What does a client do when faced with an attorney fee demand?  As is true with most things in life, a reflexive response is precisesly the wrong move.  Many clients [and unfortunately many attorneys] advise or choose to arbitrate the fee dispute.  Bravely, they go to the arbitration and argue piecemeal against the fee.

Let’s look at an example.  In a matrimonial action, attorney for wife bills $ 150,000.  Husband is required to pay $ 100,000 and wife is billed for $ 50,000.  Let’s assume that she is really really  unhappy with the outcome, and believes that there has been malpractice.  What should she do?

The first thought is fee arbitration.  Many think that the fee can be trimmed, or trimmed significantly, and go in to the arbitration arguing that there has been malpractice.  Why is this bad?

A recent case, Pickard v Tarnow ,2007 NY Slip Op 52377(U) [18 Misc 3d 1102(A)] ,Decided on December 3, 2007 ,Supreme Court, New York County ,Madden,  illustrates the problem.

In a nutshell, if the arbitrators allow any fees,  even a dollar, they have implicitly determined that there is no legal malpractice, and there can be no future legal malpractice case brought.

"Although the court has jurisdiction over the defendants, the action against them must be dismissed as barred under the doctrine of collateral estoppel based on the determination in the arbitration that Tarnow was entitled to recover fees for his legal services despite Pickard’s assertion in that proceeding of defects in Tarnow’s representation of her.

Collateral estoppel or "issue preclusion" prevents a party from relitigating an identical issue which has previously been decided against it in a prior action in which it had a fair opportunity to fully litigate the issue. See Allied Chemical v Niagara Mohawk Power Corp., 72 NY2d 271 (1988), cert denied, 488 US 1005 (1989). The party seeking to invoke the doctrine of collateral estoppel must show that the issue was necessarily decided in the earlier action, while [*3]the party who opposes the application of collateral estoppel must demonstrate that it did not have a full and fair opportunity to contest the prior determination. Buechel v Bain, 97 NY2d 295, 303-04 (2001).

Here, defendants have met their burden of demonstrating that the issue of malpractice was necessarily decided during the arbitration of the fee dispute in which Pickard contested the fee based on substantially the same alleged acts of malpractice that provide the basis for this action. See Weinstein v. Cohen, 2007 WL 3407107,AD2d(2d Dept 2007)(holding that plaintiff’s action alleging that defendants charged her excessive fees and committed legal malpractice in connection with their representation of her in a matrimonial action was precluded by prior determination that defendants were entitled to a substantial portion of the total fees they sought in a fee arbitration requested by plaintiff pursuant to 22 NYCRR Part 136); Altamore v Friedman, 193 AD2d 240, 244 (2d Dept 1993), lv dismissed, 83 NY2d 906 (1994) (holding that client was barred from bringing a legal malpractice action against his attorney after an arbitration award was issued in attorney’s favor in connection with a fee dispute since both the fee arbitration and the legal malpractice action shared "at the core, claims of attorney malpractice"); Kinberg v. Garr, 28 AD3d 245, 246(1st Dept 2006)("[p]laintiff’s adverse determination in defendants’ prior action to recover fees for the rendering of professional services precludes a finding of malpractice with regard to the same services); Djeddah v. Starr, 306 AD2d 59 (1st Dept), lv denied, 100 NY2d 516 (2003)(client’s arguments based on claims of malpractice were barred by prior unappealed order recognizing attorney’s charging lien and referring the matter for an assessment).

Moreover, although the arbitrators did not directly state whether their determination included the malpractice issues, all of the allegations set forth by Pickard in her Fee Dispute Application and in her supporting documentation focus on Tarnow’s alleged misconduct in his representation of her in her divorce case. In addition, it can inferred from the arbitrators’ statement that their decision was "based on a voluminous record," that they reviewed and considered all of the evidence before them.

Furthermore, Pickard does not argue that she did not have a full and fair opportunity to litigate the issue of Tarnow’s alleged malpractice in the arbitration. In fact, the exhibits submitted by defendants in support of this motion, indicate that Pickard provided the arbitrators with detailed submissions to support her assertion that Tarnow had committed malpractice and therefore should not be awarded a fee.

