Bill Birds, Inc. v Stein Law Firm, P.C.
Court of Appeals
March 31, 2020
35 N.Y.3d 173 | 2020 NY Slip Op 02125
DiFiore, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected through Wednesday, August 5, 2020.
v
Stein Law Firm, P.C., et al., Respondents.
Argued February 13, 2020; decided March 31, 2020
Bill Birds, Inc. v Stein Law Firm, P.C., 164 AD3d 635, affirmed.
Chief Judge DiFiore.
The singular issue before us in this appeal is whether the Appellate Division erred in dismissing plaintiffs’ claim under
Defendants, attorney Mitchell Stein and his law firm, Stein Law, P.C., represented plaintiffs Bill Birds, Inc., which manufactures decorative metal automobile parts, and its president in a trademark dispute against General Motors, Service Parts Operation (GM) and Equity Management, Inc. (EMI). After the complaint in that action was dismissed, plaintiffs commenced this action against defendants alleging, as relevant here, a violation of
Plaintiffs alleged that defendants advised them that GM had possibly abandoned the trademarks GM had licensed to plaintiffs for over a decade, advising plaintiffs that they had meritorious claims against GM. Based on this advice, plaintiffs commenced the underlying federal trademark action against GM and EMI in the United States District Court for the Eastern District of New York, incurring $25,000 in attorney fees. Plaintiffs alleged that the underlying action—which was dismissed as commenced in an improper venue based on a forum selection clause in plaintiffs’ licensing agreements with GM—clearly lacked merit, in part because a provision in the licensing agreement prohibited plaintiffs from challenging GM‘s ownership of the relevant intellectual property. Plaintiffs further alleged that defendants concealed the dismissal of the underlying action for approximately nine months and subsequently lied about the reason for the delay, claiming that the federal court did not release its decision promptly.
After answering the complaint, defendants moved for summary judgment, arguing, among other things, that the
Supreme Court granted defendants’ motion for summary judgment in part, dismissing the legal malpractice, breach of contract and fraud claims, but denied the motion with respect to the section 487 claim, concluding that plaintiffs’ expert affidavit raised triable issues of fact. Defendants appealed from so much of the order of Supreme Court that denied summary judgment on the section 487 claim, and the Appellate Division reversed, insofar as appealed from by defendants, and granted defendants summary judgment on that claim, dismissing the complaint in its entirety (164 AD3d 635 [2d Dept 2018]). The Court reasoned, inter alia, that plaintiffs failed to allege that defendants intended to deceive the court or any party, as required by the statute. This Court granted plaintiffs’ motion for leave to appeal (32 NY3d 913 [2019]).
Under
Similar to fraud,
In Looff v Lawton, this Court held, under a predecessor statute that employed substantially the same language now found in
As reflected in our decisions in Looff and Amalfitano, the purpose of
“[t]he statute is limited to a peculiar class of citizens, from whom the law exacts a reasonable degree of skill, and the utmost good faith in the conduct and management of the business [e]ntrusted to them . . . To mislead the court or a party is to deceive it; and, if knowingly done, constitutes criminal deceit under the statute” (id. at 14 [emphasis added], quoting Looff v Lawton, 14 Hun 588, 590 [2d Dept 1878]).
Moreover, the language of the statute is aimed at a particular type of deceit or collusion—done by an attorney with the intent to mislead the court or a party (see id.; Looff, 97 NY at 482). While attorneys must zealously advocate for their clients, such deception or collusion is antithetical to appropriate advocacy, functioning as a fraud on the court or a party. Given the statute‘s origins and purpose, it provides a particularized civil remedy, and criminal liability, for a specialized form of attorney misconduct occurring during the pendency of litigation (see id.).
Here, viewing the facts in the light most favorable to plaintiffs (see De Lourdes Torres v Jones, 26 NY3d 742, 763 [2016]), defendants established prima facie entitlement to judgment as a matter of law on the
Accordingly, the order of the Appellate Division should be affirmed, with costs.
