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).

Attorneys file a complaint and represent clients.  Opposing parties are unhappy and eventually claim JL 487 violations.  Events continue in two cases at once.  The original case goes to trial and appeal.  The Court finds for plaintiffs, which undercuts defendants JL 487 claims.  What is the effect?

Ehrenkranz v 58 MHR, LLC  2015 NY Slip Op 50859(U) [47 Misc 3d 1226(A)]  Decided on May 27, 2015  Supreme Court, Suffolk County  Pines, J. is an example of how events can overtake pleadings.  It’s a very complicated fact pattern, but involves two commercial parties that have litigated a loan/construction/assets case through the AD.

“In the first action, John Ehrenkranz and Andra Ehrenkranz (“the Ehrenkranzs” or “the Ehrenkranz Plaintiffs”) have sued 58 MHR, LLC (“MHR”), Dimitri Boylan and Julian Boylan for conversion, unjust enrichment and fraudulent conveyances and aiding and abetting the same under the New York Debtor and Creditor Law, based upon allegations that the Boylans and a company allegedly owned by them, MHR, were dissipating the assets of another corporation, Opus Vivir, Inc (“Opus”), against which the Ehrenkranzs asserted claims in another lawsuit. The Ehrenkranzs have also asserted the right to a Notice of Pendency on real property owned by MHR and sought punitive damages against the Defendants. The Ehrenkranzs commenced the current action in an effort to preserve the assets of Opus and to prevent it from essentially becoming judgment proof in the other action, a breach of contract action arising out of competing claims between Opus and the Ehrenkranzs following the construction by Opus of a residence for the Ehrenkranzs. Following a trial of that action in 2013, the jury rendered a verdict in favor of the Ehrenkranzs in the amount of $2,2111,000 and this Court subsequently denied Opus’ motion pursuant to CPLR 4404 to set aside the verdict. The resulting judgment in that action was recently affirmed by the Appellate Division, Second Department, after the motions currently before the Court were submitted, see, Vivir v Ehrenkranz, 127 AD3d 962 (2d Dep’t 2015).”

“In addition to these claims and counterclaims, MHR and Julian Boylan assert third-party claims against, as herein relevant, the law firm of LePatner & Associates, LLP ( “LePatner” or “LePatner Firm”), the former attorneys for the Ehrenkranz Plaintiffs. These include claims for: 1) defamation; 2) tortious interference with prospective business relations; 3) business disparagement; 4) inducing the breach of fiduciary duties; 5) a violation of the federal computer fraud and abuse action under 18 USC § 1030; 6) tortious interference with contract; 7) conversion; 8) violation of Judiciary Law §487; and 9) abuse of process.”

“In support of its motion to dismiss the third-party complaint as asserted against it, the LePatner Firm asserts that the third-party claims asserted against it fail to constitute any proper “claim over” as required under CPLR 1007. They review the claims asserted by the Ehrenkranzs and 624 BL against the Boylans and MHR which are for conversion of the monies paid by the Ehrenkranzs to Opus, unjust enrichment based upon the use of such funds by the Defendants to pay for development of different properties, fraudulent conveyance through the use of such funds by Defendants for the development of different property, and aiding and abetting Opus and 58 MHR in engaging in such activities. The LePatner Firm argues that none of such causes of action are stated either to arise from or are conditioned upon the third-party claims asserted against it.

The LePatner Firm also argues that these claims must fail under CPLR 3211. With regard to the claim for defamation, the LePatner firm argues that in no instance does the purported claim particularize or point to any specific words, time, place or manner nor person making such statements as required by law. In addition, they must arguably fail as they were made in the context of a judicial preceding and are privileged. The LePatner Firm argues that the disparagement claims as set forth are merely duplicative of the defamation claim, that again they lack any specificity like the defamation claim, and that special damages are not pled.”

“The LePatner Firm contends that the claim against it under the Judiciary Law for allegedly filing false claims in the Opus action has now been vitiated by the verdict against Opus [*4]in the breach of contract action, as well as by the now affirmed order of attachment.”

“To state a claim for abuse of process, the claimant must allege: 1) the issuance of regularly issued civil or criminal process, compelling performance or forbearance of some act; 2) the existence of an ulterior motive to do harm, without economic or social justification; 3) the seeking of some collateral advantage outside the legitimate ends of such process; and 4) actual or special damages, Board of Educ. of Farmingdale Union Free School Dist. v Farmingdale Classroom Teacher’s Ass’n, Inc. Local 1889 AFT AFL-CIO, 38 NY2d 397 (1975). The institution of a civil action is not considered process capable of being abused even where such is done with malicious intent, Muro-Light v Farley, 95 AD3d 846 (2d Dep’t 2012). No abuse of process lies as a result of the accused party or entity obtaining provisional orders of attachment [*14]enjoining the claimants from transferring assets, Daniel J. Edelman, Inc. v Korn, 231 AD2d 405 (1st Dep’t 1996); Park v State of NY, 226 AD2d 153 (1st Dep’t 1996). This is supported in the case at bar by the Appellate Division’s recent affirmance of the Supreme Court’s issuance of the very provisional remedy issued herein following the Third-Party Defendants’ raising of the same issues. Thus, the abuse of process counterclaim fails as a matter of law and is dismissed.