Pickard maintains, however, that the arbitrators did not have authority to consider the issues of legal malpractice, such that there was no adjudication of those issues in the fee arbitration. Specifically, Pickard contends that the arbitration was conducted pursuant to 22 NYCRR 137 (Part 137), which "establishes the New York State Fee Dispute Resolution Program, which provides for the informal and expeditious resolution of fee disputes between attorneys and clients through arbitration and mediation," and which excludes "claims involving substantial legal questions, including professional malpractice or misconduct." (22 NYCRR 137.1(b)(3)).

This argument is unavailing. Since Part 137 is applicable to cases "where representation has commenced on or after January 1, 2002" (22 NYCRR 137.1(a)), it does not apply to the parties’ fee arbitration, as it is undisputed that defendants commenced their representation of [*4]Pickard prior to that effective date. Rather, the provisions of 22 NYCRR 136 (Part 136) continue to apply to fee disputes in all domestic relations matters subject to that Part in which representation began prior to January 1, 2002.

Unlike the bar to adjudicating legal malpractice claims contained in Part 137, Part 136 contains no such limitation. Pursuant to Part 136.4 (b), "[t]he Administrative Judge may decline to accept or continue to arbitrate a dispute in which substantial legal questions are raised in addition to the basic fee dispute." Here, as the arbitration was held despite the issues of malpractice raised by Pickard, the arbitrators were entitled to consider these issues.

Accordingly, as defendants have met their burden of demonstrating that the identical issue of malpractice was necessarily decided in connection with the arbitration, and as Pickard has not shown that she did not have a full and fair opportunity to be heard on the issue, the doctrine of collateral estoppel bars this action for legal malpractice. "

It is rare to see a pro-se defendant in the rarified air of Federal District Court, even more rare for both sides to be pro-se.  Here,  in DANIEL KIRK and LINDA KIRK, v.  JOSEPH M. HEPPT, ESQ.,
05 Civ. 9977 (RWS) UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK January 16, 2008, Filed , the tide seems to be turning in favor of the defendant attorney. 

Plaintiff unsuccessfully sued for employment discrimination, and when the case failed, turned, pro-se to sue his attorney.  The attorney counterclaimed for defamation and his fees.  Federal District Court Judge Sweet found everyone’s position to be deficient in some manner:

"The Plaintiffs’ first cause of action alleges a violation of 18 U.S.C. § 1341, the federal mail fraud statute, and is based upon the mailing of allegedly fraudulent invoices from Heppt’s office in Manhattan to the Kirks’ residence in New Jersey (Compl. P 23). However, there is no private right of action for violations of the federal mail fraud statute. See Pharr v. Evergreen Garden, Inc., 123 Fed. Appx. 420, 422 (2d Cir. 2005) ("The law in this circuit is clear that [18 U.S.C. § 1341] does not support any private right of action."). The cause of action for mail fraud [*6] under 18 U.S.C. § 1341 is dismissed.

In addition, the Complaint can be read as asserting a claim for common law fraud. To maintain a claim for common law fraud, a plaintiff must be able to show a causative link between the alleged fraud and his claimed damages. See, e.g., Friedman v. Anderson, 803 N.Y.S.2d 514, 517 (N.Y. App. Div. 2005) (granting a motion to dismiss a fraud claim for failure to demonstrate that defendants’ actions were the proximate cause of the claimed losses). With regard to fraud arising from the mailed invoices, the March 20, 2006, Memorandum Opinion denying the Plaintiffs leave to file an amended complaint stated that the Plaintiffs "will be unable to demonstrate that Defendant’s mailing of fraudulent invoices was the proximate cause of their alleged injuries." Kirk v. Heppt, 423 F. Supp. 2d at 151.

