The Court of Appeals yesterday decided a case which limits potential liability, or more correctly put, continues a limit of potential liability of a corporation’s outside professional advisors, including attorneys.  In Kirschner v Kpmg Llp ;  2010 NY Slip Op 07415 ;  Decided on October 21, 2010
Court of Appeals ;  Read, J. we see a discussion of this accountant’s malpractice question:

""Would the doctrine of in pari delicto bar a derivative claim under New York law where a corporation sues its outside auditor for professional malpractice or negligence based on the auditor’s failure to detect fraud committed by the corporation; and, the outside auditor did not knowingly participate in the corporation’s fraud, but instead, failed to satisfy professional standards in its audits of the corporation’s financial statements?" (In re Am. Intl. Group, Inc., 998 A2d 280 [Del 2010]).

"The doctrine of in pari delicto [FN4] mandates that the courts will not intercede to resolve a dispute between two wrongdoers. This principle has been wrought in the inmost texture of our common law for at least two centuries (see e.g. Woodworth v Janes, 2 Johns Cas 417, 423 [NY 1801] [parties in equal fault have no rights in equity]; Sebring v Rathbun, 1 Johns Cas 331, 332 [NY 1800] [where both parties are equally culpable, courts will not "interpose in favor of either"]). The doctrine survives because it serves important public policy purposes. First, denying judicial relief to an admitted wrongdoer deters illegality. Second, in pari delicto avoids entangling courts in disputes between wrongdoers. As Judge Desmond so eloquently put it more than 60 years ago, "[N]o court should be required to serve as paymaster of the wages of crime, or referee between thieves. Therefore, the law will not extend its aid to either of the parties or listen to their complaints against each other, but will leave them where their own acts have placed them" (Stone v Freeman, 298 NY 268, 271 [1948] [internal quotation marks omitted]). "

"Traditional agency principles play an important role in an in pari delicto analysis. Of particular importance is a fundamental principle that has informed the law of agency and corporations for centuries; namely, the acts of agents, and the knowledge they acquire while acting within the scope of their authority are presumptively imputed to their principals (see Henry v Allen, 151 NY 1, 9 [1896] [imputation is "general rule"]; see also Craigie v Hadley, 99 NY 131 [1885]; accord Center, 66 NY2d at 784). Corporations are not natural persons. "[O]f [*10]necessity, [they] must act solely through the instrumentality of their officers or other duly authorized agents" (Lee v Pittsburgh Coal & Min. Co., 56 How Prac 373 [Super Ct 1877], affd 75 NY 601 [1878]). A corporation must, therefore, be responsible for the acts of its authorized agents even if particular acts were unauthorized (see Ruggles v American Cent. Ins. Co. of St. Louis, 114 NY 415, 421 [1889]). "The risk of loss from the unauthorized acts of a dishonest agent falls on the principal that selected the agent" (see Andre Romanelli, Inc. v Citibank, N.A., 60 AD3d 428, 429 [1st Dept 2009]). After all, the principal is generally better suited than a third party to control the agent’s conduct, which at least in part explains why the common law has traditionally placed the risk on the principal. "

"We are also not convinced that altering our precedent to expand remedies for these or similarly situated plaintiffs would produce a meaningful additional deterrent to professional misconduct or malpractice. The derivative plaintiffs caution against dealing accounting firms a "get-out-of-jail-free" card. But as any former partner at Arthur Andersen LLP — once one of the "Big Five" accounting firms — could attest, an outside professional (and especially an auditor) whose corporate client experiences a rapid or disastrous decline in fortune precipitated by insider fraud does not skate away unscathed. In short, outside professionals — underwriters, law firms and especially accounting firms — already are at risk for large settlements and judgments in the litigation that inevitably follows the collapse of an Enron, or a Worldcom or a Refco or an AIG-type scandal. Indeed, in the Refco securities fraud litigation, the IPO’s underwriters, including the three underwriter-defendants in this action, have agreed to settlements totaling $53 million (www.refcosecuritieslitigation.com). In the AIG securities fraud litigation, PwC settled with shareholder-plaintiffs last year for $97.5 million (www.refcosecuritieslitigationpwc.com). It is not evident that expanding the adverse interest exception or loosening imputation principles under New York law would result in any greater disincentive for professional malfeasance or negligence than already exists [FN6]. Yet the approach advocated by the Litigation Trustee and the derivative plaintiffs would allow the creditors and shareholders of the company that employs miscreant agents to enjoy the benefit of their misconduct without suffering the harm. [*20]"
 

