New York Law Review

Tag: attorney liability

  • Leon v. Martinez, 84 N.Y.2d 83 (1994): Attorney Liability for Disregarding Assignment of Settlement Proceeds

    84 N.Y.2d 83 (1994)

    An attorney with notice of a valid assignment of a client’s future settlement proceeds may be liable to the assignee for disbursing the proceeds to the client in disregard of the assignment.

    Summary

    Gina and Xavier Leon, along with Maria Macia, sued Wilfredo Martinez and his attorneys, Ira Futterman and Pearlman, Apat & Futterman, seeking to enforce their claim to a portion of Martinez’s personal injury settlement. The plaintiffs asserted that Martinez assigned them a percentage of his recovery in exchange for their care after his accident. Futterman, aware of the assignment, disbursed the entire settlement to Martinez. The New York Court of Appeals held that the complaint stated a valid cause of action against the attorneys, as they had notice of the assignment and may be liable for disregarding it. The Court also suggested the possibility of an attorney-client relationship between the plaintiffs and Futterman’s firm.

    Facts

    Following an accident, Wilfredo Martinez received care from Gina and Xavier Leon, and Maria Macia. In consideration for their care, Martinez agreed to assign them a portion of any recovery he received from his lawsuit against Hertz. At the request of both Martinez and the plaintiffs, attorney Ira Futterman drafted an agreement where Martinez assigned 5% of his net recovery to Gina Leon, 5% to Xavier Leon, and 15% to Maria Macia. Futterman subsequently settled Martinez’s case against Hertz but disbursed all the net proceeds to Martinez, allegedly in violation of the agreement.

    Procedural History

    The plaintiffs sued Martinez and Futterman, alleging a breach of the assignment agreement and professional misconduct. The Supreme Court dismissed the complaint against Futterman and his firm, finding that drafting the agreement did not create liability. The Appellate Division reversed, holding attorneys could be liable for disregarding a known assignment. The Court of Appeals granted leave to appeal, certifying the question of whether the Appellate Division’s decision was correct.

    Issue(s)

    Whether an attorney who has notice of an assignment of a portion of their client’s recovery can be held liable to the assignees for paying out that recovery in disregard of the assignment.

    Holding

    Yes, because the complaint and supporting affidavit adequately alleged that the instrument prepared by Futterman was intended by all parties to effectuate a present assignment to plaintiffs of interests in the future settlement, and Futterman had notice of this agreement.

    Court’s Reasoning

    The Court of Appeals emphasized that on a motion to dismiss, the pleading should be liberally construed, and the facts alleged in the complaint should be accepted as true. The court emphasized that no particular words are required to effect an assignment, so long as there is a perfected transaction intended to vest in the assignee a present right in the thing assigned. The Court cited Speelman v. Pascal, noting that the words “I give” are sufficient to indicate a present assignment. The Court noted that because Futterman drafted the agreement, he unquestionably had notice of it. The Court reasoned that if an enforceable assignment is proven, Futterman’s payment of the funds entirely to Martinez, in disregard of the agreement, is sufficient to state a cause of action. The Court also rejected the argument that compliance with the assignment would violate ethical duties to Martinez, stating that DR 9-102 only mandates payment to the client of funds “which the client…is entitled to receive.” To the extent the client assigned those funds, he is no longer entitled to them. Furthermore, DR 9-102 creates ethical duties to third parties as to funds to which those third parties are entitled. The Court concluded that the complaint and affidavit were sufficient to support an inference of an attorney-client relationship between plaintiffs and the law firm, thus raising the possibility of legal malpractice or breach of fiduciary duty.

  • Drago v. Buonagurio, 46 N.Y.2d 778 (1978): Attorney Liability for Baseless Lawsuits

    Drago v. Buonagurio, 46 N.Y.2d 778 (1978)

    An attorney is not liable to third parties for initiating baseless legal proceedings on behalf of a client unless the factual situation falls within established categories of tort or contract liability.

    Summary

    The New York Court of Appeals held that an attorney is not liable to third parties for initiating a baseless lawsuit on behalf of a client, absent a recognized tort or contract cause of action. The court declined to create a new cause of action for such conduct, leaving the remedy for baseless lawsuits to professional disciplinary measures and potential legislative action. This decision emphasizes judicial restraint in expanding attorney liability beyond established legal frameworks.

    Facts

    The plaintiff, Drago, sued attorney Brownstein (Buonagurio’s predecessor) for initiating a lawsuit against him on behalf of a client. Drago alleged that the lawsuit was baseless and brought without justification, causing him harm.

    Procedural History

    The Special Term granted Brownstein’s motion to dismiss the complaint for failure to state a cause of action. The Appellate Division reversed. The New York Court of Appeals reversed the Appellate Division, reinstating the Special Term’s dismissal.

    Issue(s)

    Whether an attorney may be held liable to a third party for initiating a baseless legal proceeding on behalf of a client, absent circumstances falling within an established category of tort or contract liability.

    Holding

    No, because the factual situation did not fall within one of the acknowledged categories of tort or contract liability.

    Court’s Reasoning

    The Court of Appeals agreed with the lower courts that the complaint failed to state a cause of action in negligence, abuse of process, or malicious prosecution. The court also rejected the argument that the complaint stated a cause of action for “prima facie tort,” which is defined as “the intentional malicious injury to another by otherwise lawful means without economic or social justification, but solely to harm the other.” The court stated that remedies for baseless lawsuits are best addressed through professional discipline and potential legislative action, rather than creating new causes of action. The court emphasized judicial restraint, noting pending legislative proposals to create new liabilities in such circumstances. As the court noted, the complaint failed to state a cognizable cause of action because the existing factual situations had not fallen within one of the acknowledged categories of tort or contract liability. The court declined to recognize what might be a “new, novel or nameless” cause of action, stating that it would be better suited for the legislature to consider.