Client agrees to arbitrate attorney fee issues.  Is Client required to arbitrate a legal malpractice claim as well?  In Protostorm, Inc. v Foley & Lardner LLP  2021 NY Slip Op 02227 Decided on April 08, 2021
Appellate Division, First Department the answer is yes.

“Plaintiff retained defendant Foley & Lardner LLP to maintain a malpractice action against plaintiff’s prior counsel. Thereafter, plaintiff commenced a malpractice action against defendants and other attorneys in the United States District Court, Eastern District of New York. Defendants moved to dismiss the federal action based on lack of subject matter jurisdiction. They also commenced an arbitration proceeding against plaintiff for unpaid legal fees based on the parties’ retainer agreement, which provides that “[a]ny dispute over fees and/or costs. . .will be submitted to and settled exclusively by binding arbitration.” The federal action was ultimately dismissed for lack of subject matter jurisdiction. As a result, the court did not rule on whether the arbitration should be stayed. Plaintiff then brought the instant action alleging the same claim of legal malpractice and moved to stay the arbitration pending resolution of this action. Defendants cross moved to stay the action and compel arbitration.

“Where there is no substantial question whether a valid agreement [to arbitrate] was made or complied with, . . .the court shall direct the parties to arbitrate” and its order “shall operate to stay a pending. . .action” (CPLR 7503[a] [emphasis added]). Once a valid arbitration agreement is identified, an arbitration should only be stayed “when the sole matter sought to be submitted to arbitration is clearly beyond the arbitrator’s power” (Silverman v Benmor Coats, 61 NY2d 299, 309 [1984] [emphasis added]). Further, where “arbitrable and nonarbitrable claims are inextricably interwoven, the proper course is to stay judicial proceedings pending completion of the arbitration, particularly where. . .the determination of issues in arbitration may well dispose of nonarbitrable matters” (Cohen v Ark Asset Holdings, 268 AD2d 285, 286 [1st Dept 2000]; see also Lake Harbor Advisors, LLC v Settlement Servs. Arbitration and Mediation, Inc., 175 AD3d 479 [2d Dept 2019]; Monotube Pile Corp. v Pile Foundation Constr. Corp., 269 AD2d 531 [2d Dept 2000]).

There is no dispute that there is a valid agreement between the parties to arbitrate any dispute regarding unpaid fees. Thus, the court must compel arbitration of defendants’ claim for unpaid fees and stay this action pending completion of the arbitration (CPLR 7503[a]). Moreover, because plaintiff’s nonarbitrable malpractice claim is inextricably intertwined with the arbitrable claim for unpaid fees, the proper course is to stay the action pending completion of the arbitration (see Cohen, 268 AD2d at 286[*2]; Lake Harbor Advisors, LLC, 175 AD3d at 479; Monotube Pile Corp., 269 AD2d at 531).

To the extent plaintiff argues that it cannot be forced to arbitrate its malpractice claim because it did not explicitly agree to do so, both the First and Second Departments have clearly found that a nonarbitrable issue can be decided in an arbitration when it is inextricably intertwined with an arbitrable issue, particularly where, as here, the determination of the arbitrable unpaid fees claim may dispose of the nonarbitrable malpractice claim (see Cohen, 268 AD2d at 286; Lake Harbor Advisors, LLC, 175 AD3d at 480; Monotube Pile Corp., 269 AD2d at 531-532).”

Scarola Malone & Zubatov LLP v Ellner  2021 NY Slip Op 31199(U) April 8, 2021 Supreme Court, New York County Docket Number: 651324/2017 Judge: Anthony Cannataro pits a “sophisticated businessman, with degrees from Wharton and the University of Chicago” against the attorneys in a legal malpractice counterclaim.  Sophisticated businessman loses.

“Where a sophisticated client imposes a strategic decision on counsel, the client’s action absolves the attorney from liability for malpractice (Town of North Hempstead v Winston & Strawn, LLP, 28 AD3d 746 [2006]; Stolmeier v Fields, 280 AD2d 342 [2001]). Additionally, with regard to strategic decisions “the selection of one among several
reasonable courses of action does not constitute malpractice” (Rosner v Paley, 65 NY2d 736, 738 [1985]). “Attorneys may select among reasonable courses of action in prosecuting their clients’ cases without thereby committing malpractice … so that a purported malpractice claim that amounts only to a client’s criticism of counsel’s strategy may be dismissed” (Dweck Law Firm, LLP v Mann, 283 AD2d 292, 293 [2001 ]). Hindsight arguments concerning selection of one of several reasonable courses of action do not state a viable cause of action for malpractice (Brookwood Cos., Inc. v Alston & Bird LLP, 146 AD3d 662, 667 [2017]).

