Liable for failing to take actions outside the scope of representation?

In Portus Singapore PTE LTD v Kenyon & Kenyon LLP, 16CV6865 (JGK), 2020 WL 1501886, at *5-6 [SDNY Mar. 30, 2020], the court dealt with the issue of whether the attorney can be held liable to his client for failing to take actions outside the scope of his representation. The court held:

In order to demonstrate that a lawyer was negligent “a plaintiff must show that an 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 professional duty caused the plaintiff’s actual damages.” McCoy v. Feinman, 99 N.Y.2d 295, 755 N.Y.S.2d 693, 785 N.E.2d 714, 718-19 (2002) (internal quotation marks and citations omitted). “What constitutes ordinary and reasonable skill and knowledge cannot be fixed with precision, but should be measured at the time of representation.” Darby & Darby, P.C. v. VSI Intern., Inc., 95 N.Y.2d 308, 716 N.Y.S.2d 378, 739 N.E.2d 744, 747 (2000). Generally, “ordinary and reasonable skill” is determined by looking to standards of legal practice in the State of New York. See, e.g., Sokol, 468 F. Supp. 2d at 637 (discussing New York law practice commentary). Moreover, “[a]n attorney may not be held liable for failing to act outside the scope of a retainer.” Attallah v. Milbank, Tweed, Hadley & McCloy, LLP, 168 A.D.3d 1026, 93 N.Y.S.3d 353, 356 (2019).

In AmBase Corp. v. Davis Polk & Wardwell, 8 N.Y.3d 428, 834 N.Y.S.2d 705, 866 N.E.2d 1033, 1035 (2007), following the liquidation of its parent company, the plaintiff corporation AmBase assumed primary liability for the parent corporation’s federal income taxes and secondary liability for all other liabilities. Following liquidation, the Internal Revenue Service (“IRS”) found the parent company liable for six years’ worth of withholding taxes, which would be imputed to AmBase under the liquidation agreement. Id. AmBase retained Davis Polk “to represent [it] as agent for [the parent corporation] to resolve the tax issues currently before” the IRS. Id., 834 N.Y.S.2d 705, 866 N.E.2d at 1037. Davis Polk then successfully challenged in the Tax Court the IRS’s determination that AmBase was liable. Id., 834 N.Y.S.2d 705, 866 N.E.2d at 1035. AmBase then turned around and sued Davis Polk for legal malpractice on the ground that Davis Polk had failed to advise AmBase that AmBase was only secondarily liable for payment of taxes. Id. AmBase alleged that although it ultimately prevailed in the Tax Court, Davis Polk’s negligence forced AmBase to maintain a multi-million-dollar loss on its books, thereby creating an appearance of insolvency that resulted in lost business opportunities. Id., 834 N.Y.S.2d 705, 866 N.E.2d at 1036.

The New York Court of Appeals noted that the plain language of the retainer agreement “indicates that Davis Polk was retained to litigate the amount of tax liability and not to determine whether the tax liability could be allocated to another entity.” Id., 834 N.Y.S.2d 705, 866 N.E.2d at 1037. Noting that “the issue whether plaintiff was primarily or secondarily liable for the subject tax liability was outside the scope of its representation,” the court held that the “defendants exercised the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession when they focused their efforts on the controversy between AmBase and the IRS – the subject of the retainer agreement – resulting in a most favorable outcome, which was publicly praised by AmBase principals.” Id.

Similarly, in Milbank, Tweed, the law firm agreed in its engagement letter to represent the plaintiff “to investigate and consider options that may be available to urge administrative reconsideration” of the plaintiff’s expulsion from the New York College of Osteopathic Medicine. 93 N.Y.S.3d at 355. The Appellate Division of the Supreme Court affirmed the dismissal of the plaintiff’s complaint that had alleged malpractice on the ground that Milbank, Tweed did not actually negotiate the plaintiff’s readmission to the school. Id. at 356. The court reasoned that an attorney cannot be held liable for failing to act outside the scope of a retainer and that negotiation with the school went beyond the stated scope of the agreement letter. Id.

Davis Polk and Milbank, Tweed stand for the proposition that the failure by a lawyer to take actions outside the scope of that lawyer’s representation of a client cannot form the basis of a legal malpractice suit.

R. A. Klass
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Breach of contract action against an attorney

In dismissing the plaintiff’s claim against an attorney for violating Judiciary Law Section 487, the New York State Court of Appeals held:

Here, viewing the facts in the light most favorable to plaintiffs (see De Lourdes Torres v Jones, 26 NY3d 742, 763 [2016]), defendants established prima facie entitlement to judgment as a matter of law on the Judiciary Law Section 487 (1) claim by demonstrating that plaintiffs failed to allege that defendants engaged in deceit or collusion during the course of the underlying federal intellectual property lawsuit against GM and EMI [FN2]. In response, plaintiffs failed to satisfy their burden to establish material, triable issues of fact (id.). The affidavits plaintiffs submitted in opposition to summary judgment did not allege that defendants committed any acts of deceit or collusion during the pendency of the underlying federal lawsuit. To the extent defendants were alleged to have made deceitful statements, plaintiffs’ allegation that defendants induced them to file a meritless lawsuit based on misleading legal advice preceding commencement of the lawsuit is not meaningfully distinguishable from the conduct we deemed insufficient to state a viable attorney deceit claim in Looff (97 NY at 482). The statute does not encompass the filing of a pleading or brief containing nonmeritorious legal arguments, as such statements cannot support a claim under the statute [FN3]. Similarly, even assuming it constituted deceit or collusion, defendants’ alleged months-long delay in informing plaintiffs that their federal lawsuit had been dismissed occurred after the litigation had ended and therefore falls outside the scope of Judiciary Law Section 487 (1). Thus, plaintiffs’ Judiciary Law Section 487 cause of action was properly dismissed.

