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New York Court Dismisses Case Where Counsel Followed Client’s Aggressive Strategy

Scarola Malone & Zubatov LLP v. Ellner, 2021 NY Slip Op 31199(U), April 8, 2021 (Supreme Court New York County) began with a lawsuit for legal fees against a client who declined to pay. The Defendant then filed a counterclaim alleging legal malpractice. The counterclaims alleged that the law firm made several errors in representing the defendants in civil litigation essentially by refusing to accept a buyout or settlement of the underlying litigation. The court dismissed the legal malpractice counterclaim on the ground that Ellner was sophisticated and imposed his strategic plan for the case on the lawyers. The lawyers exercised judgment and did not commit malpractice.

The reasoning:

Where a sophisticated client imposes a strategic decision on counsel, the client’s action absolves the attorney from liability for malpractice (Town of North Hempstead v Winston & Strawn, LLP, 28 AD3d 746 [2006]; Stolmeier v Fields, 280 AD2d 342 [2001]). Additionally, with regard to strategic decisions “the selection of one among several reasonable courses of action does not constitute malpractice” (Rosner v Paley, 65 NY2d 736, 738 [1985]). “Attorneys may select among reasonable courses of action in prosecuting their clients’ cases without thereby committing malpractice … so that a purported malpractice claim that amounts only to a client’s criticism of counsel’s strategy may be dismissed” (Dweck Law Firm, LLP v Mann, 283 AD2d 292, 293 [2001]). Hindsight arguments concerning selection of one of several reasonable courses of action do not state a viable cause of action for malpractice (Brookwood Cos., Inc. v Alston & Bird LLP, 146 AD3d 662, 667 [2017]).

In this case, the Lightbox defendants’ counterclaims stem from the Scarola firm’s representation of them in a business dispute and litigation related to a joint venture agreement between the Lightbox defendants and a nonparty entity named 3rd Home Limited. The counterclaims allege that the Scarola firm made several mistakes during the course of its representation of the Lightbox defendants, specifically: failing to advise the Lightbox defendants to accept a potential buyout from 3rd Home Limited; recommending that the Lightbox defendants litigate in an “uber aggressive” manner rather than advising them to settle, causing the Lightbox defendants to “waste” money on experts; failing to provide the Lightbox defendants with an estimate of future legal fees and expenses; and advising the Lightbox defendants to activate a website, which resulted in their being subject to claims for, among other things, cybersquatting and trademark infringement.

Lightbox’s allegations relate primarily to strategic decisions made during the course of the Scarola firm’s representation. Regarding the allegations that the Scarola firm took an overly aggressive approach, the documentary evidence shows that the Lightbox defendants consistently rejected attempts to settle, for reasons having nothing to do with any advice received from the Scarola firm. While Mr. Ellner occasionally expressed interest in settling with 3rd Home Limited, when he did so, it was his settlement demands that could best be characterized as aggressive, and he rejected actual offers of settlement. Additionally, it is clear from the pleadings that when the Lightbox defendants retained the Scarola firm, they wanted to “preserve and grow” the joint venture business and were not interested in a buyout.

Mr. Ellner is a sophisticated businessman, with degrees from Wharton and the University of Chicago as well as an impressive business background. The Scarola firm cannot be held liable for failing to counsel the Lightbox defendants regarding an objective that they did not support. There is also no allegation that there was a buyout or settlement offer that would have been made and accepted but for the Scarola firm’s advice. The damages incurred by loss of a potential buyout are completely speculative (see Heritage Partners, LLC v Stroock & Stroock & Lavan LLP, 133 AD3d 428 [2015] [dismissing legal malpractice claim where damages were based on multiple layers of speculation]; see also Zarin v Reid & Priest, 184 AD2d 385, 388 [1992] [rejecting a claim for damages which are “too speculative and incapable of being proven with any reasonable certainty”]). As for damages, most of the legal fees charged by the Scarola firm were incurred after the Lightbox defendants decided to reject the 3rd Home Limited’s settlement offer.

Similarly, the claim that the Scarola firm was negligent in “encouraging and advising” the Lightbox defendants to go live with their website, which ultimately caused them to be subject to litigation and liability for cybersquatting, must fail. The alleged advice from the Scarola firm regarding use of the website registered by the Lightbox defendants is not alleged to have been wrong or incorrect under settled law, and was protected by the professional judgment rule. Additionally, the Lightbox defendants acted primarily without seeking advice of counsel, and they claim that the Scarola firm provided negligent advice only as to one of the three acts which caused the cybersquatting and related claims against them. As such, they would have been subject to claims regardless of the advice given to them by the Scarola firm.

Comment: New York has added a wrinkle to the judgment call defense by distinguishing this case because a “sophisticated client” imposed his strategic vision on counsel. The case seems to be saying not that the lawyers used good judgment but that the client’s poor judgment absolves them of liability.

Ed Clinton, Jr.

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