Plaintiff Continues with Legal Malpractice and Unjust Enrichment and Fiduciary Duty Claims

In a well-reasoned opinion from the SDNY, Judge Koeltl determined that plaintiff may continue with three claims against the attorneys.  In SMARTIX INTERNATIONAL CORPORATION, a.k.a. SMARTIX INTERNATIONAL, LLC,  - against - GARRUBBO, ROMANKOW & CAPESE, P.C. AND ANTHONY RINALDO, 6 Civ. 1501 (JGK); UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; 2009 U.S. Dist. LEXIS 29114;March 30, 2009, Decided
 
In this case, Smartix, a corporation with certain ticketing intellectual property, was in the business of selling and licensing that technology, and wanted to enter into a contract with Mastercard.  They retained the defendant law firm to advise them on the contract negotiation, to engage in corporate governance, and put one of the attorneys on the board.

Things went wrong with the MC contract and then Smartix was sued by plaintiffs named Metzger.  Plaintiffs retained defendants to defend that suit.  In this blog entry we'll look at the legal malpractice claims, and in tomorrow's we'll look at the unjust enrichment claim.

Plaintiffs complained that defendants failed to advise them correctly on the Mastercard contract negotiation and left them open to Mastercard's exploitation.  Beyond that, they claim malpractice when defendant attorney failed to attend a court ordered mediation session, [as well as the other attorneys] and was open to a sanctions hearing for which they billed plaintiffs.

Judge Koeltl denied summary judgment on both counts. "The plaintiff's first legal malpractice claim is based on the defendants' representation of the plaintiff in the course of the Metzger litigation. The plaintiff alleges that it was billed for the defendants' attendance at a sanctions hearing resulting from Mr. Rinaldo's failure to attend a court-ordered mediation. The defendants [*11] point out that both Metzger parties failed to attend the court-ordered mediation and that no sanctions were ultimately imposed.

The allegation regarding the sanctions hearing raises an issue of material fact with respect to the plaintiff's first legal malpractice claim. The plaintiff has provided evidence that it was billed in connection with a sanctions hearing resulting in part from Mr. Rinaldo's failure to attend a court-ordered mediation.  [T]he failure to follow direct orders from the court would fall below any standard of care. Cf. Logalbo v. Plishkin, Rubano & Baum, 163 A.D.2d 511, 558 N.Y.S.2d 185, 187-88 (App. Div. 1990) (finding in the absence of expert testimony or expert report that attorney who disregarded "clearly defined and firmly imbedded" obligation failed to meet any permissible standard of due care).

Moreover, although the defendants point out that the trial judge in the Metzger litigation did not ultimately [*12] impose sanctions on the defendants, they do not argue that this decision by the trial judge precludes a finding of legal malpractice against the defendants, and there is no reason that would be so. Plainly claims for legal malpractice may exist even where attorneys have not been sanctioned for their conduct."
 
"The plaintiff has produced evidence in the form of deposition testimony that the MasterCard Agreement was drafted to the disadvantage of the plaintiff and contained certain vagaries that MasterCard was able to exploit at the expense of the plaintiff. (Katz Dep. at 47-49 ("[The Agreement] was very vague . . . . It did not protect Smartix from MasterCard's efforts to secure [*19] use of the software outside the contract."), 101 ("The MasterCard Agreement was vague enough so that MasterCard felt that they would roll the dice and try to do these businesses without us, which they subsequently did . . . ."); Huber Dep. at 72 ("It sounds as if MasterCard can do pretty much anything they want with this in one part of the contract . . . . There's also penalty clauses in here that would cause Smartix enormous damages if they wanted to market this outside of MasterCard . . . “

What Creates an Attorney-Client Relationship for Legal Malpractice Purposes?

Privity of contract is an essential in legal malpractice litigation.  One may not sue the opponent's attorney; only one's own.  What makes for privity of contract?  As all know, no writing is necessary to create a contract.  So, can there be privity of contract without a retainer agreement.  Putting aside Rule 137 questions about the attorney's obligation to provide a writing, in Denise Terio,  v Lance Roger Spodek, Reich Reich & Reich, P.C., 2008-03594, 2008-04435;  SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT; 2009 NY Slip Op 4412; 2009 N.Y. App. Div. LEXIS 4411June 2, 2009, Decided we see a short answer:
 
"To recover damages for legal malpractice, a plaintiff [**4] must prove, inter alia, the existence of an attorney-client relationship (see Velasquez v Katz, 42 AD3d 566, 567, 840 N.Y.S.2d 410; Moran v Hurst, 32 AD3d 909, 822 N.Y.S.2d 564; Wei Cheng Chang v Pi, 288 AD2d 378, 380, 733 N.Y.S.2d 471; Volpe v Canfield, 237 AD2d 282, 283, 654 N.Y.S.2d 160). While a plaintiff's unilateral belief does not confer upon him or her the status of client (see Volpe v Canfield, 237 AD2d at 283), an attorney-client relationship may exist in the absence of a formal retainer agreement (see e.g. Swalg Dev. Corp. v Gaines, 274 AD2d 385, 386, 710 N.Y.S.2d 619). To establish an attorney-client relationship there must be an explicit undertaking to perform a specific task (see Wei Cheng Chang v Pi, 288 AD2d 378, 733 N.Y.S.2d 471; Volpe v Canfield, 237 AD2d at 283)."
 
Attorney and Client Battle over Fees and Legal Malpractice

So often, the practice of law seems to have devolved into an attorney v. client battle over the work and fees.  Here in Morelli & Gold  LLP v. Altman, NY Slip Op 31492(U) we see a large scale battle over a child support/custody case in which there has been litigation, fees, fee dispute, trial de novo, counterclaims and appeals. All this, and the case has not yet left the pleadings stage.

In her 32 page decision, Justice Edmead goes through a complete primer on:

a.  Rule 137 fee disputes, trial de novo, the pleading requirements for a trial de novo, and the forms used;
b.  Defenses and counterclaims after a fee dispute;
c.  Proper pleadings in legal malpractice counterclaims;
d.  The role of res judicata and collateral estoppel in legal malpractice fee disputes.

It's a long decision,,,look to the link and read through it for a good discussion on these issues.