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]).”

Judiciary Law 487, which is “not lightly” applied to attorneys resulted in a finite set of cases during 2015.  Over the next month we will review all of the cases, and try to determine the trends.  Today, we look at  Armstrong v Blank Rome LLP;  2015 NY Slip Op 01755 [126 AD3d 427]
Decided on March 3, 2015 Appellate Division, First Department.

Although the AD decision does not state the acts of deceit, a review of Supreme Court’s decision and order  indicates that Blank Rome was representing Morgan Stanley in “lucrative transactional representation in Pennsylvania.”  Her husband was “so exalted at Goldman Sachs and that his interests and his company’s were so intertwined” that Blank Rome “threw her under the bus.”  She claims that Blank Rome advised her to give up her share of the marital asset valued at $ 16,167,000.  Wow!

The AD affirmed Supreme Court’s denial of the motion to dismiss.  “The complaint states a claim for violation of Judiciary Law § 487 with sufficient particularity (see Flycell, Inc. v Schlossberg LLC, __ F Supp 2d __, 2011 WL 5130159, *5, 2011 US Dist LEXIS 126024 [SDNY 2011]; Greene v Greene, 47 NY2d 447, 451 [1979]). Specifically, the complaint alleges that defendants concealed a conflict of interest that stemmed from defendant law firm’s attorney-client relationship with Morgan Stanley while simultaneously representing plaintiff in divorce proceedings against her ex-husband, a senior Morgan Stanley executive, who participated in Morgan Stanley’s decisions to hire outside counsel (see New York Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.7[a]). Contrary to defendants’ argument, applying a liberal construction to the allegations in the complaint (see e.g. Leon v Martinez, 84 NY2d 83, 87-88 [1994]), plaintiff identifies the nature of the conflict as stemming from defendants’ interest in maintaining and encouraging its lucrative relationship with Morgan Stanley and the impact of that interest on defendants’ judgement in its representation of plaintiff in the divorce proceedings (see New York Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.7[a]).

Further, the complaint alleges numerous acts of deceit by defendants, committed in the course of their representation of plaintiff in her matrimonial action. Additionally, the complaint sufficiently alleges that the individual defendants knew of but did not disclose defendant law firm’s representation of Morgan Stanley to plaintiff, and it details the calculations of her damages.”

On the macro level, both areas concern professionals doing a less than maximal job.  On a micro level, the rules are similar.  A relationship, a departure and damages.  How and when to apply the rules differs, as is seen in Alksom Realty LLC v Baranik  2015 NY Slip Op 50869(U) [47 Misc 3d 1227(A)]  Decided on June 9, 2015  Supreme Court, Kings County  Demarest, J.

“Accounting Malpractice

Plaintiffs’ thirteenth through eighteenth causes of action originate from Rom Bar’s provision of tax and accounting services to the plaintiffs. Plaintiffs claim that Roman and Rom Bar provided accounting and tax related services to Komolov from 1985 to 2014 and to Alksom [*2]from 2005 to 2014, and that Komolov’s engagement of Rom Bar’s services was based to a great extent on the fact that Roman was fluent in Russian and that all communications between Komolov and Roman were conducted in Russian.

In or about May 2007, Alksom contracted to sell apartment 58G at 25 Columbus Circle, New York, New York (the “Contract” and the “Apartment”, respectively) to Artique Multinational, LLC (“Artique”) for the purchase price of $4.1 million. Upon execution of the Contract, Artique paid $41,000 as a down payment to Alksom. At the closing of title, Artique did not pay the balance of the purchase price. Nevertheless, Alksom transferred title to the Apartment on September 10, 2007 based on the managing member of Artique, David Segal’s (“Segal”), assurances that payment of the balance was forthcoming. Plaintiffs claim that they were never paid the full purchase price. This chain of events gave rise to an action in New York County styled Komolov v Segal, Index No. 651626/2011, in which plaintiffs seek a money judgment for conversion of the Apartment (the “Segal Action”).

Based on Roman’s deposition testimony in the Segal Action, plaintiffs claim that Roman and Rom Bar committed accounting malpractice by reporting receipt of full consideration for the sale of the Apartment on Alksom’s 2007 Federal tax return (the “Original Return”), even though Alksom had never received the balance of the $4.1 million purchase price. Plaintiffs claim that Roman and Rom Bar impermissibly relied on representations from Segal that full consideration was paid to Alksom, as well as a single page facsimile from Segal that contained Segal’s recollection of the amount paid by Alksom when it first purchased the Apartment from Segal in 2005. Plaintiffs claim that Roman failed to collect any supporting documentation and did not have “closing statements” from either Alskom’s 2005 purchase of the Apartment or the September 2007 sale of the Apartment. Plaintiffs further claim that Roman and Rom Bar knew that no consideration was received in plaintiffs’ bank accounts because Roman had full access to these accounts. Plaintiffs assert that Roman and Rom Bar relied on incomplete information and failed to verify this information with the client before filing the Original Return. Plaintiffs further assert that although Roman and Rom Bar knew that the Original Return was inaccurate by the fall of 2010, Roman and Rom Bar waited until 2012 to file an amended tax return, even though the deadline to amend the Original Return would have been April 2011. Based on these allegations, plaintiffs assert causes of action for accountant malpractice, negligence, and gross negligence.”

