The Appellate Division, First Department recently affirmed a trial court’s decision granting summary judgment in favor of the defendant law firm, holding that the plaintiff could not prove the proximate cause element of its legal malpractice claim.
In VPC Projects, LLC v. Golenbock Eiseman Assor Bell & Peskoe, LLP, 2021 NY Slip Op 01225 (1st Dep’t Feb. 25, 2021), the plaintiff, a bar owner in Brooklyn, NY, received multiple noise complaints from the bar’s neighbors, along with citations and fines from the city, before the neighbors filed a nuisance action. The plaintiff retained the defendant law firm to represent it in the lawsuit, but there was no retainer agreement or written documentation defining the scope of the defendant’s representation.
After one of the defendant law firm’s attorneys asked the plaintiff’s insurance broker to place the insurance carrier on notice of the claim and to keep the defendant apprised of the coverage status, the plaintiff asked the attorney if it was covered by the carrier. Before the broker advised the attorney as to the availability of coverage, the attorney told plaintiff that it did not have coverage, but that they should “give it a shot just in case” and submit the claim for coverage.
While the nuisance action was pending, the plaintiff closed the bar because its attorney advised that insurance coverage on the nuisance claim was denied and there was risk of liability and defense costs in the action. Plaintiff claims that its lawyer’s advice caused it to close the bar, which resulted in the loss of its investment.
Approximately six months after the bar closed, the plaintiff asked its attorney about the insurance coverage. The attorney learned from the broker that the insurer did not receive notice of the claim. The attorney advised plaintiff that they never received a denial of coverage and that the plaintiff was never provided coverage because the insurance carrier never received the claim or made a coverage determination. After the claim was resubmitted, the insurer advised plaintiff that it would assume its defense under a reservation of rights. The nuisance action ultimately settled, with plaintiff’s insurance company paying a cost-of-defense settlement of all claims and resolving the unreimbursed legal fees owed to defendant.
The plaintiff commenced a legal malpractice action against the defendant relating to its handling of the plaintiff’s insurance coverage in the nuisance action. The defendant denied being retained to make an insurance coverage determination.
The trial court granted the defendant’s motion for summary judgment, holding that the defendant met its burden showing that its scope of representation did not include rendering an insurance coverage determination. The court found that plaintiff’s belief that the defendant would make a coverage determination did not suggest a tacit agreement by the defendant to do so, and that the defendant’s inaction on the issue after relaying the clam to the broker showed that the defendant did not undertake the insurance coverage as part of its scope of representation.
The trial court also held that the plaintiff failed to show that it would not have incurred any damages but for the defendant’s alleged negligence. The court noted that the plaintiff’s evidence demonstrated that the primary reason the plaintiff lost its investment or closed the bar was because the bar was not profitable to warrant dealing with all of the associated fines and noise complaints.
On appeal, the Appellate Division, First Department unanimously affirmed the trial court’s decision. While the First Department did not address the scope of representation issue, the court concluded that the plaintiff could not prove the proximate cause element of its legal malpractice claim. Specifically, the court held that because the calculation of the plaintiff’s damages would rely on gross speculations about future events, including whether the bar would have been open long enough to become profitable and whether the profits would have matched plaintiff’s investment, the plaintiff could not prove that defendant’s alleged negligence proximately caused those damages.
The VPC Projects, LLC decision highlights the importance of not only having a written retainer agreement in place, but also having one that carefully defines the scope of the lawyer’s representation. While the trial court ultimately held that it was not within the law firm’s scope of representation to determine insurance coverage, had the law firm had a written retainer agreement in place limiting the scope of its representation to the defense of plaintiff in the nuisance lawsuit, the defendant could have potentially avoided a legal malpractice lawsuit altogether, or at the least been able to seek pre-answer dismissal of the complaint. Furthermore, the fact that the Appellate Division chose only to focus on the proximate cause element of the legal malpractice claim in its decision and not address the scope of representation suggests that if the plaintiff had been able to provide any evidence to support its damages claim, the outcome may have been different.
