In this highly complicated case, COBALT MULTIFAMILY INVESTORS I, LLC, , -against- MARK A. SHAPIRO, et al., Defendants.;06 Civ. 6468 (KMW) (MHD);UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;2009 U.S. Dist. LEXIS 60481 we see what may turn out to be a blueprint for a legal malpractice niche.  In this case a receiver brings legal malpractice actions against the attorneys for a situation in which "The Complaint alleges that Mark A. Shapiro, Irving J. Stitsky, and William B. Foster (collectively, "Individual Defendants" or "managers") engaged in a massive fraud on the investing public by founding the Cobalt entities and making egregious misrepresentations in order to persuade members of the public to invest millions of dollars in Cobalt. 2 In the written materials disseminated to potential and actual investors, Individual Defendants allegedly misrepresented: (1) their personal and professional backgrounds, such as failing to disclose their past criminal histories; (2) Stitsky and Foster’s involvement in Cobalt; (3) their plans for [*4] the investors’ funds; and (4) the nature and scope of Cobalt’s property holdings. Individual Defendants allegedly appropriated the majority of the funds invested in Cobalt for their own personal use."

This case has already been to a magistrate’s hearing, a decision by Judge Kimba Wood, to the 2d Circuit, and now back.  Turning in large part on the Waggoner rule, the question before the court was whether the receiver had standing to sue on behalf of the corporation, or whether the receiver was divested of standing based upon the acts of the managers of the corporation.

"The Complaint alleges that all of Law Firm Defendants assisted the Individual Defendants in committing investor fraud, and in subsequently looting the Cobalt entities of corporate assets. Law Firm Defendants allegedly: (1) approved documents that they should have known contained material misrepresentations; (2) assisted the Individual Defendants in siphoning corporate funds into the Individual Defendants’ bank accounts; and (3) helped conceal the Individual Defendants’ criminal activities from both investors and law enforcement."
 

We will discuss this rule in upcoming posts.

In ST. PAUL FIRE & MARINE INSURANCE COMPANY, v.SLEDJESKI & TIERNEY, PLLC,;  No 08-CV-5184 (JFB) (ETB);  UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK; 2009 U.S. Dist. LEXIS 61393; July 17, 2009, Decided  we see an excellent discussion of the standard for a 12(b)(6) motion in this post-Iqbal world, as well as a discussion of legal malpractice insurance coverage for defendants. 
 

Here, the insurance company for defendant attorneys wishes to disclaim coverage on the basis of lack of notice.  So far, they are succeeding.  The court denied a 12(b)(6) motion with a fulsome discussion of the new standards there.

The facts are simple:  "Candice Nelson retained that firm to represent her and the Nelson estate for recovery of damages resulting from the death of her husband, Jeffrey Nelson, in a July 26, 2003 motor vehicle accident. (Compl. P 16.) The firm of Michael T. Clifford & Associates thereafter dissolved, and S&T assumed the representation of Candice Nelson and the Nelson estate. (Compl. PP 17-18.) The applicable statute of limitations for recovery of damages for the wrongful death of Jeffrey Nelson expired on July 26, 2005, two years after the death. (Compl. P 19.) On July 26, 2005, S&T filed a summons and complaint in the Supreme Court, Suffolk County, captioned Candice Nelson as proposed Administratrix for the Estate of Jeffrey Nelson, and Candice Nelson, individually, v. Bonnie A. Rubin and Maier A. Rubin (hereinafter, "the wrongful death action"). "

"Prior to the filing of the malpractice action, in October 2007, Tierney mailed a letter to S&T’s broker, which St. Paul received on November 8, 2007, regarding the alleged error that could potentially lead to the legal malpractice action" 

Notice, rather than occurrence [service of the malpractice complaint] is important,  "Despite defendants’ insistence that the policy is a "claims-made," as opposed to "occurrence-based" policy, discussed in more detail infra, that fact does not change the analysis; although the general rule of a claims-made policy may be that coverage is triggered upon filing of a claim or suit against an insured and/or notice to the insurer thereof, that does [*15] not mean that the potential claim provision cannot provide for an earlier policy period under certain circumstances. It also does not mean that all claims filed during that period are automatically covered by the policy, as then any exclusion policy would be meaningless, and it is clear under New York law that the policy should be interpreted to give meaning and effect to all of the provisions, if possible."

Fraud is often alleged in legal malpractice cases, for one of several reasons.  One common reason is for a longer statute of limitations, 6 years rather than 3.  For as long as there has been a different statute of limitations in fraud and tort, this tension has existed.  After the NY legislature enacted CPLR 214(6) in reaction to a Court of Appeals decision in Santulli v. Englert, 78 NY2d 700 (1992), the tension escalated.  CPLR 214(6) determined that there was a 3 year statute whether the theory of liability is described in tort or fraud, so long as it is for professional work done by non-medical professionals.

A second reason is that the behavior feels more like fraud than malpractice, and the temptation is to plead and describe it as a misrepresentation type of wrong rather than a departure type of wrong.  However, the fraud must be more than a mere variant of the malpractice, and it must be more than the hiding of malpractice.

Here, in Reichenbaum v Cilmi ;2009 NY Slip Op 05954 ;Decided on July 21, 2009 ;Appellate Division, Second Department we see one description of the issue:
 

"The factual allegations in support of the cause of action to recover damages for fraud fail to meet the heightened pleading requirement of CPLR 3016(b) (see Kline v Taukpoint Realty Corp., 302 AD2d 433) and, in any event, the "mere failure to disclose malpractice does not give rise to a cause of action alleging fraud or deceit separate from the underlying malpractice cause of action" (Ferdinand v Crecca & Blair, 5 AD3d 538, 539). "
 

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.  One Roberta Ashkin 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.

