Typically legal malpractice claims are limited to a triumvirate which include Legal Malpractice, Breach of Fiduciary Duty and Breach of Contract. Often, the Breach of Fiduciary Duty and Breach of Contract claims are dismissed as “duplicitive” of the Legal Malpractice claim.

Kohler v West End 84 Units LLC 2024 NY Slip Op 34215(U) November 26, 2024 Supreme Court, New York County Docket Number: Index No. 654985/2023 Judge: Lyle E. Frank is a most unusual legal malpractice (along with claims against non-attorneys), where rarely made claims against the lawfirm survive a motion to dismiss.

“Ms. Paulette Kohler (“Kohler”) has lived in one of the West End 84 Units LLC (“Landlord”) rent-controlled apartments for over seventy years. Ms. Kohler is currently 94 years old, widowed, and her only child died in 2020. In 2011, she met a Norwegian woman named Kjersti Inga Eggerud (“Eggerud”, collectively with Kohler “Plaintiffs”). The two women became friends, and on March 21, 2021, Ms. Kohler executed a Durable Power of Attorney, Health Care Proxy, and a Last Will & Testament that appointed Eggerud as her agent and sole beneficiary. These documents were executed by an attorney who had known Ms. Kohler for decades and they were duly witnessed and executed after it was confirmed that Ms. Kohler had the requisite mental capacity. The FBI Enters the Scene According to documents presented by Plaintiff, in June of 2021 an unknown person(s) contacted the FBI and alleged that Eggerud had engaged in elder abuse of Ms. Kohler. The FBI, according to these documents, conducted an initial assessment and attempted repeatedly to reach out to Ms. Kohler but she would not discuss the matter. In October, they called Eggerud and informed her of the report. Allegedly, on November 14 an FBI agent called Eggerud and informed her that the matter was closed and that there was no evidence against her. Then in December of 2021, the FBI closed the “Incident” and gave as a reason that the “[a]llegation could not be substantiated or is deemed mitigated at this time.” There are several issues of disputed fact as to whether the FBI ever sent an agent to Ms. Kohler’s apartment, what was said and done at such a meeting if it happened, and the extent to which the FBI communicated with various parties during this process. The Article 81 Guardianship Proceeding and Ultimate Reversal In late December 2021, Mrs. Kohler, who had just had surgery for an intestinal blockage, was transferred to the Riverside rehabilitation center for short term rehabilitation for recovery. Beginning in January of 2022, when Eggerud began attempting to enter Ms. Kohler’s apartment to prepare it for her release from Riverside, Landlord ( and others) refused Eggerud access to the apartment and declined to honor the power of attorney. The parties went back and forth on the matter, and in March of 2022 defendant Elizabeth Adinolfi (“Adinolfi”), a guardianship attorney employed by defendant Phillips Nizer LLP (“PN”, collectively with Adinolfi the “PNDefendants”), filed an Article 81 petition to appoint a Guardian over Ms. Kohler (the “Guardianship Proceeding”). The PN-Defendants were counsel for the Landlord, and Adinolfi claimed during the special proceeding that it was at least in part motivated by threats to file suit by Eggerud’ s counsel if the POA was not honored by Landlord. At this proceeding, Adinolfi also alleged, among other things, that Ms. Kohler lacked capacity at the time that she executed the POA and that Eggerud was under investigation from the FBI. In March the trial court granted the petition and appointed a temporary guardian over Mrs. Kohler, defendant Charles Barbuti (“Barbuti”). This decision was appealed, and the First Department overturned the decision in an order dated November 21, 2023 (the “Appeal Order”). That order reinstated the POA and health care proxy and vacated the temporary guardianship. Statement to NBC News An NBC News story about these events aired on October 14, 2022. Landlord prepared a statement for NBC (the “NBC Statement”) and made several claims about the alleged FBI investigation, Ms. Kohler’s financial affairs, and Eggerud’ s attempt to enter Ms. Kohler’s apartment with the POA. The Landlord claimed to have been motivated to initiate the guardianship proceedings “[i]n an effort to protect Mrs. Kohler” and that they were hesitant to give access to Ms. Kohler’s apartment to “someone under FBI investigation for financial abuse.” The resulting story, as well as a subsequent one on November 2, 2022, repeated allegations of possible elder abuse by Eggerud. The PN-Defendants claim to have been told by the FBI that they were “permitted to say: there are allegations that Ms. Kohler is a victim of financial fraud and that investigations are pending.” The Plaintiffs interpret this language as meaning that the PN-Defendants were not authorized to state that Eggerud was an FBI suspect in a financial fraud investigation, and the PN-Defendants interpret this language as meaning that they were permitted to state to the public that Eggerud was being investigated for elder abuse by the FBI. This Motion’s Procedural Posture Plaintiffs filed the present suit in November of 2023. They allege in the second amended complaint eighteen causes of action on behalf of Ms. Kohler and a further six on behalf of Eggerud. Broadly, the second amended complaint alleges a potential scheme to defraud Ms. Kohler of her rent-controlled apartment and various abuses of the guardianship process including alleged improper handling of Ms. Kohler’s finances during the temporary guardianship. The PNDefendants have brought the present motion to dismiss certain causes of action asserted against the PN-Defendants pursuant to the CPLR §§ 3016, 321 l(a)(l), (5), (7) and (g), as well as the N.Y. Civ. Rights Law§§ 70-A and 76-A. They have also moved for damages and sanctions against Eggerud and her counsel.”

