The first cousin to Legal Malpractice is the eternal question of legal fees.  Who pays them?  From whom may they be obtained?  How does one calculate them?  What is reasonable?  Under which situations might an attorney forfeit them?  Might one law firm be responsible to another when it says that it will cover the legal fees of a client?

DePetris & Bachrach, LLP v. Srour   2010 NY Slip Op 01840 ; Decided on March 9, 2010
Appellate Division, First Department  speaks to some of these issues. 
 

"Applying these standards, the motion court erroneously dismissed the fourth and fifth causes of action which allege claims against defendants-respondents for breach of the implied warranty of authority and for tortious misrepresentation of authority and assurances of payment, respectively. These causes of action seek to hold defendants-respondents liable for their own action in misrepresenting that they had authority from the Nassers to enter into a contract in which the defendants, Jacques and Ezequiel Nasser would pay plaintiff law firm $75,000 ($37,500 each) of the legal fees incurred by plaintiff’s client Srour.

Under the doctrine of implied warranty of authority, a person who purports to make a [*2]contract, representation, or conveyance to or with a third party on behalf of another person, lacking power to bind that person, gives an implied warranty of authority to the third party and is subject to liability to the third party for damages for loss caused by breach of that warranty, including loss of the benefit expected from performance by the principal (see Restatement (Third) of Agency § 6.10 [2006]).

Under the doctrine of tortious misrepresentation and assurances of payment, if the person who falsely claims to have power to bind another knows that the claim is untrue, the person has made a fraudulent misrepresentation and is subject to liability to those who, justifiably relying on the representation, suffer a loss as a consequence (see Restatement (Third) of Agency § 7.01 [2006]).

The complaint alleges that defendants-respondents represented to plaintiff law firm that they had authority from the Nassers to promise payment of $75,000 of the legal fees incurred by plaintiff’s client when, in fact, they lacked the authority to bind the Nassers. Thus, the complaint alleges a viable claim for breach of the implied warranty of authority. The complaint also alleges that defendants-respondents falsely represented to plaintiff law firm that they specifically discussed the subject matter of their authority and representations with the Nassers. Thus, the complaint alleges a viable clam for tortious misrepresentation of authority and assurances of payment.

To the extent the motion court relied on the principle of apparent authority, lack of consideration and the statute of frauds to dismiss these causes of action, such was error. The doctrine of apparent authority is irrelevant because the fourth and fifth causes of action are not seeking to hold the principals (the Nassers) liable on the ground that defendants-respondents had apparent authority from the Nassers to make promises of payment. Rather, these causes of action are seeking to hold the agents, defendants-respondents, liable for contracts or representations they purported to make on behalf of the principal (the Nassers) while acting without authority from the principal."
 

We recently reported on this Case in SDNY, captioned STONEWELL CORP., and RICHARD GLADSTONE, Plaintiffs, -against- CONESTOGA TITLE INSURANCE CO., WILLIAM KOLSHORN, and JERSEYSEARCH TITLE SERVICES, INC., Defendants. – as consolidated with – CONESTOGA TITLE INSURANCE CO., WILLIAM KOLSHORN, and JERSEYSEARCH TITLE SERVICES, INC.,

As is common in Federal District Court cases, there are complaints, and then amended complaints and so on.  Today’s iteration of the case involves a second amended complaint.  Here, from the decision:

"For the reasons stated below, Stonewell’s motion for leave to amend as set forth in the Corrected Proposed Second Amended Third-Party Complaint is granted in part and denied in part.

II. Analysis of Proposed Amendments

Stonewell has proposed three new causes of action in its Corrected Proposed Second Amended Third-Party Complaint. The Court finds that: (1) proposed Cause of Action Two is approved as consistent with the Court’s Opinion and Order, dated January 7, 2010; (2) proposed Cause of Action Three is approved as sufficiently related to the original pleadings; (3) proposed Cause of Action Four is denied as unmeritorious and futile; and (4) Dollinger’s other objections to the Corrected Proposed Second Amended Third-Party Complaint are denied.

