Articles Posted in Lawyers and Legal Malpractice

Corporate Compliance UPDATE—(January 10, 2024).

LLCs have been a favored entity for real estate for many years in New York.  Times are changing.  For those of you who own a beneficial interest in a New York Limited Liability Company, you need to contact your attorney.  Effective January 1, 2024, LLCs must comply with New York’s new LLC Transparency Act, which will create a database of the beneficial owners of Limited Liability Corporations that is accessible to government agencies and law enforcement.   According to our Governor,

“For far too long, bad actors have been protected by the loose disclosure requirements of LLC ownership.  Wage theft, money laundering, tenant mistreatment and other unlawful activity has been masked by the opaque ownership structure of an LLC. The new LLC Transparency Act will give law enforcement and State regulators the tools they need to hold bad actors accountable.”

With all of the “fake news” making history in our world, it is important to remember that, as ubiquitous as Facebook may be, what you post may not be so “fake” when it comes to your personal litigation position.   If you have a lawsuit, whether it involves claims for personal injuries, or adverse possession, your postings on Facebook may become more public than you think.

Many social media users change their Facebook to “private,” in the erroneous attempt to remain “private,” assuming that their posts are private, viewable by themselves and selected “friends.”  The same goes for “private” messages shared over Facebook messenger and their selected recipient.

In today’s social media frenzied world, however, Facebook posts and messages may not be so “private” if they tend to prove or disprove claims you make in a court case.   In that regard, New York State’s highest appellate court recently ruled that “private” social media posts, particularly Facebook posts can be requested and made available to a court in “discovery,” the pre-trial procedure where each party requests evidence from the other.

The American Bar Association just released the latest survey of legal malpractice claims showing some interesting results. For the first time, real estate claims represented the greatest number of claims (20.33%), followed by plaintiffs’ personal injury (15.59%), family law (12.14%), estates, trust and probate (10.67%), and collection and bankruptcy (9.2%). While there are some caveats to the survey, – for example, the survey did not differentiate disciplinary proceedings from actual malpractice claims – the results may provide an illustration of trends in legal practice.

The study revealed that the number of claims payments exceeding $2 million has declined. It is not clear whether this may have been caused by larger firms underreporting larger dollar claims or increased reporting by all insured groups. However, it may show a general trend toward settlement of malpractice claims or juries’ unwillingness to award large payouts at trial.

The survey also showed that although substantive errors still generate the largest portion of claims at 45.07%, the share of claims relating to administrative errors is 30.13% – an all time high. In addition, the number of claims arising out of alleged intentional wrongs has decreased to 10.19% from 13.53% in 2007 – a good sign that the legal profession is evolving in a positive way.

A Florida Court recently affirmed a significant award of punitive damages against a law firm in a legal malpractice case, raising the question: could this happen in New York? See Young v. Becker & Poliakoff, P.A., No. 4D09-4869 (Fla. 4th DCA May 23, 2012). In the Young case, the plaintiff brought a legal malpractice action against a law firm that handled her federal employment discrimination lawsuit. An associate of the law firm failed to attach the correct EEOC right-to-sue letter to the Complaint, and the plaintiff’s case was dismissed. The plaintiff successfully alleged that the law firm intentionally delayed telling her about the dismissal of her case in an effort to settle a related case in which they would receive over $2.9 million in fees. The jury awarded the plaintiff $394,000 in compensatory damages, including $144,000 in past lost wages and $250,000 in damages for “pain and suffering, mental anguish, or loss of dignity,” and $4.5 million in punitive damages, which was reduced by the trial court to $2 million. The Court of Appeals upheld this award finding that “the punitive damages in this case were properly assessed to further the State’s legitimate interests in punishing reprehensible conduct and deterring its repetition.” Young, supra.

In New York, a Plaintiff in a legal malpractice action may recover “actual and ascertainable damages” that were proximately caused by a defendant’s negligence. M & R Ginsburg, LLC v. Segal, Goldman, Mazzotta & Sigel, P.C., 90 A.D.3d 1208 (3d Dep’t 2011). Unlike the Young case in Florida, New York courts have consistently rejected awards for emotional distress in legal malpractice actions. Epifano v. Schwartz, 279 A.D.2d 501 (2d Dep’t 2001); Dirito v. Stanley, 203 A.D.2d 903 (4th Dep’t 1994); Andrewski v. Devine, 280 A.D.2d 992 (4th Dep’t 2001); Kaiser v. Van Houten, 12 A.D.3d 1012 (3d Dep’t 2004).

