Attorney Has No Liability For Talking Client Into Filing Meritless Lawsuit

Bill Birds Inc. v Stein Law Firm, 2020 NY Slip Op 02125 (NY Court of Appeals, 3/31/2020)

New York’s top court ruled today that an attorney faces no liability or penalty of any kind for giving a client bad advice that induces him to file a lawsuit that has no legal merit.

Plaintiffs, a New York corporation that manufacturers and distributes decorative metal automotive parts for antique autos, alleged that defendants, their former law firm, 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 (the forum clause required all suits to be brought in Michigan). Plaintiffs further alleged that Stein 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.

In February 1995, under a licensing agreement with General Motors, plaintiff acknowledged, GM’s title to certain trademarks and manufacturing technology and agreed not to attack or impair GM’s intellectual property rights.

After eleven years of renewing the agreement, plaintiff became concerned that he was being “treated unfairly by GM.” He sought legal advice from defendant Stein Law Firm, P.C., regarding Bill Birds’ ownership of trademarks and copyrights ostensibly covered by the agreements. According to plaintiffs, Stein 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.

After their suit against GM was dismissed, Plaintiffs sued Stein, alleging legal malpractice, breach of contract and fraud claims, and also a claim under New York’s Judiciary Law section 487.  Judiciary Law § 487—covering intentional deceit and collusion—imposes liability on attorneys for intentionally making of false statements.

Supreme Court dismissed the malpractice, contract and fraud claims, but left the Section 487 claim alive. The Appellate Division affirmed. But the Court of Appeals dismissed that too, on the grounds that the false statements were made before the lawsuit was filed and after the lawsuit was dismissed.

The Court of Appeals explained that under Judiciary Law § 487, allegations that an attorney provided “false and untrue” legal advice to induce plaintiffs to bring an unnecessary lawsuit, motivated solely by the attorney’s desire to collect a large fee, does not state a claim because the statute applies only to conduct that occurs in the context of “an action pending in a court”—not misleading advice preceding an action. Because the purported deceit occurred before the judicial action was commenced, “there was no court or party to be deceived within the meaning of the statute.”

“To the extent defendants were alleged to have made deceitful statements, plaintiffs’ allegation that defendants induced them to file a meritless lawsuit based on misleading legal advice preceding commencement of the lawsuit… is insufficient to state a viable attorney deceit claim. The statute does not encompass the filing of a pleading or brief containing nonmeritorious legal arguments, as such statements cannot support a claim under the statute.  Similarly, even assuming it constituted deceit or collusion, defendants’ alleged months-long delay in informing plaintiffs that their federal lawsuit had been dismissed occurred after the litigation had ended and therefore falls outside the scope of Judiciary Law § 487 (1). Thus, plaintiffs’ Judiciary Law § 487 cause of action was properly dismissed.

Comment: This is actually a fascinating example of “legal loopholes.” An attorney who makes false statements to induce a client before a lawsuit is filed, and then makes more false statements after the lawsuit is dismissed, is free from legal liability to the client.