…issue of collateral estoppel concerning a matter previously litigated…

In Gobindram v Ruskin Moscou Faltischek, P.C., 175 AD3d 586, 589-91 [2d Dept 2019], the state court considered the issue of collateral estoppel concerning a matter previously litigated in the federal bankruptcy court. The court held:

“The doctrine of in pari delicto mandates that the courts will not intercede to resolve a dispute between two wrongdoers” (Kirschner v. KPMG LLP, 15 N.Y.3d 446, 464, 912 N.Y.S.2d 508, 938 N.E.2d 941). “[T]he principle that a wrongdoer should not profit from his own misconduct is so strong in New York that … the defense applies even in difficult cases and should not be weakened by exceptions” (id. at 464, 912 N.Y.S.2d 508, 938 N.E.2d 941 [internal quotation marks omitted] ). “The defense requires intentional conduct on the part of the plaintiff” (Sacher v. Beacon Assoc. Mgt. Corp., 114 A.D.3d 655, 657, 980 N.Y.S.2d 121; see Kirschner v. KPMG LLP, 15 N.Y.3d at 474, 912 N.Y.S.2d 508, 938 N.E.2d 941).

Scales of justice illustrating article about legal malpractice.

Collateral estoppel precludes a party from relitigating in a subsequent action or proceeding an issue raised in a prior action or proceeding and decided against that party, whether or not the tribunals or causes of action are the same (see Buechel v. Bain, 97 N.Y.2d 295, 303, 740 N.Y.S.2d 252, 766 N.E.2d 914; Shifer v. Shifer, 165 A.D.3d 721, 723, 85 N.Y.S.3d 92). There must be an identity of issue which has necessarily been decided in the prior action and is decisive of the present action, and there must have been a full and fair opportunity to contest the decision now said to be controlling (see Buechel v. Bain, 97 N.Y.2d at 303–304, 740 N.Y.S.2d 252, 766 N.E.2d 914; Shifer v. Shifer, 165 A.D.3d at 723, 85 N.Y.S.3d 92).

Here, the federal courts in the plaintiff’s bankruptcy proceeding finally adjudicated a mixed issue of law and fact identical to that raised by the in pari delicto defense asserted by the defendants in the current legal malpractice action, i.e., the plaintiff’s culpability in connection with the filing of the inaccurate bankruptcy petition. Those courts found that the plaintiff knowingly and intentionally made a false and fraudulent statement under oath by swearing that he had read the SOFA and that it was true and correct, and that the plaintiff’s alleged reliance on the defendants to accurately prepare the bankruptcy submissions did not negate his fraudulent intent. These findings established that the plaintiff was in pari delicto with the defendants to the extent that he alleges they acted negligently in preparing and filing the inaccurate bankruptcy petition. Accordingly, we agree with the Supreme Court’s determination granting that branch of the defendants’ motion which was to dismiss so much of the legal malpractice cause of action as sought to recover damages for the defendants’ preparation and filing of the inaccurate bankruptcy petition based on the doctrines of collateral estoppel and in pari delicto.

However, we disagree with the Supreme Court’s determination granting that branch of the defendants’ motion which was to dismiss so much of the legal malpractice cause of action as sought to recover damages for the defendants’ failure to amend the bankruptcy petition. The findings of the federal courts regarding the knowing and fraudulent conduct on the plaintiff’s part related solely to the initial filing; they made no determination that the plaintiff acted knowingly and fraudulently in failing to file an amended petition. Accordingly, that part of the plaintiff’s legal malpractice cause of action is not subject to dismissal on the grounds of collateral estoppel and in pari delicto.

As an alternative ground for affirmance (see Parochial Bus Sys. v. Board of Educ. of City of N.Y., 60 N.Y.2d 539, 545–546, 470 N.Y.S.2d 564, 458 N.E.2d 1241), the defendants contend that the legal malpractice cause of action should have been dismissed in its entirety pursuant to CPLR 3211(a)(7), since the parties’ evidentiary submissions on the motion established that the plaintiff hired subsequent counsel who had ample opportunity to rectify their alleged error in this regard (see e.g. Perks v. Lauto & Garabedian, 306 A.D.2d 261, 262, 760 N.Y.S.2d 231). This contention lacks merit.

