In Supreme Court, New York County, Justice Emily Jane Goodman issued not one but two legal malpractice decisions this week.  We’ll cover Koch tomorrow.  Today, Esterman v. Schwartz, New York Slip Op. 2009-31523.

Plaintiffs are a subset of a group of owners of a waterfront Staten island development which suffered retaining wall damage in a storm.  The group was divided into waterfront owners and inland owners, and they did not agree on who had to pay for the retaining wall to be fixed.  Plaintiff’s group retained defendant attorneys, and in the end, they were the only group that did not sue the City and other defendants who constructed the wall which failed.

This case is interesting for three reasons.  The first is a question of how parol evidence may affect a limited retainer agreement between attorney and client.  The retainer agreement was only for investigation, not litigation.  The claim was that the attorneys did not file a notice of claim and did not move for permission to file a late notice of claim, although the unaffected waterfront owners who hired other counsel were successful in bringing suit.

Justice Goodman held that in the absence of a merger clause in the retainer agreement [ e.g.,"this is the complete agreement and may not be changed or altered without express written agreement"] parol evidence that the attorneys orally agreed to bring suit was permissible.

The second area of interest is the "but for" aspect of the case.  As do all defendants, here they argued that there is no evidence that plaintiffs would be successful against the city.  Justice Goodman made an interesting observation.  If there is no possible merit to such a claim against the City, why did the attorneys send a contingent retainer agreement which called for them to bring such an action.  That the retainer remained unsigned is of no moment.

Lastly, the court gruffly laid aside questions of sanctions. 

Here, in GURVEY,, v. COWAN, LIEBOWITZ & LATMAN, PC., CLEAR CHANNEL COMMUNICATIONS, INC., INSTANTLIVE CONCERTS, LLC, LIVE NATION, INC., NEXTICKETING, INC. DALE HEAD, STEVE SIMON, and DOES I-VIII, INCLUSIVE, ; 06 Civ. 1202  UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;2009 U.S. Dist. LEXIS 34839; 2009-1 Trade Cas. (CCH) P76,623; we see a unique combination of legal malpractice claims, cliams of "passing off", Lahham Act claims and general conversion causes of action.  Plaintiff, who was of counsel to Cowan, brought a new ticketing/management/sales "invention" to the law firm, and it was eventually filed with the Patent office.  Beyond that,Phish is a part of it all.

"At that time, CLL agreed to represent the Plaintiff before the US Patent and Trademark office ("USPTO") to file Provisional Patent Applications ("PPA"s) for inventions developed by Plaintiff prior to joining CLL. (TAC PP28, 33).

Plaintiff’s inventions included business plans to edit, package and distribute live recordings of live music events, as well as electronic ticketing methods related to these recordings. (TAC PP 28, 33.)

Shortly after beginning at CLL, Plaintiff presented her projects, business plans, and inventions at the firm’s monthly partners’ conference. (TAC P34).

After the meeting a CLL [*3] Partner told Plaintiff that the her business plans would be of significant interest to the firm’s client CCC. (TAC P36). This same CLL Partner also told Plaintiff that he preferred to have her as a client of CLL rather than as Of Counsel. (TAC P37.)

In early May 2002, Plaintiff was notified that she would no longer be employed Of Counsel, but that CLL continued to have interest in the subject matter of her patents and would file the Plaintiff’s PPA’s before the USPTO. (TAC P43). On May 22, 2002 and May 24, 2002, CLL filed two patents with the USPTO naming the plaintiff as sole inventor and CLL as attorneys of record. (TAC P44).

In August 2002, Plaintiff returned from a business trip to find that she had been locked out of her office. (TAC P47)

On or about February 16, 2003, the Plaintiff received notification from the USPTO that CLL had withdrawn as the attorney on one of her patents because of a conflict of interest. (TAC P50).

In March 2003, the CCC affiliated entity InstantLive posted ads/statements on their website announcing a new program that would allow concert-goers to purchase its recordings. (TAC P55). On May 5, 2003, The New York Times published an article describing InstantLive. [*4] Plaintiff alleges that this description mirrored her business models for the onsite distribution of live recordings at concerts. (Band members of Phish were also interviewed for the article and identified their interest in this new product. (TAC P52). A member of Phish is married to a CLL attorney.)
 