Attorneys frequently use LLPs or PCs as their corporate identity.  Does this really make a difference in small or single attorney settings?  The short answer is: "yes!"  in Teodorescu v Resnick & Binder, P.C. ;2010 NY Slip Op 20400 ;Decided on September 28, 2010 ;Supreme Court, Kings County ;Kurtz, J. we see what happens when plaintiff fails to name the individual attorneys,
 

"During the approximately two years this action was stayed, the attorneys who formed the defendant professional corporation, David Joseph Resnick and Serge Yakov Binder (hereinafter "Resnick" and "Binder"), were both disbarred. Plaintiff now moves to have the stay vacated and this action placed on the trial calendar and for leave to amend the summons and complaint to add Resnick and Binder as individual defendants pursuant to CPLR §203(b), since the statute of limitations as to these defendants has already expired. 

A plaintiff seeking the benefit of the relation-back doctrine must establish the existence of a mistake concerning the defendant’s identity that prevented plaintiff from serving that defendant before the statute of limitations expired. See Bryant v. South Nassau Communities Hosp., 59 AD3d 655, 656 (2d Dept 2009). Evaluation of an alleged mistake then turns on whether the mistake interfered with plaintiff’s ability to name all of the proper defendants prior to expiration of the limitation period. Compare Monir v. Khandakar, 30 AD3d at 489, supra (finding plaintiff’s failure to add a professional corporation to her medical malpractice claims against the defendant dentist to be a mistake based upon her lack of knowledge as to the corporation’s existence) with Contos v. Mahoney, 36 AD3d 646, 647 (2d Dept 2007) (declining to apply the relation-back doctrine where plaintiff failed to sue the defendant lessor in a timely manner, despite receiving a copy of a Lease Termination Statement identifying Nissan as the [*3]lessor prior to the expiration of the limitation period.) Under these guidelines, when a plaintiff is aware of the defendants’ potential liability and deliberately decides not to assert a claim against them, there is no mistake and thus no relation-back. See Buran v. Coupal, 87 NY2d at 181, supra. Under such circumstances, a "plaintiff should not be given a second opportunity to assert that claim after the limitations period has expired (citations omitted)." Id. The Court concludes that in order for plaintiff to receive the benefit of the relation-back doctrine, all three prongs enunciated in Brock, as modified by the Court of Appeals in Buran, must be satisfied.

The Court finds that plaintiff has failed, however, to satisfy the third prong under the Brock test because plaintiff knew of the proposed defendants’ potential liability at the time she filed a legal malpractice action against defendant.   Finally, since the relation-back doctrine as a whole hinges on the sufficiency of notice to the proposed new defendants within the statutory limitations period, the correct inquiry is not whether Resnick and Binder were aware of the charges brought by plaintiff against defendant, but whether such knowledge could reasonably have led them to the conclusion that they were intentionally omitted as parties to the action and were, thus, no longer at risk of litigation. "

The litigation funding industry either preys on, or aids clients who have significant damage cases that they cannot bring to trial, or when the clients need money during long litigation.  This story, while nominally that of a disbarred attorney, focuses a light on the lending practices of attorneys and clients.

There is a top tier of medical malpractice law firms, and they have vast brain-damaged medical malpractice experience.  A multi-million dollar damage case likely falls within those that would have been taken up by any of the top-tier firms. But this case was not handled by one of the big firms.   What happened here?  In Matter of Cousins
2010 NY Slip Op 07413 ;Decided on October 19, 2010 ; Appellate Division, First Department 
we see that a set of plaintiffs "retained respondent pursuant to a written retainer agreement which set forth the sliding fee scale mandated by Judiciary Law § 474-a. They also signed a litigation financing agreement under which they would borrow money from respondent for expenses and disbursements at an interest rate of 15% per year. To fund the Veneski action and other cases, respondent apparently borrowed several hundred thousand dollars from various litigation funding companies, including Core Funding Group, LLC (Core Funding) and Legal Asset Funding, LLC (LAF), pledging some of the same collateral to both entities. "

"After a jury awarded the Veneskis $4,215,300 in damages, Mr. Veneski signed an affidavit on February 26, 2000 in support of a potential application by respondent for increased compensation pursuant to Judiciary Law § 474-a, stating: "I intend to give [respondent] one third (1/3) of the net recovery he has obtained for me in this action whether it be denominated a fee, gift or gratuity (a tip)". Respondent did not file the affidavit or seek court approval for an increased fee until 2006.

