Accountant (or other professional) is retained to provide professional services.  On Day X the business to which the professional services are rendered “closes.”  On Day x+10 the professional returns all the papers, does the final report and “resigns.”  On which day does the three-year statute of limitations commence?

Weight v Day   2015 NY Slip Op 09093   Decided on December 9, 2015  Appellate Division,  Second Department tells us that it is not until the paperwork is complete and returned that the statute commences.

“For a number of years, the plaintiff jointly owned and operated a business known as Weight Steel Construction, Inc. (hereinafter Weight Steel), with her husband, nonparty Joseph Weight. On or about September 30, 2009, while the plaintiff and her husband were engaged in divorce proceedings, they hired the defendant Wayne Day, a certified public accountant and a partner at the defendant accounting firm, Day Seckler, LLP, to serve as trustee of Weight Steel until the divorce was final. Accordingly, Day entered into an agreement with the plaintiff and her husband, as the sole shareholders of Weight Steel, which provided, in pertinent part, that Day would “assume sole responsibility for receiving and disbursing the income” of Weight Steel, deliver copies of all such records to the plaintiff and her husband on a weekly basis, and continue acting as trustee until termination by a signed written agreement or court order. Day tendered his resignation as Weight Steel’s trustee in a letter dated February 10, 2011.

On February 10, 2014, exactly three years after Day sent his resignation letter, the plaintiff commenced this action against the defendants, alleging, inter alia, accounting malpractice, breach of fiduciary duty, fraud, and breach of contract. The plaintiff alleged, among other things, that Day failed to properly manage Weight Steel, prevent her husband from needlessly using the company’s assets for his personal gain, deposit the company’s payments, and bill its customers. The plaintiff further alleged that Day irresponsibly ran up the company’s debt, intentionally concealed its dire financial situation, and denied her access to its records and facilities. The complaint included an allegation that Weight Steel “closed” on or about August 23, 2010.

Thereafter, the defendants moved pursuant to CPLR 3211(a)(5) and (7) to dismiss the complaint. Among other things, they argued that the complaint was time-barred because it did not allege any errors, acts, or omissions that occurred after August 23, 2010, the date that Weight Steel allegedly closed. In addition, the defendants argued that all of the causes of action other than that alleging accounting malpractice should be dismissed as duplicative of the accounting malpractice cause of action. The Supreme Court granted the defendants’ motion to dismiss the complaint, concluding that the causes of action alleging accounting malpractice and breach of fiduciary duty were time-barred, and further concluding, in effect, that the remaining causes of action should be dismissed for failure to state a cause of action. The plaintiff appeals, and we modify.

“Contrary to the court’s determination, the defendants failed to establish that these causes of action accrued on August 23, 2010, when Weight Steel allegedly “closed.” It is undisputed that Day did not resign as trustee of Weight Steel until February 10, 2011. Further, the defendants did not establish when they delivered to the plaintiff all the pertinent documents related to their accounting work and Day’s additional duties as trustee. Based upon the defendants’ submissions, including the complaint and the agreement outlining the terms of the trusteeship, the earliest possible accrual date with respect to the claims of accounting malpractice and breach of fiduciary duty was February 10, 2011, exactly three years prior to the commencement of this action (see IDT Corp. v Morgan Stanley Dean Witter & Co., 12 NY3d at 139; McCoy v Feinman, 99 NY2d 295, 301; Ackerman v Price Waterhouse, 84 NY2d 535, 541). Thus, the defendants failed to meet their initial burden of demonstrating that those causes of action were time-barred. Accordingly, the court should have denied that branch of the defendants’ motion which was pursuant to CPLR 3211(a)(5) to dismiss those causes of action. Moreover, contrary to the defendants’ contention, dismissal of the cause of action alleging breach of fiduciary duty is not warranted on the ground that it is duplicative of the cause of action alleging accounting malpractice (cf. Staffenberg v Fairfield Pagma Assoc., L.P., 95 AD3d 873, 874).”

In Pari Delicto, a delicious Latin phrase, is the principal that a court will not adjudicate rights between two guilty parties.  This concept arises most often in accounting negligence settings, but does rear its head from time to time in legal malpractice.  The accounting setting arises when the corporation sues its accountants, who defend by saying that someone in the corporation (a VP, and executive) participated in a fraud about which the corporation now sues.

Schwartz v Leaf, Salzman, Manganelli, Pfiel & Tendler, LLP  2014 NY Slip Op 08823 [123 AD3d 901]  December 17, 2014  Appellate Division, Second Department  cites one of the few exceptions to the rule that plaintiff, who is partially or strongly involved in the underlying problem cannot sue the accountants.

