Zi Kuo Zhang v Lau  2022 NY Slip Op 06287  Decided on November 9, 2022  Appellate Division, Second Department  is the story of escrow money gone astray.

“The plaintiffs commenced this action against the defendant Jay Lau and his law firm, the defendant Lau & Associates, P.C. (hereinafter together the Lau defendants), among others, asserting, as against the Lau defendants, causes of action to recover damages for legal malpractice and breach of fiduciary duty. The complaint alleged that the Lau defendants represented the plaintiffs in connection with the formation of Wong Real Estate Fund I, LLC (hereinafter WRE I), the receipt of investment funds to be held in escrow, and the disbursement of those funds.

According to the complaint, the purpose of WRE I was to purchase and develop certain property located on 41st Avenue in Flushing. However, the plaintiffs’ funds held in the Lau defendants’ escrow account were disbursed in connection with a different property, located on 77th Street in Elmhurst (hereinafter the 77th Street property), which was purchased by another client of the Lau defendants. The plaintiffs agreed to the disbursement but requested a security interest in the hotel on the 77th Street property. Neither WRE I nor the plaintiffs received any interest in the 77th Street property.”

“The existence of an attorney-client relationship is an essential element of a cause of action to recover damages for legal malpractice (see Lindsay v Pasternack Tilker Ziegler Walsh [*2]Stanton & Romano LLP, 129 AD3d 790, 792). “An attorney-client relationship may exist in the absence of a retainer or fee” (Willoughby Rehabilitation & Health Care Ctr., LLC v Webster, 190 AD3d 887, 889). “In determining the existence of an attorney-client relationship, a court must look to the actions of the parties to ascertain the existence of such a relationship” (Wei Cheng Chang v Pi, 288 AD2d 378, 380). “[A] party’s unilateral belief does not confer upon him or her the status of client. Rather, to establish an attorney-client relationship, there must be an explicit undertaking to perform a specific task” (Willoughby Rehabilitation & Health Care Ctr., LLC v Webster, 190 AD3d at 889; see Volpe v Canfield, 237 AD2d 282, 283).

Here, in an affidavit properly submitted to amplify the allegations in the complaint (see Leon v Martinez, 84 NY2d 83, 88), the plaintiff Jun Hong Zhang averred that Lau met with the individual plaintiffs to form WRE I and orally informed them that he was representing them, instructed them to wire funds to his escrow account, committed to certain conditions of disbursement of those funds, and advised that he would continue to represent them on matters related to the property to be acquired by WRE I. Contrary to the Lau defendants’ contention, assuming these allegations to be true and affording the plaintiffs the benefit of every possible favorable inference (see J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 21 NY3d 324, 334), they sufficiently alleged the existence of an attorney-client relationship (see Ripa v Petrosyants, 203 AD3d 770; Blank v Petrosyants, 203 AD3d 685; Mawere v Landau, 130 AD3d 986, 990).

Further, since legal malpractice actions are not subject to special pleading requirements, “a legal malpractice plaintiff need not, in order to assert a viable cause of action, specifically plead that the alleged malpractice fell within the agreed scope of the defendant’s representation” (Shaya B. Pac., LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 AD3d 34, 39; see Fitzsimmons v Pryor Cashman LLP, 93 AD3d 497, 498). “Rather, a legal malpractice defendant seeking dismissal pursuant to CPLR 3211(a)(1) must tender documentary evidence conclusively establishing that the scope of its representation did not include matters relating to the alleged malpractice” (Shaya B. Pac., LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 AD3d at 39 [emphasis omitted]). Here, the Lau defendants failed to submit such documentary evidence.

Accordingly, the Supreme Court properly denied dismissal of the legal malpractice cause of action.

