Irony is a state of affairs or an event that seems disturbingly contrary to what one expects.  Legal malpractice concerns the effects of human error in the litigation of client’s cases.  It is highly ironic when mistakes are made in the litigation of legal malpractice cases.  Here is one example.

Yuan v Kaplan  2015 NY Slip Op 04637  Decided on June 3, 2015  Appellate Division, Second Department is a short opinion.  It is devastatingly forthright.

” In an action to recover damages for legal malpractice and breach of fiduciary duty, the plaintiff appeals from an order of the Supreme Court, Queens County (Brathwaite Nelson, J.), dated March 21, 2013, which granted the defendants’ unopposed motion pursuant to CPLR 3211(a)(7) to dismiss the complaint for failure to state a cause of action.

ORDERED that the appeal is dismissed, with costs.

The plaintiff did not submit papers to the Supreme Court in opposition to the defendants’ motion pursuant to CPLR 3211(a)(7) to dismiss the complaint for failure to state a cause of action, and the motion was granted on default. No appeal lies from an order or judgment granted upon the default of the appealing party (see CPLR 5511; Reynolds v Haiduk, 120 AD3d 656; HCA Equip. Fin., LLC v Mastrantone, 118 AD3d 850; J.F.J. Fuel, Inc. v Tran Camp Contr. Corp., 105 AD3d 908). Since the order appealed from was entered upon the plaintiff’s default in opposing the motion, the appeal must be dismissed (see Lumbermen’s Mut. Cas. Co. v Fireman’s Fund Am. Ins. Co., 117 AD2d 588).”

Sometimes a story sounds bad on first reading, and changes thereafter.  This story sounds worse on second reading.  It reeks of non-actionable wrongs suffered by a not-so-astute plaintiff.

Mizrahi v Adler  2014 NY Slip Op 31701(U)  June 30, 2014  Sup Ct, NY County  Docket Number: 650802/2010  Judge: O. Peter Sherwood is a retelling of a very old “hot” real estate deal gone sour.

“It is uncontested that, in 2006, plaintiff Eitan Mizrahi (plaintiff) entered into a written retainer agreement with Adler and his law firm, non-party, Stern, Adler & Associates, LLP, for the firm to act as plaintiffs attorneys, to provide advice and services specifically with regard to estate planning issues (Retainer Letter, attached to Adler Aff. as Exhibit C). At a meeting in February 2007, plaintiff and Adler discussed a possible real estate opportunity, found by Adler, to purchase residential units then under construction in Las Vegas, Nevada, called the Trump International Hotel and Tower (Trump Towers). Trump Towers was to be comprised of two towers, Tower I and Tower II. Apparently, Adler had marketing materials on hand at the meeting which described the [* 1] investment, and plaintiff allegedly expressed interest in investing in the project.

Adler claims that he explained to plaintiff that Saw was in a “unique position” to offer prospective investors the opportunity to purchase units in the Towers before they were offered to the general public (Adler Aff., ¶14), and that plaintiff could take advantage of Saw’s contacts to purchase units by entering a finder’s agreement with Saw, and paying Saw a fee. Plaintiff claims that he was told that Saw was owned by an individual named Jack Wishna (Wishna), and that Adler would be working Wishna. Adler contends that plaintiff knew Saw was Adler’s company. Adler adds that he told plaintiff that his “contacts” with Wishna would aid in the process of purchasing property in Trump Towers, as Wishna was alleged to have a relationship with the developer (id.). Plaintiff maintains that Adler told him an investment in Trump Towers would be entirely risk-free, and that by investing through the intervention of Saw (and hence, Wishna), plaintiff would obtain certain benefits, “including, but not limited to, the ability to sell or swap units prior to closing, and postpone the contracted closing date” (Complaint, attached to Adler Aff. as Exhibit A, ¶ 15). Plaintiff calls these alleged rights the “Wishna Umbrella.” Early in May, 2007, upon Adler’s advice, plaintiff executed Reservation Deposit Forms for two units in Tower II, and made deposits of $I 0,000 per unit. Plaintiff claims that the Reservation Deposit Form named “Jack Wishna of Liberty Realty Inc.” as a sales agent involved with the sale (id.¶ 18).

