The "frozen out" minority loses a corporate cause of action – contract case, and believes that the attorneys for the majority colluded with the majority to freeze them out.  They believe that the attorneys helped the majority to breach fiduciary duties.  They felt that there was sufficient evidence to support a claim for legal malpractice against the other party’s attorneys.  Their case was dismissed on summary judgment , and in Aranki v Goldman & Assoc., LLP   2012 NY Slip Op 04117   Decided on May 30, 2012   Appellate Division, Second Department  the dismissal was affirmed.
 

"Absent fraud, collusion, malicious acts, or other special circumstances, an attorney is not liable to third parties not in privity or near-privity for harm caused by professional negligence" (Fredriksen v Fredriksen, 30 AD3d 370, 372; see AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5 NY3d 582, 595). Here, the defendants established that they did not collude with the majority members of Millennium Alliance Group, LLC (hereinafter MAG), inter alia, to freeze the plaintiffs out of MAG’s management and profit sharing and force them to surrender, at a reduced price, their minority membership interest in MAG. Thus, the defendants established their entitlement to judgment as a matter of law dismissing the cause of action alleging legal malpractice. In opposition, the plaintiffs failed to raise a triable issue of fact.

The defendants also established their entitlement to judgment as a matter of law dismissing the cause of action alleging breach of fiduciary duty by showing that they did not knowingly induce the majority members of MAG to breach their fiduciary duty to the plaintiffs (see Kaufman v Cohen, 307 AD2d 113, 125). In opposition, the plaintiffs failed to raise a triable issue of fact. "

How does a settlement affect the later legal malpractice claim against the attorney who represented plaintiff in the settlement?  We have seen an erosion of the standard that a legal malpractice claim after settlement is permitted if plaintiff was ‘effectively compelled" to settle because of the departures of the attorney.  In some divorce cases in the 1st Department, an allocution upon settlement that the client was "satisfied" with the attorney’s work has vitiated the later legal malpractice.

In In re: STUART MELTZER, Debtor   Case No. 808-73746-reg, Chapter 7 UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF NEW YORK 2012 Bankr. LEXIS 2261  
May 18, 2012, we see a discussion the "effectively compelled" principle.

"In order to sustain a malpractice claim, [*18] the client must allege and prove: "(1) that the attorney ‘failed to exercise ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession’; and (2) that the attorney’s breach of the duty proximately caused the [client] actual and ascertainable damages." Dempster v. Liotti, 86 A.D.3d 169, 176, 924 N.Y.S.2d 484, 489 (N.Y. App. Div. 2011) (quoting Leder v. Spiegel, 9 N.Y.3d 836, 837, 840 N.Y.S.2d 888, 872 N.E.2d 1194, (N.Y. 2007), cert. denied sub nom. Spiegel v. Rowland, 552 U.S. 1257, 128 S.Ct. 1696, 170 L.Ed.2d 354 (2008)). Causation, which is an element of a malpractice claim, requires a showing by the party alleging malpractice "that he or she would have prevailed in the underlying action. . . . but for the lawyer’s negligence." Pistilli Constr. & Dev. Corp. v. Epstein, Rayhill & Frankini, 84 A.D.3d 913, 921 N.Y.S.2d 887 (N.Y. App. Div. 2011) (quoting Rudolf v. Shayne, Dachs, Stanisci, Corker & Sauer, 8 N.Y. 3d 438, 442, 835 N.Y.S.2d 534, 867 N.E.2d 385 (N.Y. 2007)).

Dr. Haywoode alleges, and the Debtor admits, that the Debtor’s failure to file a summons and complaint on behalf of Dr. Haywoode prior to expiration of the applicable statute of limitations [*19] constituted malpractice. HN3An attorney’s admitted failure to commence an action within the applicable time frame provided by statute constitutes negligence as a matter of law. Bergin v. Grace, 39 A.D.3d 1017, 1018, 833 N.Y.S.2d 729, 730 (N.Y. App. Div. 2007) (citing A.H. Harris & Sons, Inc. v. Burke, Cavalier, Lindy and Engel P.C., 202 A.D.2d 929, 930, 610 N.Y.S.2d 888, 889 (N.Y. App. Div. 1994) (other citations omitted)). This is not a case where the client decided to accept a settlement in lieu of facing the risks of trial. Because of the Debtor’s malpractice, Dr. Haywoode was left with no choice but to accept the settlement, having lost the right to maintain any action for damages against the City of New York.

