Tuesday, May 5, 2015

Sam The Sham

The New York Appellate Division for the First Judicial Department recently held that the litigation privilege did not protect statements made by an attorney in connection with "sham" litigation

Plaintiff is an attorney who, after dissolving his own practice, became associated with nonparty Jacoby & Meyers, LLP (Jacoby). Defendant Andrew Finkelstein (Finkelstein) is an attorney and is the managing partner of defendant law firm Finkelstein & Partners, LLP (FLLP), and the sole shareholder of defendant Finkelstein, PC (FPC). FPC is a partner of both Jacoby and of FLLP. In April 2009, Jacoby assigned plaintiff to work on a personal injury action that had been commenced on behalf of nonparty Joel Harrison (Harrison) in Supreme Court, Broome County. In December 2009, plaintiff resigned from Jacoby and re-formed his old practice. Harrison decided to have plaintiff continue his representation in the personal injury action and Jacoby caused the necessary consent to be executed and transferred the file. The retainer agreement between plaintiff and Harrison provided that plaintiff would advance all litigation expenses and would be reimbursed out of Harrison's recovery, if any. After the passage of only a few months, Harrison terminated plaintiff and re-retained Jacoby.

In August 2010, Harrison, represented by FLLP, commenced an action against plaintiff in Supreme Court, Broome County. The allegations in the complaint, most of which were made upon information and belief, revolved around the litigation expenses that had been discussed in the retainer agreement between the two parties. Harrison asserted that, notwithstanding plaintiff's promise that he would advance litigation expenses, plaintiff told him that he would not do so and urged Harrison to borrow $40,000 for the expenses from a litigation funding company. The complaint alleged, inter alia, that plaintiff directed the loan company to pay the proceeds to his law firm and that he failed to place them in an attorney escrow account. Harrison asserted causes of action for conversion, breach of fiduciary duty, legal malpractice, and fraud, and sought an accounting from plaintiff.

The court

This Court has recognized...that the privilege is capable of abuse and will not be conferred where the underlying lawsuit was a sham action brought solely to defame the defendant (see Lacher v Engel, 33 AD3d 10, 13-14 [1st Dept 2006]). Lacher derived this principle from Halperin v Salvan (117 AD2d at 544), in which this Court declined to dismiss a defamation claim based on the pertinency privilege where the context in which the allegedly offending statement was made was a litigation that the plaintiffs filed but never prosecuted. The existence of this "sham litigation" exception has been confirmed (but not applied) in other cases in this Department...

Even assuming that plaintiff's fraud claim is not barred solely because he was not the direct recipient of the alleged misrepresentations, we find that he was not entitled to rely on them. That is because, according to the complaint, the misrepresentations were made sometime after June 16, 2010, which was when Harrison re-retained Jacoby to handle his personal injury action. As admitted in the complaint herein, plaintiff learned on December 29, 2009, that he had already been the subject of separate statements by defendants which he alleged were defamatory (see Flomenhaft v Jacoby & Meyers, LLP, 122 AD3d at 423). Accordingly, knowing defendants were, according to him, bent on destroying his reputation, it was not justifiable for plaintiff to view the statements to Harrison as anything other than a further salvo in that campaign.

(Mike Frisch)


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