As happens from time to time, outlier Appellate Division decisions give rise to a new rule of law, which sometimes does not make sense.  The question of when a party has to disclose experts is unique in NY law.  Corresponding Federal practice has rigid discovery dates, preclusion if the expert is not disclosed, depositions of the experts, and a host of other rules.  NY practice is far more laissez faire on the entire question of experts.  There is no particular date by which the expert must be disclosed, there is no pre-trial deposition of an expert, no report is mandated, etc.

However, even in the face of CPLR 3101, the Appellate Division, first in the Second Department and then ocassionally elsewhere, suddenly determined that one may not use an expert on a motion for summary judgment unless that expert had been disclosed previously. Construction by Singletree, Inc. v Lowe  2008 NY Slip Op 08287 [55 AD3d 861]  October 28, 2008
Appellate Division, Second Department The doctrinal basis for the decision was, at best, cloudy.

“Contrary to Lowe’s contention, J.C. established its prima facie entitlement to judgment as a matter of law in connection with so much of Lowe’s second cross claim as was to recover compensatory for damages for breach of warranty by establishing that it did not breach any material term set forth in the contract between it and Lowe. In opposition to J.C.’s prima facie showing, Lowe failed to raise a triable issue of fact. The Supreme Court did not improvidently exercise its discretion in declining to consider the affidavits of the purported experts proffered by Lowe, since Lowe failed to identify the experts in pretrial disclosure and served the affidavits after the note of issue and certificate of readiness attesting to the completion of discovery were filed in this matter (see Rodriguez v Sung Hi Kim, 42 AD3d 442, 442-443 [2007]; Wager v Hainline, 29 AD3d 569, 571 [2006]; Gralnik v Brighton Beach Assoc., 3 AD3d 518 [2004]; Concetto v Pedalino, 308 AD2d 470, 470-471 [2003]).

Our dissenting colleague disagrees with this holding, arguing that CPLR 3101 (d) (1) (i) applies only to an expert whom a party intends to call at trial, and ought not have precluded the trial court from considering previously undisclosed expert opinions submitted in opposition to a motion for summary judgment. We note, however, that the purpose of summary judgment is to determine whether there are genuine issues necessitating a trial. As such, “one opposing a motion for summary judgment must produce evidentiary proof in admissible form sufficient to require a trial of material questions of fact on which he rests his claim or must demonstrate acceptable excuse for his failure to meet the requirement of tender in admissible form” (Zuckerman v City of New York, 49 NY2d 557, 562 [1980]).

As it is undisputed that Lowe failed to identify any experts in pretrial disclosure whom he intended to call to testify at trial concerning whether the work was faulty or the extent of his alleged compensatory damages arising from that breach of warranty, and did not proffer any explanation for such failure, it was not an improvident exercise of discretion for the Supreme Court to have determined that the specific expert opinions set forth in the affidavits submitted in opposition to the motion for summary judgment could not be considered at trial. That circumstance, coupled with Lowe’s failure to demonstrate how the facts set forth in the experts’ affidavits could otherwise be established at trial, justified the Supreme Court’s conclusion that Lowe failed to adequately establish the existence of a material issue of fact necessitating a trial in response to J.C.’s prima facie showing of entitlement to judgment as a matter of law. Accordingly, summary judgment dismissing so much of Lowe’s second cross claim as was to recover compensatory damages for breach of warranty was properly awarded to J.C. (see Alvarez v Prospect Hosp., 68 NY2d 320 [1986]).”

Now, however, the Governor has signed a bill which specifies that disclosure is no longer a necessity in a summary judgment motion.  The bill, known as S5288/A6265 expressly overturns a line of cases which left to the judge’s discretion the question of whether such an expert’s affidavit was admissible and should be considered.

From the law:  “Where an expert affidavit is submitted in support of, or opposition to, a motion for summary judgment, the court shall not decline to consider the affidavit because an expert exchange pursuant to subparagraph (i) of paragraph (1) of subdivision (d) of section 3101 was not furnished prior to the submission of the affidavit.”

Legal malpractice cases are subject to a level of scrutiny greater than all other cases in the “but for” determination.  That’s built into the legal malpractice world along with the privity rule and is there for social policy reasons.  If it were not, then every case, whether lost by plaintiff or defendant would immediately morph into a legal malpractice case.