Because the underlying action was settled, and the settlement was upheld, the effect of the settlement on the malpractice claim must be examined. HN4Under New York law, where the underlying action has been terminated by settlement rather than by dismissal or adverse judgment, a claim for legal malpractice survives only if the court finds that the settlement was compelled because of the mistakes of counsel. Cohen v. Lipsig, 92 A.D.2d 536, 459 N.Y.S.2d 98, 99 (N.Y. App. Div. 1983) [*20] (citing Kerson Co. v. Shayne, Dachs, Weiss, Kolbrenner, Levy & Levine, 45 N.Y.2d 730, 732, 408 N.Y.S.2d 475, 380 N.E.2d 302 (N.Y. 1978), and Becker v. Julien, Blitz & Schlesinger, 95 Misc.2d 64, 66-67, 406 N.Y.S.2d 412 (N.Y. Sup. Ct.1977), modified on other grounds, 66 A.D.2d 674, 411 N.Y.S.2d 17 (N.Y. App. Div. 1978)).

As stated in Becker v. Julien, Blitz & Schlesinger, P.C.:
HN5Where the termination (of the underlying action) is by settlement rather than by a dismissal or adverse judgment, malpractice by the attorney is more difficult to establish, but a cause of action can be made out if it is shown that assent by the client to the settlement was compelled because prior misfeasance or nonfeasance by the attorneys left no other recourse. Thus, the court finds itself in agreement with the concurring opinion by Mr. Justice Suozzi in the Kerson case, supra, that the cause of action for legal malpractice must stand or fall on its own merits, with no automatic waiver of a plaintiff’s right to sue for malpractice merely because plaintiff had voluntarily agreed to enter into a stipulation of settlement.
95 Misc.2d at 66, 406 N.Y.S.2d at 414 (citing Kerson Co. v. Shayne, Dachs, Weiss, Kolbrenner, Levy & Levine, 45 N.Y.2d at 732, 408 N.Y.S.2d 475, 380 N.E.2d 302). [*21]

The Debtor and the Trustee urge the Court to find that the settlement and release bar Dr. Haywoode from maintaining a malpractice action against the Debtor. According to the Debtor and the Trustee, Dr. Haywoode accepted the settlement and found it to be reasonable, signed the general release, and made subsequent efforts to enforce the settlement. Based on Dr. Haywoode’s actions, including her ratification of the settlement when she executed the settlement and release, she forfeited her right to maintain the malpractice action. In contrast, Dr. Haywoode argues that she was compelled to accept the settlement due to the Debtor’s malpractice. Because Dr. Haywoode had no other choice but to accept the settlement, she did not waive her right to bring a malpractice action against the Debtor, and the settlement of the personal injury action does not restrict her right to assert a claim for malpractice.

In this case, neither party has accurately characterized the effect the settlement has on Dr. Haywoode’s malpractice claim. The City of New York offered to settle Dr. Haywoode’s claim for $7,750.00. This offer appears to have been made solely based on the City of New York’s view [*22] of the value of the claim, in that it was made before the City became aware that a complaint was not filed prior to expiration of the statute of limitations. Once the Debtor failed to file a timely complaint, the personal injury "claim" was effectively worthless and the City of New York revoked the settlement. The Debtor’s failure to file a timely complaint precluded Dr. Haywoode from having her day in court. As a result of the Debtor’s negligence, the most that Dr. Haywoode could ever collect from the City of New York was $7,750.00. Only an intervening order of a State Court judge preserved the deal. The $7,750.00 settlement, while providing some evidence of the value of the claim, only mitigated the damages caused by the Debtor’s negligence. The Debtor recognized that the settlement served to mitigate any damages he caused because he agreed to be responsible for up to $7,750.00 in the event the City of New York reneged. It was in the best interests of Dr. Haywoode as well as the Debtor to seek enforcement of the City’s agreement."
 

