Plaintiff is a 50% shareholder in a lucrative franchise operation, and at the end of a contract term both he and the entire franchise is faced with a difficult franchisor, which wants to upset the arrangement.  An attorney is hired, and not only does the eventual franchisor-franchisee litigation end badly, but the individual plaintiff is advised to forego a consulting contract worth $800,000.  May the individual sue the law firm?

Bayit Care Corp. v Einbinder 2013 NY Slip Op 51557(U)  Decided on September 24, 2013  Supreme Court, New York County  Bransten, J. holds that for the moment, he may sue.  A motion to dismiss was denied as to him. 
 

"Plaintiff Bayit is a corporation that provided healthcare services. Plaintiff Schreier is the 50% co-owner of Bayit, as well as its president and on-site manager. Defendant E & D is a law firm practicing, among other things, franchise law. Defendant Einbinder is an attorney at E & D.

As part of its business, Bayit had previously entered into a franchise agreement whereby Bayit, as franchisee, managed a healthcare center and paid the cost of [*2]administrative personnel. (Defs.’ Order to Show Cause, Exhibit F ¶ 6.) The franchisor employed and paid the healthcare personnel, and coordinated billing and collection from customers of the center. (Id., Exhibit F ¶ 6.)

The instant litigation stems from the alleged failure of E & D and Einbinder to take certain actions with respect to the renewal of the Plaintiffs’ franchise. In 2009, a dispute arose as a result of the imposition of certain business decisions by the franchisor on Bayit. (Am. Compl. ¶ 21.) Defendants were retained by Bayit and, according to the Amended Complaint, Schreier, in connection with this dispute. (Id. ¶ 19.) From January 2010 to June 2011, a total of three retainer agreements were executed between Plaintiffs and Defendants. (Id. ¶ 19.)

Following settlement discussions between the franchisor and Plaintiffs, on the advice of Einbinder, Plaintiffs commenced a lawsuit against the franchisor, rather than either renewing the franchise or accepting one of the buyout or termination offers made by the franchisor. (Id. ¶¶ 40-48.) According to Plaintiffs, Defendants likewise failed to advise them of the requirements for renewal of the franchise. (Id. ¶¶ 47, 87-89.) Defendants also advised Schreier to reject an offer to enter into a consulting agreement with the franchisor, which would have provided Schreier with up to $800,000 in income over a five-year period. (Id. ¶¶ 9, 43.) Plaintiffs maintain that Defendants knew or should have known that Plaintiffs wanted to renew the franchise and that the franchise had monetary value to the Plaintiffs, and that Defendants took no action to renew the franchise until after the deadline for doing so had passed. (Id. ¶¶ 79-80.) "

""It is well settled that a corporation’s attorney represents the corporate entity, not its shareholders or employees." Eurycleia Partners, LP v. Seward & Kissel, LLP, 12 NY3d 553, 562 (2009) (citations omitted). As the First Department has observed, "[a] lawyer’s representation of a business entity does not render the law firm counsel to an [*4]individual partner, officer, director or shareholder unless the law firm assumed an affirmative duty to represent that individual." Campbell v. McKeon, 75 AD3d 479, 480-81 (1st Dep’t 2010). That is, "[u]nless the parties have expressly agreed otherwise in the circumstances of a particular matter, a lawyer for a corporation represents the corporation, not its employees." Talvy v. American Red Cross, 205 AD2d 143, 149 (1st Dep’t 1994), aff’d, 87 NY2d 826 (1995).

In this case, the record is unclear as to whether there was such an express agreement given the manner in which the retainer agreements were drafted. Each of the retainer agreements was addressed to Schreier personally, care of his business address at Bayit. (Am. Compl. ¶ 24.) " [T]he addition of a care of line . . . merely adds a person at that address who may claim the mail.’" Matter of Informart New York LLC v. Hugh O’Kane Elec. Co. LLC, 2003 WL 26094732, at *1 (Sup. Ct. NY County Jan. 6, 2003) (quoting Hoffenberg v. Commissioner, 905 F.2d 665, 666 (2d Cir. 1990)). See Russell & Annis v. Livingston & Wells, 16 NY 515, 518 (1858) (explaining that "[o]rdinarily, the address of a package to the care of any one is an authority to the carrier to deliver it to such person").

