Attorney-client communications are privileged, and not open to discovery in general.  In a legal malpractice case, the rules are somewhat relaxed.  If the attorney client communications are “at issue” they are discoverable.  To the extent that Plaintiff relied upon these communications to make decisions about the underlying case for which he is suing the attorneys, it might be called a “shield.”  To the extent that he has decided to sue the attorneys and if he wishes to use the communications as a reason to sue, it might be called a “sword.”

If the communications are used either as a shield or a sword, they are discoverable and no longer privileged.  That’s the “at use” principal.  Gormakh v Khenkin & Sauchik, P.C. 2015 NY Slip Op 30700(U) April 28, 2015 Supreme Court, New York County Docket Number: 155923/2013 Judge: Manuel J. Mendez is an example.

“Plaintiff filed this action to recover from the defendants for legal malpractice and negligence as a result of the negotiating, drafting and signing of a commercial lease agreement for a proposed daycare. The Complaint seeks $300,000 in damages as a result of defendants’ malpractice and negligence. The Complaint also asserts a cause of action for attorneys’ fees and seeks in excess of $100,000 in special damages for “costs and expenditures in pursuit of this matter” (see Complaint, PP 46-47; Bill of Particulars, Response No. 7).

CPLR § 3101 (a) allows for the “full disclosure of all evidence material and necessary in the prosecution or defense of an action regardless of the burden of proof.” CPLR § 31 24 grants the court the power to compel a party to provide discovery demanded. CPLR § 3126 grants the court the power to sanction a party that fails to comply with a court’s discovery order. The striking of a pleading is a drastic remedy and is only warranted where a clear showing has been made that the noncompliance with an order was willful, contumacious or due to bad faith (Mateo v. City of New York, 274 A.O. 2d 337, 711N.Y.S.2d 396 [1st. Dept. 2000]). “The words ‘material and necessary’ as used in section 3101 must be interpreted liberally to require disclosure, upon request, of any facts bearing on the controversy which will assist preparation for trial by sharpening the issues and reducing delay and prolixity” (Kapon v. Koch, 23 N.Y.3d 32, 38, 11 N.E.3d 709, 988 N.Y.S.2d 559 [2014) citing to, Allen v. Crowell-Collier Publishing Co., 21 N.Y.2d 403, 406, 288 N.Y.S.2d 449, 452, 235 N.E.2d 430, 432 [1968)). The documents sought by defendants are material and necessary to the defendants’ ability to defend against plaintiff’s claims. “[A]ny communications between plaintiff and its attorneys in the [prior action] that evaluated defendant’s prior advice … are certainly relevant to the issue of defendant’s alleged malpractice” (Nomura Asset Capital Corp. v. Cadwalader, Wickersham & Taft LLP, 62 A.D.3d 581, 582, 880 N.Y.S.2d 617, 618 [1st Dept., 2009)). The documents sought by defendants (see Aff. In Opposition to Cross-Motion, PP. 3[a-h]) were put at issue by plaintiff’s claim for legal fees and special damages, and plaintiff has not disavowed any intention to use privileged materials to help establish his claim for special damages (Assured Guar. Mun. Corp. v. DB Structured Prods., Inc., 111 A.D.3d 478, 974 N.Y .S.2d 455 [1st Dept., 2013); IDT Corp. v. Morgan Stanley Dean Witter & Co., 107 A.D.3d 451, 967 N.Y.S.2d 51, [1st Dept. 2013)). Defendants are entitled to the documents sought as to the claims for special damages. “

After years of circuitous meandering the Raghavendra action against Columbia University, its attorney and his own attorney has ended with a First Department decision in  Raghavendra v Brill,  2015 NY Slip Op 03774   Decided on May 5, 2015.   The take away from this case is that an attorney fee dispute/resolution will often moot the parallel legal malpractice case, that it’s almost impossible successfully to sue your opponent’s attorney and that, in general, it makes more sense to try to collect from the original wrongdoer than from the attorneys afterwards.

“Plaintiff’s claims against Stober relating to alleged wrongdoing in connection with the negotiation and execution of the July 2009 global settlement agreement of three related federal actions sound in legal malpractice, and are barred by the doctrine of res judicata. The District Court expressly held, in a final order entered upon plaintiff’s challenge to a fee award to Stober, that “the retainer agreement was valid and enforceable” and that Stober was entitled to a fee equal to “one-third of the settlement amount, less $10,000.00 for the up-front” retainer fee paid by plaintiff (Raghavendra v Trustees of Columbia Univ., 2012 WL 3778823, *5, *7, 2012 US Dist LEXIS 124598, *16, *21 [SD NY 2012]). Thus, the District Court necessarily concluded that there was no legal malpractice, and plaintiff is barred from relitigating the malpractice claims (Summit Solomon & Feldesman v Matalon, 216 AD2d 91 [1st Dept 1995], lv denied 86 NY2d 711 [1995]).