“The PN-Defendants move to dismiss the second amended complaint as to them on six grounds: 1) res judicata and collateral estoppel; 2) violation of the New York Anti-SLAPP law; 3) the litigation and fair reporting privileges; 4) failure to state a claim under CPLR §§ 3106 and 321 l(a)(7) as to the fraud and defamation claims; 5) failure to state a claim and statute of limitations as to the abuse of process claims; and finally 6) failure to state a claim as to the intentional and negligent infliction of emotional distress, Judiciary Law 487, tortious interference with contract, violation of the General Obligations Law, and aiding and abetting claims. For the reasons that follow, this motion is granted as to the third, fifth, seventh, ninth, tenth, fifteenth, sixteenth, and nineteenth causes of action and denied as to the rest. I: Res Judicata and Collateral Estoppel Do Not Bar Plaintifrs Claims In the appeal of the Guardianship Proceeding, Plaintiffs requested Rule 130 sanctions against the PN-Defendants for bringing the Guardianship Proceeding in bad faith or frivolously. The First Department in the Appeal Order declined to issue sanctions. Here, the PN-Defendants argue that this bars the underlying suit under the principle of res judicata. Their reasoning is that in that appeal, Plaintiffs made the same arguments regarding the basis used to support the Guardianship Proceeding allegations, knowledge of the FBI’ s involvement, and that the PNDefendants acted to cause harm to Ms. Kohler. By declining to issue sanctions, PN-Defendants argue, the Appeal Order bars a suit arising out of the same transactions and facts. Furthermore, they argue, here Plaintiff’s claims are barred by the principle of collateral estoppel because the Guardianship Proceeding’s factual findings and conclusions remain valid despite the Appeal Order. Plaintiffs argue that the suit is not barred by res judicata or collateral estoppel for several reasons, including that the First Department ordered fee shifting under the Mental Hygiene Law which is predicated on a finding of bad faith and that the court there only declined to issue to sanctions because it was not procedurally proper (it had not been briefed or moved for, simply asked for during oral argument), and did not reach the merits of a sanctions request. Res judicata or claim preclusion is “designed to provide finality in the resolution of disputes to assure that parties may not be vexed by further litigation.” Reilly v. Reid, 45 N.Y.2d 24, 28 (1978). It bars the re-litigation of the “same cause of action” that has had a valid and final judgment that “extinguishes the plaintiff’s claim.” Id., at 28-29. Here the PN-Defendants do not argue that Plaintiff had a claim or cause of action against them that was adjudicated in the Appeal Order, but rather that the Appeal Order, in declining to issue sanctions, made certain findings on the merit of allegations arising from the same set of circumstances. This is more properly called a collateral estoppel or issue preclusion matter, not claim preclusion. The PN-Defendants also argue that certain findings in the Guardianship Proceeding bar Plaintiffs’ current claims through collateral estoppel. This legal concept prevents the same issues, rather than causes of action, from being litigated and applied “only where the issue in the second action is identical to an issue which was raised, necessarily decided and material in the first action and the party who is being estopped had a full and fair opportunity to litigate the issue in the earlier action.” Simmons v. Trans Express Inc., 37 N.Y.3d 107, 112 (2021). The Court of Appeals has “cautioned against the mechanical application of issue preclusion” and directs courts to “examine the realities of litigation”. Id. At heart, the decision to apply collateral estoppel in a given case is whether relitigation of the issue should be allowed “in light of what are often competing policy considerations, including fairness to the parties, conservation of the resources of the court and the litigants, and the societal interests in consistent and accurate results.” Id. I(A): The Guardianship Proceeding Is Not a Basis for Collateral Estoppel and the First Department’s Appeal Order is Ambiguous as to the Extent it Estops the Plaintiffs from Asserting Improper Motive for Bringing the Guardianship Proceeding To begin with, the Guardianship Proceeding does not provide for collateral estoppel or res judicata because it was overturned on appeal. A “vacated decision accordingly lacks finality and cannot be given collateral estoppel effect.” Sage Realty Corp. v. Proskauer Rose LLP, 251 A.D .2d 3 5, 3 9 (1st Dept. 1998). The issue then becomes what, if anything, is precluded by the Appeal Order. This short decision includes language stating that there was “no evidence” that the POA was not duly executed and proper, and that there was “no evidence of financial impropriety” by Eggerud. It also, however, ends with the statement that “[a]lthough [Landlord] was ultimately unable to prove its allegations, the petition was not frivolous within the meaning of22 NYCRR § 130-1.l(c).” Matter ofGoldfein v. Kohler, 221 A.D.3d 500,502 (1st Dept. 2023). The PN-Defendants argue that this statement means that Plaintiffs are estopped from bringing the underlying suit at all because it “arises out of identical transactions and facts as those in the Guardianship Proceeding” and the suit should be dismissed in its entirety.”