Moreover, the retainer letters do not clearly identify Bayit as the client. (Am. Compl. ¶ 25.) To the contrary, the January 11, 2010 retainer letter begins, "Dear Mr. Schreier: This retainer letter is intended to express our mutual understanding regarding our legal representation of you." (Defs.’ Order to Show Cause, Exhibit C, at 1.) Similarly, the June 13, 2011 retainer letter begins, "Dear Shabsi: This confirms that you have retained Einbinder & Dunn, LLP ( E & D’) to represent you in the above-referenced action." (Id., Exhibit D, at 1.) Likewise, the June 28, 2011 retainer letter begins, "Dear Shabsi: This confirms that you have retained Einbinder & Dunn, LLP ( E & D’) to represent you in the above-referenced actions in New York and Louisiana and in the Louisiana action to work with the local attorney." (Id., Exhibit E, at 1.)

Also significant is the fact that Defendants made multiple references to Schreier as their client during a hearing in a consolidated action against the franchisor, and as part of that action, Schreier submitted sworn declarations to that court "focus[ing] on his personal contributions to the Franchisor." (Am. Compl. ¶¶ 69-70.) In Cooke v. Laidlaw Adams & Peck, Inc., 126 AD2d 453 (1st Dep’t 1987), the First Department held that "[a]n attorney’s appearance in a judicial or quasi-judicial proceeding creates a presumption that the attorney-client relationship exists." Cooke, 126 AD2d at 455 (citation omitted). Finding that an attorney-client relationship between a corporation’s employee and corporate counsel did, in fact, exist, that court noted that it was "significant" that corporate counsel appeared at a proceeding involving an employee of a corporation and "admitted on the record before the SEC that they were appearing personally on [the employee’s] behalf." Cooke, 126 AD2d at 455.

Accordingly, both the language of the retainer agreements and Defendants’ conduct are sufficiently ambiguous as to create an issue of fact regarding the identity of [*5]Defendants’ client.

Defendants separately argue that Schreier is not a third-party beneficiary of the retainer agreements between Bayit and E & D, and that there are no "special circumstances" present that would give Schreier standing to bring this legal malpractice claim against E & D notwithstanding the absence of an attorney-client relationship.

"While privity of contract is generally necessary to state a cause of action for attorney malpractice, liability is extended to third parties, not in privity, for harm caused by professional negligence in the presence of fraud, collusion, malicious acts or other special circumstances." Good Old Days Tavern, Inc. v. Zwirn, 259 AD2d 300, 300 (1st Dep’t 1999) (citations omitted). "[S]pecial circumstances" are present where the relationship between the plaintiff and the defendant attorney is "tantamount to one of contractual privity." Good Old Days Tavern, Inc., 259 AD2d at 300. The First Department found that special circumstances were present where the plaintiff "was the president and sole shareholder" of the corporation that had retained the defendant attorney and running that corporation was the business from which "he derived his livelihood." Good Old Days Tavern, Inc., 259 AD2d at 300.

Defendants distinguish the holding in Good Old Days from the instant case, citing Topor v. Enbar, 841 N.Y.S.2d 824 (Sup. Ct. NY County 2007). In Topor, the plaintiff alleged that he and multiple related entities had retained and consulted the defendant attorney, and the court found that the plaintiff "held, at most, a minority interest" in the corporate client. Topor, 841 N.Y.S.2d at 824 (emphasis added).