Plaintiff’s claims against Stober for breach of the settlement agreement and tortious interference therewith were correctly dismissed because Stober is not a party to the settlement agreement, and plaintiff cannot establish that Columbia (the counterparty to the settlement agreement) breached the agreement, a necessary element of the tortious interference claim. The District Court ruled that Columbia is not yet under an obligation to pay the settlement amount,[*2]because, among other things, plaintiff has refused to render his own performance by executing a general release, as ordered by the District Court. The Second Circuit affirmed the District Court’s finding that the settlement agreement was valid and enforceable (see Raghavendra v Trustees of Columbia Univ., 434 Fed Appx 31 [2d Cir 2011]). Accordingly, the causes of action against Stober for breach of and tortious interference with the settlement agreement are barred by the doctrine of res judicata (Englert v Schaffer, 61 AD3d 1362 [4th Dept 2009]).

Because he cannot establish that there has been any breach, plaintiff’s claims against Columbia for breach of or tortious interference with the settlement agreement were correctly dismissed. The doctrines of res judicata and collateral estoppel preclude plaintiff from asserting his claims of fraud and abuse of process and aiding and abetting fraud and abuse of process. The Second Circuit’s express holding that the settlement agreement is valid and enforceable disposes of plaintiff’s claims that it was reached through oppressive means or is otherwise unenforceable.

Plaintiff’s claims against Proskauer overlap with or are derivative of his claims against Columbia, and were correctly dismissed for the same reasons. Plaintiff did not have an attorney-client relationship with Proskauer (see United States Fire Ins. Co. v Raia, 94 AD3d 749 [2d Dept 2012]). Nor can he establish any “fraud, collusion, malicious acts, or other special circumstances” necessary to impose liability upon an attorney for harm suffered by parties not in privity with the attorney (see Raia, 94 AD3d at 751).”

Melnick v Farrell  2015 NY Slip Op 03658  Decided on May 1, 2015  Appellate Division, Fourth Department is an interesting case about upstate inventors, selling an invention to another company, protection in a future bankruptcy proceedings, and how a multi-million dollar asset can be lost without attorney malpractice.

“Memorandum: Plaintiffs commenced this legal malpractice action alleging that defendants were negligent with respect to the negotiation of an agreement to license and sell intellectual property for a medical device developed by plaintiffs Frank H. Boehm, Jr. and Benedetta D. Melnick and transferred to plaintiff Creative Neuroscience Applications, LLC (CNA). Supreme Court granted defendants’ motion seeking summary judgment dismissing the amended complaint both as time-barred and on the merits. Although we conclude that the court erred in determining that the action is time-barred, we agree with the court on the merits, and we therefore affirm.

On the merits, plaintiffs allege that defendants engaged in legal malpractice by failing to include in the agreement, or in the first amendment of the agreement, a provision protecting their financial interest in the intellectual property in the event that the buyer became insolvent or filed for bankruptcy protection (bankruptcy/buyback provision). In order to establish a cause of action for legal malpractice, plaintiffs must prove that the attorney failed to exercise the degree of care, skill and diligence commonly possessed by a member of the legal community; that the failure to do so proximately caused plaintiffs’ damages; and that plaintiffs would have been successful in [*2]the underlying action if the attorney had exercised due care (see Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442; Phillips v Moran & Kufta, P.C., 53 AD3d 1044, 1044-1045). “To succeed on a motion for summary judgment dismissing the complaint in a legal malpractice action, the defendant must present evidence in admissible form establishing that the plaintiff is unable to prove at least one essential element of his or her cause of action alleging legal malpractice” (Scartozzi v Potruch, 72 AD3d 787, 789-790).

It is undisputed that the agreement and subsequent amendments, some of which were negotiated solely by Boehm, did not provide for the financial protection of plaintiffs with respect to the intellectual property in the event that the buyer filed for bankruptcy protection, which occurred here. It is also undisputed that plaintiffs received the scheduled payments pursuant to the agreement and subsequent amendments, but they did not receive any future payments pursuant to the amended agreement because the necessary triggering events did not occur. Further, it is undisputed that, in July 2008, plaintiffs retained different counsel and engaged in mediation with the buyer, which resulted in a settlement agreement that superseded the original agreement and amendments. The settlement agreement also did not contain a bankruptcy/buyback provision. Plaintiffs thereafter commenced a breach of contract action with respect to the settlement agreement in federal court, which ultimately was dismissed, and, while that action was pending, the buyer applied for bankruptcy protection. Although CNA was listed as an unsecured creditor in the bankruptcy proceeding, plaintiffs did not receive any proceeds from the sale of the buyer’s assets. Those assets included over 50 patents, including the patent assigned by plaintiffs, products and inventory. The assets were sold for $9.2 million, which was not sufficient to satisfy the claims of secured creditors. Plaintiffs thereafter commenced this action seeking damages in the amount of $9.2 million.