Beyond the structural differences, it sometimes seems that Supreme Court is too anxious to “weed out” legal malpractice cases it might not like at the CPLR 3211 stage.  Anecdotally, we think that a greater percentage of LM cases are dismissed on CPLR 3211 motions than overall for all cases.

 

Stewart Tit. Ins. Co. v Wingate, Kearney & Cullen  2015 NY Slip Op 09272  Decided on December 16, 2015 Appellate Division, Second Department is an example.  The AD simply finds that Supreme Court misinterpreted a key issue in the motion to dismiss.  “The plaintiff commenced this legal malpractice action in connection with the defendants’ representation of the plaintiff, Stewart Title Insurance Company, and its insureds in a mortgage foreclosure action. The plaintiff alleges that the defendants negligently failed to interpose or raise as a defense that the foreclosure action was time-barred pursuant to the applicable six-year statute of limitations (seeCPLR 213[4]). In lieu of an answer, the defendants moved pursuant to CPLR 3211(a) to dismiss the complaint. The Supreme Court granted the motion. We reverse.

On a motion to dismiss for failure to state a cause of action pursuant to CPLR 3211(a)(7), “the sole criterion is whether the pleading states a cause of action, and if from its four corners factual allegations are discerned which taken together manifest any cause of action cognizable at law [, the] motion for dismissal will fail” (Zellner v Odyl, LLC, 117 AD3d 1040, 1040 [internal quotation marks omitted]; see Guggenheimer v Ginzburg, 43 NY2d 268, 275). In considering such a motion, “the complaint must be construed liberally, the factual allegations deemed to be true, and the nonmoving party granted the benefit of every possible favorable inference” (Hense v Baxter, 79 AD3d 814, 815; see Leon v Martinez, 84 NY2d 83, 87). “To state a cause of action to recover damages for legal malpractice, a plaintiff must allege: (1) that the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession,’ and (2) that the attorney’s breach of the duty proximately caused the plaintiff actual and ascertainable damages” (Dempster v Liotti, 86 AD3d 169, 176, quoting Leder [*2]v Spiegel, 9 NY3d 836, 837).

Here, construing the complaint liberally, accepting the facts alleged in the complaint as true, and according the plaintiff the benefit of every possible favorable inference, as we are required to do, the plaintiff stated a cause of action to recover damages for legal malpractice. Contrary to the defendants’ contention, the plaintiff’s insureds were permitted to raise the statute of limitations defense, as they were either in privity with the original debtor (see 328 Owners Corp. v 330 W. 86 Oaks Corp., 8 NY3d 372, 384; Matter of Juan C. v Cortines, 89 NY2d 659, 667; Parolisi v Slavin, 98 AD3d 488, 490), or were judgment creditors with a lien secured against the subject property (see Matter of Rosevele Frocks, Inc. v Sommers, 191 Misc 614 [App Term, 1st Dept]; see also 75 NY Jur 2d, Limitations and Laches § 33). Accordingly, the Supreme Court should have denied the defendants’ motion to dismiss the complaint.”

 

Few Judiciary Law 487 claims survive the rugged course of litigation and make it over the last hurdle.  Here, in Ginsburg Dev. Cos., LLC v Carbone  2015 NY Slip Op 09250  Decided on December 16, 2015 Appellate Division, Second Department the Second Department affirmed Supreme Court and left the JL 487 claim for trial.  Interestingly, the legal malpractice case survived in this unique non-privity case.  Put another way, the opposing party can now try the legal malpractice and JL 487 case against their opponent.  This is a unique case!

“In an action to recover damages for fraud, violation of Judiciary Law § 487, legal malpractice, aiding and abetting the breach of a fiduciary duty, aiding and abetting fraud, and negligent misrepresentation, (1) the defendants appeal from so much of an order of the Supreme Court, Westchester County (Lefkowitz, J.), dated July 8, 2013, as denied those branches of their motion which were for summary judgment dismissing the second, third, and fourth causes of action, and the plaintiff cross-appeals from so much of the same order as granted those branches of the defendants’ motion which were for summary judgment dismissing the first, fifth, and sixth causes of action, (2) the plaintiff appeals, as limited by its brief, from so much of an order of the same court, also dated July 8, 2013, as denied those branches of its motion which were for summary judgment on the issue of liability on the fourth and sixth causes of action, and (3) the plaintiff appeals, as limited by its brief, from so much of an order of the same court dated November 27, 2013, as denied its motion for leave to renew its opposition to those branches of the defendants’ motion which were for summary judgment dismissing the first, fifth, and sixth causes of action, and those branches of its prior motion which were for summary judgment on the issue of liability on the fourth and sixth causes of action.

