consent, and without conducting an adequate investigation of the merits of the claim.” Plaintiffs contend that this was part of a bigger plan to mislead them which amounts to an extreme pattern of delinquency. Plaintiffs allege that by filing the petition, Defendants intended to deceive the Board, Kallista, Parodi and Kalliste.

The petition to cancel the KALLISTE registration was not brought before a court. It was brought before an administrative agency, the United States Trademark Trial and Appeal Board, which is part of the United States Patent and Trademark Office, a federal agency within the United States Department of Commerce (35 USC §1; 15 USC §1067).^[FN7]

There is no authoritative precedent for construing Section 487 to impose liability for deceit committed in the course of an administrative proceeding.^[FN8]

The Court concludes that Judiciary Law Section 487 does not apply to the filing of a petition with an administrative agency, whether state or federal. Section 487 is a unique statute deriving from a statute of ancient origin in the criminal law (see Amalfitano v Rosenberg, 12 NY3d 8, 14 [2009]). It is intended to regulate, through criminal and civil sanctions, the practice of law in the courts and to protect the integrity of the truth-seeking process of the courts (see Schertenleib v Traum, 589 F2d 1156, 1166 [2d Cir 1978]).

There is a genuine debate as to whether the court proceedings reached by Section 487 are limited to proceedings in New York state courts or extend further to court proceedings in other places (compare Schertenleib v Traum, 589 F2d at 1166; Alliance Network, LLC v Sidley Austin LLP, 43 Misc 3d 848 [Sup Ct, NY County 2014]; Cinao v Reers, 27 Misc 3d 195 [Sup Ct, Kings County 2006]). However, the statute specifically provides criminal and civil sanctions for deception upon the “court”. Doubtless, the statute was enacted before the advent of extensive use of administrative tribunals to adjudicate administrative matters. However, the statute has never been amended to include administrative tribunals. Administrative tribunals are not themselves courts.

It would be an undue construction of the statute to read it so expansively as to bring administrative tribunals within its reach. If the statute were so read, then the statute could be found to reach a multitude of agencies, ranging from federal agencies, to state agencies, to municipal agencies. Further, it is not always necessary for a person who represents a party before an agency to be an attorney; indeed, admission to practice as an attorney may not itself be sufficient to qualify a person to represent a party before an administrative agency. Whether the statute is to be expanded to cover deception before administrative agencies, and if so, whether such coverage should be limited to attorneys, are matters for the Legislature.

The statute is best analyzed in the criminal law context and not within the framework of comparable civil torts (see Amalfitano v Rosenberg, 12 NY3d at 14). In [*10]the criminal law, where two constructions of a criminal statute are plausible, the one more favorable to the defendant should be adopted in accordance with the rule of lenity (People v Golb, 23 NY3d 455, 468 [2013], rearg denied 24 NY3d 932, cert denied __ US __, 135 S Ct 1009 [2015]). Thus, even if it is assumed that it is equally plausible to construe “court” as used in Section 487 to include an administrative tribunal as it is to exclude an administrative tribunal, the latter construction should be preferred.

Further, specifically addressing the facts in this case, the United States Patent and Trademark Office is empowered to regulate and govern the recognition and conduct of “agents, attorneys or other persons representing applicants or other parties before the Office” (35 USC §2[b][2][D]). A person who practices before the Office need not be a member of the New York Bar, though if he or she is a member of the New York Bar, he or she is subject to discipline by the New York authorities (Kroll v Finnerty, 242 F3d 1359, 1365-1366 (Fed Cir 2001). But this Court sees no valid basis in the history of the statute, or in the precedents applying it, for construing the statute as imposing criminal and civil liabilities upon an attorney who engages in deceit before this federal agency.

For these reasons, the Fourth Cause of Action shall be dismissed. In view of this determination, it is not necessary to reach the question whether the Law Firm may be held liable under Section 487.^[FN9]“

Patent and Trademark registrations are a very, very big part of the legal world, and even more important in the commercial sphere.  What happens when a fledgling cosmetics company hires a law firm to file a trademark, protect the product, and allow for the cosmetic company to start selling skin-care products, and it all goes wrong?

