Claims are often made for multi-million dollar losses, and often they amount to a dream.  Here, in Red Zone LLC v Cadwalader, Wickersham & Taft LLP  2014 NY Slip Op 04570  Decided on June 19, 2014  Appellate Division, First Department  the case ends in a verdict for $ 17.2 million.

Of note is the AD’s take on continuous representation, with a 2 year gap.  "The motion court properly concluded that the continuous representation doctrine applies to toll the statute of limitations on plaintiff’s legal malpractice claim. Although defendant drafted the Side Agreement in 2005, it provided legal advice throughout the UBS litigation from 2007 through late 2010. Although plaintiff was represented by other counsel in the UBS litigation, plaintiff and its trial counsel continued to confer with defendant and share privileged documents regarding its defense strategy. In doing so, defendant apparently sought to rectify its earlier alleged malpractice, namely to prevent UBS from demanding more than $2 million when the Side Agreement was intended to limit UBS’s fee. In such cases, the continuous representation doctrine applies (see Luk Lamellen U. Kupplungbau GmbH v Lerner, 166 AD2d 505, 506-507 [2d Dept 1990]; N & S Supply v Simmons, 305 AD2d 648, 649-650 [2d Dept 2003]). There is no basis to find that the earlier "gap" in representation from roughly 2005 to 2007 ended defendant’s prior representation. There was simply no need to consult defendant during that time, and defendant never communicated to plaintiff that its prior representation had ended (see Shumsky v Eisenstein, 96 NY2d 164, 170-171 [2001])."

We’ve remarked in the past that there seems to be an artificially high standard for plaintiff in legal malpractice cases.  On summary judgment we submit that the legal malpractice plaintiff has greater requirement to "disprove" the "but for" arguments of defendants than in any other sphere of law.  As an example Lincoln Trust v Spaziano     2014 NY Slip Op 04601   Decided on June 20, 2014   Appellate Division, Fourth Department  tells us that when plaintiffs mitigated their damages, the wiped them out.  When plaintiffs offered the hypothetical better outcome in comparison to the actual outcome, the Court simply decided that the hypothetical was unprovable.

"Memorandum: Plaintiffs commenced this legal malpractice action seeking damages arising from the alleged negligence of Albert M. Mercury, Esq. (defendant), who represented Daniel Elstein (plaintiff) at the closing of a $750,000 loan that plaintiff made to defendant Alfred D. Spaziano. The closing occurred on September 12, 2001, and the loan was secured by Spaziano’s stock in Westview Commons Apartments, Inc. (WCA), which owned and operated an apartment complex (subject property) in the Town of Gates. John Hancock Mutual Insurance Company (John Hancock) held a first mortgage on the subject property while, unbeknownst to plaintiff, Monroe Funding held secondary mortgages, one of which was filed eight days before plaintiff closed on his loan to Spaziano.

The complaint alleges that defendant and his law firm (hereafter, defendants) were negligent in, among other things, failing to notify plaintiff that John Hancock had commenced a foreclosure action in December 2001 with respect to the subject property because Spaziano had failed to make his mortgage payments in October and November of that year. Plaintiff did not learn of Spaziano’s default on the John Hancock mortgage until January 2003, when Spaziano [*2]defaulted on the promissory note to plaintiff and WCA filed for bankruptcy. Based on Spaziano’s default on the $750,000 promissory note, plaintiff enforced his security interest in the WCA stock. Plaintiff thereafter partnered with David Reidman, a real estate developer in Rochester, to purchase and manage the subject property.

Defendants moved for summary judgment dismissing the complaint against them, contending, inter alia, that, because plaintiffs had profited from the purchase and sale of the subject property, they had sustained no damages as a result of defendants’ alleged malpractice. Defendants also asserted that plaintiffs are not entitled to damages arising from the unpaid promissory note because plaintiff had released Spaziano from liability on that loan. Plaintiffs opposed the motion and cross-moved for partial summary judgment with respect to several causes of action. Supreme Court granted the motion and denied the cross motion. We now affirm.

To succeed on a claim of legal malpractice, a plaintiff must prove, inter alia, that the attorney’s negligence was a proximate cause of a loss that resulted in actual and ascertainable damages (see Leder v Spiegel, 9 NY3d 836, 837, cert denied 552 US 1257; see also Hotaling v Sprock [appeal No. 2], 107 AD3d 1446, 1446-1447). Here, defendants met their initial burden of establishing that plaintiffs were not entitled to damages based on the unpaid promissory note inasmuch as the release given to Spaziano by plaintiff is valid and enforceable (see Appel v Ford Motor Co., 111 AD2d 731, 732-733; see also Gubitz v Security Mut. Life Ins. Co. of N.Y., 262 AD2d 451, 451; Matter of Garvin, 210 AD2d 332, 333) and, in opposition, plaintiffs failed to raise an issue of fact (see generally Zuckerman v City of New York, 49 NY2d 557, 562).