A French artist wants to buy an apartment in New York for a studio and living space. So far, this could be the start of a fairy tale in which the artist comes to NY, works hard, triumphs, etc. But, this real estate transaction soon turned to legal malpractice litigation. One reason for the problems is that the artist nominated another to take care of the transaction, a second reason is that the attorney seems to have done not much work.

In Ehrenhalt v Kinder; 2011 NY Slip Op 30375(U); February 15, 2011; Supreme Court, New York County ;Judge: Martin Shulman we see how things went bad:

"At the time she signed the contract, Shapolsky tendered the contract deposit of $85,000 directly to Kinder. Paragraph 3(i) of the contract confirms the foregoing and provides for plaintiff to pay an additional $20,000 on July 20, 2008, which she did, for a total contract deposit of $1 05,000. The unit required extensive renovation and/or repairs as reflected in a work rider attached to the contract. Kinder undertook to perform such work prior to closing. To finance this work, the contract provides for the immediate release of the contract deposit to defendant Max Management LLC (“Max LLC”).’ Thereafter, pursuant to a separate oral agreement of unspecified date, Ehrenhalt paid additional funds to Kinder- and/or Max LLC in the total amount of $28,597.45 for further renovations not indicated in the contract and not included in the purchase price (the “additional work”).‘ It appears Mehl ordered a title report pertaining to the unit on or about July 11 , 2008 and received it on or about July 24, 2008 (see Exh. 8 to Motion). The title report revealed that co-defendant Maxcine Holder (“Holder”) owned the unit, rather than Kinder, and further revealed the existence of two outstanding mortgages; an outstanding judgment of foreclosure; a lien for unpaid common charges; tax liens; and a certificate of occupancy designating the unit as a doctor’s office (hereinafter collectively referred to as the “title defects” or “title issues”). The total amount of liens exceeded the balance of the purchase price due,

Understandably, the foregoing title defects delayed any possible closing."

"Turning to defendant’s conduct after he learned of the title defects, as stated in Logalbo v Plishkiii, Rubano & Baum, supra: While the issue of whether certain conduct constitutes legal malpractice
normally requires a factual determination to be made by a jury . . , , a plaintiff will be entitled to summary judgment in a case where there is no conflict at all in the evidence, the defendant’s conduct fell below any permissible standard of due care, and the plaintiff’s conduct was not really
involved (citations omitted). Here, once he learned of the title defects, Mehl alleges only that he spoke to Kinder’s closing attorney about these issues and was assured they would be resolved prior to closing. He also vaguely alleges he spoke to plaintiff numerous times about the title
defects and she repeatedly indicated her willingness to proceed to closing once title was clear. However, Mehl gives no indication when he spoke to plaintiff or what he claims to have told her, nor does he refute plaintiffs claim that the earliest correspondence documenting such discussions is dated December 2008 (Exh. 15 to Motion), months after plaintiff had already paid $1 33,597.45 to Kinder As to this claim, defendant does not meet his burden of refuting plaintiff’s entitlement to summary judgment as to liability. This court finds that defendant’s failure to advise plaintiff of the title defects immediately upon learning of same was a breach of his professional duty as a matter of law and that this negligence was a proximate cause of at least a portion of plaintiffs’ damages, the amount of which will be determined at trial."
 

Schneider v. Finmann, 15 NY3d 306 (2010) notwithstanding, Pace v Raisman & Assoc., Esqs., LLP   2012 NY Slip Op 03989   Decided on May 23, 2012   Appellate Division, Second Department
is yet another case in which alleged legal malpractice in a trust setting is dismissed on statute of limitations grounds.

"In 2001 the plaintiff’s decedent sought to amend a trust that he had created in 1998. He approached his attorney, the defendant Myron Raisman, of the defendant Raisman & Associates, Esqs., LLP (hereinafter together the law firm defendants), who had previously provided the decedent with legal advice pertaining to the planning of his estate. The law firm defendants prepared an amendment to the trust to purportedly allow the decedent to convey his assets during his life to the trust in order to avoid the payment of estate taxes with respect to these assets at the time of his death. The decedent’s intention in amending his trust was to leave him, as grantor, with limited power over the assets that he conveyed to the trust so that those assets would not be included in his estate at the time of his death for tax purposes.