The complaint alleges that defendant lost his down payment due to wrongdoing by Adler in representing to plaintiff that the investment was risk-free and that the plaintiff would have rights in the purchase of units in Trump Towers that he did not actually have under the Purchase Agreement. Plaintiff argues that he labored under the reasonable misconception that Adler was acting as his attorney at all times during the transactions at issue. Plaintiff claims to have only a fragmentary education and a slim grasp of the English language, and that he relied  totally on Adler, as his attorney
in making the investment. Plaintiff never read any document he was asked to sign, under the assumption, that Adler, as plaintiffs attorney, was looking out for plaintiffs interests.

Plaintiffs action fails on the question of proximate cause. While the issue of proximate cause can often be ~jury question (see Bradley v Soundview Healthcenter, 4 AD3d 194 [1st Dept 2004 ]), the court may always determine whether there are questions of fact (see Laub v Faessel, 297 AD2d 28 [1st Dept 2002]). In Laub v Faessel, dealing with claims for fraud, negligent misrepresentation and breach of fiduciary duty, the court, discussing proximate cause, di~tinguished between a misrepresentation which induces a plaintiff to engage in a transaction (“transaction causation”), and misrepresentations which directly cause the loss to plaintiff (“loss causation”) (id. at 31 ). “Loss causation is the fundamental core of the common-law concept of proximate cause: ‘An essential element of the plaintiffs cause of action for negligence, or for … any … tort, is that there be some reasonable connection between the act or omission of the defendant and the damage which the plaintiff has suffered [citation omitted]'” (id.). “Transaction causation is often synonymous with ‘but for’ causation” (Amusement Industry, Inc. v Stern, 786 F Supp 2d 758, 776 [SDNY 2011 ]). In the present context of a legal malpractice claim, plaintiff alleges “transaction causation,” because he says that he would not have entered into the agreements had he known that they bore any risk. That is, “but for” Adler’s representations, there would have been no transaction. However, even assuming that th_e representations are a basis for finding “transaction causation,” plaintiff cannot establish “loss causation,” because many factors led to the failure to close on Unit 6401, or any other unit in the Trump Towers. Plaintiffs losses were caused by the precipitious drop in real estate prices, and the value of the Trump Towers units in 2008; the Joss of his job; and plaintiffs failure to obtain financing. 4 The “Wishna Umbrella” could not have protected plaintiff from his losses. As a result, plaintiff has failed to plead proximate cause.

The failure to establish proximate cause dooms plaintiffs cause, of action for legal malpractice. Likewise, it dooms his claims for fraud and negligent misrepresentation (see Friedman v Anderson, 23 AD3d 163 [I st Dept 2005]), and for breach of fiduciary duty (see Northbay Constr.Co. v Bauco Constr. Corp., 38 AD3d 737 (2nd Dept 2007]).

Further, plaintiff cannot establish reasonable reliance on any representation that the deal was risk free. Reasonable reliance is an element of a fraud cause of action (see MBIA Ins. Co. v Countrywide Home Loans, Inc., 87 AD3d 287 [I st Dept 2011 ]), and of a claim for negligent misrepresentation (see JA. 0. Acquisition Corp. v Stravitsky, 8 NY3d 144 (2007]). In the Finder Agreement, plaintiff represented to Saw that he was a “sophisticated investor,” and that he “acknowledg[ ed] that buying real estate is a risky investment and that there is no guarantee the value of the unit will increase.over time.” He cannot later claim that he did not know that his investment was risky. “

Divorce proceedings lead to a large number of legal malpractice inquiries.  They are generally in the nature of “I did not get enough/gave too much in the divorce.  Is it legal malpractice?   Sometimes it is.  In Tanenbaum v Molinoff  2014 NY Slip Op 04186 [118 AD3d 774]  June 11, 2014  Appellate Division, Second Department it was not.  Plaintiff did not get his attorney fees paid by the more monied spouse.  The suit was for legal malpractice, which the Court and the AD found lacking.