The Supreme Court also properly denied dismissal of the breach of fidiciary duty cause of action as duplicative of the legal malpractice cause of action. “An attorney holding funds in escrow owes a fiduciary duty to anyone with a beneficial interest in the trust” (Baquerizo v Monasterio, 90 AD3d 587, 587 [internal quotation marks omitted]; see Levit v Allstate Ins. Co., 308 AD2d 475, 477; Takayama v Schaefer, 240 AD2d 21, 25). An escrow agent has a duty not to deliver the escrow funds to anyone except upon strict compliance with the conditions imposed (see Sasidharan v Piverger, 145 AD3d 814, 815; Baquerizo v Monasterio, 90 AD3d at 587; Matter of Ginzburg, 89 AD3d 938, 941). Here, the complaint sufficiently pleaded the existence of an oral escrow agreement (see Gargano v Morey, 165 AD3d 889, 891), invoking fiduciary duties even in the absence of an attorney-client relationship. Therefore, as the court correctly determined, the breach of fiduciary duty cause of action was properly pleaded in the alternative, in the event that it is ultimately determined that no attorney-client relationship existed or that the Lau defendants’ conduct related to the escrow funds was not within the scope of any such relationship.”

Privity is a keystone in the legal malpractice world.  Here. in Jarmuth v Wagner    2022 NY Slip Op 33698(U)  October 28, 2022  Supreme Court, New York County  Docket Number: Index No. 161816/2019 Judge: Dakota D. Ramseur a co-op shareholder sues the Co-op’s attorney derivatively on behalf of the Co-op.

“In December 2019, Plaintiff Sandra Jarmuth, on behalf of shareholders in 36 East 69th Corp. (the co-op), commenced this derivative suit to recover monetary damages arising from
defendants Steven Wagner, Bonnie Berkow, and the Law Offices of Wagner Berkow LLP’s representation of the co-op in an underlying property-damage action. Plaintiff asserts that
defendants committed legal malpractice when Wagner allegedly advised the co-op to drop a cross-claim for attorneys’ fees it had asserted in the underlying action. The malpractice, plaintiff alleges, prevented the co-op from recovering on $150,000 in legal fees. In Motion Sequence 001, defendants move to dismiss the action pursuant to CPLR 3211 (a) (1), {a) (5), and (a) (7). Likewise, in Motion Sequence 002, the co-op, as a nominal defendant, moves to dismiss pursuant to those same rules. For the following reasons, the motions are granted, and the complaint is dismissed.”

“As to defendants’ motion via CPLR 3211 (a) (7), to properly plead a cause of action for legal malpractice, a plaintiff must allege: (1) the existence of an attorney-client relationship; (2)
negligence on the part of the attorney or some other conduct in breach of that relationship; (3) the attorney’s conduct was the proximate cause of the injury to plaintiff; and (4) that plaintiff suffered actual and ascertainable damages. (Tinter v Rapaport, 253 AD2d 588 [1st Dept 1998].) Stated somewhat differently, a plaintiff must show that the attorney failed to exercise the ordinary reasonable skill and knowledge possessed by a member of the legal profession and the attorney’s breach is a proximate, or “but for,” cause of the plaintiffs injuries. (See Benishai v Epstein, 116 AD3d 726, 727 [2d Dept 2014].) Where a plaintiff fails to plead any element of the legal malpractice standard, the defendant is entitled to a dismissal of the complaint under CPLR 3211 (a) (7). (See Zarin v Reid & Priest, 184 AD2d 385,387 [1st Dept 1992].) Even viewing the complaint in the light most favorable to plaintiff, plaintiff has failed to demonstrate defendant’s negligent or incompetent conduct, that the alleged acts or omission forming the basis of plaintiffs cause of action were the proximate cause of plaintiffs injuries, or that plaintiff suffered ascertainable damages.