Kallista, S.A. v White & Williams LLP  2016 NY Slip Op 26009  Decided on January 7, 2016
Supreme Court, Westchester County  Scheinkman, J. covers many of the most important principals and doctrines of legal malpractice and Judiciary Law 487 in a concise and well-reasoned opinion.  Today we will discuss the Legal Malpractice issues and on Monday we will discuss the JL 487 issues.

“According to the Complaint, the allegations of which must be assumed as true for the purposes of this motion, Kallista is a Swiss corporation and has its principal place of business in Geneva (Affirmation of Howard I. Elman, Esq., dated October 2, 2015 [“Elman Aff”], Ex. 1, ¶4). Parodi is said to be a citizen of both Switzerland and the United States, residing in Switzerland (id. ¶5). The Law Firm is a Pennsylvania partnership and has maintained offices in Manhattan and in Pleasantville (id. ¶6). Friedberg is a member of the New York Bar, a resident of Scarsdale, and is a partner in the Law Firm’s Manhattan office (id. ¶8).

Kallista was established in April 2012 to engage in the production and sale of skincare products. A sister company, Etheria, S.A. (“Etheria”) was set up at the same time for the production and sale of hair care products. Both companies are managed by Parodi, and her husband, Pierre. Pierre is the owner of Kallista (id., ¶11).

Plaintiffs allege that, in late March and early April 2012, Kallista initially consulted with Friedberg regarding the preparation of a trademark application for the name “KALLISTA” for skincare products in the United States. Friedberg was also [*2]consulted regarding a trademark application for the name “ETHERIA”) for hair care products in the United States (id. ¶12). On May 2, 2012, Kallista, Etheria, and the Law Firm entered into an agreement pursuant to which the Law Firm was to perform legal services for both companies, including the preparation and processing of the two trademarks (id.¶13). In May 2012, Parodi was employed as a senior executive of Proctor & Gamble and Friedberg knew that she intended to leave that position as soon as the Kallista business was operational (id. ¶14).

Plaintiffs assert that, as early as November 2011, Kalliste Oraganics, Inc. (“Kalliste”) branded soap and skincare products which were sold throughout the United States under the name “KALLISTE”. Plaintiffs say that a full and complete trademark search would have revealed the existence of the Kalliste product line (id. ¶¶15, 20). Despite this, on June 1, 2012, Friedberg reported to Kallista that his search of certain data bases indicated a low level of risk, that it was not necessary to do a full trademark search, and that he believed that the marks were available. On June 18, 2012, Kallista instructed Friedberg to proceed with registration for both marks (id. ¶16).

Plaintiffs assert that Defendants did not proceed with the trademark applications, even though they invoiced Kallista for the cost of the applications and falsely represented that the applications had been filed (id. ¶¶16-17). In February, 2013, Kallista asked Friedberg about the status of the applications and, in particular, as to whether Kallista products could be sold before the end of the summer and whether there was any risk. Friedberg allegedly advised that selling should start as soon as possible because the registration could not be finalized until that was done (id. ¶17). On July 24, 2013, Kallista wrote to Friedberg as to the status of the trademarks, noting that a regulatory agency had informed Kallista that the KALLISTA mark had not been registered. Friedberg is alleged to have responded by filing applications for both Etheria and Kallista that day (id. ¶18).

Plainitffs allege that Defendants did not perform a trademark search of the United States Patent and Trademark Office ( USPTO”) database and that, if such a search had been conducted, it would have been revealed that Kalliste Organics, Inc. (“Kalliste”) had a trademark application for KALLISTE. Kalliste asserted in its application that it first used the KALLISTE mark in 2008. Registration of Kalliste’s trademark was issued on October 15, 2013 (id. ¶20).

In September 2013, Parodi resigned from Proctor and Gamble, giving up a $250,000 annual salary and generous benefits (id. ¶21).

On November 15, 2013, Friedberg received an Office Action from USPTO stating that there was likelihood of confusion between the KALLISTE registration and the KALLISTA application, which were in the same class of products, and therefore the KALLISTA application was refused. Plaintiffs allege that Friedberg did not tell Kallista about this development and did not tell Kallista that the KALLISTE registration was a substantial legal threat to Kallista’s business since the KALLISTA mark posed a serious risk of infringement on the KALLISTE mark (id. ¶22).