“As the complaint sufficiently alleged a cognizable claim of accounting malpractice (see Bruno v Trus Joist a Weyerhaeuser Bus., 87 AD3d 670 [2011]; Kristina Denise Enters., Inc. v Arnold, [*2]41 AD3d 788 [2007]; Estate of Burke v Repetti & Co., 255 AD2d 483 [1998]), the Supreme Court properly denied that branch of the defendants’ motion which was pursuant to CPLR 3211 (a) (7) to dismiss the second cause of action. Additionally, the Supreme Court properly granted those branches of the motion which were pursuant to CPLR 3211 (a) (7) to dismiss the first and third through ninth causes of action, which sought to recover damages for negligence, fraud, breach of fiduciary duty, and unjust enrichment, since they were duplicative of the professional malpractice cause of action, as they arose from the same facts and do not allege distinct damages (see Blanco v Polanco, 116 AD3d 892 [2014]; Bruno v Trus Joist a Weyerhaeuser Bus., 87 AD3d 670 [2011]; Leon Petroleum, LLC v Carl S. Levine & Assoc., P.C., 80 AD3d 573 [2011]; Stuart v Kushner, 68 AD3d 974 [2009]; Town of Wallkill v Rosenstein, 40 AD3d 972 [2007]).

The Supreme Court properly denied that branch of the defendants’ motion which was to dismiss the accounting malpractice cause of action pursuant to CPLR 3211 (a) (1). The defendants contend that that cause of action is barred by the doctrine of in pari delicto, which “mandates that the courts will not intercede to resolve a dispute between two wrongdoers” (Kirschner v KPMG LLP, 15 NY3d 446, 464 [2010]). However, the adverse interest exception to the doctrine of in pari delicto provides that “when an agent is engaged in a scheme to defraud his principal, either for his own benefit or that of a third person, the presumption that knowledge held by the agent was disclosed to the principal fails because he cannot be presumed to have disclosed that which would expose and defeat his fraudulent purpose” (Center v Hampton Affiliates, 66 NY2d 782, 784 [1985]). Here, the documentary evidence submitted by the defendants did not conclusively foreclose the application of the adverse interest exception to the in pari delicto defense (see Symbol Tech., Inc. v Deloitte & Touche, LLP, 69 AD3d at 196-199; compare Chaikovska v Ernst & Young, LLP, 78 AD3d 1661, 1662-1664 [2010]).

ss the accounting malpractice cause of action pursuant to CPLR 3211 (a) (1). The defendants contend that that cause of action is barred by the doctrine of in pari delicto, which “mandates that the courts will not intercede to resolve a dispute between two wrongdoers” (Kirschner v KPMG LLP, 15 NY3d 446, 464 [2010]). However, the adverse interest exception to the doctrine of in pari delicto provides that “when an agent is engaged in a scheme to defraud his principal, either for his own benefit or that of a third person, the presumption that knowledge held by the agent was disclosed to the principal fails because he cannot be presumed to have disclosed that which would expose and defeat his fraudulent purpose” (Center v Hampton Affiliates, 66 NY2d 782, 784 [1985]). Here, the documentary evidence submitted by the defendants did not conclusively foreclose the application of the adverse interest exception to the in pari delicto defense (see Symbol Tech., Inc. v Deloitte & Touche, LLP, 69 AD3d at 196-199; compare Chaikovska v Ernst & Young, LLP, 78 AD3d 1661, 1662-1664 [2010]).”

The most basic question in any professional negligence setting is what are the base elements of a professional negligence claim?  Before one considers statutes of limitation, the amounts of damage, and many other collateral issues, the initial question to be decided is the standard of practice and how/whether the defendant departed from that standard.

Board of Trustees of IBEW Local 43 Elec. Contrs. Health & Welfare, Annuity & Pension Funds v D’Arcangelo & Co., LLP   January 2, 2015  Appellate Division, Fourth Department is an excellent primer from the 4th Department.

