Following the trend of bankruptcy trustees, receivers and other persons holding the right to sue for others, comes this Indiana case in which the Indiana Department of Insurance has become the plaintiff in a legal malpractice/bad faith litigation which the law firm settled for $ 50,000 and which now proceeds against the insurer for $ 18,000,000.

"An Indianapolis law firm has paid $50,000 to the Indiana Department of Insurance in a deal that extricates it from an $18 million jury verdict stemming from the collapse of a health insurance trust.

The department released Fillenwarth Dennerline Groth & Towe from the massive judgment that a Marion County jury handed down against the law firm two years ago. In return, the firm transferred to the department the bad-faith claims it is pursuing against its malpractice insurer, Alabama-based ProNational Insurance Co.

That’s where the real money is, said Doug Webber, chief legal counsel for the department.

"It is our view that the law firm had limited assets," and even those would be difficult to get at if the firm sought bankruptcy court protection, Webber said.

In addition, he said he believes the law firm’s bad-faith claims are strong. Fillenwarth Dennerline was hit with the judgment only after the insurer refused the department’s offer to settle for a mere $1 million – the maximum amount of the firm’s insurance coverage.

The legal tangle stems from the 2002 collapse of the Indiana Construction Industry Trust, which provided health coverage to non-union construction workers. The jury found that Fillenwarth Dennerline partner Frederick Dennerline III, who served as outside counsel for the trust, failed to notify trustees of its growing financial problems. The verdict equaled the amount of unpaid claims due 8,200 Hoosiers after the trust went bust."

This case from the Appellate Term illustrates the timelyness of a counterclaim.  It does not discuss what would have happened if the counterclaim were not timely.  Even an untimely counterclaim may continue as an offset to the claim itself, but may not be pursued for a value above that of the claim.  Example;  Claim = $ 100.00  Timely Counter-claim for $1,000 permitted.  Untimely counterclaim up to but not over $ 100 permitted.

This truly old case illustrates"

Miligrim, Thomajan & Lee n/k/a Varet & Fink, P.C., Plaintiff-Respondent, against Golden Gate Petroleum, P.C. And Dennis O’Keefe, Defendant-Appellant.

570208/08.

SUPREME COURT OF NEW YORK, APPELLATE TERM, FIRST DEPARTMENT

2008 NY Slip Op 51309U;
Order (Joan M. Kenney, J.), entered January 2, 2008, reversed, with $ 10 costs, motion denied and defendant’s counterclaim reinstated.

Defendant’s counterclaim alleging legal malpractice is not time-barred. Pursuant to CPLR 203(d), a counterclaim is deemed interposed for Statute of Limitations purposes as of the time the summons is filed (see Proskauer Rose Goetz & Mendelsohn v. Munao, 270 AD2d 150, 704 N.Y.S.2d 590 [2000]; McLaughlin, Practice Commentaries, McKinney’s Cons Laws of NY, Book 7B, CPLR C203:9) Plaintiff’s summons was filed in June 1990. Inasmuch as defendant’s legal malpractice counterclaim was governed by the then applicable six-year Statute of Limitations and accrued no earlier than 1986, it was "not barred at the time the claims asserted in the complaint were interposed" in 1990 (CPLR 203[d]).

This Constitutes the Decision and Order of the Court. "

Alan Birnbaum, appellant, v James Misiano, et al., respondents. (
SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT

2008 NY Slip Op 5638;

Beginning in the late 1990’s, the defendant attorney James Misiano represented the plaintiff, [*2] Alan Birnbaum, with respect to loans Birnbaum made, or was planning to make, to others. In 2002, on behalf of Michael Seeger, whom Misiano knew socially and also had represented, Misiano contacted Birnbaum to arrange a loan from Birnbaum to Seeger. As collateral for the $ 14,000 loan, Seeger provided three watches; Misiano prepared the loan documents, including a pledge agreement, but he did not suggest to Birnbaum that he have the watches appraised. Over a period of 21 months, Birnbaum made a series of loans to Seeger, totaling a principal amount in excess of $ 215,000. With respect to a $ 25,000 loan made in March 2003, Seeger provided a fourth watch, and Misiano prepared the loan documents. Again, Misiano did not recommend to Birnbaum that he obtain an appraisal for the watch. Subsequent loans were supposedly secured by various bank accounts, which allegedly proved to be fictitious. The watches were virtually worthless.

