Sunday, March 20, 2011

Malpractice Claims Go Forward

The New York Appellate Division for the First Judicial Department held that a trial court had properly denied a motion to dismiss a legal malpractice action:

This action alleging legal malpractice arose out of defendants' representation of plaintiff in a lawsuit brought by Victoria Gallegos alleging employment discrimination against nonparty Elite Model Management Corp.; plaintiff, a 10% shareholder; and Elite's majority shareholder, director of finance and co-president. A bifurcated trial resulted in a verdict of liability against the Elite defendants and an award to Gallegos of approximately $2.6 million in compensatory damages and $2.6 million in punitive damages against the corporate defendant. On appeal, this Court affirmed the liability verdict but vacated the damages award and remanded the matter for a new trial on the issue of damages.

The instant complaint states a cause of action for legal malpractice by alleging that defendants were negligent in failing to proffer evidence at trial that plaintiff was no longer president of Elite when Gallegos's employment commenced, had limited authority to respond to Gallegos's complaints, and did not approve of or participate in the termination of Gallegos's employment, and that but for this negligence plaintiff would have been exonerated of liability and would not have incurred damages. Plaintiff also alleges sufficiently that Curtin mishandled the Gallegos in-house complaint and failed to apprise her of Gallegos's early settlement demand in the amount of $50,000.

The complaint further alleges that defendants' joint representation of all the Elite defendants in the Gallegos action, in violation of Code of Professional Responsibility DR 5-105 (22 NYCRR 1200.24) (effective through March 31, 2009), divided their loyalties and prevented them from asserting the defense that plaintiff's co-defendants were the primary, if not the sole, actors in the decision to terminate Gallegos's employment; because of their joint representation, defendants could not request that the jury apportion liability among plaintiff and her co-defendants, resulting in the automatic imposition of joint and several liability on her (see CPLR 1601). While these allegations of a conflict of interest or a violation of attorney disciplinary rules alone could not support a cause of action, liability can follow where the divided loyalty results in malpractice.

Nor is the defense of the attorney judgment rule available to defendants on this record. Defendants have offered no reasonable strategic explanation for the failure to introduce arguably exculpatory evidence.

The breach of fiduciary duty cause of action is not duplicative of the malpractice cause of action since it is asserted against Curtin in his capacity as a corporate director, not as an attorney.

(Mike Frisch)

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