However, the facts in Topor are distinguishable from those in this case. Here, Plaintiffs allege that Schreier was a 50% co-owner of Bayit, that he was Bayit’s president and on-site manager, and that he was a "foreseeable third-party beneficiary" of certain agreements between Bayit and the franchisor. (Am. Compl. ¶¶ 2, 18.) Plaintiffs also allege that "Defendants knew or should have known" that the "Franchisor was motivated to terminate Bayit’s Franchise," "that Bayit wanted to renew its franchise for an Additional Term of five (5) years until March 31, 2017, and that this renewal term had substantial monetary value to Bayit and Mr. Schreier." (Id. ¶¶ 41, 79.) Moreover, Plaintiffs allege that Defendants "counsel[ed] Mr. Schreier to decline" the offer to provide consulting services to the franchisor, and that as a result of failing to renew the franchise, Schreier lost his annual income of $300,000 and $800,000 in consulting fees. (Id. ¶¶ 9, 14-16.) "

Plaintiff unlocks the front door to his apartment building and it knocked unconscious as soon as he enters the lobby.  Three men run out with bats in hand.  Is there a case against the landlord?  In Angeles v Aronsky  2013 NY Slip Op 05955  Decided on September 24, 2013  Appellate Division, First Department we see not only that there easily could be a case for premises security liability, but it could be legal malpractice to settle too fast, and potentially, for too little money.
 

"Shortly after the attack, plaintiff retained defendant to represent him in a potential personal injury case. According to defendant, an investigator from his office initially interviewed plaintiff at the hospital. Defendant asserts that he later spoke with plaintiff over the phone to review the information plaintiff had given the investigator. Plaintiff told defendant that the front door was locking properly on the day he received his injuries and mentioned no other entrances. Defendant accepted plaintiff’s statements concerning the security of the building, and did not send an investigator to inspect the premises or visit the premises himself. Also, he did not interview the superintendent. [*2]

Although a settlement agreement was reached with the owner of the building prior to the commencement of any personal injury action, plaintiff commenced a legal malpractice action against defendant, alleging, inter alia, that he negligently investigated plaintiff’s premises liability claim. Defendant moved for summary judgment dismissing plaintiff’s complaint and the motion court denied the motion.

For a claim for legal malpractice to be successful, "a plaintiff must establish both 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] [internal citation omitted]). A client is not barred from a legal malpractice action where there is a signed "settlement of the underlying action, if it is alleged that the settlement of the action was effectively compelled by the mistakes of counsel" (Garnett v Fox, Horan & Camerini, LLP, 82 AD3d 435 [1st Dept 2011] [internal quotation marks omitted], quoting Bernstein v Oppenheim & Co., 160 AD2d 428, 430 [1st Dept 1990]).
 

Plaintiff, a waiter with a sixth grade education, retained defendant to represent him in a premises liability claim, relying on defendant’s expertise as a personal injury attorney to evaluate his claim and provide advice on the case. Plaintiff asserts that defendant only contacted him once after being retained, and only to ask him to go into defendant’s office to sign paperwork for the case. Plaintiff, an unsophisticated client with no legal experience, states that defendant did not explain to him the strengths and weaknesses of his claim and did not do a proper investigation. Defendant does not dispute that he never went to the building or spoke to the superintendent, but argues that he fulfilled his obligation by conveying the settlement offer to plaintiff.

In this specific case, given plaintiff’s lack of sophistication and his limited education, defendant’s statement that he never conducted any investigation, except for speaking to plaintiff for a very limited time, raises a question of fact as to whether defendant adequately informed himself about the facts of the case before he conveyed the settlement offer. Furthermore, defendant says he told plaintiff, when he conveyed the settlement offer, that it was a "difficult liability case." It is difficult to understand, on the record before us, how he made that assessment without going to the building, or speaking to the superintendent. Because the evidence on a defendant’s summary judgment motion must be viewed in the light most favorable to plaintiff (Branham v Loews Orpheum Cinemas, Inc., 8 NY3d 931 [2007]), we find there are questions of fact as to whether the attorney failed to exercise the ordinary reasonable skill appropriate under the circumstances.

