New York Attorney Malpractice Blog

New York Attorney Malpractice Blog

Stocks, Legal Malpractice and Speculation

Posted in Legal Malpractice Cases

A straight forward allegation of legal malpractice is the first step in a successful claim.  A second step is connecting the described shortcomings and the claimed damages.  In Lisi v Lowenstein Sandler LLP  2017 NY Slip Op 32411(U)  November 16, 2017  Supreme Court, New York County
Docket Number: 160298/2016  Judge Shirley Werner Kornreich finds that where a claim might be stated, damages cannot be linked to the shortcomings.

“In May 2012, Lisi hired LS, a law firm with its principal office in New York City, to negotiate the terms of his employment as a Senior Vice President with A vadel Pharmaceuticals flk/a as Flame! Technologies SA and Eclat Pharmaceuticals, LLC (Flame!). AC iii! 2, 9-11; Dkt. 49 (Retainer Letter). Defendants Defalco and Greenbaum were partners at LS; Defalco was the LS attorney primarily responsible for representing Lisi in the negotiations with Flame!. AC ml 3- 6; Dkt. 49 at 1. ”

“On May 17, 2012, Defalco sent Lisi an email (the Defalco Email) concerning the ongoing negotiations, attaching a revised draft of Lisi’s employment agreement. Dkt. 22 (Defalco Email); Dkt. 60 (copy of DeFalco Email with attachments included). In the email, DeFalco discussed the possibility of making an 83(b) election under the Internal Revenue Code with respect to a grant of restricted stock that was part of Lisi’ s compensation under the attached draft of his employment agreement. 2 See Defalco Email; Dkt. 60 at 6. Defalco began the discussion by informing Lisi that “restricted stock [received] in connection with the provision of services … is taxable to the recipient as compensation income (since it is received in connection with employment); i.e., ordinary income subject to payroll taxes,” based on the stock’s value less any amount paid for it. Defalco Email (emphasis in original). Lisi’s employment agreement was executed on May 28, and took effect on June 25, 2012. Employment Agreement at 1.”

“On December 8, 2016, Lisi commenced this action by filing his summons and initial complaint. Dkt. 1. He subsequently filed the AC on February 6, 2017. Dkt. 3. The AC asserts a single cause of action for legal malpractice, seeking $5,300,000 in damages. AC iii! 75-85. It alleges that LS negligently failed to advise Lisi that he would be taxed at the ordinary income rate on the increase in the value of his option shares upon exercise, rather than at the capital gains rate upon disposition of the shares. It further alleges that, but for this failure to advise, Lisi would not have been “left vulnerable to market fluctuations in the stock price of Flamel,” because he “would have” employed alternative investment strategies, that accounted for the true amount of his tax liabilities, to “receive the optimal market value for [his] Flamel shares.” AC iii! 68-83. LS moved to dismiss on March 21, 2017. Dkt. 13. The court reserved on the motion after oral argument. See Dkt. 67 (8/30/17 Tr.). ”

“Although Lisi’ s lack of records and recollection are insufficient to challenge the authenticity of the Defalco Email, the court finds that the content of the email itself does not unambiguously refute Lisi’ s allegation of professional negligence. The Defalco Email does mention stock options in passing, but not in the portion of the email that discusses the tax treatment of stock “received in connection with employment.” That portion of the email is specifically couched as a general description of the tax consequences that attach to the receipt of restricted stock. And although the email may easily be read to imply that other forms of stocksuch as non-qualified stock options-are likewise subject to ordinary income tax because they are “received in connection with employment,” that advice is never explicitly stated. Accordingly, the Defalco Email does not refute Lisi’s allegation of negligence in a manner that is “essentially undeniable.” See Amsterdam Hosp. Grp., 120 AD3d at 432. Lisi’s malpractice claim nevertheless fails because his allegations are insufficient to show that but for LS’s failure to give proper tax advice, his trading losses would have been avoided. See Leder v Spiegel, 31 AD3d 266, 268 (I st Dept 2006) (“The failure to demonstrate proximate cause mandates the dismissal of a legal malpractice action regardles~ of whether the attorney was negligent.”). Lisi does not (and cannot) allege that LS’s failure to advise him had any effect on the nature of his tax liability-the exercise of his options was always going to be subject to ordinary income tax. He does not allege that he would not have executed the separation agreement had he been properly advised. Rather, Lisi’s theory of loss causation is that, absent proper tax advice, he was unaware of the true amount of the tax liability incurred by the exercise of his options, and was therefore unable to strategically manage his investment post-exercise in a manner that minimized market risk and allowed him to realize “the optimal market value” of his shares. AC iii! 68-71. He acknowledges that the exercise of his options exposed him to “market fluctuations in the stock price of Flame!,” but asserts that, with proper advice, he would not have been left vulnerable to such fluctuations because he “would have locked in his sales price for all options exercised to allow and account for the fixed exercise price and tax basis,” and “would have capitalized on the sale of the shares at a fixed and higher price.” iii! 74, 82-83. “