In this case, the Lightbox defendants’ counterclaims stem from the Scarola firm’s representation of them in a business dispute and litigation related to a joint venture agreement between the Lightbox defendants and a nonparty entity named 3rd Home Limited. The counterclaims allege that the Scarola firm made several mistakes during the course of its representation of the Lightbox defendants, specifically: failing to advise the Lightbox defendants to accept a potential buyout from 3rd Home Limited; recommending that the Lightbox defendants litigate in an “uber aggressive” manner rather than advising them to settle, causing the Lightbox defendants to “waste” money Lightbox’ s allegations relate primarily to strategic decisions made during the course of the Scarola firm’s representation. Regarding the allegations that the Scarola firm took an overly aggressive approach, the documentary evidence shows that the
Lightbox defendants consistently rejected attempts to settle, for reasons having nothing to do with any advice received from the Scarola firm. While Mr. Ellner occasionally expressed interest in settling with 3rd Home Limited, when he did so, it was his settlement demands that could best be characterized as aggressive, and he rejected actual offers of settlement. Additionally, it is clear from the pleadings that when the Lightbox defendants retained the Scarola firm, they wanted to “preserve and grow” the joint venture business and were not interested in a buyout.”

It is a bedrock principle of litigation that the vast majority of cases have to settle if they are to be resolved in any fashion.  Courts are not able to try all cases.  If settlements were not the norm, then litigants would routinely go broke trying to finalize cases which sat for years and years awaiting an open lot for trial. (see: Dickens)  Because of that reality, courts (especially matrimonial courts) lean on the litigants to settle.

Givens v De Moya
2021 NY Slip Op 02136  Appellate Division, Second Department is an example of a spouse trying to undo a matrimonial settlement to no avail.  The standard is that a legal malpractice case is viable despite settlement if the settlement was effectively compelled.

“In an action to recover damages for legal malpractice, a plaintiff must demonstrate that the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession and that the attorney’s breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages” (Glenwayne Dev. Corp. v James J. Corbett, [*2]P.C., 175 AD3d 473, 473-474 [internal quotation marks omitted]; see Katsoris v Bodnar & Milone, LLP, 186 AD3d 1504, 1505; Betz v Blatt, 160 AD3d 696, 697). “‘A claim for legal malpractice is viable, despite settlement of the underlying action, if it is alleged that settlement of the action was effectively compelled by the mistakes of counsel'” (Katsoris v Bodnar & Milone, LLP, 186 AD3d at 1505, quoting Bernstein v Oppenheim & Co., 160 AD2d 428, 430; see Gad v Sherman, 160 AD3d 622, 623). Nevertheless, “‘[t]he fact that the plaintiff subsequently was unhappy with the settlement [he or she] obtained . . . does not rise to the level of legal malpractice'” (Katsoris v Bodnar & Milone, LLP, 186 AD3d at 1505, quoting Holschauer v Fisher, 5 AD3d 553, 554). “A defendant seeking summary judgment dismissing a legal malpractice cause of action has the burden of establishing prima facie that he or she did not fail to exercise such skill and knowledge, or that the claimed departure did not proximately cause the plaintiff to sustain damages” (Bakcheva v Law Offs. of Stein & Assoc., 169 AD3d 624, 625; see Iannucci v Kucker & Bruh, LLP, 161 AD3d 959, 960; Betz v Blatt, 160 AD3d 696, 698).

Here, the defendant met her prima facie burden of establishing her entitlement to judgment as a matter of law dismissing the plaintiff’s remaining claims. The defendant’s submissions demonstrated that, in representing the plaintiff in the divorce action, she exercised the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession, and that the stipulations of settlement entered into by the plaintiff in open court in the underlying action were not the product of any mistakes by the defendant (see Holtzman v Griffith, 162 AD3d 874, 876; Schiff v Sallah Law Firm, P.C., 128 AD3d 668, 669). In addition, with respect to the in-court stipulation of settlement of the combined equitable distribution and maintenance award, the transcript of the plaintiff’s allocution in the divorce action demonstrated that he understood the stipulation settling the combined equitable distribution and maintenance award and that it would be final, that he had discussed it with the defendant and was satisfied with her representation, that no one had made him promises or coerced him to enter into the settlement, and that he was not under the influence of any substance which would affect his ability to understand the significance of the settlement (see Holtzman v Griffith, 162 AD3d at 876; Schiff v Sallah Law Firm, P.C., 128 AD3d at 669; see also Chamberlain, D’Amanda, Oppenheimer & Greenfield, LLP v Wilson, 136 AD3d 1326, 1328).