We conclude that defendants met their initial burden by establishing that they did not fail to exercise the degree of care, skill and diligence commonly possessed by members of the legal community with respect to their representation of plaintiffs (cf. Scartozzi, 72 AD3d at 790;generally Rudolf, 8 NY3d at 442). Defendants established that defendant recommended that a bankruptcy/buyback provision be included in the agreement, that the buyer refused to include the provision, and that plaintiffs were aware of the buyer’s refusal and nevertheless executed the agreement and the first amendment without it. Even assuming, arguendo, that defendant should have advised plaintiffs not to execute the agreement without the bankruptcy/buyback provision, we conclude that defendants established “a reasonable strategic explanation’ for the alleged negligence” (Ackerman v Kesselman, 100 AD3d 577, 579). We further conclude that defendants [*3]established that any negligence was not a proximate cause of plaintiffs’ alleged damages because plaintiffs previously had entered into a similar agreement that included the relevant provision, and Boehm and Melnick knew that the agreement with this buyer would not include such a provision. Further, defendants established that plaintiffs would not have prevailed in the underlying bankruptcy proceeding, even with a provision placing them in a secured creditor position, because they had been paid $885,000 pursuant to the terms of the agreement and the first amendment of the agreement, and none of the triggering events for future payments had occurred. We therefore conclude that defendants established that plaintiffs would be “unable to prove at least one essential element of [their] cause of action alleging legal malpractice” (Scartozzi, 72 AD3d at 790).”

Johnson v Proskauer Rose LLP    2015 NY Slip Op 03626   Decided on April 30, 2015   Appellate Division, First Department  Mazzarelli, J., J. is the story of heirs who are seduced into an expensive tax avoidance scheme, only to lose millions.  Whose fault is it?  Is the story merely greedy heirs, or is it fraud by a money-hungry law firm?

“Plaintiffs are individual heirs to the Johnson & Johnson (J & J) fortune, trusts established for the benefit of those individuals, and trustees of the plaintiff trusts. They own many shares of J & J stock, much of it obtained at a low cost basis. One of the trustee-plaintiffs, Robert Matthews, is also a certified public accountant who prepared the tax returns that were challenged by the IRS and give rise to this dispute. Defendant Proskauer Rose LLP (Proskauer) is a law firm that, prior to the events at issue, had represented plaintiffs on a variety of matters, including tax matters. Defendant Jay Waxenberg is a member of Proskauer.

Although plaintiffs had not expressed to anyone at Proskauer that they desired to sell J & J stock, Waxenberg telephoned Matthews several times in September 2000 to discuss a method which, he told Matthews, would permit plaintiffs to sell J & J stock without being subject to a large tax liability. Plaintiffs agreed to hear more about the proposal, and on October 2, 2000, plaintiff John Seward Johnson, Jr. and Matthews met Waxenberg and his partner, defendant Ira Akselrad, at Proskauer’s offices. At the meeting, Waxenberg and Akselrad introduced Johnson and Matthews to James Haber, who was identified as a principal of The Diversified Group, Inc. (TDG). Haber explained to Johnson and Matthews that TDG was in the business of developing tax minimization strategies for individuals and families with high net worths.”

“Haber, Waxenberg and Akselrad then described to Johnson and Matthews the specific scheme they believed would benefit plaintiffs, and instructed them how to execute it. They represented to Johnson and Matthews that the plan would obviate plaintiffs’ need to pay tax on the gains realized by the sale of J & J stock and would withstand IRS scrutiny since it had “a legitimate and bona fide business and economic purpose.” Waxenberg and Akselrad stated that, at a later date, Proskauer would prepare and issue to plaintiffs an opinion letter explaining the legal rationale supporting the scheme, and which would protect plaintiffs from the imposition of any penalties in the “unlikely” event the IRS disagreed with defendants’ opinion that the strategy was a legitimate one. They also told Johnson and Matthews that after the plan was implemented, they would continue to represent plaintiffs in connection with it. In the meantime, however, even though Johnson and Matthews told them that they were in no rush to sell J & J stock, Waxenberg and Akselrad told Johnson and Matthews that they should execute the strategy in the very near future, and would be “foolish” not to. This, Waxenberg and Akselrad said, was because plaintiffs’ opportunity to do so may not be open-ended, because it was being offered to them as favored clients of Proskauer, and because other similarly-situated clients, including members of the Johnson family, had already done so. Finally, Akselrad and Waxenberg told Johnson and Matthews not to discuss the tax avoidance plan with anybody else.