“”Accounting malpractice or professional negligence contemplates a failure to exercise due care and proof of a material deviation from the recognized and accepted professional standards for accountants and auditors, generally measured by [generally accepted accounting principles] and [generally accepted auditing standards (GAAS)] promulgated by the American Institute of Certified Public Accountants, which proximately causes damage to plaintiff” (Cumis Ins. Socy. v Tooke, 293 AD2d 794, 797-798 [2002]; see Berg v Eisner LLP, 94 AD3d 496, 496 [2012]). Here, plaintiff sufficiently alleged that defendant committed malpractice in not adhering to GAAS by, inter alia, failing to obtain a SAS 70 report, and that defendant’s negligence proximately caused plaintiff to sustain damages (see Sacher v Beacon Assoc. Mgt. Corp., 114 AD3d 655, 657 [2014]). Although defendant contends that GAAS did not require it to obtain a SAS 70 report, it did not submit any evidence establishing that fact in support of its motion (see generally C.P. Ward, Inc. v Deloitte & Touche LLP, 74 AD3d 1828, 1829-1830 [2010]; Cumis Ins. Socy., 293 AD2d at 798), and we disagree with the court that such a determination could be made as a matter of law in the absence of such evidence (see Berg, 94 AD3d at 496). With respect to proximate cause, “[a]s a general rule, issues of proximate cause[,] [including superceding cause,] are for the trier of fact” (Hahn v Tops Mkts., LLC, 94 AD3d 1546, 1548 [2012] [internal quotation marks omitted], citingDerdiarian v Felix Contr. Corp., 51 NY2d 308, 312 [1980], rearg denied 52 NY2d 784 [1980]; see Bachmann, Schwartz & Abramson v Advance Intl., 251 AD2d 252, 253 [1998]), and we see no basis to depart from that general rule in this case (see Sacher, 114 AD3d at 657). Plaintiff alleged that defendant should have obtained the SAS 70 report to confirm the existence and valuation of the funds’ investments. Plaintiff further alleged that, had defendant done so, it would have discovered that it could not confirm the existence of those securities, and plaintiff could have redeemed its investments.”

Comer v Krolick   2015 NY Slip Op 32274(U)  December 2, 2015  Supreme Court, New York County  Docket Number: 651767/2014   Judge: Shirley Werner Kornreich is a fascinating look at the world of big investments in the banking field, and how a Wisconsin guy got roped into a huge investment that either unluckily or fraudulently went sour. We’ll look at the intersection of fraud and legal malpractice.

“Plaintiff Colin E. Comer lives and works in Milwaukee, Wisconsin. He owns and operates plaintiff Classic Auto, L.L.C. (Classic), a business that purchases and renovates classic cars. Krolick is a New York licensed attorney and a licensed securities broker. In 2004, Comer • I I f [* 1] and Krolick met when Krolick contacted Comer to purchase a classic car. Since then, and until the events giving rise to this action, they had a close personal friendship that included vacationing together and spending time with each other’s friends and family. They also provided professional services for each other without charge, described by plaintiffs as a “bartering arrangement”. For instance, Krolick assisted Comer with legal matters, such as a mortgage refinancing and pre-nuptial agreement, and Comer would not charge Krolick his usual commissions and fees for brokering classic car transactions. The instant dispute arose from an investment Comer made in a bank holding company, which was solicited by Krolick in February 20 I 0. Comer allegedly had reservations regarding the investment, but “Krolick specifically advised Comer that he would not need to worry about the financial and legal complexities of investing in a bank because Krolick was an insider, and would be acting to protect Comer’s interests as his attorney and investment advisor, as he had always done.” Complaint~ 35 (emphasis added). 1 The complaint states that Krolick advised Comer to invest in Modern Capital Holding (MCH), which would be the general partner of Modern Capital Partners (MCP). 2 Krolick and Del Giudice were principals of MCP. They also worked for defendant MCM, and allegedly solicited the subject transactions from MC M’s office.”

“Plaintiffs assert causes of action against Krolick for malpractice, fraud, breach of r fiduciary duty, negligent misrepresentation, conversion, and unjust enrichment. These claims seek redress for two sets of alleged wrongs. To begin, plaintiffs allege that Comer’s first investment of $1 million was induced by Krolick’s misrepresentations about the nature of the investment. Next, plaintiffs allege that Comer’s subsequent $2 million investment was induced by Krolick’s representation that it would be a bridge loan, not additional equity. Plaintiffs claim both investments were made as a product of legal malpractice and fraud. They contend Krolick, allegedly acting as Comer’s attorney, did not accurately portray the nature of the investments, what the moneys would be used for, or the contractual terms that would govern repayment. Plaintiffs further contend that but for these misrepresentations, they never would have invested. Krolick seeks dismissal of both the malpractice and fraud claims. He argues that he did not serve as Comer’s attorney with respect to the subject investments, that the terms governing the contracts (e.g., the merger clauses) preclude Comer’s claims of extra-contractual representations and oral agreements, and that plaintiffs suffered no proximately caused losses. On this motion to dismiss, Krolick’s arguments fail. ”