Plaintiff summarized the facts constituting her legal malpractice claim as follows: ( 1) the Alteration Agreement provides that Nunnerley would indemnify the co-op for any damages and attorneys’ fees arising from her renovation; (2) Witbeck suffered damages due to Nunnerley’s renovations and brought a claim; (3) upon defendants’ advice, the co-op asserted that a crossclaim against Nunnerley and advised the co-op it had a strong likelihood of success; ( 4) nevertheless, defendants-the attorneys-did not prosecute a claim for legal fees; and (5) the coop suffered $150,000 in damages because the settlement did not include reimbursement for the co-op’s attorney’s fees. (NYSCEF doc. no. 41, plaintiff memo of law; NYSCEF doc. no. 10 at ,r,r 20, 22, and 24, complaint.) Perhaps recognizing the above-stated allegations are entirely conclusory, plaintiff further alleges that defendants failed to prosecute (or advised the co-op not to prosecute) because they believed that the co-op would have to be the prevailing party in the Witbeck action to recover against Nunnerley-a position, plaintiff contends, that was demonstrably incorrect.

Still, after reading plaintiffs opposition papers, it is unclear to the Court which acts and omissions constitute plaintiffs claim for malpractice. As mentioned above, plaintiff highlights
the fact that defendants did not prosecute the co-op’s cross-claim but the Court is unsure where, specifically, the negligence is in “never pursuing a claim” when the co-op itself is responsible for those decisions.3 Similarly, the Court is unsure how plaintiff can argue that the co-op entered the settlement agreement-and forwent the cross-claim-based on erroneous advice provided by defendants when plaintiff acknowledges defendants provided correct advice about the availability of the cross-claim. (NYSCEF doc. no. 10 at ,r22 [“Defendants repeatedly and correctly advised the Shareholders and co-op that they had a strong cross-claim against Nunnerley.”])4 To resolve the tension here, plaintiff alleges that something changed, yet the pleadings require the court to attribute the change to defendants’ malpractice based solely on legal conclusions. From 2013 through 2015, defendants were allegedly giving faulty advice, apparently on an on-going basis, but the pleadings contain no factual allegations-no communications of any kind-that describe or relate to defendants’ advice.”

Sometimes a legal malpractice claim against attorney 1 can trigger disclosure of attorney-client communications with attorneys 2 and 3, if there is a sufficient relationship between the communications with other attorneys and the legal malpractice  claim.  Not so in 2138747 Ontario Inc. v Lehman Bros. Holdings, Inc.  2022 NY Slip Op 06087  Decided on November 01, 2022  Appellate Division, First Department.

“Order, Supreme Court, New York County (Andrea Masley, J.), entered on or about June 29, 2021, which, to the extent appealed from as limited by the briefs, granted defendant’s motion to compel disclosure of documents and communications between plaintiff and its current and former counsel relating to an assignment of a cause of action and to plaintiff’s litigation strategy in a prior lawsuit, unanimously reversed, on the law, with costs, and the motion denied.

This breach of contract action arises from an assignment, from defendant Lehman to plaintiff, of a misappropriation claim owned by Lehman’s subsidiary, LB SkyPower, a renewable energy developer. Pursuant to a nondisclosure agreement (NDA), LB SkyPower shared confidential information with Samsung to be used exclusively to evaluate a potential transaction between the parties. Plaintiff alleges, however, that Samsung misappropriated the confidential information and used it to launch a competing renewable energy project in violation of the NDA. LB SkyPower, subsequently, went bankrupt and was unwilling to prosecute a claim against Samsung.”

“Defendant Lehman’s motion to compel plaintiff to produce certain communications and documents that had been withheld, on the basis of attorney-client privilege, should have been denied. Plaintiff’s conduct in bringing a legal malpractice claim against its former counsel, Goodmans, did not trigger the “at issue” waiver doctrine with regard to plaintiff’s breach of contract claim against defendant Lehman. An “at-issue waiver” of the attorney-client privilege occurs where a party affirmatively places the subject matter of its own privileged communication at issue, such as by asserting a claim or defense that the party intends to prove by use of the privileged material (see Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, 62 AD3d 581, 582 [1st Dept 2009]; Deutsche Bank Trust Co. of Ams. v Tri-Links Inv. Trust, 43 AD3d 56, 63 [1st Dept 2007]).

