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 a perfect example of what all the CLEs tell attorneys not to do.  Don’t sue for small fees, because there will inevitably be a legal malpractice counterclaim.  This fee had to be less than $ 15,000 because it was first subject to a fee arbitration and then was brought in Nassau District Court.

What of the collateral estoppel problem after an arbitration?  Not here.  “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.

Plaintiff’s second argument for dismissal of the first four counterclaims is premised upon the notion that this court lacks the equitable jurisdiction necessary to entertain the same. However, it is clear from review of defendant’s Answer that the first two counterclaims are based upon a theory of “Breach of Contract” (Defendant’s Exhibit E), and that they address two (2) written contractual retainer agreements between the parties. Although plaintiff attempts to characterize said claims as equitable in nature, defendant has clearly pled a different, cognizable legal theory. Accordingly, plaintiff’s request for dismissal of the first two counterclaims, as based upon equity considerations, is denied.”

“Lastly, plaintiff seeks dismissal of the fifth and final counterclaim on two grounds. The first is res 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 novopursuant 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.”

We continue from Fridayh.   The facts in Hamadeh v Spaulding  2015 NY Slip Op 30027(U) January 8, 2015  Supreme Courty, New York County Docket Number: 114060/09  Judge: Marcy S. Friedman are relatively simple.  Accountant is asked how taxpayer can lessen his tax liability, a question we assume is regularly asked of CPAs.  He gives wrong advice about moving out of state while still coming to NY to earn money in NY.  His wrong advice is whether one must stay overnight in NY in order to trigger a day here under the 183 day tax rule.  What follows is a scholarly dissection of many issues regarding professional liability.

Second:  How does settlement of the tax liability affect the malpractice case?  “Moreover, the fact that plaintiffs settled the audit for tax years 2005 through 2007 (see “Stipulation for Discontinuance of Proceeding” [NYSCEF Doc. I 07]) does not bar the malpractice claim, as plaintiffs have shown that the settlement was “effectively compelled by the mistakes of counsel.” (See Angeles v Aronsky,  109 AD3d 720, 722 [1st Dept 2013].)

Third:  How to assess damages?   “The court turns to the parties’ claims with respect to damages and, specifically, to defendants’ contentions that certain damages were not proximately caused by Spaulding’s incorrect advice. Citrin claims that it should not be held liable for plaintiffs’ attorney’s fees in connection with the audit because plaintiffs obtained “a less favorable result” than was offered by the NYSDTF prior to their engagement of counsel. (Citrin Memo. In Support of Citrin Motion at 20.) In particular, although the settlement achieved a reduction of the principal amount initially assessed by the Department and the removal of penalties, Citrin contends that the interest assessment arose over the period the audit was contested, thus increasing plaintiffs’ liability by approximately $12,500. (Id.) Plaintiffs do not appear to dispute this contention. However, neither plaintiffs nor defendants submit New York legal authority on whether attorney’s fees in connection with an audit are available as an item of damages for accountant malpractice and, if so, what standards apply – e.g., prevailing party – in awarding such fees. 4 The court therefore cannot determine plaintiffs’ entitlement to attorney’s fees on this record. Assuming arguendo that attorney’s fees may be available, the court rejects Citrin’s further argument that it is not liable for attorney’s fees incurred by plaintiffs in connection with the audit, because the audit would have occurred in any event with respect to the 2005 and 2006 tax years before Spaulding began his employment with Citrin. (Citrin Memo. In Support of Citrin Motion at 19.) Citrin does not make any showing that the attorney’s fees cannot be apportioned, if appropriate, to tax years 2005, 2006, and 2007, individually. (See generally Ravo v Rogatnick, 70 NY2d 305, 310 [successive tortfeasor is ordinarily liable only for the separate injury or aggravation his conduct caused].) ”

Finally:  Is the interest charged by the IRS an element of damages?  “The parties similarly fail to submit reasonably comprehensive authority on whether, or to what extent, the interest to which plaintiffs agreed in the 2012 settlement of the audit is recoverable as an element of damages. Significantly, they fail to submit authority on the impact on plaintiffs’ entitlement to such interest of the facts that plaintiffs did not pay the interest accrued on the NYSDTF’s proposed assessment between the 2009 date of the proposed assessment and the 2012 settlement, and that, insofar as appears from the record, plaintiffs also had not paid the interest to which they agreed in the settlement, as of the date of filing of these motions. Put another way, the parties do not address whether the interest is an element of damages that was proximately caused by defendants’ tax advice. (See generally Penner v Hoffberg Oberfest Burger & Berger, 303 AD2d 249, 249 [I st Dept 2003] [holding that interest is not properly awarded in an accountant malpractice case where the “plaintiffs tax liability was not attributable to an act or omission on [defendant accountant’s] part”]; see also Alpert v Shea Gould Climenko & Casey, 160 AD2d 67, 71-72 [l st Dept 1990].) ”

