Bankruptcy legal malpractice is again in the news.  As the economy cycles through bankruptcy issues, attorneys advising large corporations become targets for the trustees as well as the creditors.  Latest in the news is the Catholic Medical Center and McDermott, Will & Emery.

From Law.Com: "A bankruptcy trustee for Saint Vincent’s Catholic Medical Centers of New York has sued McDermott, Will & Emery for legal malpractice, charging that partners at the Chicago-based law firm "put their personal relationships and selfish economic concerns above the interests of the charitable institution they were entrusted to protect."

The 75-page complaint, filed Monday in Manhattan Supreme Court by trustee Richard Gray, alleges McDermott Will put off a much-needed Chapter 11 filing to facilitate self-dealing by two other members of the hospital group’s restructuring team. As a result of the delay, the trustee claims, Saint Vincent’s incurred greater operating losses, paid more professional fees and took longer to emerge from bankruptcy after it finally did file.

The suit is requesting $1.2 billion in damages for legal malpractice, fraud and breach of fiduciary duty, among other claims, as well as disgorgement of $4.5 million in previously paid legal fees. In addition to the firm itself, partners William P. Smith, Stephen B. Selbst and David D. Cleary are individually named as defendants. "

This New Jersey real estate case makes little sense, unless you read it as envy transformed into litigation.  Plaintiff-seller decides to sell 6 lots for $ 2,000,000.  Everyone follows the contract of sale, which provided for interim payments, penalty payments, and no assignments.

SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION

MARIO ARGENZIANO and MARAGEN CORPORATION, Plaintiffs-Appellants, v. THOMAS YACCARINO, ATLANTIC GROUP REALTY, BY THE SEA REAL ESTATE, LLC, WILLIAM WEBBER, ANDREW BOECKEL, LIBERTY CIRCLE LLC, TROUTMAN PORT, LLC and JOSEPH MEEHAN,

In the meantime, buyer finds customers who are willing to pay $ 2.5 million for the 6 lots, and arranges to flip them at closing.  Plaintiff is paid its contract price, and when it finds out that buyer found a way to make a profit, sues.   The court found: "With respect to defendant Meehan, plaintiffs’ claim was that the attorney breached a duty of care owed to plaintiffs by advising them to grant a six-month extension to buyers and thereby caused plaintiffs to lose an opportunity to retain the property and its appreciated value. Although plaintiffs produced an affidavit of merit, they did not provide an expert report or request an adjournment of the summary judgment motion to permit them to secure one. Thus, they did not have evidence to establish that the attorney breached a duty of care."

This case from New Jersey illustrates the difficult question of privity, which is another way to say, does plaintiff have a relationship with the attorney such that he may sue?

In SUPERIOR COURT OF NEW JERSEY APPELLATE DIVISION

CHARLES W. GEYER, on behalf of ONE WASHINGTON PARK URBAN RENEWAL
ASSOCIATES (OWPURA),  v. PITNEY, HARDIN, KIPP & SZUCH,  PETER A. FORGOSH, ESQ.,; JONATHAN S. BRISTOL, ESQ., JOEL ROSEN, ESQ., and DOUGLAS A. KENT, ESQ.,
we see the following:

"This legal malpractice action was dismissed by way of summary judgment. In these cross-appeals, we consider defendants’ argument that plaintiff lacked standing to bring this suit, and plaintiff’s argument that there was sufficient evidence of professional negligence and proximate cause to defeat summary judgment. Although we conclude that the trial judge erred in his view of the merits of some of plaintiff’s claims, we direct that the bulk of the action be dismissed without prejudice because we agree plaintiff lacked standing to pursue all but one of his claims. And we also hold that the one claim defendant had standing to pursue was without merit and properly dismissed. "  For the play by play, see the entire case.

There are red flags all  over this case.  Ex-sheriff was jailed for corruption, sued the government attorney from his administration and did not present an expert.

