This holiday season has been one long story about bad economic news, swindles, bad investments, and hedge funds.  One meme of this blog has been that legal malpractice litigation is ubiquitous, and intertwined with all aspects of our world.  This is simply a reflection of the integration of law and lawyers in all aspects of our social and economic lives.

Here is another example.  An attorney is accused of pocketing $ 18 million.  The Kansas City Star reports:

"The trustee of bankrupt Ethanex Energy Inc. has sued a major multinational law firm over an alleged multimillion-dollar fraud scheme by a former partner that contributed to Ethanex’s demise.

The trustee, Eric Rajala, is seeking unspecified damages from 900-lawyer McGuireWoods, which is based in Richmond, Va., and has 17 offices worldwide. Rajala’s complaint says that McGuireWoods “was aware of, supported and profited” from the activities of the former partner, Louis W. Zehil.

"[Louis] Zehil, of Ponte Vedra Beach, Fla., was forced out of McGuireWoods in February 2007 after his alleged scheme was uncovered. Shortly afterward, federal prosecutors in New York brought criminal fraud charges against him, and the Securities and Exchange Commission brought parallel civil charges."

The criminal case is pending, with Zehil scheduled to make his next appearance in court in late April. The SEC case is also pending, awaiting resolution of the criminal case.

The SEC charged that Zehil made more than $17 million in illegal profits by selling the unregistered shares of seven energy companies, including those of Ethanex and Kansas City-based Alternative Energy Sources Inc.

“We believe that McGuireWoods is responsible for Zehil’s conduct,” said Kansas City attorney John M. Edgar, who filed the complaint on Rajala’s behalf.

William Allcott, a partner with McGuireWoods, said the firm did not believe the suit had merit."

Arbitration and legal malpractice form an uneasy fit.  One reason is that discovery is limited; another is that the case is decided by a panel of attorneys.  While in many ways a panel of "wise men" may be preferable, in legal malpractice plaintiff will generally prefer a jury.

Juries trend towards a less highly technical view of departures and damages than do a panel of attorneys.  As an example, the case of Kaminsky v Herrick, Feinstein LLP , 2008 NY Slip Op 09934 ,Decided on December 18, 2008 ,Appellate Division, First Department  provides an example.
 

Plaintiff offered evidence of $ 3.25 million damages, and eventually won about $ 300,000.  Plaintiff’s claim was that his attorneys failed to offer testimony about the share value of the case and failed to offer an expert on the direct arbitration case, relying on a rebuttal witness, which the arbitrators did not heed.

In the Appellate Division, plaintiff lost. "In this action for legal malpractice, plaintiff claims that his attorneys’ failure to offer [*2]sufficient expert testimony concerning the valuation of his damages resulted in an inadequate arbitration award. However, plaintiff fails to offer any viable legal basis upon which the arbitration panel could have reached a substantially different result. Thus, plaintiff cannot establish that the outcome of the proceedings would have been more favorable but for defendants’ asserted failure to present evidence, and the complaint must be dismissed. "

It was always a first year economy class aphorism that hemlines were positively correlated with the state of the economy.  Better finances led to brighter prospects, led to more sprightly dresses, with higher hemlines.  A downturn in the economy leads to a similar sartorial downturn.

This article from NY Lawyer  "As Economy Worsens, More Lawyers Being Targeted in Malpractice Suits" seems to say the same thing is true of legal malpractice suits.  "With financial losses piling up in the downturn, real estate lawyers have increasingly become a target of legal malpractice claims, said Bill Loucks, president of Orlando-based Florida Lawyers Mutual Insurance. He said the firm has had a 13 percent increase in real estate-related claims since January. But he said that isn’t entirely related to the real estate market collapse.

“The economy has had an indirect impact on claims, primarily on the real estate practice area,” he said. “Attorneys whose primary practice is centered around real estate went through a real estate boom. … When the real estate market fell apart, then there was a lot of very close inspection of lawyer-prepared documents.”

Clients of the insurer, which writes legal malpractice insurance, tend to be firms with small numbers of lawyers and solo practitioners.

An American Bar Association study of legal malpractice claims supports Loucks’ observations. Claims in real estate work grew 4 percent from 2004 to 2007 compared with the previous four-year period, according to the report released in September, "

Many claims against lawyers include allegations of errors in transactions ranging from conflicts of interest and closing mistakes to poorly drafted contracts and zoning and escrow issues, the study said.

