Way back when, there were different statute of limitation in legal malpractice cases which sounded in either tort [3 years] or contract [6 years].  The Court of Appeals approved, and it was the law of the land.  As is its power, the legislature then passed CPLR 214(6) which created a single 3 year statute of limitations for legal malpractice actions, whether sounding in tort or contract. 

With enterprising attorneys, and strange damage situations, this was not the end of the question.  Can there be a cause of action for breach of contract between a client and an attorney?  The short answer is yes.  As an example, were the attorney to contract to write an appeal, and no appeal was written, that would be a breach of contract.  Damages would be limited to traditional contract damages:  payments made but not earned, and perhaps the additional cost of cover [paying someone else a higher fee to do the work.]

Here, in Lambroza v. Tworney, Latham, Shea, Kelly, Dubin & Quartararo, 2009 NY Slip Op 32333(U) we see a slightly different fact pattern.  Plaintiff alleges that he hired defendant attorney to provide legal services in the purchase of real property in the Hamptons.  Plaintiff alleges that defendant was to compare the survey of the Property and the existing deed and look for differences. 

Some 6 years later differences arise, an encroachment existed, and plaintiff had to drop his sale price by $ 50,000 to cover the problem.  Is the attorney liable for breach of contract, since the statute of limitations for legal malpractice has long passed?

The answer in this case is no, as Justice Solomon was unpersuaded that this was really a contract action and not a traditional legal malpractice case. She determined that comparison of a deed to the survey is within the normal realm of legal services and was not the basis of a real contract.  Accordingly, case dismissed on statute of limitations.

In General Credit Corp v. Guidice 2009 NY Slip Op 32418(U), Supreme Court, New York County, Decided 10/15/09, Justice Kornreich, we one reason that the public has less than stellar views of attorneys.  Here, evidence was produced to show that one attorney wrested control of the corporation and caused it to enter into adverse financial transactions that benefited the attorney, prepared agreements to give that attorney control of the board, obtained loans from a captive entity controlled by the attorney at interest rates above 20%, seized control of all the bank accounts, changed the locks in the office, fired the staff, interfered with its banking relationships and drove the company to file bankruptcy.

The case ended in a judgment of about $ 864,000 along with punitive damages (10x compensatory damages) in the amount of $ 1.5 million and additional punitive damages of $ 850,000 against others of the attorneys.

When is it the attorney’s fault, and when the Client’s ?  That question is answered, in this particular situation, by the decision in Bernard v/ Proskauer Rose LLP.

Client is an extraordinarily accomplished real estate transactionalist.  In 1994 he joined the Trust Company of the West, as a portfolio manager for certain real estate investment funds.  He and others left TCW to create Oaktree Capital Management LLC which managed funds catering to high net-worth investors. 

During his time there, he earned a lot of money, and had more than $ 51 million owed to him in back end incentive fees and other fees.  Nevertheless, he wanted to leave and form his own company, and so he hired Proskauer.

Even though plaintiff knew that he had to hang around Oaktree for 120 days after giving notice of resignation, he asked his secretary to copy lists of investors and to put his quarterly investment letters onto a computer disk for him.  Furthermore, there were some questions about a diverted opportunity called 60 Main Street property.

In the end, he was expelled, and lost all.  He lost the 60 Main Street Property, and lost his back incentive fees.  His fault or Proskauer’s ?  Arbitration of the underlying case ensued and plaintiff lost.

Justice Lowe determined that it was not Proskauer’s fault, and dismissed.  He too, determined that the arbitrator had already determined the issues, and that plaintiff loses.  However, it was not due to collateral estoppel and res judicata, It was due, instead, to the court’s determination that plaintiff had breached his fiduciary duty to Oaktree, and that the breach preceded and had nothing to do with Proskauer’s advice.

Jousting with the landlord over rent stabilized apartments is a uniquely NYC type of activity. Violations of the rent-stabilization laws may lead to treble damages, and tenants routinely litigate over the actual v. statutory rent, whether there has been an illegal rent increase, and over violations.

