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April 9th, 2014
Law Firm Liability: Court Ruling Will Permit More Fraud Claims to Proceed
In a decision last week Melcher v. Greenberg Traurig LLP, New York's highest court, gave a big boost to plaintiffs wanting to sue lawyers for committing intentional fraud and deceit in the course of a court proceeding. Specifically, the Court extended to six years the statute of limitations for claims arising under N.Y. Jud. Law Sect. 487 ("Section 487"), which makes it a crime and allows the award of treble damages against lawyers who are "guilty of any deceit or collusion, or consent[] to deceit or collusion, with intent to deceive the court or any party," and as a result made it much easier for unhappy clients and (even more importantly) adversaries to bring such claims.
In his complaint, Melcher alleged that he was involved in a lawsuit against Apollo Medical Fund Management L.L.C. ("Apollo"), represented by Greenberg Traurig LLP ("GT"). The partner in charge at GT allegedly told Melcher and his counsel that Melcher's membership rights in Apollo had been diminished by a supposed May 21, 1998 amendment to the parties' operating agreement, and that he had personally confirmed the authenticity of the document. Melcher claims he sought the original agreement for chemical testing, and eventually moved to compel its production. GT, meanwhile, made a motion to dismiss on Apollo's behalf based on the purported amendment, informing the court that the original was being held "in escrow," and thus suggesting that the original was intact. In fact, the principal of Apollo allegedly had told the GT partner in charge that the amendment had been damaged, and could not be tested.
Melcher sued GT and the partner in charge for violating Section 487, seeking treble damages. GT moved to dismiss on statute of limitations grounds. The trial court denied the motion. The First Department, in a 3-2 decision, reversed. Significantly, all the First Department judges agreed that the applicable statute of limitations was three years, because a Section 487 claim was an "action to recover upon a liability, penalty or forfeiture created or imposed by statute" under CPLR 214(2). The judges disagreed, however, on when the cause of action accrued for limitations purposes.
The Court of Appeals, in a startling move, rejected the reasoning of the First Department and determined that a Section 487 claim fell under the general catch-all provision of CPLR 213(1) that imposes a six-year limitations period for any "action for which no limitation is specifically prescribed by law." Although the Court recognized that a Section 487 claim is indeed statutory, it ruled that the statute is one that descended from English law - indeed, from the first Statute of Westminster adopted by Parliament in 1275. "English statutory and common law," the Court held, "became New York common law as part of the Colonial-era incorporation or 'reception' of English law into New York law." Because the claim was deemed to arise under common law, not a statute, the six-year catch-all limitations period applied. Because Melcher's claim accrued well within the six-year limitation period, it is being allowed to go forward.
However arcane this analysis, the result is one that should please plaintiffs' lawyers, as it widens the field for potential treble-damages claims under Section 487. Indeed, Melcher is the second decision in recent years in which the Court of Appeals has expanded the available claims under Section 487, following Amalfitano v. Rosenberg, 12 N.Y.3d 8 (2009) (allowing recovery for an attempted but unsuccessful deceit practiced on the court). This trend stands in stark contrast to the law in New York on legal malpractice, which remains lawyer-friendly. The lesson: courts are willing to cut lawyers slack if they make an accidental mistake, but will be much stricter if they commit (or even allegedly commit) intentional wrongdoing.
If you have any questions about fraud claims, or any other legal ethics matters, please contact Ron Minkoff at (212) 705 4837 or rminkoff@fkks.com, Nicole Hyland at (212) 826 5552 or nhyland@fkks.com, or any other member of the Frankfurt Kurnit Legal Ethics and Professional Responsibility Group.
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For New York Lawyers: Recent Changes to the Biennial Reporting Requirements
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