“Certainly real estate problems are coming out of the woodwork in all kinds of areas. That will continue,” Trazenfeld said. “The rising market covered up a lot of legal malpractice. Now that there’s a downturn in the market all of the malpractice,” claims are sprouting.

One group of clients that are suing real estate attorneys are title insurance firms that have been accused of making legal errors in transactions. Title insurers often turn around and sue their title insurance agents, who typically are lawyers.

This is the same heading, but relates to a totally different set of circumstances.  Is an attorney/law firm united in interest with its former client, when the former client is sued, but the attorney is not?  May plaintiff [or a third-party plaintiff] rely upon the relation-back principal in order to bring in the attorneys late in the case?  We see a well reasoned opinion of Justice Warshawsky in the matter of Arbor Secured Funding v. Just Assets NY 1,  in which the answer, as far as Davidoff, Maliito & Hutcher LLP is concerned.  We cannot import the actual text, but the court found that a statute of limitations in defamation might related back to a claim "previously asserted against a codefendant for statute of limitations purposes where the two defendants are `united in interest.’  The proponent must show that both claims arose from "the same conduct, transaction or occurrence, that the new defendant is united in interest with the original defendant…"

Legal Malpractice litigation succeed es earlier litigation, by its very definition, and all know that "but for" refers to the first case.  An unfortunate corollary to this definitional fact is that clients and some attorneys turn to legal malpractice litigation as a default mode of trying to rectify all wrongs, whether caused by the attorney or not. 

In this duo of related cases, we see the skein running from the earlier cases, through a second series of cases, through legal malpractice all the way to defamation for the way the attorneys defended themselves.Adamski v Lama ;2008 NY Slip Op 09308 Decided on November 26, 2008
Appellate Division, Third Department  and 2008 NY Slip Op 09312.
 

"As Supreme Court concluded, defendants’ allegedly libelous statements in affidavits and a letter are absolutely privileged inasmuch as they were made in the course of a judicial proceeding and pertinent to that litigation (see Martirano v Frost, 25 NY2d 505, 507-508 [1969]; Cavallaro v Pozzi, 28 AD3d 1075, 1077 [2006]; Black v Green Harbour Homeowners’ Assn., Inc., 19 AD3d 962, 963 [2005]; Grasso v Mathew, 164 AD2d 476, 479 [1991], lv dismissed 77 NY2d 940 [1991], lv denied 78 NY2d 855 [1991]). With respect to plaintiff’s remaining claims, he has failed to state a cause of action for fraud, and no private right of action exists for perjury, tampering with documents, obstruction of justice, and frivolous pleadings (see [*2]Newin Corp. v Hartford Acc. & Indem. Co., 37 NY2d 211, 217 [1975]"

"Plaintiff has commenced a series of lawsuits against his former employer, nonparty Schuyler Hospital, as well as both his former counsel and counsel for various prior defendants. In this action, his fifth lawsuit, plaintiff asserts a variety of claims, including legal malpractice and breach of fiduciary duty, against defendants, his counsel in the third and fourth lawsuits, in which he claimed that the various defendants therein had violated the settlement agreement between plaintiff and Schuyler Hospital that resolved plaintiff’s first action [FN1]. Upon this appeal, [*2]plaintiff challenges an order of Supreme Court granting defendants’ motion for partial summary judgment, dismissing all causes of action except plaintiff’s conversion claim and granting defendants’ motion to strike plaintiff’s demand for punitive damages."

"Inasmuch as plaintiff’s submissions in response failed to raise any issues of fact regarding negligence, proximate cause or damages, Supreme Court properly dismissed plaintiff’s legal malpractice cause of action (see Guiles v Simser, 35 AD3d 1054, 1055-1056 [2006]; Antokol & Coffin v Myers, 30 AD3d 843, 845-846 [2006]; Lichtenstein v Barenbaum, 23 AD3d 440, 440-441 [2005]; Brodeur v Hayes, 18 AD3d 979, 980-981 [2005], lv dismissed and denied 5 NY3d 871 [2005]). Finally, plaintiff’s breach of fiduciary duty claims are, essentially, claims of legal malpractice and, thus, they fail for the reasons detailed above (see Guiles v Simser, 35 AD3d at 1055; Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 271-272 [2004]). "
 

There are certain stays of the statute of limitations, universally.  Here, in this legal malpractice case plaintiff offered the testimony of a psychologist, probably to prove that plaintiff was unable to commence an action, or protected from the running of the statute of limitations.  It did not work here.Nickel v.  Goldsmith & Tortora, Attorneys at Law, P.C.,2008 NY Slip Op 09570
Decided on December 2, 2008 ,Appellate Division, Second Department .
 