Kallista, allegedly unaware of any trademark issues, successfully launched a KALLISTA product line in the United States in January 2014 (id. ¶23). On May 15, 2014, Friedberg filed a petition with the United States Trademark Trial and [*3]Appeal Board (the “Board”) to cancel the KALLISTE mark on the ground of fraud, and also filed a request to suspend the application for the KALLISTA mark. Friedberg is alleged to have taken these actions without informing Kallista or obtaining its consent (id. ¶24).

According to Plaintiffs, the petition to cancel was withdrawn after Kalliste threatened Rule 11 sanctions against Kallista. Friedberg then entered into negotiations with Kalliste for a coexistence agreement, which would have restricted the use of the KALLISTA mark to a small section of the relevant market. This was allegedly done without informing Kallista. Further, Friedberg sent a “harsh” and factually incorrect demand letter to Kalliste (id. ¶25).

On June 5, 2014, Defendants informed Kallista that the KALLISTA application was blocked by the KALLISTE trademark registration and recommended that the dispute be resolved through a coexistence agreement. In early July 2014, Friedberg informed Kallista that the Law Firm would give it a credit for up to $7500 of the costs of a coexistence agreement and apologized for “miscommunication” (id. ¶26). Subsequent efforts to negotiate a coexistence agreement failed.

On August 5, 2014, the Law Firm was relieved of further services by Kallista.”

“Kallista alleges that, in view of its inability to trademark the KALLISTA mark, it closed its business. Its distributors returned tens of thousands of dollars of KALLISTA products which cannot be sold. Kallista claims it invested over $900,000 in its business operations, which are not recoverable, and lost profits of more than $350,000 for 2014, 2015 and 2016. Parodi claims she lost income of at least $217,000 (id. ¶¶29-30).

The First Cause of Action is for legal malpractice and is asserted by both Plaintiffs as against both Defendants. It is alleged that Defendants breached a duty of care and skill by, among other things: failing to conduct an adequate trademark search in May 2012; failing to file and prosecute the KALLISTA trademark application in June 2012; failing to inquire into the status of the application and telling Kallista to proceed with sales in February 2013; concealing, until July 24, 2013, that no application had been filed; concealing that an Office Action had been received in November 2013 refusing the KALLISTA application; failing to advise Kallista that the KALLISTE registration posed a serious risk of infringement; delaying for six months a response to the Office Action and then filing a petition to cancel without Kallista’s consent and without an adequate investigation. Plaintiffs claim damages of “sunk” costs and expenses of $900,000 to Kallista, $350,000 in lost profits to Kallista, and $234,000 in lost income to Parodi (id. ¶¶31-37).

The Second Cause of Action is for fraudulent concealment. Plaintiffs claim that there was a conspiracy and “pattern and practice” to cover up and avoid disclosing Defendant’s legal malpractice. Plaintiffs assert that Defendants were under a fiduciary duty to disclose all of their acts and omissions constituting malpractice. The “pattern and practice” of fraudulent concealment is said to include: (a) concealing the failure to fail a trademark application for KALLISTA in February 2013; (b) withholding from Kallista and Parodi in July 2013 that the application had not been filed sooner and that it had only been filed in response to Kallista’s inquiry; (c) concealing the receipt of the [*4]Office Action; (d) failing to inform Kallista and Parodi that Defendants had filed a petition to cancel the KALLISTE registration based on fraud without telling Kallista in advance and without an adequate investigation; and (e) concealing from Kallista that Defendants had entered into negotiations for a coexistence agreement. Plaintiffs assert that, but for the fraudulent concealment, they would not have made any agreements with Defendants and would have obtained alternate counsel and taken other measures to mitigate the damages caused by the legal malpractice. Plaintiffs seek $1.4 million damages, including the “sunk costs” of Kallista, the lost profits of Kallista, and the lost income of Parodi. Plaintiffs claim that Defendants’ acts were knowing, intentional and were done wantonly with a high degree of moral turpitude (id. ¶¶38-43). Plaintiffs claim punitive damages should be awarded because “Plaintiffs were subjected to a cruel and unjust hardship by which their interests in receiving competent and conflict-free legal advice were brazenly attacked and stolen,” and such an award is necessary to punish Defendants and deter them from similar misconduct in the future (id. ¶44).

The Third Cause of Action is for breach of contract and is asserted as against the Law Firm only. Kallista claims it entered into an agreement for legal services with the Law Firm for legal services and that Parodi is a third party beneficiary of that agreement. In essence, Plaintiffs claim that the Law Firm breached the agreement by failing to provide competent legal services (id. ¶49).