A. Proposed Cause of Action Two is Approved

Cause of Action Two sets forth the relevant facts in support of the claim that Dollinger failed to convey two offers of settlement to Gladstone. These two instances of a purported breach of duty formed the basis for Stonewell’s first motion for leave to amend the Third-Party Complain, which was granted by the Court. The Court therefore approves the proposed Cause of Action Two [*4] in Stonewell’s Corrected Proposed Second Amended Complaint.

B. Proposed Cause of Action Three is Approved

In its Second Motion to Amend its Third-Party Complaint, Stonewell also seeks to add Cause of Action Three, which provides, in pertinent part:
41. On information and belief, at various times during the period of 1997 and 2007, a variety of settlement discussions were entered into between Conestoga representatives and Dollinger (on behalf of Stonewell/Gladstone). . . . Further, Dollinger admitted in his deposition that he tried to settle the pending matters at various times.

42. At no time did Dollinger communicate any of these discussions of settlement with Stonewell/Gladstone, who would have instructed Dollinger to proceed and settle the case.

43. Dollinger had an absolute duty to bring all settlement discussions to his client’s immediate attention, and to discuss its relative merits and demerits. His failure to do so breaches a fundamental duty to his client.

In support of this new cause of action, Stonewell provides Proposed Exhibit A, which includes several of Dollinger’s invoices. These invoices, dating from between March 1999 and February 2006, make a number of references to Dollinger [*5] engaging in settlement negotiations on behalf of Stonewell. Dollinger objects to the proposed Cause of Action Three on the ground that the allegations are too vague and lack adequate specificity.

The Court finds that the facts and allegations developed during discovery and set forth in Paragraphs 41-43 of the proposed amended pleadings are sufficiently related to the original claims and are foreshadowed in the earlier pleadings. See Bridgeport Music, Inc. v. UMG Recordings, Inc., 248 F.R.D. 408, 415 (S.D.N.Y. 2008); State Farm Mut. Auto. Ins. Co. v. CPT Med. Servs., P.C., 246 F.R.D. 143, 148 (S.D.N.Y. 2007). Permitting the proposed amendment would allow for the full adjudication of the merits of the remaining claim in this litigation – to wit, that, in the course of the attorney-client relationship, Dollinger failed to convey one or more settlement offers to Stonewell, and that this alleged breach caused damages to Stonewell. See Morin v. Trupin, 835 F. Supp. 126, 129 (S.D.N.Y. 1993). Accordingly, the Court grants the motion for leave to amend the pleadings to include Cause of Action Three. The Court also permits the addition of Proposed Exhibit A to the Third-Party Complaint.

C. Proposed [*6] Cause of Action Four is Denied

Stonewell next seeks, for the first time, to add a cause of action based on Dollinger’s alleged failure to send Stonewell copies of invoices for legal fees and expenses that Dollinger sent to Conestoga during the period that Conestoga funded Dollinger’s legal representation of Stonewell. Stonewell offers no legal basis for such a claim, nor does it allege any damages from this purported breach of Dollinger’s duty to Stonewell.

The Court therefore denies leave to amend with respect to proposed Cause of Action Four (Paragraphs 44 and 45) on the ground that such amendment would be futile. See Foman v. Davis, 371 U.S. 178, 182, 83 S. Ct. 227, 9 L. Ed. 2d 222 (1962).

D. Dollinger’s Other Objections Are Without Merit

Dollinger objects to specific contents of the Corrected Proposed Second Amended Third-Party Complaint that are unchanged from the original pleadings. Dollinger contends that the First Cause of Action (Legal Malpractice) and the Fifth Cause of Action (Failure to Cooperate and Failure to Produce Documents) should be excised from the proposed amended pleadings because they have been dismissed by the Court in its Opinion and Order, dated January 7, 2010. Dollinger further objects to "background [*7] allegations" in the pleadings that relate to these now-dismissed causes of action. 2

FOOTNOTES

2 These "background allegations" appear in Paragraphs 16-26 and 29-31.

These two causes of action have been dismissed and are not the subject of the upcoming trial. Their continued presence in the pleadings is inconsequential to the adjudication of this case. Requiring a redrafting of the original pleadings based on a summary disposition is unnecessary and would be a waste of time and resources. Dollinger’s objections with respect to these portions of the Corrected Proposed Second Amended Third-Party Complaint are therefore denied. 3 "

It’s fairly rare for defendant-attorney to move for summary judgment in a legal malpractice case, lose, and then lose at appeal.  Why do defendants move for summary judgment ?  Beyond the obvious answer that it is a shot that they can take without any downside, the general reason is that defendant believes that it can win in one of two areas. 