"The Supreme Court correctly, in effect, granted that branch of the defendant’s motion which was to dismiss the complaint pursuant to CPLR 3211(a)(5) as time-barred. The plaintiff’s cause of action to recover damages for legal malpractice is subject to a three-year statute of limitations (see CPLR 214[6]). Since the cause of action accrued no later than May 2002 and was not interposed until June 2007, it was time-barred (see McCoy v Feinman, 99 NY2d 295, 301; Glamm v Allen, 57 NY2d 87, 93). The toll of the limitations period provided by CPLR 208 is available "to only those individuals who are unable to protect their legal rights because of an over-all inability to function in society" (McCarthy v Volkswagen of Am., 55 NY2d 543, 548; Santo B. v Roman Catholic Archdiocese of N.Y., 51 AD3d 956, 958). The conclusory assertions of the plaintiff’s psychologist, who first treated the plaintiff in May 2005, are insufficient to satisfy this standard. "

We ran acrossthis story today.  Prior restraint of a blog, a legal malpractice case, and a question of who is actually posting the blog.

"Mystery Blogger Caught Up in First Amendment Flap
Posted December 3rd, 2008 by Sam Bayard
in Massachusetts Anonymity Legal Threat Prior Restraints
On Monday, the blog-hosting service Blogger took down a blog called "Jeffrey Denner’s ineffective assistance of counsel" after Jeffrey Denner notified Blogger that a Massachusetts court had issued a restraining order prohibiting one Derrick Gillenwater from using the words "Jeffrey" or "Denner" or "Jeffrey Denner" in any blog postings. Blogger notified the anonymous operator of the blog, who goes by the moniker "Boston Bob." Yesterday, Boston Bob replied as follows:

The problem is, I’m not Derrick Gillenwater, nor do I operate under his
authority. I am an independent anonymous person.

Please repost my blog immediately.

Thank you.
Blogger promptly restored the blog and indicated that it would notify Mr. Denner.

This is where things get complicated. Boston Bob created the blog on October 15, after apparently meeting Derrick Gillenwater and discussing Gillenwater’s malpractice lawsuit against Jeffrey Denner and Kevin Barron, two Boston lawyers. Gillenwater himself is a blogger, and at the time he also operated a blog dedicated to criticizing Jeffrey Denner and discussing the lawsuit at http://jeffreydenner.blogspot.com (now defunct).

At around the same time that Boston Bob started his blog, Denner and Barron obtained a restraining order and then a preliminary injunction prohibiting Gillenwater from blogging about Denner and from filing motions or pleadings without prior permission of the court. For details, see our database entry, Denner v. Gillenwater.

Denner and Barron convinced the court to issue a restraining order after Gillenwater apparently sent them a threatening email stating that he would "send his blog posting out to the media" and that he would raise his damages demand by $1 million if he had to "send a 93A letter." (Exactly what all this means, we do not know.) Because Gillenwater’s blog has been removed, it is impossible to tell what Gillenwater had published (or had threatened to publish), but I can’t imagine anything that would justify such a sweeping prior restraint on his speech.

As we’ve said before, even narrowly tailored prior restraints on speech are constitutionally suspect. See Nebraska Press Assn. v. Stuart, 427 U.S. 539, 559 (1976) (cautioning that "prior restraints on speech and publication are the most serious and the least tolerable infringement on First Amendment rights"). Under the circumstances, it’s hard to see how Denner and Barron could have been complaining about anything more serious than allegedly false and defamatory statements. This comes nowhere near what is necessary to satisfying the exacting standard the Supreme Court applied in the famous Pentagon Papers case. See New York Times Co. v. United States, 403 U.S. 713 (1971) (holding that injunction against publication of illegally leaked classified documents from Defense Department was an impermissible prior restraint). Even putting aside the serious constitutional question, courts routinely refuse to enjoin defamatory speech because money damages are an adequate remedy. It looks like the court failed to brush up on some basics of defamation and First Amendment law before issuing its order.

