Legal Malpractice

Breach of Fiduciary Duty and Duplicity in Legal Malpractice

By (Andrew Lavoott Bluestone)

In legal malpractice litigation there is a holy triumvirate of causes of action.  In general, they are ranked in this order:  legal malpractice, breach of fiduciary duty, and breach of contract.  There is a well known principal that if duplicative, there must be dismissal of some of these causes of action.

In Safe Flight Instrument Corp v. Sporn,  108497/08 Justice Emily Jane Goodman sets forth some of the principals in this area.  The story is a tangled web of patents, estate planning, an inventor who started up a company from 1946, eventually took it public, retired and continued to invent.  Sporn, defendant in the case seems to have represented both the old and a new company which was created by the inventor.

"The breach of fiduciary duty claim against Sporn is redundant, and is dismissed, because it is "essentially based on the same facts and seek[s] the same relief" as the legal malpractice claim against Sporn (AmBase Corp. v. Davis Polk & Wardwell, 30 AD3d 171, 172 [1st Dept 2006], affd 8 NY3d 428 [2007]; see also Weil, Gotshal & Manges, LLP v. Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 271 [1st Dept 2004]). 2

The legal malpractice and breach of fiduciary duty claims share in common the allegations that: Sporn was Safe Flight's attorney during the time when Greene was developing and applying for the Patents (Complaint, ¶¶194, 211); Sporn was also acting as Greene's attorney while he was developing and applying for the Patents (id., ¶¶196, 213); while serving as Safe Flight's primary outside counsel, but in his capacity as Greene's personal attorney, Sporn assisted Greene in incorporating Greenleaf, counseled Greene with regard to the proposed assignment of the Patents to Greenleaf, and drafted the Will, which named Sporn as the executor of the Will and provided that, at the sole discretion of Sporn as executor, all of Greene's patents and inventions that had not been assigned to Greenleaf prior to his death should be so assigned (id., ¶¶197-199, 214-216); Sporn, in his capacity as the executor of Greene's estate, engaged in efforts to probate the Will, which—absent the settlement between Safe Flight, the Siblings, Greene's estate and Greenleaf—would have resulted in the Patents being transferred or assigned to Greenleaf and/or the Siblings (id., ¶¶200, 217); Safe Flight never granted Sporn a waiver or consent with respect to the conflicts of interest that his representation of Greene and Safe Flight entailed (id., ¶¶204, 230); and from 2005 until the time of his termination as counsel for Safe Flight, Sporn was engaged in a persistent pattern of disloyalty to Safe Flight in connection with his ongoing efforts to assist Greene with his plans to assign or transfer the Patents to an entity and/or persons other than Safe Flight (id., ¶¶203, 232).

Safe Flight concedes that both the legal malpractice claim and the breach of fiduciary duty claim arise in connection with Sporn's alleged conflict of interest in representing Safe Flight, on the one hand, and Greene and Sporn's own interests, on the other. However, Safe Flight argues that the two claims are premised upon different facts because: the legal malpractice claim is based upon Sporn's alleged failure to disclose to Safe Flight that Greene was planning to assign the Patents to an entity other than Safe Flight, and to represent Safe Flight's interests by attempting to stop Greene from doing so (see Pl. Mem. of Law, at 21; Complaint, ¶202); and the breach of fiduciary duty claim is based upon Sporn's acts in setting up Greenleaf as an entity which competed with Safe Flight, taking a pecuniary interest in Greenleaf as its president, advising Greene in connection with the assigning and/or bequeathing of the Patents to an entity or persons other than Safe Flight, assisting Greene in diverting Safe Flight's business opportunities in the Patents away from Safe Flight, securing a legal opinion from Dougherty as to whether Greene could deprive Safe Flight of ownership of the Patents, and giving his own personal interests and/or the interests of others priority over Safe Flight's interests (see Pl. Mem. of Law, at 21; Complaint, ¶¶223-227). Thus, Safe Flight contends that the two claims are not duplicative, because the legal malpractice claim is based upon Sporn's alleged negligence in failing to exercise the requisite standard of care in the performance of his duties as Safe Flight's attorney, whereas the breach of fiduciary duty claim is based upon Sporn's alleged actions in diverting corporate opportunities or assets away from Safe Flight, and to the benefit of himself and others (see Pl. Mem. of Law, at 21-22). Safe Flight also argues that its breach of fiduciary duty claim is not duplicative of its legal malpractice claim because the two claims seek different damages. Safe Flight asserts that it is entitled to disgorgement of the fees and compensation that were paid to Sporn during the period of his alleged disloyalty, and apparently contends that the recovery of those amounts is sought only as part of its breach of fiduciary duty claim and/or may not appropriately be sought as part of its legal malpractice claim (Pl. Mem of Law, at 24).

Safe Flights claims are not premised upon sufficiently separable or different facts as to warrant Safe Flight's assertion of the breach of fiduciary duty claim in addition to its legal malpractice claim. "The attorney-client relationship is both contractual and inherently fiduciary," and, although "a complaint seeking damages alleged to have been sustained by a plaintiff in the course of such a relationship will often advance one or more causes of action based upon the attorney's breach of some contractual or fiduciary duty owed to the client," "courts normally treat the action as one for legal malpractice only" (Ulico Cas. Co. v. Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1, 8-9 [1st Dept 2008]). Here, the legal malpractice and breach of fiduciary duty claims are based upon essentially the same factual allegations"
 

Full post as published by New York Attorney Malpractice Blog on June 25, 2010 (boomark / email).