" A judge in Newark yesterday threw out a legal malpractice suit brought by Thomas D’Alessio, former Essex County sheriff and county executive, against his administration’s top lawyer.

Superior Court Judge Paul J. Vichness delivered his decision from the bench after D’Alessio’s lawyer, Anthony Ambrosio, presented his case against Stephen J. Edelstein, who served as Essex County counsel from 1991-94.

Edelstein’s lawyer, Dennis Drasco, had asked for the dismissal in legal arguments that lasted a couple of hours.

Drasco maintained D’Alessio, who wound up in federal prison for accepting bribes, had failed to establish there was any standard of professional conduct that Edelstein violated in handling D’Alessio’s reopened divorce proceedings in the ’90s.

He also noted that no legal experts took the stand in the trial that began last month to claim Edelstein departed from any such standard.

"Their proofs didn’t meet the threshold," said Drasco, after the ruling..  Ex -sheriff  is plaintiff and was convicted and jailed for corruption.  He sues administration’s attonrey.  He presents no expert."

From today’s NYLJ:  "A New York judge has allowed a legal malpractice suit alleging faulty due diligence work by Paul, Hastings, Janofksy & Walker to proceed. Investor Ronald Katz hired the law firm to represent him in connection with a $3 million investment in a company called Humitech. In his suit, Mr. Katz claims the lawyers failed to determine that Humitech was not the beneficial owner of certain mineral rights he expected to obtain, and that other collateral in the form of stocks was encumbered. Paul Hastings had moved to dismiss the suit as time-barred, as the investment closed May 21, 2004, more than three years before Mr. Katz filed his suit. But Manhattan Supreme Court Justice Doris Ling-Cohan (See Profile) denied the firm’s motion."

Evidence  before Supreme Court consisted of a bill for services after the closing.  The court determined that there was an open issue [unresolvable on a CPLR 3211 motion] of whether legal services continued.

Jusuf Becovic, et al., Plaintiffs-Respondents-Appellants, v Poisson & Hackett, et al., Defendants-Appellants-Respondents.

3142, 118056/04

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FIRST DEPARTMENT

2008 NY Slip Op 2644; 2008 N.Y. App. Div. LEXIS 2594

March 20, 2008, Decided
March 20, 2008, Entered

Plaintiffs were physically injured, and the placement and maintenance of a garage sign was an important element of the personal injury case. They lost and sued the attorneys. The legal malpractice case was dismissed on summary judgment. Note the parting comment on discovery.

“In this legal malpractice action, plaintiffs are unable to demonstrate that they would have succeeded in the underlying personal injury action "but for" defendants’ conduct (see AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434, 866 N.E.2d 1033, 834 N.Y.S.2d 705 [2007]). Contrary to the motion court’s conclusion, plaintiffs cannot show that the defendants in the underlying action created the allegedly dangerous condition by an affirmative act of misfeasance (see Mercer v City of New York, 88 NY2d 955, 670 N.E.2d 443, 647 N.Y.S.2d 159 [1996]; Kelly v Berberich, 36 AD3d 475, 476-477, 828 N.Y.S.2d 332 [2007]), [**2] and the claim that said defendants failed to maintain the garage sign that was purportedly the instrumentality that resulted in the injury is not sufficient for this purpose. Plaintiffs also failed to raise an issue of fact regarding notice of the condition, since their sole opposition was hearsay (see Wertheimer v New York Prop. Ins. Underwriting Assn., 85 AD2d 540, 541, 444 N.Y.S.2d 668 [1981]). In view of the dismissal of the instant action, we need not address the arguments on plaintiffs’ cross appeal for spoliation sanctions. We note, however, that plaintiffs’ position is lacking given the long period of inaction [*2] by their attorneys in this action in failing to avail themselves of the opportunity to seek third-party discovery.”

Naida I. Velazquez, etc., appellant, v Bruno Decaudin, et al., defendants, Arnold Streisfeld, etc., et al., respondents. (Index No. 3191/06)

2006-10455, 2007-05614

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT

2008 NY Slip Op 2575; 2008 N.Y. App. Div. LEXIS 2514

March 18, 2008, Decided

As the Appellate Division notes, this is a strange and disturbing real estate deal for the beneficiaries of their mother’s estate.