While plaintiff has waived the attorney-client privilege as to any [*2]information that has already been revealed in the pleadings of the malpractice claims against Goodmans, there is no subject matter waiver as a result of these limited disclosures (see Credit Suisse First Boston v Utrecht-America Fin. Co., 27 AD3d 253 [1st Dept 2006] [In breach of contract action, the plaintiff’s allegations concerning reasons for delay in closing did not impliedly waive privilege for related attorney-client communications; even if such waiver occurred, the defendant failed to show that information could not be obtained from other sources]). The advice of counsel is not at issue in plaintiff’s breach of contract claims against defendant Lehman. Nor is this a case where the holder of the privilege affirmatively seeks to use privileged communications while preventing his adversary from examining the remainder of the communications. Thus, the attorney-client communications cited by plaintiff, in the pleadings of the malpractice claims, against Goodmans did not waive plaintiff’s attorney-client privilege as to any confidential communications withheld.”

“Actual Innocence” is a huge burden to overcome.  It is necessary to demonstrate that standard in order to plead a legal malpractice claim arising from representation in a criminal defense case.  Even if you can show actual innocence, as in Broomes v Legal Aid Socy. of N.Y. City, Inc., 2022 NY Slip Op 06101  Decided on November 2, 2022  Appellate Division, Second Department NY courts have held that only “pecuniary damages” are permitted.  Mere incarceration, even when wrong, does not give rise to legal malpractice damages,

“In March 2020, the plaintiff commenced this legal malpractice action against the defendants, the Legal Aid Society of New York City, Inc., and Paul Liu, seeking both pecuniary and nonpecuniary damages. The complaint alleged that the defendants were negligent in their representation of the plaintiff in a prior criminal action in which he was convicted of a crime upon his plea of guilty and sentenced to a term of imprisonment. The plaintiff’s conviction in that action was vacated in 2019 on the ground of ineffective assistance of counsel, and the indictment was dismissed.”

“The Supreme Court properly granted that branch of the defendant’s motion which was for summary judgment dismissing so much of the complaint as sought to recover nonpecuniary damages. Generally, recovery for legal malpractice is limited to pecuniary damages (see [*2]Dombrowski v Bulson, 19 NY3d 347; Dawson v Schoenberg, 129 AD3d 656, 658; Young v Quatela, 105 AD3d 735, 736; Brownell v LeClaire, 96 AD3d 1336; Wolkstein v Morgenstern, 275 AD2d 635, 637).”

The First Department decided Basile v. The Law Offices of Neil Brickman, P.C.,  this week, giving further dimension to how it decides continuing representation issues.  Here, communications with the law firm, even after a long period, can suffice for continuing representation.

“Order, Supreme Court, New York County (Shawn T. Kelly, J.), entered on or about September 23, 2021, which denied defendants’ motion to dismiss plaintiff’s third
cause of action, for legal malpractice, pursuant to CPLR 3211 (a)(1), (a)(5), and (a)(7), unanimously affirmed, without costs.

The legal malpractice claim may not be barred by the three-year statute of limitations (CPLR 214[6]). Plaintiff contends that the claim was tolled by the continuous
representation doctrine based on alleged emails and telephone conversations about collecting on plaintiff’s money judgment against the judgment debtor following its entry
in 2010, at which time the judgment debtor did not have sufficient assets to satisfy the judgment. Defendants, however, assert that there was no continuous representation because plaintiff had no communication with them concerning collecting on the unsatisfied judgment until August 2019, when the limitations period on the instant claim had expired. These factual contentions concerning whether defendant continued to represent plaintiff during the relevant time period so as to toll the limitations period give rise to factual issues that cannot be resolved in this pre-answer motion to dismiss (see Boesky v Levine, 193 AD3d 403 [1st Dept 2021]; Johnson v Law Off. of Kenneth B. Schwartz, 145 AD3d 608, 612 [1st Dept 2016]).”