After this Court ordered a new trial (285 AD2d 369), the malpractice action was settled in November 2002 for $3 million plus an annuity that would yield $750,000 over 20 years. On December 12, 2002, respondent wrote to Mr. Veneski that he was about to receive the first payment of $1 million, and that "[s]ubject to court approval (if required), the attorney fee is one-third of the net recovery." Respondent calculated that he was owed $154,011.26 in disbursements and $281,996.25 in attorney’s fees from that payment. At some point the Veneskis paid respondent an additional $63,000 as interest on disbursements.

Thereafter, the malpractice defendants’ main insurance carrier became insolvent and the remaining $2 million of the settlement was to be paid by the Liquidation Bureau. Respondent represented to the liquidation court that his attorney’s fee on that payment was $212,500. In contrast, he wrote to Mr. Veneski in October 2003 that he was "owe[d]" $454,450.55, representing $666,524.73 in "attorney’s fees" plus $425.82 in disbursements, less the $212,500 set aside for him by the Liquidation Bureau. After receiving the payment, Mr. Veneski gave respondent a check for $454,450.55 and, upon respondent’s request, crossed out the words "attorneys fees" he had written on the memo line, and substituted "gift." At the same meeting, Mr. Veneski signed a gift tax return in blank, which respondent sent to respondent’s accountant to fill in. When respondent received the first annuity payment of $20,000 in October 2005, he wrote to Mr. Veneski that he was applying it to disbursements and interest. "

"We agree with the Referee and Hearing Panel that disbarment is the appropriate sanction (see Matter of Harley, 298 AD2d 49 [2002]). Respondent charged a brain-damaged client over $500,000 more than the statutory maximum in attorney’s fees. He tried to disguise those fees as a gift, and deceived his client to secure his assistance in the charade. Respondent has yet to satisfy the judgment directing him to return those fees and the over-billed disbursements, and he has a pending petition for Chapter 7 Bankruptcy relief. His other attempted and accomplished plans to obtain financing from clients demonstrate a pattern of conduct which, at best, reflects an indifference to his clients. "

PROTOSTORM, LLC ,  -against- ANTONELLI, TERRY, STOUT & KRAUS, LLP, ., Defendants. 08-CV-931 (NGG) (JO) UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK  2010 U.S. Dist. LEXIS 109466 [October 12, 2010, Decided]  is the Court’s lament over a motion for summary judgment gone bad.  Federal Courts have a Rule 56.1 which is supposed to, in essence, organize motions for summary judgment in a manner that allows all to understand the competing arguments.  Here, motions, cross-motions, letters, amended complaints, faulty local Rule 56.1 statements have all conspired to render the entire effort meaningless.
 

"As the court has already noted, the parties have made piecemeal letter submissions relating to the ATS&K Defendants’ summary judgment motions. If the court were to decide those motions on the merits, it could either (1) attempt to parse the letters for relevant information and argument [*19] and consider it, despite the parties’ failure to comply with the requirements of Federal Rule of Civil Procedure 56, or (2) ignore the letters and solely consider the parties’ formal submissions.

Each option is problematic. If the court were to attempt to parse the parties’ many letters, it might well miss important information. Moreover, the court would not have the benefit of any Rule 56.1 statements covering the information submitted by letter. Finally, it is not clear whether the parties have put forth all of the evidence and arguments that they would like the court to consider, or if they exercised some degree of restraint. On the other hand, if the court were to ignore the letters altogether in deciding the instant motions, it would almost certainly be faced with either a motion for reconsideration or a new motion for summary judgment because both parties have indicated that they would like the court to consider additional information. This course is not an efficient use of the court’s limited resources. The lack of Rule 56.1 statements covering the newly submitted evidence — and the infirmities in the parties’ current Rule 56.1 statements — also militate against deciding the [*20] motions’ on the current record.