The first area is generally some lack of privity, or some lack of authority in the representation.  For example, that plaintiff did not cooperate in giving an affidavit, or plaintiff did not pay expenses for an expert, or lacked standing because of bankruptcy,

The second area is plaintiff’s  generalized inability to prove success on the underlying case.  As examples, that there was no collectible assets, or the statute had already passed when the client came to the attorney, or the such.

While we cannot tell why defendant took his appeal in Mueller v Fruchter ;2010 NY Slip Op 01771 ;Appellate Division, Second Department ; Decided on March 2, 2010  we do see that neither Supreme Court nor the Appellate Division thought much of the motion:

"Here, the Supreme Court properly denied that branch of the defendants’ motion which was for summary judgment dismissing the plaintiff’s first cause of action (see Rosenstrauss v Jacobs & Jacobs, 56 AD3d 453, 454; Velie v Ellis Law, P.C., 48 AD3d 674, 675; Pedro v Walker, 46 AD3d 789, 790). The defendants failed to make a prima facie showing of their entitlement to judgment as a matter of law since they failed to show that the plaintiff was unable to prove at least one of the essential elements of her legal malpractice cause of action (see Rosenstrauss v Jacobs & Jacobs, 56 AD3d at 454; Velie v Ellis Law, P.C., 48 AD3d at 675; Pedro v Walker, 46 AD3d at 790). Thus, we need not address the sufficiency of the opposing papers (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853).

Legal Malpractice is family to its cousin, Medical Malpractice. In either situation, a person has put faith in a professional, asking that a threatening problem be solved. It matters little to the client/patient whether the situation is an operation or a trial. in either, the problem is overwhelming and threatening. What happens when something goes wrong.

There are financial considerations, but equally as important is the anger which comes from believing that you’ve been let down. Here, at the crux, is where an apology might help. Dr. Emily Senay, of CBS reports on medical malpractice. It is equally applicable to legal malpractice:

"It’s not greed that drives most people to file medical malpractice lawsuits," Wojcieszak said. "It’s anger. They get — people get angry when they think there’s a cover-up."

Wojcieszak’s anger turned into action. He created the Sorry Works Coalition with a simple idea: Reduce malpractice lawsuits by telling patients the truth followed by an apology.

"Basically, what it is is we’re advocating good customer service. Without apology and disclosure, there can be no patients’ safety because as long as you’re coving up and denying, you’re never gonna learn," Wojcieszak said.

According to healthcare litigation attorney Jim Saxton even lawyers say empathy works.

"That ‘I’m sorry’ done the right way with the right process can, number one, derail a lawsuit," Saxton said.

It could also reduce costs. After the University of Michigan health system changed its medical error policy on malpractice cases, legal fees per case were more than cut in half. The legal climate is slowly changing. Twenty-nine states now have laws that protect doctors from lawsuits when they say they’re sorry.

It was the apology that opened the door for Kenney the patient and Van Pelt the doctor. "

Infant Plaintiff is injured in a paper shredder, and goes to attorney 1.  Attorney 1, who wisely understands that he lacks the special expertise to handle the case correctly in US District Court hands case off to Attorney 2.  After a while attorney 2 speaks to a law firm even more experienced, and they together bring the case to an almost  $1 million settlement.  At the infant’s compromise, all the attorneys agree on a split between them.  Balance is to go to a structured settlement for the infant.  Done, ok?  Not so ok. 

The Magistrate decides that Attorney 1 is in violation of the then Dr-102 and has not done enough work to warrant a fee.  So, what does the Magistrate do?  The money which was to go to Attorney 1 is given to the plaintiffs, so that they get roughly 75% of the settlement. 