Grace v. Law is a Court of Appeals case which holds that a legal malpractice case cannot successfully be pursued unless an appeal of the underlying negative outcome is commenced when it is likely that the appeal will succeed.  In a novel argument, plaintiff in Colucci v Rzepka  2022 NY Slip Op 06043  Decided on October 27, 2022  Appellate Division, Third Department argues that it was not permitted, or was “forced” to delay the commencement of the legal malpractice case until its appeal of the underlying negative outcome was decided.  Because of the typical lag time for an appeal to be heard and decided, more than three years ensued from both the negative decision in the underling case as well as the end of representation.

“Plaintiff Lora Colucci, who was the owner of plaintiff Yar-Lo, Inc., entered into a lease in 1990 with Stuyvesant Plaza, a shopping center, to operate a cosmetics store. During the lease period, the leased premises experienced sewage system backup and overflows that purportedly exposed the store to mold and raw sewage. In 2005, plaintiffs terminated the lease and submitted a claim to Travelers Indemnity Company, their commercial insurer, for business interruption coverage, which was denied. They subsequently retained defendant Thomas J. Rzepka to commence litigation against Travelers, for the wrongful denial of the insurance claim, and against Stuyvesant Plaza, for breach of the lease. Rzepka initiated an action on behalf of Yar-Lo against Travelers in December 2006 that was dismissed by Supreme Court (Caruso, J.) upon summary judgment, which order this Court affirmed (Yar-Lo, Inc. v Travelers Indem. Co., 130 AD3d 1402, 1404 [3d Dept 2015]).

In 2007, Rzepka instituted an action on behalf of plaintiffs against Stuyvesant Plaza seeking damages stemming from Colucci’s personal injuries due to her exposure to the raw sewage and mold as well as the closure of her business. Following prolonged discovery, Supreme Court (Kramer, J.) directed plaintiffs and Stuyvesant Plaza to submit expert disclosure by May 2015 and all dispositive motions by August 2015. Stuyvesant Plaza timely filed expert disclosures pertaining to plumbing and medical experts as well as a motion for summary judgment seeking dismissal of the complaint based on plaintiffs’ failure to submit any expert proof that Colucci’s injuries and damages were caused by its actions. Rzepka did not comply with the deadlines but requested an adjournment of the return date for responsive papers to the summary judgment motion. The court granted the adjournment, which was conditioned upon Rzepka’s consent that the deadline for expert disclosure would not be similarly extended. Rzepka obtained another adjournment of the return date and, in the meantime, submitted a cross motion for summary judgment with incomplete supporting papers. On the day of the new return date, Rzepka moved to withdraw from his representation of plaintiffs, which he ceased by affirmation in December 2015.”

“In May 2020, plaintiffs commenced this legal malpractice action seeking, among other things, damages arising from Rzepka’s representation in plaintiffs’ action against Stuyvesant Plaza. Defendants Osborne Reed & Burke, LLP, Bressler & Kunze, Burke Albright Harter & Reddy, LLP and Moyer Russi & Randall, PC (hereinafter collectively referred to as the law firms) respectively moved pre-answer to dismiss the complaint against them as time-barred and for failure to state a cause of action (see CPLR 3211 [a] [5], [7]). Rzepka joined issue but did not submit any dispositive motions. In turn, plaintiffs opposed all of the motions to dismiss, except for the one by Burke Albright Harter & Reddy. Ultimately, Supreme Court (Corcoran, J.) determined, among other things, that the action was time-barred against the law firms and dismissed the complaint as against them. Plaintiffs appeal.

