Strategy counts. In this case, it led to an efficient, clean sweep for our client.
Our client, a well-regarded boutique commercial real estate broker, was sued by one of its former clients—Gerard Fox Law—for breach of fiduciary duty, fraud, and other claims arising out of the parties’ relationship. The complaint painted our client as dishonest, unethical, and opportunistic, resulting in a predatory commercial lease that damaged the law firm.
The allegations were false. Grossly false.
In reality, the plaintiff law firm couldn’t pay its rent, had been evicted by its landlord, and was facing litigation over hundreds of thousands of dollars it owed. Our assessment of the case was that the law firm had sued our client, trying to shakedown Peter in an effort to pay Paul. Sharp practice at its worst. The law firm was baselessly weaponizing its own professional skills.
We were presented with several problems: first, the law firm plaintiff was representing itself (i.e., appearing pro se), making its cost to litigate effectively zero. Next, the allegations in the complaint—though false—were highly-detailed, and designed to manufacture factual disputes that might only be disproved through costly and time-consuming discovery. This was presumably by design of the plaintiff, to avoid dismissal and create nuisance value, in the hope of extracting an in terrorem settlement payment to make it go away. And finally, our client was cost-sensitive (like all clients!), but justifiably unwilling to pay a dollar, which it perceived would validate the baseless charges.
From the outset of the case, we executed a strategy that ended up in a decisive victory.
First, we took note of two critical circumstances: several of the allegations were plainly and demonstrably false, including, for example, the allegation that our client had “exclusively” presented the plaintiff with properties that were outside of its budget. This was not even close to true, and we had the documents to prove it. This presented a problem for the plaintiff because while lawyers acting as advocates have leeway to advocate zealously for their clients’ views in litigation, lawyers themselves are constrained from making false statements in court. Here, the plaintiff was a law firm, acting both as an advocate, but also as the source of the underlying false allegations. Under the Judiciary Law, a lawyer can be held liable for treble damages (including the costs of defending an action) if he knowingly presents false allegations to a court, in an attempt to obtain an advantage in litigation.
Second, the lawyer who signed the complaint for the plaintiff firm had also been involved in negotiations over the lease. This meant that he was likely to be a witness in any proceeding—as well as serving as the firm’s lawyer. This presented an ethical problem for the plaintiff (and the individual lawyer): under the rules of professional conduct, a lawyer cannot serve as both an advocate and a material witness.
We immediately placed the plaintiff on notice of these conditions, informing the law firm that (i) the complaint contained materially false statements, for which we would assert liability under the Judiciary Law, and (ii) we would seek to disqualify the lawyer who signed the complaint. When the lawyer who signed the complaint did not promptly withdraw—as we had demanded—we made an immediate application, even before answering the complaint, demanding that he be disqualified as an advocate, and a non-witness attorney be substituted.
This allowed us to seize control of the narrative and destabilized the plaintiff’s attack. In a remarkable turn of events, the partner who signed the complaint—confronted with the prospective Judiciary Law liability and ethical issues—not only was substituted by another lawyer on the day we made our application, but also withdrew from the firm. If we had previously any doubt that we were on to something, it evaporated there.
Then, we took the bull by the horns. We answered the complaint and counterclaimed with our Judiciary Law cause of action, alleging that the complaint was predicated on false allegations by a lawyer, and that if we prevailed in showing them false, we should be entitled to three-times our legal costs of defense. We included a fraud claim against the plaintiff for good measure, based on false statements made by the firm concerning its financial condition and the condition of its business. Other lawyers might have advised our client to try a motion to dismiss. But we didn’t want to waste time or money on motion practice, or put the issues to the Court in the posture of assuming that the false allegations concerning our client were true (which is how a Court resolves a motion to dismiss). We wanted to tell our story forcefully, efficiently, and affirmatively -- not on the defensive.
The Plaintiff law firm, however, took the bait and moved to dismiss our counterclaims. Now, instead of framing the dispute in the context of everything the plaintiff said as being true, the court was asked to consider the implications if everything our client said was true, i.e., assuming the lawyers were lying about our client in the complaint. We were able to hammer home the broader context in which these false allegations were being lodged against our client, and emphasize the role of the court, under the Judiciary Law, in holding lawyers to a higher standard when they make factual allegations.
Justice Borrock, in the Commercial Division of New York State Supreme Court, heard the argument. His opinion speaks for itself. While he dismissed our fraud claim, the more powerful Judiciary Law claim stood, and the court made a specific finding, based on the documents we presented, that the Plaintiff-law-firm's allegations were “not only misleading, but also demonstrably false,” a clear shot across the bow to the Plaintiff law firm. Immediately after the Court issued its decision from the bench, and a brief off-the-record conversation with the Judge, the Plaintiff decided to discontinue its litigation against our client, with prejudice and without any settlement. No discovery was required.
Strategy counts. Other decisions in this case could have led to a protracted battle, with full discovery, appeals, or our client making a payment to force the Plaintiff to go away. Instead, we plotted a course that successfully put maximum pressure on the Plaintiff and led to a prompt resolution before the court.