The Fourth Cause of Action is for violation of Section 487 of the Judiciary Law. Plaintiffs claim that Defendants violated Section 487 by filing and prosecuting a fraud action on behalf of Kallista (the petition to cancel the KALLISTE mark) without informing Kallista or obtaining its consent and without conducting an adequate investigation. This action is said to be part of a larger scheme to mislead Plaintiffs, which persisted for more than a year and which “amounts to an extreme pattern of legal delinquency.” It is claimed that, by the filing of the petition to cancel without an adequate investigation, Defendants intended to deceive the Board and also Kallista, Parodi, and Kalliste (id. ¶¶50-53).”

“The Third Cause of Action alleges that the Law Firm breached its contract with Plaintiffs by: failing to conduct an adequate trademark search in May 2012 and failing to discover the existence of the KALLISTE mark; failing to timely file and prosecute the KALLISTA trademark application; failing to conduct a reasonable inquiry into the status of the KALLISTA trademark application; failing to conduct a competent trademark search in July 2013; concealing the receipt of the Office Action refusing the KALLISTA application; waiting six months to respond to the Office Action and then filing a petition to cancel the KALLISTE registration; and undertaking an unauthorized negotiation for a coexistence agreement (Complaint, ¶48). Each of these allegations is also asserted in the context of the First Cause of Action for legal malpractice (id., ¶33).

The breach of contract cause of action is premised on the assertion that the Law Firm “impliedly promised to provide competent legal services to prosecute a trademark application (Complaint, ¶46). A breach of contract claim premised on the attorney’s failure to exercise due care or to abide by general professional standards is nothing but a redundant pleading of a malpractice claim (see, e.g., Levine v Lacher & [*8]Lovell-Taylor, 256 AD2d 147 [1st Dept 1998]; Sage Realty Corp. v Proskauer Rose LLP, 251 AD2d 35 [1st Dept 1998]). The test is not whether the theory is the same; the test is whether the facts alleged and relief sought are the same (see Nevelson v Carro, Spanbock, Kaster & Cuiffo, 290 AD2d 399 [1st Dept 2002]).

To the extent that the Third Cause of Action for breach of contract arises from the same facts and seeks the same damages as the First Cause of Action for legal malpractice, the Third Cause of Action should be dismissed (Shaya B. Pacific, LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, L.L.P., 38 AD3d 34, 43 [2d Dept 2006]); Mecca v Shang, 258 AD2d 569 [2d Dept 1999], lv dismissed95 NY2d 791 [2000]).

The facts are the same in both causes of action. There is, however, one aspect of damages that is different. In the Third Cause of Action, Plaintiffs seek recovery for monies that they paid for purported legal services pursuant to the agreement (Complaint, ¶49). However, since the purpose of pecuniary damages in a legal malpractice action is to make the injured party whole, there is no reason to doubt that Plaintiffs may obtain recovery from Defendants for any fees paid that Defendants did not earn due to their malpractice (Mecca v Shang, 258 AD2d at 570; see Leach v Bailly, 57 AD3d 1286, 1289 [3d Dept 2008]). Since there is no distinction between the damages recoverable in legal malpractice and those sought in breach of contract, the Third Cause of Action shall [x] be dismissed.”

“The Second Cause of Action for fraudulent concealment should also be dismissed. A fraud cause of action, like a contract cause of action, that arises from the same facts as a legal malpractice cause of action is duplicative of the legal malpractice cause of action unless distinct damages are alleged (see, e.g., Postiglione v Castro, 119 AD3d 920 [2d Dept 2014]; Rupolo v Fish, 87 AD3d 684 [2d Dept 2011]); Financial Servs. Veh. Trust v Saad, 72 AD3d 1019 [2d Dept 2010]); Sitar v Sitar, 50 AD3d 667 [2d Dept 2008]; Iannucci v Kucker & Bruh, LLP, 42 AD3d 436 [2d Dept 2007]).”

“Defendants maintain that Parodi lacks standing to sue them for legal malpractice because she lacks privity with them. In this regard, the Complaint alleges that an agreement for legal services was entered into between Kallista, Etheria and the Law Firm (Complaint at ¶13). There is no claim that Parodi retained the Law Firm or Friedberg.