The facts in Hamadeh v Spaulding  2015 NY Slip Op 30027(U) January 8, 2015  Supreme Courty, New York County
Docket Number: 114060/09  Judge: Marcy S. Friedman are relatively simple.  Accountant is asked how taxpayer can lessen his tax liability, a question we assume is regularly asked of CPAs.  He gives wrong advice about moving out of state while still coming to NY to earn money in NY.  His wrong advice is whether one must stay overnight in NY in order to trigger a day here under the 183 day tax rule.  What follows is a scholarly dissection of many issues regarding professional liability.

First:  How much proof is “proximate cause” ?  Does it require that all avenues be ruled out?  The answer is no.

“In arguing that plaintiffs cannot establish that they committed malpractice, both Spaulding and Citrin contend that plaintiffs must prove not only that plaintiffs could have avoided taxation as statutory residents if Spaulding had provided different advice about the number of days they could spend in New York, but also that they could have avoided taxation as non-domiciliaries. They further contend that plaintiffs cannot establish that they changed their domicile from New York to Pennsylvania, as evidenced by the finding in the Report of Audit to that effect, as well as by defendants’ analysis of plaintiffs’ failure to satisfy the elements necessary to establish a change of domicile. (See Spaulding Memo. In Opp. to Ps.’ Motion at 12-14; Citrin Memo. In Support of Citrin Motion at 13-17.) Put another way, defendants argue that because plaintiffs cannot show that they changed their domicile, they would have been subject to taxation as New York residents, regardless of whether the NYSDTF concluded that they were statutory residents. Spaulding concludes that plaintiffs cannot establish that his advice was the “proximate cause” of their increased tax liability. (Spaulding Memo. In Opp. to Ps.’ Motion at 14.) Citrin posits that plaintiffs’ failure to change their domicile from New York was an “independent cause” of their tax liability. (Citrin Memo. In Reply to Citrin Motion at 6.) Defendants both argue in effect that Spaulding’s incorrect advice on the statutory residency must have been the sole proximate cause of the NYSDTF’s assessment of deficiency and interest charges upon plaintiffs. Defendants do not cite any case law in the accountant malpractice context which holds that the malpractice must have been the sole proximate cause of the plaintiffs injury. As discussed above, cases in the accountant malpractice area have used the term “a proximate cause” in articulating the standard that the plaintiff must prove. In the legal malpractice context, an often-cited formulation of the standard of proof requires that three elements be established: “(I) the negligence of the attorney; (2) that the negligence was the proximate cause of the loss sustained; and (3) proof of actual damages. It requires the plaintiff to establish that counsel failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession and that ‘but for’ the attorney’s negligence, the plaintiff would have prevailed in the matter or would have avoided damages.” (Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1, I 0 [I st Dept 2008] [internal quotation marks omitted, citing AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434 (2007].) In other legal malpractice cases, however, the courts have held that the attorney’s malpractice must have been “a” proximate cause of the plaintiffs injury. (See 180 E. 88th St. Apt. Corp. v Law Off. of Robert Jay Gumenick, P.C., 2010 NY Slip Op 33848 [U], 2010 NY Misc Lexis 6878 [Sup Ct, NY County] [discussing varying formulations of attorney malpractice standard], affd 84 AD3d 582 (1st Dept 2011].) The Second Department has expressly held that these varying formulations of the proximate cause standard (“a” as opposed to “the” proximate cause) have “no substantive import,” and that the “but for” standard for attorney malpractice cases does not require proof that the defendant attorney’s negligence was the “sole proximate cause” of the plaintiffs losses. (Barnett v Schwartz, 4 7 AD3d 197, 203-205 (2d Dept 20071.) Although the First Department has not expressly so held, it recently approvingly cited the Second 6 [* 6] Department’s holding. (See Borges v Placeres, 2014 NY Slip Op 08910, 2014 NY App Div Lexis 8822 [Dec. 23, 2014] [citing Barnett in holding that the trial court’s jury charge appropriately provided that defendant attorney’s malpractice must be a “substantial factor in causing plaintiffs harm”].) 1 The court assumes that the “but for” standard from the legal malpractice context applies equally to accountant malpractice claims. For purposes of this motion, however, the court need not reconcile the differing interpretations of this standard because, even in its most rigorous application, the standard is clearly satisfied by the evidence in the record. The NYSDTF’s finding that plaintiffs were statutory residents was an independent basis, sufficient without more, on which tax liability could have been imposed on plaintiffs. “

Case is brought, and after a period of time, the attorney seeks to withdraw.  Attorney is “remarkably concerned with billing…”  Was this why he chose to quit?  Problem for the attorney is that judges hearing these motions to be relieved often will not grant the relief on the mere claim that the client has not paid the bill.  So, there is often a resort to “conflicts about strategy” or “lack of communication.”  In Brady v Friedlander   2014 NYSlipOp 06677  October 2, 2014  Appellate Division, First Department  a later case for legal malpractice and Judiciary Law§ 487 was lost.