“The complaint alleges, insofar as is relevant here, that Jose, believing, on the basis of misrepresentations by certain of the defendants, that he was refinancing to save his mother’s property from foreclosure, entered into a contract to convey the property to Decaudin for $ 390,000. The property allegedly was worth $ 600,000 at the time. When the closing was scheduled, Jose [**5] allegedly was advised that only he had to attend the closing, but that he should bring with him his mother’s social security card and driver’s license. At the closing he allegedly was introduced to Streisfeld, and was told that Streisfeld was his attorney.

[*3] The complaint alleges that, prior to the closing, Streisfeld had been provided with a copy of the power of attorney by which Jose was purporting to act in connection with the closing. The power of attorney, which had been executed by Jose’s mother, appointed Jose and his sister, the plaintiff, Naida I. Velazquez, acting jointly, as attorneys-in-fact for their mother. Despite the requirement that Jose and the plaintiff act together, however, the complaint alleges that Jose acted alone in connection with the conveyance of the property and that the plaintiff was unaware of his actions in that regard.

According to the complaint, the closing proceeded only after a lengthy meeting, from which Jose was excluded, between Streisfeld, the representative of the defendant Old Town Abstract Company, LLC (hereinafter Old Town), which was the agent of UGT, and the mortgage brokers, financial advisors, and other attorneys involved in the transaction. [**6] When the closing did proceed, Jose was taken into a room separate from the other participants, where he was advised that he was required to execute a deed, as well as a use and occupancy agreement and an option to purchase agreement. The use and occupancy agreement provided that Jose, who resided elsewhere, could continue to reside in the premises for a period of 12 months as long as he paid Decaudin’s mortgage payments in a timely fashion during that period. The option-to-purchase agreement provided that as long as he did not default in his obligations under the use and occupancy agreement, Jose could purchase the property during that year for $ 370,500, which was the total amount of the two mortgages that Decaudin executed in favor of the defendant Sunset Mortgage Company at the closing.

The complaint further alleges that, at the closing, Jose, Decaudin, Streisfeld, and the attorney for the lender executed an escrow agreement, pursuant to which no funds were to be disbursed, no documents were to be recorded, and no title insurance was to be issued until an original power of attorney in favor of Jose had been delivered to Old Town. The escrow agreement further provided that if the [**7] power of attorney were not delivered, the closing documents were to be returned to the respective parties. The complaint alleges that even though the power of attorney was never delivered to Old Town, the funds were disbursed and the closing documents were not returned, but were recorded, and UGT issued a policy of title insurance. The complaint alleges that the closing documents reflect that Decaudin paid approximately $ 295,000 to satisfy the outstanding mortgage indebtedness on the property and that the remaining $ 95,000 that had been borrowed from Sunset was disbursed to the defendants, rather than to the owner of the property, the plaintiff’s decedent.

Several months later, Jose defaulted in his obligations under the use and occupancy agreement that was executed at closing and DeCaudin initiated a summary dispossess proceeding, in which he was represented by the defendants Ira S. Clair, an attorney, and Clair and Gjertsen (hereinafter collectively Clair). The proceeding resulted in the issuance of a judgment in favor of Decaudin and a warrant of eviction. The complaint alleges that in a motion to vacate the judgment and warrant, Clair was made aware of the alleged defect in Decaudin’s [**8] title but negligently failed to examine the relevant documents or do anything else to ascertain the true state of Decaudin’s title.”