The Supreme Court properly denied that branch of the motion of Carbone and GF which was for summary judgment dismissing the second cause of action, which alleged violation of Judiciary Law § 487. Judiciary Law § 487 provides, in 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, additionally, “forfeits to the party injured treble damages, to be recovered in a civil action.” Here, in opposition to the prima facie showing of Carbone and GF of their entitlement to judgment as a matter of law, GDC raised a triable issue of fact as to whether Carbone and GF intentionally deceived GDC (see Moormann v Perini & Hoerger, 65 AD3d 1106, 1108).

The Supreme Court properly denied that branch of the motion of Carbone and GF which was for summary judgment dismissing the third cause of action, which alleged legal malpractice. “In an action to recover damages for legal malpractice, a plaintiff must demonstrate that the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession and that the attorney’s breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages” (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442 [internal quotation marks omitted]). “To establish causation, a plaintiff must show that he or she would have prevailed in the underlying action or would not have incurred any damages, but for the lawyer’s negligence” (id. at 442). “To succeed on a motion for summary judgment, the defendant in a legal malpractice action must present evidence in admissible form establishing that the plaintiff is unable to prove at least one of these essential elements” (Alizio v Feldman, 82 AD3d 804, 804). Here, Carbone and GF did not make a prima facie showing of their entitlement to judgment as a matter of law, since they failed to show that GDC was unable to prove at least one of the essential elements of its legal malpractice cause of action (see Mueller v Fruchter, 71 AD3d 650, 651).”

One of the defining characteristics of professional malpractice, which differs from negligence as a whole, is the concept of privity.  If a washing machine is negligently designed, anyone hurt in using the machine can sue.  However, in professional and legal malpractice one may sue only those with whom they have a professional relationship, one of “privity.”

Prime Plus Acquistition Corp. v Eisneramper LLP  2015 NY Slip Op 32336(U)  December 10, 2015  Supreme Court, New York County  Docket Number: 651139/2014  Judge: Shirley Werner Kornreich is an example of this problem in an auditing case.  Besides statute of limitations and reasonable reliance in a fraud setting problems, the entire malpractice case was dismissed for lack of a professional relationship between plaintiff and defendant.  This dismissal takes place in a case with $ 25 Million in damages.

“Regardless of whether some of plaintiffs’ malpractice claims are time barred, all of the malpractice claims fail on the merits. EisnerAmper’s client was Oak Rock, not plaintiffs. As discussed in the IDB Decision: Before accountants may be held liable in negligence to noncontractual parties who rely to their detriment on inaccurate financial reports, certain prerequisites must be satisfied: (1) the accountants must have been aware that the financial reports were to be used for a particular purpose or purposes; (2) in the furtherance of which a known party or parties was intended to rely; and (3) there must have been some conduct on the part of the accountants linking them to that party or parties, which evinces the accountants’ understanding of that party or parties’ reliance. Credit Alliance Corp. v Arthur Andersen & Co., 65 NY2d 536, 551 ( 1986). Plaintiffs cannot maintain a malpractice claim against EisnerAmper because they do not plead the requisite linking conduct. Oasis does not allege that it had any direct contact with EisnerAmper. The only alleged direct communication between Prime and EisnerAmper was a single conversation between Dell and Charles Weinstein, an Eisner Am per partner. That alleged conversation took place in 200 I. The first audit at issue in this action did not occur until 2006. Five years beforehand, in 2001, Weinstein was seeking to convince Dell to make Prime’s initial investment in Oak Rock, and he allegedly told Dell that he could rely on EisnerAmper’s audit reports. This statement, allegedly made almost a decade prior to the 2010 Transactions, is insufficient to show that EisnerAmper knew the subject audits would be used for the “particular purpose” at issue here – the 2010 Transactions.