The motion court properly found that plaintiff raised a question of fact as to whether the underlying action would have succeeded. To prevail on a premises liability claim, a plaintiff does not have "to exclude every other possible" explanation as to how the assailants entered the building, but only present "evidence [that] renders it more likely or more reasonable than not that the assailant was an intruder who gained access to the premises through a negligently maintained entrance" (Burgos v Aqueduct Realty Corp., 92 NY2d 544, 550-551 [1998]). In Bello v Campus Realty, LLC (99 AD3d 638, 639 [1st Dept 2012]), this Court found an issue of fact as to how the assailants entered the building where the plaintiff did not recognize her attackers as fellow tenants and the men were dressed as police officers. Similarly, in Chunn v New York City Hous. Auth. (83 AD3d 416, 417 [1st Dept 2011]), a factual issue was presented as to whether it was [*3]more likely than not that plaintiff’s assailants were intruders where the men made no attempt to conceal their faces."

A recurring theme in defense-side publications in the legal malpractice field is the connection between attorney fee collection suits and subsequent legal malpractice counter-claims.  For us, its a chicken-egg issue.  Is the legal malpractice case a shameless effort to avoid payment, or did the non-payment arise because there was poor performance (read:  legal malpractice)?

We don’t know, and we definitely don’t link the two in this story.  We have no opinion on the quality of work performed by the Kasowitz law firm.  We do predict many further events in this large fee collection lawsuit reported today in the NYLJ by Christine Simmons. 

"Kasowitz Sues Ex-Client for $2.3 Million in Fees
Christine Simmons

New York Law Journal

2013-09-24 00:00:00.0

Kasowitz, Benson, Torres & Friedman is suing hedge fund manager Alphonse Fletcher Jr. for $2.3 million in unpaid legal fees after the firm represented him in a high-profile discrimination suit against the Dakota, the legendary co-op on the Upper West Side of Manhattan (See Complaint). Kasowitz Benson lawyers, including managing partner Marc Kasowitz, were counsel to Fletcher and Fletcher Asset Management.

Fletcher, a former president of the co-op board, alleged that the Dakota discriminated against him based on his race in its refusal to approve his application to purchase an apartment next to his own for the purpose of combining the two. Fletcher, in Fletcher v. Dakota, 101289-2011, in Manhattan Supreme Court, also alleged the Dakota defamed him by making false statements about his finances, including an observation that he had "checked out of his business" and was living on "borrowed money." The Dakota case is still pending.

In its Sept. 19 collection lawsuit, Kasowitz Benson v. Alphonse Fletcher, Fletcher Asset Management, 158590/2013, Kasowitz said it advised Fletcher from July 2011 through November 2012, and Fletcher did not object to the invoices. The firm said it has received partial payment of about $1 million, leaving an unpaid balance of about $2.3 million. The suit said Fletcher "ceased paying any of the fees and disbursements" under the retainer agreement "despite repeated demands for payment."

Nathaniel Read, a partner at Cohen & Gresser who represents Fletcher, did not return a message seeking comment. Neither Kasowitz nor a representative of the firm returned messages for comment."
 

The decision is somewhat short on facts, but we guess that this case arose froma settled landlord-tenant case in which tenant then died. His estate sued his former attorneys, and the case continues. Frankel v Vernon & Ginsburg, LLP 2012 NY Slip Op 08425 Appellate Division, First Department tells us that the AD often scrutinizes the "but for" portion of the case very closely.

"The IAS court properly declined to dismiss the legal malpractice cause of action. Defendants failed to sustain their burden on summary judgment of demonstrating that plaintiff would be unable to prove one of the essential elements of his claim (see Sabalza v Salgado, 85 AD3d 436 [1st Dept 2011]). On the contrary, the record demonstrated that plaintiff’s decedent had viable causes of action for breach of the warranty of habitability and nuisance against defendants in the underlying action (see 61 W. 62 Owners Corp. v CGM EMP LLC, 77 AD3d 330 [1st Dept 2010], affd in part, mod in part 16 NY3d 822 [2011]; Misra v Yedid, 37 AD3d 284, 285 [1st Dept 2007]). Furthermore, the record demonstrated that plaintiff’s decedent might have recovered legal fees, which alone exceeded the amount of the settlement in this matter (Real Property Law § 234). "

In an otherwise garden or varietal attorney fee dispute with a legal malpractice defense, we ran across the "French Person" defense to attorney fees for the first time. Justice Gische, in Singer v Adler ; 2010 NY Slip Op 33439(U); Sup Ct, NY County gave it short shrift.

