Legal Malpractice

Legal Malpractice in the Hamptons

By (Andrew Lavoott Bluestone)

One of the more interesting aspects of legal malpractice is its utter ubiquity.  Look at any institution and lurking behind it may be a case of legal malpractice.  It's not surprising, as attorneys are everywhere involved in transactional or litigative work.  A favorite New Yorker cartoon shows a 5 year old whose ice cream cone has fallen to the ground.  A nice adult hovers nearby, asking "Do you need an attorney, little boy?"

Here is a story about one of East Hampton's more well known restaurant, The Farmhouse, and its purchase and changeover in 2003.  The Case, MARTIN B. SCHNABEL, Plaintiff, - against - JOHN M. SULLIVAN, ESQ. and BURKE & SULLIVAN, P.C., 04-CV-5076 (RRM) (MLO);UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF NEW YORK;2008 U.S. Dist. LEXIS 79048
 

"In 2003, Schnabel, a New Jersey resident, sought to purchase and operate a restaurant known as The Farmhouse Restaurant, an establishment located in East Hampton, New York (alternatively, the "Restaurant"). In April of 2003, Schnabel formed "M at the Farmhouse, Inc." (the "Corporation"), a New York corporation, for purposes of owning and [*3] operating that Restaurant. At all times, Schnabel was and is the Corporation's sole shareholder. In April to early May 2003, Schnabel retained Defendant attorney John M. Sullivan and Sullivan's firm, Burke & Sullivan, P.C., to represent him in purchasing the Restaurant (the "Transaction"), 1 which Transaction was finalized on May 19, 2003. Schnabel claims that Sullivan and his firm failed to properly perform due diligence regarding the financial history of the Restaurant, and failed to apprise him of the existence of substantial liens on the property and the seller's overall misrepresentation of the Restaurant's financial condition, information that Schnabel claims would have led him to withdraw from the Transaction if timely brought to his attention. Schnabel alleges that because of his attorneys' malpractice, he incurred approximately $ 500,000 in losses."
 

"While this Court agrees with the general principle that a sole or majority stockholder has no independent right of action to recover personally for wrongs to the corporation, that principal does not apply in this case. Here, the undisputed existence of an independent duty owed by Defendants personally to Schnabel, as the individual [*10] who retained Defendants, distinguishes this case from the bulk of Defendants' supporting authority. Compare, e.g., Elenson v. Wax, 215 A.D.2d 429, 626 N.Y.S.2d 531, relying on Abrams v. Donati, 66 N.Y.2d 951, 489 N.E.2d 751, 498 N.Y.S.2d 782 (1985) (dismissing claim as derivative where no breach of independent duty was alleged); PI, Inc. v. Ogle, No. 95 Civ. 1723, 1997 U.S. Dist. LEXIS 886, 1997 WL 37941, at *3 (S.D.N.Y. Jan. 30, 1997) (dismissing action where plaintiff failed to allege defendants' independent duty to him); Wolf v. Rand, 258 A.D.2d 401, 403 (1st Dep't 1999) (dismissing claims brought by virtue of shareholder status alone). As explained in Lawrence, supra, "where a defendant owes an independent duty to the shareholder and the shareholder and the defendant are in privity, the shareholder may sue for damages caused by the defendant's negligence which resulted in injury that is personal to the shareholder and independent of the damage caused to the corporation." Lawrence, 5 A.D.3d at 919, distinguishing Abrams v. Donati, supra, Wolf v. Rand, supra. To the extent that Defendants attempt to challenge Schnabel's threshold standing to sue his attorneys for malpractice, their arguments are without merit. As such, Defendant' request to dismiss this matter [*11] due to a lack of standing is DENTED."
 

Full post as published by New York Attorney Malpractice Blog on October 13, 2008 (boomark / email).