In January 2002, the IRS announced a tax amnesty program which allegedly would have been applicable to plaintiffs’ situation. However, Proskauer did not notify plaintiffs of that program. In April 2006, the IRS sent plaintiffs a letter requesting documents and detailed information about the tax avoidance strategy they had implemented over five years earlier. Plaintiffs sought counsel from Waxenberg, but he informed them that Proskauer was conflicted by its representation of TDG. Concerned that the agency would ultimately challenge the scheme and assess penalties against them, plaintiffs secured a tolling agreement from Proskauer which, after a later extension, tolled the statute of limitations for any claims against Proskauer up to and including July 31, 2011. Ultimately, the IRS ruled the shelter transaction was not entitled to favorable capital gains tax treatment and assessed plaintiffs back taxes, penalties and interest amounting to millions of dollars.”

“Accordingly, the order of the Supreme Court, New York County (Lawrence K. Marks, J.), entered January 29, 2014, which, to the extent appealed from, denied, in part, defendants Proskauer Rose LLP and Jay Waxenberg’s motion to dismiss plaintiffs’ causes of action alleging fraud, excessive legal fee and unjust enrichment, denied that portion of their motion seeking dismissal of plaintiffs’ demand for punitive damages based on the fraud claim, and granted that portion of their motion seeking dismissal of the cause of action for legal malpractice, should be affirmed, without costs. Plaintiffs’ appeal from that portion of the order granting defendant Akselrad’s motion seeking dismissal of the complaint as against him is unanimously withdrawn, without costs, in accordance with the stipulation of the parties dated April 24, 2015.”

The Court of Appeals said that the statute of limitations for Judiciary Law § 487 is six years in Melcher v Greenberg Traurig, LLP  23 NY3d 10.  Thus, even if a claim for attorney deceit originated in the first Statute of Westminster rather than preexisting English common law (a question unresolved by Amalfitano and disputed by the parties in this case), liability for attorney deceit existed at New York common law prior to 1787. As a result, claims for attorney deceit are subject to the six-year statute of limitations in CPLR 213 (1). Because of our disposition of this appeal, we do not reach and need not resolve Melcher’s other arguments.”

Nevertheless, when the Second Department confronts a JL § 487 claim in a legal malpractice case, it now simply ignores the Court of Appeals.  Se we see it in Benjamin v Allstate Ins. Co.  2015 NY Slip Op 03491  Decided on April 29, 2015  Appellate Division, Second Department.  In this case, the legal malpractice case is untimely, but what of the JL § 487 case?

“The Odierno defendants demonstrated, prima facie, that the present action was commenced after expiration of the three-year statute of limitations applicable to the plaintiff’s legal malpractice cause of action (see CPLR 214[6]). Moreover, since her cause of action alleging a violation of Judiciary Law § 487 is premised on the same facts and does not allege distinct damages, it too is barred by the three-year statute of limitations (see Farage v Ehrenberg, 124 AD3d 159, 169; cf. Melcher v Greenberg Traurig, LLP, 23 NY3d 10, 15).”

We’ve written that  Grace v. Law  is a game-changer in the legal malpractice field.  Previously, there was no obligation on plaintiff to undertake an appeal prior to commencing a legal malpractice case.  Now, after Grace it’s a new world, and nothing illustrates that point better than Buczek v Dell & Little, LLP   2015 NY Slip Op 03492   Decided on April 29, 2015
Appellate Division, Second Department.  Here, in a legal malpractice – medical malpractice case, defendants obtain dismissal even in the face of an obvious mistake they made.  The Second Department holds that an appeal could have fixed that mistake, and that plaintiffs may not now sue the attorneys over this mistake, even when it is obvious that the mistake was made by the attorneys.

“Karen Buczek, and her husband asserting a derivative cause of action, commenced this action alleging, inter alia, that the defendants committed legal malpractice in the prosecution of an underlying medical malpractice action. The plaintiffs alleged that the underlying medical malpractice action was voluntarily discontinued by the defendant attorneys insofar as asserted against North Shore University Hospital (hereinafter the Hospital) due to the defendants’ legal malpractice, and that the complaint insofar as asserted against the other defendants in the underlying action was dismissed due to the defendants’ failure to prosecute the action.

The defendants moved for summary judgment dismissing the complaint. They argued that the alleged instances of legal malpractice did not proximately cause the plaintiffs’ damages. The defendants contended that the plaintiffs’ action insofar as asserted against the Hospital would not have been successful since the Hospital staff involved in the underlying medical procedures properly carried out the directions of the attending private physicians and did not engage in any independent negligent acts. They contended, thus, that they properly consented to discontinue the action insofar as asserted against the Hospital. The defendants also contended that the court in the underlying action erred as a matter of law in dismissing the complaint insofar as asserted against the other defendants for failure to prosecute. The defendants argued that if the plaintiffs had appealed from the order dismissing the action, the order would have been reversed and the complaint insofar as asserted against the other defendants would have been reinstated. The Supreme Court denied the defendants’ motion.