"Here, Plaintiff offers only vague and non-actionable challenges to CLL’s legal representation. Plaintiff first pleads that CLL "failed to protect and safeguard her trade secrets." TAC P120(1). This allegation appears to refer either to the presence of non-attorney CLL employees at the initial presentation of Plaintiff’s inventions or to the misappropriation at the heart of Plaintiff’s TAC. However, neither instance is premised on anything more than speculation, and neither presents a challenge to the actual quality of CLL’s legal representation Plaintiff also alleges that CLL "fail[ed] to properly advise [her] with respect to the opportunities for commercial exploitation of [her] [*20] inventions and trade secrets" (TAC P120(2)). This allegation again does not address CLL’s legal representation and merely challenges the "selection of one among several reasonable courses." Finally, Plaintiff alleges that CLL failed to eliminate a conflict of interest to its representation of Plaintiff TAC PP120(3) and (4). Because this allegation includes no detail, even in speculation, as to the supposed conflict, the allegation does not provide a basis for a malpractice claim."
 

In Boglia v Greenberg ; 2009 NY Slip Op 05278 ; Decided on June 23, 2009 ; Appellate Division, Second Department  wee see a successful opposition to summary judgment based upon a claim of failure to report a settlement  offer to plaintiff.
 

"To sustain a cause of action alleging legal malpractice, a plaintiff must establish that the attorney "failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession," and that the attorney’s breach of this duty proximately caused the plaintiff actual and ascertainable damages (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442, quoting McCoy v Feinman, 99 NY2d 295, 301-302; see Bauza v Livington, 40 AD3d 791, 792-793; Magnacoustics, Inc. v Ostrolenk, Faber, Gerb & Soffen, 303 AD2d 561, 562). To obtain summary judgment dismissing a complaint in an action to recover damages for legal malpractice, a defendant must demonstrate that the plaintiff is unable to prove at least one of the essential elements of its legal malpractice cause of action (see Kotzian v McCarthy, 36 AD3d 863, 863; Fasanella v Levy, 27 AD3d 616, 616).

However, the Supreme Court should have denied that branch of the defendants’ cross motion which was for summary judgment dismissing the second cause of action, alleging legal malpractice based upon their alleged failure to convey her former husband’s $250,000 settlement offer to her, as triable issues of fact exist regarding whether the defendants failed to convey the settlement offer to the plaintiff and whether the plaintiff would have accepted that offer (cf. Bauza v Livington, 40 AD3d at 793). "

There are two traps for the unwary legal malpractice litigant in Bankruptcy Court.  One is the failure to list a potential or actual legal malpractice claim in the schedules, depriving the emergent litigant from bringing a legal malpractice case later.  A second trap is the attorney fee hearing, which if it allows fees to the attorney may insulate that attorney from a later legal malpractice case.

Here is an example where there is no res judicata. In PENTHOUSE MEDIA GROUP, INC.,  – against – PACHULSKI STANG ZIEHL & JONES LLP, UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;2009 U.S. Dist. LEXIS 46617; June 2, 2009, Decided  we see:
 

"Even when all of the elements of res judicata are satisfied, a malpractice claim remains viable unless a party "could and should have brought [it] in the former proceeding." 40 "In this context, important factors in this analysis include whether the fee hearing [*12] was an adversary proceeding or contested matter, the nexus between the order awarding [] fees and the claims now being asserted, and ‘the amount of time that has elapsed since the case commenced.’" 41 Such a determination depends on "whether and to what extent [the party] had actual or imputed awareness prior to the fee hearing of a real potential for claims . . . and whether the bankruptcy court possesse[s] the procedural mechanisms that . . . allow [the party] to assert such claims." 42

40 In re Intelogic Trace, Inc., 200 F.3d 382, 388 (5th Cir. 2000). Accord EDP Med. Computer Sys., Inc. v. United States, 480 F.3d 621 (2d Cir. 2007) HN8("Under the doctrine of res judicata, or claim preclusion, ‘[a] final judgment on the merits of an action precludes the parties or their privies from relitigating issues that were or could have been raised in that action.’") (quoting St. Pierre v. Dyer, 208 F.3d 394, 399 (2d Cir. 2000) (emphasis added)); Sure-Snap Corp. v. State Street Bank & Trust Co., 948 F.2d 869, 875 (2d Cir. 1991) (finding that a claim for tortious infliction of emotional distress against creditors should have been brought as part of a prior bankruptcy proceeding and was therefore [*13] barred by res judicata).

41 In re Intelogic, 200 F.3d at 388 (quoting Matter of Howe, 913 F.2d 1138, 1147 n.28 (5th Cir. 1990)).

42 Id.

For the reasons discussed above, the bankruptcy court’s Order granting Pachulski’s motion for summary judgment is reversed. This case shall be remanded to the United States Bankruptcy Court for the Southern [*25] District of New York for actions consistent with this opinion. The Clerk of the Court is directed to close this case."
 