In A Footnote, Legal Malpractice Question Has No Bearing

Posted in Legal Malpractice Cases

We’re disappointed that the legal malpractice question takes the back seat in an Appellate Division decision, but in Weiss v Phillips  2017 NY Slip Op 08209  Decided on November 21, 2017
Appellate Division, First Department  Renwick, J. whether Phillips has a claim against his attorney is a question for the future.

“In this case, plaintiff Peter Weiss seeks, among other things, a foreclosure and sale based [*2]on a Mortgage and Note Extension and Modification Agreement (CEMA)[FN1] executed by defendant Edward Phillips. Plaintiff lent $500,000 to borrowers who purported to own the real estate property they sought to mortgage [FN2]. The borrowers signed a note, in which they promised to pay the loan, and a mortgage, in which they gave the plaintiff/lender a security interest in the property they purported to own. The borrowers, however, acquired the property by fraudulent means. After the rightful owner, Phillips, reacquired the property, he executed the CEMA with the individual lender, Weiss. Pursuant to the CEMA, Phillips acknowledged Weiss’s rights under the note and mortgage; and, Weiss agreed to forbear from foreclosing on the subject property for a year, presumably to permit Phillips to obtain refinancing.

We find that the motion court properly granted Weiss summary judgment. Unlike the dissent, under the circumstances of this case, we find that Weiss’s interest in the property as a mortgagee was not rendered null and void because his borrowers, the mortgagors, had acquired the property by fraudulent means. In addition, we find that Weiss met his burden for summary judgment, on his claim for foreclosure and sale, by submitting the Mortgage and CEMA, along with undisputed evidence establishing both the existence of the note, which obviated the need to submit the note as proof that Weiss had the right to foreclose, and the nonpayment.”

“In this case, the complaint seeks a foreclosure and sale based on the CEMA and the mortgage encumbering the subject property. As indicated, under the CEMA, as the “new owner,” Phillips ratified and affirmed all the terms of the note and mortgage and warranted that there were no deductions, counterclaims, defenses, and/or setoffs to any obligations under the note. When the CEMA’s extension period expired, without complete payment, Weiss commenced this action. Under these circumstances, Weiss established the allegations of the complaint by submitting the CEMA and the mortgage contract, along with unchallenged [*5]deposition testimony of the existence of the note and nonpayment.

Unlike the dissent, we do not view this action as a typical mortgage foreclosure action. In a typical mortgage foreclosure transaction, a prima facie case is based on production of the unpaid note and mortgage, which establishes that the plaintiff is entitled to foreclose on the unpaid note. A prima facie case is established here, however, by plaintiff’s submission of the mortgage and the CEMA, in which Phillips acknowledges the existence and validity of the unpaid note and mortgage, as well as the deposition testimony in which the existence of the note is unchallenged (see Seaway Capital Corp. v 500 Sterling Realty Corp., 94 AD3d 856 [2d Dept 2012]).

We are not persuaded by the dissent’s argument that UCC 3-804 mandates a different result. As fully explained below, the dissent takes UCC 3-804 out of context. UCC 3-804 allows one to maintain an action as a “holder” on a promissory note even though the instrument has been lost or destroyed. The section does not apply here where it is established that plaintiff has the right to sue on the note as the undisputed “holder” of the note.[FN5]

“To be clear, a deed may be cancelled because it is void or because it is voidable. The difference, however, between a void deed and a voidable deed is important under the law because it affects a party’s ability to defend against a future purchaser or encumbrancer for value. A void real estate transaction is one where the law deems that no transfer actually occurred (Faison v Lewis, 25 NY3d 220, 225 [2015]). Accordingly, if the deed is void, it does not pass title and cannot be enforced even if title is later acquired by a bona fide purchaser (id.; ABN AMRO Mtge. Group, Inc. v Stephens, 91 AD3d 801, 803 [2d Dept 2012]). Similarly, a lender who takes a mortgage to a property subject to a void deed does not have anything to mortgage, so the lender’s mortgage is invalid as well (Cruz v Cruz, 37 AD3d 754 [2d Dept 2007]; Yin Wu v Wu, 288 AD2d 104, 105 [1st Dept 2001]). In contrast, a voidable real estate transaction is one where a transfer is deemed to have occurred, but can be revoked. In that situation the deed is only voidable (Faison v Lewis, 25 NY3d at 225).