I. Factual and Procedural History and the Parties’ Arguments on this Appeal
A. Plaintiffs Seek Legal Advice from Defendants
Plaintiffs are Bill Birds, Inc., a New York corporation that manufacturers and distributes decorative metal automotive parts for antique autos, and its president and owner, William Pelinsky. In February 1995, under a licensing agreement with General Motors automobiles (GM), Pelinsky, then doing business as Bill Birds, acknowledged, amongst other things, GM‘s title to certain trademarks and manufacturing technology and agreed not to attack or impair GM‘s intellectual property rights.
After 11 years of renewing the agreement, Pelinsky became concerned that he was being treated unfairly by GM. He sought legal advice from defendant Mitchell A. Stein, principal of codefendant Stein Law Firm, P.C., regarding Bill Birds’ ownership of trademarks and copyrights ostensibly covered by the agreements. According to plaintiffs, defendants represented that they thoroughly researched this area of the law and concluded that GM did not own the rights licensed to Bill Birds. On the strength of this advice, plaintiffs chose not to renew the agreement with GM.
B. Defendants File a Federal Lawsuit on Plaintiffs’ Behalf
Thereafter, GM, through its licensing manager, Equity Management, Inc. (EMI), threatened legal action to prevent plaintiffs’ manufacture of the parts covered under the prior agreements. Based on defendants’ legal advice that plaintiffs would prevail against GM because “plaintiffs had superior rights to the trade marks and copy[rights],” plaintiffs retained defendants to litigate on their behalf against GM and EMI. Defendants filed an action in New York federal district court alleging fraud on the ground that GM knowingly misrepresented that it had registered trademarks so that Polinsky would enter the licensing agreements. By way of example, the complaint alleges,
“plaintiffs . . .paid a license fee and royalties, pursuant to various purported license agreements and term sheets, to defendants in order for plaintiff to use certain intellectual property defendants represented were owned by them, only to now find
out that defendants either did not own or have authority to license said intellectual property, or that said intellectual property does not exist or apply to the goods sold by plaintiffs. . . . “[D]espite representing otherwise, defendants do not own valid rights for the vast majority of the products and marks included in the purported License Agreements for use with General Motors automobile emblems and/or trim.”
The federal complaint also alleged that GM‘s false claims of ownership or merchandising rights to the trademarks, trade names, service marks, copyrights, and related items licensed to plaintiffs constituted a breach of the licensing agreements between the parties.
GM and EMI moved to dismiss, in part, under
The court granted the motion based on improper venue, concluding that plaintiffs “failed to rebut the presumption of enforceability” of the forum selection clause as they did not “meet the heavy burden of establishing that an enforceable forum selection clause should be deemed unreasonable based on fraud.” In rejecting plaintiffs’ fraud argument, the court noted that “[p]laintiffs overlook the prevailing law governing this issue” and that plaintiffs’ “[i]nconvenience and expense do not meet the test for unreasonableness.”
C. Plaintiffs File a State Court Action against Defendants for, among Other Things, Violation of
Represented by new counsel, plaintiffs filed the instant state court action against defendants, seeking damages for defendants’ alleged violation of
Defendants disclaimed liability and eventually moved for summary judgment under
In opposition, plaintiffs submitted the affidavit of an attorney specializing in intellectual property, who averred it was “clear” to him defendants did not “accurately represent the situation between the plaintiffs as licensees of GM.” He explained that Stein‘s alleged statement, “I looked in the trademark office files and found nobody really owned anything” was “not an accepted practice to determine whether a trademark is ‘owned’ by anyone.” Instead, plaintiffs’ expert explained that to properly search “the trademark office files,” each of the over 200 products in an attachment incorporated into the licensing agreement would have to be “clearly identified . . . . For many of the Licensed Products it [was] unclear what specific model name/trademark [was] identified by the Licensed Product.” Thus, it would not have been possible for Stein to determine GM‘s ownership interest in at least this subset of licensed products. In fact, three trademarks for goods directly related to automobiles were current registered trademarks at the United States Patent and Trademark Office in early 2006, at the time defendants allegedly “looked into the trademark office files.” Thus, GM had exclusive rights to at least these trademarks at the time plaintiffs filed the federal lawsuit.2 The attorney further commented on the failure to properly advise plaintiffs:
“[D]efendant[‘]s statements leave me in awe in that the defendants did not explain that in fact plaintiffs had no rights to the decorative parts they were manufacturing and that it did not matter whether they were bona fide registered trademarks or parts in the public domain, they were subject to the terms of the License Agreement.”
