This is a Politico – A List legal malpractice case.  In Waggoner v. Caruso   2009 NY Slip Op 06739 Decided on September 29, 2009 ; Appellate Division, First Department ; (DeGrasse, J.) we see some of the nations biggest names.

Besides being about a $ 10 Million loss, the players are all very recognizable.  For Plaintiff, Helms & Greene along with Asa Hutchinson [former Representative (R-AK), former US Attorney, Former DEA Administrator, House Manager of the impeachment case and Venable LLP..  For Defendants, Bracewell & Giuliani, Pillsbury Winthrop,  Patterson Belknap and Chadbourne & Parke. 

After dismissal in Supreme Court  this case then went to the First Department.  The original  decision was by Justice Fried, There were four causes of action:  malpractice, breach of fiduciary duty, fraud and conspiracy to commit fraud.  On the malpractice portion, Pillsbury argued that no court in New York has ever addressed the issue of applying the continuous representation doctrine to the former firm of an attorney who left that firm and took the client with him. 

Supreme Court went on to discuss the breach of Fiduciary duty claim, citing Weil Gotschal & Manges LLP v, Fashion Boutique of Short Hills, Inc., 10 AD3d 267 (1st Dept, 2004). Supreme Court found that plaintiff must prove the existence of a fiduciary relationship and a breach of the duty imposed by such a relationship that  directly caused actual damages.  "Where the only actual damage alleged is the value of a lost claim, a plaintiff  client must prove that he or she would have prevailed in the underlying action but for the attorney’s conduct.  In other words, as in a malpractice claim, the plaintiff must meet the case within a case requirement."

More tomorrow

Justice Judith Gische of Supreme Court, New York County presents a primer on attorney fee litigation and the disposition of counterclaims for legal malpractice in Hurley v. Bulah Church of God in Christ Jesus, Inc.  In this case the Church had gone through some hard times.  A pastor was accused of financial wrongdoing, and the Church was in Bankruptcy Court for taxes and other debts.  Attorney was retained, and worked on the case in what turns out to be an admirable fashion.  When the Bankruptcy was winding up, leadership of the Church changed, and he was no longer so admired there.  Effect?  The Bankruptcy court approved fees, and he was paid.  Nevertheless, there were post-discharge work and fees, and this dispute in state court followed.

Read for the excellent description of why and how an attorney is due fees. "an attorney who is discharged by a client for cause has no right to compensation or a retaining lien, notwithstanding a specific retainer agreement.  Teichner by Teichner v. W & J Holsteins, Inc., 64 NY2d 977 (1985).    On this motion plaintiff has successfully established that he: 1) owed unpaid legal fees; 2) was not discharged for cause, but withdraw as counsel with court approval; 3) deposited money into his attorney escrow account to be applied to post closing matters, like distribution of money to creditors, etc; and 4) Deacon Roberts was authorized to attend to the church’s financial matters with respect to the reorganization.  Thus, plaintiff has proved he is owed unpaid legal fees and other fees."

Today’s NYLJ features an article by Marcia Coyle on a series of cases coming up before the US Supreme Court.  Of the 6 cases to be heard [almost triple the usual number] at least four are legal malpractice scenario:  Wood v. Allen  is a death penalty case in Alabama in which a newly admitted attorney failed to investigate mental deficiency of his client in the death penalty phase.  The second case, Padilla v. Kentucky [see article for briefs] concerns deportation consequences and lack of  advice in taking a criminal plea,  The fourth case is described as follows:  "Pottawattamie v, McGhee, in which two Iowa prosecutors, who fabricated evidence and used it in the murder trial of two men, seek immunity from a civil rights damages suit by the wrongfully convicted men. 

Lastly is Milavetz, Gallop & Milavetz v. United States [briefs in the article] on whether attorneys are properly subject to the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act.  Are attorneys required to be part of the "debt relief agencies" and may they properly be prohibited from advising clients "to incur more debt in contemplation of bankruptcy."

We end this week with a look at a huge legal malpractice action just brought against Greenberg Traurig LLP, based upon patent work, and a more than $1 million judgment entered against their client.  Widely reported yesterday, the complaint was set forth in the NYLJ.  What is it about?