The question becomes whether the deed by which Welch-Ford and Smith acquired the subject real estate was a void deed or a voidable deed. Forged deeds and/or encumbrances are those executed under false pretenses, and are void ab initio (see Marden v Dorthy, 160 NY 39 [1899]; GMAC Mtge. Corp. v Chan, 56 AD3d 521, 522 [2d Dept 2008]; Cruz v Cruz, 37 AD3d 754). The interests of subsequent bona fide purchasers or encumbrancers for value are thus not protected under Real Property Law § 266 [FN7] when their title is derived from a forged deed or one that is the product of false pretenses (see Ameriquest Mtge. Co. v Gaffney, 41 AD3d 750 [2d Dept 2007]; LaSalle Bank Natl. Assn. v Ally, 39 AD3d 597, 599-600 [2d Dept 2007]). In contrast, a fraudulently induced deed is merely voidable, not void (see Marden v Dorthy, 160 NY at 150; Dalessio v Kressler, 6 AD3d 57, 61 [2d Dept 2004]; Yin Wu v Wu, 288 AD2d at 105).”

A Pro-Se Accounting Malpractice Slips Away

Posted in Legal Malpractice Cases

The theme of time slipping away is fodder for song lyrics in all genres.  In legal malpractice as well as in professional malpractice it is a constant theme.  Things happen and clients do not discover it immediately; the objective wrongfulness of conduct does not become immediately apparent.  Cases are started too late, as in Schwartz v Leaf, Salzman, Manganelli, Pfiel & Tendler, LLP  2017 NY Slip Op 07764  Decided on November 8, 2017  Appellate Division, Second Department.  With little explanation (not even a discussion of the type of representation), the AD2 affirms the dismissal of this pro-se case.

“Actions to recover damages for malpractice against nonmedical professionals are governed by the three-year statute of limitations set forth in CPLR 214(6) (see Matter of R.M. Kliment & Frances Halsband, Architects [McKinsey & Co., Inc.], 3 NY3d 538, 539; 730 J & J, LLC v Polizzotto & Polizzotto, Esqs., 69 AD3d 704, 705). A cause of action alleging professional malpractice against an accountant accrues upon the client’s receipt of the accountant’s work product (see Williamson v PricewaterhouseCoopers LLP, 9 NY3d 1, 8; Ackerman v Price Waterhouse, 84 NY2d 535, 541; CRC Litig. Trust v Marcum, LLP, 132 AD3d 938, 939; Rodeo Family Enters., LLC v Matte, 99 AD3d 781, 783).

The defendants established their prima facie entitlement to judgment as a matter of law dismissing the complaint insofar as asserted by the plaintiff Madeleine E. Schwartz (hereinafter the plaintiff) by demonstrating that the professional malpractice causes of action accrued more than three years prior to the commencement of the action (see Meredith v Siben & Siben, LLP, 130 AD3d 791, 792; Farage v Ehrenberg, 124 AD3d 159, 164; Napoli v Moisan Architects, 77 AD3d 895, 895-896). In opposition, the plaintiff failed to raise a triable issue of fact as to whether the statute of limitations was tolled by the continuous representation doctrine (see Rodeo Family Enters., LLC v Matte, 99 AD3d at 784; M.G. McLaren, P.C. v Massand Eng’g, L.S., P.C., 51 AD3d 878, 878; Giarratano v Silver, 46 AD3d 1053, 1055; Booth v Kriegel, 36 AD3d 312, 314; Mitschele v Schultz, 36 AD3d 249, 253).”

Judiciary Law 487 Differences from the Other Side

Posted in Legal Malpractice Basics, Uncategorized

Last week we discussed how the First Department differs in its handling of Judiciary Law § 487 cases.  Here in Gorbatov v Tsirelman  2017 NY Slip Op 07979  Decided on November 15, 2017
Appellate Division, Second Department  is a further lesson, this time from the Second Department.  Conspicuously missing here is any language of delinquency.  The Second Department has considerably lower standards upon which to determine whether a JL § 487 case is tenable.