The defendants also established, prima facie, that their alleged negligence in failing to prosecute the action was not a proximate cause of the damages alleged in the complaint since the plaintiffs chose not to appeal from the order that dismissed the complaint insofar as asserted against the other defendants. The failure to pursue an appeal in an underlying action bars a legal malpractice action where the client was likely to have succeeded on appeal in the underlying action (see Grace v Law, 24 NY3d 203, 206-207; see also Rupert v Gates & Adams, P.C., 83 AD3d 1393, 1396). The Court of Appeals has stated that this “likely to succeed” standard “obviate[s] premature legal malpractice actions by allowing the appellate courts to correct any trial court error and allow[s] attorneys to avoid unnecessary malpractice lawsuits by being given the opportunity to rectify their clients’ unfavorable result” (Grace v Law, 24 NY3d at 210). By establishing that an appeal would likely have been successful, a defendant in a legal malpractice action can establish that the alleged negligence did not proximately cause the plaintiff’s damages (see id.).

Here, the defendants’ submissions demonstrated that the court in the underlying action dismissed the complaint insofar as asserted against the other defendants pursuant to CPLR 3216 in an order dated November 3, 2011. As the defendants correctly contend, that order would have been reversed on appeal since it was error, as a matter of law, to dismiss the action pursuant to CPLR 3216 where no 90-day demand had been served and where a note of issue had previously been filed and remained in effect (see Arroyo v Board of Educ. of City of N.Y.,110 AD3d 17, 20; Barbu v Savescu, 49 AD3d 678, 678; Ballestero v Haf Edgecombe Assoc., L.P., 33 AD3d 952, 953). Furthermore, the defendants adequately demonstrated that dismissal pursuant to CPLR 3404 was inapplicable since the case was not “marked off or stricken from the trial calendar” (Berde v North Shore-Long Is. Jewish Health Sys., Inc., 98 AD3d 932, 933). Accordingly, the defendants established, prima facie, that the plaintiffs were likely to have succeeded on appeal in the underlying action and that the asserted malpractice in failing to prosecute the action was a not a proximate cause of the alleged damages (see generally Grace v Law, 24 NY3d at 210). In opposition, the plaintiffs [*3]failed to raise a triable issue of fact (see Zuckerman v City of New York, 49 NY2d 557, 562).

Flomenhaft v Finkelstein  2015 NY Slip Op 03468  Decided on April 28, 2015  Appellate Division, First Department  has been on the back burner for a long time, and now has again reached the First Department.  Attorney Flomenhaft accuses Andrew Finkelstein of slander.  Finkelstein is royalty in New York.  “Defendant Andrew Finkelstein (Finkelstein) is an attorney and is the managing partner of defendant law firm Finkelstein & Partners, LLP (FLLP), and the sole shareholder of defendant Finkelstein, PC (FPC). FPC is a partner of both Jacoby and of FLLP.”  We do not believe there are any larger law firms in NY than Finkelstein & Partners.

Issues addressed in this decision are what happens when a case is started with a summons with notice, and how do fraud pleading rules affect a recovery.

“Plaintiff is an attorney who, after dissolving his own practice, became associated with nonparty Jacoby & Meyers, LLP (Jacoby). Defendant Andrew Finkelstein (Finkelstein) is an attorney and is the managing partner of defendant law firm Finkelstein & Partners, LLP (FLLP), and the sole shareholder of defendant Finkelstein, PC (FPC). FPC is a partner of both Jacoby and of FLLP. In April 2009, Jacoby assigned plaintiff to work on a personal injury action that had been commenced on behalf of nonparty Joel Harrison (Harrison) in Supreme Court, Broome County [FN1]. In December 2009, plaintiff resigned from Jacoby and re-formed his old practice. Harrison decided to have plaintiff continue his representation in the personal injury action and Jacoby caused the necessary consent to be executed and transferred the file. The retainer agreement between plaintiff and Harrison provided that plaintiff would advance all litigation expenses and would be reimbursed out of Harrison’s recovery, if any. After the passage of only a few months, Harrison terminated plaintiff and re-retained Jacoby.

In August 2010, Harrison, represented by FLLP, commenced an action against plaintiff in Supreme Court, Broome County. The allegations in the complaint, most of which were made upon information and belief, revolved around the litigation expenses that had been discussed in the retainer agreement between the two parties. Harrison asserted that, notwithstanding plaintiff’s promise that he would advance litigation expenses, plaintiff told him that he would not do so and urged Harrison to borrow $40,000 for the expenses from a litigation funding company. The complaint alleged, inter alia, that plaintiff directed the loan company to pay the proceeds to his law firm and that he failed to place them in an attorney escrow account. Harrison asserted causes of action for conversion, breach of fiduciary duty, legal malpractice, and fraud, and sought an accounting from plaintiff.