Absent a nexus between a communication and the subject transaction, the mere e~istence \ f of some prior communication between an accountant and an investor will not give rise to~ # relationship “sufficiently approaching privity.” See Sec. Pac. Bus. Credit, Inc. v Peat MJrwick 12 t [* 12] Main & Co., 79 NY2d 695, 702-08 (1992). Near privity is not present here because no one at EisnerAmper is alleged to have told Prime it was entitled to rely on the 2007 and 2008 audit reports attached to the November 4, 2009 offering memorandum. As a result, there is no conduct linking Prime and EisnerAmper to the 20 I 0 Transactions.

Moreover, Dell’s reliance on his 2001 conversation with Weinstein flies in the face of the express terms of EisnerAmper’s engagement letters, which clearly state that the audits are prepared only for the benefit of Oak Rock, i.e., not its members. Dell, a member of Oak Rock’s board, cannot claim ignorance of the terms of the EisnerAmper engagement letters. This renders any reliance by Prime on Weinstein’s alleged 200 I promise unreasonable as a matter of law. Again, absent a direct nexus between a specific communication and specific investment made in reasonable reliance on that communication, an investor does not have the right to sue an accountant for malpractice for all losses incurred due to the accountant’s negligent work. The context of the 200 I conversations, the remoteness in time from the subject audits and 20 I 0 Transactions, and the contrary terms of the engagement letters collectively preclude a finding of linking conduct based on communications between Weinstein and Dell. 7 Where, as here, there is no linking conduct with respect to the specific audits at issue, near privity between an auditor and a non-client investor cannot be predicated on alleged general assurances provided a decade before the subject transaction. Holding otherwise would contravene the Court of Appeals’ longstanding policy of refusing to adopt broad linking conduct theories. See Sec. Pac., 79 NY2d at 708 (“sweeping liability should [not] be newly and involuntarily imposed on the entire accounting industry by the simple act of lenders communicating their reliance in the manner promoted in this case.”). Finally, plaintiffs cannot establish linking conduct based on EisnerAmper providing Oak Rock’s board and members, including Prime and Oasis, with copies of the audit reports. It is well settled that “[t]he fact that plaintiffs were entitled to and received a copy of the audited financial statements, or that [the auditor] knew that the investors would rely upon the information contained in the financial statements, does not establish the requisite linking conduct.” CRT Investments, Ltd. v BDO Seidman, LLP, 85 AD3d 470, 472 (1st Dept 2011). Plaintiffs’ malpractice claims, therefore, are dismissed. “

We had not considered the question of how a bench trial and a jury trial might differ in the use of experts.  Remembering that an expert is necessary when the experience of an ordinary trier of fact does not encompass the issues, we recently ran across Oikonomos, Inc. v Bahrenberg
2015 NY Slip Op 51300(U) [48 Misc 3d 1228(A)]  Decided on August 18, 2015  Supreme Court, Suffolk County  Pines, J. in which plaintiff does not present expert evidence at a bench trial, and instead argues that a judge has sufficient experience as a trier of fact to obviate the need for expert testimony.  The argument succeeds.

“This case arises from numerous leases, promissory notes, guarantees, and services agreements entered into between the Plaintiffs and the corporate Defendants, each of which is a not-for-profit entity. The various Plaintiffs, all for-profit corporate entities, owned by Albert and Barbara Brayson (“the Braysons”) (or, in the case of WDR Assets LLC, by the Braysons’ children) are Oikonomos, Inc. (“Oikonomos”), Stonegate Springs, LLC (“Stonegate”), Educare Systems Solutions, LLC (“Educare”), 3390 Route 112, LLC (“3390”) and WDR Assets LLC (“WDR”).