“The plaintiff Yevgeny Gorbatov is a licensed acupuncturist and the principal of the six corporate plaintiffs. The defendants Gary Tsirelman and the Law Office of Gary Tsirelman, P.C. (hereinafter together the Tsirelman defendants), and Leon Kucherovsky and the Law Office of Leon Kucherovsky, P.C. (hereinafter together the Kucherovsky defendants), are attorneys who represented some or all of the plaintiffs in hundreds of matters involving the collection of unpaid medical bills from insurers. The plaintiffs commenced this action against the defendants asserting causes of action [*2]to recover damages for legal malpractice, violation of Judiciary Law § 487, and unjust enrichment, and seeking accountings. The Tsirelman defendants and the Kucherovsky defendants separately moved pursuant to CPLR 3211(a) to dismiss the complaint insofar as asserted against each of them. In the alternative, the Kucherovsky defendants sought severance of the action insofar as asserted against them pursuant to CPLR 603. The Supreme Court denied the motions without prejudice and with leave to renew upon the completion of discovery, pursuant to CPLR 3211(d). The Tsirelman defendants and the Kucherovsky defendants separately appeal.”

“Contrary to the defendants’ contentions, the Supreme Court properly denied, without prejudice to renew upon the conclusion of discovery, those branches of their motions which were pursuant to CPLR 3211(a)(1) and (7) to dismiss the legal malpractice and Judiciary Law § 487 causes of action. To plead a claim for legal malpractice, a plaintiff must allege (1) that the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession; and (2) that the attorney’s breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages (see Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, 26 NY3d 40, 49). “An attorney’s conduct or inaction is the proximate cause of a plaintiff’s damages if but for’ the attorney’s negligence the plaintiff would have succeeded on the merits of the underlying action, or would not have sustained actual and ascertainable damages” (id. at 50 [internal quotation marks and citation omitted]; see Dombrowski v Bulson, 19 NY3d 347, 350; AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434). Under Judiciary Law § 487, an attorney who “[i]s guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party; or . . . [w]ilfully delays his client’s suit with a view to his own gain; or, wilfully receives any money or allowance for or on account of any money which he has not laid out, or becomes answerable for, [i]s guilty of a misdemeanor, and [is liable for] treble damages, to be recovered in a civil action” (Judiciary Law § 487; see Amalfitano v Rosenberg, 12 NY3d 8, 14). “Allegations regarding an act of deceit or intent to deceive must be stated with particularity” (Facebook, Inc. v DLA Piper LLP [US], 134 AD3d 610, 615; see Putnam County Temple & Jewish Ctr., Inc. v Rhinebeck Sav. Bank, 87 AD3d 1118, 1120). “[V]iolation of Judiciary Law § 487 requires an intent to deceive, whereas a legal malpractice claim is based on negligent conduct” (Moormann v Perini & Hoerger, 65 AD3d 1106, 1108 [citation omitted]).

Here, the complaint, as amplified by the plaintiffs’ submissions in opposition to the defendants’ motions (see Chanko v American Broadcasting Cos. Inc., 27 NY3d 46, 52), alleged that the defendants conspired with the plaintiffs’ billing agent, nonparty Gary Shikman and his company the Denium Group, to convert funds received from insurers in recovery of the plaintiffs’ claims, or violated their duties to ensure that the plaintiffs received the funds, resulting in the plaintiffs incurring losses of those funds, and otherwise improperly handled the plaintiffs’ claims. These allegations generally state causes of action sounding in legal malpractice (see Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, 26 NY3d at 49; Rules of Professional Conduct [22 NYCRR 1200.0)] rule 1.15[c][4]), and violation of Judiciary Law § 487 (see Melcher v Greenberg Traurig, LLP, 23 NY3d 10, 14; cf. Gumarova v Law Offs. of Paul A. Boronow, P.C., 129 AD3d 911, 912). Further, the affidavits, letters, and spreadsheets submitted by the defendants in support of their motions did not constitute documentary evidence pursuant to CPLR 3211(a)(1) (see Cives Corp. v George A. Fuller Co., Inc., 97 AD3d 713, 714; Berger v Temple Beth-El of Great Neck, 303 AD2d 346, 347), and, in any event, did not conclusively establish a lack of legal malpractice or deception. [*3]To the extent that the plaintiffs’ allegations are insufficiently specific to each legal matter or particularized, the plaintiffs set forth a reasonable basis to believe that, with additional discovery, they would be able to develop sufficient facts to make more specific allegations (see Lemle v Lemle, 92 AD3d 494, 499-500). Facts essential to the opposition of the motions were in the possession of the defendants, warranting denial of these branches of the motions without prejudice and with leave to renew upon the completion of discovery (see CPLR 3211[d]; Peterson v Spartan Indus., 33 NY2d 463, 466; Giunta’s Meat Farms, Inc. v Pina Constr. Corp., 89 AD3d 799, 800).


