BAKER,  -v.- CHARLES SIMPSON, WINDELS MARX LANE & MITTENDORF, LLP  is the story of a Chapter 7 petitioner whose case was converted into a Chapter 11 proceeding.  He had counsel appointed, who then represented him until the end of the proceedings. The proceedings ended badly, with plaintiff Baker alleging "that: (1) On the advice of counsel, he refinanced through appellee Galster Capital LLC, which he contends misrepresented itself as a lender and failed to fund his mortgage loans as agreed. 1 (2) Galster Capital caused him to incur legal fees, forgo offers from other prospective lenders, and [*4] accrue interest on his debt. (3) During a status conference before the bankruptcy court, attorney Simpson made a misrepresentation concerning the bankruptcy estate. (4) Simpson arranged an improperly "fixed" auction sale of two of his commercial properties without notice to Baker, and after a prospective buyer moved to reopen the sale, the bankruptcy court issued an order vacating the original sale and scheduling a new sale on notice. (5) Allstate Insurance Company acted negligently when, at Simpson’s direction, it deposited insurance proceeds into a JPMorgan Chase bank account in Baker’s name. (6) And, Simpson improperly converted the funds deposited into the JPMorgan account for his personal use."

How did the Second Circuit handle this matter?  In the end, it ruled that there it had no jurisdiction to determine whether Bankruptcy Court had the right to take the state court legal malpractice action over, and then dismiss. The rules of permissive abstention and mandatory abstention are implicated here.

"Having determined that the bankruptcy court had jurisdiction over this matter, we look to the abstention doctrine to [*10] provide guidance as to the proper exercise of that jurisdiction. See In re Southmark Corp., 163 F.3d at 929-30. As we have previously explained, "the abstention provisions implicate the question whether the bankruptcy court should exercise jurisdiction, not whether the court has jurisdiction in the first instance." In re S.G. Phillips Constructors, Inc., 45 F.3d 702, 708 (2d Cir. 1995).

Mandatory abstention applies when "a proceeding based upon a [s]tate law claim or [s]tate law cause of action" is "related to a case under [T]itle 11" but does not arise under or arise in a case under Title 11. 28 U.S.C. § 1334(c)(2). In the proceeding before the district court, Baker conceded that the mandatory abstention provision set out in section 1334(c)(2) is inapplicable to this case. Baker, 413 B.R. at 42 n.4. Therefore, this Court may properly find any argument that the mandatory abstention provision governs this appeal waived. See United States v. Brown, 352 F.3d 654, 663 (2d Cir. 2003); Billing v. Ravin, Greenberg & Zackin, P.A., 22 F.3d 1242, 1245 n.1 (3d Cir. 1994).

In any event, any argument that — in the absence of a waiver — mandatory abstention would apply, is without merit. A bankruptcy [*11] court has "plenary jurisdiction over ‘all cases under [T]itle 11 and all core proceedings arising under [T]itle 11, or arising in a case under Title 11’" Mt. McKinley Ins. Co. v. Corning Inc., 399 F.3d 436, 447-48 (2d Cir. 2005) (quoting 28 U.S.C. § 157(b)(1)). As the Fifth Circuit has explained, although the definition of a proceeding "arising in" Title 11 is not entirely clear, it covers claims that "are not based on any right expressly created by [T]itle 11, but nevertheless, would have no existence outside of the bankruptcy." In re Wood, 825 F.2d 90, 97 (5th Cir. 1987)."
 

Result?  State Court action removed to Bankruptcy Court, Bankruptcy Court dismisses, no effective appeal.

Cases in which attorneys steal money rather than lose money [or commit blunders which lose otherwise meritorious cases] are in the jurisdiction of the New York Lawyers’ Fund for Client Protection.  This fund fills an important role, and covers areas which will not be susceptible to a legal malpractice case.  Malpractice Insurance carriers will not likely cover thefts, nor fraud by the attorneys; hence the added importance of this Fund.

