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Current Developments in the Commercial Divisions of the
New York State Courts by Schlam Stone & Dolan LLP
Posted: November 17, 2019

Plaintiff Cannot Save Time-Barred Legal Malpractice Claims by Re-Characterizing Them as Fraud Claims

On November 4, 2019, Justice Scarpulla of the New York County Commercial Division issued a decision in Wimbledon Financing Master Fund, Ltd. v. Hallac, 2019 NY Slip Op. 33281(U), holding that plaintiffs could not save time-barred legal malpractice claims by recharacterizing them as fraud claims, explaining:

Katten argues that Wimbledon’s causes of action are actually mislabeled attorney malpractice claims and that Wimbledon’s nomenclature is an attempt to avoid the shorter statute of limitations for malpractice claims. In opposition, Wimbledon argues that New York lacks a per se rule that attorneys sued for malpractice cannot also be sued for intentional misconduct; and that the fraud allegations here are not only incidental to another cause of action.

The statute of limitations for claims of legal malpractice is three years. A legal malpractice cause of action accrues when the malpractice is committed, not when the client learns of it.

Notably, the New York legislature amended CPLR 214(6) in 1996 to make clear that where the underlying complaint is one which essentially claims that there was failure to utilize reasonable care or where acts of omission or negligence are alleged or claimed, the statute of limitations shall be three years if the case comes within the purview of CPLR Section 214(6), regardless of whether the theory is based in tort or in a breach of contract. Further, CPLR 214(6) was enacted to prevent plaintiffs from circumventing the three-year statute of limitations for professional malpractice claims by characterizing a defendant’s failure to meet professional standards as something else. To determine whether a claim is duplicative of a malpractice claim, a court must discern the essence of each claim.

Here, the essence of Wimbledon’s claims is that Katten should have disclosed information that it knew and should have given different advice. These are plain allegations of malpractice despite being labeled as claims for aiding and abetting fraud and aiding and abetting breach of fiduciary duty.4 Moreover, permitting these claims to go forward as claims for aiding and abetting fraud and aiding and abetting breach of fiduciary duty is contrary to the legislative intent of CPLR 214(6).

Courts frequently deem claims for fraud and breach of fiduciary duty duplicative of legal malpractice when the former claims are based upon the same facts as the malpractice claim.

In this case, the complaint lacks any facts other than those that support a malpractice claim i.e., facts pertaining to Katten’s failure to make disclosures, alleged bad legal advice and conflicts of interest.

Additionally, Wimbledon’s allegations that Katten engaged in continuing concealment by failing to disclose information about Gerova and Arius Libra to the board amount to allegations that Katten failed to disclose its own malpractice, and do not furnish support for fraud claims.

Katten also argues that Wimbledon’s damages theory is identical to that of a malpractice action, again demonstrating that this is truly a claim for malpractice. Wimbledon counters that even if the damages it seeks are the same as damages for an attorney malpractice claim, this is not determinative of whether Wimbledon’s aiding and abetting claims are duplicative of a malpractice claim.

Wimbledon’s complaint seeks judgment against Katten for forfeiture of fees and disgorgement of any ill-gotten gains. Wimbledon’s demand for the return of attorneys’ fees paid to Katten is fundamentally a claim for money damages. It does not seek separate damages from those stemming from malpractice. Furthermore, Wimbledon’s use of the word disgorgement cannot transmute the claim into one with a longer limitations period because purely semantic distinctions cannot control the application of the statute of limitations. Thus, even if Wimbledon’s claims were not merely mislabeled attorney malpractice claims, the claims would still be dismissible as duplicative.

Considering the foregoing, Wimbledon’s claims against Katten, though pled as fraud, are for attorney malpractice. Accordingly, the applicable statute of limitations period is three years.

(Internal quotations and citation omitted).

We both bring and defend breach of fiduciary duty and professional malpractice claims and other claims relating to the duties of professionals such as lawyers, accountants and architects to their clients. Contact Schlam Stone & Dolan partner Erik Groothuis at egroothuis@schlamstone.com if you or a client have questions regarding such claims or appeals of such claims.

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