“Next, Krolick argues that plaintiffs fail to state a claim for fraud. He further argues that, at best, the malpractice and fraud claims are duplicative and plaintiffs should not be allowed to simultaneously maintain both claims. “The elements of a cause of action for fraud [are] a material misrepresentation of a fact, knowledge of its falsity, an intent to induce reliance, justifiable reliance by the plaintiff and damages.” Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 (2009); see Basis Yield Alpha Fund (Master) v Goldman Sachs Group, Inc., 115 AD3d 128, 135 (1st Dept 2014). Pursuant to CPLR 3016(b), “the circumstances constituting the wrong shall be stated in detail.” Pludeman v Northern Leasing Sys., Inc., 10 NY3d 486, 491 (2008). The complaint states a claim for fraud. Simply put, plaintiffs allege that but for Krolick’s alleged misrepresentations about the nature of the investment, misrepresentations which are set forth with particularity, they would not have invested. Contrary to Krolick’s contentions, plaintiffs have adequately pleaded damages, even though they received the shares provided for in the subscription agreements. Plaintiffs, however, contend that the First Subscription Agreement was represented to be an entirely different investment and the second was represented to be a loan, not an equity investment. In suing for fraud, Comer is seeking what he thought he bargained for. To the extent plaintiffs’ damages should be discounted by the value of the shares plaintiffs received, that is an issue beyond the scope of this motion. Krolick also contends that even if plaintiffs pleaded actual reliance on his representations, the fraud claim nonetheless fails because such reliance was unreasonable as a matter of law. See Stuart Silver Assoc. v Baca Dev. Corp., 245 AD2d 96, 98-99 (1st Dept 1997) (“Where a party has the means to discover the true nature of the transaction by the exercise of ordinary intelligence, and fails to make use of those means, he cannot claim justifiable reliance on defendant’s misrepresentations”). Krolick avers that if Comer would have read the subscription agreements, he would have understood that his investment was much different than represented by Krolick. The argument fails since, according to the complaint, Comer did not read the agreements at Krolick’s urging and as a result of his trust in Krolick as his close friend and lawyer. Comer alleges he was hesitant to invest in a bank holding company because of its complexity, but Krolick assured him that the terms would be explained to him so Comer would not, on his own, have to figure out the details. He allegedly was further assured that his lawyer and advisor, Krolick, would protect the investment, and Krolick sent him separate signature pages. For Krolick to now complain, essentially, that Comer should not have listened to him, is simply not a tenable argument on a motion to dismiss. At best, it presents questions of fact, since “[t]he question of what constitutes reasonable reliance is not generally a question to be resolved as a matter oflaw on a motion to dismiss.” ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 25 NY3d 1043, 1045 (2015).

It should be noted that, as Krolick observes, the line between malpractice and fraud is not clear in a case such as this. That is, Krolick’s alleged failure to accurately inform Comer of the investment terms is, as even Krolick admits, an allegation of outright fraud. However, since the elements of fraud are more exacting than malpractice (a negligence claim), that Krolick’s alleged wrongdoing may actually have been undertaken with fraudulent intent is not a reason to foreclose, on a motion to dismiss, the possibility ofrecovery on a negligence theory. See Vermont Mut. Ins. Co. v McCabe & Mack, LLP, 105 AD3d 837, 840 (2d Dept 2013) (“Where, as here, tortious conduct independent of the alleged malpractice is alleged, a motion to dismiss a cause of action as duplicative is properly denied”); see also On the Level Enterprises, Inc. v 49 E. Houston LLC, 104 AD3d 500, 501 (1st Dept 2013) (CPLR 3014 permits a party “to plead inconsistent theories of recovery”).”

 

Architect malpractice cases follow some of the rule of legal malpractice.  One such rule is the inability to obtain damages on duplicitive claims of breach of contract and professional negligence.  Mary Imogene Bassett Hosp. v Cannon Design, Inc.  2015 NY Slip Op 03016 [127 AD3d  1377] April 9, 2015  Appellate Division, Third Department illustrates this issue.

“Plaintiff operates a hospital in Otsego County. Defendant is an architectural and design firm providing, among other things, structural design services. In 2002, the parties entered into a contract for architectural services including, as relevant here, a seismic retrofit of one of plaintiff’s hospital buildings.[FN1] Defendant, with input and approval from plaintiff, designed the retrofit using four steel plate shear walls to be installed during phase one of construction. After defendant built three of the shear walls as part of phase one, and the parties decided to defer the fourth shear wall to phase two due to interference caused by electrical systems that were scheduled to be replaced in phase two, plaintiff terminated its relationship with defendant under the contract. Plaintiff commenced this action alleging breach of contract and professional malpractice arising from [*2]defendant’s allegedly defective design of the seismic retrofit.[FN2]After a nonjury trial, Supreme Court determined that defendant breached the contract and committed professional malpractice, and awarded plaintiff damages of approximately $1.7 million plus prejudgment interest. Defendant appeals.

