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.”

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 has a wealth of issues and lessons. The first principle to take from this case is what is negligence, what is “basically” negligence and what is not.

“This is an accounting malpractice and fraud case. Defendant Marcum LLP (“Marcum”) was retained by plaintiffs FTE Networks, Inc. (“FTE”) and Benchmark Builders, Inc. (“Benchmark”) to perform audits of their respective businesses. Defendant Markowitz, a partner at Marcum, oversaw the audits. According to Plaintiffs, during the course of the audit work FTE’s then-Chief Executive Officer Michael Palleschi and then-Chief Financial Officer David Lethem were engaged in a wide array of fraudulent schemes that ultimately resulted in criminal guilty pleas and an investigation by the Securities and Exchange Commission (“SEC”). Plaintiffs contend in this action that Marcum not only negligently failed to uncover and disclose the misconduct during the course of its audit, but that Marcum was made aware of the misconduct and assisted Lethem and Palleschi in concealing it.”

“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).”

“Under CPLR 214(6), a three-year statute of limitations applies to “an action to recover damages for malpractice, other than medical, dental or podiatric malpractice, regardless of whether the underlying theory is based in contract or tort” (see Maya NY, LLC v Hagler, I 06 AD3d 583, 586 [1st Dept 2013] [applying 3-year statute of limitations to claim for accountant malpractice]). By contrast, claims alleging fraud and breach of fiduciary duty based on fraud – if not deemed to be malpractice claims governed by CPLR 214(6)- are generally subject to a six-year statute of limitations, and potentially longer (two years after the plaintiffs actual or constructive discovery of the misconduct) in the case of fraud (CPLR 213(8); Kaufman v Cohen, 307 AD2d 113, 119 [I st Dept 2003] [ noting the statute of limitations for breach of fiduciary duty claims “based on allegations of actual fraud” is six years]; see also Monteleone v Monteleone, 162 AD3d 761, 763 [2d Dept 2018]). The same statute of limitations applies to claims for aiding and abetting breach of fiduciary duty and fraud (see Kaufman, 307 AD2d at 126-27; see also Wimbledon Financing Master Fund, Ltd v Hallac, 192 AD3d 617, 618 [I st Dept 2021]; Belair Care Ctr., Inc. v Cool Insuring Agency, Inc., 168 AD3d 1162, 1166 [3d Dept 2019])], again assuming they are not deemed to be malpractice claims subject to CPLR 214(6). a. Negligence and Gross Negligence Plaintiffs’ negligence and gross negligence claims are indisputably malpractice claims. Such claims accrue when the malpractice is committed, not when it is discovered (Williamson ex rel. Lipper Convertibles, L.P. v PricewaterhouseCoopers LLP, 9 NY3d 1, 7-8 [2007]). In the accounting context, the claim “accrues upon the client’s receipt of the accountant’s work product since this is the point that a client reasonably relies on the accountant’s skill and advice” (Ackerman v Price Waterhouse, 84 NY2d 535, 541 [1994]). Here, the negligence and gross negligence claims accrued when Marcum issued its audit reports, namely on May 11, 2017, and April 17, 2018 (NYSCEF 59, 62). Thus, even after considering the effect of COVID tolling covering a portion of 2020, this May 2023-initiated action is prima facie untimely. Thus, those claims are presumptively time-barred, subject to estoppel principles discussed infra.”

“Plaintiffs’ breach of contract claims are also presumptively untimely under CPLR 214(6) because they are malpractice claims “based in contract” (see also Pannone v Silberstein, 118 AD3d 413, 415 [l st Dept 2014]). Contrary to Plaintiffs assertions, the language of the FTE agreement, which provides that Marcum was “responsible to inform [the Client] … of all matters of fraud, material errors, and all illegal acts that may come to our attention” does not create an independent contractual duty removing the claim from the confines of CPLR 214( 6) (NYSCEF 47, ,i 40; NYSCEF 66-67).1 Rather, this language merely incorporates a professional accounting standard that would have been applicable in any event (see Auditing Standards 2401. 79 [“Whenever the auditor has determined that there is evidence that fraud may exist, that matter should be brought to the attention of an appropriate level of management.”]). c. The Remaining Claims As to Plaintiffs’ remaining claims for (1) fraud; (2) civil conspiracy and conspiracy to commit fraud; (3) breach of fiduciary duty; (4) aiding and abetting (a) fraud, (b) breach of fiduciary duty, (c) embezzlement, (d) breach of trust, and (e) conversion; and (4) commercial bad faith, Defendants do not in the present motion argue that these claims are untimely under their own respective statutes of limitations, but rather are-like the negligence and breach of contract claims discussed above-essentially malpractice claims that are subject to a three-year statute of limitations. In assessing whether a claim is subject to the three-year statute of limitations contained in CPLR 214(6), “the pertinent inquiry is … whether the claim is essentially a malpractice claim” (In re R.M Kliment & Frances Halsband, Architects, 3 NY3d 538, 541-42 [2004]). Plaintiffs’ allegations in connection with these claims, accepted as true and broadly construed, permit a reasonable inference that Defendants not only breached their professional obligations as auditors (that is, that they committed professional malpractice), but also that they knew of and participated in the fraudulent schemes and affirmatively concealed them. If true, that goes beyond the confines of professional malpractice. Accordingly, Plaintiffs remaining claims (if proven) are not subject to the three-year statute of limitations governing malpractice claims. “