The NYLJ reports a Judiciary Law 487 case today in which the claim survives.  Empire Purveyors, Inc. v. Brief Justice & Kleinman, [subscription necessary] which was written by Justice Solomon in Supreme Court,  New York County, holds that Judiciary Law 487 is applicable in both of its applications.  The first application, deceit in an ongoing legal proceeding was supported by defendant’s representation that it was fully authorized to settle this commercial real estate case.  The second application was supported by the financial irregularities in the settlement transaction.

"Empire alleges that on or about November 2, 2004, unbeknownst to Plaintiff, Cook executed a Stipulation of Settlement (the "Stipulation") on behalf of Plaintiff which obligated Empire to pay $17,230.48 to settle the dispute. Complaint at ¶¶14, 15. Empire claims that Cook did not inform Empire of the terms of the Stipulation or obtain Empire’s consent prior to Cook’s execution of the Stipulation.2 Complaint at ¶29; Pinto Affidavit at ¶¶20, 29. The Stipulation was "so ordered" by the Court. Affirmation of David J. Fischman at ¶28. According to Plaintiff, Cook represented to Empire that "the judge ruled that we had lost the case and that the landlord had prevailed in its claim for additional rent and other monies" and that Empire "had to give him a bank check, the next day, payable to the landlord in the amount of $17,230.48." Pinto Affidavit at ¶19. Empire asserts that it "never agreed to settle the case, especially for an amount which far exceeded any imaginable amount that could possibly be owed to the landlord." Pinto Affidavit at ¶20. Nevertheless, Empire provided a bank check dated November 3, 2004 to Cook based on Cook’s representation that a judge had heard the case and ruled against Empire out of "fear of violating a court order." Pinto Affidavit at ¶21.

Empire alleges that the Stipulation "obligated the plaintiff to pay monies to the landlord in an inappropriate amount." Complaint at ¶29. Empire contends that the landlord was not entitled to receive the $17,230.48 payment from Empire as that payment included rent which was already paid, a payment for real estate taxes that were not due, and $3,000 for the landlord’s attorney’s fees when Empire was not required to pay the landlord’s legal fees. Pinto Affidavit at ¶¶35-37. Empire contends that it informed Cook that no rent was due for the period of December of 2003 to March of 2004 and that a credit was due to Empire for tax payments that were made to the landlord because of a tax abatement that the landlord had received. Pinto Affidavit at ¶17.

Empire further contends that the Stipulation improperly did not provide for the return of Empire’s security deposit. Complaint at ¶29; Pinto Affidavit at ¶38. Additionally, Plaintiff claims that Brief Justice waived Empire’s right to pursue a refund of real estate taxes which had been overpaid and waived Empire’s right to vacate any portion of the judgment. Pinto Affidavit at ¶39."
 

"With respect to the third cause of action, Defendants argue that Judiciary Law Sec. 487 is inapplicable because the alleged fraud was not committed during a legal proceeding. According to Defendants, this cause of action must be dismissed because Cook’s alleged conversion of payments made to Empire occurred after the landlord-tenant proceeding had ended. It is true that a Judiciary Law 487(1) claim must fail if the alleged "deceit or collusion" is not directed at a Court and did not take place during the course of a pending judicial proceeding. Costalas v. Amalfitano, 305 A.D.2d 202, 204 (1st Dept. 2003). However, Empire contends that Cook deceived the Court in a proceeding when he represented in paragraph 11 of the Stipulation that he was "fully authorized" to "draft, negotiate and execute" the Stipulation on behalf of Empire when he in fact was not.

Furthermore, Judiciary Law Sec. 487(2) applies where an attorney "willfully receives any money or allowance for or on account of any money which he has not laid out, or becomes answerable for." Empire alleges that Cook received monies sent by the landlord in connection with the landlord-tenant proceeding for Empire’s security deposit and converted and withheld them from Plaintiff. Based on the foregoing, Empire has stated a valid cause of action pursuant to Judiciary Law Sec. 487.

Defendants argue that Cook’s alleged conduct is not serious enough to trigger Judiciary Law Sec. 487 and cite Gonzalez v. Gordon, 233 A.D.2d 191 (1st Dept. 1996) in support of their argument. However, that case is distinguishable because, as the Court noted, there was "no evidence that defendant defrauded plaintiff or engaged in conduct intended to deceive." Id. at 191. This case involves allegations of fraud and deceit which must be taken as true on this motion. Contrary to Defendants’ argument, the allegations that Cook essentially settled a case without even informing his client, deceived the Court by representing that he had the requisite authorization, and then misappropriated monies that were paid to his client are serious enough to invoke Judiciary Law Sec. 487."