Supreme Court should have dismissed the breach of contract cause of action. In an appeal from a judgment issued after a nonjury trial, this Court “independently review[s] the weight of the evidence . . . and, while according appropriate deference to the trial judge’s credibility assessments and factual findings, grant[s] the judgment warranted by the record” (Nationstar Mtge., LLC v Davidson, 116 AD3d 1294, 1295 [2014], lv denied 24 NY3d 905 [2014]; see Northern Westchester Professional Park Assoc. v Town of Bedford, 60 NY2d 492, 499 [1983];but see Thoreson v Penthouse Intl., 80 NY2d 490 [1992]). In construing the parties’ contract, we must enforce the document according to its terms if the writing is clear and complete (see Consedine v Portville Cent. School Dist., 12 NY3d 286, 293 [2009]; Monticello Raceway Mgt., Inc. v Concord Assoc. L.P., 104 AD3d 1114, 1116 [2013]). Courts determine as a matter of law whether a contract is ambiguous, and extrinsic or parol evidence may not be considered absent an ambiguity (see Consedine v Portville Cent. School Dist., 12 NY3d at 293; Monticello Raceway Mgt., Inc. v Concord Assoc. L.P., 104 AD3d at 1116; City of Plattsburgh v Borner, 38 AD3d 1047, 1048 [2007]). Plaintiff contended, and Supreme Court found, that defendant breached the contract by failing to meet the requirements of the 2000 International Building Code (hereinafter IBC) for the seismic retrofit design. While defendant and several of its witnesses conceded that everyone involved considered the 2000 IBC to be the agreed-upon design criteria, the IBC is not mentioned in the contract itself and the contract prohibits any oral modifications.[FN3] The absence of design criteria does not create an ambiguity (see Reiss v Financial Performance Corp., 97 NY2d 195, 199 [2001]). Thus, we cannot read compliance with the 2000 IBC into the contract, and defendant did not breach the unambiguous contract by failing to comply with the standards in that code.

The contract does contain two clauses regarding defendant’s performance. They provide that defendant’s “services shall be performed as expeditiously as is consistent with professional skill and care and the orderly progress of the [w]ork,” and “shall be provided . . . in a manner consistent with the standards of care and skill exhibited in its profession for projects of this nature, type and degree of difficulty.” These provisions simply incorporate into the contract the common-law standard of care for a professional. “Making such ordinary obligations express terms of an agreement does not remove the issue [of a violation thereof] from the realm of negligence . . . , nor can it convert a malpractice action into a breach of contract action” (Matter of R.M. Kliment & Frances Halsband, Architects [McKinsey & Co., Inc.], 3 NY3d 538, 542-543 [2004]). Inasmuch as a breach of contract cause of action based on the violation of these particular contract provisions would be duplicative of a professional malpractice cause of action, Supreme Court should have dismissed plaintiff’s breach of contract cause of action.”

Trials are not perfect, and Country Park Child Care, Inc. v Smartdesign Architecture PLLC   2015 NY Slip Op 05341 [129 AD3d 1636]   June 19, 2015  Appellate Division, Fourth Department shows just how imperfect they can be.  References in testimony to settlement, to settlement demands, and a battle of the experts ends in a verdict of “no cause of action.”

“Contrary to plaintiff’s contention, the court properly denied its motion for a directed verdict at the close of proof (see CPLR 4401), and its posttrial motion to set aside the verdict (see CPLR 4404 [a]). The parties presented sharply conflicting expert testimony concerning whether defendants’ actions constituted a deviation from accepted architectural standards of practice (see generally Wilson v Mary Imogene Bassett Hosp., 307 AD2d 748, 748-749 [2003]). Plaintiff was not entitled to a directed verdict pursuant to CPLR 4401 because, affording defendants every favorable inference to be drawn from the evidence, we conclude that there was a rational process by which the jury could base a finding in their favor (see Szczerbiak v Pilat, 90 NY2d 553, 556 [1997]; Wolfe v St. Clare’s Hosp. of Schenectady, 57 AD3d 1124, 1126 [2008]), i.e., that they did not deviate from accepted architectural standards of practice. We further conclude that the court properly refused to set aside the verdict as against the weight of the evidence because the evidence did not so greatly preponderate in favor of plaintiff that the verdict could not have been reached on any fair interpretation of the evidence (see generally Lolik v Big v Supermarkets, 86 NY2d 744, 746 [1995]; Wolfe, 57 AD3d at 1126).

Plaintiff further contends that the court abused its discretion in denying its motion for a mistrial based on “repeated” references to settlement demands. There were in fact two such references and, although plaintiff objected to both, plaintiff requested a mistrial only with respect to the second reference, and then only as an alternative to a curative instruction. The court gave an explicit curative instruction to the jury in each instance, and plaintiff failed to object further. We thus conclude that plaintiff failed to preserve this contention for our review (see Vingo v Rosner, 29 AD3d 896, 897 [2006], lv denied 8 NY3d 803 [2007]). In any event, we conclude that the curative instructions given after both references “were sufficient to neutralize the prejudicial effect of the error[s]” (Dennis v Capital Dist. Transp. Auth., 274 AD2d 802, 803 [2000]).