In   WAGNER & WAGNER, LLP, DANIEL J. BAURKOT, ESQ., Non-Party-Appellants, DAYANARA RODRIGUEZ, an infant by her , Plaintiffs, v. ATKINSON, HASKINS, NELLIS, BRITTINGHAM, GLADD & CARWILE, P.C., Non-Party-Appellee, INTERNATIONAL SALES, INC., INTERNATIONAL GROUP OF COMPANIES, Docket No. 08-4966-cv; UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT;2010 U.S. App. LEXIS 3170;August 25, 2009, Argued ; February 18, 2010, Decided  we see:

"After an infant compromise hearing, Judge Mann awarded $ 107,654.56 in attorneys’ fees and $ 49,866.84 in expenses to Atkinson, Haskins, Nellis, Brittingham, Gladd, & Carwile , P.C. (the "Atkinson firm" or "appellees"), and $ 133,286.60 in attorneys’ fees and $ 2,378.86 in expenses to Wagner & Wagner, LLP. She denied an award of fees to Baurkot because Wagner & Wagner’s sharing of the fees with Baurkot was not properly disclosed to plaintiffs and Baurkot had performed no services of value in the litigation. Therefore, she concluded, the fee sharing agreement was in violation of New York Disciplinary Rule 2-107 ("DR 2-107"). 1 The magistrate judge awarded Baurkot’s portion of the fee to the plaintiffs. Appellants then took this appeal. The Atkinson firm has filed a brief responding to Wagner & Wagner’s argument that if we affirm the award to the plaintiffs, the fee splitting agreement between Wagner & Wagner and the Atkinson firm requires a redistribution of fees between the two firms."
 

"The magistrate judge then denied any portion of the attorneys’ fees to Baurkot because DR 2-107 prohibited it. First, she found that DR 2-107 was violated because plaintiffs never received the required disclosure of the fee-sharing agreement. The judge rejected Wagner & Wagner’s and Baurkot’s contentions that they [*9] had orally sought and received the required consent. Instead, the magistrate judge relied on the plaintiffs’ testimony indicating they were unaware that Baurkot would be working on the case.

Second, the magistrate judge concluded that DR 2-107 was violated because the requirement that either the work done be in proportion to the fee received or that the attorneys agree in a writing to undertake joint responsibility was not met. In so finding, she relied on several pieces of evidence, including: (i) Wagner & Wagner’s initial failure to disclose Baurkot’s share of the fee to plaintiffs; (ii) Wagner & Wagner’s and Baurkot’s failure to show specific work he performed on the case; and (iii) the lack of any documents in Wagner & Wagner’s file to corroborate the claim that Baurkot performed services on the case.

The magistrate judge determined that the portion of the fee claimed by Baurkot should be awarded to the plaintiffs, rather than going to Wagner & Wagner. She expressed a concern that the fee would still find its way to Baurkot if Wagner & Wagner received it, and, moreover, noted that Wagner & Wagner had acknowledged that it considered $ 133,286.60 fair and adequate compensation for [*10] its efforts.

Wagner & Wagner and Baurkot filed timely objections to the Report and Recommendation. They objected to those parts of the order that determined that Baurkot’s portion of the fee should go to plaintiffs. These objections included an objection to the awarded fees because they resulted in a 55.3%/44.7% split between Wagner & Wagner and the Atkinson firm, rather than the agreed upon 65%/35% split. However, Wagner & Wagner and Baurkot specifically stated that "[t]he Wagner Firm, [sic] is not suggesting that the fee to the Atkinson Firm be reduced. . . . What we are stating is that since the fee to the Atkinson Firm is 35% of the full one-third contingency fee, the fee to the Wagner Firm should be 65% of the full one-third contingency fee." Judge Gleeson adopted the magistrate judge’s Report and Recommendation in full. This appeal followed."
 

Some states have mandatory legal malpractice insurance, but New York does not.  Result?  Plaintiffs who have suffered real damages at the hands of uninsured attorneys pursue them, and cannot collect their actual damages from the attorneys.  Here is one sad example. Matter of Jobi
2010 NY Slip Op 01704 ;Decided on March 2, 2010 ;Appellate Division, First Department .
 