“On or about September 30, 2009, defendant moved in Civil Court, New York County (Samuels, J.), to withdraw as counsel in the underlying nonpayment proceedings (see IGS Realty Co., L.P. v James Catering, Inc., 99 AD3d 528 [1st Dept 2012]). Over plaintiffs’ objection, the court granted the motion. Plaintiffs did not appeal from Civil Court’s order. With respect to the cause of action for a violation of Judiciary Law § 487, the instant complaint alleges that defendant provided fabricated grounds in support of his motion, to wit, a conflict with plaintiffs regarding strategy and a lack of trust in defendant’s representation, in order to conceal the true reason, which was an unfounded belief that plaintiffs could or would not pay future legal bills. However, while the parties’ communications as quoted in the complaint reflect that defendant was remarkably concerned with billing, which may have informed his decision to withdraw, the complaint also reflects that plaintiff Brady expressed disagreement with defendant as to strategy and questioned defendant’s honesty and competency, thus providing support for defendant’s stated grounds for the motion (cf. Palmieri v Biggiani, 108 AD3d 604 [2d Dept 2013]).

In granting the motion, over plaintiffs’ objection, Civil Court implicitly determined that defendant had shown “just cause” to be relieved. That issue may not be re-litigated via the instant misrepresentation claim (cf. Hass & Gottlieb v Sook Hi Lee, 11 AD3d 230 [1st Dept 2004]).”

It’s ironic when a legal malpractice case, which alleges that the attorneys being sued departed from good and accepted practice is itself dismissed for technical reasons.  Risk Control Assoc. Ins. Group v Maloof, Lebowitz, Connahan & Oleske, P.C.  2015 NY Slip Op 03067  Decided on April 9, 2015  Appellate Division, First Department is one such example.  Here, the company which lost money was never a plaintiff, and when the rest of the plaintiffs tried to add the actual money loser, it was too late.

“Plaintiff, a claims administrator for an insurer, commenced this legal malpractice action against defendants, who were retained to represent the insurer’s policyholder in a personal injury action. In a previous appeal, plaintiff’s complaint was dismissed for its failure to allege that it had a “contractual obligation to pay for the loss in the personal injury action,” and to allege that it sustained actual damages because of this obligation” (Risk Control Assoc. Ins. Group v Maloof, Lebowitz, Connahan & Oleske, P.C., 113 AD3d 522, 522 [1st Dept 2014] [Risk Control I]).

After this Court handed down the decision affirming the dismissal of the complaint, plaintiff moved to amend its complaint by proposing to add several plaintiffs, alleging that all the plaintiffs provided insurance to the policyholder, and that all the plaintiffs retained defendants.

Here, no damages can be “reasonably inferred,” as plaintiff’s amended allegations are defeated by the documentary evidence it submitted. The affidavit submitted by the vice president of one of the proposed plaintiffs averred that plaintiffs were all claims administrators. Furthermore, the vice president attested that the loss, allegedly resulting from defendants’ malpractice, was paid by an entity who was not a party plaintiff, or proposed party plaintiff. Thus, plaintiff failed to allege either a “contractual obligation to pay for the loss,” or actual damages (Risk Control I at 522; Tenzer, Greenblatt at 45).

Moreover, plaintiff’s conclusory allegations of representation will not suffice in the absence of an attorney client relationship with defendants (see Denenberg v Rosen, 71 AD3d 187, 196 [1st Dept 2010], lv dismissed 14 NY3d 910 [2010]).

To the extent the motion sought to add the primary insurer as a plaintiff, defendants would be unduly prejudiced by the introduction of that new party plaintiff after the statute of limitations has expired (see Bellini v Gersalle Realty Corp., 120 AD2d 345 [1st Dept 1986]).”

Attorneys frequently have a business on the side.  After all, they think, I can do the legal work and reap the benefits.   In  Lee & Amtzis, LLP v American Guar. & Liab. Ins. Co.  2015 NY Slip Op 02919  Decided on April 7, 2015
Appellate Division, First Department  Gische, J., J. it did not work out well.