“Here, the defendant established that he was entitled to the dismissal of the first cause of action, which alleged legal malpractice, pursuant to CPLR 3211 (a) (1) and (7). Contrary to the plaintiff’s contentions, the complaint in this action, as well as certain documentary evidence before the Supreme Court, including, inter alia, a portion of the settlement agreement between the plaintiff and his former wife, conclusively established as a matter of law that, under the terms of the settlement agreement (see generally Trinagel v Boyar, 99 AD3d 792, 792 [2012]; Matter of Berns v Halberstam, 46 AD3d 808, 809 [2007]), the plaintiff was not entitled to an award of an attorney’s fee in the proceeding against his former wife before the Family Court (see Matter of Tanenbaum v Caputo, 81 AD3d 839 [2011]), and that the defendant therefore did not commit malpractice in failing to obtain an award of an attorney’s fee in that proceeding. Moreover, the retainer agreement between the parties here conclusively refuted any claim based on the plaintiff’s allegation that the defendant assured him that the plaintiff’s former wife would be responsible for the payment of all legal fees in that proceeding. Accordingly, the Supreme Court properly granted that branch of the defendant’s motion which was to dismiss the first cause of action pursuant to CPLR 3211 (a) (1) and (7).”

Jeffrey M. Rosenblum, P.C. v Casano  2014 NY Slip Op 51629(U) [45 Misc 3d 1218(A)] Decided on November 19, 2014   District Court Of Nassau County, First District  Fairgrieve, J. is an example of what happens when law firms sue to obtain payments.  They trigger lots of litigation and almost always. a legal malpractice counterclaim.  Here, in this Nassau County District Court, where the jurisdictional limit is $ 15,000 the attorneys have triggered a much bigger legal malpractice counterclaim.

“Before the court is plaintiff’s motion to dismiss defendant’s five (5) counterclaims. Said motion is decided as provided herein.

In her Verified Answer with Counterclaims (Plaintiff’s Exhibit B), defendant sets forth [*2]and classifies each of the five (5) counterclaims raised therein. They are designated as Breach of Contract (First and Second Counterclaims), Unjust Enrichment (Third Counterclaim), Declaratory Judgment (Fourth Counterclaim), and Attorney Malpractice (Fifth Counterclaim).

Initially, plaintiff’s counsel presses two arguments for dismissal of the first four counterclaims. First, she argues that pursuant to CPLR 3211(a)(2), this court lacks subject matter jurisdiction because “the monetary jurisdictional limit of the District Court is $15,000,” which these counterclaims exceed (Affirmation in Support, ¶ 22). To the contrary, however, this court “shall have jurisdiction of counterclaims … for money only, without regard to amount” (UDCA §208[b]). Accordingly, plaintiff’s argument characterizing the amount sought by defendant’s counterclaims as exceeding statutory authority, is rejected. Therefore, its requests for dismissal on this basis are denied.”

“Lastly, plaintiff seeks dismissal of the fifth and final counterclaim on two grounds. The first isres judicata and identity of issues with the earlier arbitration proceeding herein. In this regard, it is uncontroverted that this case was previously arbitrated pursuant to 22 NYCRR Part 137, that said arbitration resulted in a decision in defendant’s favor and that plaintiff timely commenced a trial de novo pursuant to 22 NYCRR 137.8. Given same, the arguments proferred by plaintiff to dismiss defendant’s fifth counterclaim are inapplicable to the present case.

The cases cited by plaintiff, Wallenstein v Cohen, 45 AD3d 674 (2d Dept 2007) and Altamore v Friedman, 193 AD2d 240 (2d Dept 1993), involved different arbitration statutes. Moreover, the arbitration statute in Wallerstein was repealed on January 1, 2002, and the Altamore case was specifically premised upon the binding nature of the arbitration involved in that proceeding. Unlike either of these cases, the arbitration provision used herein, explicitly provides a non-prevailing party with the opportunity to elect to proceed to a trial de novo, and plaintiff having done so, defendant can pursue her counterclaim. Therefore, that portion of plaintiff’s motion seeking dismissal of defendant’s fifth counterclaim, on res judicata grounds, is denied.