Bill Birds, Inc. v Stein Law Firm, P.C. 2020 NY Slip Op 02125 Decided on March 31, 2020 Court of Appeals DiFiore, J. Published by New York State Law Reporting Bureau pursuant to Judiciary Law Section 431. This opinion is uncorrected and subject to revision before publication in the Official Reports.

Decided on March 31, 2020
No. 19

[*1]Bill Birds, Inc. et al., Appellants,
v
Stein Law Firm, P.C. et al., Respondents.

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Legal malpractice action dismissed based upon doctrines of res judicata and collateral estoppel

The Appellate Division, in Kleinman v Weisman Law Group, P.C., 176 AD3d 1046 [2d Dept 2019], dismissed a former client’s legal malpractice action based upon the doctrines of res judicata and collateral estoppel. The court stated as follows:

In 2013, the defendant Weisman Law Group, P.C. (hereinafter the defendant firm), commenced an action against the plaintiff to recover unpaid legal fees in the Nassau County District Court. The plaintiff asserted a counterclaim, alleging that he was overbilled by the defendant firm. A judgment was entered in favor of the defendant firm and against the plaintiff. The plaintiff appealed the judgment of the Nassau County District Court to the Appellate Term of the Supreme Court for the Ninth and Tenth Judicial Districts, which affirmed the judgment (see Weisman Law Group, P.C. v. Kleinman, 60 Misc.3d 133[A], 2018 N.Y. Slip Op. 51042[U], 2018 WL 3309514 [App Term, 2d Dept, 9th & 10th Jud Dists 2018] ). In 2016, the plaintiff commenced the instant action against the defendants asserting causes of action alleging, inter alia, breach of contract and legal malpractice.

Scales of justice illustrating article about legal malpractice.

The plaintiff contends that the doctrines of res judicata and collateral estoppel do not apply in the instant case, as the Nassau County District Court lacked subject matter jurisdiction over his counterclaim in the prior action. Contrary to the plaintiff’s contention, the Nassau County District Court did have jurisdiction over his counterclaim pursuant to Uniform District Court Act Section 208(b), as the counterclaim was for money only. The doctrine of res judicata precludes the plaintiff from litigating the claims set forth in his complaint, as a judgment on the merits exists in the prior action between the same parties involving the same subject matter (see Matter of Josey v. Goord, 9 N.Y.3d 386, 389, 849 N.Y.S.2d 497, 880 N.E.2d 18; Matter of Hunter, 4 N.Y.3d 260, 269, 794 N.Y.S.2d 286, 827 N.E.2d 269). New York has adopted the transactional analysis approach to res judicata, so that once a claim is brought to a final conclusion, all other claims between the same parties or those in privity with them arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy (see Matter of Josey v. Goord, 9 N.Y.3d at 389–390, 849 N.Y.S.2d 497, 880 N.E.2d 18; Matter of Hunter, 4 N.Y.3d at 269, 794 N.Y.S.2d 286, 827 N.E.2d 269; *124 O’Brien v. City of Syracuse, 54 N.Y.2d 353, 357, 445 N.Y.S.2d 687, 429 N.E.2d 1158; Greenstone/Fontana Corp. v. Feldstein, 72 A.D.3d 890, 893, 901 N.Y.S.2d 643).

Furthermore, the plaintiff’s causes of action are barred by the doctrine of collateral estoppel, which precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same (see Ryan v. New York Tel. Co., 62 N.Y.2d 494, 500, 478 N.Y.S.2d 823, 467 N.E.2d 487; Williams v. New York City Tr. Auth., 171 A.D.3d 990, 97 N.Y.S.3d 692). The doctrine of collateral estoppel applies here, as the issues in both actions are identical, the issue in the prior action was actually litigated and decided, there was a full and fair opportunity to litigate the action, the issue previously litigated was necessary to support a valid and final judgment on the merits, and the defendant Rachel J. Weisman was in privity with the defendant firm (see Conason v. Megan Holding, LLC, 25 N.Y.3d 1, 17, 6 N.Y.S.3d 206, 29 N.E.3d 215; Williams v. New York City Tr. Auth., 171 A.D.3d at 991–992, 97 N.Y.S.3d 692; Karimian v. Time Equities, Inc., 164 A.D.3d 486, 83 N.Y.S.3d 227).

R. A. Klass
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Outlining the scope of an attorney’s retainer agreement is important.