Between the time that the trust was amended on January 9, 2001, and the decedent’s death on October 7, 2005, the decedent conveyed numerous assets and gifts to the trust.

In January 2007 the law firm defendants, along with the related accounting firm of Raisman Magen and Zicht Associates, C.P.A.s, P.C. (hereinafter the accounting firm), prepared the tax returns for the decedent’s estate. In November 2009 the Internal Revenue Service (hereinafter [*2]the IRS) conducted an audit of the estate’s tax return. The audit uncovered deficiencies in the estate’s tax return, which ultimately led to the assessment of additional taxes, interest, and penalties upon the estate. The IRS determined that the value of the estate included those assets and gifts which the decedent had transferred to the trust subsequent to its amendment in January 2001 because the trust’s amendment, drafted as an "intentionally defective grantor trust," provided the decedent with too much authority to borrow the corpus or income from the trust without adequate consideration.

The plaintiff, who is the decedent’s son and executor of the decedent’s estate, commenced this action in January 2010 against the law firm defendants and the accounting firm to, inter alia, recover damages for legal malpractice against the law firm defendants in the drafting of the trust (first cause of action) and for fraud against the law firm defendants in allegedly falsely representing that the decedent could transfer assets to the trust for less than fair consideration without those assets being included as part of the decedent’s estate at the time of his death (fourth cause of action).

The complaint alleged that the decedent routinely and continuously retained the defendants for estate planning and related services because he wanted to plan his estate in a manner that maximized his children’s inheritance and that, in the course of the representation, the defendants advised the decedent to create the trust. The plaintiff alleged that the law firm defendants committed legal malpractice in drafting the amendment to the trust since it subjected the assets transferred thereto to estate tax. The plaintiff also alleged that the law firm defendants knowingly made false representations to the decedent, commencing on January 9, 2001, to the effect that the assets conveyed to the trust were outside of the decedent’s estate for estate tax purposes. The plaintiff asserted that the decedent did not know, although the law firm defendants did, that the decedent’s conveyances to the trust would be included in part of the estate for tax purposes."

"The burden then shifted to the plaintiff to "establish that the statute of limitations has been tolled or that he . . . actually commenced the action within the applicable limitations period" (Krichmar v Scher, 82 AD3d at 1165; see Fleyshman v Suckle & Schlesinger, PLLC, 91 AD3d at 593; East Hampton Union Free School Dist. v Sandpebble Bldrs. Inc., 90 AD3d at 822). The plaintiff failed to do so. Contrary to the plaintiff’s contention, the statute of limitations was not tolled by the doctrine of continuous representation where the decedent, the original client, died, severing the attorney-client relationship (see Velasquez v Katz, 42 AD3d 566, 567), and the law firm defendants’ representation of the decedent’s estate in connection with legal advice as to the estate’s tax liability, given subsequent to the decedent’s death, was separate and distinct from the alleged negligent creation of the trust, which is the act underlying the legal malpractice cause of action (see Shumsky v Eisenstein, 96 NY2d 164, 168). Further, contrary to the plaintiff’s contention, the legal malpractice cause of action did not accrue at the time that the IRS conducted its audit in 2009. [*3]Therefore, the legal malpractice cause of action was not interposed within the applicable limitations period (see McCoy v Feinman, 99 NY2d at 301; Ackerman v Price Waterhouse, 84 NY2d 535, 541). "

We are pleased to announce the publication of out Outside Counsel Column " Legal Malpractice in Matrimonial Litigation" from this week.