The complaint alleges that defendants Sutton and predecessors had handled the IP and patent work for Leviton Manufacturing Co. and with a former partner, had handled the Leviton work for 35+ years.  Leviton holds more than 800 patents in the electrical and electronic wiring field.

It is alleged that problems arose in the patent applications for a Ground Fault Circuit interruption device which was the mainstay of the Leviton company.  More problems followed, and it is alleged that Greenberg Traurig failed to make proper disclosures to the US Patent office.

Litigation with Shanghai Meihao Electric Inc then started and went badly.  It was argued that "inequitable conduct" by Greenberg Traurig might invalidate and make unenforceable the patent.  US District court agreed and found that GT had intended to deceive the PTO.

This led to sanctions in excess of $ 1 Million, along with attorney fees. This litigation ensues.  Of interest will be the Breach of Fiduciary Duty cause of action.  Breach of Fiduciary Duty, best illustrated by the Ulico v. Wilson Elser case, stands for a claim of damages, not for malpractice, but for billing, and quasi-fraudulent activity.  Damages generally are the return of fees, and re-imbursement of sanctions and attorney fees to others.  Beyond the Breadh of Fiduciary Duty is a legal malpractice for a wide variety of patent application mistakes.

Here is how a borrowing statute affects litigation and why a Pennsylvania statute of limitations applies to New York litigation.  CPLR 202 requires that when a nonresident sues on a cause of action accruing outside New York, CPLR 202 requires the cause of action to be timely under the limitations periods of both New York and the jurisdiction where the cause of action accrued.   "This prevents nonresidents from shopping in New York for a favorable Statute of Limitations." Global Financial Corp v. Triarc, 93 NY2d 525 (1999).

In Merritt v. Blumenthal, Supreme Court, New York County, Fried, J. we find:

" New York’s borrowing statute, CPLR §202, applies to determine the statute of limitations that governs the malpractice and Judiciary Code claims at issue here. The parties’ dispute regards the outcome of the application of CPLR §202. Specifically, Defendants contend that proper application CPLR §202 requires that the claims in this case be subject to the Pennsylvania statute of limitations, whereas Plaintiff argues that analysis under CPLR §202 leads to the conclusion that either the Delaware of New York statute of limitations applies. Under the shorter Pennsylvania statute of limitations, Plaintiff’s claims would be time-barred. They would still be viable under the New York or Delaware statutes.
 

"This action arises out of Plaintiff’s failed business relationship with a former client of Defendant Michael V. Blumenthal, Esq., involving investments in real estate and race horses. Plaintiffs’ allegations can be characterized as (1) claiming that Mr. Blumenthal committed malpractice against Plaintiff in the course of his involvement in the business transactions and subsequent litigation between Plaintiff and Mr. Blumenthal’s then-client, Ira Russack, and (2) claiming that Defendant violated New York Judiciary Code §487 by offering false testimony when called as a fact witness in the litigation between Plaintiff and Mr. Russack. Defendants Mr. Blumenthal and his former law firms, Brown Raysman Millstein Felder & Steiner LLP and Thelen LLP (collectively, Defendants) move to dismiss on the grounds that Plaintiff’s claims are time-barred and, additionally, that the Complaint does not state a cause of action under New York Judiciary Code §487. For the reasons stated below, Defendants’ motion is granted."
 

Landlord hires big-time Landlord-Tenant attorneys in New York City, and expect that the attorneys are in fact bringing a series of eviction proceedings.  This case alleges that they did not, yet charged fees, and misled the client.  What is a client to do?  In this instance they sued for legal malpractice, breach of fiduciary duty, fraud, breach of contract, etc.  Justice Joan Madden of Supreme Court, New York County decided a CPLR 3211 motion to dismiss in Cayuga Capital Mgt. LLC v, Borah Goldstein.

The fraudulent inducement, fraudulent misrepresentation and negligence claims were all trimmed as duplicitive of a potential legal malpractice case. Justice Madden reasoned that they were based upon the same facts, and sought the same damages, and thus were duplicates of the potential legal malpractice.