“But Plaintiffs argue that there were several issues involved in the underlying suit not litigated at either the Guardianship Proceeding or the appeal of that proceeding. They also content that the part of the Appeals Order referring to frivolity merely expounds on statements made during oral argument that the First Department would not be issuing sanctions under NYCRR § 130 for bringing a frivolous suit because that issue had not been motioned for or briefed. There is an additional complication brought by the fact that the First Department also ordered fee shifting in this matter. The “underlying purpose of the fee-shifting provisions of the Mental Hygiene Law [are] to discourage frivolous petitions.” In re Petty, 256 A.D.2d 281,283 (1st Dept. 1998). In fact, it is an “improvident” exercise in discretion to order fee shifting under this provision when there is “a lack of evidence that the proceeding was brought in bad faith.” Matter of Marjorie T v. Sherwood, 84 A.D.3d 1255, 1255 (2nd Dept. 2011). Because this is a motion to dismiss brought by the PN-Defendants, the Plaintiffs are entitled to every favorable inference. At this stage of litigation, the ending statement in the Appeal Order could potentially be referring to the lack of motions or briefs relating to NYCRR § 130. There is a possible reasonable inference that the First Department had not decided on the merits regarding whether the Guardianship Proceeding was, at least to some degree, frivolously brought. It is not conclusively settled that the First Department decided on the merits that there had been no amount of bad faith connected to bringing that proceeding. Furthermore, under the balance of considerations that the Court of Appeals directs courts to consider in Simmons and given that there are allegations by Plaintiffs as to information about the role of the FBI in these matters that they have obtained after the Appeal Order was issued,the Court declines at this stage to say that the Appeal Order bars Plaintiffs from bringing their claims. Certainly, to extrapolate that sentence into an understanding that the present suit in its entirety, including as it does claims not actually litigated in the vacated Guardianship Proceeding and against parties who were not parties in that proceeding, would not be proper at this junction. Therefore, the motion to dismiss the second amended complaint on the grounds of res judicata and collateral estoppel is denied.”

We will discuss the remaining claims in the next edition.

We reported on this case when Supreme Court denied dismissal. Now the AD has affirmed in Postiglione v Sacks & Sacks, LLP 2024 NY Slip Op 06070 Decided on December 4, 2024.

“In an action to recover damages for legal malpractice, the defendants appeal from an order of the Supreme Court, Kings County (Karen B. Rothenberg, J.), dated January 19, 2022. The order, insofar as appealed from, denied that branch of the defendants’ motion which was pursuant to CPLR 3211(a) to dismiss the amended complaint.

ORDERED that the order is affirmed insofar as appealed from, with costs.

In April 2016, the plaintiff James Postiglione (hereinafter the injured plaintiff) allegedly was injured while working as an independent contractor at a site owned and maintained by the United States Government and the United States National Park Service (hereinafter NPS). Shortly thereafter, the plaintiffs retained the defendant Daniel Weir and his law firm, the defendant Sacks & Sacks, LLP, to represent them, and the defendants commenced a personal injury action in New York State Supreme Court against, among others, the City of New York, which did not own, occupy, or control the site where the accident allegedly occurred. However, the defendants did not commence an action against the United States Government.

In 2019, the plaintiffs commenced this action against the defendants to recover damages for legal malpractice. Thereafter, the plaintiffs served an amended complaint, which alleged, inter alia, that a certain NPS employee told the injured plaintiff to walk only on the concrete path where the accident allegedly occurred and that the defendants committed legal malpractice by failing to commence a lawsuit against the United States Government. The defendants moved, among other things, pursuant to CPLR 3211(a) to dismiss the amended complaint. In an order dated January 19, 2022, the Supreme Court, inter alia, denied that branch of the motion. The defendants appeal.”