Consequently, the court denies the ATS&K Defendants’ motions under Federal Rules of Procedure 12(b)(6) and 56 without prejudice. It appears that merits discovery is now complete. To the extent that this is true — or when it is — the ATS&K Defendants are granted leave to file another motion for summary judgment on substantially the same grounds as their present motions. To the extent that they wish to do so, the parties should confer regarding a possible briefing schedule. The parties are further instructed to reacquaint themselves with Local Rule 56.1 and are counseled that the court will not consider any letters that are submitted after briefing is complete.

Finally, while the court does not address the substance of the ATS&K Defendants’ motions at this time, it offers one observation. Before evaluating whether Plaintiffs’ claims are time-barred, the court will need to engage in a choice-of-law analysis. "In diversity cases, ‘state statutes of limitations govern the timeliness of state law claims’, and state law ‘determines the related questions of what events serve to commence an action and to toll the statute of limitations.’" Diffley v. Allied-Signal. Inc., 921 F.2d 421, 423 (2d Cir. 1990) [*21] (quoting Personis v. Oiler, 889 F.2d 424, 426 (2d Cir. 1989)).

The parties appear to assume that the court’s determination of which statute of limitation applies will be made by weighing the interests of various states. (See, e.g., Def. Mem. 25-26.) This may not be the appropriate inquiry. New York’s statute of limitations applies unless a nonresident plaintiff sues upon a cause of action that arose outside of New York. See Stafford v. International Harvester Co., 668 F.2d 142, 147 (2d Cir. 1981); N.Y. C.P.L.R. § 202; see also Bianco v. Erkins, 243 F.3d 599, 608 (2d Cir. 2001) ("Modern choice-of-law decisions are simply inapplicable to the question of statutory construction presented by C.P.L.R. 202. C.P.L.R. 202 is to be applied as written, without recourse to a conflict of law analysis.") (quoting Ledwith v. Sears Roebuck & Co., 231 A.D.2d 17, 660 N.Y.S.2d 402, 406 (1st Dep’t 1997)). To the extent that the parties agree that New York law governs issues related to the statute of limitations, they should tailor any future arguments appropriately."
 

in Gelobter v Fox 10/01/2010 , Supreme Court, Nassau County,  Judge Marber, we see a legal malpractice action sounding in "Seller Rescue Fraud."  Plaintiff says that she did not know the price at which she sold her house, and that the actually selling price was several hundred thousand dollars less than she believed.

Her complaint was dismissed, sanctions were granted against plaintiff  and plaintiff moved to renew and reargue  On this motion and decision, Justice Marber recites the Bishop v. Maurer. 9 NY3d 910 (2007)

Clients (and everyone else) are bound by the contents of documents they sign and agree to.  A defense that the signer did not read the contents has extremely limited currency.  An exception in legal malpractice actions might arise when the documents are very difficult legal writings, that a lay person might not understand, even when read.

In Bishop the Court of Appeals wrote: " [it] is true that plaintiffs here, as is normally the case, are bound by the estate planning documents decedent signed. Nevertheless, the conclusiveness of the underlying agreement does not absolutely preclude an action for professional malpractice against an attorney for negligently giving to a client an incorrect explanation of the contents of a legal document (see Arnav Indus., Inc. Retirement Trust v Brown, Raysman, Millstein, Felder & Steiner, 96 NY2d 300, 305 [2001]). "

In Byron Chem. Co., Inc. v.  Groman;  2009 NY Slip Op 03465 ;  Decided on April 28, 2009 ;  Appellate Division, Second Department  plaintiff employer sued its attorneys for an employee benefit provision which was drafted by attorney firm 1, which was then taken over by attorney firm 2.  At issue was whether the doctrine of continuous representation tolled the statute of limitations, and if it did, were the two law firms to be held in the case. The Second Department held that while the law firms continued to intermittently represent the employer, such was not sufficient to toll the statute of limitations.
 