Plaintiff also seeks dismissal of said fifth counterclaim based upon an alleged failure of defendant to state a claim. In considering a motion to dismiss a complaint pursuant to CPLR 3211(a)(7) for failure to state a cause of action, the court must accept the facts alleged as true and make a determination as to whether the facts alleged are within any cognizable legal theory (see Holmes v Gary Goldberg & Co., Inc., 40 AD3d 1033 [2d Dept 2007]). The non-moving party is afforded “the benefit of every possible inference” (see Goshen v Mut. Life Ins. Co., 98 NY2d 314, 326 [2002], quoting Leon v Martinez, 84 NY2d 83, 87 [1994]). Therefore, if the pleading contains factual allegations which taken together manifest any cause of action cognizable at law, the motion must be denied (see Natural Organics, Inc. v Smith, 38 AD3d 628 [2d Dept 2007]).

In a legal malpractice action, the “plaintiff must prove (1) the negligence of the attorney, (2) that the negligence was the proximate cause of the loss sustained, and (3) proof of actual damages. Plaintiff must also prove that she would have succeeded on the merits of the underlying action but for’ the attorney’s negligence” (Tilton v Trezza, 2006 NY Slip Op 50867[U] [Sup Ct, Nassau Cty 2006], citing Davis v Klein, 88 NY2d 1008 [1996]). Review of ¶¶ 52-54 of defendant’s answer (Plaintiff’s Exhibit B), reveals that the above requisites for a claim sounding in legal malpractice have been satisfied. Accordingly, plaintiff’s request for dismissal of defendant’s fifth counterclaim, for failure to state a cause of action, is denied.”

Sometimes a cigar is simply a cigar, and sometimes plaintiffs have to produce wildly expensive trial props.  In Melcher v Greenberg Traurig LLP
2015 NY Slip Op 30855(U)  May 18, 2015  Supreme Court, New York County  Docket Number: 650188/2007  Judge: O. Peter Sherwood a scene not unlike the Pumpkin Papers case unfolded.  Here is Judge Sherwood on the replica kitchen.

“On January 27, 2004, Melcher’s counsel, Jeffrey Jannuzzo, requested that the original Amendment be produced for forensic testing ofits authenticity (Jannuzzo letter to Corwin dated Jan. 27, 2004, Plaintiffs Exhibit 9). On February l, Fradd informed Corwin that the original Agreement had been damaged-in a tea-making incident (Fradd e-mail to Corwin dated Feb. 1, 2004, Plaintiffs Exhibit 1 I). The first page was destroyed and the second page, with Fradd’s signature, was singed (id.; Plaintiffs Exhibit 12). On February 2, 2004, Corwin was informed that no record of creating 3 [* 3] the Amendment was found in Governale’s files, and that the Amendment lacked the standard footer used by Govemale’s firm (Corwin notes dated Feb. 2, 2004, Plaintiffs Exhibit 13). 1 Nonetheless, an undamaged copy of the Amendment was attached to Fradd’s February 13, 2004, affidavit, which was filed and submitted to the court in support of a motion to dismiss the Apollo Action (Plaintiffs Exhibit 27).

Plaintiffs arson expert the Apollo Action created a replica of Fradd’s kitchen in order to test whether the damage to the Amendment could have been done in the manner claimed. Plaintiff stored the replica kitchen, so that the defendants in this case could inspect it. Fradd no longer lives in the same apartment, so the original kitchen is no longer available for inspection. Plaintiff offered the replica kitchen to defendants, and has advised defendants that he intends to discard it if they do not take it. Defendants argues that plaintiff must preserve this evidence. Accordingly, plaintiff seeks an order instructing defendants to take the replica kitchen or waive the right to inspect it. He asserts that his obligation to produce pursuant to CPLR 3120 can be “satisfied by telling the party seeking 17 [* 12] the discovery where the materials are and providing a reasonable opportunity” to view them (Memo at 4, quoting Zegarelli v Hughes, 3 NY3d 64, 69 [2004 ]). The parties dispute whether expert testimony regarding the feasability ofFradd’s version of how the Amendment came to be damaged will be relevant at trial, and expert discovery has not yet begun. As Melcher has not shown any undue burden, the court directs that he preserve the replica kitchen at least until expert discovery is concluded.”