“Here, accepting the facts alleged in the amended complaint as true, and according the plaintiffs the benefit of every possible favorable inference, the amended complaint sufficiently states a cause of action to recover damages for legal malpractice. Moreover, the documentary evidence submitted by the defendants in support of their motion failed to utterly refute the factual allegations in the amended complaint. Contrary to the defendants’ contentions, their evidence failed to conclusively establish that the independent contractor exception or the discretionary function exception to the FTCA’s waiver of sovereign immunity applied to bar the plaintiffs’ potential claim against the United States Government (see generally Haskin v U.S., 569 Fed Appx at 15; Andrulonis v U.S., 952 F2d 652, 655 [2d Cir]; Esgrance v United States, 2018 WL 2943222, *2, 2018 US Dist LEXIS 97911, *3-6 [SDNY, No. 17-CV-8352 (JPO)]; Lanzilotta v U.S., 1998 WL 765143, *5 [EDNY, No. 95-CV-5334 (JG)]). The defendants’ contention that the United States Government cannot be liable under the Federal Tort Claims Act for an alleged negligent misrepresentation is not properly before us, as it was raised for the first time at oral argument.”

Berger v Lewis Johs Avallone Aviles, LLP 2024 NY Slip Op 05952 Decided on November 27, 2024 Appellate Division, Second Department makes the point that it is not necessary to specifically allege that the alleged malpractice “fell within the agreed scope of defendant’s representation”, although it is necessary that the actual scope of representation encompasses the claimed negligent act.

“”To succeed on a motion to dismiss based upon documentary evidence pursuant to CPLR 3211(a)(1), the documentary evidence must utterly refute the plaintiff’s factual allegations, conclusively establishing a defense as a matter of law” (Georgica Bldrs., Ltd. v 136 Bishops Lane, LLC, 175 AD3d 610, 611 [internal quotation marks omitted]; see Leon v Martinez, 84 NY2d 83, 87-88). Further, “[o]n a motion pursuant to CPLR 3211(a)(7) to dismiss for failure to state a cause of action, the court must accept the facts alleged in the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” (Georgica Bldrs., Ltd. v 136 Bishops Lane, LLC, 175 AD3d at 611; see Leon v Martinez, 84 NY2d at 87).

Here, accepting the allegations in the complaint as true and according the plaintiff the benefit of every possible favorable inference (see Leon v Martinez, 84 NY2d at 87), the complaint sufficiently stated a cause of action to recover damages for legal malpractice. Contrary to Wohlgemuth’s contention, “‘a legal malpractice plaintiff need not, in order to assert a viable cause of action, specifically plead that the alleged malpractice fell within the agreed scope of the [*2]defendant’s representation'” (Shan Yun Lin v Lau, 210 AD3d 817, 818, quoting Shaya B. Pac., LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 AD3d 34, 39). Further, “‘a legal malpractice defendant seeking dismissal pursuant to CPLR 3211(a)(1) must tender documentary evidence conclusively establishing that the scope of its representation did not include matters relating to the alleged malpractice'” (id., quoting Shaya B. Pac., LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 AD3d at 39). Here, Wohlgemuth failed to submit documentary evidence sufficient to make that showing or to otherwise submit documentary evidence utterly refuting the plaintiff’s allegations or conclusively establishing a defense as a matter of law (see Ki Kuo Zhang v Lau, 210 AD3d 829, 831; Shan Yun Lin v Lau, 210 AD3d at 818).

Accordingly, the Supreme Court properly denied Wohlgemuth’s motion pursuant to CPLR 3211(a) to dismiss the complaint insofar as asserted against it.”

In D’Adamo v Cohen 2024 NY Slip Op 05956 Decided on November 27, 2024
Appellate Division, Second Department a legal malpractice case was dismissed because the allegations were too “conclusory,”

“In an action, inter alia, to recover damages for legal malpractice, the plaintiffs appeal from an order of the Supreme Court, Westchester County (Alexandra D. Murphy, J.), dated July 27, 2022. The order, insofar as appealed from, granted that branch of the defendants’ motion which was pursuant to CPLR 3211(a) to dismiss the cause of action alleging legal malpractice.

ORDERED that the order is affirmed insofar as appealed from, with costs.”