The fund is paid for by attorney fees levied by New York.  Attorneys now pay $ 350. per two year period merely to register.  A significant portion of these monies goes to the fund.  Claims have picked up recently, probably consistent with the economy, as  Joel Stashenko of the NYLJ reports:

"In the first six months of this year, 349 new claims were filed with the fund, a 44.2 percent increase from the 249 received in the same period last year.

As of July 1 of this year, 762 claims were pending. If all were paid out at the maximum eligible reimbursement rate of $300,000, the fund would be liable for $35 million.

By comparison, the fund faced 612 claims on the same date last year with a potential exposure of $24 million. Halfway through 2008 the fund had 536 pending claims.

Awards also are running ahead of last year’s rates. In the first six months of the year, the fund paid out $4.3 million, up $2.9 million in the same period of 2009."

 

Attorneys for insurance carriers are rarely the subject of a legal malpractice case…it is much more often plaintiff’s attorney. The Poppe law firm blog reports this case of a car insurance defense attorney who goes to trial on the underlying auto accident without ever meeting with the client, and to make matters worse, admits liability without the client’s consent. While the Poppe blog does not set forth the full facts, it’s my guess that there was a verdict in excess of the policy, and that the resulting case against the attorney is for the amount above the policy along with disbursements and interest.

Here is the report:"Lawyer Osborne never contacted client Turner about the trial. In fact, he never even spoke to his client before the trial. One more thing. Lawyer Osborne stipulated (admitted) that client Tuner was negligent—even though he never spoke with his client. The jury awarded $1.7 million against the absent Turner. By the time Turner knew about the trial it was over, and he was facing a huge judgment.

 

In the legal negligence trial, Taylor W. Jones of Jones Jensen & Harris sued the former law firm alleging they bungled the car wreck defense and would have won the case if they had not commited legal malpractice. A jury agreed.

 

Georgia insurance defense law firm, Swift, Currie McGehee and Hiers defended lawyer Osborne. James T. McDonald, of the Swift law firm defended Osborne.

 

The jury awarded Turner $991,000 against his "lawyer."

 

The rules for attorney billing are different from those of any other profession.  While the general principals are the same, attorneys are required to utilize retainer agreements, or a similar document, while this is not true for accountants, dentists, etc.  There are consequences for the failure to use a retainer agreement, but Courts, especially the Second Department have permitted vast exceptions.  How does one understand the various factors?

One way is to read Constantine Cannon LLP v. Parnes,  2010 Slip Op  31956  a recent decision by Justice Edmead.  In this decision, she carefully dissects the various strands of claims and defenses.

"Plaintiff alleges that its invoices to defendants were carefully itemized, with each entry containing the date, amount of time, and a detailed description of the work performed, as well as the attorney’s name and billing rate. Mr. Matz, as the billing partner on defendants’ matters, reviewed each invoice before it was sent out, and his administrative assistant addressed and mailed each invoice to Ms. Parnes via first class mail (see the "invoices"). From September 2008 through February 2009, plaintiff provided defendants with approximately $630,000 worth of legal services, and defendants paid the invoices for those services without protest. "

"defendants’ "first affirmative defense and counterclaim" allege that plaintiff failed to issue defendants a written letter of engagement, pursuant to 22 NYCRR §1215.1. Therefore, plaintiff is barred from collecting a fee, and defendants are entitled to judgment against plaintiff for the full amount of all fees paid: $627,845.31. Defendants’ "second affirmative defense and counterclaim," allege that plaintiff "vastly overcharged" for its services, for example, charging for the time of persons apparently not admitted to the New York bar at the same hourly rate as admitted lawyers. "