A Legal Malpractice Case Slips Away From a Pro-Se Plaintiff

Posted in Legal Malpractice Cases

Legal malpractice, of course, deals with mistakes make by attorneys.  Attorneys should not make mistakes, but being human, they do.  Mistakes can sometimes be fixed, sometimes not.  For Pro-se plaintiffs, mistakes come more often, and quick-fixes are not as common.  Stevens v Law Off. of Blank & Star, PLLC  2017 NY Slip Op 08030  Decided on November 15, 2017  Appellate Division, Second Department is an example of a series of errors that end in dismissal of what might be a meritorious case.  It appears that the Pro-se Plaintiff commenced an action but did not file an affidavit of service.  A second action was then commenced.  A default was sought on the first case.  Both were then dismissed.

“On October 14, 2014, the plaintiff, proceeding pro se, commenced an action against the defendant (hereinafter the first action), inter alia, to recover damages for legal malpractice. The plaintiff alleged that the defendant’s failure to timely serve a notice of claim in an underlying personal injury action constituted legal malpractice. The plaintiff sought damages in the amount of $12,000,000.

On January 29, 2015, the plaintiff, proceeding pro se, commenced this action against the defendant based on the same facts and seeking relief identical to the relief sought in the first action. Shortly thereafter, and before serving the summons and complaint on the defendant, the plaintiff moved for leave to enter a default judgment against the defendant. The defendant cross-moved pursuant to CPLR 3211(a)(1), (4), (5), and (7) to dismiss the complaint. The Supreme Court denied the plaintiff’s motion and granted the defendant’s cross motion. The plaintiff appeals.

Contrary to the plaintiff’s contention, the Supreme Court properly denied his motion for leave to enter a default judgment against the defendant. A plaintiff moving for the entry of a default judgment must “file proof of service of the summons and the complaint, . . . and proof of the facts constituting the claim, the default and the amount due by affidavit made by the party . . . . Where a verified complaint has been served, it may be used as the affidavit of the facts constituting the claim and the amount due” (CPLR 3215[f]). Since the plaintiff failed to submit proof of service of process on the defendant and the defendant’s subsequent failure to appear, the plaintiff failed to satisfy the requirements for demonstrating his entitlement to enter a default judgment against the defendant.

The Supreme Court also properly granted the defendant’s cross motion pursuant to [*2]CPLR 3211(a) to dismiss the complaint. “Where there is a substantial identity of the parties, the two actions are sufficiently similar, and the relief sought is substantially the same, a court has broad discretion in determining whether an action should be dismissed pursuant to CPLR 3211(a)(4) on the ground that there is another action pending” (Scottsdale Ins. Co. v Indemnity Ins. Corp. RRG, 110 AD3d 783, 784; see Whitney v Whitney, 57 NY2d 731, 732; DAIJ, Inc. v Roth, 85 AD3d 959, 959). “The critical element is that both suits arise out of the same subject matter or series of alleged wrongs” (Cherico, Cherico & Assoc. v Midollo, 67 AD3d 622, 622 [internal quotation marks omitted]). This action and the first action, which was pending at the time the order appealed from was issued, arose from the same subject matter and alleged wrongs, and involved the same parties. Accordingly, the court providently exercised its discretion in granting the defendant’s cross motion to dismiss the complaint pursuant to CPLR 3211(a)(4) (see Matter of Willnus, 101 AD3d 1036, 1037; DAIJ, Inc. v Roth, 85 AD3d at 960; Cherico, Cherico & Assoc. v Midollo, 67 AD3d at 623).”

How The First Department Differs From the Rest of New York

Posted in Legal Malpractice Cases

In Judiciary Law § 487 cases, the First Department has additional hurdles to clear not present in other Departments.  While a single egregious event is sufficient outside of the First Department, Freeman v Brecher  2017 NY Slip Op 07949 Decided on November 14, 2017  Appellate Division, First Department shows us the three part test for the First Department.