As we started discussing yesterday, Melcher v Greenberg Traurig LLP  2015 NY Slip Op 30855(U)  May 18, 2015  Supreme Court, New York County  Docket Number: 650188/2007  Judge: O. Peter Sherwood is a historic case.  In the Court of Appeals, it was determined that this deceit statute is not really a statute at all; it is part of the common law.  There are a number of lesser issues that are addressed in this second visit to Supreme Court.

“This action was commenced on June 25, 2007, with a single cause of action pursuant to Judiciary Law Section 487, which provides: “[a]n attorney or counselor who: I. Is 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 in addition to the punishment prescribed therefor by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action.” Plaintiff James L. Melcher claims the defendants, Greenberg Traurig LLP (GT) and GT partner Leslie Corwin, deceived the court and the plaintiff in an earlier litigation. The defendants in this case represented defendants Apollo Medical Fund Management L.L.C. (Apollo) and Apollo principal Brandon Fradd in a suit brought by the plaintiff in 2003 (the Apollo Action).

The parties dispute whether Melcher may pursue this claim in a separate action, or is limited to bringing it in the underlying Apollo Action. Defendants argue that this action is barred by New York’s rule against claim splitting, citing Alliance Network LLC v Sidley Austin LLP, 43 Misc 3d 848 (Sup Ct, New York County 2014)(“The First Department has held that a party’s remedy for a violation of Section 487 stemming from an attorney’s actions in a litigation ‘lies exclusively in that lawsuit itself, … not a second plenary action”‘) quoting Yalkowsky v Century Apartments Assoc., 215 AD2d 214, 215 (1st Dept 1995). Melcher argues otherwise, relying on Amalfitano v Rosenberg, 12 NY3d 8 (2009) and Melcher v Greenberg Traurig, LLP, 23 NY3d 10, 15 (2014)(allowing this litigation to proceed and reversing the First Department decision granting a motion to dismiss on statute of limitations grounds).

In a similarly positioned case, Zimmerman v Kohn (Index No. 652826/2013, 2014 WL 1490936 [Sup Ct, NY County, April 11, 2014]), the court determined that the plaintiff in an underlying action could not subsequently bring an action based on Judiciary Law§ 487 against the underlying defendants’ counsel when the plaintiff had raised the deceit allegations in that action and settled the matter before the evidentiary hearing. The underlying action was brought in the United States District Court for the Eastern District of New York against Poly-Prep Day School for the alleged cover-up of sexual abuse of students by a coach (id. at 1 )(the Poly-Prep Action). During the course oflitigating the Poly-Prep Action, Zimmerman sought “sanctions for fraud committed on the Court” by the defendants’ counsel (id). Those issues were held in abeyance pending an evidentiary hearing (id.). The parties subsequently entered into a settlement agreement and stipulated to dismiss the action with prejudice (id.). In the Judiciary Law§ 487 claim Zimmerman subsequently brought in New York State Supreme Court, the court noted that”[ o ]nee a claim for violation of Judiciary Law [Section] 487 is raised in another action, the remedy lies exclusively in that lawsuit regardless of whether the attorneys are parties to the action” (id. at 2). Upon review, the Appellate Division First Department affirmed but not on grounds of estoppel as the Supreme Court had found. Instead, the Appellate Division concluded that plaintiff had suffered no damages and affirmed on that basis (see Zimmerman, 125 AD3d at 414). The Appellate Division did not address the issue of estoppel. Accordingly, there is no estoppel issue to be decided by this court. The claim has not been waived because Melcher specifically declined to release any claims against Corwin and GT in the Apollo Action settlement agreement (Reply Memo at 4, n 3; January 14, 2014 Settlement Agreement, Plaintiff’s Exhibit I 08).”