The Court: "The rule covering engagement letters provides in relevant part: "[A]n attorney who undertakes to represent a client and enters into an arrangement for, charges or collects any fee from a client shall provide to the client a written letter of engagement before commencing the representation, or within a reasonable time thereafter" (22 NYCRR §1215.1). ""However, a law firm’s "failure to comply with the rules on retainer agreements (22 NYCRR 1215.1) does not preclude it from suing to recover legal fees for the services it provided" (Miller v Nadler, 60 AD3d 499, 500 [Sup Ct New York County 2009], citing Egnotovich v Katten Muchin Zavis & Roseman LLP, 55 AD3d 462, 464 [1st Dept 2008]; Nicoll & Davis LLP v Ainetchi, 52 AD3d 412 [1st Dept 2008]; Seth Rubenstein, P.C. v Ganea, 41 AD3d 54, 63-64 [2d Dept 2007]). The First Department explains in Nabi v Sells (70 AD3d 252, 253-254 [1st Dept 2009]): "Against the client’s unqualified right to terminate the attorney-client relationship is balanced the notion that a client should not be unjustly enriched at the attorney’s expense or take undue advantage of the attorney, and therefore the attorney is entitled to recover the reasonable value of services rendered." Further, the caselaw does not distinguish between the recovery of fees under a theory of quantum meruit or an account stated. Instead, this Court has held that [22 NYCRR §1215.1] "contains no provision stating that failure to comply with its requirements bars a fee collection action. Indeed, the regulation is silent as to what penalty, if any, should be assessed against an attorney who fails to abide by the rule" (Morgan, Lewis & Bockius LLP v IBuyDigital.com, Inc., 2007 WL 258305, 1 [Sup Ct New York County 2007] [emphasis added]). Therefore, defendants’ first affirmative defense fails to defeat plaintiff’s account stated and quantum meruit claims."

"[Courts] have held that the client may [not] use the attorney’s noncompliance [with 22 NYCRR §1215.1]…as a sword to compel disgorgement of fees already paid. This is particularly relevant with respect to plaintiff’s claim against [the defendants] since it appears that she has paid only a portion of the fees billed… . The issue has yet to be addressed by the First Department… . The Second Department [in Seth Rubenstein, P.C. v Ganea, supra]…ruled that the attorney discharged without cause was not precluded from recovering in quantum meruit the fair and reasonable value of the legal services provided, but did not address the issue of whether fees already paid were disgorgeable. That issue was determined by the Appellate Term, 9th & 10th Judicial Districts, in [Jones] v. Wright… where the court held that "while an attorney’s failure to comply with the provision does not entitle a client to a return of legal fees where the services have already been rendered…a client may seek to recover a fee already paid if it appears that the attorney did not properly earn said fee." This appears to be consistent with the well established principles that an attorney who is discharged for cause does not have the right to recover legal fees, provided "the misconduct relates to the representation for which the fees are sought."

(Most citations omitted) (Emphasis added).

The Court in Jones v Wright (2007 WL 2247199, 1 [App Term 9th & 10th Jud Dists 2007]), which is cited by the Matos Court, stated:

Indeed, while an attorney’s failure to comply with the provision does not entitle a client to a return of legal fees where the services have already been rendered, a client may seek to recover a fee already paid if it appears that the attorney did not properly earn said fee [citing Beech v Gerald B. Lefcourt, P.C., 2006 NY Slip Op 51092U, 4 (Civ Ct New York County 2006) ("While a client cannot maintain a cause of action for return of a legal fee based on noncompliance with Rule 1215.1, a client may seek recovery of the already paid fee grounded in a breach of contract theory, if an attorney did not properly earn any part of such fee")]."

 

 

 

 

Patriot Exploration, LLC v Thompson & Knight LLP ;  2010 NY Slip Op 06217 ;  Decided on July 27, 2010 ; appellate Division, First Department presents a discussion of forum non conveniens
 as well as the question of why this is a NY case?  Defendants wanted the case to be moved to Texas, notwithstanding the 2 year statute of limitations.  Plaintiff is represented by a Massachusetts attorney admitted pro haec vice.