We affirm. “An action to recover damages arising from legal malpractice must be commenced within three years after accrual” (Zorn v Gilbert, 8 NY3d 933, 933-934 [2007] [citation omitted]; see CPLR 214 [6]). In the civil context, the claim “accrues when the malpractice is committed” (Ruggiero v Powers, 284 AD2d 593, 594 [3d Dept 2001], lv dismissed 97 NY2d 638 [2001]), “not at the time that the injury is discovered” (Lavelle-Tomko v Aswad & Ingraham, 191 AD3d 1142, 1143 [3d Dept 2021]; see McCoy v Feinman, 99 NY2d 295, 301 [2002]). ”

“Plaintiffs failed to meet their shifted burden. Specifically, plaintiffs erroneously rely upon Grace v Law (24 NY3d 203 [2014]) for the proposition that they were not permitted to commence this action until the appeal of the Stuyvesant Plaza action [*3]was resolved in January 2018. In Grace v Law, the Court of Appeals held “that prior to commencing a legal malpractice action, a party who is likely to succeed on appeal of the underlying action should be required to press an appeal. However, if the client is not likely to succeed, [the client] may bring a legal malpractice action without first pursuing an appeal of the underlying action” (id. at 210 [emphasis added]). Here, given Supreme Court’s “broad discretion in controlling discovery and disclosure” (Colucci v Stuyvesant Plaza, Inc., 157 AD3d at 1098 [internal quotation marks and citations omitted]), plaintiffs’ appeal from the Stuyvesant Plaza action was not “likely to succeed,” such that it was not necessary for them to file an appeal pursuant to the standard set forth in Grace v Law (24 NY3d at 210; see Florists’ Mut. Ins. Co., Inc. v Behman Hambelton, LLP, 160 AD3d 502, 502 [1st Dept 2018]).[FN1] Thus, plaintiffs were not “forced” to file an appeal prior to commencing the legal malpractice action. If plaintiffs believed the best course of action was to also file an appeal, they were certainly free to, but this did not toll the statute of limitations.[FN2] Rather, the preferable course of action would have been to both timely commence the legal malpractice action and pursue an appeal and then request a stay of the legal malpractice action until determination of the appeal (see Spitzer v Newman, 163 AD3d 1026, 1027-1028 [2d Dept 2018]). Accordingly, Supreme Court did not err in granting the law firms’ motions to dismiss the complaint as untimely. In light of this determination, plaintiffs’ remaining contentions have been rendered academic.”

Schnur v Balestriere   2022 NY Slip Op 05297  Decided on September 27, 2022 Appellate Division, First Department describes what the First Department thinks a good Judiciary Law § 487 claim requires:  deceit, egregiousness and good pleading.

“The Judiciary Law § 487 claim against Balestriere should not have been dismissed. Although “unfounded” allegations are not actionable under Judiciary Law § 487, deliberate misrepresentations are (see Amalfitano v Rosenberg, 12 NY3d 8, 11-15 [2009]; Ticketmaster Corp. v Lidsky, 245 AD2d 142, 143 [1st Dept 1997]; Redmond v Bailey, 2012 NY Slip Op 31081[U], *6 [Sup Ct, Queens County 2012]). Plaintiffs have sufficiently alleged that the allegations about them in the underlying federal action were not just unfounded but intentionally false; these allegations have not been conclusively refuted. The misconduct alleged by plaintiffs is also sufficiently “egregious” to support a Judiciary Law § 487 claim — consisting of the reiteration of allegations Balestriere knew to be false in multiple filings, even after receipt of information refuting these allegations and even after being sanctioned (see generally Facebook, Inc. v DLA Piper LLP [US], 134 AD3d 610, 615 [1st Dept 2015], lv denied 28 NY3d 903 [2016]).”

In Bei Yang v. Pagan Law Firm P.C.  Slip Opinion No: 2022 NY Slip Op 73132(U), Decided on October 18, 2022 the Appellate Division, First Department, determined that Plaintiff may not use a pseudonym in a legal malpractice law suit.