"Contrary to the plaintiff’s contention, the statute of limitations was not tolled by the continuous representation doctrine (see Dignelli v Berman, 293 AD2d 565; cf. Shumsky v Eisenstein, 96 NY2d at 168; see also Maurice W. Pomfrey & Assoc., Ltd. v Hancock & Estabrook, LLP, 50 AD3d 1531; Zaref v Berk & Michaels, P.C., 192 AD2d 346). The defendants’ subsequent representation in matters unrelated to the specific matter that gave rise to the alleged malpractice was insufficient to toll the statute of limitations (see Dignelli v Berman, 293 AD2d at 565). Accepting the facts alleged in the plaintiff’s complaint as true, there was a nine-year lapse between the defendants’ representation as to the employment agreements. The continuous representation doctrine does not contemplate such intermittent representation (see Williamson v PricewaterhouseCoopers LLP, 9 NY3d 1, 9; Shumsky v Eisenstein, 96 NY2d at 167-168; Loft Corp. v Porco, 283 AD2d 556). Accordingly, the Supreme Court correctly granted the defendants’ motions to dismiss the complaint insofar as asserted against them as time-barred. "

In Felt v. Van Alstyne we see an interesting real estate-legal malpractice case, one which is, unfortunately, no so uncommon. Plaintiff owns 51 acres of property in Greene County and wants to sell a portion, 6.1 acres. The balance of 45 acres or so, which is unimproved, is to be sub-divided and kept. Defendant attorney is hired to do the closing.

What is a closing? It is the sale transaction, and the attorney for a party is supposed to make sure that the transaction actually follows the intent of the parties. Here everything went wrong. Now, plaintiff, who has sued the buyers in a separate action, must sue the attorney and the title closing company over this mistake: the deed did not have a description of the premises to be sold attached to it. Imagine that, the deed simply recited all 51 acres, when in fact only 6 acres were to be sold.

The defense? That’s how it’s done here! The lesson to be taken from this case, is that when plaintiff moves for summary judgment, and includes the affidavit of an expert, defendant better have one too. The affidavit of co-defendant was simply not enough. Result? Plaintiff is granted partial summary judgment with the damages to await the outcome of another trial, presumably against the buyer.

Keeping in mind the biblical aphorism that certain things come in threes, we report on a second lake front legal malpractice case.  This one is ZAVALIDROGA,  -v.-  COTE,  JOHN DOE, DORIS M. KELLEY, JAMES E. KELLEY, DAVID LAPLANTE, individually and officially as an Oneida County Sheriff’s deputy, GREGORY J. AMOROSO, individually and officially, TOWN OF ANNSVILLE, a municipal entity.

Well, perhaps it is not a lake but rather a pond.  "After the Zavalindrogas’ neighbors successfully sued in state court for rights to a pond and adjacent property, the Zavalindrogas brought the current federal action against their neighbors, their own and their neighbors’ attorneys in the state court action, two state court judges, a Sheriff’s deputy, and the Town of Annsville, alleging a "state-sponsored scheme" to convey the Zavalindrogas’ property to their neighbors."

"As to the other appellees, HN3this Court reviews de novo a district court decision dismissing a complaint pursuant to Federal Rule of Civil Procedure 12(b)(1) or (b)(6). See Triestman v. Fed. Bureau of Prisons, 470 F.3d 471, 474 (2d Cir. 2006) (Rule 12(b)(1)); [*5] Chambers v. Time Warner, Inc., 282 F.3d 147, 152 (2d Cir. 2002) (Rule 12(b)(6)). In each instance, this Court "constru[es] the complaint liberally, accepting all factual allegations in the complaint as true, and drawing all reasonable inferences in the plaintiff’s favor." Chambers, 282 F.3d at 152; see also Triestman, 470 F.3d at 474.

HN4A district court may dismiss a complaint sua sponte for failure to state a claim, so long as the plaintiff is given notice and an opportunity to be heard. Wachtler v. County of Herkimer, 35 F.3d 77, 82 (2d Cir. 1994). Further, HN5we may "affirm a decision on any grounds supported in the record, even if it is not one on which the trial court relied." Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 405 (2d Cir. 2006)."

"Finally, because the District Court properly dismissed all claims over which it had original jurisdiction, the District Court did not err by declining to exercise supplemental jurisdiction over the Zavalidrogas’ state law legal malpractice claim. See 28 U.S.C. § 1367(c)(3)."