Johnson v. Proskauer Rose LLP - 2015 NY Slip Op 03626, 129 A.D.3d 59, 9 N.Y.S.3d 201 (App. Div. 1st Dept.)

Rule:

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, such as a breach of contract (for which there is a six-year statute of limitations). The key to determining whether a claim is duplicative of one for malpractice is discerning the essence of each claim.

Facts:

In July 2011, the clients commenced this action against the law firm. The clients asserted causes of action against defendants sounding in fraud, legal malpractice and unjust enrichment; they also sought a declaratory judgment in their favor and recovery of legal fees, which they claimed were grossly excessive. The fraud claim was supported by the allegations that, at the October 2000 meeting, Waxenberg and Akselrad of the law firm made affirmative statements touting a tax avoidance plan that they had no genuine basis to represent would be an effective one, as well as their failure to apprise the clients of the fact that the law firm was effectively in a business partnership with TDG and had a direct financial interest in clients’ purchasing the services being offered by TDG. The clients claim that the fraud was widespread, since, they alleged, the law firm issued 380 opinion letters to other clients, similar to the one they received, discussing TDG tax avoidance strategies. In connection with the fraud cause of action, the clients sought, inter alia, the taxes, penalties and interest to be assessed by the IRS, and dividend income and appreciation sacrificed by their decision to sell J & J stock at the urging of the law firm. The clients also sought punitive damages based on the law firm’s alleged "conscious, willful and wanton disregard of the rights" of the clients, which was "directed at members of the public, to generate unwarranted and excessive fees." Proskauer and Waxenberg jointly moved to dismiss the clients’ first amended verified complaint, arguing, as is relevant here, that the legal malpractice claim was time-barred before the tolling agreement was executed and that the other substantive claims must be similarly barred based on the duplicative claims doctrine codified in CPLR 214 (6). They further posited that, on the merits, the fraud claim must fail because plaintiffs could not have justifiably relied on any of the representations or omissions attributed to defendants, given the clients’ relative sophistication and the fact that the opinion letter advised that it was merely "more likely than not" that the scheme would pass IRS muster. Finally, defendants asserted that, even were the fraud claim to survive, it did not give rise to a claim for punitive damages. The clients’ argued in opposition to the motion that the continuing representation doctrine tolled the accrual of their malpractice claim until at least April 2006, which was when Proskauer affirmatively informed them that it could not represent them with respect to the tax avoidance plan. They further argued that the fraud and malpractice claims were not duplicative because they rested on different allegations and sought different damages.

Issue:

Was the clients' legal malpractice claim time-barred?

Answer:

Yes.

Conclusion:

The court held that the clients' legal malpractice claim was time-barred, CPLR 214(6), because the statute of limitations began to run on June 8, 2001, when the law firm delivered an opinion letter concerning a certain tax avoidance strategy but the clients did not file suit until July 2011; the continuous representation doctrine did not toll the limitations period because there was no concrete task the lawyer or the firm were likely to perform after the letter was delivered. The clients' fraud claim was not duplicative of the malpractice claim, and, as such, not time-barred because the clients alleged the firm had a lucrative arrangement with a tax strategist, pressured the clients into the tax scheme, and did not disclose the relationship with the tax strategist; the damages the clients sought for the fraud and malpractice claims did not completely overlap.