With respect to plaintiffs’ alternate theory of damages—that defendants’ failure to notify plaintiff of Spaziano’s default on the John Hancock mortgage cost plaintiff $703,435.80 in lost profits—we agree with the court that the theory is too speculative to survive defendants’ motion [*3]for summary judgment (see Bua v Purcelli & Ingrao, P.C., 99 AD3d 843, 847-848, lv denied 20 NY3d 857; Perkins v Norwick, 257 AD2d 48, 51; Sherwood Group v Dornbush, Mensch, Mandelstam & Silverman, 191 AD2d 292, 294-295; Brown v Samalin & Bock, 168 AD2d 531, 531-532). As defendants point out, it is not clear that plaintiff could have obtained the necessary funding from First Niagara or any other lender to purchase the property in November 2001, 14 months earlier than the actual purchase date. Moreover, it was not certain that Monroe Funding at that time would have accepted a steep reduction in the amount that it was owed on the secondary mortgages, or that plaintiff and Reidman would have been able to sell the subject property for the same price as they later did. In addition, plaintiff acknowledged at his deposition that he would not have purchased the subject property without Reidman, who, according to plaintiff, was vital to the success of the venture. Plaintiff did not meet Reidman until after he learned of Spaziano’s default on the John Hancock mortgage. As the court stated in its decision, there is no evidence that plaintiff "would have found an investor similar to Reidman at that time, or acceptable to Monroe Funding as the junior mortgage holder."

Attorney sues his former law firm.  At the arbitration, no expert is presented to value the law firm.  Arbitrators rule against the attorney.  He then finds second law firm to "assist in obtaining relief."  No relief is obtained, and the second law firm surreptitiously sets up a legal malpractice case against the "co-attorney."  Is this wrong?

Roberts v Corwin   2014 NY Slip Op 04563   Decided on June 19, 2014  Appellate Division, First Department.

"Defendants represented plaintiff, an attorney, at an arbitration hearing against his former law firm. On May 11, 2006, the arbitration panel issued an interim award, finding that plaintiff had failed to prove any damages, based in large part on the absence of expert testimony regarding the value of the law firm. Following the unfavorable interim award, plaintiff, with defendants’ knowledge and agreement, hired a partner at his current law firm, Epstein Becker & Green (EBG), to assist in obtaining relief from the interim award, including trying to negotiate a settlement with plaintiff’s former partners. While these negotiations proceeded, defendants were still actively representing plaintiff. Defendants characterize their relationship with EBG at the time as being co-counsels. The effort at settlement failed and on July 13, 2006, the arbitration panel issued a final award against plaintiff which incorporated in major part the unfavorable interim award. As a result, plaintiff was directed to pay hundreds of thousands of dollars in legal and other fees to his former law firm.

Defendants then filed a petition on plaintiff’s behalf, seeking to vacate the arbitration award. In April 2007, the Supreme Court denied plaintiff’s petition and the final award was confirmed. After the unfavorable interim award and as early as May 2006, plaintiff was also seeking advice from John Sachs, another attorney at EBG, about a potential malpractice action against defendants. A demand letter asserting a claim for malpractice based upon defendants’ failure to disclose an expert witness, was sent by EBG to defendants in October 2007. In November 2009, EBG, acting as plaintiff’s counsel, commenced the instant malpractice action against defendants.

Defendants’ motion for sanctions, including dismissal of the complaint or the disqualification of EBG from continuing to represent plaintiff was denied, as was defendants’ [*2]separate motion for summary judgment.

"There is no disciplinary rule that expressly prohibited EBG from giving plaintiff legal advice about the feasibility of a malpractice action while at the same time working with defendants to obtain a better result for plaintiff in the arbitration matter, especially when it was clear to defendants that EBG was representing plaintiff’s interests. While we share the motion court’s concerns about EBG’s failure to disclose that a malpractice action was being considered, those concerns do not support the sweeping remedies sought by defendants of either dismissing this action or disqualifying plaintiff’s chosen counsel."

"Sanctions were also properly denied in connection with plaintiff’s failure to disclose a file maintained by his former counsel, who counseled him after the alleged acts of malpractice had occurred, since defendants failed to establish that the file contained discoverable documents that could affect their defense.