The Plaintiffs’ second cause of action alleges a scheme to defraud, in violation of New York Penal Law § 190.60. The New York State Legislature modeled the "scheme to defraud" crime on the federal mail fraud statute. People v. First Meridian Planning Corp., 86 N.Y.2d 608, 616 (1995); William C. Donnino, Practice Commentary, N.Y. Penal Law § 190.60 (McKinney 1998) ("Given [*7] parallel language in the two statutes, New York courts have found federal cases construing the mail fraud statute relevant to the construction of New York’s ‘scheme to defraud.’"). Because neither the New York State legislature nor any New York court has interpreted § 190.60 as providing a private cause of action, the claim based on the N.Y. Penal Law § 190.60 is dismissed.

The NY General Business Law § 349 Cause of Action is Dismissed

New York General Business Law § 349 applies solely to matters affecting the consumer public at large. Vitolo v. Mentor H/S. Inc., 213 Fed. Appx. 16, 17 (2d Cir. 2007). Private contract disputes, unique to the parties, are not covered by the statute. Oswego Laborers’ Local 214 Pension Fund v. Marine Midland Bank, N.A., 85 N.Y.2d 20, 24-25 (1995). See also Amadasu v. Ngati, et al., No. 05 Civ. 2585 (JFB), 2006 U.S. Dist. Lexis 19654, at *35-36 (E.D.N.Y. Mar. 27, 2006) (dismissing a Section 349 claim arising out of an attorney-client relationship for failure to state a consumer protection claim) (citing, inter alia, Exxonmobil Inter-America, Inc. v. Advanced Info. Eng’g Servs., Inc., 328 F. Supp. 2d 443, 447 (S.D.N.Y. 2004)).

The Complaint here is limited [*8] to a dispute between the Plaintiffs and the Defendant arising out of the attorney-client relationship, which is essentially contractual in nature. The broader impact on consumers at large is not adequately alleged. For the reasons stated above, the Plaintiffs’ claim based on New York (General Business Law § 349 is dismissed as a matter of law.

The Claim for Breach of Fiduciary Duty is Dismissed in Part

Although the Kirks have not explicitly asserted a cause of action for legal malpractice, under New York law, claims for legal malpractice and claims for breach of fiduciary duty in the context of attorney liability are coextensive. Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc., 780 N.Y.S.2d 593, 596 (N.Y. App. Div. 2004); see also Nordwind v. Rowland No. 04 Civ. 9725 (AJP), 2007 U.S. Dist. LEXIS 75764, at *20 (S.D.N.Y. Oct. 10, 2007) (citations omitted); Guiles v. Simser, 826 N.Y.S.2d 484, 485 (N.Y. App. Div. 2006) (treating Plaintiff’s cause of action, although labeled as a breach of fiduciary duty, as a claim of legal malpractice). To the extent that the Kirks’ claim for breach of fiduciary duty is based upon Heppt’s handling of Daniel’s case against his former [*9] employer before the Honorable Sidney H. Stein, see Kirk v. Schindler Elevator Corp., No. 03 Civ. 8688 (SHS), 2004 WL 1933584 (S.D.N.Y. Aug. 31, 2004), their claim will be treated as a claim for legal malpractice.