Third-Party Plaintiffs assert that devious court filings and deliberate lies by the LePatner Firm in these litigations constitute a violation of Judiciary Law § 487. However, in this matter, the claims by the Ehrenkranzs in the Opus case were resolved in favor of the Ehrenkranzs by a jury, the motion to set aside the verdict was denied by this Court, and the subsequent judgment entered thereon was affirmed by the Appellate Division. The “[a]ssertion of unfounded allegations in a pleading, even if made for improper purposes, does not provide a basis for liability under Judiciary Law § 487]”, Ticketmaster Corp. v Lidsky, 245 AD2d 142 (1st Dep’t 1997).”

We’re continuing to review last years JL 487 cases.  Del-Star Jewelry Corp. v Davidov  
2015 NY Slip Op 31106(U)   June 25, 2015  Supreme Court, New York County  Docket Number: 160690/2013  Judge: Ellen M. Coin is next.  Here, third-party defendant attorneys represented opposing parties and deceitfully told the bankruptcy trustee that “any judgment against [Davidoff] would be uncollectible” because he had limited assets, when in fact he had significant assets.

“The Second Third-Party Complaint (Complaint) pleads one cause of action: for violation of Judiciary Law§ 487. Its allegations of wrongdoing as against the Schillers are: (1) that defendants Rafael Davidov, Leyla Baybulatova and RD Precious Metals, Inc. (collectively, Defendants) “by their attorneys, falsely claim that by December 2012, Second ThirdParty Defendant Eduardo Delgado owed Defendant RD Precious Metals more than $193,000.00”, and that the Schillers have submitted false documentation in this case and colluded with their clients to deceive the court (Second Third-Party Complaint, ~~ 9, 32; emphasis added); (2) that the Schillers represented defendant Rafael Davidov (Davidov) in an Involuntary Chapter 7 proceeding against Debtor Diamond Depot, Inc. in the United States Bankruptcy Court for the Southern District of New York; that in the course of that proceeding the Schillers represented that Davidov had limited resources and that any judgment against him would be uncollectible; that in reliance on that representation, the trustee in bankruptcy agreed to accept a reduced off er to settle claims of two creditors; that at the time the Schillers made that representation, Davidov owned and operated at least three other lucrative entities, including defendant RD Precious Metals, Inc.; and that the Schillers intended to deceive the bankruptcy court in order to obtain approval of the reduced settlement amount (Second Third-Party Complaint, ~~ 11, 19-21).

The Schillers argue that the Delgados lack standing to bring this action pursuant to Judiciary Law§ 487, contending that this statute applies only to a pending judicial proceeding in which the plaintiff was a party (Bankers Trust Co. v Cerrato, Sweeney, Cohn, Stahl & Vaccaro, 187 AD2d 384, 386 [Pt Dept 1992]). However, where, as is alleged here, the deception is directed against a court, a pending judicial proceeding is not required; it is sufficient if the deception relates to a prior judicial proceeding (Singer v Whitman & Ransom, 83 AD2d 862 [2d Dept 1981]). Accordingly, the Schillers’ contention falls of its own weight.

However, the case was still dismissed.  “The Second Third-Party Complaint contains no allegation that the Schillers’ deception of the bankruptcy court and trustee caused any injury to the Delgados. Thus, this aspect of the Second Third-Party Complaint fails to state a cause of action for violation of Judiciary Law§ 487 (See Bohn v 176 W.87th St. Owners Corp., 106 AD3d 598, 600 [1st Dept 2013]; Seldon v Spinnell, 95 AD3d 779 [1 5T Dept 2012]). ”

It seems to be a simple question.  What is the statute of limitations for legal malpractice?  After all, the Court of Appeals decided the issue squarely in Melcher v Greenberg Traurig, LLP  2014 NY Slip Op 02213 [23 NY3d 10]  April 1, 2014 Read, J. Court of Appeals.  “Thus, even if a claim for attorney deceit originated in the first Statute of Westminster rather than preexisting English common law (a question unresolved by Amalfitano and disputed by the parties in this case), liability for attorney deceit existed at New York common law prior to 1787. As a result, claims for attorney deceit are subject to the six-year statute of limitations in CPLR 213 (1). Because of our disposition of this appeal, we do not reach and need not resolve Melcher’s other arguments.”

Simple, no?  Not so simple.  Looking backwards, at one time there were different statutes of limitation for legal malpractice in tort (3 years) and in contact (6 years).  The legislature “solved” the problem by passing CPLR 214(6)  “The following actions must be commenced within three years:

So, when the issue of the statute of limitations for JL 487 comes up, the Second Department has charted its own course.  It has now determined, at least twice that when a JL 487 claim is enunciated in the same case with a Legal Malpractice claim, then its 6 year statute is transmuted to a 3 year statute, based upon the same logic as having a 6 year contract statute transmuted to a 3 year statute.  They wrote:

“The Odierno defendants demonstrated, prima facie, that the present action was commenced after expiration of the three-year statute of limitations applicable to the plaintiff’s legal malpractice cause of action (see CPLR 214 [6]). Moreover, since her cause of action alleging a violation of Judiciary Law § 487 is premised on the same facts and does not allege distinct damages, it too is barred by the three-year statute of limitations (see Farage v Ehrenberg, 124 AD3d 159, 169 [2014]; cf. Melcher v Greenberg Traurig, LLP, 23 NY3d 10, 15 [2014]).”