The court correctly denied defendants’ motion for summary judgment since defendants failed to establish that, even in the absence of their alleged negligence, i.e. their failure to introduce expert testimony during the arbitration of plaintiff’s partnership interest in his former law firm, plaintiff would not have prevailed at arbitration (see AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434 [2007]). They did not show that the arbitration panel’s finding that plaintiff failed to prove impropriety in the dissolution and liquidation of the firm precluded an award of damages (cf. Kaminsky v Herrick, Feinstein LLP, 59 AD3d 1 [1st Dept 2008], lv denied 12 NY3d 715 [2009]). Indeed, in rejecting plaintiff’s claim that respondents "looted" the firm, the arbitration panel noted that plaintiff had not shown that respondents’ appraisal reports were materially inaccurate or presented any expert testimony in that regard.

"

Sometimes reading appellate decisions is enlightening, and sometimes it causes head-spin.  McDonald v Edelman & Edelman, P.C.   2014 NY Slip Op 04560   Decided on June 19, 2014
Appellate Division, First Department is definitely a head-spinner.  First, this is a re-write of the November 12, 2013 decision.  A recall of that decision is understandable, since the Court of Appeals decided Melcher v Greenberg Traurig, LLP   2014 NY Slip Op 02213   Decided on April 1, 2014  Court of Appeals  Read, J. on April 1, 2014.

Here is where the AD loses us. In  Melcher the Court of Appeals determined that Judiciary Law 487 is not a statutory cause of action; it is part of the common law.  Judge Read goes into a long and interesting analysis of the source of common law in the US.

Here the AD does several puzzling things.  First, it recalls an earlier decision. Second, it generally affirms the decision of Supreme Court dismissing three causes of action, but grants costs against defendants.  Third, it either mis-wrote, or simply did not understand Melcher.  The Court of Appeals determined that JL 487 is governed by CPLR 213(1).  Two months later, the AD determines McDonald , yet relies upon the overruled AD decision in Melcher.

The AD writes: ‘The fourth cause of action, which alleges a violation of Judiciary Law § 487, is untimely because it was asserted within six years of plaintiff’s receipt of defendants’ June 2008 letter (see CPLR 214[2]; Melcher v Greenberg Traurig, LLP, 102 AD3d 497 [1st Dept 2013])."

There is nothing correct in that sentence.

So, we are still suffering from confusion.

A world leader in the non-dairy segment of the frozen food industry and in non-dairy emulsions hires a world class law firm to file and prosecute patents for a "pourable dessert liquid product" (think: Mexican Cool Whip) which fails in both Mexico and Columbia.  Is the law firm to blame?  Yes and no.

Rich Prods. Corp. v Kenyon & Kenyon, LLP  2014 NY Slip Op 50937(U)  Decided on June 17, 2014  Supreme Court, Erie County  Walker, J. is a careful dissection of the claims.  In the Mexican instance

"By letter dated September 21, 1999, Uhthoff acknowledged Kenyon’s September 15 letter, but stated that it did not review it (or its enclosures) until September 20, 1999, because its offices were closed from September 15 through September 19, due to a Mexican Holiday and the ensuing weekend. Uhthoff stated further that, "in view of [the office closure], we are immediately processing the [Mexican Patent Application for filing] . . . within the one-month grace term ie, month 31th [sic] from the [Deadline], which is acceptable under the practice of the Mexican Patent Office."

By letters dated September 27 and October 1, 1999, Uhthoff confirmed that the Mexican Patent Application had been filed and accepted by the Mexican Patent Office. By letter dated October 21, 1999, Kenyon advised Rich that the Mexican Patent Application "has been entered on 27 September 1999", (emphasis added). On October 22, 2001, the Mexican Patent Office issued a patent for the Invention (the "Mexican Patent").

Thereafter, a series of discussions took place within Rich, to determine whether and/or how to proceed with enforcement of the Mexican Patent. During this time, Rich also attempted [*4]to identify a substitute Mexican law firm to pursue any such enforcement proceedings, because Uhthoff had a conflict with respect to one of Rich’s competitors. Ultimately, Rich retained the firm of Calderon y De La Cierra ("Calderon"), which commenced four (4) separate enforcement proceedings on behalf of Rich in Mexico. Kenyon did not prosecute, nor was it named as counsel or co-counsel in these actions.Indeed, Calderon communicated directly with Rich and/or Rich’s Mexican joint venture company regarding these proceedings.