A cause of action for legal malpractice poses a question of law which can be determined on a motion to dismiss. Achtman v. Kirby, McInerney & Squire, LLP, 464 F.3d 328, 337 (2d Cir. 2006) (citing Rosner v. Paley, 65 N.Y.2d 736, 738 (1985)) (quotation marks omitted). In order to state a claim for legal malpractice under New York law, a plaintiff must adequately allege 1) an attorney-client relationship, and 2) attorney negligence, 3) which is the proximate cause of, 4) actual damages. Nordwind, 2007 U.S. Dist. LEXIS 75764, at *22; see also Pellegrino v. File, 738 N.Y.S.2d 320, 323 (N.Y. App. Div. 2002), lv denied, 98 N.Y.2d 606. Insofar as the Kirks are seeking damages for the value of the claim lost, they must establish the elements of proximate cause and actual damages by "demonstrat[ing] that ‘but for’ the attorney’s conduct the client would have prevailed in the underlying matter or would not have sustained any ascertainable damages." Trautenberg v. Paul, Weiss, Rifkind, [*10] Wharton & Garrison, LLP, No. 06 Civ. 14211 (GBD), 2007 U.S. Dist. LEXIS 56222, at *9 (S.D.N.Y. Aug. 2, 2007) (citing Fashion Boutique of Short Hills, 780 N.Y.S.2d at 596). "Notwithstanding counsel’s purported negligence, the client must demonstrate his or her own likelihood of success; absent such a showing, counsel’s conduct is not the proximate cause of the injury. Nor may speculative damages or conclusory claims of damage be a basis for legal malpractice." Russo v. Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, LLP, 301 A.D.2d 63, 67 (N.Y. App. Div. 2002) (citing Pellegrino, 738 N.Y.S.2d 320,). See also Morgan, Lewis & Bockius, LLP v. IBuyDigital.com, Inc., 2007 NY Slip Op 50149U, at 6 (N.Y. Misc. 2007).

In order to establish negligence in a legal malpractice case, a plaintiff must allege that the attorney’s conduct "’fell below the ordinary and reasonable skill and knowledge commonly possessed by a member of the profession.’" Achtman, 464 F.3d at 337 (quoting Grago v. Robertson, 370 N.Y.S.2d 255 (N.Y. App. Div. 1975)). While "an attorney may be held liable for ‘ignorance of the rules of practice, failure to comply with conditions precedent to suit, or for his neglect to prosecute [*11] or defend an action," Achtman, 464 F.3d at 337 (quoting Bernstein v. Oppenheim & Co., 554 N.Y.S.2d 487 (N.Y. App. Div. 1990)), "[a] complaint that essentially alleges either ‘an error in judgment’ or a ‘selection of one among several reasonable courses of action’ fails to state a claim for malpractice," id. (quoting Rosner, 65 N.Y.2d at 738).

Construing the complaint liberally in Plaintiffs’ favor, the Kirks’ allegations regarding Heppt’s failure to thoroughly investigate Daniel’s ERISA plan and exhaust all administrative remedies prior to filing suit may constitute negligence However, the Kirks have not sufficiently alleged proximate cause to withstand a motion to dismiss. Therefore, their claim for fiduciary duty with regard to these allegations is dismissed, with leave granted to replead. "

Here is the hypothetical:  Plaintiff hires attorney A to prosecute an action against the State of New York, and does not timely file a notice of claim.  There is still time within the statute of limitations to file a motion seeking leave to file a late notice of claim. 

Plaintiff hires attorney B to sue for legal malpractice. Is Attorney B required to try to mitigate by seeking leave?  If Attorney B does not, is he subject to third-party litigation?

The case of Eugene Cacho, v.The Law Offices of Louis Venezia and Louis Venezia,
102554/2006 SUPREME COURT OF NEW YORK, RICHMOND COUNTY ,2008 NY Slip Op 50111U;  says no.  Justice McMahon writes:

"With respect to the motion at hand, generally, where a law firm is retained for the limited and express purpose of representing a client in a legal malpractice action, they do not have a duty to prosecute the underlying claim, if one still lies (see Northrop v. Thorsen, AD3d , 2007 N.Y. App. Div. LEXIS 12903 [2d Dept., Dec. 18, 2007][finding that an attorney retained "in a separate matter, before a separate tribunal, and for a different purpose" does not require him to mitigate damages in the underlying claims); Johnson v. Berger, 193 AD2d 784, 786, 598 N.Y.S.2d 270 [2d Dept., 1993][holding that a law firm’s failure to preserve an estate’s assets, when retained for the limited purpose of prosecuting a legal malpractice action "did not contribute to or aggravate the plaintiffs’ damages arising from the former attorneys’ alleged legal malpractice"]).