The legal malpractice case is first dismissed:  “Plaintiff’s claim for legal malpractice in connection with an underlying settlement fails to state a cause of action in the absence of allegations that the “settlement . . . was effectively compelled by the mistakes of [defendant] counsel” (Bernstein v Oppenheim & Co., 160 AD2d 428, 430 [1st Dept 1990]) or the result of fraud or coercion (see Beattie v Brown & Wood, 243 AD2d 395 [1st Dept 1997]). Plaintiff’s equivocal denial of knowledge of the terms of the settlement is flatly contradicted by the clear terms of the settlement agreement (see Bishop v Maurer, 33 AD3d 497, 499 [1st Dept 2006], affd 9 NY3d 910 [2007]). Additionally, plaintiff’s speculative and conclusory allegations of proximately caused damages cannot serve as a basis for a legal malpractice claim (see Pellegrino v File, 291 AD2d 60, 63 [1st Dept 2002], lv denied 98 NY2d 606 [2002]). Plaintiff’s cause of action for breach of fiduciary duty arising from the same conduct was correctly dismissed as duplicative of the legal malpractice claim (see Garnett v Fox, Horan & Camerini, LLP, 82 AD3d 435, 436 [1st Dept 2011]; InKine Pharm. Co. v Coleman, 305 AD2d 151, 152 [1st Dept 2003]). Plaintiff has abandoned her breach of fiduciary duty claim based on a referral scheme, and, in any event, has failed to properly plead such a scheme.”

The JL § 487 claim comes next: “The Judiciary Law § 487 claims were correctly dismissed, as the conduct alleged does not evince a chronic and/or extreme pattern of legal delinquency (see Chowaiki & Co. Fine Art Ltd. v Lacher, 115 AD3d 600, 601 [1st Dept 2014]). Additionally, plaintiff has not alleged any proximately caused damages or identified any damages sustained as a result of Brecher’s alleged conflict of interest, which did not arise in the course of a judicial proceeding and thus is not actionable under the statute (see Meimeteas v Carter Ledyard & Milburn LLP, 105 AD3d 643 [1st Dept 2013]).”

A Judgment Call Requires Some Actual Judgment

Posted in Legal Malpractice Cases

A fair segment of legal malpractice dismissal are determined upon the assertion that the subject “error” was actually a strategic choice which went sour.  In general, a good legal malpractice case cannot be based upon an “error in judgment” or a “strategic trial decision.”  The underlying understanding is that trial and litigation decisions may often be more art than science.

In Smith, Gambrell & Russell, LLP v Telecommunications Sys., Inc.  2017 NY Slip Op 07954 Decided on November 14, 2017  Appellate Division, First Department we see the relatively rare case in which the AD points to actual reasoning in finding a “strategic decision” rather than simply deciding that a sour outcome was strategy without any supporting language.

“On appeal, defendant argues that plaintiff’s filing of a sanctions motion, instead of a motion for attorneys’ fees as the prevailing party pursuant to 35 USC § 285, constitutes malpractice. We may entertain this new legal argument because it appears on the face of the record, involves no new facts, and is determinative (Vanship Holdings Ltd. v Energy Infrastructure Acquisition Corp., 65 AD3d 405, 408 [1st Dept 2009]). However, the argument does not avail defendant.

The record shows that plaintiff had contemplated filing a motion pursuant to 35 USC § 285 and decided against it. The statute provides that the court may award attorneys’ fees to the prevailing party “in exceptional cases” (see Octane Fitness, LLC v Icon Health & Fitness, Inc., __ US __, __, 134 S Ct 1749, 1756 [2014]). Plaintiff advised defendant that it would be a “stretch” to argue prevailing party under § 285. Thus, defendant’s theory that plaintiff breached a duty of care to it by choosing to apply for attorneys’ fees via a sanctions motion instead of a motion under § 285 amounts to no more than an allegation that plaintiff made an error in judgment, which does not state a cause of action for malpractice (see Rosner v Paley, 65 NY2d 736, 738 [1985]; Sitomer v Goldweber Epstein, LLP, 139 AD3d 642 [1st Dept 2016], lv denied 28 NY3d 906 [2016]).”

When Is A Judiciary Law 487 Case Permitted?

Posted in Legal Malpractice Cases

We admit to being a little confused.  A Judiciary Law § 487 claim seeks damages because of attorney deceit, which generally must happen in a litigation setting.  Must the claim be brought in the underlying setting or later, in a separate action.  The answer seems to reside in whether the 487 claim merely seeks to vacate the underlying claim.  But what happens when the client loses the underlying case, has the complaint dismissed, or (as a defendant) has a judgment entered.  Cannot the client then sue for deceit?

In a cryptic decision, DeMartino v Lomonaco  2017 NY Slip Op 07706 Decided on November 8, 2017 Appellate Division, Second Department says, no.