No matter how you phrase it, it’s a 3 year statute under CPLR 214(6).  Attorneys try to phrase it as contract, or breach of fiduciary duty, or misrepresentation, but so long as the wrong arises from a professional relationship between client and attorney its a 3 year statute.  In Matter of R.M. Kliment & Frances Halsband, Architects (McKinsey & Co., Inc.) ;2004 NY Slip Op 09319 [3 NY3d 538] December 16, 2004 Ciparick, J. Court of Appeals  we see:
 

"CPLR 214 (6) states that "an action to recover damages for malpractice, other than medical, dental or podiatric malpractice, regardless of whether the underlying theory is based in contract or tort" is subject to a three-year statute of limitations. The Legislature specifically amended this statute in 1996 to counteract the effect of decisions by this Court that "abrogat[ed] and circumvent[ed] the original legislative intent" by allowing actions that were technically malpractice actions to proceed under a six-year contract statute of limitations (Revised Assembly Mem in Support, Bill Jacket, L 1996, ch 623).

Prior to the 1996 amendment, we determined the appropriate statute of limitations in nonmedical malpractice actions based upon the proposed remedy instead of the theory of liability (see e.g. Santulli v Englert, Reilly & McHugh, P.C., 78 NY2d 700, 708 [1992]; Sears, Roebuck & Co. v Enco Assoc., Inc., 43 NY2d 389, 394-395 [1977]). These cases held that liability would not have existed between the parties without the contractual relationship and that there was an implied agreement to perform professional services using due care (see Santulli, 78 NY2d at 707; Sears, 43 NY2d at 396). Parties were permitted to maintain a malpractice action under a breach of contract theory within the six-year statute of limitations, but were limited to damages available in a contract action if the three-year malpractice limitations period had expired (see Santulli, 78 NY2d at 709).

It is the effect of these decisions that the amendment to CPLR 214 (6) was intended to change. The legislative history makes clear that "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, {**3 NY3d at 542}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 a breach of contract" (Revised Assembly Mem in Support, Bill Jacket, L 1996, ch 623). [*4]"

Actions have consequences, and in legal representation it may be malpractice,   Here is an example.  Say, for example that you have a robust asbestos practice, and in one of your many pending actions, you have one of many defendants file a motion for summary judgment.  You may not be sure whether there is any evidence against that particular defendant and sign a stipulation of discontinuance.  Is the stipulation binding, when a couple of months later you determine that there was evidence against that defendant?  Can you vacate?  The short answer is NO.  The longer answer is found in Hallock v. State of New York and in Charlop v A.O. Smith Water Prods.
2009 NY Slip Op 05911 ;Decided on July 21, 2009 ;Appellate Division, First Department

"stipulations of settlement are judicially favored and should not be lightly cast aside (see Hallock v State of New York, 64 NY2d 224, 230 [1984]; Matter of Kanter, 209 AD2d 365 [1994]). Thus, a party will not be relieved from the consequences of a stipulation unless there was sufficient cause to invalidate it, such as fraud, mistake, collusion, accident, or some other ground (see Hallock, 64 NY2d at 230; Daniel v Long Is. Univ., 184 AD2d 350, 352 [1992]). The party seeking to vacate the stipulation should do so with reasonable promptness under the circumstances (see Hallock, 64 NY2d at 231)[parties bound by a stipulation where they voiced no objection for two months following the execution of a stipulation]).

In Structured Asset Sales Group LLC v Freeman (45 AD3d 327 [2007]), the parties mutually decided to discontinue the action. The plaintiff received the proposed stipulation — which stated on its face that the discontinuance was "with prejudice" — and held onto it for two months before executing it (id. at 328). The plaintiff then sought to set aside the stipulation, a request which was denied by Supreme Court. This Court upheld the dismissal of the action (id.)."
 

Plaintiff loses a commercial law case, and sues his attorneys for legal malpractice.  During discovery, while preparing responses to interrogatories, he discovers, and then sues over what he claims is a forged affidavit said to be prepared by the attorneys and unsuccessfully used in his case.  Worse he says, the affidavit contained inaccurate information which was the cause of the loss, and hence a sort of double malpractice.  Defendants say, its too late, and what kind of a cause of action is this, anyway?

In Shelly v. Mintz Levin Cohn Ferris Glovsky & Popeo PC we see Justice Emily Jane Goodman’s answer to these two questions.  Forgery is a civil cause of action, akin to fraud, but without some of the more onerous elements.  No "reliance" is necessary in a forgery case; it is "counterintuitive."

Forgery is "the fraudulent making of a writing to the prejudice of another’s rights, or the making malo animo of any written instrument for the purpose of fraud and deceit…."  It is subject to a 6 year from the making or two year from the reasonable discovery statute of limitations.

Attorney takes on case for client, and the job is to check whether client can erect a Walgreens in Brooklyn.  Attorney does research, and determines that the building and parking lot will be legal in that zoning.  Attorney, however, fails to check if any new laws have been passed by the NYC Council on zoning recently. Two weeks prior to the report, the Council had passed a law which made the parking lot illegal, and those changes were certified. 

$5 million in loans and construction pre-costs later, plaintiff cannot build the Walgreens,  Legal Malpractice law suit follows.  Will a restrictive retainer agreement be applicable ?  Is the attorney responsible for checking the up-to-date law?

In Santo Nostrand LLC v. Cozen O’Connor  602415/08 we see the answer, at least at the pleading stage.  Plaintiff states a cause of action.  The importance of a parking lot to plaintiff in attempting to contract with Walgreens was known to defendants, and it was their obligation to be up to date on the law.  The case continues.