Here, in Kyle v. Heiberger, NY Slip Op 32409(u) we see how the process can linger and sometimes go off the rails.  Tenant was successful, and eventually obtained a $ 21,000 or so judgment against the landlord in litigation that lasted from 2002 – 2007.  That litigation and the legal malpractice case it spawned reached New York and Bronx Counties, took place in L &  Court, included two Article 78 cases, and ended up in Supreme Court, Bronx County where the legal malpractice case was recently dismissed.

The legal malpractice case is against Ronald Hart who represented plaintiff from 2002-2007.  The gist of this case is that he won the L & T case after much procedural wrangling, and sought attorney fees from the landlords, as plaintiff was permitted.  Those legal fees were said to be in the vicinity of $ 426,000.  Eventually the landlord agreed to pay $ 190,000 which ended the dispute with a stipulation.  Shortly thereafter, tenant started its attempts to vacate the stipulation.

The theory against the attorney was that he settled the case and then withdrew in favor of successor attorney, and breached his fiduciary duty.  Defendant Heiberger & Associates PC is a later successor attorney and is now a defendant.

The breach of fiduciary duty claim was dismissed by Supreme Court, on the basis that no damages could be demonstrated, and that when a breach of fiduciary duty claim is based upon the legal malpractice [rather than, for example, a disgorgement of fees for overbiling], then one must demonstrate the "but for" aspect of legal malpractice. Citing Kurtzman v. Bergstol, 40 AD3d 588 (2d Dept,2007) the court held:  In order to establish a breach of fiduciary duty, a plaintiff must prove the existence of a fiduciary relationship, misconduct by the defendant, and damages that were directly caused by the defendant’s misconduct."

Izko Sportswear Co., Inc. v Flaum ; 2009 NY Slip Op 04387 [63 AD3d 687] ; June 2, 2009 ; Appellate Division, Second Department  is a somewhat famous case in Legal Malpractice.  In earlier decisions, the Appellate Division determined that plaintiff stated a cause of action in Judiciary Law 487.  Now, the case has ended with a dismissal;   The Court of Appeals then denied leave to appeal.  Two lessons are to be learned here:
 

1.  Violation of Judiciary Law 487 may be demonstrated either by deceit or by chronic extreme pattern of delinquency; and

2.  Judicial determinations of attorney fees act as collateral estoppel to a later legal malpractice or Judiciary Law 487 determination.

Reviewing the findings of the Appellate Division, we see:

"A violation of Judiciary Law § 487 may be established "either by the defendant’s alleged deceit or by an alleged chronic, extreme pattern of legal delinquency by the defendant" (emphasis supplied) (Knecht v Tusa, 15 AD3d 626, 627 [2005]; see O’Connell v Kerson, 291 AD2d 386, 387 [2002]; see also Bridges v 725 Riverside Dr., 119 AD2d 789 [1986]; Trepel v Dippold,2005 WL 1107010, 2005 US Dist LEXIS 8541 [May 9, 2005]). "

Now the AD affirms the dismissal of the case:  "On a prior appeal, this Court found that the plaintiffs stated a cause of action pursuant to Judiciary Law § 487, against the defendants, who were the former bankruptcy attorneys for the plaintiff Izko Sportswear Co., Inc. (hereinafter Izko). The plaintiffs alleged in the complaint that the defendants concealed their relationship with Heartland Rental Properties Partnership (hereinafter Heartland), who was Izko’s primary creditor, and also denied having a relationship with any of Izko’s creditors (see Izko Sportswear Co., Inc. v Flaum, 25 AD3d 534 [2006]). In so doing, this Court noted that on a motion to dismiss pursuant to CPLR 3211 (a) (7), the plaintiffs’ allegations must be accepted as true, and "whether the defendants would be entitled to summary judgment" was not an issue (see Izko Sportswear Co., Inc. v Flaum, 25 AD3d 534, 537 [2006]).

After discovery, the defendants moved for summary judgment dismissing the complaint based upon evidence which established, as a matter of law, that the plaintiffs were not [*2]deceived, and that the plaintiffs learned of the defendants’ representation of Heartland on March 3, 2000, at the latest. In opposition, the plaintiffs failed to raise a triable issue of fact.