This action is based on a statement allegedly made by Finkelstein to Harrison concerning the loan. According to the complaint, Finkelstein told Harrison that plaintiff “took your money and used it for his personal use.” Plaintiff claims that this statement constituted slander per se. He further asserts that Finkelstein was the source of the information that Harrison alleged in his[*2]complaint against plaintiff, that the information was patently false, and that as a result Finkelstein, FLLP and FPC are liable to him in fraud. Plaintiff also seeks punitive damages from defendants, based on the two causes of action asserted in the complaint, as well as defendants’ conduct against him that was the subject of a separate litigation between him and defendants (see Flomenhaft v Jacoby & Meyers, LLP, 122 AD3d 422 [1st Dept 2014]). In that action, which was commenced in 2010, plaintiff claimed that defendants here, as well as others, defamed him when, after he left Jacoby, they informed clients on whose matters he had worked that he had declared personal bankruptcy.”

“This action was commenced by summons with notice and the complaint was served upon defendants’ demand for it. The summons with notice stated that the action sounded in slander, and did not mention the fraud claim. Defendants moved to dismiss the complaint. They argued that plaintiff failed to state a cause of action for slander per se, because Finkelstein’s statement did not constitute “publication” and because, even if it did, the statement was privileged as being pertinent to Harrison’s action against plaintiff. The statement was pertinent to that litigation, defendants argued, since, according to them, it was made the day before Harrison’s deposition in that case. Defendants further argued that the fraud claim should be dismissed for lack of jurisdiction, since it had not been mentioned in the summons with notice as required by CPLR 305(b). Alternatively, they sought dismissal of that claim for failure to state a cause of action, asserting that plaintiff was not entitled to rely on any misrepresentations made by defendants to Harrison. They also claimed that the fraud claim was time-barred, since it was no more than a trumped-up defamation claim. Defendants also sought an order striking the claim for punitive damages, and an order awarding them costs and attorneys’ fees based on their belief that the complaint was frivolous.

Plaintiff further argues that, pursuant to CPLR 305(c), the court should have permitted amendment of his summons nunc pro tunc to give notice of his intention to plead a fraud claim against defendants. Defendants do not argue, as the court held, that amendment is unavailable as a matter of jurisdiction. Rather, they essentially claim that amendment would be futile because plaintiff cannot state a claim for fraud. Defendants focus on the justifiable reliance element necessary to the establishment of any fraud claim, and assert that plaintiff could not have relied on statements made not to him but to a third party, namely Harrison. Plaintiff claims this is not [*3]so, relying on Buxton Mfg Co. v Valiant Moving & Stor. (239 AD2d 452 [2d Dept 1997] [“(f)raud, however, may also exist where a false representation is made to a third party, resulting in injury to the plaintiff”]). Defendants, on the other hand, cite much more recent cases, from this Court, which hold that a party may not rely on a misrepresentation to a third party (Wildenstein v 5H & Co, Inc., 97 AD3d 488, 490 [1st Dept 2012]; Briarpatch Ltd., L.P. v Frankfurt Garbus Klein & Selz, P.C., 13 AD3d 296, 297 [1st Dept 2004, lv denied 4 NY3d 707 [2005]).”

Bruges Realty, Corp. v Horowitz   2015 NY Slip Op 30634(U)  April 17, 2015  Supreme Court, New York County Docket Number: 651986/2010  Judge: Saliann Scarpulla is the story of overreaching by an attorney who has been given millions of dollars to invest for several trusts.  He leaves his law firm, engages in investments not suitable for a fiduciary, and loses a lot of money.  What happens?