"This action is based upon claims for legal services rendered by plaintiff, Stephen Sayre Singer, to defendant, Joel A. Adler. Adler brings a pre-answer motion to dismiss the verified complaint against him on the basis that it is barred by the statute of limitations and alternatively, he is a “French person” and a New York Court does not have personal jurisdiction over him, pursuant to Article 14 of the Civil Code of the Republic of France. Both parties are attorneys at law and each is self represented in this action."

"Defendant generally claims there is no personal jurisdiction over him because he is a “French person.” Whether this argument pertains to long arm jurisdiction or service of process, it fails.
CPLR 5 302 provides that a court may assert jurisdiction over a non-domiciliary when the non-domiciliary “transacts any business within the state” and the cause of action arises out of that business. See CPLR 302 (a)(l). In order to have personal jurisdiction over a defendant, it is essential that the suit against the non-domiciliary have some “articulable nexus” to the business transacted. See McGowan v, Smith, 52 NY2d 268, 272 (1981). The basis of plaintiffs complaint, premised on plaintiffs performance of legal services for defendant, and the non-payment of legal fees, while defendant was domiciled in New York, amounts to “transaction of business within the state” and has an “articulable nexus” to the business transacted, specifically the provision of legal
services. Therefore, personal jurisdiction over defendant is proper. "

The undisputed facts in this case are shocking. "The following facts are undisputed. In or about May 2004, plaintiff, which had a lease on the building located at 2944 3d Avenue in the Bronx , retained the law firm of Gold, Rosenblatt & Goldstein to commence a commercial summary nonpayment action against the subtenants of the building, Diab and Hasan Saleh, who were doing business as 2944 3d Ave Retail Corp.("Retail Corp."). Defendant Steven E. Goldstein, a then-partner of the firm undertook the representation of plaintiff, and after commencing the action (Steven’s Distributions, Inc. v 2944 3rd Ave Realty Corp., Index No. 90110 (Civ Ct, B r o n x Co, 2 0 0 8 ) , fabricated several court orders purporting to award plaintiff various sums in back rent, so as to persuade plaintiff that Goldstein was actively prosecuting the action. "

So goes Steven’s Distribs. Inc. v Gold, Rosenblatt & Goldstein 2012 NY Slip Op 31990(U)
July 24, 2012 Supreme Court, New York County Docket Number: 106283/09 Judge: Joan A. Madden. This case is another example of the microscopic examination of "proximate cause" that goes on in legal malpractice litigation.

Justice Madden goes on to find that no matter how much fooling around took place during the litigation it was doomed from the start because no demand for rent had been timely made. If no demand for rent, then no case. If no case, then the internal bad behavior of of no interest.

"Accordingly, while Goldstein’s erroneous naming of the parties in the caption was unquestionably malpractice sufficient to have caused the dismissal of plaintiff’s petition, and while, perhaps, Goldstein’s (or Lubellls) failure to prepare plaintiff’s bookkeeper for her testimony would also have been sufficient to cause the dismissal, plaintiff in any event could not have prevailed in the first proceeding, since it had failed to prove a pre-litigation rent demand. For that reason, Goldstein’s (and possibly, Lubellls) negligence ”was not a proximate cause of any damages arising from the ?loss of the underlying action. Barnett v. Schwartz, 47 AD3d 197, 204 (2nd Dept 2007). Nor can plaintiff prove that, but for Goldstein’s failure to prosecute the underlying case for almost t w o years, Retail Corp.’s motion to vacate its default would not have been granted by Judge Rodriguez. While Judge Rodriguez based her decision on l1 [the long standing status of [the] proceeding with no indication that respondent neglected to appear or negotiate, and no indication that petitioner zealously prosecuted its claim" (Chera Aff., Exh. 10, at 2 ) , Diab Salehls’ affidavit in support of
Retail Corp’s order to show cause noted both that there was no such entity as the petitioner named in the caption of the proceeding, and that petitioner lacked standing to prosecute i t s claim, since its lease with the over-landlord had been terminated for nonpayment."
 