The lack of advice was stunning enough, but the attorney was “further in awe” that defendants encouraged plaintiffs to
Plaintiff Pelinsky also submitted his affidavit describing Stein‘s alleged misrepresentations. Pelinsky testified that Stein gave him “improper advice, without even acquiring the knowledge he needed to have to give any such advice” thereby inducing Pelinsky to pay $25,000 in attorney fees to “chas[e] rainbows” in pursuit of a “fictitious cause of action.” He averred that defendants never discussed with him the forum in which the federal litigation would be brought. He explained that defendants had Pelinsky sign a document, which defendants represented was required to bring the litigation in a New York court. Plaintiffs later learned the document was to support their opposition to General Motors’ motion to dismiss. Pelinsky explained that once the court dismissed the case for improper venue, defendants failed to notify him until the limitations period had nearly run. When confronted about defendants’ dilatory communication about dismissal of the complaint, Stein fabricated the excuse that the district judge had held the decision in chambers. Pelinsky also explained that, during the litigation, he made numerous inquiries into the status of the case, and he was assured that litigation “takes time.” According to Pelinsky, when he confronted Stein about why he did not refile in Michigan, Stein responded it does not matter because plaintiffs had superior rights. Stein offered to file copyrights on plaintiffs’ behalf for an additional $37,000 legal fee. Plaintiffs also submitted evidence that they paid defendants an initial fee of $7,500 to perform initial research and draft a complaint. To commence the litigation, plaintiffs agreed to an additional fee that brought the total fees paid defendants to $25,000.
Pelinsky‘s brother, at the time counsel for plaintiffs, submitted an affirmation corroborating his brother‘s version of defendants’ conduct, recounting his brother‘s statements and his own personal observations of defendants’ conduct during and after the filing of the federal lawsuit.
Supreme Court granted the motion in part and dismissed all but the
Plaintiffs’ sole contention before us is that their Judiciary Law cause of action was wrongly dismissed on summary judgment because there are triable issues of fact regarding defendants’ alleged deceit.3 In response, defendants argue that, as a matter of law, section 487 does not apply to prelitigation statements and acts, and plaintiffs cannot establish any damages caused by Stein‘s alleged misconduct. I would reverse the Appellate Division because plaintiffs state a viable cause of action under
II. Applicable Law
A. Summary Judgment Standard
To succeed on their motion for summary judgment, defendants had to “make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact” (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986], citing Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]; see also
“Since [summary judgment] deprives [a] litigant of [their] day in court it is considered a drastic remedy which should only be employed when there is no doubt as to the absence of triable issues” (Andre, 35 NY2d at 364 [citation omitted]). “When deciding such a motion, ‘the court‘s role is limited to issue finding, not issue resolution’ ” (Dormitory Auth. of the State of N.Y. v Samson Constr. Co., 30 NY3d 704, 717 [2018, Rivera, J., dissenting], quoting Kriz v Schum, 75 NY2d 25, 33 [1989]). “Summary judgment disposition is inappropriate where varying inferences may be drawn, because in those cases it is for the factfinder to weigh the evidence and resolve any issues necessary to a final conclusion” (id.). Instead, the “facts must be viewed in the light most favorable to the non-moving party” (Vega v Restani Constr. Corp., 18 NY3d 499, 503 [2012] [internal quotation marks omitted]). Only after the moving party makes a prima facie showing does “the burden shift[ ] to the party opposing the motion for summary judgment to produce evidentiary proof in admissible form sufficient to establish the existence of material issues of fact which require a trial of the action” (Alvarez, 68 NY2d at 324). “The moving party‘s failure to make a prima facie showing of entitlement to summary judgment requires a denial of the motion, regardless of the sufficiency of the opposing papers” (Vega, 18 NY3d at 503 [citation, internal quotation marks and alterations omitted]).4
“An attorney or counselor who:
“1. Is guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party; or,
“2. Wilfully delays [their] client‘s suit with a view to [the attorney‘s] own gain; or, wilfully receives any money or allowance for or on account of any money which [the attorney] has not laid out, or becomes answerable for,
“Is guilty of a misdemeanor, and in addition to the punishment prescribed therefor by the penal law, [the attorney] forfeits to the party injured treble damages, to be recovered in a civil action.”