On a motion to dismiss a complaint pursuant to CPLR 3211(a)(7), the court must “accept the facts as alleged in the complaint as true, accord plaintiffs the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory” (Leon v. Martinez, 84 N.Y.2d 83, 87–88, 614 N.Y.S.2d 972, 638 N.E.2d 511; see Nonnon v. City of New York, 9 N.Y.3d 825, 827, 842 N.Y.S.2d 756, 874 N.E.2d 720). “When evidentiary material is considered, the criterion is whether the proponent of the pleading has a cause of action, not whether [she or] he has stated one, and, unless it has been shown that a material fact as claimed by the pleader to be one is not a fact at all and unless it can be said that no significant dispute exists regarding it, … dismissal should not eventuate” (Guggenheimer v. Ginzburg, 43 N.Y.2d 268, 275, 401 N.Y.S.2d 182, 372 N.E.2d 17).

Here, the record reveals that the plaintiff did not retain the services of new counsel until December 2011. By that time, the bankruptcy trustee had already noted inconsistencies in the petition and requested an accounting relating to the omitted tax refund transfers, and the plaintiff’s creditors had commenced the adversary proceeding. Giving the plaintiff the benefit of every favorable inference (see Leon v. Martinez, 84 N.Y.2d at 87–88, 614 N.Y.S.2d 972, 638 N.E.2d 511), this time line suggests that the defendants, not the subsequent attorney, represented the plaintiff at the time when a voluntary amendment to the petition could have significantly reduced the prospect of a finding that the plaintiff made a false and fraudulent statement in the bankruptcy petition (see In re Tully, 818 F.2d 106, 111 [1st Cir.]; Matter of Kilson, 83 B.R. 198, 203 [D. Conn.]). Accordingly, at this preliminary stage of the litigation, the defendants have failed to conclusively demonstrate that the plaintiff’s subsequent attorney had a sufficient opportunity to correct their alleged error in failing to amend the petition, such that they did not proximately cause any damages flowing from that error (see generally Tooma v. Grossbarth, 121 A.D.3d 1093, 1096, 995 N.Y.S.2d 593; Grant v. LaTrace, 119 A.D.3d 646, 647, 990 N.Y.S.2d 227).

We find unpersuasive the defendants’ additional alternative contention that the legal malpractice cause of action was properly dismissed pursuant to CPLR 3211(a)(3) because that cause of action belongs to the bankruptcy estate and the plaintiff lacked standing to assert it. “On a defendant’s motion to dismiss the complaint based upon the plaintiff’s alleged lack of standing, the burden is on the moving defendant to establish, prima facie, the plaintiff’s lack of standing” (BAC Home Loans Servicing, LP v. Rychik, 161 A.D.3d 924, 925, 77 N.Y.S.3d 522; see CPLR 3211[a][3]; MLB Sub I, LLC v. Bains, 148 A.D.3d 881, 881–882). “[T]he motion will be defeated if the plaintiff’s submissions raise a question of fact as to its standing” (U.S. Bank N.A. v. Clement, 163 A.D.3d 742, 743, 81 N.Y.S.3d 116 [internal quotation marks omitted]; see MLB Sub I, LLC v. Bains, 148 A.D.3d at 882, 50 N.Y.S.3d 410).

Here, in response to the defendants’ prima facie showing that the plaintiff’s legal malpractice cause of action was the property of the bankruptcy estate (see Wright v. Meyers & Spencer, LLP, 46 A.D.3d 805, 849 N.Y.S.2d 274; Williams v. Stein, 6 A.D.3d 197, 198, 775 N.Y.S.2d 255; In re Strada Design Assoc., Inc., 326 B.R. 229, 237–240 [S.D. N.Y.]), the plaintiff raised a question of fact as to whether the bankruptcy trustee had abandoned the cause of action in accordance with Bankruptcy Code (11 USC) § 554(a) and had authorized the plaintiff to pursue it. Accordingly, dismissal of the legal malpractice cause of action for lack of standing is not available at this juncture.