Thus, the revelation of the defendants’ representation of Heartland occurred prior to May 31, 2000, when the Bankruptcy Court approved of a stipulation with respect to the amount of fees payable by Izko to the defendants. Accordingly, the plaintiffs’ claim pursuant to Judiciary Law § 487 based upon the defendants’ prior representation of Heartland is barred by the doctrines of collateral estoppel and res judicata, as the plaintiffs had a full and fair opportunity to raise the issue before the Bankruptcy Court (see generally Lefkowitz v Schulte, Roth & Zabel, 279 AD2d 457 [2001]).

The folks over at Attorney.org recently contacted me about an interview for their website. If you don’t know who they are, check them out.  . In addition to legal news, they also highlight noteworthy attorneys from around the country. One of their upcoming features is a highlight of local Attorney Generals and District Attorneys. They interviewed me for an article about how to decide if you need a Legal Malpractice Attorney and whether or not you have a case. You can view the article here: Attorney.org
 

A prime worry for the legal malpractice practitioner, on either side of the aisle, is whether there is legal malpractice insurance.  For the defendant, it is paramount; for the plaintiff it is significant.  Much thought has gone into how to determine whether the target defendant has adequate [or indeed, any] insurance, and planning has to go into the target’s application for insurance."

One prime weapon that the insurer has is the "prior acts" doctrine.  It says in essence that you must report all past prior acts that one might reasonably believe could lead to a law suit for legal malpractice, whether it has been started or not.  We remember one managing attorney who shouted at least once a week: "Put the Carrier on Notice!"  Sometimes he was right.

Here, in Executive Risk Indemnity v, Pepper Hamilton, LLP, we see Justice Jone’s decision on this issue:

"We are asked to determine, under Pennsylvania law, whether excess insurers Executive Risk Indemnity Inc. and Twin City Fire Insurance Company, based upon their prior knowledge exclusions, and Continental Casualty Company, based upon rescission of its policies, were entitled to summary judgment declaring that they have no obligation to indemnify defendants Pepper Hamilton LLP and one of its members W. Roderick GagnÉ (collectively, the law firm defendants) in actions asserted against them for, among other claims, professional malpractice."

"Executive Risk commenced this action against the law firm defendants and Westport, seeking a declaration that it had no obligation to indemnify defendants in the underlying actions. The law firm defendants counterclaimed for a declaration in their favor and brought third-party claims against Twin City and Continental Casualty. Executive Risk and Twin City relied upon Westport’s prior knowledge exclusion, expressly incorporated into their policies, and Continental Casualty cross-claimed for rescission of its excess policies for 2002-[*4]2003 and 2003-2004. "

"Here, it is undisputed that the law firm defendants knew of SFC’s securities fraud months prior to the effective dates of the Executive Risk and Twin City policies. The courts below noted that GagnÉ subjectively believed, and informed Mr. Wilcox at least one month prior to the submission of one of the law firm’s insurance applications, that he and the law firm could be subject to a lawsuit from their representation of SFC. Such a belief, although subjective, was also reasonable, but Pepper Hamilton did not provide that information to its insurers. Given the law firm defendants’ role in the securitization of the loans and GagnÉ’s close involvement with SFC, a reasonable attorney with the law firm defendants’ knowledge should have anticipated the [*5]possibility of a lawsuit, particularly when millions of dollars may have been lost from activities of which they were aware. Here, the law firm’s knowledge of its client’s fraudulent payments prior to its application for excess coverage coupled with the fact that a reasonable attorney would have concluded that the law firm defendants would likely be included in the litigation because of their role in their client’s business satisfy the test of Coregis and create an obligation for the law firm to inform its insurers of this potential litigation.