[*2] Finally, we reject plaintiff’s contention that it was deprived of a fair trial by the court’s comments and rulings. The court has broad discretion “ ’to control the courtroom, rule on the admission of evidence, elicit and clarify testimony, expedite the proceedings and . . . admonish counsel and witnesses when necessary’ ” (Messinger v Mount Sinai Med. Ctr., 15 AD3d 189, 189 [2005], lv dismissed 5 NY3d 820 [2005]), and here the court’s conduct did not deprive plaintiff of a fair trial. Present—Scudder, P.J., Carni, Sconiers, Valentino and Whalen, JJ.”

There are many differences between contract liability and tort liability.  One difference is the scope of persons to whom a duty applies.  In contract the question of privity looms over every analysis; in tort, it is almost the entire world.  Another difference is the measurement of damages.  In contract damages are generally related to the contractual duty, in tort, one who is injured is due that compensation which is needed to make whole.

Ferro Fabricators, Inc. v 1807-1811 Park Ave. Dev. Corp.[127 AD3d 479]   2015 NY Slip Op 03048   April 9, 2015  Appellate Division, First Department discusses whether a tort claim for professional negligence is necessarily duplicitive of a contract claim for professional negligence. It is not, but the Court nevertheless affirmed dismissal.

“The second cause of action, for fraud/negligent misrepresentation, is not duplicative of defendant/third-party plaintiff ESF’s breach of contract counterclaim against plaintiff/third-party defendant Ferro Fabricators, Inc., since it does not allege that Ferro entered into a contract intending not to perform (see MBIA Ins. Corp. v Countrywide Home Loans, Inc., 87 AD3d 287, 293 [1st Dept 2011]). However, the claim must still be dismissed for failure to plead with requisite particularity pursuant to CPLR 3016 (b) (see e.g. Gregor v Rossi, 120 AD3d 447, 447 [1st Dept 2014] [holding that claims were not pleaded with requisite particularity because the words used by the defendants and the date of the alleged false representations were not set forth]). Here, the third-party complaint only contains general allegations as to the alleged [*2]misrepresentations and virtually no information as to when and by whom these representations were made.

Similarly, third-party plaintiffs’ fourth cause of action, for negligence/professional malpractice, is not duplicative of ESF’s breach of contract counterclaim, because “[a] legal duty independent of contractual obligations may be imposed by law as an incident to the parties’ relationship [and] [p]rofessionals . . . may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties” (Sommer v Federal Signal Corp., 79 NY2d 540, 551 [1992]). However, although the third-party complaint alleges that Ferro and third-party defendant Gregory Dec owed a duty to perform engineering services in a professional manner and without negligence, it fails to state nonconclusory allegations as to how the third-party defendants negligently discharged the alleged duties and what damage the alleged failure caused (cf. 17 Vista Fee Assoc. v Teachers Ins. & Annuity Assn. of Am., 259 AD2d 75, 82-83 [1st Dept 1999]).

Privity, a concept which applies to almost no contractual relationships anymore, is the overriding reason that the legal malpractice claims in this case were dismissed.  Once upon a time, privity was necessary in order to win a products liability case.  No more is it necessary.  Once upon a time, privity was necessary in a variety of other contract cases.  Today, strict liability is the rule.  However, in legal malpractice cases, social and legal policy remain in place.

Magder v Lee  2015 NY Slip Op 32254(U)  November 23, 2015  Supreme Court, New York County
Docket Number: 653917/14  Judge: Saliann Scarpulla is the story of a movie production coming apart.

“2012, plaintiff and nonparty Quintin Cline (“Cline”) collaborated on a screenplay titled “Dining with Alex” (“screenplay”). On May 28, 2013, the United States Copyright Office issues a Certificate of Registration for the screenplay. In order to produce and distribute a feature film based on the screenplay (“project”), Magder entered discussions with Lee. Lee allegedly promised to secure 80 percent of the financing from Chinese investors, who would, in exchange, receive the right to distribute the film in China. Accordingly, MFCG, “the LLC vehicle Lee used to the [sic] finance the Project,” entered into a “Co-Production Agreement” (“CoProduction Agreement”) with Weishen (Shanghai) Film and Television Media Development LTD. (“Weishen”), the primary Chinese investor, regarding the production and distribution of the Chinese version of the film.

Magder, Lee and MFCG formed DWA to “serve as the vehicle for developing, financing, producing, distributing and otherwise engaging in transactions in connection with the Project.” Lee and plaintiff filed DWA’s Articles of Organization on May 23, 2014. Magder also recruited Bongirne to be a producer for the project. According to the complaint, in June 2014, Lee and Bongirne hired the Jacobson defendants as D WA’ s legal counsel. Allegedly, Magder first became aware of the engagement through an email from Jacobson, dated June 7, 2014, which “confirm[ed] the arrangement to retain MJPC.” Magder allegedly objected to the $100,000 retainer, but Lee signed the agreement without her and “Jacobson then held himself out to be not only DWA’s legal counsel, but as ‘production counsel.”‘ As alleged by Magder, “[a]lthough [she] did not approve of his engagement, upon Jacobson’s formal retention as DWA’s legal counsel, [Magder] requested that Jacobson keep her apprised of all communications regarding business arrangements and negotiations in connection to the Project.”