“Kurtin was a client of plaintiff Lee & Amtzis, LLP (law firm). She commenced an action in the Superior Court of New Jersey against the law firm, both partners individually, and Astoria Station, LLP (Kurtin v R. Randy Lee, Esq., et al., Super Ct, Somerset County, docket No. SOM-L-1098-10) (New Jersey action). In the New Jersey action, Kurtin asserted claims for breach of contract, non-payment of two promissory notes which she held and were made, respectively, in 2006 and 2010, and unjust enrichment based upon the non-payment of those notes. Kurtin also asserted claims for legal malpractice/negligence against the law firm and each of its named partners. In connection with her malpractice/negligence claims, Kurtin alleged that when she entered into these loans, Lee was not only the “managing member” of Astoria Station, he was also a practicing attorney and partner of the law firm, which had the same address as Astoria Station. Kurtin claimed that the attorneys had induced her to proceed with certain financial transactions in which they had a financial interest; they failed to recommend that she obtain independent legal counsel; they had allowed their legal services to her to be influenced by their own business ventures outside the practice of law; and the attorneys knew their interests and Kurtin’s interests were adverse.

Following motion practice in the New Jersey action, Kurtin prevailed on her promissory note claims, and in its decision dated and filed October 27, 2011, the court directed entry of a money judgment against Astoria Station and Lee in the amount of $1,332,739.25 on the 2006 note and a money judgment against Lee in the amount of $125,043.65 on the 2010 note (Kurtin v. R. Randy Lee, Esq., Super Ct, Somerset County, Oct. 23, 2011, Coyle, Jr., J.). Lee had signed the 2006 note on behalf of Astoria Station and also personally guaranteed its payment. In relevant part, the 2006 note states that it is a “replacement of all prior debts due to Jane Kurtin, together with accrued interest, from Leewood-Edgemere, LLC ^[FN1], R. Randy Lee and related entities, all of which are considered to be paid in full.” The 2006 note also refers to a condominium project underway “at the Astoria Station project in Queens,” stating that “pay down will be TWENTY FIVE THOUSAND DOLLARS ($25,000.00) at each unit closing.” The 2010 note represents a loan made by Kurtin to Lee personally.

The law firm and partners moved to dismiss the remaining malpractice/negligence claims in the New Jersey action, but that motion was denied. Subsequently the parties in the New Jersey action stipulated to stay the malpractice/negligence claims pending resolution of this declaratory judgment action.

In this action, plaintiffs seek a declaration that AGLIC has a contractual duty to defend them against the malpractice/negligence claims asserted by Kurtin in the New Jersey action. [*2]Plaintiffs were successful in their motion for summary judgment before Supreme Court, largely due to the motion court’s reliance on a prior decision by this Court in K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co. (91 AD3d 401 [1st Dept 2012]), which construed the identical policy language at issue here. Our decision, however, has since been reversed by the Court of Appeals ^[FN2] (K2 Inv. Group, LLC v American Guar. & Liab. Ins. Co., 22 NY3d 578 [2014]) (K2). The Court of Appeals’ decision in K2 likewise requires a reversal of the motion court’s order and judgment (one paper) in plaintiffs’ favor and a judgment in favor of AGLIC, declaring that it does not have a duty to defend plaintiffs in the New Jersey action.

Here, we have a well developed record showing that plaintiffs’ activities on Kurtin’s behalf are of a hybrid nature and, therefore, excluded from coverage. It is undisputed that plaintiffs prepared the legal documents necessary to effectuate the loans, including the promissory notes. It is also undisputed that Lee was the managing member of Astoria Station and the obligor on the 2006 note which Lee also personally guaranteed. Lee, personally, was the borrower on the 2010 note. The proceeds from these financial transactions were used in connection with Astoria Station’s real estate development projects, indirectly which benefitted Lee, the managing member of that enterprise. Kurtin prevailed in the New Jersey action and obtained a money judgment for the nonpayment of the promissory notes. Her remaining claims of legal malpractice and negligence do not seek damages that are any different than the relief she already obtained in the New Jersey action. Applying New York law, as the New Jersey court has already found applies, Kurtin’s allegations, that she was not advised to get her own attorney, or that she should have had certain investment properties independently appraised, are generic claims that are insufficient to sustain a claim for legal malpractice (Schwartz v Olshan Grundman Frome & Rosenzweig, 302 AD2d 193 [1st Dept 2003]). Kurtin has not alleged any losses, other than the nonpayment of the notes, and those notes have now been reduced to judgments in her favor.

Lee was simultaneously serving two masters, Kurtin, his client, and a company of which he was a principal. This is precisely the situation that the policy’s Insured Status and Business Enterprise Exclusions exclude from coverage. Since Kurtin’s claims partly arise from the legal services the attorneys provided her with, but also from Lee’s status or activity for his company, Astoria Station, they are of a hybrid nature, and are not covered, meaning that AGLIC has no duty to defend plaintiffs in the New Jersey action.”