“The Supreme Court also properly granted that branch of the moving defendants’ motion which was for summary judgment dismissing the causes of action alleging fraud, aiding and abetting fraud, violation of Judiciary Law § 487, and prima facie tort insofar as asserted against them. Generally, a party who has lost an action as a result of alleged fraud or false testimony cannot collaterally attack the judgment in a separate action against the party who adduced the false evidence, and the plaintiff’s remedy lies exclusively in moving to vacate the judgment (see North Shore Envtl. Solutions, Inc. v Glass, 17 AD3d 427, 427-428; Retina Assoc. of Long Is. v Rosberger, 299 AD2d 533; New York City Tr. Auth. v Morris J. Eisen, P.C., 276 AD2d 78, 87; Yalkowsky v Century Apts. Assoc., 215 AD2d 214, 215). Under an exception to that rule, a separate action may be commenced where the alleged perjury or fraud in the underlying action was “merely a means to the accomplishment of a larger fraudulent scheme” (Newin Corp. v Hartford Acc. & Indem. Co., 37 NY2d 211, 217) which was “greater in scope than the issues determined in the prior proceeding” (Retina Assoc. of Long Is. v Rosberger, 299 AD2d at 533 [internal quotation marks omitted]).

Here, the moving defendants established their prima facie entitlement to summary judgment dismissing the causes of action alleging fraud, aiding and abetting fraud, violation of Judiciary Law § 487, and prima facie tort insofar as asserted against them by demonstrating that the plaintiffs are merely attempting to collaterally attack an order issued in the underlying action. In opposition, the plaintiffs only raised conclusory and unsubstantiated allegations that the moving defendants’ fraud in the underlying action was “merely a means to the accomplishment of a larger fraudulent scheme” (Newin Corp. v Hartford Acc. & Indem. Co., 37 NY2d at 217).”


Client Insurance and Legal Malpractice

Posted in Legal Malpractice Cases

Dismissal of a Legal Malpractice claim was denied (and affirmed) in Eurotech Constr. Corp. v Fischetti & Pesce, LLP  2017 NY Slip Op 07780  Decided on November 9, 2017  Appellate Division, First Department.  The claim arose over whether it was the attorney’s obligation to deal with client insurance for the underlying claim.

“The complaint alleges that defendant failed to ensure that plaintiff gave timely notice to its excess carrier that the primary insurer’s limits were likely to be exhausted in connection with the underlying personal injury claim. Conceding the general principle that a law firm may have an obligation to investigate insurance coverage (see Shaya B. Pac., LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 AD3d 34, 40-41 [2d Dept 2006]), defendant argues that it should not bear that burden in this case, because plaintiff had been advised by its insurer’s third-party administrator to notify its excess carrier of the claim and had not done so. However, as the motion court observed, the issue is not what plaintiff knew but whether its attorneys committed malpractice by not providing timely information obtained from the deposition testimony or bills of particular in the underlying action. Resolution of that issue depends on facts not yet developed (see id. at 41).”

A Problem Even the Appellate Division Divides Upon

Posted in Legal Malpractice Cases

Legal malpractice and CPLR 3211(a)(7) motions are an institutional problem.  In our view, (as in the dissent’s view here) judges give unwarranted extra scrutiny to legal malpractice complaints, and grant 3211(a)(7) motions statistically in greater volume then they do to other types of cases.  Our view is that it is an institutional problem because of the human nature of lawyers judging lawyers.  There is interesting support for this proposition in both the Law Review literature as well as in Psychology experimental studies.

Here is the debate, as set forth in MidH-Hudson Val. Fed. Credit Union v Quartararo & Lois, LLC  2017 NY Slip Op 07916  Decided on November 9, 2017  Appellate Division, Third Department.

For the majority:  “A legal malpractice claim requires that the plaintiff show that “the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to a plaintiff, and that the plaintiff would have succeeded on the merits of the underlying action ‘but for’ the attorney’s negligence” (AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434 [2007] [citations omitted]; see Hinsdale v Weiermiller, 126 AD3d 1103, 1104 [2015]). The amended complaint alleged that, but for defendants’ failure to provide timely and competent legal services, plaintiff would have succeeded in the underlying debt collection and mortgage foreclosure actions. The amended complaint further alleged that “had [defendants] not failed to advise the cases in a timely and competent manner . . ., [plaintiff] would not have incurred a loss in time and value in the debt on the collection and foreclosure cases assigned to defendant[s].” Other than these vague and conclusory allegations, however, plaintiff failed to plead any specific facts, which, if accepted as true, would establish a legal malpractice claim. Absent from the amended complaint is any mention of an instance of deficient representation or any example of erroneous advice by defendants. Merely alleging the elements of a legal malpractice claim in a general fashion, without more, does not satisfy the liberal pleading standard of CPLR 3211. Furthermore, while a recitation of the elements of a cause of action may meet that component of CPLR 3013 requiring that the statements in a pleading provide notice of “the material elements of a cause of action,” the statute also requires that the pleading’s statements be “sufficiently particular to give the court and parties notice of the transactions, occurrences or series of transactions or occurrences, intended to be proved” (CPLR 3013 [emphasis added]; cf. Matter of Garraway v Fischer, 106 AD3d 1301, 1301 [2013], lv denied 21 NY3d 864 [2013]; Eklund v Pinkey, 27 AD3d 878, 879 [2006]).