The Plaintiffs assert claims against the various lessees, promissors on notes, and guarantors of the notes and leases, all named Defendants, for breaches of their agreements. The non-profit corporate Defendants include Lake Grove at Durham, Inc. (“Lake Grove”) (which operates a school located in Connecticut), Maple Valley School, Inc (“Maple Valley”) which operates a school in Massachusetts, the Brayson Foundation Ltd. (“the Foundation”), which provided financial support to these affiliated not-for-profit schools, and Windwood Meadow Inc. (“Windwood”), which provided management services to various entities. Additionally, the Plaintiffs have sued individual Defendant, John Claude Bahrenburg (“Bahrenburg”), the Braysons’ alleged former close friend and attorney, for over a twenty year period, for legal malpractice. Plaintiffs’ contend that Bahrenburg not only represented the Braysons but, in addition, all the corporate Plaintiffs at various times and each and every named corporate Defendant. Plaintiffs also have claims against individual Defendant, Jeffrey Dryfoos (“Dryfoos”), Chairman of the Board of Defendant Windwood (2001-2012) as well as Albert Brayson’s close personal friend and college roommate, essentially for acting in concert with Bahrenburg, and utilizing their corporate positions to cause the losses that the corporate Plaintiffs have allegedly suffered.

Currently before the Court is a motion (Mot. Seq. 016) pursuant to CPLR 4401 by the Foundation, Dryfoos and Bahrenburg, made after the close of the evidence presented at trial by the Plaintiffs, for judgment as a matter of law dismissing various causes of action. The [*2]arguments in support of and in opposition to the motion are summarized below.”

“Plaintiffs argue that expert testimony regarding the malpractice claim is not necessary here because the Court, as the trier of fact, is competent to analyze and evaluate whether Bahrenburg’s conduct violated the Code of Professional Responsibility and if so, decide whether such conduct constitutes malpractice. Plaintiffs cite to case law in the Second Department holding that expert testimony is required “unless the ordinary experience of the fact-finder provides sufficient basis for judging the adequacy of the professional service, or the attorney’s conduct falls below any standard of due care” (Northrop v Thorsen, 46 AD3d 780, 782 [2d Dept 2007]). Plaintiffs argue that Bahrenburg’s conduct in acting adversely to his client clearly falls below the standard of care set forth in the Code of Professional Responsibility.

Plaintiffs argue that the legal malpractice claim against Bahrenburg is not time-barred because of the continuous representation doctrine. Plaintiffs contend that the testimony and documents establish that Bahrenburg did legal work for Oikonomos and the Braysons at least through November 2006, despite the Release letter dated February 2, 2006. Thus, Plaintiffs contend that there is a triable issue of fact as to whether the representation giving rise to the malpractice claims ended in February 2006, in which case the malpractice claims first asserted in November 2009 would be untimely, or whether representation continued until November 2006 tolling the commencement of the three-year statute until then.”

“An action for legal malpractice requires proof of the following three elements: (1) the attorney’s failure to exercise that degree of care, skill and diligence commonly possessed by a member of the legal profession; (2) causation; and 3) actual damages (Prudential Ins. Co. of America v Dewey Ballantine, Bushby, Palmer & Wood, 170 AD2d 108 [1st Dept 1991], aff’d, 80 NY2d 377 [1992]; Gray v Wallman & Kramer, 184 AD2d 409 [1st Dept 1992]). To sustain a cause of action for legal malpractice, a party must show that an attorney failed to exercise “the ordinary reasonable skill and knowledge” commonly possessed by a member of the legal profession (Darby & Darby, P.C. v VSI Intern., Inc., 95 NY2d 308 [2000]). The New York Rules of Professional Conduct Code contain provisions bearing on malpractice by an attorney. Such rules are clearly relevant to a malpractice claim. A malpractice cause of action was held to lie where defendant attorney represented both sides of a transaction and allegedly withheld critical information from the plaintiff client (Sitar v Sitar, 50 AD3d 667 [2d Dept 2008]), and where a law firm’s divided loyalties impaired its professional judgment (Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1 [1st Dept 2008]). In addition, a lawyer may not seek, by contract or other means, to limit prospectively the attorney’s individual liability to a client for legal malpractice (New York Rules of Professional Conduct Rule 1.8(h)(1).

An action for legal malpractice is governed by a three year statute of limitations (CPLR 214[6]). The continuous treatment rule applied to medical malpractice actions has been extended to claims of attorney malpractice (Zorn v Gilbert, 8 NY3d 933 [2007]; Sommers v Cohen, 14 AD3d 691 [2d Dept 2005]).

