This is not a Federal law blog, and we will give only the highlights of the issue of Federal Question jurisdiction.  There are several different ways in which one may qualify for jurisdiction in Federal District Court.  One is diversity, and a second is Federal Question.  This intersects with legal malpractice when a legal malpractice case is started or removed to District Court on the basis that the underlying representation was in a subject matter unique to Federal and not State law.  Examples?  Patent law and Federal Trademark law. 

Here is a blurb from Rita Siamas of McDermott, Will and Emery:

"a three-judge panel for the U.S. Court of Appeals for the Fifth Circuit recently vacated a summary judgment win for Duane Morris, LLP and one of its partners, Richard Redano, holding that the district court lacked subject matter jurisdiction to hear the state law malpractice claim because it did not arise under federal trademark law. Singh v. Duane Morris, Case No. 07-20321 (5th Cir., July 30, 2008) (Smith, J.).

The underlying trademark infringement action involved a dispute over the use of the name “Testmaster” between two companies offering Law School Admissions Test (LSAT) preparation services. A Texas-based company, Test Masters Educational Services, Inc., brought a federal trademark infringement action against Singh’s California-based company TestMasters. After a five-day trial, a jury determined that Singh’s “TestMasters” mark had acquired secondary meaning. On appeal, however, the Court of Appeals reversed, holding that Singh had presented insufficient evidence to establish secondary meaning. (See IP Update, Vol. 11, No. 5, Three Strikes at Secondary Meaning—And You’re Out !)"

We reported this case months ago when Justice Marci Friedman in Supreme Court, New York County granted partial summary judgment and directed that Wilson Elser disgorge fees paid to it.  Her theory was that Wilson Elser beached its fiduciary duty while it represented Ulico and at the same time assisting Legion Insurance Company in a competing business.  Today, the Appellate Division reversed and wrote on the case in Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker ,2008 NY Slip Op 06894, Decided on September 16, 2008, Appellate Division, First epartment ,Tom, J. 
 

Today, in the New York Law Journal, Noeleen Walder writes  that that Tom Hyland  the managing partner of Wilson Elser in New York, said the decision "is an absolute and total vindication of the firm and the lawyers in the firm."

"The court directed that defendant forfeit the fees it received for the duration of the firm’s breach and directed an assessment. While we agree that the complaint states viable grounds for recovery, our analysis proceeds on a different basis, and we conclude that defendant’s liability is limited to the claim for legal malpractice"

"Supreme Court found the complaint meritorious. It declined to dismiss the malpractice cause of action on the basis of conflicting deposition testimony concerning whether defendant had preserved its notice and coverage defenses as to the three benefit fund claims before requesting authority to settle them for as much as $4 million. The court further declined to dismiss plaintiff’s breach of fiduciary duty cause of action as duplicative of its malpractice cause of action. It reasoned that the two claims arose from different facts — the malpractice claim from defendant’s dual representation of plaintiff and Legion as claims manager, and the breach of fiduciary duty claim from defendant’s assistance to PIA in transferring plaintiff’s business to [*4]Legion. The court denied dismissal of the claim for aiding and abetting PIA’s breach of fiduciary duty, reasoning that defendant failed to demonstrate its lack of "’substantial assistance’ to PIA in connection with the latter’s breach." Finally, the court declined to dismiss plaintiff’s claim for tortious interference with contractual relations, rejecting defendant’s assertion that PIA’s contract with plaintiff was nonexclusive and noting that a tortious interference claim can be based on even an at-will or a voidable contract. However, the court granted the cross motion to the extent of dismissing plaintiff’s claim for tortious interference with prospective economic advantage, a ruling with which plaintiff does not take issue and the propriety of which is not before us. "

"We further agree that the cause of action asserted as breach of fiduciary duty is not redundant because it is based upon different facts than those underlying the cause of action alleging legal malpractice (see Estate of Nevelson v Carro, Spanbock, Kaster & Cuiffo, 290 AD2d 399, 400 [2002]). However, we do not agree that plaintiff may seek to recover damages for defendant’s breach of fiduciary duty on legal grounds less rigorous than those required for recovery under a theory of legal malpractice. Nor do we perceive any reason to summarily decide the question of the forfeiture of defendant’s legal fees on a preliminary record. "

Law.Com reports on a legal malpractice case  involving Smith, Gambrell & Russell which may well turn on whether the plaintiff in the action is simply a trustee or a receiver of the plaintiff company.  As one reads this scandal filled case, which includes the suicide of the plaintiff company’s former CEO,Kirk S. Wright,who was awaiting sentencing on Federal Charges the importance of this distinction comes to light:

"Smith, Gambrell & Russell’s answer to an $80 million malpractice action filed against the firm by the bankruptcy trustee for one of its former clients takes an unusual, philosophical tack, starting with an excerpt from a recent decision from the 7th U.S. Circuit Court of Appeals.. Lamar "Mickey" Mixson at Bondurant, Mixson & Elmore, who represents Smith Gambrell and co-defendant C. Gladwyn Goins, a former counsel in the firm’s Washington, D.C., office, said in an interview that Perkins is only a trustee. While with the firm, Goins served as outside general counsel to IMA.

By being the trustee, Mixson said, Perkins "stands in the shoes of the corporation" — a corporation that, according to the trustee, ran a Ponzi scheme. The law doesn’t allow lawbreakers to recover financially, Mixson noted, adding, "He can’t recover any more than the corporation can."

Not so, countered Robert E. Shields, Perkins’ lawyer at Doffermyre, Shields, Canfield & Knowles. Shields pointed to the wrongful conduct of IMA principal Kirk S. Wright, who killed himself while awaiting sentencing for his federal fraud and money laundering convictions.

Shields said Wright’s actions can’t be attributed to the company or Perkins because other IMA officers and directors were not aware of and did not participate in Wright’s crimes.

"He was not the alter ego for the company in these circumstances," Shields said.

Shields added that Perkins isn’t just the trustee — he’s also the receiver, which means he can recover.

"It was in his role as a receiver that he filed this suit," Shields said, explaining that Perkins first was appointed receiver when the case was initiated in Fulton County Superior Court, and again in the federal action filed by the Securities and Exchange Commission. "The receiver represents the creditors" and doesn’t stand in the shoes of the company, he said.

Legal Pad Blog Reports that the ConnectU people who successfully sued Facebook are in a dispute with Quinn Emanuel over fees.  We wonder if anyone has considered the collateral estoppel effect of fee arbitrations on legal malpractice cases. The teaser from Legal Pad is:

"San Jose Federal Judge James Ware ruled that the settlement should be enforced and appointed special master George Fisher to do the enforcing. In his report, Fisher writes that the “ConnectU shareholders have threatened a malpractice action against Quinn Emanuel” without explaining much more. Fisher also relates that there is currently an arbitration in New York State Supreme Court between the firm and ConnectU over the fee dispute. "

Legal Pad reports the dispute between ConnectU and Facebook is:

"A quick refresher: ConnectU founders Tyler and Cameron Winklevoss sued Facebook founder and Harvard pal Mark Zuckerberg, accusing him of stealing their ideas to start his hotter-than-hot social networking site. After reaching a settlement earlier this year, ConnectU said it had been hoodwinked by Facebook about the value of the company’s stock and so got gypped out of big payout. The company tried to back out of the deal and fired its lawyers at Quinn Emanuel, the high-profile L.A. trial firm that advised on the settlement. Then Quinn filed a lien against any money ConnectU would recover from Facebook. "

Anthony Lin wrote yesterday in the NYLJ about the Shelly v. Bodian case, Index No. 602254/05, currently being litigated in Supreme Court, New York County.,  

The case highlights some interesting principals of legal malpractice which warrant examination.  We’ll take a further look at the motion to dismiss in this case, which was decided last year.

Is it legal malpractice to represent both a small company [closely held] and one of its originators, while suing another?  Need the attorney advise, and perhaps remind the originator that the company and not he may be liable for legal fees?  This is a secondary problem discussed by Justice Goodman.  She writes:  "The fifth cause of action alleges that defendants failed to advise plaintiff Joseph P. Shelly, Jr. that he was not personally liable for the legal fees that the defendants were entitled to receive as a result of their defense of an entity in which Shelly had an interest."

Attorney-Defendants in the case argued that partial payment of their fees and an equivocal letter provided a defense to this cause of action.  The court found that evidence offered in a motion to dismiss must "conclusively establish a defense as a matter of law before a court may dismiss a claim pursuant to CPLR 3211(a)(1).  Equivocal letters are insufficient, and the court denied a motion to dismiss.

Anthony Lin writes today in the NYLJ about the Shelly v. Bodian case, Index No. 602254/05, currently being litigated in Supreme Court, New York County, and discusses a recent decision of Justice Emily Jane Goodman.  Justice Goodman has a fair number of legal malpractice cases on her docket. 