Contrary to the Appellate Division’s holding, the prior knowledge exclusion in this case does not require the known of act, error, omission or circumstance to be "wrongful conduct on the part of the insured" (Executive Risk Indem. Inc. v Pepper Hamilton LLP, 56 AD3d 196, 204 [1st Dept]). It excludes coverage of "any act, error, omission, circumstance . . . occurring prior to the effective date of the [policy] if any [insured] at the effective date knew or could have reasonably foreseen that such act, error, omission, circumstance . . . might be the basis of a [claim]." Here, on October 27, 2002, the effective date of the Executive Risk and Twin City policies, the law firm defendants knew of acts that occurred prior to that date, which they could have foreseen to be the basis of a claim. Thus, the prior knowledge exclusions apply to those policies.
 

In    PETER GIANOUKAS, DORIS GIANOUKAS and NICHOLAS TARSIA, Plaintiffs, – against – PETER CAMPITIELLO, ESQ., LEVY & BOONSHOFT P.C., DAVID M. LEVY, ESQ., STEPHEN BOONSHOFT, ESQ. and EAST WEST ACQUISITIONS, LLC, Defendants.;09 Civ. 1266 (PAC);UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;2009 U.S. Dist. LEXIS 95354;October 13, 2009   we see the outer reaches of a breach of fiduciary duty and of legal malpractice in a well written and reasoned decision by Judge Paul Crotty of Southern District of New York. The facts and allegations are simple:

"The Amended Complaint alleges five separate fraudulent transactions: (1) Codine(x), (id. PP 41-68); (2) Pay Pad, (id. PP 69-87); (3) LIMPE, (id. PP 88-106); (4) Acellus, (id. PP 107-16); [*3] and (5) UTTI, (id. PP 117-34). Throughout the Amended Complaint, Campitiello is portrayed as the architect of the fraudulent transactions which bilked Plaintiffs out of in excess of $ 400,000. He did this as an employee of L&B, and used L&B’s escrow account to receive funds from the Plaintiffs and thereafter funds were disbursed from the account to consummate the fraud. The Amended Complaint does not allege that Levy and Boonshoft were involved in, or knew of, the fraud"

"According to the Amended Complaint, the L&B escrow account is an "interest on lawyer account," also known as an "IOLA" account. (Am. Compl. PP 10-11); see N.Y. JUD. LAW § 497. Plaintiffs contend that Levy and Boonshoft owed them a fiduciary duty as escrow agents and as "signatories on the defendant law firm IOLA account."  "Next, Plaintiffs claim that Levy and Boonshoft are liable for breach of fiduciary duty as "signatories" on the L&B IOLA account. An IOLA account "is a creation of New York State statute, and is defined as ‘an unsegregated interest-bearing deposit account … for the deposit by an attorney of qualified funds.’"

"Plaintiffs argue that lawyers "who accept funds from persons [*11] in escrow or make a decision to have funds in the firm IOLA accounts are fiduciaries to such persons with respect to those funds." (Pls.’ Opp’n at 10.) The Amended Complaint does not, however, allege that Levy and Boonshoft agreed to accept funds from the Plaintiffs or that they were involved in the decision to have the Plaintiffs transfer funds to the L&B IOLA account. Nor does the Amended Complaint allege that Levy and Boonshoft misappropriated or commingled Plaintiffs’ funds; it is Campitiello who allegedly misappropriated the Plaintiffs’ money."
 

"Most importantly, "[w]hatver may be the constraints imposed by the Code of Professional Responsibility with the associated sanctions of professional discipline . . . [New York] courts have not recognized any liability of the lawyer to third parties . . . [for violations of disciplinary [*12] rules] where the factual situations have not fallen within one of the acknowledged categories of tort or contract liability." Drago v. Buonagurio, 386 N.E.2d 821, 46 N.Y.2d 778, 779-80, 413 N.Y.S.2d 910 (N.Y. 1978). Plaintiffs do not contend that they had an attorney-client relationship with Levy or Boonshoft. (Pls.’s Opp’n at 3.) As shown above, Levy and Boonshoft were not the Plaintiffs’ escrow agents. Thus, to the extent Plaintiffs rely on DR 9-102 as the basis for their breach of fiduciary duty claim, the claim fails because "an alleged violation of a disciplinary rule ‘does not, without more, generate a cause of action.’