Fortress Credit Corp. suedDechert LLP, and lost  after Marc Dreier "proposed to plaintiffs that they participate in a short-term note program to finance the purchase of foreign real estate assets. The designated borrower would be Dreier’s clients, Solow Realty & Development Company, LLC, and affiliated companies controlled by real estate developer Sheldon Solow (collectively Solow Realty), and Dreier would be the guarantor. The parties executed two loans totaling $60 million in 2006, and, in 2008, Dreier proposed another $50 million loan transaction. For this last loan transaction, plaintiffs required Solow Realty and Dreier to retain independent counsel to issue a legal opinion as to whether Solow Realty and Dreier had carried out the necessary formalities to render the loan documents valid and binding on them. Ostensibly, Solow Realty and Dreier retained defendant for this purpose. Dreier furnished the necessary documents and information to defendant for the preparation of the opinion. All the documents to which Solow Realty was a signatory appeared to have been signed by Solow Realty, and some bore "what appeared to be" the signatures of Sheldon Solow and Solow Realty’s CEO.

Plaintiffs contend that they relied on defendant’s legal opinion that the loan documents were duly executed and delivered and that the loan was a valid and binding obligation on Solow Realty and Dreier. Plaintiffs wired $50 million to an attorney trust account set up at Dreier’s firm. Several months later, Dreier was arrested in connection with another fraud scheme, and plaintiffs discovered that Solow Realty had no knowledge of and was never a party to the loan transactions and that Dreier had falsified the documents and forged the Solow Realty signatures.

The allegation that defendant acted recklessly in failing to confirm that Solow Realty was in fact involved in the loan transaction is not a sufficient allegation of scienter, an element of the cause of action for fraud, especially since the factual allegations of this complaint do not establish that defendant made a knowingly false statement or that defendant was a knowing participant in the fraud (see LaSalle Natl. Bank v Ernst & Young, 285 AD2d 101, 110 [2001]). [*2]"

Now, in a second try, they sue Ruskin Moscou Faltischek P.C. 2012 NY Slip Op 03954
Decided on May 22, 2012  Appellate Division, First Department .  Although plaintiff’s attorney made many significant arguments, the AD found that it too should be dismissed.  "For the reasons stated in Fortress Credit Corp. v Dechert LLP (89 AD3d 615 [2011]) — a case involving virtually identical facts and allegations — the complaint in this action fails to state claims for fraud, legal malpractice, negligence, negligent misrepresentation, and breach of fiduciary duty. Plaintiffs have not distinguished this case from Dechert and there has been no change in the law to warrant reexamination of the issues (see NAMA Holdings, LLC v Greenberg Traurig, LLP, 92 AD3d 614 [2012]; compare George Campbell Painting v National Union Fire Ins. Co. of Pittsburgh, PA, 92 AD3d 104, 105-106 [2012]). "

Nachama Hirsch is the pro-se defendant in this attorney fee-legal malpractice case.  She was the wife in a divorce where the husband was able to take the couples assets into bankruptcy during the period between the grant of an order against him and the entry, and in doing so took millions away from the rightful wife.  No amount of litigation in Bankruptcy Court, or in Supreme Court ever cured the problem.  Wile lost.

Now, in Forchelli , Curto , Deegan, Schwartz, Mineo, Cohn & Terrana, LLP v Hirsch, 2012 NY Slip Op 31317(U)  May 4, 2012  Sup Ct, Nassau County  Docket Number: 8151-11  Judge: Steven M. Jaeger she has avoided a huge bankruptcy attorney fee, and may even be able to prove legal malpractice.