John Napolitano, appellant, v Markotsis & Lieberman, et al., respondents. (Index No. 3514/05)

2007-04674

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT

2008 NY Slip Op 2980; 2008 N.Y. App. Div. LEXIS 2951

Plaintiff loses summary judgment motion for a case in which defendant represented him at trial, ultimately losing plaintiff’s case on the defense of unclean hands. “On their motion for summary judgment, the defendants made a prima facie showing that the plaintiff would be unable to prove at trial that, but for their alleged malpractice, he would have overcome the affirmative defense of "unclean hands" and prevailed in the underlying action. In opposition, the plaintiff failed to raise a triable issue of fact. Accordingly, the Supreme Court [*2] properly granted the defendants’ motion for summary judgment dismissing the complaint

John F. Sitar, et al., appellants, v Steven Sitar, et al., defendants, Kevin J. McGraw, et al., respondents. (Index No. 21538/05)

2007-00122

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT

2008 NY Slip Op 2990; 2008 N.Y. App. Div. LEXIS 2964

April 1, 2008, Decided

In this sale of a business, plaintiffs alleged sufficient conflict of interest to keep the attorney in the case. “The owner agreed to sell the assets and operations of his company to his son’s company. The attorney, who was a member of the company’s board of directors, acted as attorney for both the owner and the owner’s son in the transaction. Although the owner never received the books and records of the company, the sale took place. The owner claimed that the attorney was aware that his son and daughter-in-law had engaged in intentional and unauthorized behavior that had caused the value of the company to be diminished, but the attorney did not disclose that information to him. The appellate court found that the complaint adequately pleaded a cause of action alleging legal malpractice against the attorney and the law firm based on a conflict of interest and failure to disclose critical information concerning the purchase price of the company. The complaint also adequately pleaded a cause of action alleging breach of duty of loyalty and breach of duty of care against the attorney. The remaining causes of action were properly dismissed as duplicative or insufficient.

REENA KUMAR AND PRADEEP KUMAR, AS ASSIGNEES OF JEFFREY A. TISACK, PLAINTIFFS-RESPONDENTS, v AMERICAN TRANSIT INSURANCE COMPANY, DEFENDANT. AMERICAN TRANSIT INSURANCE COMPANY, THIRD-PARTY PLAINTIFF-APPELLANT, ROBERT E. GALLAGHER, JR., AND HISCOCK & BARCLAY, LLP, THIRD-PARTY DEFENDANTS-RESPONDENTS. JEFFREY A. TISACK, NONPARTY RESPONDENT.

1431 CA 07-01317

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FOURTH DEPARTMENT

2008 NY Slip Op 2674; 2008 N.Y. App. Div. LEXIS 2608

March 21, 2008, Decided
March 21, 2008, Entered

One of the bedrock principals of legal malpractice is the requirement of privity, Privity is the direct relationship between an attorney and client. Here is an interesting variation on the theme, in which an insurer is permitted to continue the action based upon equitable subrogation.

“Subrogation is the principle by which an insurer, having paid losses of its insured, is placed in the position of its insured so that it may recover from the third party legally responsible for the loss" (Winkelmann v Excelsior Ins. Co., 85 NY2d 577, 581, 650 N.E.2d 841, 626 N.Y.S.2d 994; see Teichman v Community Hosp. of W. Suffolk, 87 NY2d 514, 521, 663 N.E.2d 628, 640 N.Y.S.2d 472; Humbach v Goldstein, 229 AD2d 64, 66-67, 653 N.Y.S.2d 950, lv dismissed 91 NY2d 921, 692 N.E.2d 132, 669 N.Y.S.2d 263). We agree with American that, "[a]t this stage of the litigation, where there has been no disclosure held, the parties should not be foreclosed, particularly where, as here, the pleadings raise serious issues involving ethical considerations’ " (Great Atl. Ins. Co. v Weinstein, 125 AD2d 214, 216, 509 N.Y.S.2d 325; see Allianz Underwriters Ins. Co., 13 AD3d at 174-175, 787 N.Y.S.2d 15). [**4] We reject the contention of the Hiscock attorneys that the principle of equitable subrogation does not apply because American has not yet paid the loss of its insured (see Allianz Underwriters Ins. Co. v Landmark Ins. Co., 13 AD3d 172, 175, 787 N.Y.S.2d 15; see also Krause v American Guar. & Liab. Ins. Co., 22 NY2d 147, 152-153, 239 N.E.2d 175, 292 N.Y.S.2d 67). Furthermore, unlike the complaint in Federal Ins. Co., the third-party complaint alleges that the loss sustained by American’s insured resulted from the malpractice of the Hiscock attorneys, specifically their failure to appear and defend the insured. Viewing the complaint in the light most favorable to American and according American the benefit of every favorable inference, we therefore conclude that the complaint alleges sufficient facts to withstand the motion to dismiss, inasmuch as we deem it to state a cause of action for equitable subrogation (see generally Great Atl. Ins. Co., 125 AD2d at 215; cf. Federal Ins. Co., 47 AD3d at 62). Contrary to the dissent’s conclusion, we need only determine that American has a cause of action, not whether it has stated one (see Leon, 84 NY2d at 88; Guggenheimer v Ginzburg, 43 NY2d 268, 275, 372 N.E.2d 17, 401 N.Y.S.2d 182).