More interesting was plaintiff’s invocation of Ulico v. Wilson Elser, 56 AD1 (1st Dept, 2008),  That case has been the center of a growing number of "breach of fiduciary duty" cases, and supports a claim for such a breach.  Here, in a footnote, Justice Madden disposes of reliance upon Ulico.

The legal malpractice action was dismissed without prejudice, allowing plaintiff to amend and demonstrate the "but for" aspects of the eviction cases.  Presumably, if the evictions are now in process, claims for damage will be limited to the delays, and not for a permanent loss of the ability to evict.

Were one to read each of the 150+ legal malpractice cases decisions filed each year, one would see a wide range of attorney-client problems.  Some are frivolous and some very serious.  This case, DAVID GOLDSTEIN, Plaintiffs, – against – ALLEN S. GOLD and LAW OFFICES OF ALLEN S. GOLD, Defendants;No. 06 CV 6707 (ERK)(VVP); UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK;2009 U.S. Dist. LEXIS 78822; September 1, 2009 is remarkable for the "brazen" behavior by the attorney.  Judge Korman disposes of a motion for summary judgment in this decision.

"Plaintiff further alleges that, in early 2001, defendant informed him that he filed a complaint against Mass Mutual ("2001 action"), "seeking the relief [plaintiff] had requested." (Id. P 8). This was not true – defendant never filed the 2001 action. (Id. P 9.) Nevertheless, from 2001 to 2005, in response to plaintiff’s repeated inquires as to the status of the 2001 action (id. PP 10-12), defendant led plaintiff to believe that he was vigorously litigating the 2001 action against Mass Mutual (id. PP 8, 13-22).

Although defendant denies telling plaintiff that he filed a lawsuit in 2001 (Niehaus Aff., Ex. B, Answer P 22), the record does not support this assertion. Indeed, between November 2, 2001, and August 6, 2006, plaintiff sent defendant at least twenty-three emails and letters that referenced the 2001 action. (See Pl.’s Aff. Exs. B-U, W, Z, AA.) It is clear from this correspondence that plaintiff believed defendant had not simply filed the 2001 action but was aggressively litigating it on his behalf. (See, e.g., id., Ex. E, letter, dated February 24, 2002 ("What is [*5] your legal opinion on how [Mass Mutual’s] response to your serving them with the order to show cause will impact my ‘3 part lawsuit’ commenced against them?"); id., Ex. F, letter, dated March 27, 2002 ("is there any additional information on the status (date) for the ‘Preliminary Conference’ for the 3-part lawsuit that you commenced on my behalf?"); id., Ex. N, letter, dated December 27, 2003 ("thank god the court has ordered a January 20, 2004 status conference; with the intent being; as I understand it; to get this case on a tight schedule in order to bring it to completion.").) Plaintiff alleges that "at no point did Mr. Gold ever state that no lawsuit had been filed" (Pl.’s Aff. P 26), nor did he "ever question what lawsuit [plaintiff] was referring to in any of the above correspondence" (Pl.’s Aff. P 27). On the contrary, plaintiff "specifically recall[s defendant] informing [him] that he had engaged in extensive discovery with MassMutual" (id. P 16), "that MassMutual was engaged in delaying tactics to slow the case down" (id. P 17), "that he had responded to numerous sets of interrogatories propounded by MassMutual" (id. P 18), "that a ‘Preliminary Conference’ had been scheduled [*6] . . . for July 23, 2002" (id. P 20), and "that a ‘Status Conference’ had been scheduled . . . for January 20, 2004" (id. P 21).
 

The dismissal of the 2005 action "shocked" plaintiff, particularly the Supreme Court’s findings "regarding my not ‘interposing’ claims three through six b[y] the end of 2001", because he believed that defendant had "interposed" these claims in the 2001 action. (Id., Ex. T.) Indeed, plaintiff was so convinced that the Supreme [*11] Court had erred in finding his tort claims time-barred that he decided to appeal the decision. (See id., Ex. HH.) In an email to defendant on December 7, 2005, shortly before defendant filed the appeal, plaintiff wrote: "I am sure the appellate guy you met with on Monday had the opportunity to realize that [the Supreme Court Justice’]s finding that I had not "’interpos[ed]’ claims three through six b[y] the end of 2001 w[as] outright [i]ncorrect." (Id., Ex. T (emphasis in original).) Plaintiff believed that all the documents defendant told him he had filed in the 2001 action were "sit[ting] within the ‘sealed 100545/01’ part" of the file for the 2005 action. (Id.)