Being too poor to arbitrate is a unique way out of arbitration and in Villaver v Paglinawan 2024 NY Slip Op 04159 [230 AD3d 533] August 7, 2024
Appellate Division, Second Department allows plaintiff to bring the case back to Supreme Court.

“In an action for declaratory relief and to recover damages for legal malpractice, breach of fiduciary duty, and intentional infliction of emotional distress, the plaintiff appeals from an order of the Supreme Court, Queens County (Frederick D.R. Sampson, J.), entered May 12, 2021. The order granted that branch of the defendants’ motion which was pursuant to CPLR 3211 (a) (5) to dismiss the complaint on the ground of collateral estoppel.

Ordered that the order is reversed, on the law, with costs, that branch of the defendants’ motion which was pursuant to CPLR 3211 (a) (5) to dismiss the complaint on the ground of collateral estoppel is denied, and the matter is remitted to the Supreme Court, Queens County, for a determination of the remaining branches of the defendants’ motion.

In December 2018, the plaintiff commenced an action (hereinafter the prior action) against the defendants to recover damages for legal malpractice, breach of fiduciary duty, and intentional infliction of emotional distress. In an order dated May 7, 2019, the Supreme Court, Queens County (Robert I. Caloras, J.), inter alia, directed dismissal of the complaint pursuant to CPLR 3211 (a) (1) and (5) based on the arbitration clause contained in the parties’ retainer agreement and directed the parties to proceed to arbitration.

In July 2019, the plaintiff filed an arbitration claim against the defendants. The arbitrator subsequently closed the parties’ case on the grounds that the plaintiff purportedly could not afford the required fees and the defendants had not responded to the arbitrator.”

“Pursuant to CPLR 3211 (a) (5), a party may move to dismiss a cause of action based on the doctrine of collateral estoppel (see 23 E. 39th St. Dev., LLC v 23 E. 39th St. Mgt. Corp., 172 AD3d 964, 967 [2019]). Under the doctrine of collateral estoppel, or issue preclusion, a party is precluded “from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same” (Ryan v New York Tel. Co., 62 NY2d 494, 500 [1984]; see Cullen v Moschetta, 207 AD3d 699, 700 [2022]). “This doctrine applies only ‘if the issue in the second action is identical to an issue which was raised, necessarily decided and material in the first action, and the plaintiff had a full and fair opportunity to litigate the issue in the earlier action’ ” (City of New York v Welsbach Elec. Corp., 9 NY3d 124, 128 [2007], quoting Parker v Blauvelt Volunteer Fire Co., 93 NY2d 343, 349 [1999]; see Jaber v Elayyan, 191 AD3d 964, 966 [2021]). “The party seeking to invoke collateral estoppel has the burden to show the identity of the issues, while the party trying to avoid application of the doctrine must establish the lack of a full and fair opportunity to litigate” (Matter of Dunn, 24 NY3d 699, 704 [2015]; see HSBC Bank USA, N.A. v Pantel, 179 AD3d 650, 651 [2020]).