The statements in the amended complaint fail in this regard in that they do not allege a single transaction where defendants were retained to provide legal services or a single occurrence of negligent legal representation forming the basis of the legal malpractice claim, let alone the specific underlying foreclosure action or actions in which defendants allegedly committed legal malpractice. Other than stating that defendants represented plaintiff in foreclosure actions, the amended complaint does not allege, and, more critically, it cannot reasonably be inferred from such pleading, what defendants allegedly did or did not do in a negligent fashion. The amended complaint is not just sparse on factual details — rather, it is wholly devoid of them [FN2]. Given the [*2]absence of detailed facts, the legal malpractice cause of action should have been dismissed (see Janker v Silver, Forrester & Lesser, P.C., 135 AD3d 908, 910 [2016]; Rodriguez v Jacoby & Meyers, LLP, 126 AD3d at 1185-1186; Kreamer v Town of Oxford, 96 AD3d 1128, 1128 [2012]; compare Soule v Lozada, 232 AD2d 825, 825 [1996]).”

For the minority: “We concur with the majority that plaintiff’s cause of action for fraud must be dismissed, as it was not pleaded with the high level of specificity and detail required by CPLR 3016 (b). However, fraud is one of just a few causes of action singled out in the CPLR for such heightened standards of particularity in pleading (see CPLR 3016). In contrast, the standards of specificity for legal malpractice, like most other causes of action, are governed by principles of notice pleading, which “are designed to focus attention on whether the pleader has a cause of action rather than on whether he [or she] has properly stated one” (Rovello v Orofino Realty Co., 40 NY2d 633, 636 [1976] [internal quotation marks and citations omitted]; accord Gagnon v City of Saratoga Springs, 14 AD3d 845, 846 [2005]). The allegations of a complaint generally need not be set forth in detail; it is sufficient if the parties are put on notice of the underlying transactions or occurrences, and the material elements of the cause of action are stated (see CPLR 3013). Here, the allegations of legal malpractice in plaintiff’s complaint — although lacking detail — state factual allegations that provide the degree of notice necessary to satisfy this generous standard. We therefore respectfully dissent from the majority as to that cause of action.

The standard to be applied upon a motion to dismiss a pleading for failure to state a cause of action is well established, and was both properly described and applied by Supreme Court. A court considering such a motion must construe the pleading liberally, “accept the facts as alleged in the [pleading] as true, accord [the] plaintiff[] the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” (Leon v Martinez, 84 NY2d 83, 87-88 [1994]; accord Connaughton v Chipotle Mexican Grill, Inc., 29 NY3d 137, 141 [2017]; Rushaid v Pictet & Cie, 28 NY3d 316, 327 [2016]). The complaint “is deemed to allege whatever can be implied from its statements by fair and reasonable intendment” (Foley v D’Agostino, 21 AD2d 60, 65 [1964] [internal quotation marks and citations omitted]). A complaint should not be dismissed solely because it is poorly or inartfully pleaded; rather, “in order to succeed on the motion, the defendant must convince the court that nothing the plaintiff can reasonably be expected to prove would help; that the plaintiff just doesn’t have a claim” (Siegel, NY Prac § 265 [5th ed 2017]).

These principles apply to allegations of legal malpractice (see Leon v Martinez, 84 NY2d at 87-88; New York State Workers’ Compensation Bd. v Program Risk Mgt., Inc., 150 AD3d 1589, 1594 [2017]; Rodriguez v Jacoby & Meyers, LLP, 126 AD3d 1183, 1185 [2015], lv denied 25 NY3d 912 [2015]; Snyder v Brown Chiari, LLP, 116 AD3d 1116, 1117 [2014]; Alaimo v McGeorge, 69 AD3d 1032, 1034 [2010]). The cases relied upon by the majority should not be misunderstood to require a higher standard of detail and specificity for legal malpractice claims than those imposed upon other causes of action by the familiar and fundamental standards of notice pleading (see e.g. 12 Baker Hill Rd., Inc. v Miranti, 130 AD3d 1425, 1426 [2015] [a complaint alleging breach of contract need not plead the contract’s terms verbatim nor specify which provision of the contract was breached]). No such distinction exists, nor should it.”