Moreover, New York’s First Department (which handles New York City) has rejected a punitive damages award where plaintiff failed to establish that defendant’s conduct “was so outrageous as to evince a high degree of moral turpitude and showing such wanton dishonesty as to imply a criminal indifference to civil obligations.” Zarin v. Reid & Priest, 184 A.D.2d 385 (1992). However, the court’s limited basis for rejecting a punitive damages claim in such a legal malpractice case seems to leave the door open for an award of punitive damages under the right facts – a scary thought for legal practitioners, particularly in light of the exclusion for punitive damages under most professional liability policies.

In February 2011, the Court of Appeals for the Second Circuit (including New York) handed down a decision that should have every attorney dotting their “I’s” and crossing their “T’s.” In Fischer & Mandell LLP v. Citibank, 632 F.3d 793 (2d Cir. 2001), the court affirmed summary judgment against a law firm who deposited a client’s check into a bank, and disbursed the funds as requested by the client before the check cleared the account.

The facts were as follows: in January 2009, plaintiff-appellant, Fischer & Mandell LLP, received from a new client what appeared to be an official Wachovia Bank check. Id. at 795. The check was made payable to the firm, and the firm was advised that it represented partial payment of a debt owed by another entity to the client. The firm then deposited this check for $225,351 into its account at defendant-appellee, Citibank. In the usual case, if there is enough money in the account to cover the check, the bank will make the funds available immediately, before the check clears-that is what happened here. Id.

The client then requested two wire transfers of a portion of the funds-one to South Korea, and then next to Canada. After both transfers were complete, the Federal Reserve Bank returned the check as dishonored and unpaid. Id. at 796. A Citibank representative then telephoned the firm to advise them of the counterfeit check. Citibank then charged back to the trust account the amount of the check and a $10 returned check fee, resulting in an overdraft. Id. Next, Citibank debited an amount necessary to satisfy the overdraft from a money market account the firm had at Citibank.

Every day parties hire lawyers to “resolve” a dispute, to “negotiate” a transaction, to “settle” a matter that has arisen between two entities or individuals. The attorney often jumps into the fray (swords raised), has discussions with the other lawyer, and, sometimes, those communications get garbled leaving the process damaged, the parties angry, and the matter not resolved. “Garbled” is the polite term, but a less idealistic view might suggest that the negotiations got garbled by the fact that lawyers have their own interests of professional reputation, or purse strings, or other undisclosed reasons for muddying the water. Personally, I don’t respect attorneys who practice that way, but they will all have excuses as to why the communication was presented in the way it was. So, what am I to do, I cannot contact a party represented by another lawyer?

Can I have my client contact the other client directly, and can I tell them what to say?

Truthfully, I have counseled my clients to contact the other side directly, without the filter of an attorney; but I have often been concerned that such advice, while practical, might not be ethical or responsible under our code of professional ethics. In my gut, I always thought it proper, but I had a nagging sense that other attorneys might disagree. I thank my bretheran at the NYSBar Association who have now set forth an ethics opinion sanctioning such conduct by issuing an opinion about when and how a New York attorney might advise their client to contact the other side directly.

So, you signed the retainer with an attorney, litigated a case or resolved the matter, but now have a fee dispute with your lawyer over fees, malpractice, or something else. You are considering a lawsuit against that attorney, or that attorney may have sued you to recover her fees. You look at your retainer agreement and see that in contains a provision requiring arbitration under Part 137 (22 NYCRR 137 et seq.). What is that, and if you win, does your attorney get the right to re-litigate the finding of the fee arbitrators.

The answer to whether an attorney may litigate the arbitration finding and request a new trial (“de novo“) in the courts is a complex issue that has actually been litigated by attorneys seeking to avoid the findings of the fee arbitrators. Try to follow the chain of thought:

First, either party may reject a Part 137 arbitration award and sue for a de novo trial.

The plaintiff in McColgan v. Brewer owned a part of what was a larger parcel of property owned by M. Kelley. During construction of the New York State Thruway, the state of New York acquired the middle part of the original Kelley parcel.