“A plaintiff must plead “actual, ascertainable damages as a result of an attorney’s negligence. Mere speculation about a loss resulting from an attorney’s alleged omission is insufficient to sustain a prima facie case of legal malpractice” (Dempster v Liotti, 86 AD3d at 177 [citation, alterations, and internal quotation marks omitted]; see Philip S. Schwartzman, Inc. v Pliskin, Rubano, Baum & Vitulli, 215 AD3d 699, 703). “Conclusory allegations of damages or injuries predicated on speculation cannot suffice for a malpractice action, and dismissal is warranted where the allegations in the complaint are merely conclusory and speculative” (Alexim Holdings, LLC v McAuliffe, 221 AD3d 641, 643 [internal quotation marks omitted]; see York v Frank, 209 AD3d 804, 807).

Here, the Supreme Court properly granted that branch of the defendants’ motion which was to dismiss the cause of action alleging legal malpractice. The plaintiffs’ claims regarding the consequences and damages flowing from the defendants’ alleged failure to request that a title company provide a title report by a certain date are conclusory and speculative (see May Dock Lane, LLC v Harras Bloom & Archer, LLP, 222 AD3d at 637; 126 Main St., LLC v Kriegsman, 218 AD3d 524, 525; Sierra Holdings, LLC v Phillips, Weiner, Quinn, Artura & Cox, 112 AD3d 909, 910).”

In a relatively rare reversal of Supreme Court’s CPLR 3101 dismissal of a legal malpractice case, the Appellate Division, Second Department reversed and remanded Kowalski v Gold Benes, LLP 2024 NY Slip Op 05967 Decided on November 27, 2024.

“The plaintiffs commenced this action to recover damages for legal malpractice against the defendants. The plaintiffs alleged, among other things, that they retained the defendants to represent them in an action to recover damages for personal injuries the plaintiff Colin D. Kowalski allegedly sustained in a motor vehicle accident (hereinafter the underlying action) and that due to the defendants’ failures to pursue a theory based on a violation of Vehicle and Traffic Law § 509(3), the plaintiffs were not able to obtain a verdict in their favor in the underlying action. The defendants moved pursuant to CPLR 3211(a) to dismiss the complaint. In an order entered May 25, 2022, the Supreme Court granted the defendants’ motion. The plaintiffs appeal.’

“To state a cause of action to recover damages for legal malpractice, “a plaintiff must allege 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 [*2]caused plaintiff to sustain actual and ascertainable damages” (Lam v Weiss, 219 AD3d 713, 716 [alterations and internal quotation marks omitted]; see Marinelli v Sullivan Papain Block McGrath & Cannavo, P.C., 205 AD3d at 716). “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 attorney’s negligence” (Mackey Reed Elec., Inc. v Morrone & Assoc., P.C., 125 AD3d 822, 823; see Lam v Weiss, 219 AD3d at 716). “A plaintiff is not obligated to show, on a motion to dismiss, that it actually sustained damages” (Mackey Reed Elec., Inc. v Morrone & Assoc., P.C., 125 AD3d at 823). “Whether the complaint will later survive a motion for summary judgment, or whether the plaintiff will ultimately be able to prove its claims, of course, plays no part in the determination of a prediscovery CPLR 3211 motion to dismiss” (Churong Liu v Gabbay, 219 AD3d 459, 460 [internal quotation marks omitted]; see Maursky v Latham, 219 AD3d 473, 474-475).

Here, the Supreme Court erred in granting dismissal of the complaint pursuant to CPLR 3211(a)(7). Accepting the allegations in the complaint as true and according the plaintiffs the benefit of every possible favorable inference, the complaint states a cause of action for legal malpractice (see Ofman v Tenenbaum Berger & Shivers, LLP, 217 AD3d 960, 962). In the underlying action, the jury found that the non-settling defendant was not negligent. There is no dispute that the defendants herein did not present any evidence to support a negligence per se theory.

Accordingly, the Supreme Court should have denied the defendants’ motion pursuant to CPLR 3211(a) to dismiss the complaint.”

In Grasso v Guarino 2024 NY Slip Op 02692 [227 AD3d 872] May 15, 2024 Appellate Division, Second Department, even allegations that the law firm falsely stated that plaintiff had been sanctioned and a claimed deceitful representation that there were no client notes is insufficient. Note all the elements of Judiciary Law 487 recited by the AD. None of these explicitly are found in the statute.

“In 2011, the defendant represented the Town of Babylon in an action (hereinafter the 2011 action) commenced in the District Court, Suffolk County, against the plaintiff, alleging violations of the Town Code. In November 2017, the plaintiff commenced this action against the defendant individually and in his capacity as principal owner of Law Offices of Jerry C. Guarino, P.C. The plaintiff asserted causes of action alleging a violation of Judiciary Law § 487, fraud, and intentional infliction of emotional distress. The basis for the plaintiff’s allegations was the defendant’s conduct in the 2011 action, consisting of, inter alia, an alleged deceitful representation by the defendant in response to the plaintiff’s discovery demands, wherein the defendant represented that there were no notes taken by Town employees related to the plaintiff’s alleged violations of the Town Code, and the defendant’s alleged deceitful statement in a letter to the District Court, asserting that the plaintiff’s counsel had been sanctioned when the defendant should have known that those sanctions had been vacated. The defendant moved pursuant to CPLR 3211 (a) to dismiss the amended complaint. In an order dated March 7, 2022, the Supreme Court granted the motion. The plaintiff appeals.”