Few decisions from this Court address attorney deceit at common law and under section 487. In Looff v Lawton (97 NY 478 [1884]), the Court considered attorney deceit under 2 Revised Statutes of New York, part III, ch III, tit II, art 3 § 68 at 287 (1st ed 1829), a similarly worded precursor statute to
“That said advice and counsel was so given, willfully, corruptly and fraudulently, with intent to deceive and defraud these plaintiffs, and to induce
“them to institute and maintain a useless and expensive suit, with full knowledge on [counsel‘s] part; that if accepted, believed and followed, the plaintiffs would be subjected to great and unnecessary expense to . . . the defendant‘s . . . great benefit, profit and advantage” (id.).
Relying on this advice, plaintiffs commenced a partition action and the property was sold. Plaintiffs incurred costs and fees associated with the lawsuit, which they sought to recover under section 68. In opposition, counsel disputed that his legal advice represented a misrepresentation of fact sufficient to give rise to a claim.
The trial court dismissed the complaint and denied the motion for a new trial. The General Term of Supreme Court reversed, concluding the legislature did not intend to limit the scope of section 68 to “common law or statutory cheats” because lawyers “should be liable for acts which would be insufficient to establish a crime or a cause of action against citizens generally” (id. at 589-590). The Court explained:
“An attorney or counsellor who advises ignorant adult owners of land that they are not competent to convey it, and thereby induces them to employ [counsel] to institute a suit in partition, and incur the expense thereof, for the purpose of effecting a sale of the lands, gives them erroneous advice, and thereby misleads them to their injury, and if [counsel] is qualified to perform the functions of an attorney, [counsel] does it knowingly. To mislead the court or a party is to deceive it; and, if knowingly done, constitutes criminal deceit under the statute cited” (id. at 590).
In short, the Court concluded that an attorney was liable for criminal deceit under section 68 for knowingly providing erroneous legal advice, even if the attorney was negligent and lacked a malicious intent.
Our Court reversed, distilling the inquiry to a choice between two possible interpretations of the statutory text:
“The question then arises whether the section under consideration has reference to the giving of wrong advice, before any action has been commenced, by an attorney to [their] client, when either one of two courses may be pursued, and thereby inducing the client to take that course
“which is most expensive and injurious, and causing [the client] unnecessarily to incur large expenses, which, if proper advice had been given, might have been avoided, or does it mean deceit and collusion practiced by the attorney in a suit actually pending in court, with the intent to deceive the court or the party?” (Looff, 97 NY at 482).
The Court adopted the latter interpretation, based on the text and the fact that other provisions immediately following section 68 address actions brought or intended to be brought by an attorney (id., citing 2 Rev Stat of NY, part III, ch III, tit II, art 3 §§ 69, 70, 71, 72 at 287-288 [1st ed 1829]). The Court concluded that while section 68 does not cover damages for an attorney‘s wrong advice, by its terms it applies to “a case where the attorney intends to deceive the court or [the] client by collusion with [an] opponent, or by some improper practice” (id. at 482).6 Accordingly, section 68 did not contemplate “transaction[s] antecedent to the commencement of the action, as the court could have no connection with any such proceeding” (id.). Looff thus made clear that erroneous pre-filing advice did not give rise to a cause of action for attorney deceit under the prior statute.
Fast forward over a century, past the legislature‘s enactment of
“signed the verified complaint, thereby certifying that he had determined, after reasonable inquiry, that the factual allegations in the complaint were true and that the causes of action pleaded were not completely without merit in law. In fact, defendant [attorney] knew that there was no competent evidence to support any of the material elements of any of the causes of action contained in the complaint.”