R. A. Klass
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Richard A. Klass Selected for the Fifth Time for the New York Metro Super Lawyers List

2019 Super Lawyers logo

We are pleased to announce that Richard Klass, has been selected to the 2019 New York Metro Super Lawyers list. This is an exclusive list, recognizing no more than five percent of attorneys in the New York Metro area.

Super Lawyers, part of Thomson Reuters, is a research-driven, peer influenced rating service of outstanding lawyers who have attained a high degree of peer recognition and professional achievement. Attorneys are selected from more than 70 practice areas and all firm sizes, assuring a credible and relevant annual list.

The annual selections are made using a patented multiphase process that includes:

  • Peer nominations
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  • Evaluations from a highly credentialed panel of attorneys

The objective of the Super Lawyers lists is to create a credible, comprehensive and diverse listing of outstanding attorneys to be used as a resource for both referring attorneys and consumers seeking legal counsel.

For more information about Super Lawyers, go to SuperLawyers.com. Super Lawyers is a registered trademark of Thomson Reuters.

R. A. Klass
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Entry of judgment: You Snooze, You Lose!

Young adult man looking at his smart phone with a shocked, surprised but slightly comical expression. The photo illustrates an article by Richard Klass about default judgment.

The subcontractors brought an action against the general contractor and its principal alleging breach of an oral contract made in January 2007 for failing to pay for construction services rendered on a building located in Flushing. The action was dismissed as to the individual and the subcontractors’ request for a default judgment against the general contractor was denied. The subcontractor then brought an action against the contractor who hired them alleging breach of the oral contract; however,they were unable to collect on the judgment because the corporation was out of business.

Queens County action

The subcontractors then brought an action in the Supreme Court, Queens County only against the property owner, alleging unjust enrichment for the contracting services rendered by them. Despite service of the Summons and Complaint in 2011, the plaintiffs did not seek the entry of a default within one year thereafter.

Kings County action

The subcontractors then brought yet another action in the Supreme Court, Kings County against the general contractor, contractor and property owner, alleging both breach of contract and unjust enrichment. A default judgment was granted in their favor against all of the defendants except for the property owner. The property owner moved for dismissal of the action, which was granted.

Back to Queens

In 2017, the subcontractors moved for a default judgment against the property owner in the 2011 action.

In response to the motion, the property owner retained Richard A. Klass, Your Court Street Lawyer. The property owner cross-moved, pursuant to CPLR 3215(c), for dismissal of the action based upon the failure to take proceedings for entry of judgment within one year after the default. By Order dated April 6, 2018, the Supreme Court denied the motion for a default judgment and granted the cross-motion for dismissal of the action. The Court held that “plaintiff’s counsel fails to proffer a reasonable excuse for its delay in timely making the instant application. After reviewing the extensive procedural history of the case and companion cases, it remains unclear why plaintiffs waited almost two years after [the court] dismissed their identical claim in Kings County to seek a default judgment against the defendant in this action.”

The Court further rejected the claim made in opposition to the cross-motion that the matter should not be deemed abandoned. Specifically, the court held, “While plaintiffs may contend they were in settlement negotiations and other litigation activity with the defendant, those activities ceased in May of 2015 when the matter was dismissed. In addition, plaintiffs fail to explain why it commenced a second action including the defendant in Kings County after it had already commenced the instant action or why they then let the instant matter linger over five and half years.”