As a result, Kelley owned two separate parcels, one west of the Thruway and the other east of the Thruway. The physical layout required Kelley, and now the plaintiff, to use Albert’s Lane to reach Route 32. Kelley’s southern neighbors entered into a series of right-of-way agreements with the owners of the northern parcels to secure access to Route 21 via Alberts Lane in 1953. Kelley was never a party to these right-of-way agreements granting an easement between her property and Route 32.

The plaintiff purchased the Kelley parcels. Prior to purchasing the subject property, the plaintiff (1) hired the defendants Rothe Engineering & Construction and Donald Brewer to conduct a survey of the subject property, (2) hired the Attorney defendant Philip Kirschner to determine if the easterly portion of the property had access to Route 32 via Alberts Lane, and (3) obtained insurance from the defendant Chicago Title Insurance Company through a local agent, Abbacy Abstract, to insure against any losses that he would incur if the landlocked portion of the property did not have access to Route 21.

As much as the law changes, it stays the same. Oliver Wendell Holmes, an original legal theorist, revolutionized the understanding of law when he reconceived common law as a theory of social inquiry. Arguing that the law was, in fact, a social reconstruction of ever-changing historical contexts, we are more aware of the interlinked effect of evolution and revolution on legal developments. Whereas in the old days, quill and ink were novel, today, intangible computer files are subject to conversion analysis and e-mails are increasingly accepted in contract and communications law.

One statute, however, has outlasted fleeting technologies and changing socioeconomic conditions through resurrection. A recent decision by the Court of Appeals [Shmueli v. NRT N.Y. Inc., 68 AD3d 479 (2009)] has breathed new life into New York State legal malpractice law and draws from a law which is more than 700 years old. A near facsimile translation of the oldest statute in Ango-American jurisprudence, Judiciary Law 487, prohibits New York attorneys from engaging in practices that deceives any party or any court in any pending proceeding. The statute guarantees that lawyers remain ethically conscious while performing their professional responsibilities and reinforces the personal accountability for their actions both inside and outside the courtroom. While time will tell, the New York State Judiciary Law 487 is designed to deter abusive litigation tactics and misuse of client funds in connection with litigation with the threat of criminal misdemeanor and potential treble (read triple) damages to the injured party in a civil action. Whereas a legal malpractice claim may be based upon negligence, a claim under Judiciary Law 487 must plead that a defendant had an intent to deceive.

Furthermore, the Third Dep’t ruled in Amalfitano v. Rosenberg, 12 NY3d (2009), that treble damages may be sought whether or not a court believes there was, in fact, a material misrepresentation of fact because the costs of plaintiff’s legal representation may be a proximate result of that material misrepresentation. That is, in the absence of a material misrepresentation of fact, the court reasons that no claim nor legal expenses would have resulted. The ruling in Amalifitano eliminates monetary concerns that may have deterred potential opposing parties and as a consequence, there will likely be a considerable increase in claims under Judiciary Law 487.

Does a client have the right to bring a legal malpractice case against the attorney who forced, recommended, or otherwise allowed the client to knowingly accept in New York?

Generally, New York does not bar claims for legal malpractice arising from a litigation settled by the former client. A client may sue her former attorney after settling a case if the attorney compelled the settlement. In Latimore v. Bergman, (2nd Dep’t 1996), the plaintiffs sued their former counsel for legal malpractice asserting that the defendant had forced a settlement in a previous personal injury action. The court denied the defendant’s motion for dismissal and summary judgment articulating that a settlement in a previous case does not preclude a plaintiff from seeking the full damage amount that would have otherwise flowed from her attorney’s negligence. Latimore v. Bergman, 637 N.Y.S.2d 777 (2nd Dep’t 1996).

See also, Leone v. Silver & Silver, LLP., 880 N.Y.S.2d 676, (2nd Dep’t 2009), where the same Appellate Division ruled a client may sue her former attorney after settlement if the attorney compelled the settlement, and in doing so, failed to protect client interests within reasonable skill and knowledge and that breach of duty caused actual damages. Unless the former attorney-defendant can prove with evidence that the defendant had indeed protected client interests within reasonable skill and knowledge OR that the breath of duty did not cause actual damages, a legal malpractice suit after settlement will survive a motion to dismiss.

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