The court found that, “[a]t the very least,” those actions undertaken by the attorney which “directly conflicted with his knowledge of the validity of the [assignment agreement] constitute[d] violations of § 487” (Amalfitano, 428 F Supp 2d at 208). Our Court concluded that the defendant‘s alleged unsuccessful representation did not foreclose plaintiffs’ subsequent statutory action for attorney deceit because “recovery of treble damages under
Based on a historical overview of the statutory origins of
In explaining the evolution of the legislative enactments in the Penal Law that led to the passage of
This history confirms that
Five years later, in Melcher, we determined that a claim for attorney deceit under
These three decisions stand for several propositions that inform the analysis here. First, an action for attorney deceit existed under New York‘s common law and predates the first state statute from 1787, which itself originated in English law and led to the enactment of
Applying these propositions here leads to the logical conclusion that
Judiciary Law § 487 Cause of Action
In order to establish entitlement to summary judgment as a matter of law, defendants had to show conclusively by admissible evidence that there is no triable issue of fact as to whether defendants practiced a deceit on the court or a party to the federal action, so that plaintiffs’
Contrary to the defendants’ view, adopted by the majority (majority op at 179), plaintiffs’ complaint is not limited to mere pre-litigation conduct, but rather asserts that defendants made initial and continued false representations to the court about the legal and factual basis for the federal action in the federal complaint and plaintiffs opposition to defendants motion to dismiss (see discussion, supra part I. A.). Viewed in the light most favorable to plaintiffs as the non-moving party (Vega, 18 NY3d at 503), plaintiffs’ complaint asserts that the federal lawsuit against GM had no legal basis and was “grounded in a material misrepresentation of fact” (Amalfitano, 12 NY3d at 15)—i.e., that plaintiffs had superior rights and thus should prevail. But for defendants’ material misrepresentations with respect to plaintiffs’ claims, the federal lawsuit “could not have gone forward” (id.; see e.g. Amalfitano, 428 F Supp 2d at 208 [noting that the attorney had filed a complaint challenging the validity of the assignment agreement and alleging, in part, that his client was still a partner in the family businesses, despite the fact that the attorney knew that his client‘s partnership interest had earlier been terminated by that same assignment agreement]).
Plaintiffs’ factual assertions regarding defendants’ pre-litigation conduct provide context to these allegations. The documents in opposition to summary judgment, including statements by Pelinsky and the intellectual property attorney, provide further support for a finding that defendants’ filing and litigation posture evinced an orchestrated scheme to charge legal fees for an action that the attorneys knew to be frivolous. Indeed, defendants do not dispute that they represented plaintiffs and that plaintiffs paid legal fees for filing and defending a lawsuit; they merely claim they did nothing wrong and thus did not act with the requisite intent. However, as a general matter, deceitful intent is a question of fact, not appropriate for resolution on summary judgment (see e.g. Matter of Ruiz v McKenna, 40 NY2d 815, 816 [1976]; Dygert v Remerschnider, 32 NY 629 [1865]; ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 131 AD3d 427, 428 [1st Dept 2015]; Brown v Lockwood, 76 AD2d 721, 732 [2d Dept 1980]). Defendants also took the position below that plaintiffs could not have prevailed in the federal action because the licensing agreement‘s no-challenge clause foreclosed the litigation—information obvious from the face of the agreement, and which all the more supports plaintiffs’ allegation that defendants’ actions were fraudulent from the beginning.
The majority misses the mark by concluding that there is no meaningful distinction between attorney conduct that leads to
Applying our summary judgment standard here, assuming without deciding that defendants met their prima facie burden, plaintiffs presented evidence in opposition to defendants’ motion sufficient to show a viable cause of action under
IV. Judiciary Law § 487 Does Not Target Good Faith Lawyering
The majority relies on a general statement from a case not involving
Again, that is not a reason to invoke the drastic remedy of summary judgment under the circumstances presented by this appeal. Plaintiffs may be dissatisfied clients (a quite reasonable and rational response if their allegations are true), but they are not dissatisfied because plaintiffs believe defendants filed a colorable action that failed, as the Appellate Division suggested. Rather, plaintiffs are dissatisfied because, according to plaintiffs, counsel schemed to induce them to pay legal fees for pursuing a meritless lawsuit that counsel knew should never have been filed. The latter is actionable under section 487.
This interpretation of section 487 and our precedents would not subject attorneys to liability for “poor lawyering, negligent legal research or the giving of questionable legal advice” (majority op at 180 n 3). An attorney is not subject to liability under
Defendants were not entitled to summary judgment dismissal of plaintiffs’ cause of action for alleged violation of
Judges Stein, Fahey, Garcia, Wilson and Feinman concur; Judge Rivera dissents in an opinion.
Order affirmed, with costs.