Not only did this attorney convert monies, which the Clients’ Fund reimbursed, but the attorney avoided several legal malpractice judgments.  It is a violation of attorney ethics to avoid satisfying a judgment which arises from professional acts, but, in this case, the attorney could [apparently] care less.

"Respondent’s affidavit of resignation, sworn to on December 21, 2009, complies with 22 NYCRR 603.11[a][1-3] in that she states: (1) her resignation is rendered freely, voluntarily, without coercion or duress and that she is fully aware of the implications of submitting her resignation; (2) she is aware of a pending investigation based upon allegations of deceit involving the conversion of funds held in escrow, giving false testimony with respect thereto and the failure to satisfy judgments entered against her by two former clients and a third party; and (3) she acknowledges that if charges were predicated upon the misconduct under investigation by the Committee, she could not successfully defend herself.

With respect to one of the charges of conversion, it is alleged that respondent converted the sum of $21,250 which she deposited into her escrow account after she received the same from a real estate contract vendee named Jean John. A default judgment John subsequently obtained against respondent as a result of the conversion remains unsatisfied. Two other judgments entered against respondent in legal malpractice actions brought by former clients also remain unsatisfied. The Committee has reviewed respondent’s affidavit, found it in compliance with Rule 603.11 and recommends its acceptance by this Court.

Pursuant to Judiciary Law § 90(6-a)(a), restitution may be ordered in a disciplinary proceeding where that attorney has wilfully misappropriated or misapplied money or property in the practice of law. An order directing such restitution may be entered as a civil judgment (Judiciary Law § 90[6-a][d]). Here, an order directing restitution would be futile in light of the fact that John has entered judgment against respondent as set forth above. In any event, respondent should reimburse the Lawyers’ Fund for Client Protection of the State of New York as provided for by the statute.

Accordingly, the Committee’s motion should be granted to the extent that respondent’s resignation be accepted,
 

Legal malpractice seems to exist across the board everywhere an attorney interacts with a client.  Like the New Yorker cartoon showing a 5 year old who has dropped an ice cream cone, with an adult standing above and asking "Do you need an attorney?"  we see legal malpractice cases stitched in all settings.

Here in AMUSEMENT INDUSTRY, INC. dba WESTLAND INDUSTRIES; and PRACTICAL FINANCE CO., INC., Plaintiffs, -v.- MOSES STERN, aka MARK STERN; JOSHUA SAFRIN; FIRST REPUBLIC GROUP REALTY LLC; EPHRAIM FRENKEL; and LAND TITLE ASSOCIATES ESCROW, Defendants.;07 Civ. 11586 (LAK) (GWG);UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;2010 U.S. Dist. LEXIS 11817 the attorney is Buchanan Ingersol.
This case is about a failed real estate partnership.  From the case: "On June 29, 2007, third-party defendants Steven Alevy and Friedman — who "was acting, at all times mentioned herein, in his capacity as an attorney and shareholder of [Buchanan]," 3d-Party Compl. P 5 — "presented an investment opportunity to Amusement, purportedly on behalf of Safrin and others," although Safrin had not authorized either party to do so, id. PP 26-27. Indeed, while Friedman held himself out as Safrin’s representative, "Safrin never retained or otherwise authorized Friedman to speak or act on his behalf in connection with the transactions described in the [underlying] Complaint." Id. P 29.

On that same date, Steven Alevy drafted [*10] a "letter of intent," which was "signed by [defendant Moses] Stern on behalf of First Republic Corp.," and which "identifies as its parties First Republic Corp. and Westland Industries, the name under which Amusement does business." Id. P 30. Safrin was not a party to the letter of intent. Id. P 31. That day, Amusement wired $ 13 million into an escrow account. Id. P 33.

Amusement and First Republic agreed to "work in good faith ‘to finalize [their agreements]’" during the seven-day period following June 29, 2007. Id. P 37. During this period, Amusement "drafted and forwarded three partnership agreements to Friedman for Safrin, among others, to sign in order ‘to complete a transaction.’" Id. (emphasis omitted). Nonetheless, "[n]one of these draft agreements called for Safrin’s signature." Id. P 38.
 