Outlining the scope of an attorney’s retainer agreement is important. This sets forth the nature of the work to be rendered by an attorney on behalf of his client. In Attallah v Milbank, Tweed, Hadley & McCloy, LLP, 2019 NY Slip Op 00583 [2d Dept Jan. 30, 2019], the court held:

An attorney may not be held liable for failing to act outside the scope of a retainer (see AmBase Corp. v. Davis Polk & Wardwell, 8 N.Y.3d 428, 834 N.Y.S.2d 705, 866 N.E.2d 1033). Therefore, since the defendant’s alleged failure to negotiate with the school, its alleged failure to commence litigation against the school, and its alleged failure to properly advise the plaintiff on the efficacy of a defamation action against nonschool parties fell outside the scope of the parties’ letter of engagement, dismissal of the cause of action alleging legal malpractice was warranted, pursuant to CPLR 3211(a)(1), on documentary evidence grounds.

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A Day Late and a Dollar Short

A comprehensive medical practice was opening up in an office building and needed extensive renovations in the space. The medical practice hired a construction company to handle the build-out of the office at a cost of over $250,000. The construction contract specified that the contractor would achieve “ substantial completion ” of the project within 3 months after work began in April 2012. Unfortunately, the project took a lot longer than anticipated (about 9 months). Finally, on January 16, 2013, the project was confirmed by the contractor as complete, and the work was approved by the county. There was even a confirming email from the contractor to the medical provider stating “ We Passed!!! ” An invoice marked “ Final Billing ” was rendered, and a Certificate of Compliance was issued by the Building Inspector on January 31, 2013.

Since the project took much longer to complete than anticipated and agreed-upon in the construction contract, the medical provider withheld final payment, claiming it suffered heavy losses including loss of business, substantial rent payments to the landlord for the unusable space and additional overhead expenses.

Mechanic’s Lien Filed

Instead of directly addressing the client’s concerns, on October 8, 2013, the contractor simply filed a “ Notice of Mechanic’s Lien ” with the County Clerk. New York’s Lien Law Section 10 provides a powerful collection tool to a home improvement or commercial contractor—the right to place a lien upon someone’s house or building:

§10(1) Notice of lien may be filed at any time during the progress of the work and the furnishing of the materials, or, within eight months after the completion of the contract, or the final performance of the work, or the final furnishing of the materials, dating from the last item of work performed or materials furnished; provided, however, that where the improvement is related to real property improved or to be improved with a single family dwelling, the notice of lien may be filed at any time during the progress of the work and the furnishing of the materials, or, within four months after the completion of the contract, or the final performance of the work, or the final furnishing of the materials, dating from the last item of work performed or materials furnished.

The “Eight Month” Rule

One of the fundamentals of the Lien Law is that its procedures are to be strictly followed by the lienor. Unlike other areas of law, in which harmless errors can be glossed over, the Lien Law requires punctilious compliance; otherwise, the lien will be invalid. This is mainly because the right to place a lien on someone’s house is such a harsh remedy.

After being directed by the landlord to remove the mechanic’s lien, the medical provider retained Richard A. Klass, Your Court Street Lawyer. The first step was to analyze the lien notice itself—and determine whether a proceeding could be brought to discharge the mechanic’s lien under Lien Law §19(6) for being “ facially invalid. ” This means that, from looking at the face of the notice of lien itself, it may be determined that the lienor does not have a valid lien.

In the lien notice, the contractor had stated that the last item of work was performed on “ February 13, 2013. ” However the court ruled that all work was completed by January 31, 2013. Thus, the October 8, 2013, lien notice was filed more than 8 months afterward (late filing). This late filing would make the mechanic’s lien invalid under the Lien Law. In Ren. Reh. Systems Co., Inc. v. Faulkner, 85 AD3d 752 [2 Dept. 2011], the court held that the failure of a mechanic’s lien to be timely filed pursuant to the Lien Law was fatal to the mechanic’s lien.

Extra Work Doesn’t Count

In response to the proceeding brought by the medical provider to discharge the mechanic’s lien, the contractor claimed that it sent a subcontractor to the premises to perform some work in March 2013; thus, its filing of the lien was timely. The medical provider challenged this claim by showing the court that the subcontractor only performed a normal service call for “ no heat. ” It was argued that the court should follow the rule in Nelson v. Schrank, 273 AD72 [2 Dept. 1947], that a mechanic’s lien is not timely filed when measured from the last date that extra work was performed when the extra work was not part of the original contract, anticipated when the original contract was made, or done in continuance of the work under the contract.

In discharging the mechanic’s lien, the court held that there was no proof that the extra work completed was part of the original contract, was anticipated when the original contract was made, or constituted work completed under the original contract. Accordingly, the court granted the petition to discharge the mechanic’s lien.

copyr. 2015 Richard A. Klass, Esq.
The firm’s website: www.CourtStreetLaw.com
Richard A. Klass, Esq., maintains a law firm engaged in civil litigation in Brooklyn Heights, New York.
He may be reached at (718) COURT-ST or e-mail to RichKlass@courtstreetlaw.comcreate new email with any questions.
Prior results do not guarantee a similar outcome.

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R. A. Klass
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