“A cause of action alleging a violation of Judiciary Law § 487 “requires, among other things, an act of deceit by an attorney, with intent to deceive the court or any party” (Shaffer v Gilberg, 125 AD3d 632, 636 [2015] [internal quotation marks omitted]; see Cordell Marble Falls, LLC v Kelly, 191 AD3d 760, 762 [2021]). “ '[V]iolation of Judiciary Law § 487 requires an intent to deceive’ as [*2]
opposed to conduct which is negligent” (Cordell Marble Falls, LLC v Kelly, 191 AD3d at 762 [citation omitted], quoting Moormann v Perini & Hoerger, 65 AD3d 1106, 1108 [2009]). “Relief pursuant to Judiciary Law § 487 is not lightly given, and requires a showing of egregious conduct or a chronic and extreme pattern of behavior on the part of the defendant attorneys” (Kaufman v Moritt Hock & Hamroff, LLP, 192 AD3d 1092, 1093 [2021] [citation and internal quotation marks omitted]). “A cause of action alleging a violation of Judiciary Law § 487 must be pleaded with specificity” (id. [internal quotation marks omitted]). Here, even accepting the allegations in the amended complaint as true and according the plaintiff the benefit of every possible favorable inference, the amended complaint did not allege conduct that is actionable under Judiciary Law § 487 (see Kaufman v Moritt Hock & Hamroff, LLP, 192 AD3d at 1093).”

Lutin v Perlberger 2024 NY Slip Op 31879(U) May 29, 2024 Supreme Court, New York County Docket Number: Index No. 158734/2023 Judge: Dakota D. Ramseur discusses how a plaintiff might claim “extortion” when it really means “harassment” and how “forged” documents might not be enough for a Judiciary Law 487 claim.

“Pro se plaintiff, Gary Lutin (plaintiff), commenced this action for extortion, fraud, and pursuant to Judiciary Law§ 487, against defendants, Ralph Perlberger, the Law Offices of Ralph Perlberger (collectively, the Perlberger defendants), Eric P. Schutzer (Schutzer) and The Schutzer Group, PLLC (collectively, the Schutzer defendants), stemming from Perlberger’s representation of plaintiff in another matter and the Schutzer defendants’ efforts to collect fees from plaitniff due to Perl berger. The Schutzer defendants now move pursuant to CPLR 321 l(a)(l), (5) and (7) to dismiss the complaint. The motion is opposed. For the following reasons, the motion is granted. As relevant to the instant motion, on July 2, 2001, the New York City Civil Court granted Perlberger a $37,043.75 money judgment against plaitniff in the action entitled Perlberger v Lutin, Index No. TS 1781-00/NY (the 2001 Judgment). The 2001 Judgment covered fees plaintiff owed the Perlberger defendants for legal services rendered in two commercial litigations: Lutin v New Jersey Steel Corporation, et al. and D.S. Atkinson, Inc. v Lutin Central Services Co., Inc. The Civil Court simultaneously dismissed plaintiffs counterclaims against the Perl berger defendants for legal malpractice in those matters. On May 24, 2018, Perlberger commenced an action in Supreme Court, New York County entitled Perlberger v Lu tin, Index No. 154885/2018, by the filing of a summons and motion for summary judgment in lieu of complaint, seeking to renew the 2001 Judgment (the Renewal Action). By order dated August 13, 2018, another justice of this court granted Perlberger’ s motion over plaintiffs opposition and directed the parties to settle an order on notice. On June 5, 2019, the County Clerk entered the renewal judgment against plaintiff in the amount of $97.594.11 (Renewal Judgment). On February 25, 2020, plaintiff filed a motion to vacate the Renewal Judgment for lack of jurisdiction. On April 27, 2020, another justice of this court denied the motion. Prior to July 9, 2019, Perlberger retained Schutzer to represent him in connection with efforts to collect the duly entered Renewal Judgment. On July 9, 2019, Schutzer served plaintiff with a copy of the Renewal Judgment and notice of entry, together with a notice to judgment debtor, a restraining notice and an information subpoena (NYSCEF doc. no. 38 at ,r,r 35-36, ex 13 ). Schutzer then emailed the documents to plaintiff on July 30, 2019. On December 6, 2019, Schutzer commenced a special proceeding on behalf of Perlberger in Supreme Court, New York County, entitled Perlberger v Lutin, Index no. 161842/2019, seeking to compel plaintiff and others to respond to outstanding information subpoenas and to impose sanctions. On December 28, 2020, another justice of this court denied both the Petition and plaintiffs cross-motion. On March 16, 2022, Schutzer served a new subpoena for documents and testimony on plaintiff via NYSCEF in the Renewal Action. On May 11, 2022, Schutzer served a new subpoena duces tecum and ad testificandum on plaintiff via NYSCEF in the Renewal Action. On November 16, 2022, Schutzer filed a motion in the Renewal Action seeking to hold plaintiff in contempt for disobeying the May 2022 Subpoena and to compel him to comply therewith. On May 24, 2023, another justice of this court denied the motion for contempt. Plaintiffs complaint alleges that the Schutzer defendants attempted to extort plaitniff with forged records. Plaintiff primarily alleges that the Schutzer defendants used forged documents in the various actions pending before the court, claiming that: “[t]he set of papers were falsely presented as filings in the case of the 2018 Renewal Action, including what appeared to be a Notice of Entry captioned for the Supreme Court of the State of New York, New York County in the case Perlberger v. Lutin, Index No. 154885/2018, dated 7/9/2019 and signed by Eric P. Schutzer on behalf of the Schutzer Group PL as ‘Attorneys for Plaintiff,’ accompanied by similarly captioned and Schutzer-signed papers captioned as a ‘Notice to Judgment Debtor or Obligor’ and a ‘Restraining Notice.”‘