Buchanan argues that Safrin’s claim for implied indemnification against it must be dismissed because "Safrin’s denial of any contractual relationship between he [sic] and BIR makes it impossible for him to allege an implied contractual right to indemnification because there is nothing from which to create any implied obligation running from BIR to Safrin." Buchanan Mem. at 6 (citing 3d-Party Compl. PP 28, 63, 65, 66, 72, 73).

Buchanan’s argument must be rejected because Fed. R. Civ. P. 8(d) expressly permits "hypothetical" pleading and the assertion of "inconsistent claims or defenses." See Fed. R. Civ. P. 8(d)(2)-(3). Safrin’s assertion that there was no relationship between him and Buchanan, see, e.g., 3d-Party Compl. P 3, does not, therefore, bar him from asserting that, should such a relationship be found, Buchanan is obligated to indemnify him, id. PP 85-86. See, e.g., Henry v. Daytop Vill., Inc., 42 F.3d 89, 95 (2d Cir. 1994) ("Under [Rule 8(d)] of the Federal Rules of Civil Procedure, a plaintiff may plead two or more statements of a claim, even within the same count, regardless of consistency. [*17] . . . [T]herefore, we may not construe [the] first claim as an admission against another alternative or inconsistent claim.") (citations omitted); Padre Shipping, Inc. v. Yong He Shipping, 553 F. Supp. 2d 328, 333 (S.D.N.Y. 2008) ("plaintiffs are allowed to assert inconsistent facts in support of alternative claims, and courts may not construe allegations regarding one claim to be an admission against another") (citation omitted); Ascher v. Target Corp., 522 F. Supp. 2d 452, 458 (E.D.N.Y. 2007) ("the Court cannot construe one claim as an admission against another alternative or inconsistent claim") (citation omitted)."
 

We are reminded yet again that the statute of limitations starts to run in legal malpractice on the day that the mistake is made.  It’s not the day that you realize that a mistake was made.  This issue arises mostly in transactional representations, such as the lease in this case.  When there is litigation, then a continuous representation question comes into play, and plaintiffs usually know when the case ends.  Case endings, although not always a milestone, often provide a comfortable point of reference.

Here,  in Lincoln Place, LLC, Plaintiff, v. RVP Consulting, Inc., et al., Defendants. Robert Peters, et al., Third-Party Plaintiffs-Appellants, Michael E. Pekofsky, Esq., . 
plaintiff hired attorney to write up and administer a lease.  Things went wrong from the beginning, when there was an assignment rather than designating a lessee.  What is the difference?  In one, the plaintiff remained responsible for unpaid rents when the lessee stopped paying.  In the other, plaintiff would not have been responsible.

When and how was the mistake made?  When and how did plaintiff become aware?  When did the statute of limitations start to run?  To save the statue, plaintiff argues that a decision had to be made on the underlying case before he had the ability to sue.  This argument loses. Justice Kornreich of Supreme Court, New York County writes:

"The third-party complaint alleging legal malpractice is time-barred, the action having been commenced more than three years after the malpractice was committed (CPLR 214[6]; Ackerman v Price Waterhouse, 84 NY2d 535, 541 [1994]). Third-party defendant Pekofsky negotiated a lease on behalf of third-party plaintiffs RVP Consulting and Robert Peters (collectively, Peters), as tenants, in 1997. He then assigned the lease, rather than designating a lessee, thereby causing Peters, pursuant to the terms of the lease, to remain liable for the full performance of all the tenant’s obligations thereunder. In 1998, the assignee defaulted in its rent obligations, triggering Peters’s liability for the outstanding rent. This action was not commenced until 2002.

Contrary to Peters’s contention, an adjudication of the meaning of Pekofsky’s 1997 letter was not a prerequisite to the existence of an actionable injury. Indeed, while Peters may not have been aware until 2001 or 2002 that Pekofsky’s actions could result in liability, it is not the date on which Peters learned that malpractice had occurred, but the date on which the malpractice was committed, that is relevant (West Vil. Assoc. Ltd. Partnership v Balber Pickard Battistoni [*2]Maldonado & Ver Dan Tuin, PC, 49 AD3d 270, 270 [2008]). Peters’s subjective belief that Pekofsky had designated a lessee rather than assigning the lease is of no consequence. "