 "In this legal malpractice action, the motion court did not abuse its discretion in declining to dismiss this action on forum non conveniens grounds (see Shin-Etsu Chem. Co., Ltd. v ICICI Bank Ltd., 9 AD3d 171, 175-77 [2004]). Since the court may grant a forum non conveniens motion "on any conditions that may be just" (CPLR 327[a]), which includes the power to impose "reasonable conditions designed to protect plaintiffs’ interests" (Chawafaty v Chase Manhattan Bank, 288 AD2d 58, 58 [2001], lv denied 98 NY2d 607 [2002]), the court could properly condition an inconvenient-forum dismissal on a waiver of the foreign forum’s
two-year statute of limitation (see e.g. Healy v Renaissance Hotel Operating Co., 282 AD2d 363, 364 [2001]; Seung-Min Oh v Gelco Corp., 257 AD2d 385, 387 [1999]; Highgate Pictures v De Paul, 153 AD2d 126, 129 [1990]). "

 

Nelson v. Patterson, 2010 NY Slip Op 31799 [Justice Mdden in NY County Supreme Court] is a case about loans, employment contracts, fraud and, oh yes, legal malpractice.  After a discussion of breached employment contracts and the like, the court grants plaintiff’s request to add a cause of action for quantum meruit.  "In general the existence of an express agreement ordinarily precludes recoery in quantum meruit.  However, where as her, a bona fide dispute as to the application of a contract is demonstrated, a plaintiff will not be required to elect his or her remedies."

Quantum meruit, breach of fiduciary duty and legal malpractice, all tied together, continue in this case.

When does the statute of limitations start to run in legal malpractice?  Is it on the day that former attorneys are "substituted out" or perhaps on the day that successor counsel sign a retainer agreement?  One answer is found in Fur Online v. Rivkin Radler, LLP, Supreme Court, New York County, Index No. 113292/08. 

There, Justice Friedman determines that CPLR 214(6) applies, and that the rule in Matter of Kliment, 3 NY3d 535 (2004) is illustrative.  Where the "underlying complaint is one which essentially claims that there was a failure to utilize reasonable care or where acts of omission or negligence are alleged or claimed, the statute of limitations shall be three years if the case comes within the purview of CPLR Section 214(6) regardless of whether the theory is based in tort or in breach of contract."

Here, the decision illustrates the problems inherent.  In a US District Court case, Judge John G. Koeltl so ordered a letter application to be relieved as counsel on September 14, 2005.  The attorney-client relationship ended on that day.  Another attorney purportedly took over the case on October 14, 2005, but this "does not show that plaintiff was continuously represented by defendant up until that date."

Result?  Case dismissed.

Frederick v Meighan ; 2010 NY Slip Op 06076 ;Decided on July 13, 2010 ;Appellate Division, Second Department is a case in which Supreme Court dismissed, sua sponte on the basis of statute of limitations, the Appellate Division reversed. 

When does the statute of limitations start to run in legal malpractice?  The easy answer is as of the date of the mistake, or, with continuing representation, on the last day the attorneys represent plaintiff.  But, the more complex answer is on the day that a cause of action for malpractice comes into existence.  It may be years later than either of the first two dates.  Here, the cause of action did not come into existence until the Appellate Division ruled in the underlying case.

"Following this Court’s decision on the appeal in the underlying action and the subsequent award of damages to the buyers, the plaintiff commenced this action against the Meighan defendants and the DeCaro defendants to recover damages for legal malpractice. As against the Meighan defendants, the plaintiff principally alleged that the inclusion of the executed construction agreement in the package of documents sent back to the buyers’ attorney constituted legal malpractice, as it enabled the buyers to obtain specific performance of the contract of sale (see Suchin v Frederick, 30 AD3d 503). As against the DeCaro defendants, the plaintiff principally alleged that their failure to interpose a rescission defense based upon mistake in the underlying action constituted legal malpractice. In addition, the plaintiff alleged that the DeCaro defendants’ failure to advise him of a potential legal malpractice claim against the Meighan defendants and to interpose a legal malpractice cross claim against them in the underlying action constituted legal malpractice.

At the outset, we find that the Supreme Court improvidently exercised its discretion in, sua sponte, directing dismissal of the complaint insofar as asserted against the Meighan defendants pursuant to CPLR 3211(a)(4) in view of the continued pendency of the first legal malpractice action against those defendants, which relief was not requested by any party in this action (see Clair v Fitzgerald, 63 AD3d 979, 980; Frankel v Stavsky, 40 AD3d 918, 919).