In December 2004 Birnbaum commenced this action against Misiano and his law partners to recover damages [**3] for legal malpractice in connection with Misiano’s representation of Birnbaum on the Seeger loans. After discovery was completed, the defendants moved for summary judgment dismissing the complaint. The defendants’ sole contention was that, assuming Misiano failed to exercise the proper level of skill and knowledge, Birnbaum would be unable to prove that the deficient representation was the proximate cause of Birnbaum’s damages. Specifically, the defendants argued that, inasmuch as Birnbaum had not obtained a judgment against Seeger that had been returned unsatisfied, Birnbaum could not prove that Misiano’s deficient representation proximately caused him to incur damages. Birnbaum cross-moved for summary judgment on the complaint. The Supreme Court granted the defendants’ motions and denied Birnbaum’s cross motion. We modify.

HN1To prevail in an action to recover damages for legal malpractice, a plaintiff must establish that the defendant did not "exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession, and that the attorney’s breach of that duty proximately caused the plaintiff to sustain actual and ascertainable damages" (Carrasco v Pena & Kahn, 48 AD3d 395, 396, 853 N.Y.S.2d 84; [**4] see Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442, 867 N.E.2d 385, 835 N.Y.S.2d 534; Erdman v Dell, 50 AD3d 627, 854 N.Y.S.2d 755). To establish causation, a plaintiff must show that he or she would have prevailed in the underlying action or would not have incurred any damages, but for the attorney’s negligence (see Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d at 442). HN2A defendant moving for summary judgment in a legal malpractice action must, therefore, establish prima facie that the plaintiff cannot prove at least one essential element of the claim (see Levy v Greenberg, 19 AD3d 462, 798 N.Y.S.2d 443). Here, the defendants argue that even if Misiano failed to exercise the requisite level of skill and knowledge, Birnbaum offered no evidence that the debt owed him by Seeger was now uncollectible, and therefore Birnbaum will be unable to establish that any deficient representation by Misiano proximately caused actual and ascertainable damages. We disagree.

On the malpractice claim, Birnbaum has the burden of establishing that Misiano’s failure to exercise the requisite level of skill and knowledge was the proximate cause of any damages, and we cannot say on this record that Birnbaum’s failure to bring an action against Seeger [**5] means that Birnbaum will be unable to establish proximate cause. Consequently, the defendants’ motion for summary judgment dismissing the complaint should have been denied (see Velie v Ellis Law, P.C., 48 AD3d 674, 854 N.Y.S.2d 137; Pedro v Walker, 46 AD3d 789, 790, 847 N.Y.S.2d 666). Moreover, as there are triable issues of fact regarding Birnbaum’s claim against the defendants, Birnbaum’s cross motion for summary judgment on the complaint was properly denied (see Hearst v Hearst, 50 AD3d 959). "

Privity is an essential in legal malpractice, and application of this principal can lead to skewed results.  As an example, attorney writes negligent will for decedent, which affects beneficiaries and the decedent’s estate.  May beneficiaries sue?  May estate sue?  Sometimes not.  Here, divorced wife is affected by the manner in which an attorney drafts a quticlaim deed.  May she sue the drafting attorney, when she loses a parcel of land that should have beloned [or at least 1/2] to her, NO.

Eileen Breen, plaintiff-respondent, v Law Office of Bruce A. Barket, P.C., et al., defendants-respondents, George R. Hecht, appellant. (Index No. 5205/06)

2008-00376

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT

2008 NY Slip Op 5640;

"In settlement of the divorce action between them, the plaintiff and her former [**2] husband, George Breen, entered into stipulations which included agreements as to the disposition of two parcels of land in Connecticut jointly owned by the parties, which had been conveyed to them in a single deed. The stipulations provided that George Breen would purchase the plaintiff’s interest in one parcel, and that the second parcel would be sold, with the proceeds being divided between the parties. George Breen retained Gerald Hecht, sued herein as George R. Hecht, a Connecticut [*2] attorney, to draft a quitclaim deed conveying the first parcel to him. After having her attorney review the deed, the plaintiff signed it. According to the plaintiff, however, the description of the property in the deed drafted by Hecht actually resulted in the conveyance of both parcels to George Breen.