Legal malpractice in the estate and probate areas is limited by the concept of privity.  Errors in the preparation or wills, and mistakes in the handling of probate proceedings are often precluded on one of two bases.  The first is that a beneficiary may not sue for malpractice to the decedent, and the second is lack of privity…a contractual or near-contractual relationship with the attorney.

In Leff v. Fullbright & Jaworsky, LLP. we see a well reasoned and explained decision which covers all the areas of estate and probate legal malpractice.  Beyond the shocking size of the estate [90 Million] and the cavalier attitude decedent had to his wife [the anniversary present, and the language of his letters to her] we see the bedrock principals of legal malpractice, and the eternal question of whether this attorney is susceptible to suit by this plaintiff.  Here, Leff may not successfully sue her attorneys, as they provided legal advice and work to her husband, and not to her.  By her reasoning, she is out $9 million. 

One of the beautiful things about the US is that every state has its own law.  It was shocking to learn in Law School that events a few miles away, across a state border could be handled differently.  Sure, other countries, but Connecticut?

Here is a story  from Law.Com about how Texas handles executor-estate attorney legal malpractice cases.

"In a 5-2 decision, the Texas Supreme Court held on June 26 that the executor of an estate may sue a decedent’s attorneys for alleged malpractice committed outside the realm of estate planning.

"We hold that the executor should not be prevented from bringing the decedent’s survivable claims on behalf of the estate," Justice Harriet O’Neill wrote for the majority in Smith, et al. v. O’Donnell.

According to the majority opinion, Corwin Denney retained the San Antonio firm Cox & Smith to advise Denney in the independent administration of the estate of his wife following her death in 1968. The firm’s legal name is Cox Smith Matthews.

As noted in Cox & Smith’s petition for review to the state Supreme Court, the defendants in Smith also include attorneys Paul H. Smith and Jack Guenther and the former partnerships of Cox, Smith & Smith; Cox, Smith, Smith, Hale & Guenther; and Cox, Smith, Smith, Hale & Guenther Inc., all predecessors to Cox & Smith Inc.

The Supreme Court’s majority opinion in Smith provides the following background: Denney contended that he and his wife had agreed orally that stock in Automation Industries Inc. would be his separate property, and property in Gilcrease Oil Co. would be hers. Cox & Smith advised Denney in a memorandum that additional information was necessary before classifying the assets. According to Cox & Smith, the firm advised Denney that he probably should seek a declaratory judgment to properly classify the stock, but Denney declined to do so. Without seeking a declaratory judgment and relying on an analysis by Denney’s California accountant, Cox & Smith prepared an estate tax return that omitted Automation stock from a list of the deceased wife’s assets. After Denney died 29 years later, leaving the bulk of his estate to charity, the Denney children sued Denney’s estate, alleging that he underfunded their mother’s trust. Thomas O’Donnell, the executor of Denney’s estate, settled the children’s claims for $12.9 million and then sued Cox & Smith, alleging that the firm failed to properly advise Denney about the serious consequences of mischaracterizing assets and that their negligence caused damage to Denney’s estate. Asserting a claim of malice, O’Donnell alleged that Cox & Smith’s conduct constituted gross negligence."
 

Criminal law and legal malpractice law seldom intersect.  One reason is an almost complete ban on criminal defendants suing their defense attorneys.  In order to sue, one must show "actual innocence" which is customarily demonstrated by reversal upon appeal or exoneration.  Since that is a rare occurrence, there is little vitality to criminal defense legal malpractice.

Here, the view is obverse, and a real estate broker [perhaps an investor ?] sues an attorney involved in the real estate transaction for legal malpractice.  The kicker is that the attorney has been arrested upon a felony complaint, and now awaits the action of the Grand Jury.

In  THE CORCORAN LAW GROUP, L.L.C. et ano., -against- JANE Y. POSNER, ESQ. ;09 Civ. 1861 (WHP)UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;2009 we see that the Court grants a stay of legal malpractice proceedings to see what happens to the felony complaint.  In criminal prosecutions, the DA files a complaint, in this case for a felony,  which may not serve as an accusatory instrument for trial upon a felony.  The Constitution and the Bill of Rights requires the action of the Grand Jury which must issue a true bill, otherwise known as an indictment.
 