Here, the defendants failed to establish that the issue decided in the prior action was identical to the issues raised in the present action (see Simmons v Jones Law Group, LLC, 214 AD3d 835, 837 [2023]). The only issue decided in the prior action was whether the retainer agreement signed by the parties contained a valid agreement to arbitrate. Although the plaintiff raised the issues of legal malpractice, breach of fiduciary duty, and intentional infliction of emotional distress in both the prior and present actions, the defendants failed to establish that these issues were “actually litigated, squarely addressed, and specifically decided” in the prior action (M. Kaminsky & M. Friedberger v Wilson, 150 AD3d 1094, 1095 [2017]). Furthermore, the determination in the prior action does not preclude the plaintiff from raising in the present action whether the defendants waived their right to arbitrate and whether the cost of arbitration was prohibitively expensive, since these issues stem from events that occurred after the prior action had been dismissed. Thus, the Supreme Court should not have granted that branch of the defendants’ motion which was pursuant to CPLR 3211 (a) (5) to dismiss the complaint on the ground of collateral estoppel.”

In a short but sweet explanation, the First Department explains why a client can blame the attorney after following the attorney’s advice and taking a particular position in Ingram Yuzek Gainen Carroll & Bertolotti, LLP v McCullar 2024 NY Slip Op 05406
Decided on October 31, 2024 Appellate Division, First Department.

“Defendant alleges that plaintiff law firm negligently caused the commencement of guardianship proceedings over his longtime partner whom he hoped to marry, resulting in an onerous guardianship arrangement.

The court correctly denied plaintiff’s motion to dismiss the counterclaim pursuant to CPLR 3211(a)(7). Defendant pleaded with sufficient detail his counterclaim that plaintiff committed legal malpractice by, among other things, failing to respond to a cease-and-desist letter, failing to move to dismiss the guardianship petition, and failing to negotiate a more favorable settlement (see IMO Indus. v Anderson Kill & Olick, 267 AD2d 10, 11 [1st Dept 1999]). Moreover, it can be reasonably inferred from the allegations that plaintiff’s negligence caused defendant’s loss (see Garnett v Fox, Horan & Camerini, LLP, 82 AD3d 435, 436 [1st Dept 2011]).

In addition, plaintiff’s submission of documents from the underlying action do not conclusively establish a defense to the malpractice claim as a matter of law (see IMO Indus., 267 AD2d at 11). The documents showing that defendant consented to the guardianship and accepted the terms of the settlement do not preclude him from taking contrary positions in this action under the doctrine of judicial estoppel, as the premise of his counterclaim is that he made those statements based on plaintiff’s negligent advice.”

Pro-se litigation against attorneys is not a highly successful process. Legal malpractice rules are complex, and courts are ready to apply collateral estoppel and res judicata. Mehmeti v Karlin 2024 NY Slip Op 05285 Decided on October 24, 2024 Appellate Division, First Department is one such example.

“Order, Supreme Court, New York County (Mary V. Rosado, J.), entered August 24, 2023, which denied plaintiff’s motion for a default judgment and granted defendant’s cross-motion to the extent of dismissing the complaint, unanimously affirmed, without costs.

The motion court correctly denied plaintiff’s motion for a default judgment, finding that plaintiff failed to include an affidavit of service as to service of the summons and complaint on defendant (CPLR 3215[f]).

The motion court also correctly found that plaintiff’s action against defendant, his former attorney, sounds in legal malpractice and is time-barred. The statute of limitations for a legal malpractice cause of action is three years (McCoy v Feinman, 99 NY2d 295, 301 [2002]; CPLR 214[6]). “An action to recover damages for legal malpractice accrues when the malpractice is committed” (Shumsky v Eisenstein, 96 NY2d 164, 166 [2001]). Here, plaintiff’s legal malpractice claim accrued on May 23, 2016, when the Second Circuit dismissed his federal action and defendant’s representation ended. Plaintiff commenced this legal malpractice action against defendant on February 15, 2023, well beyond the three-year statute of limitations (see Coleman v Korn, 92 AD3d 595 [1st Dept 2012]).

Plaintiff’s claims are also barred by the doctrines of res judicata and collateral estoppel, as they were previously raised and dismissed in separate actions he commenced against defendant and his former employer in federal court (see Parker v Blauvelt Volunteer Fire Co., 93 NY2d 343, 347-348 [1999]).”

GIT Inc. v Quinn Emanuel Urquhart & Sullivan, LLP, 2024 NY Slip Op 05486, Decided on November 07, 2024, Appellate Division, First Department is an excellent example of how Supreme Court will pick apart legal malpractice claims under the “but for” element of causation, and will evince little reluctance to decide how the underlying case might have come out, and to dismiss accordingly.