"With respect to the first counterclaim, based on alleged misconduct committed prior to 2007 in the
underlying Chapter 11 bankruptcy proceeding, issues of fact exist as to whether Forchelli’ s admittedly continuing, post-2007 bankruptcy representation, operated as toll of the limitations period within the meaning of the continuous representation doctrine (e. g., DeStaso v. Condon Resnick, LLP 90 AD3d 809 812; Putnam County Temple Jewish Center, Inc. v. Rhinebeck Sav. Bank 87 AD3d 1118; Howish v. Perrotta 84 AD3d 1312; Leon Petroleum, LLC v. Carl S. Levine
& Associates, pc. 80 AD3d 573 , 574 see generally, Zorn v. Gilbert 8 NY3d 933 934 (2007); McCoy v. Feinman 99 NY2d 295, 306 (2002J;Shumsky v. Eisenstein 96 NY2d 164, 167- 168 (2001); CPLR 214(6J). Notably, "(tJo dismiss a cause of action pursuant to CPLR 3211 (aJ(5) on the ground that it is barred by the applicable statute of limitations, a defendant bears the initial burden of
establishing, prima facie that the time in which to sue has expired" (DeStaso Condon Resnick, LLP, supra 90 AD3d 809 812).
Contrary to Forchelli’ s assertions (Gatto Aff. , ~~ 45-46), the conclusorily supported claim that its subsequent representation was entirely distinct because the bankruptcy proceeding was converted from a Chapter 11 to a Chapter 7 proceeding (Gatto Aff. , ~ 43; Gatto Reply Aff. , ~~ 33-37), does not establish its * 8] entitlement to judgment as a matter of law. Similarly, the defendant’ s over biling and related claims (as interposed in the second counterclaim) – are not amenable
to summary resolution at this essentially pre-discovery juncture of the action (see generally, Gelobter v. Fox 90 AD3d 829, 831; Melito Adolfen, P. C. v. Travelers Indem. Co. , supra 2008 WL 4308287, at 3 see also, Bank of America NA. v. Hillside Cycles, Inc. 89 AD3d 653 , 654; Valdivia v. Consolidated Resistance Co. of America, Inc. 54 AD3d 753 , 755). The Court notes that in
advancing several of its factual claims , Forchelli relies on inconclusive snippets of testimony culled from the defendant’ pro se deposition, which was taken in one of the prior dismissed Forchell non-payment actions (e. g.,  Gatto Aff. , ~~ 31  , 53; Reply Aff.  30)(cf, Baillargeon Kings County Waterproofing Corp. , 29 AD3d 838, 839). "

Legal malpractice cases are ubiquitous an pop up everywhere attorneys handle problems for people.  We’ve wondered how a firm like Dewey (and its predecessor LeBoeuf, Lamb) are handled at the highest levels, and how a firm such as Dewey implodes.  Was it a big big legal malpractice case brought by the State of Missouri?  Take a look at thisAM Law Daily article., by Sara Randazzso.

"On February 15, with Dewey & LeBoeuf entering what would prove to be its death spiral, the firm quietly settled a $3 billion malpractice suit filed against it in Missouri three years ago by state insurance regulators who accused predecessor firm LeBoeuf, Lamb, Greene & MacRae of participating in a conflict-riddled scheme to push General American Life Insurance Co.—at one time the Show Me State’s largest life insurer—into insolvency and, ultimately, the hands of fellow LeBoeuf Lamb client MetLife.

The abrupt dismissal of the case less than a month before it was to go to trial came amid a stream of partner departures and mounting concerns about the firm’s financial condition, but it is hard to know whether resolving it added to the fiscal woes that ultimately doomed Dewey to oblivion. That’s because, three months later, the settlement’s terms—and details about how much money the firm agreed to pay out—remain shrouded in secrecy.

The Missouri Department of Insurance’s Web site lists the settlement amounts paid by three other defendants targeted in related suits—accounting firm KPMG ($18 million), Morgan Stanley ($95 million), and Goldman Sachs (just over $100 million)—that have contributed to $1.425 billion in distributions that General American’s holding company had dispersed to some 300,000 policyholders as of September 2009. (A final distribution for an undisclosed amount is scheduled for later this year.)

No such information is available about the suit against Dewey. All the insurance department Web site says on the subject is that as of February 2012, "The Dewey & LeBoeuf case has been resolved." Contacted for comment by The Am Law Daily, insurance department spokesman Travis Ford declined to elaborate on that single sentence. A mid-February court filing simply says the case has been dismissed with prejudice by stipulation and that the parties must bear their own costs.

One person familiar with the settlement would only say the amount Dewey agreed to pay was less than KPMG’s $18 million settlement figure and should be covered by the firm’s professional liability policy. According to a second source familiar with the firm’s operations, that policy has a $300 million cap and a $2 million deductible, was brokered by AON, and was issued by Bar Insurance and Reinsurance, a company incorporated in Bermuda that provides professional liability insurance to an unspecified number of large law firms. Richard Howe, a Bar Insurance director and of counsel at Sullivan & Cromwell in New York, declined to confirm that Dewey is among the firms served by the insurance group."