Lisa A. Serradilla, et al., Plaintiffs-Respondents, v.Lords Corporation, et al., Defendants, Ronald Vargo, et al., Defendants-Appellants.

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FIRST DEPARTMENT

2008 NY Slip Op 3092; 2008 N.Y. App. Div. LEXIS 3037

April 8, 2008, Decided
April 8, 2008, Entered

This case involves plaintiffs who wanted to purchase a former SRO hotel and convert it to a single family home. They found out after closing that the City had issued vacate orders which prevented plaintiffs from doing the conversion. They successfully avoided dismissal against the architect and the attorney, but lost against the city. “Concerning the cause of action against the attorney for legal malpractice alleging, inter alia, his failure to advise plaintiffs of the need for a certificate of no harassment, the attorney failed to meet his initial burden of coming forward with evidence establishing, inter alia, that his only obligation to plaintiffs was to ensure that marketable title was transferred at closing and that the requisite standard of care did not require that he advise plaintiffs, prior to closing, of the need for a certificate of no harassment.”

Thomas E. Erdman, et al., respondents, v Joseph G. Dell, et al., appellants. (Index No. 11303/05)

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT

2008 NY Slip Op 2959; 2008 N.Y. App. Div. LEXIS 2933

April 1, 2008, Decided

Plaintiffs obtained summary judgment against attorneys, which was reversed. However, the case goes on.

“The Supreme Court incorrectly [**2] found at this point in the action that the plaintiff Thomas E. Erdman would have succeeded on his cause of action to recover damages pursuant to Labor Law § 240(1) but for the defendants’ failure to sue the general contractor before the statute of limitations expired. Issues of fact exist as to whether the scaffold from which Erdman fell provided proper protection and whether his failure to lock the wheels underneath the scaffold was the proximate cause of the accident”

Marc Edme, respondent, v Richard Tanenbaum, appellant, et al., defendants. (Index No. 29870/06)

2007-02921

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT

2008 NY Slip Op 2956; 2008 N.Y. App. Div. LEXIS 2944

April 1, 2008, Decided

Plaintiffs and attorney defendant had an arrangement for sums of money to be put aside and used to pay monthly mortgage obligations. Something went wrong, and plaintiffs were in default on the mortgage.

Plaintiffs won the motion to dismiss, and the case continues. “Contrary to the contention of the defendant Richard Tanenbaum, the documentary evidence that he submitted in support of his motion did not conclusively refute the plaintiff’s allegations of legal malpractice against him so as to warrant dismissal of the action pursuant to CPLR 3211(a)(1) insofar as asserted against him. Rather, those documents suggested that at least some of the funds at issue were supposed to be set aside to pay the plaintiff’s [**2] monthly mortgage obligation, and Tanenbaum’s evidence failed to address the plaintiff’s allegations that he neglected to set up and maintain an escrow account for those funds, thereby facilitating the default on the mortgage