“And plaintiff-appellant having moved, pro se, to suppress allegedly improperly obtained privileged information of psychotherapy notes from Dr. Mikki Meyers; suppress allegedly privileged medical records and a laboratory report from Dr. Bina Mody; deny, limit or regulate defendants’ submissions containing alleged defamatory statements and untruths associated with “Defendants’ Three-Step Abuse of Disclosure  Devises”; and for permission to use a pseudonym in the instant appeal, the legal malpractice lawsuit and the underlying medical malpractice lawsuit,

Now, upon reading and filing the papers with respect to the motion, and due deliberation having been had thereon, It is ordered that the motion is denied in its entirety.”

Sometimes the AD finds that a consent to change attorney is the terminating event for continuous representation and sometimes not. Ellison v Seltzer,  2022 NY Slip Op 05786
Decided on October 18, 2022  Appellate Division, First Department is a case where the “mutual understanding of the need for further representation” trumped the “failure to move to be relieved” standard.

“Supreme Court correctly determined that the legal malpractice claim was barred by the three-year statute of limitations (CPLR 214 [6]). While the claim accrued at the latest on September 23, 2016, the continuous representation doctrine tolled the statute of limitations until December 8, 2016, when defendants informed plaintiff that they would not represent him on his appeal in the underlying employment action, but plaintiff did not commence this action until December 13, 2019 (see Shumsky v Eisenstein, 96 NY2d 164, 170-171 [2001]). Contrary to plaintiff’s contentions, the outstanding counterclaim in the employment action and defendants’ failure to move to be relieved in that action did not show a mutual understanding of a need for further representation (see McCoy v Feinman, 99 NY2d 295, 306 [2002]; Farina v Katsandonis, P.C., 197 AD3d 1033, 1033-34 [1st Dept 2021]; Hirsch v Fink, 89 AD3d 430, 431 [1st Dept 2011]).”

Lee v Leifer  2022 NY Slip Op 05793  Decided on October 18, 2022  Appellate Division, First Department is the startling story of an attorney who told his client that it was better and more efficient not to answer a complaint.  The strategy worked well, until it didn’t.

“The Leifer defendants (Leifer) represented Lee in a lawsuit against him, which arose out of Lee’s ownership of a restaurant. Lee alleges that Leifer erroneously informed him that the damages sought were limited to an agreed-upon purchase price, although the plaintiff in that case actually sought significantly more in punitive damages. Lee further alleges that, on Leifer’s advice, he did not file an answer. The court found that Lee had failed to assert a meritorious defense to the punitive damages claim and entered a default judgment for the plaintiff. At an inquest, the court awarded punitive damages of $700,000, as well as compensatory damages, interest, and attorneys’ fees. Lee has appealed to the Second Department. Lee sued for legal malpractice. The motion court denied Leifer’s motion to dismiss.

Lee’s legal malpractice complaint adequately alleges that Leifer’s failure to advise him of the punitive damages claim asserted against him in the underlying action and failure to file a responsive pleading, “proximately caused plaintiff to sustain actual and ascertainable damages,” i.e., that he would not have incurred the punitive damages award but for Leifer’s negligence (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442 [2007]). Lee claims that he would have avoided the punitive damages award by asserting a meritorious defense in his responsive pleading. However, Lee’s default required the court to accept as true all allegations against him as to liability (see Amusement Bus. Underwriters v American Intl. Group, 66 NY2d 878, 880 [1985]). While Lee had the opportunity to contest the punitive damages claim at the subsequent damages inquest, he was not permitted to introduce evidence to counter the underlying cause of action (Suburban Graphics Supply Corp. v Nagle, 5 AD3d 663, 665 [2d Dept 2004]).

Although the inquest court rejected the substance of Lee’s purportedly meritorious defense, it did so on a limited record. “[W]hile [defaulting] defendants are entitled to present testimony and evidence and cross-examine the plaintiff’s witnesses at the inquest on damages, they may not conduct discovery” (Rudra v Friedman, 123 AD3d 1104, 1005 [2d Dept 2014] [internal quotation marks omitted]). Because Lee, having defaulted, forfeited the right to discovery, he was deprived of the opportunity to amass a record on which the inquest court might have credited his defense to the punitive damages claim.”