“There is no dispute that Horowitz provided Diamond, her family and their companies with legal services since 1991. In 2000, Horowitz merged his prior firm with Moritt Hock & Hamroff, forming Moritt Hock Hamroff & Horowitz LLP. Horowitz became partner and head of the firm’s trusts and estates practice. Starting in 2001, Diamond retained Horowitz and Moritt Hock to create and provide legal services for Bruges Trust, a charitable remainder [* 2] unitrust created by Bruges Realty, Corp., a company controlled by Diamond’s family. Under the trust agreement forming Bruges Trust, dated May 31, 2001, Diamond and Cassell were named trustees and Diamond was named the lifetime beneficiary. At some point in 2003 or 2004, Horowitz ceased to be a partner and became senior tax counsel at the firm. 1 On November 17, 2004, Horowitz entered into an agreement with Diamond and Bruges Trust (the “2004 Agreement”), which gave Horowitz the discretion to invest three million dollars of Bruges Trust’s assets in investments “which may or may not be deemed suitable for fiduciary investments.” Starting in late 2004, and continuing through 2006, Horowitz invested over two million dollars of Bruges Trust’s assets in companies in which he held personal investments or other interests. He continued to manage these investment through 2007. In addition, Horowitz allegedly made a number of investments in Web2 Corp., a Moritt Hock client and in which Moritt Hock invested. By agreement dated February 28, 2005, Horowitz and Moritt Hock created 3111 Trust, another charitable unitrust, for 3111 Corp., which Diamond controlled. Under the trust agreement, 3111 Corp. was to receive an annual distribution and Diamond and Daphne Schwartz (“Schwartz”) were named trustees. On March 11, 2005, Horowitz replaced Schwartz as a trustee. Defendants drafted the instruments effecting the change. From late 2005 through 2007, Horowitz invested and managed over four million dollars on behalf of   the 3111 Trust. The investments were made in companies in which Horowitz held personal investments or other interests. Diamond asserts that Horowitz never advised her of his various conflicts of interest, never advised her to seek separate legal counsel after becoming an investment advisor for Bruges Trust and co-trustee for 3111 Trust, and never obtained written waivers for any of the conflicts. Horowitz testified that he informed Diamond of his personal interests in the companies he was investing in for the Trusts, but that he did not believe there was a conflict and so did not advise her as such or seek a written waiver. Horowitz and Moritt Hock acted as the Trusts’ legal counsel from their inception, and continued to do so during the period when Horowitz invested the Trusts’ assets. Plaintiffs allege that Horowitz’s investments caused losses of at least $2, 197 ,000 for Bruges Trust and $954,570 for 3111 Trust. On October 17, 2007, Horowitz entered into an agreement with Diamond and Cassell to repay the losses incurred by Bruges Trust (“2007 Agreement”). Henry E. Klosowski (“Klosowski”), a partner at Moritt Hock who did work for the Trusts, reviewed the 2007 Agreement. Klosowski testified that he did so as a friend and that he did not inform Moritt Hock of the 2007 Agreement, because it concerned Horowitz’s independent investment advice and was unrelated to Horowitz’s legal services for the Trusts. It is undisputed that Horowitz failed to comply with the 2007 Agreement. He remained a trustee of 3111 Trust until plaintiffs commenced this action. Moritt Hock remained plaintiffs’ attorneys through 2009.

 

Here, the record is replete with evidence of Horowitz’s self-dealing. as a trustee of 3 111 Trust and investment advisor for Bruges Trust. During his deposition, Horowitz admitted to investing the Trusts’ assets in companies in which he had personal investments or other interest. Moreover, 3111 Trust prohibits trustees from engaging in “any act of selfdealing, as defined in Section 4941 ( d) of the [Internal Revenue Code].” However, plaintiffs fail to demonstrate how Horowitz’s conflicts of interest proximately caused their losses. Vlico Cas. Co., 56 AD3d at 11; see also Laub v Faessel, 297 AD2d 28, 31 (1st Dept 2002) (“[a]n 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” [internal quotation marks and citation omitted]). Plaintiffs argue that, but for the investments made by Horowitz while he was conflicted, “plaintiffs would not have suffered the losses resulting from those investments.” But they do not submit sufficient evidence to show that the prohibited investments caused their losses, as opposed to independent financial conditions. Cf Tabner v Drake, 9 AD3d 606, 609 (3d Dept 2004) (denying summary judgment on malpractice claim where parties disputed the substance oflegal advice provided and whether it or independent financial conditions caused client’s loss). Moreover, plaintiffs fail to articulate any distinction between their causes of action for breach of trust and breach of fiduciary, nor do they allege whether the two causes of [* 8] action arise out of common law, contract or both. Therefore, summary judgment is denied with respect to the breach of fiduciary duty and breach of trust causes of action.2 Plaintiffs also fail to demonstrate their prima facie entitlement to summary judgment with respect to the legal malpractice claim. Plaintiffs’ evidence of Horowitz’s conflicts of interest, for which Horowitz never obtained a written waiver, merely demonstrates a breach of the disciplinary rules. “A conflict of interest, even if a violation of the Code of Professional Responsibility, does not by itself support a legal malpractice cause of action.  Schafrann v N. V Famka, Inc., 14 A.D.3d 363, 364 (1st Dept 2005). See also Sumo Container Sta. v Evans, Orr, Pacelli, Norton & Lajfan, 278 A.D.2d 169, 170-171 (1st Dept 2000) (affirming summary judgment dismissal of legal malpractice claim premised on defendant-attorney’s undisclosed conflict of interest as the plaintiffs insurer-appointed attorney, where notice of the conflict of interest was implicit and no issues of fact existed as to whether attorneys breached their duty of care or proximately caused the plaintiff harm); Mergler v Crystal Props. Assoc., 179 A.D.2d 177, 183 (1st Dept 1992) (“the Code of Professional Responsibility was promulgated to establish an ethical standard and to vindicate society’s rights with respect to the conduct oflicensed attorneys, not to delineate substantive rules for the adjudication of the private rights, inter se, of parties”). “

Contrary to the belief of almost all attorneys, legal malpractice cases are rarely brought on a whim.  They are rarely brought on a reflex.  For the most part, everyone in the case, including the non-lawyer plaintiffs can identify a problem in the representation.  The actual, and often decisive battle is at the “but for” level.  The question to be answered there is whether there would have been a better economic outcome “but for” the mistake of the attorneys, or was it due to some other cause?