The plaintiff commenced this action against her own attorney, Georgia Skevofilax, and the law firm by which she was employed, The Law Office of Bruce A. Barket, P.C. (hereinafter together the Barket defendants), as well as Hecht. As against Hecht, the complaint asserted causes of action sounding in legal malpractice, breach of contract, and negligent misrepresentation. The Barket defendants asserted [**3] a cross claim against Hecht for contribution or indemnification. Hecht moved for summary judgment dismissing the complaint and all cross claims insofar as asserted against him. The Supreme Court denied the motion.

"Absent fraud, collusion, malicious acts, or other special circumstances, an attorney is not liable to third parties not in privity or near-privity for harm caused by professional negligence" (Fredriksen v Fredriksen, 30 AD3d 370, 372, 817 N.Y.S.2d 320; see AG Capital Funding Partners, L.P. v State St. Bank & Trust Co., 5 NY3d 582, 595, 842 N.E.2d 471, 808 N.Y.S.2d 573). Here, the record establishes that Hecht, who was retained by George Breen to draft a legal document, was not in privity or near-privity with the plaintiff (see Fredriksen v Fredriksen, 30 AD3d at 372; Goldfarb v Schwartz, 26 AD3d 462, 463, 811 N.Y.S.2d 414; Rovello v Klein, 304 AD2d 638, 757 N.Y.S.2d 496). Thus, Hecht established his entitlement to summary judgment dismissing the cause of action alleging legal malpractice, and, in opposition, the plaintiff and the Barket defendants failed to raise a triable issue of fact.

Hecht also established his entitlement to summary judgment dismissing the cause of action alleging breach of contract by showing that the plaintiff was not a third-party beneficiary [**4] of the alleged retainer agreement between Hecht and George Breen, but rather was, at most, an incidental beneficiary of such an agreement (see BDG Oceanside, LLC v RAD Term. Corp., 14 AD3d 472, 473, 787 N.Y.S.2d 388). Any benefit the plaintiff may have derived from the alleged retainer agreement was not "sufficiently immediate, rather than incidental, to indicate the assumption by the contracting parties of a duty to compensate [her] if the benefit is lost" (State of Cal. Pub. Employees’ Retirement Sys. v Shearman & Sterling, 95 NY2d 427, 434-435, 741 N.E.2d 101, 718 N.Y.S.2d 256). In opposition, the plaintiff and the Barket defendants failed to raise a triable issue of fact.

The plaintiff and the Barket defendants also failed to raise a triable issue of fact in response to Hecht’s prima facie showing of his entitlement to summary judgment dismissing the cause of action alleging negligent misrepresentation. As between Hecht and the plaintiff, there was no "special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff" (J.A.O. Acquisition Corp. v Stavitsky, 8 NY3d 144, 148, 863 N.E.2d 585, 831 N.Y.S.2d 364). Moreover, as Hecht asserted in an affidavit, and the plaintiff does not dispute, Hecht never had any contact [**5] with the plaintiff, and thus there was no "linking conduct" evincing his understanding of the plaintiff’s alleged reliance (Securities Inv. Protection Corp. v BDO Seidman, 95 NY2d 702, 711, 746 N.E.2d 1042, 723 N.Y.S.2d 750; see Credit Alliance Corp. v Arthur Andersen & Co., 65 NY2d 536, 553-554, 483 N.E.2d 110, 493 N.Y.S.2d 435). Nor did the quitclaim deed constitute a representation made by Hecht to the plaintiff (cf. Prudential Ins. Co. of Am. v Dewey, Ballantine, Bushby, Palmer & Wood, 80 NY2d 377, 605 N.E.2d 318, 590 N.Y.S.2d 831). Furthermore, neither the plaintiff nor the Barket defendants could have justifiably relied on whatever representation the deed may have contained (see Verschell v Pike, 85 AD2d 690, 691, 445 N.Y.S.2d 489). Any such reliance by the Barket defendants would have been particularly unreasonable, since the plaintiff herself discovered the alleged error in the deed and brought it to her attorney’s attention, but was advised by the attorney to sign the deed nonetheless.