Here, third-party defendant’s have established entitlement to judgment in accordance with CPLR § 3211(a)(1) and (a)(7). The retainer [**4] agreement is clear and specific, detailing that the representation by the third-party defendants is for "damages arising from personal injuries sustained by Eugene Cacho as a result of legal malpractice." Further, the cases cited by the defendant/third-party plaintiff’s are distinguishable from the instant matter in that here, the third-party defendant Minchew was not hired as successor counsel to prosecute the personal injury claim, but rather on a different matter, in front of a different Judge and for a different purpose (Northrop v. Thorsen, AD3d , 2007 N.Y. App. Div. LEXIS 12903 [2d Dept., Dec. 18, 2007]). As a result, defendant Minchew is under no obligation to file a late notice of claim and therefore, dismissal of the third-party complaint is warranted (see CPLR § 3211 [a][1], [a][7]; Northrop v. Thorsen, AD3d , 2007 N.Y. App. Div. LEXIS 12903 [2d Dept., Dec 18, 2007]; Johnson v. Berger, 193 AD2d at 786). "

Wrangles between lawyers is certainly no headline.  Lawyers allowing venom to overpower reason similarly is no news.  The case of Minchew, Santner & Brenner, LLP, and Jamie M. Minchew, v. John H. Somoza, Eleftherios Kravaris, Melito & Anderson, P.C., Westport Insurance Corporation and Louis Venezia, SUPREME COURT OF NEW YORK, RICHMOND COUNTY ,2008 NY Slip Op 50112U; January 17, 2008, is a prime example of failure to mitigate damages.

This case is an offshoot of another legal malpractice case.  Plaintiff hired Venezia to prosecute an action in the Court of Claims.  It is alleged that Venezia did not file the notice of claim timely.  His insurance defense attorneys asked plaintiff to file a motion seeking leave to file a late notice of claim, which was not done. 

When plaintiff would not try to mitigate his damages by moving for leave to file a late notice of claim, Venezia third-partied plaintiff’s attorneys on the theory that they could have mitigated, but did not.  The Minchew firm [plaintiff’s attorneys] then brought this retaliatory suit.  The court wrote:

"This action arises from an underlying legal malpractice 1 action currently pending before this Court, where Mr. Eugene Cacho’s initial attorney, Louis Venezia, failed to timely file a notice of claim with the State of New York. As a result, Mr. Cacho severed his representation and hired the plaintiff Minchew Santner & Brenner LLP (hereinafter "Minchew"), and Jamie M. Minchew, personally, to represent him in a legal malpractice action against The Law Office of Louis Venezia (hereinafter Venezia). Venezia thereafter hired the defendants John H. Somoza, Eleftherios Kravaris, Melito & Anderson, P.C., (hereinafter collectively known as "Somoza"), to represent him in that matter. In the course of his representation, defendant Somoza requested that plaintiff [**2] Minchew apply to file a late notice of claim considering that the statute of limitations has not yet expired in the personal injury action, in effect, severely mitigating the damages and/or resolving the case. After this Court repeatedly recommended that the parties in this action cooperate and apply to file a late notice of claim, the defendants impleaded plaintiffs as a third party in the Cacho action which thereafter caused Minchew to bring this retaliatory action alleging the aforementioned causes of action. " 

When no one would play nice, the court wrote:  "As a result, all causes of action alleged by the plaintiff in their complaint are dismissed. All other requested relief is denied or academic. Finally, this Court will again strongly urge the attorneys involved in these matters to cooperate and set aside these vindictive and unnecessary actions in an effort to resolve [**9] this case. "

Question:  who is hurt when attorneys play like this?

The West Virginia Record reports this case in which plaintiff was terminated by his employer.  Plaintiff’s claim is that he was fired for doing jury service.  He retained defendant attorney, and the case was litigated in Federal District Court, where it was dismissed on summary judgment. 

Plaintiff claims that the attorney did not depose supporting witnesses, did not follow up on deposition questions, and did not seek discovery.  Worst of all he claims that the attorney came to meeting intoxicated.

"Fleischmann says Deel accompanied him to several depositions throughout 2005 and 2006, but that he "failed to follow up on any deposition questions, and he failed (to) make contact or get depositions from any of the seven witnesses provided to him by me."

