• David Slarskey

'Special Circumstances' Can Justify Legal Malpractice Claims

It is no secret (and perhaps no surprise) that the law is particularly hard for plaintiffs who wish to recover from their attorneys for professional malpractice. If doctors made the rules, then medical malpractice would probably be a lot more difficult to prove as well.

But it is not impossible. In a decision issued today, the Appellate Division of the Supreme Court of New York found "special circumstances" to uphold a claim of legal malpractice, because to rule in favor of the defendant lawyers "might insulate defendants from liability for their alleged wrongdoing."

The defendant lawyers in Deep Woods Holdings LLC v. Pryor Cashman LLP were alleged to have (i) negligently failed to execute an option on behalf of their client, (ii) advised the client to assign its option rights to a third party investment vehicle, which would litigate to enforce the option, (iii) prepared the assignment (representing both the option holder and the investment vehicle), and (iv) acted as the investment vehicle's counsel for purposes of litigating the option claim. Litigation to enforce the option was unsuccessful, as the courts determined that the option had not timely been exercised. The investment entity then brought suit against the lawyers for malpractice in failing to timely execute the option.

At issue on appeal was whether the assignment prepared by the defendant attorneys was a narrow assignment of only the contractual option rights, or whether (as the plaintiffs contended) the assignment included all rights related to the option, including the right to sue for professional malpractice in connection with the failed execution. The Appellate Division agreed with the defendant lawyers that the assignment was drafted narrowly, to include only the contractual option rights, and not the right to sue for malpractice.

But then the Court did something interesting -- it found that the lawyers could be "equitably estopped" from arguing that the assignment did not include the malpractice claim, and found "special circumstances," such that the plaintiff investment entity could pursue its malpractice claim against the lawyers, even though the lawyers were not representing the later-formed investment entity at the time they failed to exercise the option. (As a general rule, you can't sue a lawyer for malpractice if you are not in privity with the lawyer on the subject where the malpractice took place.) The Court noted the allegation that the lawyers did represent both the option-holder and the later-formed investment entity in drafting the assignment, and noted that "interpreting the assignment to exclude tort claims would mean that neither the assignor nor plaintiff, the assignee, would be able to sue defendants for malpractice for failing to exercise the call option in a timely manner." The Court thus permitted the lawsuit to go forward.

The law is generally favorable to defendants in legal malpractice claims. New York courts tend to impose stringent standards of proof on issues of both causation and damages (as well as privity). Thus, many a case is dismissed because it is simply too "speculative" for the court to determine what the outcome would have been had the lawyer acted differently. Indeed, several years ago we convinced the very same Appellate Division that issued the Deep Woods opinion today to dismiss a case on just that basis, i.e., that the alleged damages were too speculative to ever be proved.

It is not impossible, however, to prevail in litigation against attorneys. As the Deep Woods decision suggests, courts may look less favorably on attorneys acting with damaging conflicts of interest, engaged in self-dealing, or whose conduct might otherwise have been tinged with collusion or fraud. Though the opinion is narrowly written -- and does not find any fault with the defendant attorneys, given the early stage of the litigation -- it is difficult to not read this opinion as an upbraiding of the defendant attorneys, for taking actions that would have effectively vitiated the existing malpractice claims against them. Missing deadlines (as in the execution of the option contract) and other concrete failures by lawyers are some of the more common instances in which legal malpractice claims may survive. Thus, presented with the allegations here, the Deep Woods court found a rule (equitable estoppel) and an exception (special circumstances) that allowed the malpractice claim to go forward.

We are frequently asked to evaluate prospective claims against attorneys. Not many lawyers are willing to sue other lawyers, and fewer still, lawyers with the kind of experience and education that we bring to our practice. Representing a plaintiff with a claim against his attorney carries with it even more professional and reputational risk than representing criminal defendants did twenty-five years ago (before white collar practices became hot): it is not exactly great, in a referral business, to be known as a guy willing to eat his own. Moreover, given our experience in defending these claims, we are familiar with the strict standards imposed by the law, and thus carry some inherent skepticism as to the likelihood of success on attorney malpractice claims.

Nonetheless, to paraphrase a respected professional colleague (who would certainly disavow the quote if it were attributed), "Lawyers need to be sued and prosecuted more often." As in any other industry, there are bad apples in our business, who act unethically with the trust of their clients. There are those who assume responsibilities to clients without adequate training or judgment. And there are those for whom the strains of legal representation are too great, whether as a result of divided attention, decline, or other factors. We do a professional disservice by being unwilling to represent clients who have been injured by those attorneys. For that reason, our door is always open to clients who feel they have been wronged by their lawyers -- as well as to lawyers who need to defend themselves.