Personal injury and legal malpractice cases have many strong bonds. Because a sizable portion of the litigation world is devoted to personal injuries (on both the plaintiff’s and defendant’s side), one correctly expects significant legal malpractice litigation after-wards. How the legal malpractice case proceeds along with or after the PI case is a not well understood procedure. In Simoni v Costigan 2012 NY Slip Op 07882 Appellate Division, First Department and Simoni v Napoli 2012 NY Slip Op 08639;  Appellate Division, First Department we see two sides of the same issue.
 

Costigan: Although the personal injury actions and the legal malpractice action involve "a common question of law or fact" (CPLR 602[a]), consolidation could engender jury confusion and [*2]prejudice the defendants in the malpractice action (see Addison v New York Presbyt. Hosp./Columbia Univ. Med. Ctr., 52 AD3d 269, [1st Dept 2008]; Brown v Brooklyn Union Gas Co., 137 AD2d 479 [2nd Dept 1988]).

Napoli: The motion court providently exercised its discretion in denying defendants’ request for a stay of the legal malpractice action pending resolution of plaintiff’s personal injury action (see CPLR 2201). The proceedings do not share complete identity of parties, claims and relief sought (see 952 Assoc., LLC v Palmer, 52 AD3d 236 [1st Dept 2008]; Esposit v Anderson Kill Olick & Oshinsky, P.C., 237 AD2d 246 [2d Dept 1997]).

The motion court also properly permitted plaintiff to amend the complaint (see CPLR 3025[b]). The amended complaint and the documents submitted in support of the cross motion allege facts from which it could reasonably be inferred that defendants’ negligence caused plaintiff’s loss (see Garnett v Fox, Horan & Camerini, LLP, 82 AD3d 435 [1st Dept 2011]). At this stage of the proceedings, plaintiff does not have to show that he actually sustained damages as a result of defendants’ alleged malpractice (id. at 436).

Falling into a trap laid by oneself is a pitiful outcome to litigation.  Plaintiff hires defendant attorney to represent plaintiff when he is sued. The underlying case seems to be a construction accident matter. Did plaintiff lose the case because defendant failed to make certain arguments, or was defendant prevented from making those arguments by his client? We can’t really tell from the decision, but it seems that defendant undercut his own case here.’

Affordable Community, Inc. v Simon  2012 NY Slip Op 03789  Decided on May 15, 2012  Appellate Division, Second Department tells us: "The defendant here is an attorney who represented the plaintiff in a lawsuit asserted against the plaintiff by an individual who was injured at a construction site owned by the plaintiff. In this legal malpractice action, the defendant alleged that the plaintiff limited him to presenting only certain unsuccessful defense arguments in the course of representation. However, the defendant’s own evidence raised a triable issue of fact regarding this allegation. Consequently, there remain triable issues of fact as to whether the defendant negligently failed to present viable defenses in the underlying action and if so, whether, as a result of such failure, the plaintiff incurred liability for damages in that lawsuit. Accordingly, the defendant’s submissions in support of his motion for [*2]summary judgment did not establish, prima facie, that the plaintiff will be unable to prove the elements of legal malpractice and, thus, he failed to demonstrate his entitlement to judgment as a matter of law (see Mueller v Fruchter, 71 AD3d 650, 651; Rosenstrauss v Jacobs & Jacobs, 56 AD3d 453, 454). In light of our determination, we need not address the sufficiency of the plaintiff’s opposition papers (see Scott v Gresio, 90 AD3d 736, 737; see generally Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853). "