We further find that the Supreme Court should have granted that branch of the plaintiff’s motion which was for summary judgment on the issue of liability against the Meighan defendants. In order to prevail in an action to recover damages for legal malpractice, a plaintiff must establish that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession, and that the breach of this duty proximately caused the plaintiff to sustain actual and ascertainable damages (see Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442).
 

Contrary to the Meighan defendants’ contention, inasmuch as the plaintiff did not sustain "actionable injury" until this Court awarded the buyers specific performance in the underlying action, the plaintiff’s legal malpractice cause of action against them was not time-barred (McCoy v Feinman, 99 NY2d 295, 301; see Kerbein v Hutchison, 30 AD3d 730, 732). "

The question of whether legal malpractice litigation is tied to [and affected by] downturns in the financial and economic worlds is often asked.  Our answer is that legal malpractice litigation is apt to come up in every situation where attorneys are present. 

The Drier episode, punctuated by fraud, crimes and large money numbers is a prime example.  In this NYLJ article by Nate Raymond we see that opinion letters assuring some aspect of a transaction, issued by attorneys, are now the subject of a legal malpractice case.  From the article:

"Fortress Investment Group LLC filed suit against Ruskin Moscou Faltischek on Tuesday for allegedly issuing "utterly false" legal opinion letters used by ex-lawyer Marc S. Dreier, who is now in prison for his role in a massive Ponzi scheme.

In a complaint filed in Manhattan Supreme Court, Fortress claims the Uniondale-based law firm issued three letters that Mr. Dreier used to defraud the investment firm out of $50 million. The suit against Ruskin Moscou follows one filed by Fortress in December against Dechert that made similar allegations.

The Ruskin opinion letters, issued in 2006 and 2007, stated that the firm was "special transaction counsel" to companies controlled by real estate developer Sheldon Solow. But Fortress said Ruskin Moscou never checked with anyone working for Mr. Solow’s companies to confirm the relationship between the firm and Solow. Loan documents that Ruskin Moscou in its letters claimed to have been "duly executed and delivered" by the real estate companies had been forged by Mr. Dreier, the complaint said.

"We believe the suit is baseless and look forward to complete vindication through the judicial process," Barbara Cerrone, a spokeswoman for Ruskin Moscou, said in a statement."

 

Yesterday, the Appellate Division, First Department, reversed Supreme Court and reinstated the negligence causes of action on behalf of Mary Anne Fletcher against Boies Schiller in Fletcher v Boies, Schiller & Flexner, LLP; 2010 NY Slip Op 06140 ;Decided on July 20, 2010 .
 

From the Decision:  "Plaintiff, a fashion model, pleaded that a prominent agency mismanaged her and lost or withheld her crucial portfolio; that she had evidence of a scheme involving bogus expenses charged by that agency against other models; that images of her were profitably used by a large retail chain, wrongfully and without her authorization, via a subsidiary; and that a second agency had interfered with bookings that would have earned her $275,000, and instead booked another model for those jobs.

Plaintiff further pleaded that, when she consulted the Boies Schiller law firm and met with defendant Hayes, she was persuaded to turn over a large body of self-gathered evidence and told that her claims were worth large, specified amounts, and that the firm, and defendant Hayes concealed a conflict of interest between her and existing classes in state and federal actions; excluded her from the federal class action; subordinated her interests to those of other class members; participated lackadaisically in settlement discussions; and failed to timely file a claim in a crucial bankruptcy proceeding while successfully prosecuting the claim of the federal class.

The complaint should not have been dismissed insofar as it pleaded two causes of action for malpractice. Plaintiff has pleaded that, but for defendants’ malpractice in failing to advise her properly, she "would have avoided some actual
ascertainable damage" (see IMO Indus. v Anderson Kill & Olick, 267 AD2d 10, 11 [1999]), [*2]including sufficient detail as to the "nature of" the underlying claim (see Reid v Druckman, 309 AD2d 669 [2003]). She need not, at this early stage, offer a detailed pleading to support her quantifying her alleged loss (see Proskauer Rose Goetz & Mendelsohn v Munao, 270 AD2d 150, 151 [2000]). "