Rothman v McLaughlin & Stern, LLP  2015 NY Slip Op 03393  Decided on April 23, 2015 Appellate Division, First Department is a good example of how this question is resolved.  Was the money lost because the attorney did not perform due diligence or was the money lost because the attorney was told not to perform due diligence.  If it were the latter, then it cannot be said that there would have been a better outcome except for the attorney’s negligence.

“Defendants established their entitlement to judgment as a matter of law by submitting proof that plaintiff, an experienced investor, understood that the retainer agreement excluded due diligence from the scope of representation. Namely, the evidence demonstrates that plaintiff declined his accountant’s advice to conduct due diligence and that he advised defendants that none was needed because he trusted the companies’ owner and had engaged in numerous business transactions with her. Plaintiff’s statements that he did not want any due diligence conducted, set forth in affidavits by defendant Friedman and plaintiff’s accountant, are admissible as party admissions (see e.g. Delgado v Martinez Family Auto, 113 AD3d 426 [1st Dept 2014]).

Furthermore, plaintiff’s damages are not attributable to defendants. To the extent plaintiff sustained any non-speculative losses, the motion court correctly concluded that those losses were caused by the fraud committed by the owner of the companies and plaintiff’s own misjudgment of the business risks, not by defendants’ alleged conduct (see Garten v Shearman & Sterling LLP, 102 AD3d 436, 436-37 [1st Dept 2013], lv denied 21 NY3d 851 [2013]).”

Lombardi v Lombardi  2015 NY Slip Op 03334  Decided on April 22, 2015  Appellate Division, Second Department is an example of a prenuptial agreement that is so overbearing to the wife that the Appellate Division reversed summary judgment and left it for the trial court to evaluate evidence.   However, it dismissed the wife’s claim against the husband’s lawyer.

“The defendants failed to meet their prima facie burden of demonstrating their entitlement to judgment as a matter of law dismissing the sixth and seventh causes of action, which were to set aside or rescind the agreement on the basis of duress, coercion, undue influence, and unconscionability. “An agreement between spouses or prospective spouses should be closely scrutinized, and may be set aside upon a showing that it is unconscionable, or the result of fraud, or where it is shown to be manifestly unfair to one spouse because of overreaching on the part of the other spouse” (Bibeau v Sudick, 122 AD3d 652, 654-655; see Matter of Fizzinoglia, 118 AD3d 994, 995, lv granted 24 NY3d 908).

The evidence submitted by the defendants and the pleadings demonstrated that there [*3]was a great financial disparity between the husband and the wife, who allegedly did not work and had no assets. The wife averred that the husband pressured her into signing the agreement, threatening that, if she did not sign, she, their son, and her child from a previous marriage would have to leave their home, and that the husband would not marry her. The wife further alleged that the husband made threats of violence against her.

In addition, the agreement provided that only property titled in the parties’ joint names would be “marital property,” and that such property would be distributed “in accordance with [the parties’] respective financial contributions to the acquisition or maintenance of such joint property.” As to the marital residence, the agreement provided that the wife would become entitled to 1/7 of 50% of the equity in the home in each of the first seven years of the parties’ marriage, and, thus, would become a 50% owner if the parties remained married for seven years. The husband and the wife waived the right to any maintenance, the right to any counsel fees, and all rights to the other’s estate, including the right of election. Additionally, as noted above, there are triable issues of fact as to whether the wife was represented by counsel with respect to the agreement.

Since the defendants’ submissions revealed the existence of triable issues of fact as to whether the agreement should be set aside (see Bibeau v Sudick, 122 AD3d 652; Petracca v Petracca, 101 AD3d 695), the Supreme Court should have denied those branches of the defendants’ cross motion which were for summary judgment dismissing the sixth and seventh causes of action, regardless of the sufficiency of the wife’s opposition papers.

The Supreme Court properly granted that branch of the defendants’ cross motion which was for summary judgment dismissing the tenth cause of action, which alleged legal malpractice against Courten. In order to recover damages for legal malpractice, an attorney-client relationship must exist between the plaintiff and the defendant attorney (Biberaj v Acocella, 120 AD3d 1285; Moran v Hurst, 32 AD3d 909). “To prove an attorney-client relationship, there must be an explicit undertaking to perform a specific task'” (Nelson v Roth, 69 AD3d 912, 913, quoting Terio v Spodek, 63 AD3d 719, 721). “The unilateral belief of a plaintiff alone does not confer upon him or her the status of a client” (Moran v Hurst, 32 AD3d at 911). Here, the defendants demonstrated, prima facie, that there was no attorney-client relationship between Courten and the wife. In opposition, the wife failed to raise a triable issue of fact.”