“Defendants argue that plaintiffs’ thirteenth through eighteenth causes of action must be dismissed as time-barred. CPLR § 214(6) sets forth a three-year statute of limitations for accounting malpractice. “A claim accrues when the malpractice is committed, not when the client discovers it” (Williamson v PricewaterhouseCoopers LLP, 9 NY3d 1, 7-8 [2007]). Defendants claim that because the Original Return was filed on April 14, 2008, plaintiffs’ claims for accounting malpractice, negligence, and gross negligence are time-barred because this action was commenced on December 1, 2014, over three years from when plaintiffs’ cause of action accrued. However, plaintiffs correctly argue that the statute of limitations here is tolled because of the continuous representation doctrine.

“[U]nder the continuous treatment doctrine, when the course of treatment which includes the wrongful acts or omissions has run continuously and is related to the same original condition or complaint,’ the limitations period does not begin to run until the end of the treatment” (id. at 8, quoting Borgia v City of New York, 12 NY2d 151, 155 [1962]). Although the continuous representation doctrine originally derived from the continuous treatment concept in medical malpractice cases, it has been applied to other professionals, such as accountants (see Zaref v Berk & Michaels, P.C., 192 AD2d 346 [1st Dept 1993]). For the continuous representation doctrine to apply, plaintiff must “assert more than simply an extended general relationship between the professional and the client in that the facts are required to demonstrate continued representation in the specific matter directly under dispute” (id. at 348). After filing the Original Return in 2008, Roman filed an amended return in 2012 ^[FN2]in order to correct the erroneous information in the Original Return. Here, plaintiff has demonstrated continuous representation by defendants relating to the specific matter of the inaccuracies reported by Roman and Rom Bar in the Original Return such that the statute of limitations is tolled. Accordingly, plaintiffs’ accounting malpractice claims are timely.”

We predict that Facebook, Inc. v DLA Piper LLP (US)  2015 NY Slip Op 09602  Decided on December 29, 2015  Appellate Division, First Department   will turn out to be a highly cited and influential case in 2016.  The general sentiment, even in the face of conduct strongly suggesting deceit is basically to look the other way.  Judiciary Law 487, the most ancient of common law proscriptions is celebrated but almost never applied.

The facts are set forth, and generally support the reasonable assumption that Ceglia should not have been believed, even for a minute.  Nevertheless, a number of really big-time serious NYC law firms took up the case.  Was it solely for fees?  We don’t know.

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

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

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

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

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

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

On June 2, the parties moved and cross-moved for expedited discovery concerning the Work For Hire Contract, complete with affidavits and expert evidence both for and against the authenticity of the contract. On June 29, on the eve of the hearing for expedited discovery, the DLA-Lippes defendants

withdrew from the case without explanation ^[FN2]. The Federal Magistrate ordered expedited discovery into the authenticity of the Work For Hire Contract and the purported emails.

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

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

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

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

Here, the allegations that defendants knew of Ceglia’s fraud are conclusory and not supported by the record. Although plaintiffs allege that the DLA-Lippes defendants had been advised by Kasowitz that the Work For Hire Contract was a forgery prior to the filing of the amended complaint in the Ceglia action on April 11, the record unequivocally shows that the Kasowitz letter to that effect was dated April 13, two days after the amended complaint was filed. There is nothing to indicate that this information had been communicated to the defendants prior to the issuance of that letter. Moreover, plaintiffs offer no support for their claim that defendants had actual knowledge of the fraudulent nature of the claim based on statements made to them by Ceglia. In fact, the opposite is true. As noted, Ceglia consistently maintained that the Work For Hire Contract was genuine and even passed a polygraph test covering the contract and his other claims. Statements made in pleadings upon information and belief are not sufficient to establish the necessary quantum of proof to sustain allegations of fraud (see Angel v Bank of Tokyo-Mitsubishi, Ltd., 39 AD3d 368, 370 [1st Dept 2007]). Even assuming that the DLA-Lippes defendants knew of Kasowitz’s finding before they filed the amended complaint, and regardless of the fact that the Milberg defendants knew about the Street Fax Contract when they represented Ceglia, at any of those times, there was no conclusive proof of Ceglia’s fraud that rendered their representation deceptive. In fact, the dispute over the authenticity of the contract remained central to the Ceglia litigation throughout that action, and was the subject of expert testing and opinion, both in favor of, and against, its authenticity. As a result, the Judiciary Law § 487 claim should have been dismissed.”