Commercial Division Blog
Counsel Hired to Bring Claim For Benefit of a Corporation Cannot Be Sued for Malpractice by the Person Who Engaged Them; the Claim Belongs to the Corporation
On February 26, 2021, Justice Ostrager of the New York County Commercial Division issued a decision in Glaubach v. Miller, 2021 NY Slip Op. 30541(U), holding that counsel hired to bring a claim for the benefit of a corporation cannot be sued for malpractice by the person who engaged them because the malpractice claim belongs to the corporation, explaining:
Even if there were no such documentary evidence refuting plaintiff’s claim, the Complaint would still need to be dismissed because plaintiff lacks standing to bring a legal malpractice claim against defendants. The present action is brought by Glaubach as an individual, but the right of recovery, if any, belongs to Personal Touch.
Pursuant to BCL § 720, an individual, in their capacity as officer or director, is permitted to sue the corporate management for malfeasance without having to make a pre-suit demand on the corporate board as required for shareholder derivative claims under BCL §626. Although a BCL § 720 claim does not need to be brought in the name of the corporation, the cause of action and right of recovery belongs solely to the corporation and not the individual officer or director bringing the lawsuit.
In opposition, plaintiff raises issues of privity. Plaintiff argues that because plaintiff retained Graubard Miller and Graubard Miller appeared in the case as plaintiff’s attorney, that retention creates privity between plaintiff and defendants and confers standing. This argument misses the point. Plaintiff’s Complaint in the present against alleges a failure to properly assert claims pursuant to BCL § 720. Although claims brought under BCL § 720 are brought by a particular officer, here – Glaubach, the cause of action and right of recovery has always belonged to Personal Touch. Therefore, Glaubach as an individual has no cause of action for legal malpractice against defendants.
(Internal quotations omitted).
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