[*3] Hecht also established his entitlement to summary judgment dismissing the Barket defendants’ cross claim against him seeking contribution or indemnification. Hecht demonstrated that the Barket defendants were not entitled to contribution by showing that he neither owed a duty to the plaintiff (see Guzman v Haven Plaza Housing Dev. Fund Co., 69 NY2d 559, 568, 509 N.E.2d 51, 516 N.Y.S.2d 451 n 5; [**6] Smith v Sapienza, 52 NY2d 82, 87, 417 N.E.2d 530, 436 N.Y.S.2d 236), nor owed an independent duty to the Barket defendants (see Raquet v Braun, 90 NY2d 177, 182, 681 N.E.2d 404, 659 N.Y.S.2d 237; Garrett v Holiday Inns, 58 NY2d 253, 258-261, 447 N.E.2d 717, 460 N.Y.S.2d 774; Nolechek v Gesuale, 46 NY2d 332, 338-341, 385 N.E.2d 1268, 413 N.Y.S.2d 340). Because Hecht owed no duty to the Barket defendants, they also were not entitled to indemnification (see Raquet v Braun, 90 NY2d at 183). In opposition, the Barket defendants failed to raise a triable issue of fact. "

Judiciary Law 487 is a statute which defines a misdemeanor and creates a private cause of action, with treble damages,
§487. Misconduct by attorneys.

An attorney or counselor who:

1. Is guilty of any deceit or collusion, or consents to any
deceit or collusion, with intent to deceive the court or any party; or,

2. Wilfully delays his client’s suit with a view to his own
gain; or, wilfully receives any money or allowance for or on account
of any money which he has not laid out, or becomes answerable for,

Is guilty of a misdemeanor, and in addition to the punishment
prescribed therefor by the penal law, he forfeits to the party injured
treble damages, to be recovered in a civil action.

In Amalfitano v. Rosenberg the Second Circuit has certified several questions to the New York Court of Appeals.  The case is well worth reading, not only for the telenovela aspects of brother v. brother, and the unraveling of a family fortune through corruption and self-dealing, but for the discussion of Judiciary Law 487 litigation in New York. 

For the most part, liability under this statue is nor covered by insurance, and while pro missing significant awards, has been the stepchild of legal malpractice here. 

The two questions are" "Can a successful lawsuit for treble damages brought under N.Y. Jud. Law 487 be based on an attempted but unsuccessful deceit upon a court by the defendant?" and

"In the course of such a lawsuit, may the costs of defending litigation instituted by a complaint containing a material misrepresentation of fact be treated as the proximate result of the misrepresentation if the court upon which the deceit was attempted at no time acted on the belief that the misrepresentation was true?"

Stay tuned…

The California Blog of Appeal discusses this amusing attempt by a target attorney to get out from under a legal malpractice case. Styles v. Mumbert is a California case in which…well, let Greg May describe it:

"You represent the defendant in a lawsuit. You don’t have time to handle his case — indeed, you admit as much on the record — and the court imposes terminating sanctions against your client for failing to respond to discovery. Because of your admission, your client is allowed to obtain new counsel, but new counsel is unsuccessful in getting the sanctions order vacated, and a default judgment of $730,000 is entered aganist your client, who then promptly sues you for malpractice and, while that suit is pending, appeals the default judgment. What do you do, besides give notice to your malpractice carrier?

If you’re the defendant’s first attorney in Styles v. Mumbert, you get the plaintiff in the original case (Styles) to assign her default judgment to you (for some undisclosed consideration), then, represented by another lawyer in your firm, you move the court of appeal to substitute you in as respondent in your former client’s (Mumbert’s) appeal from that judgment. The court of appeal resists the invitation, concluding the opening paragraph of its opinion thus: ”Finding that the proposed substitution violates multiple rules of Professional Conduct as well as the Business and Professions Code, we will deny the motion.”