Melcher v Greenberg Traurig LLP  2015 NY Slip Op 30855(U)  May 18, 2015  Supreme Court, New York County  Docket Number: 650188/2007  Judge: O. Peter Sherwood is a very (very) important case in the Judiciary Law § 487  world.  When the case went to the NY Court of Appeals, it led to the decision  that JL 487 arrives directly from the common law and not from statute, hence it has a 6 year statute of limitations.

Melcher is back in the news, as the underlying JL  487 litigation continues.  This week, summary judgment was denied, and the Court threw in a few interesting tidbits.

Must the 487 case be brought in the underlying case?

“The parties dispute whether Melcher may pursue this claim in a separate action, or is limited
to bringing it in the underlying Apollo Action. Defendants argue that this action is barred by New
York’s rule against claim splitting, citing Alliance Network LLC v Sidley Austin LLP, 43 Misc 3d
848 (Sup Ct, New York County 2014)(“The First Department has held that a party’s remedy for a
violation of Section 487 stemming from an attorney’s actions in a litigation ‘lies exclusively in that
lawsuit itself, … not a second plenary action”‘) quoting Yalkowsky v Century Apartments Assoc.,
215 AD2d 214, 215 (1st Dept 1995). Melcher argues otherwise, relying on Amalfitano v Rosenberg,
12 NY3d 8 (2009) and Melcher v Greenberg Traurig, LLP, 23 NY3d 10, 15 (2014)(allowing this
litigation to proceed and reversing the First Department decision granting a motion to dismiss on
statute of limitations grounds). ”

“In a similarly positioned case, Zimmerman v Kohn (Index No. 652826/2013, 2014 WL
1490936 [Sup Ct, NY County, April 11, 2014]), the court determined that the plaintiff in an
underlying action could not subsequently bring an action based on Judiciary Law§ 487 against the
underlying defendants’ counsel when the plaintiff had raised the deceit allegations in that action and
settled the matter before the evidentiary hearing. The underlying action was brought in the United
States District Court for the Eastern District of New York against Poly-Prep Day School for the
alleged cover-up of sexual abuse of students by a coach (id. at 1 )(the Poly-Prep Action). During the
course oflitigating the Poly-Prep Action, Zimmerman sought “sanctions for fraud committed on the
Court” by the defendants’ counsel (id). Those issues were held in abeyance pending an evidentiary
hearing (id.). The parties subsequently entered into a settlement agreement and stipulated to dismiss
the action with prejudice (id.). In the Judiciary Law§ 487 claim Zimmerman subsequently brought
in New York State Supreme Court, the court noted that”[ o ]nee a claim for violation of Judiciary
Law [Section] 487 is raised in another action, the remedy lies exclusively in that lawsuit regardless
of whether the attorneys are parties to the action” (id. at 2). Upon review, the Appellate Division
First Department affirmed but not on grounds of estoppel as the Supreme Court had found. Instead,
the Appellate Division concluded that plaintiff had suffered no damages and affirmed on that basis
(see Zimmerman, 125 AD3d at 414). The Appellate Division did not address the issue of estoppel.
Accordingly, there is no estoppel issue to be decided by this court. The claim has not been
waived because Melcher specifically declined to release any claims against Corwin and GT in the
Apollo Action settlement agreement (Reply Memo at 4, n 3; January 14, 2014 Settlement
Agreement, Plaintiff’s Exhibit I 08).”

Legal malpractice insurance, which one might think is a subject reserved solely for the attorney, is truly a subject of interest to the plaintiff as well.  No insurance may lead to no settlement.  Hence…

Here the insurance company would like to disclaim on the basis that the attorney was actually doing business as an education maven while getting insurance as an attorney.  This is generally outside of the scope of legal malpractice insurance.  Now, the carrier and the attorney are battling over defense costs.

