Wednesday, November 18, 2009

One Claim Survives

The New York Appellate Division for the First Judicial Department dismissed a legal malpractice action with prejudice but concluded that a contract claim against the law firm was adequately pleaded. The facts as to the malpractice claim:

Plaintiff alleged that it retained defendant law firm to bring an action against an insurance company. After several years of litigation, plaintiff agreed to settle the matter for $750,000, which was less than the $1.3 million claimed value of the lawsuit. Several years after the settlement, the law firm informed plaintiff that Brian Valery, who had held himself out as an attorney and worked on plaintiff's case, was in fact not licensed to practice law. Plaintiff then brought this action, alleging it would have obtained a more favorable result in the insurance litigation if the firm had exercised more care with regard to Valery's employment. The complaint sought damages for the difference between the purported $1.3 million value of plaintiff's insurance claim and the $750,000 settlement amount, as well as all of the legal fees billed by the law firm for the entire matter.

Allegations in support of a claim of legal malpractice must at least "permit the inference that, but for defendants' [alleged negligence], plaintiff would not have sustained actual, ascertainable damages." Since plaintiff failed to allege facts that "sufficiently demonstrate a causal relationship between purported conduct on the part of defendants and damages suffered by plaintiff," the malpractice claim is dismissed. The dismissal is with prejudice, since repleading would be barred by the statute of limitations. (citations omitted) 

As to the other claims:

That part of the breach of contract cause of action alleging a breach of professional standards and seeking damages for the alleged shortfall from the settlement and all of plaintiff's legal fees is dismissed as duplicative of the malpractice claim. However, to the extent that plaintiff's breach of contract claim rests on the fees it paid for Valery's services, plaintiff has pleaded sufficient facts to state a claim. The complaint alleges that the law firm continuously held out Valery as a licensed attorney and billed in excess of $70,000 for his services, even though it is undisputed that he was, in fact, not an attorney. At this early stage of the proceedings, it cannot be said that these particular damages are too speculative.

Plaintiff should not be permitted to replead its unfair business practice cause of action to assert a claim under General Business Law ยง 349 because it cannot show that defendants, by employing Valery, engaged in acts or practices having a broad impact on consumers at large.

(Mike Frisch)

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