“Plaintiff retained defendant law firm to represent it in, among other things, an action brought by nonparty UBS AG, London Branch to enforce guaranties plaintiff had given in connection with UBS’s refinancing of delinquent loans to two of plaintiff’s subsidiaries. Defendant’s efforts were ultimately unsuccessful, and judgment was entered against plaintiff on the guaranties. Plaintiff then commenced this action alleging that defendant negligently represented it in the underlying action.”

“In the first cause of action plaintiff contends that defendant should have advanced an argument that pursuant to the literal terms of the refinancing credit agreements, UBS was required to, but did not, loan an additional $100 million to plaintiff’s subsidiaries, and this failure of consideration rendered the guaranties unenforceable. However, plaintiff admits that this interpretation of the credit agreements was not intended by the parties and is contradicted by the sworn declarations of its own executives. Further, plaintiff does not allege that it ever told defendant to advance this interpretation of the credit agreements. Supreme Court thus properly determined that defendant did not commit malpractice in failing to advance this argument, because, among other reasons, plaintiff’s new interpretation of the credit agreements was not supported and was commercially unreasonable (see e.g. Cole v Macklowe, 99 AD3d 595, 596 [1st Dept 2012]). Even had defendant raised an argument based on this interpretation of the credit agreements in the underlying action, plaintiff’s executives’ own sworn declarations unambiguously confirm that no party understood or intended for the credit agreements to be read in the way plaintiff now proposes.

In the second cause of action plaintiff asserts that defendant negligently failed to argue that the subsidiaries’ obligations under the credit agreements, based on the parties’ parol understandings of those agreements, were void for lack of consideration. Plaintiff argues, in essence, that the parties’ “real” agreement, as opposed to the express terms of the credit agreements, was unenforceable because it provided certain subsidiaries [*2]with only past consideration that was not specifically addressed in writing. This borderline frivolous defense would not have changed the outcome of the underlying action, and defendant did not commit legal malpractice in failing to assert it. The plain purpose of the credit agreements — read as a whole and discerning the parties’ intent — was to refinance the subsidiaries’ past debt. This purpose was reflected in the terms of the credit agreements and was not merely the parties’ parol understanding. Thus, there was not only past consideration inherent in the credit agreements, but the present consideration the subsidiaries received in having their prior debt converted into new loans, as well as the lender’s forbearance with respect to the subsidiaries’ default on the prior debt.

Supreme Court also properly dismissed the third cause of action, which states that defendant negligently failed to argue that the guaranties were unenforceable as written. This cause of action is essentially a repackaging of plaintiff’s other claims, and it is insufficient for the same reasons as plaintiff’s enforceability challenges to the credit agreements.

Supreme Court properly dismissed plaintiff’s fourth cause of action, in which plaintiff alleges that defendant negligently failed to challenge the enforceability of the guaranties because the subsidiaries were insolvent at the time the parties entered into the relevant agreements. This defense to the guaranties is barred by the “absolute and unconditional” nature of the guaranties (see e.g. Compagnie Financiere v Merrill Lynch, 188 F3d 31, 35 [2d Cir 1999]). Supreme Court properly found that defendant was not negligent for not interposing this defense, because defenses like this one would not have been entertained in the underlying action even had defendant raised them.

Finally, Supreme Court properly dismissed the fifth cause of action, which alleges that defendant did not adequately assert a fraudulent inducement defense. Even had defendant fully pursued the defense to the extent that plaintiff now claims it should have, the federal court presiding over the underlying action recognized that plaintiff could not satisfy the elements of fraudulent inducement because the lender had not made a material misrepresentation or actionable omission. Moreover, even if the lender’s scienter with respect to the underlying fraudulent inducement claim became relevant, plaintiff can only speculate that discovery would have turned up evidence of a present intent to deceive. Defendant’s alleged failure to further pursue a factually unsupported fraudulent inducement defense in the underlying action is an insufficient basis to assert a claim for legal malpractice (see Russo v Feder, Kasovitz, Isaacson, Weber, Skala & Bass, LLP, 301 AD2d 63, 69 [1st Dept 2002]).”

Dimino v Jonathan C. Reiter Law Firm, PLLC 2024 NY Slip Op 33829(U) October 8, 2024 Supreme Court, New York County Docket Number: Index No. 805092/2024 Judge: Paul A. Goetz is a legal malpractice case based upon claims of negligent filing of a WTC Victim’s Compensation case.