On June 12, 2014, Magder and Cline entered into a “Purchase Agreement” with MFCG (“purchase agreement”), pursuant to which MFCG agreed to pay $65,200 for the rights to the screenplay. Magder and Cline were to be paid pursuant to a payment schedule, which included a payment upon payment to Ross Katz (“Katz”), whom DW A hired to rewrite the script. The purchase agreement also provided: “[n]otwithstanding anything contained herein, it is understood and agreed that [MFCG’s] decision in connection with any and all creative decisions and business decisions in connection with the Picture shall be final and binding.” [many facts omitted here]

“The Jacobson defendants argue that the malpractice claim must be dismissed for lack of privity and failure to state actual damages proximately caused by the Jacobson defendants’ alleged negligence. Additionally, the Jacobson defendants assert that the complaint fails to states a claim for breach of fiduciary duty. “An action for legal malpractice requires proof of the attorney’s negligence, a showing that the negligence was the proximate cause of the plaintiffs loss or injury, and evidence of actual damages.” Pellegrino v File, 291AD2d60, 63 (1st Dept 2002). While “[p ]laintiff is not obliged to show, at this stage of the pleadings, that [she] actually sustained damages,” she must plead “allegations from which damages attributable to [defendant’s conduct] might be reasonably inferred.” lnKine Pharm. Co. v Coleman, 305 AD2d 151, 152 (1st Dept 2003) (internal quotation marks and citation omitted). “Moreover, [plaintiff] must plead specific factual allegations establishing that but for counsel’s deficient representation, there would have been a more favorable outcome to the underlying matter.” Dweck Law Firm v Mann, 283 AD2d 292, 293 (1st Dept 2001). Generally, “New York courts impose a strict privity requirement to claims of legal malpractice; an attorney is not liable to a third party for negligence in performing services on behalf of his client.” Lavanant v General Acc. Ins. Co. of Am., 164 AD2d 73, 81 ( 1990), afld 79 NY2d 623 ( 1992). However, courts will permit a malpractice claim, in the absence of privity, where the “relationship sufficiently approach[ es] privity,” (Estate of Schneider v Finmann, 15 NY3d 306, 309 [201 O]) or where a third party suffers harm as a result of “professional negligence in the presence of fraud, collusion, malicious acts or other special circumstances.” Good Old Days Tavern v Zwirn, 259 AD2d 300, 300(1st Dept 1999); see also Green v Fischbein Olivieri Rozenholc & Badillo, 119 AD2d 345, 350 (1st Dept 1986) (“an attorney may be held liable to a nonclient as a consequence of the attorney’s wrongful or improper exercise of authority, or where the attorney has committed fraud or collusion or a malicious or tortious act” [internal quotation marks and citations omitted]). A claim of fraud or collusion must be stated with particularity. CPLR 3016 (b ); see Griffith v Medical Quadrangle, 5 AD3d 151, 152 (1st Dept 2004). To establish a breach of fiduciary duty claim, a plaintiff must allege: (1) the existence of a fiduciary relationship; (2) misconduct by the defendant; and (3) damages. Burry v Madison Park Owner LLC, 84 AD3d 699, 700 (1st Dept 2011). Where the claim for breach of fiduciary duty is “premised on the same facts and seek[ s] the identical relief sought in the legal malpractice cause of action, [it] is redundant and should be dismissed.” Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 271 (1st Dept 2004); see also lnKine Pharm. Co., 305 AD2d at 152. Here, the complaint states that Jacobson was in an “attorney-client relationship with [DWA].” While plaintiff contends that, as a managing member of DWA, she may maintain a malpractice claim in her own right, “[i]t is well settled that a corporation’s attorney represents the corporate entity, not its shareholders or employees.” Eurycleia Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 562 (2009) (stating that a law firm’s representation of a “limited partnership, without more, did not give rise to a fiduciary duty to the limited partners”). Good Old Days Tavern (259 AD2d at 300), upon which plaintiff relies, does not require a different result. There, the court allowed the president and sole shareholder of a corporation to pursue a personal malpractice claim against the corporation’s attorney, because their relationship was “tantamount to one of contractual privity.” Id. at 300. Here, the complaint is devoid of allegations that Jacobson’s relationship with plaintiff approached privity and, in fact, plaintiff had her own attorney during the negotiations of the agreements and the subsequent dispute. Therefore, Good Old Days Tavern is distinguishable on its facts. The complaint fails to allege that an attorney-client relationship existed between Magder and the Jacobson defendants. ”