Failure to take proceedings within one year after default

The subcontractors appealed the Supreme Court Order to the Appellate Division, Second Department. In affirming the Order and dismissing the appeal, the appellate court held, in Karamuco v Gavriel Plaza, Inc., 172 AD3d 832, 833 [2d Dept 2019]:

“CPLR 3215(c) provides that ‘[i]f the plaintiff fails to take proceedings for the entry of judgment within one year after the default, the court shall not enter judgment but shall dismiss the complaint as abandoned . . . unless sufficient cause is shown why the complaint should not be dismissed”’ (Myoung Ja Kim v Wilson, 150 AD3d 1019, 1020, quoting CPLR 3215[c]). This statute is strictly construed, as “[t]he language of CPLR 3215(c) is not, in the first instance, discretionary, but mandatory, inasmuch as courts ‘shall’ dismiss claims (CPLR 3215[c]) for which default judgments are not sought within the requisite one-year period, as those claims are then deemed abandoned” (Giglio v NTIMP, Inc., 86 AD3d 301, 307-308; see Ibrahim v Nablus Sweets Corp., 161 AD3d 961, 963; HSBC Bank USA, N.A. v Grella, 145 AD3d 669, 671).

The statute further provides, however, that the failure to timely seek a default may be excused if “‘sufficient cause is shown why the complaint should not be dismissed’” (HSBC Bank USA, N.A. v Grella, 145 AD3d at 671, quoting CPLR 3215[c]; see Ibrahim v Nablus Sweets Corp., 161 AD3d 961, 963). To establish the sufficient cause required by CPLR 3215(c), “the party opposing dismissal must demonstrate that it had a reasonable excuse for the delay in taking proceedings for entry of a default judgment and that it has a potentially meritorious action” (Aurora Loan Servs., LLC v Hiyo, 130 AD3d 763, 764; see Ibrahim v Nablus Sweets Corp., 161 AD3d at 963; Wells Fargo Bank, N.A. v Bonanno, 146 AD3d 844, 845-846). The determination of whether an excuse is reasonable is committed to the sound discretion of the motion court (see Bank of N.Y. Mellon v Izmirligil, 144 AD3d 1067, 1069; Baruch v Nassau County, 134 AD3d 658, 659).”

Here, the plaintiffs took no proceedings for the entry of a default judgment within one year following the defendant’s default, and they failed to establish a reasonable excuse for their delay in moving for leave to enter a default judgment. Accordingly, the lawsuit was dismissed.

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Once someone has sued …and the case is dismissed…

Scales of justice illustrating article about legal malpractice.

Once someone has sued another and the case is dismissed, the plaintiff’s claim is barred or precluded. In Manko v Gabay, 175 AD3d 484 [2d Dept 2019], the court held:

The plaintiff subsequently commenced the instant action against, among others, the Gabay defendants, asserting causes of action against them, inter alia, to recover damages for legal malpractice and breach of fiduciary duty. The Gabay defendants moved, inter alia, pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against them. The Supreme Court granted that branch of the motion, and the plaintiff appeals.

We agree with the Supreme Court’s determination to grant that branch of the Gabay defendants’ motion which was pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against them as barred by the doctrine of res judicata, based upon the dismissal, on the merits, of the complaints insofar as asserted against them in the four prior actions. Under the doctrine of res judicata, or claim preclusion, “a valid final judgment bars future actions between the same parties on the same cause of action” (Parker v. Blauvelt Volunteer Fire Co., 93 N.Y.2d 343, 347, 690 N.Y.S.2d 478, 712 N.E.2d 647). “[O]nce a claim is brought to a final conclusion, all other claims arising out of the same transaction or series of transactions are barred, even if based upon different theories or if seeking a different remedy” (O’Brien v. City of Syracuse, 54 N.Y.2d 353, 357, 445 N.Y.S.2d 687, 429 N.E.2d 1158).

This Court takes a “pragmatic approach” to determining what constitutes a single transaction or series of transactions for the purposes of res judicata (Coliseum Towers Assoc. v. County of Nassau, 217 A.D.2d 387, 390, 637 N.Y.S.2d 972). Thus, events are part of the same transaction or series of transactions where their “foundational facts” are related in “time, space, origin, or motivation,” where they “form a convenient trial unit,” and where “treatment [of the foundational facts] as a unit conforms to the parties’ expectations” (id. at 390–391, 637 N.Y.S.2d 972 [internal quotation marks omitted] ).