“Plaintiffs, Nancy Dimino and Sabrina Dimino are the widow and daughter respectively of Stephen Dimino, who died in the World Trade Center on September 11, 2001 (NYSCEF Doc No 1 ,i 5-6). Plaintiffs initially retained defendants in 2002 to assist them in obtaining compensation from the 9/11 Victim’s Compensation Fund (“VCF”) and subsequently, as relevant to this lawsuit, from the later-created United States Victims of State Sponsored Terrorism Fund (the “Fund”) (id. at f 1, 14). Created by Congress in 2015, compensation from the Fund was to be paid to victims of state sponsors of terrorism, including but not limited to, the Islamic Republic of Iran (“Iran”) (id).

In 2015, Congress enacted the Justice for United States Victims of State Sponsored Terrorism Act (34 USC§ 20144) which establishes the Fund to provide compensation to certain people who are injured in or by acts of international state-sponsored terrorism, and who obtain a judgment issued by a United States district court under state or federal law against a foreign state that was designated as a state sponsor of terrorism (id. at ,i 19). When the Fund was first created it excluded anyone who had preciously received compensation from the VCF, however in 2019, Congress expanded the definition of eligible claimants to include those previously excluded spouses and surviving dependents of 9/11 decedents such as the Diminos (id. at 19 – 20). Congress set February 19, 2020, as the deadline for newly eligible claimants to file claims seeking compensation from the Fund (NYSCEF Doc No 1 at ,i 23). In the federal Southern District of New York case, In re: Terrorist Attacks on September 11, 2001, a liability default judgment was entered against Iran, allowing victims and families of terrorist attacks to receive compensation from the Fund if they obtain a default judgment against Iran (id. at ,i 15 – 18). Plaintiffs allege that defendants failed to acquire a default judgement against Iran and submit them as part of their claims to the Fund prior to the February 19, 2020 deadline (id. at ,i 29). Because of this alleged failure, plaintiffs allege that on May 8, 2020 they received notice that their claims were denied (id. at ,i 39). Plaintiffs further allege that the defendants failed to initially add Sabrina as a plaintiff when seeking the default judgment leading to further delays (id. at ,i 45). While plaintiffs did eventually receive compensation from the Fund, they further allege that defendants failed to seek an award for economic loss which would have increased the amount they eventually received up to the $35 million per family cap (id. at ,i 50).”

“Defendants argue that the complaint is deficient and must be dismissed because it does not establish that the plaintiffs’ rights are not still viable with successor counsel. They argue that plaintiffs do not allege that their claims were denied with no opportunity to recover. Plaintiffs argue that their complaint is sufficient and that this motion was brought prematurely. When reviewing a “motion to dismiss for failure to state a cause of action pursuant to CPLR 321 l(a)(7), [courts] must accept the facts as alleged in the complaint as true, accord the plaintiff the benefit of every reasonable inference, and determine only whether the facts, as alleged fit within any cognizable legal theory” (Bangladesh Bank v Rizal Commercial Banking Corp., 226 AD3d 60, 85-86 [1 st Dept 2024] [internal quotations omitted]). “In making this determination, we are not authorized to assess the merits of the complaint or any of its factual allegations” (id. at 86 [internal quotations omitted]). Further “[i]n assessing a motion under CPLR 321 l(a)(7), … the criterion is whether the proponent of the pleading has a cause of action, not whether [they have] stated one” (Eccles v Shamrock Capital Advisors, LLC, 2024 NY Slip Op 02841 [Ct App May 23, 2024] [internal quotations omitted]). “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” (Aur v Manhattan Greenpoint Ltd., 132 AD3d 595, 595 [1st Dept 2015]). “[P]rior to commencing a legal malpractice action, a party who is likely to succeed on appeal of the underlying action should be required to press an appeal. However, if the client is not likely to succeed, he or she may bring a legal malpractice action without first pursuing an appeal” (Grace v Law, 24 NY3d 203,210 [2014]). But, “at this preliminary stage of the litigation, the defendants have [the burden to] demonstrate that the plaintiffs subsequent attorney had a sufficient opportunity to correct their alleged error in failing to amend the petition, such that they did not proximately cause any damages flowing from that error” (Gobindram v Ruskin Moscou Faltischek, P.C., 175 AD3d 586, 591 [2d Dept 2019]). Here, accepting the facts in the complaint as true and granting “the plaintiff[ s] the benefit of every reasonable inference, and determine[ing] only whether the facts, as alleged fit within any cognizable legal theory” (Bangladesh, 226 AD3d at 85-86) as a court must on a motion to dismiss pursuant to CPLR § 321 l(a)(7), plaintiffs have stated a cause of action for legal malpractice.”