The absurdity of the possible outcomes! The court says it much better than I could:

If we allowed [attorney] Pagkas to substitute himself as respondent, in place of Styles, on appeal Pakgas would have to argue that the default judgment, for which he may be professionally responsible, should be reversed. He would argue that the appeal should fail, so that he could collect on the default judgment. This is directly contrary to Mumbert’s interest. While a reversal here would be to Pagkas’s absolute benefit in the legal malpractice action, reducing any potential damages for professional negligence owed to Mumbert, Pagkas appears to prefer the prospect of collecting the large default judgment from Mumbert. In fact, if the substitution were allowed, it is conceivable that Pagkas could prevail in both the malpractice action and in this appeal, leaving him with huge windfall at the expense of his former client. Pagkas’s disregard for his ongoing fiduciary duties to his former client in favor of his own personal gain is without precedent.

Unsurprisingly, Mumbert asked for sanctions for having to oppose the motion, and got them. "

Plaintiff retained a big name matrimonial firm to represent her.  Then she hired a legal malpractice firm to sue the matrimonial firm.  The legal malpractice case was dismissed.  Apparently she did not want to pay the legal malpractice firm who moved for a quantum meruit fee hearing.

In 2008 NY Slip Op 5647,  Eileen DeGregorio, appellant, v Joel C. Bender, et al., defendants; Curtis & Associates, P.C., nonparty-respondent. (Index No. 993/02)

"Plaintiff client appealed a judgment by the Westchester County Supreme Court (New York) that awarded nonparty law firm an attorney’s fee based on quantum meruit. 

In an action to recover damages for legal malpractice, the plaintiff appeals from a judgment of the Supreme Court, Westchester County (Friedman, J.H.O.), entered October 20, 2006, which, after a hearing, and upon a decision of the same court dated September 28, 2006, awarding the nonparty, Curtis & Associates, P.C., an attorney’s fee based on quantum meruit, is in favor of Curtis & Associates, P.C., and against her in the total sum of $ 94,017.70.

ORDERED that the judgment is reversed, on the law, with costs, and the matter is remitted to the Supreme Court, Westchester County, for further proceedings consistent herewith, including a new hearing and determination before a different Judicial Hearing Officer.

In December 2001 the appellant retained the nonparty, Curtis & Associates, P.C. (hereinafter Curtis), to represent her in the instant legal malpractice action against her former matrimonial [**2] attorney. In February 2004 the underlying complaint in the legal malpractice action was dismissed by decision and order of this Court (see DeGregorio v Bender, 4 AD3d 384, 772 N.Y.S.2d 89). Thereafter, the Supreme Court granted Curtis’ motion for a quantum meruit hearing to determine the fair and reasonable value of the legal services rendered to the appellant. Following the hearing, the court awarded Curtis legal fees in the sum of $ 94,017.70. We reverse.

HN1In fixing an award of legal fees in quantum meruit, the court should consider "evidence of [*2] the time and skill required in that case, the complexity of the matter, the attorney’s experience, ability, and reputation, the client’s benefit from the services, and the fee usually charged by other attorneys for similar services" (Rosenzweig v Gomez, 250 AD2d 664, 672 N.Y.S.2d 907; see DR 2-106[B] [22 NYCRR 1200.11(b)]). HN2An award in quantum meruit should be made after weighing all the relevant factors (see Padilla v Sansivieri, 31 AD3d 64, 65, 815 N.Y.S.2d 173). Here, the hearing court failed to consider and give appropriate weight to all the relevant factors involved in valuing legal services, including the court’s own finding of ethical violations committed by Curtis. "

From Day on Torts we learn that the "Ohio Supreme Court has ruled that a plaintiff in a legal malpractice case must prove the collectibility of damages"  The case is Paterek v. Peterson & Ibold, No 2006-1811 (Ohio June 18, 2008)

We’ve written about this in the past, both here and in the New York Law Journal.  The rule is split in New York.  In the 1st Department, the burden is on defendant.  In the remaining departments, the burden to plead and prove is on plaintiff.