Legal Malpractice

Assignment of a Legal Malpractice Claim in the 2d Circuit

By (Andrew Lavoott Bluestone)

Corporate clients assign causes of action between themselves on a fairly regular basis.  Often, for purely economic reasons, in mergers, and in other corporate maneuverings, a cause of action will become one of many assets to be exchanged.  Here, in NEW FALLS CORP.,  v. EDWARD N. LERNER,No. 08-4991-cv;UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT;2009 U.S. App. LEXIS 24627;November 10, 2009, Decided it was not permitted, since this 2d Circuit case was decided under California substantive law.
 

"New Falls brought this diversity action alleging [*2] that Lerner committed legal malpractice by failing to perfect an attachment of real estate. Lerner committed the alleged malpractice while representing another entity, Stornawaye Capital, LLC, in an action to enforce a loan. Id. at 283-84. Stornawaye assigned its rights in the loan enforcement action to New Falls, and New Falls subsequently brought this claim for legal malpractice as Stornawaye's successor.

"Reviewing the District Court's grant of summary judgment de novo, Sassaman v. Gamache, 566 F.3d 307, 312 (2d Cir. 2009), we affirm the District Court's clear and thoughtful order. Stornawaye and New Falls unequivocally agreed that California law "determined" their "rights and obligations" under the assignment contract. New Falls, 579 F. Supp. 2d at 286. As a result, the "rights" that New Falls acquired in the assignment could not have included a right to bring malpractice claims, which is a right that cannot be assigned under California law. As the District Court aptly put it, "[b]ecause any attempt to assign a legal malpractice claim by a contract governed by California law is rendered void on the basis of California's emphatic public policy prohibiting the assignment of legal malpractice claims, Stornaware's [*4] attempt to transfer its legal malpractice claim against Lerner to New Falls was ineffective as a matter of law." Id. at 288. New Falls, therefore, may not assert Stornawaye's rights in this malpractice action, and the District Court correctly granted summary judgment for Lerner."
 

Full post as published by New York Attorney Malpractice Blog on November 13, 2009 (boomark / email).