In late 2007 (six (6) years after the Mexican Patent was issued), an entity named Lactoproductos La Loma ("Lactoproductos") commenced a "cancellation proceeding", in Mexico, in which it challenged the Mexican Patent on the basis that, inter alia, the Mexican Patent Application was filed after the Deadline.

Calderon represented Rich in the Lactoproductos cancellation proceedings.

On or about September 8, 2008, the Mexican Patent Office issued a decision cancelling the Mexican Patent, (in part) because the Mexican Patent Application was filed after the Deadline. Calderon (on behalf of Rich) appealed the decision to two different Mexican Courts. On June 23, 2009, the Mexican Patent Office determination was upheld. The court held that the Mexican Patent Office’s practice of accepting applications in the 31st month (as was done in 1999 with the Mexican Patent Application) was "contrary to current Patent Law in Mexico . . ." [emphasis added].

The Mexican Patent Office’s determination, without explanation, overturned an acknowledged and accepted practice for many years in Mexico, that had the force and effect of law. As Calderon noted:. . . the Mexican Patent Office actually ADOPTED the term of 31 months and applied same during more than 13 years. General principles of law in Mexico dictate that habits, customs or repetitive conducts exercise by the authorities are sources of law and actually become law, whenever these are not contrary to existing legal provisions. In the particular case, the fact that the Mexican Patent Office consistently accepted, tried and granted Applications filed with the 31st month, falls within the principle noted above and results in that the legally valid term to enter National Phase Applications in Mexico was legally extended to 31 months . . . . (Emphasis in original).
As a result of the Mexico Patent Office’s determination, the Invention lacks patent protection in Mexico."

In the Columbian instance:

"Rich has established, as a matter of law, that Kenyon failed to timely submit the correct documents to Goytia in connection with filing the Columbian Patent Application. Kenyon has failed to raise an issue of material fact requiring a trial regarding this cause of action. Failure to correctly perform these services constitutes malpractice as a matter of law (see, eg., Deb-Jo Const. Inc. v. Westphal, 210 AD2d 951 [4th Dept 1994]; Lory v. Parsoff, 296 AD2d 535, 536 [2nd Dept 2002]).

While Kenyon timely retained Goytia on March 18, 1998, its "instructions" to Goytia were incomplete – indicating that the necessary Power of Attorney, Assignment and Priority Document would "follow". While Goytia filed the Columbian Patent Application by the March 19, 1998 deadline, it specifically advised Kenyon that the notarized and authenticated Power of Attorney and Assignment were due by April 30, 1998. Despite these clear instructions, Kenyon failed to prepare and deliver the required documents to Goytia by the deadline.

Equally relevant here, Goytia requested these documents no less than three (3) more times, and even obtained a filing extension to accommodate Kenyon’s failure to provide them. Kenyon finally provided Goytia with additional, but still incorrect documentation days prior to the extended deadline, as well as a faxed copy of the Power of Attorney (that was not authenticated), after the deadline had passed. The faxed copy of the Power of Attorney was insufficient, as the Columbian PTO required an authenticated original.

Three years later, Goytia was still waiting for the authenticated Power of Attorney. In the end, the required documents were filed in December 2001 – more than three (3) years after the extended deadline. Ultimately, the Columbian PTO declared the Columbian Patent Application invalid, because incorrect documents were filed by the extended deadline.

As such, Rich is entitled to summary judgment on its Third Cause of Action on the issue of liability."

Courts rarely enunciate the principal that all legal malpractice claims compare a hypothetical better outcome, assuming that the attorneys did no wrong, with the actual.  If the complaint had been filed timely, I would have won the case and obtained a verdict.  If a bank account had been discovered in the case I would have been able to obtain the money within.  Each of these are comparisons between the hypothetical better outcome and the actual. 

No different is Cusimano v Wilson, Elser, Moskowitz, Edelman & Dicker LLP.  2014 NY Slip Op 04428  Decided on June 17, 2014  Appellate Division, First Department in which plaintiff says that if the tax returns had been offered in evidence, there would have been a difference.  The Appellate Division, First Department, says, no.