Defendant never disabused plaintiff of these views. On the contrary, in response to plaintiff’s numerous requests for a "copy of the originally filed, ‘interposed’ . . . claims that [the Supreme Court Justice] has apparently not had an opportunity to read" (id., Ex. T; see also id., Exs. U, W, X, Z), defendant fabricated documents and provided them to plaintiff as evidence that he had filed the 2001 action. (Pl.’s Aff. PP 28a-d.) Indeed, defendant produced a summons and verified complaint, dated February 12, 2001, which bore [*12] no index number (id., Ex. CC); a check, dated February 1, 2001, made out to the Queens County Clerk (id., Ex. DD); and an unsigned Notice of Deposition and Verified Answer, both dated April 27, 2001 and bearing the Index No. 10054/01, which defendant represented had been filed and served by Mass Mutual’s counsel, Michael Yoeli of the law firm Assail & Yoeli, LLP (id., Ex. EE)."
 

"Each of plaintiff’s claims — for fraud, attorney malpractice, breach of contract, attorney misconduct under New York Judiciary Law § 487 and intentional infliction of emotional distress — is based on defendant’s alleged failure to file the 2001 action and his continued misrepresentation that he had not only filed the action but was vigorously litigating it. Moreover, defendant concedes that "[t]here is no doubt that the counterclaim [for attorney’s fees] arises under the same circumstances and facts that form the basis for the Plaintiff’s claims." (Niehaus Aff., Ex. F, at 5.) Defendant does not contest plaintiff’s allegations that he failed to file the 2001 action or that he "deceived [plaintiff] about commencing an action in 2001. . . ." (Def.’s Reply Mem. at 5.) Instead, he argues that plaintiff’s claims fail, because "plaintiff simply cannot establish damages" (Def. Mem. 2), and that he entitled to summary [*15] judgment on his counterclaim, because "plaintiff’s account was in arrears at the time of his termination" (Def.’s Reply Mem. at 2).

As to the fraud, breach of contract, attorney misconduct and intentional infliction of emotional distress claims, defendant argues merely that it is "indisputable" that plaintiff cannot establish damages. (Def.’s Mem. at 2.) Defendant, however, does not offer any evidence nor point to a single material fact that supports this "indisputable" conclusion. The facts material to plaintiff’s alleged damages are (1) whether he "paid [defendant] tens of thousands of dollars based on [defendant]’s false representation that the money was paying for an ongoing litigation [the 2001 action]" (Pl.’s Opp’n Mem. 8); (2) whether the 2005 action was dismissed as untimely due to defendant’s failure to interpose the tort claims by the end of 2001 (Pl.’s Aff., Ex. GG); and (3) whether plaintiff "suffer[ed] severe-mental trauma as a result of [defendant]’s deliberate and knowing actions in . . . fraudulently leading [him] to believe that the MassMutual situation was being addressed" (Pl.’s Opp’n Mem. at 9)."
 

When one files a petition in bankruptcy, ownership of assets is upended.  Some if not all assets of the debtor become part of the estate, and will be used to pay creditors.  A current cause of action in legal malpractice, even if not reduced to a law suit is one such asset.  What happens if the negligence is unearthed in the bankruptcy proceedings?  Is it the property of the estate or that of the debtors; is is pre-petition or post-petition.

in IN RE: ANNE DE HERTOGH and PETER DE HERTOGH, DEBTOR;  CASE NO. 04-22006 (ASD), CHAPTER 7; UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF CONNECTICUT;2009 Bankr. LEXIS 2466;August 28, 2009 we see the following:

"The major point of contention in the present proceeding concerns whether the Malpractice Action is property of the estate or of the Debtors. Courts have taken several approaches to this question. Some, relying on Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L. Ed. 2d 136 (1979), and the language of Section 541, have looked to whether, as of the petition date, a cause of action had accrued under applicable state law. See, e.g. Swift v. Seidler (In re Swift), 198 B.R. 927 (Bankr. W.D.Tex. 1996) (under Texas law, cause of action for legal malpractice causing loss of an exemption could only accrue post-petition and was therefore not property of the estate); Holstein v. Knopfler (In re Holstein), 321 B.R. 229 (Bankr. N.D. III. 2005) (cause of action for legal malpractice allegedly causing denial of discharge accrued post-petition; was property of debtor, not property of estate); But see Helbling v. Josselson (In re Almasri), 378 B.R. 550 (Bankr. N.D. Ohio 2007) (concluding that, under Ohio law, a malpractice claim that accrued at the time petition was filed rather than post-petition when discharge was revoked; held property of estate). Other courts, relying on Segal v. Rochelle, 382 U.S. 375, 380, 86 S.Ct. 511, 515, 15 L. Ed. 2d 428 (1966) [*8] considered whether a cause of action that accrued post-petition was nevertheless "sufficiently rooted in the pre-bankruptcy past and so little entangled with the bankrupt’s ability to make an unencumbered fresh start that it should be regarded as ‘property’ under § 70(a)(5) [of the former Bankruptcy Act]." See, e.g. Casey v. Grasso (In re Riccitelli), 320 B.R. 483, 491-92 (Bankr. D.Mass. 2005) (malpractice claim alleging loss of homestead exemption that accrued post-petition was not "sufficiently rooted in the pre-bankruptcy past" to become property of the estate); But see Wheeler v. Magdovitz (In re Wheeler), 137 F.3d 299 (5th Cir. 1998) (malpractice claim for allegedly causing debtor’s conviction for bankruptcy fraud held property of estate even though cause of action did not accrue under Mississippi law until post-petition); Rich v. Strada Design Associates, Inc. (In re Strada Design Associates, Inc.), 326 B.R. 229, 236 (Bankr. S.D.N.Y. 2005) (concluding that claim that attorney filed petition under wrong chapter was property of estate; held that "a cause of action will be ‘property of the estate’ if it has sufficient roots in the debtor’s pre-bankruptcy activities and is not entangled [*9] with the debtor’s ‘fresh start,’ regardless of when the claim accrues under state law.").

The Court finds the matter best resolved by direct reference to Bankruptcy Code Sections 541(a)(1) and § 541(a)(7), and the property interests created by state law. Such an approach, the same as is used to determine whether any other interest in property becomes property of the estate, is most consistent with the language, precedents and policy of the Bankruptcy Code. See, e.g. Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1093 (2d Cir. 1995) ("Whether the rights belong to the debtor . . . is a question of state law. Thus, the trustee stands in the shoes of the debtors, and can only maintain those actions that the debtors could have brought prior to the bankruptcy proceedings.") (citations and internal quotation marks omitted). Accordingly, the Court’s analysis focuses on when (pre- or post-petition) and to whom (the estate or the post-petition debtor) a legally cognizable interest in the cause of action arose under the applicable state law.

HN2The filing of a Chapter 7 petition creates a bankruptcy estate encompassing "all legal or equitable interests of the debtor in property as of the commencement [*10] of the case," 11 U.S.C. § 541(a)(1), including any causes of action possessed by the debtor. Seward v. Devine, 888 F.2d 957, 963 (2d Cir. 1989). "Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding." Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 918, 59 L. Ed. 2d 136 (1979).
HN3The federal bankruptcy code broadly defines property of a debtor’s estate as including "all legal or equitable interests of the debtor in property as of the commencement of the case." 11 U.S.C. § 541(a)(1) (1988). Within this definition of a debtor’s property fall the debtor’s rights of action. . . .

HN4Although federal bankruptcy law determines the outer boundary of what may constitute property of the estate, state law determines the "nature of a debtor’s interest" in a given item. Therefore, whereas federal law instructs us that [an action] may constitute property of [the Debtors’] estate, state law determines whether [the Debtors’] interest in the cause of action is sufficient to confer on the estate a property right in [*11] the action."