In opposition, the plaintiff failed to raise a triable issue of fact (see Holtzman v Griffith, 162 AD3d at 876). The plaintiff submitted no evidence to demonstrate a triable issue of fact as to whether he did not agree to the settlements, whether the settlements were not supported by the financial information or evidence before the divorce court, or whether he agreed to those settlements as a result any alleged mistake on the part of the defendant.”

The lesson of Shaofeng Yang v Lao Ma Spicy Inc.  2021 NY Slip Op 31150(U)   April 6, 2021  Supreme Court, New York County Docket Number: 156063/2019 Judge: Verna Saunders is that a broad release, even in a commercial franchise setting, may eclipse a later legal malpractice suit.

“Plaintiffs assert, in their amended complaint, that this action is for declaratory relief in connection with a restaurant franchise transaction with defendants. Plaintiffs seek a declaratory judgment that Huadong Liu, Yaoyu Liu, Hui Chen & Associates, PLLC and Law Offices of Hui
Chen and Associates, P.C. were plaintiffs’ attorneys during the franchise agreement process.
The remaining causes of action in the amended complaint include violation of the New Jersey Franchise Practice Act, N.J.S.A. § 56: 10-1, et seq.; breach of contract; unjust enrichment; conversion; legal malpractice; fraud; and civil conspiracy.

Defendants, Lao Ma Spicy Inc., Lao Ma Inc., Laoma Spicy Elmhurst, Inc., Lao Ma Ma La Tang Incorporated, Tuo Liu (sued herein as Liu Tuo), Huadong Liu and Yaoyu Liu (collectively “Spicy defendants”) move the court pursuant to CPLR 321l(a)(l), (3), (5), and (7) seeking dismissal of the amended complaint. (Motion Sequence 003).
Co-defendants Hui Chen & Associates, PLLC and Law Offices of Hui Chen and Associates, P.C. (attorney defendants) likewise move the court pursuant to CPLR 321 l(a)(l), (3), (5), and (7) seeking dismissal of the amended complaint. (Motion Sequence 004). ”

“Pursuant to the fully executed Termination Agreement and Mutual Release, the parties terminated the Franchise Agreement “for mutual convenience”, releasing all parties, inclusive of employees, agents, successors, assigns, legal representatives, affiliates et cetera, from and against any and all actions claims, suits, demands, payment obligations, or other obligations or liabilities of any nature whether known or unknown. (NYSCEF Doc No 92). The Agreement indicates
that the applicable law will be that of the· State of New York. Based upon the foregoing, the amended complaint is dismissed in its entirety as its causes of action are based upon a Franchise
Agreement which was mutually terminated less than thirty days after the parties entering into same. The fact that the agreement was reduced to writing and executed s.everal months later (in June of2018) is of no moment as the terms of the Termination Agreement and Mutual Release are clear, and thus, claims proffered by plaintiffs that the agreement is unenforceable are unavailing. All remaining arguments not addressed herein are either without merit or need not
be addressed given the findings above.”

Generally speaking, there has been a stark split between the First and Second Departments over the standard for a Judiciary Law § 487 claim.  In the First Department there was a requirement of a “chronic and extreme pattern of legal delinquency” and in the Second Department a single egregious incident of deceit was sufficient.  Amtrust N. Am., Inc. v Pavloff  2021 NY Slip Op 31062(U) April 2, 2021 Supreme Court, New York County Docket Number: 156855/2019 Judge: Shawn T. Kelly seems to upset that distinction.

“Defendants further allege that Am Trust’s failure to establish a pattern of collusion of deceit renders the cause of action deficient. In opposition, Am Trust contends that one instance of intentional misrepresentation is sufficient to maintain a cause of action under Judiciary Law § 487.
Defendants rely upon Solow Mgmt. Corp. v Seltzer, in which the First Department stated that because the complaint “set forth but one arguable misrepresentation by defendant and accordingly does not allege a cognizable claim under Judiciary Law§ 487, which provides
recourse only where there is a chronic and extreme pattern of legal delinquency (see Jaroslawicz v Cohen, 12 AD3d 160 [2004]; Havel! v Islam, 292 AD2d 210 [2002]).” (Solow Mgmt. Corp. v Seltzer, 18 AD3d 399, 399-400, 795 NYS2d448 [2005]).