"Plaintiff failed to allege facts that would satisfy the proximate cause element, namely, that "but-for" defendants’ alleged inadequate and ineffective representation of her in the underlying arbitration, she would have succeeded in demonstrating that her parents lacked an ownership interest in a contested family asset (see Lieblich v Pruzan, 104 AD3d 462 [1st Dept 2013]). Plaintiff stated that if defendants had introduced her parents’ personal income tax returns in the underlying arbitration proceeding, the arbitration panel would have had no choice but to consider them, credit their contents, and hold that the information contained therein (i.e., that the parents allegedly made no claim of an ownership interest in the contested family asset) was binding against the parents in accordance with the tax estoppel doctrine. The contention that mere submission of the parents’ personal income tax filings in the arbitration proceeding would necessarily have altered the arbitration panel’s determination regarding the parents’ ownership interest in the subject asset is grounded in speculation, and thus, insufficient to sustain a claim for legal malpractice (see e.g. AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 435 [2007]; Pellegrino v File, 291 AD2d 60, 64 [1st Dept 2002]).

Furthermore, even if the parents’ personal tax returns had been offered as evidence in the underlying arbitration, there was no basis to assume they would have been credited by the panel,

in view of evidence suggesting the tax returns were prepared by accountants who relied upon information supplied by Bernadette Strianese who had interests which conflicted with the parents’ ownership interests in the assets in dispute."

Riverhead:  One scenario that repeatedly appears is that of an attorney, who was retained on a normal contingent fee agreement, suddenly awakes to the onset of trial and the need for an expert. The attorney also determines that expert require a fee, and sometimes turns to the client, in violation of the contingent fee agreement, and tells the client to pay for the expert.  This is what happened in Palmieri v Biggiani  2013 NY Slip Op 05194 [108 AD3d 604]  July 10, 2013  Appellate Division, Second Department. Instead of paying, the client sued.

    "Contrary to the Supreme Court’s conclusion, the plaintiff stated a cause of action alleging violation of Judiciary Law § 487 (see CPLR 3211 [a] [7]; Judiciary Law § 487; Amalfitano v Rosenberg, 12 NY3d 8, 14 [2009]; Rock City Sound, Inc. v Bashian & Farber, LLP, 74 AD3d at 1172; Boglia v Greenberg, 63 AD3d 973, 975 [2009]; Kempf v Magida, 37 AD3d at 764; Izko Sportswear Co., Inc. v Flaum, 25 AD3d 534, 537 [2006]). The plaintiff alleged in the amended complaint that the defendant’s assertion, made in support of the motion to be relieved as counsel, that the plaintiff "steadfastly refused to pay the litigation expenses," was knowingly false and was offered with the intent to deceive the Supreme Court into believing that the defendant originally had sufficient cause to be relieved as counsel (see Dupree v Voorhees, 102 AD3d 912, 913 [2013]). Thus, the Supreme Court should have denied that branch of the defendant’s motion which was to dismiss the cause of action alleging a violation of Judiciary Law § 487."

Causes of Action for Breach of Fiduciary Duty not dismissed…causes of action for breach of contract not dismissed.  Is this a trend?  Today in Cherry Hill Mkt. Corp. v Cozen O’Connor P.C.
2014 NY Slip Op 04248  Decided on June 12, 2014  appellate Division, First Department we see dismissal of the legal malpractice claim, but reversal on the breach of fiduciary duty claim, which in this case is over excessive fees.

"Plaintiffs’ third cause of action, alleging that defendants breached their fiduciary duty because they either collected and/or billed plaintiffs for excessive and/or unearned fees, should not have been dismissed as duplicative of the malpractice causes of action (see Loria v Cerniglia, 69 AD3d 583, 583 [2d Dept 2010]). The third cause of action was not based upon the same facts underlying the malpractice claims (cf. Cosmetics Plus Group, Ltd. v Traub, 105 AD3d 134, 143 [1st Dept 2013], lv denied 22 NY3d 855 [2013]). With respect to the instant complaint, a claim [*2]of breach of fiduciary duty can be premised on excessive legal fees charged by an attorney (see Sobell v Ansonelli, 98 AD3d 1020, 1022 [2nd Dept 2012] see also Nason v Fisher, 36 AD3d 486, 487 [1st Dept 2007])."

Compare:  "Contrary to the Supreme Court’s determination, however, the plaintiff’s second cause of action, which alleged breach of contract and sought to recover $5,875 in damages, representing the amount he had paid to the defendant, based on, inter alia, overbilling, was not necessarily duplicative of the first cause of action (see O’Connor v Blodnick, Abramowitz & Blodnick, 295 AD2d 586, 587). Moreover, while the court concluded that the plaintiff could seek these damages as a counterclaim in the separate action commenced by the defendant (see Molinoff v Tanenbaum, _____ AD3d _____ [decided herewith]), at the time the order appealed from was issued, that action had been dismissed. "  Tanenbaum v Molinoff  2014 NY Slip Op 04186
Decided on June 11, 2014  Appellate Division, Second Department