The Alter Ego in Legal Malpractice

Single stockholder corporations are quite common.  Entrepreneurs know that they must start a corporation, and they often equate the corporation's activities with their own, for they, of course, are the CEO, CFO, COO, and sole shareholder.  Here is an example of what can go wrong.

Baccash v. Sayegh is the story of a sole shareholder who probably has done well with her bridal gown business.  She hears that a competitor is going to retire, and hires attorney to prepare sale/purchase documents.  Here is where things go awry.  Defendant prepares a stock purchase agreement rather than an asset purchase agreement, and plaintiff finds herself [or is it the corporation] indebted to a creditor for $ 50,000.

Plaintiff pays off, and sues attorney.  She wins at trial, only to have the verdict reversed and dismissed.  "Here, the plaintiff's theory of the case was that she sustained damages because the stock purchase agreement which the defendant negotiated without her knowledge required her to assume responsibility for Peggy Peters' liabilities, consisting of trade debt and an outstanding bank loan. However, the proof presented at trial revealed that all payments of Peggy Peters' debts after the February 2001 purchase were made by Bridal Couture rather than the plaintiff, and that Bridal Couture also paid $6,000 in settlement of the creditor's suit brought against both Bridal Couture and Peggy Peters. Although it is undisputed that the plaintiff is Bridal Couture's sole officer and shareholder, a corporation has a separate legal existence from its shareholders even where the corporation is wholly owned by a single individual (see Harris v Stony Clove Lake Acres, 202 AD2d 745, 747; see also Rohmer Assoc., Inc. v Rohmer, 36 AD3d 990; Winkler v Allvend Indus., 186 AD2d 732, 734; New Castle Siding Co. v Wolfson, 97 AD2d 501, 502, affd 63 NY2d 782). Moreover, "the courts are loathe to disregard the corporate form for the benefit of those who have chosen that form to conduct business" (Harris v Stony Clove Lake Acres, 202 AD2d 745, 747).

Furthermore, while the doctrine of piercing the corporate veil allows a corporation's separate legal existence to be disregarded to prevent fraud and achieve equity (see Matter of Morris v New York State Dept. Taxation & Fin., 82 NY2d 135, 141; Millennium Constr., LLC. v Loupolover, 44 AD3d 1016; Rohmer Assoc., Inc. v Rohmer, 36 AD3d 990), the doctrine is typically employed by third parties seeking to circumvent the limited liability of the owners, and requires a showing of a wrongful or unjust act toward the plaintiff (see Matter of Morris v New York State Dept. of Taxation & Fin., 82 NY2d 135, 141-142). Even assuming that the doctrine of piercing the corporate veil would be available to allow the plaintiff to disregard the corporate form in which she chose to do business, no evidence was presented to support the trial court's conclusion that Bridal Couture is, in fact, the plaintiff's alter ego. Under these circumstances, the plaintiff's proof was insufficient to establish that she sustained actual damages as a result of the defendant's conduct (see Rogers v Ciprian, 26 AD3d 1, 6; Winkler v Allvend Indus., 186 AD2d 732, 734). Thus, the plaintiff failed to establish a prima facie case of legal malpractice (see Carrasco v Pena & Kahn, 48 AD3d 395; Edwards v Haas, Greenstein, Samson, Cohen & Gerstein, P.C., 17 AD3d 517), and that branch of the defendant's motion which was to set aside the verdict and for judgment as a matter of law dismissing the complaint should have been granted. "

More Patent Law Legal Malpractice News

Yesterday we reported on a Nebraska case in which it was found that simply because a legal malpractice case came from a patent matter, it was not a federal question, sufficient for US District Court jurisdiction.
Now, hot on the heels, is this case: Singh v. Duane Morris, No. 07-20321.  We'll get the decision, but for now, here is the article in which a state court action was removed to Federal District Court, and then dismissed under summary judgment.  Now the Circuit has reversed, remanded and remanded to state court. 

"The 5th U.S. Circuit Court of Appeals has thrown out a summary judgment win for Duane Morris in a lawsuit alleging that one of the law firm's partners bungled a trademark infringement case involving an LSAT test-prep company.

The three-judge panel found on July 30 that the federal district court lacked subject-matter jurisdiction in granting summary judgment to the law firm, after deciding that the state law malpractice claim did not arise from the federal trademark law and therefore was not properly in federal court.

The decision means that the plaintiff could revive the case in state court "

Is Patent Law Legal Malpractice always a Federal Question?

Jurisdiction in Federal District Court...harks back to the first few weeks of law school.  Well, there's diversity...and...and federal question.  So, a legal malpractice case arising from a patent transaction...state court or federal district court?

Many the removed case has been found to have federal jurisdiction, but this Nebraska Case says that it may be brought in State Court.  Here is the case.  Can someone explain why this decision was not written by a Federal District or Circuit Court? 

Rogue Associate or Legal Malpractice in Thelen Reid Case
Here is a convoluted intelectual property - patent legal malpractice case. Thelen Reid answers, and with its answer, raises more questions.  Here, from Law.Com:

"Thelen argued that the company "and/or" third parties contributed to the IP losses and that IVI waived the alleged conflicts of interest. The firm also said the claims are barred by the statute of limitations.

Thelen acknowledged that an associate reassigned an IVI patent to a Gardiner company and that an alleged Gardiner company replaced an IVI subsidiary as a party to a research agreement with Johns Hopkins University. However, Thelen's lawyers wrote, the latter change was made "pursuant to instructions from e-Smart," another IVI subsidiary.
IVI alleged that Thelen withdrew from representing it in a suit against Gardiner when his counsel demanded the firm do so because of its alleged concurrent representation of both parties. Thelen only confirmed receiving the letter from Gardiner's counsel and later withdrawing. "