To recover for an attorney’s malpractice, a plaintiff must show that such proximately caused the loss (Rudolf v Shayne, Dachs, Stanisi, Corker & Sauer, 8 NY3d 438 [2007]). In addition, it has been generally recognized that a plaintiff in such cases must satisfy a more demanding test than usual by proving that “but for” the defendant’s negligence, the plaintiff would not have sustained the claimed loss in the underlying transaction (Waggoner v Caruso, 14 NY3d 874 [2010]). The Court notes, however, that in Barnett v Schwartz, 47 AD3d 197 [2d Dept 2007], the Second Department held that the “but for” causation standard does not require a [*9]greater or more direct degree of causation than the “proximate cause” standard set forth in PJI 2:70; and, further, that the “but for” standard does not require a showing that the defendant’s malpractice was the sole proximate clause, rather than a substantial cause, of the plaintiff’s loss. This particular view has not yet been considered by the Court of Appeals.

Unless the ordinary experience of the fact finder provides a sufficient basis for judging the adequacy of the professional service or the attorney’s conduct fell below any standard of due care, expert testimony will be necessary to established that the attorney breached a standard of professional care and skill (Northrop v Thorsen, 46 AD3d 780 [2d Dept 2007]; Zasso v Maher, 26 AD2d 366 [2d Dept 1996]).

Here, viewing the evidence in the light most favorable to the Plaintiffs, accepting the Plaintiffs’ evidence as true, and giving the Plaintiffs every favorable inference that can be reasonably drawn therefrom, the Court finds that the Plaintiffs have set forth sufficient evidence to support a legal malpractice claim against Bahrenburg. The Plaintiffs have presented evidence of an attorney-client relationship with Bahrenburg continuing into November 2006 such that judgment as a matter of law pursuant to CPLR 4401 dismissing the legal malpractice claim as time barred is not warranted. Contrary to Bahrenburg’s contention, the Plaintiffs’ failure to put forth expert testimony is not fatal as the ordinary experience of this Court, the fact finder on this case, provides a sufficient basis for judging whether Bahrenburg’s alleged actions and omissions violated his fiduciary duties, which, as previously held, are subsumed within the legal malpractice claim. There has also been sufficient evidence submitted to allow the Court to determine whether any of the allegations against Bahrenburg constitute a violation of the Rules of Professional Conduct. Plaintiffs have also submitted evidence that they would not have entered into the transactions at issue and sustained losses had Bahrenburg acted properly. Therefore, the motion is denied as to the twenty seventh cause of action.”

Mr. San, LLC v Zucker & Kwestel, LLP  2013 NY Slip Op 08416 [112 AD3d 796]  December 18, 2013  Appellate Division, Second Department  is the very rare departure from the rule of strict privity in legal malpractice.  The exception is well known, and often quoted: ” fraud, collusion, malicious acts or other special circumstances.”  Knowing the words and seeing a successful application are two different things.  Mr. San, LLC is the very rare application of that exception.

“On a motion to dismiss pursuant to CPLR 3211 (a) (1), “dismissal is warranted only if the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law” (Leon v Martinez, 84 NY2d 83, 88 [1994]). In deciding a motion to dismiss pursuant to CPLR 3211 (a) (7), the court must “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” (Leon v Martinez, 84 NY2d at 87-88).

Applying these principles, the Supreme Court properly denied those branches of the defendants’ motion which were pursuant to CPLR 3211 (a) (1) and (7) to dismiss the first cause of action, which sought to recover damages for legal malpractice. While the complaint does not allege an attorney-client relationship between the plaintiffs and the defendants, it sets forth a claim which falls within “the narrow exception of fraud, collusion, malicious acts or other special circumstances” under which a cause of action alleging attorney malpractice may be asserted absent a showing of privity (Ginsburg Dev. Cos., LLC v Carbone, 85 AD3d 1110, 1112 [2011] [internal quotation marks omitted]; see Aranki v Goldman & Assoc., LLP, 34 AD3d 510, 511-512 [2006];Griffith v Medical Quadrangle, 5 AD3d 151, 152 [2004]). Furthermore, the documentary evidence submitted by the defendants does not conclusively establish a defense to this cause of action as a matter of law (see CPLR 3211 [a] [1]).”

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”).”