Insofar as Parodi is concerned, the Complaint alleges that she was a “co-founder” of Kallista (Complaint, ¶1), which was formed in 2012, and that she managed Kallista with her husband, who is the owner of Kallista (id. ¶11). According to the Complaint, at the time the Law Firm was retained in May 2012, Friedberg was aware that Parodi intended to leave her existing employment once the Kallista business became operational (id. ¶14). It is alleged that, in or about September 2013, Parodi resigned from her employment with Proctor & Gamble to help manage Kallista’s business and that, while at Proctor & Gamble, she earned a salary in excess of $250,000 CHF and a generous benefits package (id. ¶21). She claims a loss of this income (id. ¶30). While the First Cause of Action alleges that Defendants owed both [*11]Plaintiffs a duty use the degree of skill and care that is possessed by ordinary attorneys, there are no additional or further allegations as to why such a duty was owed to Parodi (id. ¶32).

“There is no claim that Parodi herself ever requested that Defendants give her any legal advice or give her any information as to the status of the Kallista trademark application. Indeed, even if such an allegation had been made, it would not, by itself, give rise to a “near privity” relationship sufficient to extend liability for malpractice to a non-client (see Leggiardo, Ltd. v Winston & Strawn, LLP, 119 AD3d 442 [1st Dept 2014]). There are simply no facts alleged that would make it foreseeable that Parodi was a third-party beneficiary of a contract made by the Law Firm with Kallista, a company which Parodi was not an owner, officer or employee (see Topor v Enbar, 15 Misc 3d 1139[A], 2007 WL 1501647 [Sup Ct, NY County 2007]).^[FN10]

Accordingly, the First Cause of Action for malpractice shall be dismissed insofar as asserted by Parodi.”

As many defense attorneys in legal malpractice settings argue, the legal malpractice claim often arises in response to an attorney’s action for fees, that is, as a counterclaim.  The attorneys always say that the legal malpractice counterclaim is a reflex, and a poorly disguised one, and is there merely to try to avoid paying fees.

Goldberg & Connolly v Upgrade Contr. Co., Inc.  2016 NY Slip Op 00152  Decided on January 13, 2016 Appellate Division, Second Department is an example of what happens when the fee claim, the legal malpractice counterclaim and the “account stated” doctrine all come into play.

“The plaintiff is a law firm that was retained by the defendant, inter alia, to represent it as a third-party defendant in a personal injury action. After the conclusion of the underlying action, the plaintiff commenced this action against the defendant, among other things, to recover damages for breach of contract and on an account stated, seeking to recover unpaid legal fees. The defendant asserted a counterclaim to recover damages for legal malpractice. The plaintiff moved to disqualify the defendant’s attorney, James Haddad, on the basis that Haddad would be a witness in this action. The defendant cross-moved, inter alia, for summary judgment dismissing the complaint and on its counterclaim. The Supreme Court granted the plaintiff’s motion and denied the defendant’s cross motion. The defendant appeals. We affirm.”

“The Supreme Court also properly denied the defendant’s cross motion for summary judgment dismissing the complaint and on its counterclaim. The defendant failed to establish its prima facie entitlement to judgment as a matter of law on its counterclaim, as the defendant failed to submit any evidence, other than the speculative and factually unsupported opinion of its attorney, that the plaintiff committed any acts of malpractice, or that the defendant was damaged thereby (see Barouh v Law Offs. of Jason L. Abelove, 131 AD3d 988, 991; Quantum Corporate Funding, Ltd. v Ellis, 126 AD3d 866).

Concomitantly, in support of that branch of its cross motion which was for summary judgment dismissing the complaint, the defendant failed to submit evidence in support of its contention that it was justified in refusing to pay the attorney’s fees allegedly incurred in light of the plaintiff’s alleged malpractice. Further, since the defendant presented no evidence that it did not receive and retain, without objection, invoices for legal services rendered, the defendant failed to establish its prima facie entitlement to summary judgment dismissing the causes of action to recover on an account stated (cf. Callaghan v Curtis, 82 AD3d 816; Gassman & Keidel, P.C. v Adlerstein, 63 AD3d 784). Accordingly, the Supreme Court properly denied the defendant’s cross motion for summary judgment dismissing the complaint and on its counterclaim, without regard to the sufficiency of the opposition papers (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851).