“Here, plaintiff fails to plead facts stating a claim for both “fraud on the court” and under Judiciary Law§ 487. Plaintiff essentially alleges that the Schutzer defendants falsely claimed they filed certain documents as part of the Renewal Action, and that those statements resulted “[i]n the improper impositions of costs and burdens not only on Plaintiff and the court but also on non-party organizations” and further that the court in the Renewal Action did not “hear evidence of a previous settlement of Perl berger’ s claims.” However, plaitniff fails to allege a deception as to material facts, the Schutzer defendants’ intention to deceive, “[o]r that that [plaintiff] suffered damages that were proximately caused by the alleged deceit” (id. at 776). Again, plaintiff requests that: “If the Complaint does not satisfy the pleading requirements established by that case, or by other relevant cases, Plaintiff requests the Court’s direction to amend the Complaint accordingly.” As discussed in the preceding section, plaitniff failed to provide any factual basis to support his request for leave to amend the complaint, and thus, the request is denied (see JP Morgan Chase Bank, NA. at 582). Accordingly, as plaitniff failed to plead facts suggesting that the Schutzer defendants intentionally deceived plaintiff or the Court or any damages flowing therefrom, plaintiff s claims for “fraud on the court” and under Judiciary Law § 487 are dismissed.”

Earlier this week we looked at Lateral Inv. Mgt., LLC v Marcum, LLP 2024 NY Slip Op 33865(U) October 29, 2024 Supreme Court, New York County Docket Number: Index No. 154273/2023 Judge: Joel M. Cohen for a discussion of the statute of limitations for accounting malpractice claims. Today we look at the in pari delicto argument and the Court’s decision.