"In determining whether a stay is appropriate, courts balance the following factors: (1) the extent to which the issues in the criminal case overlap with those presented in the civil case; (2) the status of the case, including whether the defendant has been indicted; (3) the interests of the plaintiffs in proceeding expeditiously, weighed against the prejudice to plaintiffs caused [*3] by a delay; (4) the private interests of and burden on the defendant; (5) the public interest; and (6) the interest of the Court in the efficient management of cases. See, e.g., Transworld Mechanical, 886 F. Supp. at 1139.
"[D]istrict courts in this Circuit generally grant the extraordinary remedy of a stay only after the defendant seeking a stay has been indicted." Sterling Nat’l Bank, 175 F. Supp. 2d at 576 (citation and internal quotation marks omitted). However, at least one district court in this Circuit has noted that the filing of a felony complaint should be treated as the substantial equivalent of an indictment. See Parker v. Dawson, No. 06-CV-6191 (JFB), 2007 U.S. Dist. LEXIS 63068, 2007 WL 2462677, at *4 (E.D.N.Y. Aug. 27, 2007). The [*4] question is "whether the criminal proceedings have substantially progressed beyond the investigatory stage to the filing of formal charges against a particular defendant, so that there is an imminent likelihood that the defendant will be subject to a criminal proceeding, including a trial, in the very near future." Parker, 2007 U.S. Dist. LEXIS 63068, 2007 WL 2462677, at *4 (collecting cases).

Corcoran submitted its supporting deposition to the Putnam County DA on October 30, 2008, and a felony complaint was filed four months later. Therefore, it is evident that the "criminal proceedings have substantially progressed beyond the investigatory stage." Parker, 2007 U.S. Dist. LEXIS 63068, 2007 WL 2462677, at *4. Accordingly, this factor weighs in favor of a stay."

Privity of contract is an important element of legal malpractice.  For policy reasons [and to avoid infinite and endless litigation] courts enforce a rather strict requirement that one may sue their own attorney, but not the opponent’s in legal malpractice. There are exceptions.

In LYDIAN PRIVATE BANK d/b/a VIRTUALBANK, -v- RICHARD A. LEFF, UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK;2009 U.S. Dist. LEXIS 48756
June 8, 2009, we see a well enunciated set of rules for the combination of breach of fiduciary duty and legal malpractice by Judge Laura Taylor Swain.

" "An action for legal malpractice requires proof of three essential elements: (1) the negligence of the attorney; (2) that the negligence was the proximate cause of the loss sustained; and (3) proof of actual damages." Mendoza v. Schlossman, 87 A.D.2d 606, 606-7, 448 N.Y.S.2d 45 (2d Dep’t 1982). In some cases, a lawyer may owe duties to a nonclient that are actionable in a legal malpractice claim if his client has a fiduciary relationship with the nonclient, to the extent that action necessary to prevent or rectify the [*9] breach of a fiduciary duty owed by the client to the nonclient falls within the scope of his representation. 4 In order to state a claim for negligence, a plaintiff must demonstrate "(1) a duty owed by the defendant to Plaintiff, (2) a breach thereof, and (3) injury proximately resulting there from." Solomon by Solomon v. City of New York, 66 N.Y.2d 1026, 1027, 489 N.E.2d 1294, 499 N.Y.S.2d 392 (N.Y. 1985).

FOOTNOTES

4 As one court noted in In re Food Mgmt. Group, LLC, 380 B.R. 677, 708-10 (Bankr. S.D.N.Y. 2008) (citing Law Governing Lawyers § 51(4)), a lawyer owes a duty to a nonclient when and to the extent that:
(a) the lawyer’s client is a trustee, guardian, executor, or fiduciary acting primarily to perform similar functions for the nonclient;

(b) the lawyer knows that appropriate action by the lawyer is necessary with respect to a matter within the scope of the representation to prevent or rectify the breach of a fiduciary duty owed by the client to the nonclient, where (i) the breach is a crime or fraud . . . ;

(c) the nonclient is not reasonably able to protect its rights; and

(d) such a duty would not significantly impair the performance of the lawyer’s obligations to the client.

The duty imposed by [this] rule . . . arises [*10] when the lawyer knows that appropriate action by the lawyer is necessary to prevent or mitigate a breach of the client’s fiduciary duty. . . . [A]ctual knowledge by the . . . Defendants is not required to impose liability predicated on this theory. The . . . Defendants cannot escape liability if they closed their eyes to what someone with their ‘superior intelligence’ would find obvious. [However, the plaintiff] cannot predicate liability . . . on the . . . Defendants’ failure to investigate facts beyond those of which they were otherwise aware."