Lin’s article highlights a well known meme in legal professional circles;  lateral movement between biglaw firms.  One publication, NY Lawyer is highly sensitive to movement of attorneys between large law firms.  "NY Lawyers on the Move" or "The Problem of Poached Lawyers" is a staple of this particular magazine.

Is Shelly "A legal malpractice suit against the current New York managing partner of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo claiming he was too preoccupied with his lateral movement among firms to timely file a lawsuit " as Lin writes?  Perhaps.
 

The case highlights some interesting principals of legal malpractice which warrant examination.  We’ll take a look at the motion to dismiss in this case, which was decided last year.

Is it legal malpractice to allow amendment of an answer which then leads to dismissal of a cause of action because the original answer failed to allege statute of limitations and the amended answer successfully alleged statute of limitations?  Justice Goodman held that it was not legal malpractice, because she, and the majority of courts permit amendment of answers absent prejudice, which she describes as "investment of time/expense in engaging in substantial discovery, motion practice or trial preparation."  If there is no investment, there is no prejudice, and a reasonable [if hypothetical] court would have allowed amendment.  Ergo, no malpractice.

Tomorrow:  more on these two decisions.

It’s often surprising, when reading a newly published case, at the wide difference between plaintiff’s take on the case, and the defense presented by his former attorneys.  The attorneys, who just a short period earlier had been plaintiff’s paragons, now have a diametrically opposed viewpoint.  Sometimes it may be justified.  Here is a newly published case in which plaintiff went into bankruptcy, and suspended his mortgage and other payments on a house.  Years went by, and inter alia the house became more valuable.  Then he was forced to pay the old arrears. 

John Vlahakis, appellant, v Mendelson & Associates, et al., respondents. (Index No. 13210/04)2007-06336  SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT2008 NY Slip Op 6703;September 2, 2008, Decided

"The plaintiff alleged that he sustained damages because the defendants, who were his attorneys in a bankruptcy proceeding, advised him that he would not have to pay the arrears which he owed on the mortgage on his residence. The plaintiff further alleged that this advice constituted legal malpractice, and that as a result, he was required to pay interest and late charges on the arrears, as well as attorneys’ fees."

"Here, the defendants met their initial burden on their motion for summary judgment by demonstrating, prima facie, that the plaintiff did not sustain any damages as a result of their actions. Specifically, the defendants established that their efforts on the plaintiff’s behalf resulted in his continuing to reside in his house for approximately seven years, during which [*2] time the value of his house increased significantly. Moreover, the defendants established that during that period the plaintiff was not paying his mortgage, taxes, or insurance. In opposition, the plaintiff failed to raise a triable issue of fact as to whether the sum he eventually paid to the bank exceeded the amount that he saved by not paying his mortgage, taxes, and insurance for approximately seven years. The plaintiff’s mere assertion, which was unsupported by competent evidence, that he had sustained monetary damages, was insufficient to raise a triable issue of fact."

This seems to be a new twist.  It dovetails with our earlier discussions of  new venues in legal malpractice, and cases being brought against lawyers by persons other than their clients.  Here, former opponents sue the attorneys after bargaining with the bankrupt client and obtaining communications between bankrupt client and its attorney.  Now:

"Eager to put an end to a fraud suit brought by a software developer, New Century Mortgage agreed, as part of a settlement in federal bankruptcy court in Delaware, to turn over to opponent Positive Software Solutions Inc. privileged material and internal company documents that also concern a related federal software licensing suit, according to Texas Lawyer.

Now, Positive Software is using those privileged materials to seek sanctions against New Century’s counsel, the Susman Godfrey law firm and two of its partners, Barry Barnett and Ophelia Camina in a federal lawsuit in Texas. It contends that they engaged in fraud and misconduct that eventually caused Positive Software to lose a 2004 arbitration of the software licensing suit, the legal publication explains.

The partners say they did nothing wrong, Texas Lawyer reports. But Positive Software is using material it got from New Century to bolster its argument, in an August filing, that Susman Godfrey should have to turn over internal litigation work product, on the theory that the crime-fraud exception applies, according to attorney Michael Shore of Shore Chan Bragalone in Dallas. He represents the software developer.

"As a practical matter, documents that were thought to be privileged are in the other side’s hands. So, basically, what they did was bought the privilege. And that, in my experience, is unprecedented," says partner David Beck of Beck Redden & Secrest in Houston, who represents the Susman Godfrey defendants."