However, the Second Circuit specifically declined to follow the Solow line of cases, stating that the requirement that the plaintiff in a section 487 action show “a chronic and extreme pattern” of legal delinqulency by the defendant “appears nowhere in the text of the statute,
however, and other courts have found attorneys liable under the statute for a single intentionally deceitful or collusive act.” (Amalfitano v Rosenberg, 533 F.3d 117, 123~24 (2d Cir.), certified question accepted, 11 NY3d 728, 894 NE2d 643 (2008), and certified question answered, 12 NY3d 8, 903 NE2d 265 [2009]). The statute’s plain language does not establish that a pattern of deceit. is required to maintain a cause of action under section 487.

The deceit required to establish a section 487 claim requires the making of an affirmative false statement with knowledge of falsity and with an affirmative intent to deceive. (see Bill Birds v Stein Law Firm, P.C., 126 NYS3d .50, 53 (2020]). Defendants have not established
Am Trust’s failure to state a cause of action, on the contrary, the factual allegations are sufficient to demonstrate that Pavloff s alleged, misrepresentation, though limited in context to the question
of whether she had reviewed or received the Conservation Order, was not a one-off statement, but rather included conversations she had with the court as well as further representations made under oath while being deposed. Accordingly, Defendants’ motion to dismiss the Judiciary Law § 487 claim is denied.”

Some years ago there was a thriving cottage industry in creating tax shelters.  It took the IRS a few years to catch up, but it did so with a vengeance. Boesky v Levine 2021 NY Slip Op 02059 Decided on April 01, 2021 Appellate Division, First Department is the story of an attorneys travels through a number of firms and how the statute of limitations and continuous representation work to track him.

“The motion court properly dismissed as time barred the legal malpractice claims that pertain to legal services received from Levine and Herrick Feinstein from 2002-2005. The complaint does not allege that at the time defendant Levine provided legal services to plaintiffs regarding structuring and investing in the tax shelters from 2002-2005, the parties contemplated future services in connection therewith. Nor does the complaint contain allegations that there was continuous representation from 2002 forward regarding the structuring of the tax shelters (Johnson v Proskauer Rose LLP, 129 AD3d 59, 67-68 [1st Dept 2015]). However, the complaint sufficiently alleges that Levine subsequently represented plaintiffs in connection with audits by the Internal Revenue Service (IRS) and New York Department of Taxation and Finance (NYDTF) and in tax litigation continuously from May 16, 2008, the date Boesky signed a power of attorney permitting Levine to represent him before the NYDTF, through 2016. Whether the advice Levine allegedly dispensed with regard to the audits and litigation was provided solely in his capacity as tax matters partner for one of the limited liability companies in which plaintiffs invested, and not as their attorney, is an issue of fact that cannot be resolved on the pleadings.

The claim should also be reinstated against Herrick Feinstein (see Waggoner v Caruso, 68 AD3d 1, 6-7 [1st Dept 2009], affd 14 NY3d 874 [2010] [finding that sound policy considerations support the tolling of the statute of limitations under the continuous representation doctrine while the representation of the same matter in which the malpractice is alleged is ongoing]). This Court, in HNH Intl., Ltd. v Pryor Cashman Sherman & Flynn LLP (63 AD3d 534, 535 [2009]), held that the statute of limitations was tolled as to a malpractice claim against a law firm because the attorney(s) who handled the case continued to represent the plaintiffs in the same matter, albeit while at different law firms. Additionally, the claim should be reinstated against Moritt Hock for the period from September 2012 through 2016, when Levine was a partner at the firm and was [*2]allegedly still representing plaintiffs in connection with the audits and tax litigation. The complaint sufficiently alleges that Levine, while at Moritt, continued to advise plaintiffs regarding the tax litigation and sufficiently alleges that but for Levine’s continued failure to properly advise them of the weaknesses of their case, they would have settled with the IRS to reduce their financial exposure and litigation costs.