“According to the Complaint, the factual allegations of which are assumed to be true for purposes of this motion, Marcum was FTE’s “long-standing auditor[]” (NYSCEF 47 iJiJ 5, 60). The relationship was far reaching, and “had impacts on their relationship with several other of [Marcum’s] significant institutional clients” due to their relationship with a former Board Member of FTE, Luisa Ingargiola (id ,i,i 64, 66). Plaintiffs allege that these relationships motivated Marcum and Markowitz to engage effectively in a cover-up of misconduct by FTE’s CEO and CFO (id ,i 67). The Complaint states that “Ingargiola was one of-if not the onlyBoard member who had any idea” about an improper scheme by Lethem and Palleschi to issue undisclosed convertible notes (id ,i,i 56, 70). Furthermore, Plaintiffs allege “Defendants directly participated in Palleschi and Lethem’s embezzlement and conversion of Company funds as Palleschi and Lethem would convey trips, gifts and other perks to Markowitz in exchange for his willingness to participate in the fraud against FTE” (id ,i 145). In July 2015, in contemplation of a financing arrangement with FTE, plaintiffs Lateral Investment Management, LLC (“Lateral Investment”), Lateral JusCom Feeder, LLC (“JusCom”), and Lateral Recovery, LLC (“Lateral Recovery”) (collectively, “Lateral”) sought to review Marcum’s files on FTE for fiscal year 2014 (NYSCEF 47 iJiJ 49, 368). Marcum agreed to provide access to their work papers (NYSCEF 35). On October 28, 2015, Lateral entered into a Credit Agreement under which Lateral would provide more than $50 million in financing to FTE over time, in part relying on the work papers (NYSCEF 47 iJiJ 44, 51). The Credit Agreement was secured by an interest in FTE’ s assets (id). From 2016 to 2018, Lethem and Palleschi purportedly “embezzled millions of corporate funds for personal use and enjoyment through a variety of schemes” (id ,i 83). Plaintiffs claim “[t]his conduct was completely outside the scope” of their employment and that they “had totally abandoned the interests of the Company” (id ,i 84). The two also “fraudulently inflated FTE’s revenue” between 2016 and 2018, reporting more than $12 million for non-existent work (id ,i,i 104; 216-19). Despite “identify[ing] this revenue as being wholly unsupported,” Marcum and Markowitz purportedly “performed no further investigations … and rubber-stamped FTE’s filings during the relevant years” (id ,i 107). With reference to the absence of documentation of these revenues, Markowitz noted in an email to Palleschi that “I am the only one keeping you out of jail” (id ,i 229; NYSCEF 50). (Defendants, not surprisingly, strongly disagree with the adverse inferences Plaintiffs draw from this communication, but that dispute cannot be resolved on a motion to dismiss.) Marcum purportedly obtained “actual evidence of undisclosed or improperly disclosed related party transactions involving Palleschi,” and “helped conceal and/or turned a blind eye to” any evidence of misconduct (NYSCEF 47 iJiJ 86-87). Defendants “issued unqualified opinions and approved FTE’ s public filings” over that period and “wholly omitted any information” about the various schemes perpetrated by the FTE’s former executives (id ,i,i 93, 95, 107; 220-28).”

“The doctrine of in pari delicto “mandates that the courts will not intercede to resolve a dispute between two wrongdoers” (Kirschner v KPMG LLP, 15 NY3d 446, 464 [2010]). “Traditional agency principles play an important role in an in pari delicto analysis” (id at 465). Presumptively, “[a] corporation must … be responsible for the acts of its authorized agents even if particular acts were unauthorized” (id). However, under the “adverse interest” exception, where the agent has “‘totally abandoned his principal’s interests and … act[ed] entirely for his own or another’s purposes,” such acts are not imputed to the corporation (id at 466 [quoting Center v Hampton Affiliates, 66 NY2d 782, 784-85 [1985]]). Thus, in the corporate context, in pari delicto does not operate to bar a claim by the corporation if the corporate wrongdoers had totally abandoned the corporation’s interests (see id). In these scenarios, the “fraud is committed against a corporation rather than on its behalf’ (id at 467). In other words, applying the adverse interest exception requires that “the scheme that benefitted the insider operated at the corporation’s expense” (id 467-68). In applying Kirschner, the First Department has held that “the mere continuation of a corporate entity does not per se constitute a benefit that precludes application of the adverse interest exception” (Conway v Marcum & Kliegman LLP, 176 AD3d 477, 477-78 [l st Dept 2019]). The First Department elaborated: Moreover, reliance on speculation about the benefits to be derived from the continued existence of an entity is inconsistent with the analysis of the adverse interest exception in Kirschner. It may be possible in every case to construct a hypothetical scenario where the company teetering on the brink of insolvency because of its agent’s fraud meets with an opportune circumstance that allows it to resume legitimate business operations. Permitting such speculation would render the adverse interest exception meaningless. Further, an ongoing fraud and a continued corporate existence may harm a corporate entity: The agent may prolong the company’s legal existence so that he can continue to loot from it, as appears to have been the case here. (Id. at 478.) Giving Plaintiffs the benefit of all reasonable inferences, the Court cannot conclude that Defendants have conclusively established an in pari delicto defense based solely on the pleadings. Plaintiffs have pleaded sufficient allegations to support an inference that Lethem and Palleschi totally abandoned FTE’ s interests and kept the entity alive merely to pilfer it. The purposes for which the alleged funds were used included “deferred salaries to [Lethem and Palleschi],” “personal expenses, ranging from private jet trips and personal warehouse leases,” and “engaging in related party transactions that sent millions of FTE common stock shares … to entities Palleschi and Lethem controlled” (id ,i 440).”

“In short, Plaintiffs have adequately alleged that the fraud underlying this case was so pervasive and thorough that FTE may have merely been the vehicle for Lethem and Palleschi to carry out their fraud and not an entity which benefited from the fraud. Of course, this ruling does not preclude Defendants from seeking to establish an in pari delicto defense based on the evidence adduced at summary judgment or trial.”