The doctrine of collateral estoppel, or issue preclusion, is “a component of the broader doctrine of res judicata which holds that, as to the parties in a litigation and those in privity with them, a judgment on the merits by a court of competent jurisdiction is conclusive of the issues of fact and questions of law necessarily decided therein in any subsequent action” ( *133 Gramatan Home Invs. Corp. v. Lopez, 46 N.Y.2d 481, 485, 414 N.Y.S.2d 308, 386 N.E.2d 1328). Collateral estoppel will bar relitigation of an issue where “the issue in the second action is identical to an issue which was raised, necessarily decided and material in the first action, and the plaintiff had a full and fair opportunity to litigate the issue in the earlier action” (Parker v. Blauvelt Volunteer Fire Co., 93 N.Y.2d at 349, 690 N.Y.S.2d 478, 712 N.E.2d 647; see Jeffreys v. Griffin, 1 N.Y.3d 34, 39, 769 N.Y.S.2d 184, 801 N.E.2d 404; Pinnacle Consultants v. Leucadia Natl. Corp., 94 N.Y.2d 426, 432, 706 N.Y.S.2d 46, 727 N.E.2d 543).

Here, the complaints in the four prior actions commenced by the plaintiff against the Gabay defendants were all dismissed insofar as asserted against them on the merits pursuant to the order dated May 7, 2012. The claims asserted in the instant action arise from the same transaction or series of transactions that gave rise to the four prior actions, i.e., the legal assistance provided by Gabay to the plaintiff from November 2007 to December 2007. The majority of the facts alleged in the five complaints are nearly identical, with the only differences being additional causes of action asserted in this action and different entities named as defendants of which Gabay is a principal, differences which nonetheless relate “in time, space, origin [and] motivation” to the claims adjudicated in the four prior actions (Xiao Yang Chen v. Fischer, 6 N.Y.3d 94, 100, 810 N.Y.S.2d 96, 843 N.E.2d 723 [internal quotation marks omitted]; see Smith v. Russell Sage Coll., 54 N.Y.2d 185, 192–193, 445 N.Y.S.2d 68, 429 N.E.2d 746). Inasmuch as all issues related to the plaintiff’s claims sounding in simple legal malpractice were fully and finally decided in the four prior actions, they are barred by principles of res judicata and collateral estoppel (see Kret v. Brookdale Hosp. Med. Ctr., 61 N.Y.2d 861, 863, 473 N.Y.S.2d 970, 462 N.E.2d 147; see also Altamore v. Friedman, 193 A.D.2d 240, 244–245, 602 N.Y.S.2d 894). The plaintiff’s additional causes of action alleging, among other things, deprivation of constitutional rights and conspiracy “could have been raised in the prior litigation” and, consequently, are precluded by the doctrine of res judicata (Matter of Hunter, 4 N.Y.3d 260, 269, 794 N.Y.S.2d 286, 827 N.E.2d 269; see Rowley, Forrest, O’Donnell & Beaumont, P.C. v. Beechnut Nutrition Corp., 55 A.D.3d 982, 984, 865 N.Y.S.2d 390).

R. A. Klass
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Sometimes, a lawsuit is dismissed based upon the concept of claim preclusion…

Sometimes, a lawsuit is dismissed based upon the concept of claim preclusion or collateral estoppel, which was defined by the court in Sang Seok Na v Schietroma, 172 AD3d 1263 [2d Dept 2019]:

“ The doctrine of collateral estoppel, a narrower species of res judicata, precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same ” (Ryan v. New York Tel. Co., 62 N.Y.2d 494, 500, 478 N.Y.S.2d 823, 467 N.E.2d 487). The doctrine of collateral estoppel applies when: “ (1) the issues in both proceedings are identical, (2) the issue in the prior proceeding was actually litigated and decided, (3) there was a full and fair opportunity to litigate in the prior proceeding, and (4) the issue previously litigated was necessary to support a valid and final judgment on the merits ” (Conason v. Megan Holding, LLC, 25 N.Y.3d 1, 17, 6 N.Y.S.3d 206, 29 N.E.3d 215 [internal quotation marks omitted] ).

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