Tuesday, March 31, 2020

New York Rejects Former Client's Claim That Attorneys Pursued Meritless Case To Generate Fees

The New York Court of Appeals affirmed the dismissal of claims by a former client for the alleged pursuit of a meritless claim to earn fees

The singular issue before us in this appeal is whether the Appellate Division erred in dismissing plaintiffs’ claim under Judiciary Law § 487 (1) against their former attorneys who allegedly induced them to bring a meritless lawsuit in order to generate a legal fee. Defendants met their initial burden on summary judgment with respect to whether their alleged deceit occurred during the pendency of litigation, and plaintiffs failed to raise a triable issue of fact on that issue in response. We therefore affirm the Appellate Division order granting summary judgment dismissing the complaint.

Defendants, attorney Mitchell Stein and his law firm, Stein Law P.C., represented plaintiffs Bill Birds, Inc., which manufactures decorative metal automobile parts, and its president in a trademark dispute against General Motors, Service Parts Operation (GM) and Equity Management, Inc. (EMI). After the complaint in that action was dismissed, plaintiffs commenced this action against defendants alleging, as relevant here, a violation of Judiciary Law § 487(1).

Plaintiffs alleged that defendants advised them that GM had possibly abandoned the trademarks GM had licensed to plaintiffs for over a decade, advising plaintiffs that they had meritorious claims against GM. Based on this advice, plaintiffs commenced the underlying federal trademark action against GM and EMI in the United States District Court for the Eastern District of New York, incurring $25,000 in attorney fees. Plaintiffs alleged that the underlying action—which was dismissed as commenced in an improper venue based on a forum selection clause in plaintiffs’ licensing agreements with GM—clearly lacked merit, in part because a provision in the licensing agreement prohibited plaintiffs from challenging GM’s ownership of the relevant intellectual property. Plaintiffs further alleged that defendants concealed the dismissal of the underlying action for approximately nine months and subsequently lied about the reason for the delay, claiming that the federal court did not release its decision promptly.

The underlying case

Plaintiffs alleged that defendants advised them that GM had possibly abandoned the trademarks GM had licensed to plaintiffs for over a decade, advising plaintiffs that they had meritorious claims against GM. Based on this advice, plaintiffs commenced the underlying federal trademark action against GM and EMI in the United States District Court for the Eastern District of New York, incurring $25,000 in attorney fees. Plaintiffs alleged that the underlying action—which was dismissed as commenced in an improper venue based on a forum selection clause in plaintiffs’ licensing agreements with GM—clearly lacked merit, in part because a provision in the licensing agreement prohibited plaintiffs from challenging GM’s ownership of the relevant intellectual property. Plaintiffs further alleged that defendants concealed the dismissal of the underlying action for approximately nine months and subsequently lied about the reason for the delay, claiming that the federal court did not release its decision promptly.

The court

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.  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 § 487 (1). Thus, plaintiffs’ Judiciary Law § 487 cause of action was properly dismissed.

Justice Rivera dissented and would hold that summary judgment was inappropriate here

Plaintiffs allege that their attorney induced them to pursue a frivolous lawsuit for the sole purpose of charging them thousands of dollars in legal fees and with counsel’s full knowledge ab initio that the claims were meritless. As our precedents establish, an attorney may be liable for common-law fraud against a client, but when the conduct includes deceit on the court or a party in a pending lawsuit, the attorney is separately guilty of a misdemeanor and liable for enhanced civil damages under Judiciary Law § 487 (see Melcher v Greenberg Traurig, LLP, 23 NY3d 10, 15 [2014]; see also Judiciary Law § 487). According to plaintiffs, their attorney intentionally, and without regard to the ultimate outcome for plaintiffs, perpetuated a charade on the court and them by filing and pursuing what the attorney knew all along was a meritless action—one doomed to fail—which caused plaintiffs to pay the attorney’s unwarranted legal fees. I dissent because plaintiffs’ cause of action for attorney deceit was improperly dismissed on summary judgment as they asserted a viable legal theory and there exist triable issues of fact as to whether the alleged deceit caused plaintiffs’ any damages.

And recites the historic antecedents to the present section 487

These three decisions stand for several propositions that inform the analysis here. First, an action for attorney deceit existed under New York’s common law and predates the first state statute from 1787, which itself originated in English law and led to the enactment of Judiciary Law § 487 (Melcher, 23 NY3d at 15; Amalfitano, 12 NY3d at 12). Second, section 487, like its predecessors, codifies attorney deceit as a crime and provides for civil treble damages (Amalfitano, 12 NY3d at 13-14). Third, section 487 does not derive from or supplant common-law fraud, which applies to a broad spectrum of deceitful conduct, including pre-litigation deceit by an attorney, such as inducing a client to retain the attorney in matters the attorney knows are wholly without merit for the sole purpose of securing payment from the client (see Melcher, 23 NY3d at 14-15). Fourth, unlike common-law fraud, section 487 is limited to attorney deceit on the court or a party in the course of litigation (Amalfitano, 12 NY3d at 15; Looff, 97 NY at 482).

Applying these propositions here leads to the logical conclusion that Judiciary Law § 487 encompasses attorney deceit in the form of filing and pursing a knowing frivolous lawsuit...

This interpretation of section 487 and our precedents would not subject attorneys to liability for “poor lawyering, negligent legal research or the giving of questionable legal advice” (majority op at 6 n 2). An attorney is not subject to liability under Judiciary Law § 487 merely because their client fails to prevail in litigation. Otherwise, there would be a flood of meritless actions by dissatisfied clients since in our legal a system there is always a “losing” party. As the Court first stated in Amalfitano, the legislature codified the misdemeanor crime and civil treble damages remedy for attorney deceit because that specific type of conduct is particularly harmful to our judicial system (Amalfitano, 12 NY3d at 14; see also Melcher, 23 NY3d at 15). The legislature’s intent “to enforce an attorney’s special obligation to protect the integrity of the courts and foster their truthseeking function” does not include penalizing an attorney for professionally competent, albeit unsuccessful, advocacy. Indeed, an attorney has a professional duty and ethical obligation, within the bounds of the law, to aggressively advocate colorable claims on behalf of their client (see Rules of Professional Conduct [22 NYCRR 1200.0] rule 1.3 Comment [1] [Note: citation to rule and commentary]). However, the legislature, concerned with “enforc[ing] an attorney’s special obligation to protect the integrity of the courts and foster[ing] their truth seeking function” (id.), could not have intended to exclude from the statute’s coverage an attorney’s intentional filing of a frivolous lawsuit for the sole purpose of obtaining unwarranted legal fees.

(Mike Frisch)

https://lawprofessors.typepad.com/legal_profession/2020/03/the-new-york-court-of-appeals-affirmed-the-dismissal-the-singular-issue-before-us-in-this-appeal-is-whether-the-appellate-di.html

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