 

DSW Lenox LLC v Rosetree on Lenox Ave. LLC  2015 NY Slip Op 32244(U)  November 23, 2015  Supreme Court, New York County  Docket Number: 652786/2011  Judge: Saliann Scarpulla is an example of the principal of privity and how it affects a legal malpractice case.  DSW was a 30% owner of a condominium at 381 Lenox Avenue, New York.  They alleged fraud in the marketing and sale of units at the condo and sued a wide swath of persons and entities.  However, the Court found that when the balance of the owner/board decided not to sue the individuals, and for us, more importantly, the attorneys, the business judgment rule protected that decision, as well as the fact that the Board hired the attorneys, not DSW.

“According to the SAC, this derivative action seeks recovery for construction defects in a building at 381-387 Lenox Avenue (the “Condominium”) in New York, and it also seeks “damages for fraud committed by defendants in co~ection with the marketing and sale of the units in the [Condominium] pursuant to material misrepresentations and omissions in the Offering Plan which were never disclosed despite the eight amendments thereto.” Plaintiff DSW is allegedly a 30% owner of the Condominium. The Court incorporates by reference the facts of the SAC as discussed in the May 2014 Order, and I only address additional facts as they relate to this motion. In the May 2014 Order I found, in pertinent part, that the:breach of fiduciary duty claims could not be sustained because the board’s decision not to file suit was protected by the business judgment rule. I additionally dismissed the SAC in its entirety because “[ e ]very cause of action asserted in the Complaint seeks to remedy the same wrongs that the Board voted not to pursue.” I also noted that while some defendants did not move to dismiss, the business judgment rule nonetheless applied to claims against them, “and ‘[i]t would exalt form over substance’ to await motions from the nonmoving defendants that would be granted as ‘compelled by the doctrine of the law of the case.”‘ (Citation omitted) Therefore, the claims against the nonmoving defendants were also dismissed. ”

“”Reargument is not designed to afford the unsuccessful party successive opportunities to reargue issues previously decided or to present arguments different from those originally asserted.” William P. Pahl Equip. Corp. v. Kassis, 182 A.D.2d 22, 27 (1st Dep’t 1992) (internal citation omitted). Pursuant to CPLR § 2221 ( d)(3 ), counsel must move for leave to reargue “within thirty days after service of a copy of the order determining the prior motion and written I notice of its entry.” On May 19, 2014, the MSF Defendants filed their Notice of Entry with the May 2014 Order. On June 19, 2014, thirty-one days after the Notice of Entry was filed, qsw filed this motion for leave to reargue. Pursuant to the discussion at oral argument, held on February 5, 2015, I deny the motion to reargue as against the MSF Defendants as untimely.2 Also as articulated during oral argument, the narrow question that I review on this I motion is whether the cases cited by plaintiff indicate that I erred in finding that the application of the business judgment rule effectively ended this lawsuit. The other portions of plaintiffs motion are denied because plaintiff has not shown that I overlooked or misapprehended any law or fact.”

Pine Street, however, is distinguishable. Pine Street, the trial court described the plaintiffs as “owners of condominium units in defendant 20 Pine Street Condominium, and allege that they represent the Homeowners Association (HOA) thereof,” and they ‘ . brought suit “for damages allegedly sustained by plaintiffs as a result of defendants’ failure to construct the condominium in accordance with the promises appearing in the offering plan, the plans and specifications filed with and approved by the Department of Buildings (DOB), the New York City Building Code (Building Code), and local industry standards.” 2012 N.Y. Misc. Lexis 2365, 2012 NY Slip Op 31302(U), *5 (Sup Ct, NY County May 16, 2012), ajf’d as modified 109 A.D.3d 733 (lst Dep’t 2013). It is clear from the trial court’s opinion that this was a direct, rather than a derivative action. E.g., id. at 12 (“Although it is well-settled that ‘individual unit owners lack standing to seek 652786/2011 Motion No. 019 Page 7 of 8 [* 7] damages for injury to the building’s common elements’ the offering plan specifically grants such a right to the individual unit owners under circumstances in which the condominium Board fails to act to enforce the Sponsor’s obligati~ns” [citation omitted]). Notably, nowhere in the opinion does the trial court claim that this is a derivative action, and I do not find it instructive in this derivative action where DSW has stepped into the shoes of the board of directors. Accordingly, for those defendants as against whom the motion was timely, I deny that part of the motion referencing the business judgment rule because plaintiff has not shown that I overlooked or misapprehended any law or fact. I decline to award costs and sanctions as requested by the CTSW Defendants.”