While the complaint sufficiently states a cause of action for fraud, it is time barred. The statute of limitations for fraud is the greater of six years from when the cause of action accrued or two years from when the fraud was discovered or with reasonable diligence should have been discovered (CPLR 213[8]). The cause of action for fraud accrued between 2002 and 2004 when plaintiffs entered into the allegedly fraudulent transactions (Kanterakis v Kanterakis, 125 AD3d 814, 816 [2d Dept 2015]; Hamrick v Schain Leifer Guralnick, 146 AD3d 606, 607 [1st Dept 2017], affg 2015 WL 5162542, at *4 [Sup Ct, NY County 2015]). Moreover, by 2014, plaintiffs were on notice that the IRS and NYDTF deemed the tax shelters in which they invested a tax avoidance scheme, that defendants Levine and Katz were self-dealing with regard to these tax shelters of questionable legitimacy that they promoted to plaintiffs, and that Levine was involved in other alleged illegal tax schemes. “Where the circumstances are such as to suggest to a person of ordinary intelligence the probability that he has been defrauded, a duty of inquiry arises, and if he omits that inquiry when it would have developed the truth, . . . knowledge of the fraud will be imputed to him” (Aozora Bank, Ltd. v Credit Suisse Group, 144 AD3d 437, 438 [1st Dept 2016], quoting Gutkin v Siegal, 85 AD3d 687, 688 [1st Dept 2011]). Here, plaintiffs had information suggesting they had been defrauded but failed to allege any facts demonstrating that they engaged in “the exercise of reasonable diligence.” Thus, knowledge of the fraud is imputed to plaintiffs (id. at 439-440), and because they did not commence this action until more than two years later, in February 2017, the fraud claim is time-barred. Moreover, since the fraud claim is time-barred, the claim for conspiracy to commit fraud, which is not an independent cause of action in New York, is not viable (EVEMeta, LLC v Siemens Convergence Creators Corp., 173 AD3d 551, 553 [1st Dept 2019]).”

In a very short affirmance, the First Department upheld the dismissal of what was a very long short case in Garr Silpe, P.C. v Gorman. 2021 NY Slip Op 01944 Decided on March 30, 2021 Appellate Division, First Department  .  Plaintiff hired her ninth attorney mid trial, and not surprisingly, did not do well at trial.  She sued, amended, amended again and asked to amend for the fourth try.  All was lost.

“Plaintiff was hired mid-trial, after defendant had been represented by eight prior law firms, and at times represented herself. Defendant’s conclusory allegations that plaintiff law firm failed to prepare for trial and gather evidence in her matrimonial action do not state a cause of action for legal malpractice (see Barbara King Family Trust v Voluto Ventures LLC, 46 AD3d 423, 424 [1st Dept 2007]; see generally Rosner v Paley, 65 NY2d 736, 738 [1985] [attorney’s “selection of one of among several reasonable courses of action does not constitute malpractice”]). Defendant’s retrospective complaints about plaintiff’s recommendations and trial are an insufficient basis to show that plaintiff’s decisions are actionable (Rodriguez v Fredericks, 213 AD2d 176, 178 [1st Dept 1995], lv denied 85 NY2d 812 [1995]). Nor does defendant allege facts that would establish that, but for plaintiff’s negligence, she would have obtained a more favorable result (Robson & Miller, LLP v Sakow, 121 AD3d 562, 563-564 [1st Dept 2014]). We note that we largely affirmed on appeal the trial court’s disposition (Gorman v Gorman, 187 AD3d 636 [1st Dept 2020]). Further, the breach of contract counterclaim is duplicative of the malpractice counterclaim.

The court properly denied defendant’s motions for leave to amend because the defects in the original pleading were not cured by either of the proposed amendments (Meimeteas v Carter Ledyard & Milburn LLP, 105 AD3d 643 [1st Dept 2013]).”

Plaintiff defended a suit by her attorneys seeking a contingent fee on the basis that they settled the case without her authorization.  Customarilly, these cases are a win for the attorney.  Not yet, in Silbowitz, Garafola, Silbowitz, Schatz & Frederick, LLP v Paravas 2021 NY Slip Op 01871
Decided on March 25, 2021 Appellate Division, First Department

“Defendant made a prima facie showing that she discharged plaintiff for cause after plaintiff settled her claim, allegedly without her authorization. Plaintiff merely raises an issue of fact as to defendant’s credibility and motive. The fact that defendant’s implied legal malpractice claim failed on causation or damages did not dispose of the issue of whether plaintiff was discharged for cause (e.g. Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1, 12-13 [1st Dept 2008]). The issue of whether plaintiff was discharged for cause prior to the completion of legal services cannot be determined on this record and a hearing is required (id. at 13; see Hee Jun Cheon Lee v Garcia, 80 AD3d 541, 541 [1st Dept 2011]). Should it be determined that defendant discharged plaintiff without cause, then plaintiff’s remedy would be the fair and reasonable value of its services as computed on a quantum meruit basis (see Nabi v Sells, 70 AD3d 252, 253-254 [1st Dept 2009]).”