He says he also gave Deel physical and date documentation supporting his case, but Deel "appeared at both meetings apparently intoxicated, and failed to retain the information I tried to provide."

Fleischmann says he e-mailed the information to Deel, but he failed to act on it. And Deel failed to respond to numerous e-mail and phone requests for an update on the case, the complaint states.

On Dec. 1, 2005, PRG-Schultz filed a motion for summary judgment. Deel failed to respond, according to the complaint, and the case was dismissed Jan. 10, 2006.

Fleischmann says he learned on Feb. 8, 2006, that he and Deel had 24 hours to filed for reinstatement of the case. Fleischmann said he contacted Deel, who said he "was busy" and wouldn’t do anything about it."

Here is our article from the New York Law Journal on Attorney Client Privilege and Legal Malpractice.

CEO Gregory Reyes was sentenced this week.  Judge Charles Breyer told him that a false affidavit netted him 21 months rather than 15 months.  Here’s the problem for Reyes:  his attorney drafted the document, and admitted his own "poor drafting."

So, is this the rare occurrence when an attorney creates the situation in which his client spends more tim in jail? "Inexact drafting by lawyers for former Brocade CEO Gregory Reyes may have gotten an extra six months tacked onto his stock option backdating sentence.

U.S. District Judge Charles Breyer sentenced the former Silicon Valley icon to 21 months in prison Wednesday. Breyer also imposed a $15 million fine, but did not order Reyes to pay any restitution. Breyer stayed the entire sentence pending appeal.

Breyer indicated, however, he would have imposed a shorter, 15-month sentence had Reyes not submitted a sworn affidavit to the court saying he did not backdate.

Reyes filed that declaration in support of former HR Chief Stephanie Jensen’s motion to sever her trial from his. At Reyes’ trial, though, his lawyers acknowledged that he did backdate stock options, but said it was done in full view of the company’s finance department.

On Wednesday, the judge called Reyes’ statements in the declaration "seriously misleading" and an obstruction of justice because they suggested Reyes would provide exculpatory evidence for Jensen when, in fact, he could not.

"The court must have truthful information in order for it to be just," Breyer said evenly.

Reyes’ attorney, Richard Marmaro, attempted to take the flak for the declaration, telling Breyer he had been the "proponent" of it, along with Jensen’s attorney, Keker & Van Nest partner Jan Little.

The language in the declaration was a product of "poor drafting by the lawyers" and was not meant to apply to all of the disputed Brocade stock option grants, said Marmaro, a partner at Skadden, Arps, Slate, Meagher & Flom. "

When does the statute of limitations start to run on a legal malpractice case in Pennsylvania.  Hinshwaw reports on this issue.

"The Pennsylvania Superior Court held that the statute of limitations for a legal malpractice claim begins to run when the malpractice is committed and is only tolled until the plaintiff should reasonably have found out about some degree of injury. The statute is not tolled until all of a plaintiff’s damages are clear or until appellate proceedings in the underlying case within the legal malpractice case are over.

Under the court’s application of the occurrence rule, the trigger for the accrual of a legal malpractice action is not the realization of actual or ultimate loss, but the occurrence of a breach of duty plus some degree of apparent harm. Thus, the court concluded that the statute of limitations for a breach of a contract claim starts when the duty is breached and is only tolled until the plaintiff should reasonably have found out about the injury. Otherwise put, and applying this reasoning to the instant matter, the court found that Wachovia or its predecessor in interest, Meridian, should have reasonably been aware of the alleged breach on or about October 20, 1994, the date Pisani initiated proceedings for liquidated damages (which, of course, had to be defended at considerable cost). Consequently, the present case was time-barred even though no final judgment determining the ultimate and actual loss had been determined before the statute began to run.

In coming to this conclusion, the court noted that its ruling may require an injured client to pursue two legal actions with competing interests at the same time—the appeal of the underlying case and the malpractice claim. The court concluded, however, that the overriding public policy concern is that stale claims not be filed. "