Law Offs. of Zachary R. Greenhill P.C. v Liberty Ins. Underwriters, Inc.  2015 NY Slip Op 04382  Decided on May 21, 2015  Appellate Division, First Department centers on an educational foray into China, which apparently did not go well.   “Plaintiffs, an attorney and his law firm, seek a declaration that defendants, which issued a lawyers professional liability insurance policy, were required to provide a defense and pay for all defense costs with respect to counterclaims asserted against Zachary Greenhill (Mr. Greenhill) in an underlying contract action (Zachary Greenhill and Judy Lee Greenhill v The Dwight School, The Dwight School in China LLC, Stephen H. Spahn and New York Preparatory School, Inc., Sup Ct, NY County, index No. 603653/09) (the underlying contract action). Before plaintiffs commenced this action, the underlying contract action settled and the counterclaims were dismissed. Accordingly, in this action, plaintiffs seek to recover defense costs incurred in connection with those counterclaims against them in the underlying action. Plaintiffs assert that they are entitled to such costs because defendants (the insurer) breached their duty to defend and the counterclaims do not fall within any policy exclusion.

Defendants contend that plaintiffs failed to establish any breach of the duty to defend, that plaintiffs’ motion is premature, and that they need discovery to determine whether the counterclaims fall within certain policy exclusions which apply to situations where an attorney is sued for legal malpractice, but the attorney has also engaged in certain outside business activities. We agree with defendants.”

“In the underlying contract action, the Greenhills sought to enforce a partially executed consulting agreement they claimed to have with Dwight China. Pursuant to that agreement, they were to receive semiannual consulting fees for the following services: “business development, sales and marketing appropriate to [Dwight China’s] business, legal services, contracting for legal services and government filings, contract negotiations, college and university guidance services and close and overall execution of the Company’s business plan” The consulting agreement was executed by Spahn on behalf of Dwight China and the Dwight School (Dwight entities), but neither of the Greenhills ever signed it.

In their answer to the second amended complaint in the underlying contract action, the Dwight entities and Spahn denied the enforceability of the consulting contract and alleged that Mr. Greenhill had enlisted the aid of outside counsel to structure the operating agreement in such a way that it personally benefitted the Greenhills’ interests. In addition to asserting a counterclaim against the Greenhills for repudiation of the consulting agreement, the Dwight entities and Spahn asserted a counterclaim against Mr. Greenhill for legal malpractice, alleging that “[Zachary] Greenhill had an attorney-client relationship” with them and that he breached his fiduciary duties to the Dwight entities by having them sign the consulting agreement “without fully informing [them] of his view of the possible consequences of such a signature absent the Greenhills’ signature, or advising them to seek independent counsel regarding the alleged Consulting Agreement.” The Dwight entities claimed further that Mr. Greenhill had engaged in self-dealing by using the consulting agreement as evidence of the operating agreement that had never been signed.”

“Mr. Greenhill, much like the attorneys in K2 and Lee & Amtzis, obtained a lawyer’s professional liability policy that specifically excludes coverage in where the attorney is serving two masters: his client and himself. Plaintiffs seek to distinguish K2 solely on the basis that it involved the issue of whether the insurer had to indemnify its insured as opposed to

providing a defense. If, however, coverage is excluded because of the hybrid nature of the legal representation, defense costs are also excluded (see Lee & Amtzis, 2015 NY Slip Opn 02919 *3). While the counterclaims are, in part, rooted in the legal services Mr. Greenhill provided, allegedly failed to provide, failed to provide, overall the counterclaims consist of intertwined allegations about Mr. Greenhill’s legal services to The Dwight School and Dwight China, the latter of which he appears to have had a financial interest in. Therefore, defendants have raised issues of fact whether Mr. Greenhill’s activities on behalf of the Dwight entities were of a hybrid nature, because of the allegations of self-dealing, the Greenhills’ alleged 49% ownership interest in Dwight China, and the Greenhills’ efforts in enforcing the consulting agreement, which personally benefitted them financially. At a minimum, discovery is necessary on the issue of Mr. Greenhill’s ownership interests and whether such interests come within the Equity Interests Exclusion.

Because plaintiffs have not established as a matter of law that defendants breached the policy or that the counterclaims do not fall within the policy exclusions and defendants seek discovery, the issue of whether plaintiffs are entitled to recover their defense costs from defendants is premature.”