stall, offering excuses for his failure to make the payment and promising
that a check was forthcoming. Eventually, however, the scheme unraveled,
and Pickett took back control of the team in 1997.
Alleging that Spano caused $10 million in damages to the club during
his brief tenure as "owner," Islanders commenced this lawsuit against
Comerica and its Senior Vice President Lynch on September 15, 1998. The
complaint alleged, among other things, fraud and negligent
misrepresentation, in that Comerica aided Spano in concealing his lack of
resources to purchase the team. On October 9, 1999, this Court denied the
Defendants' motion to dismiss the case. Islanders, 71 F. Supp.2d 108. On
November 8, 1999, Comerica filed a third-party complaint for contribution
against R&O, alleging that the law firm negligently failed to act with
due diligence in regard to Spano's finances prior to the sale, and
negligently failed to take action even though suspicious evidence
revealing Spano's fraud began emerging after the closing. The third-party
complaint contends that R&O's legal malpractice contributed to Islanders'
damages, and thus, R&O may be partially or wholly liable for any judgment
obtained by Islanders against Comerica.
R&O now moves to dismiss the third-party complaint, arguing that it has
secured a release from Islanders, and thus, is immune to contribution
suits under the provisions of New York General Obligations Law §
15-108(b). In addition, R&O contends that the third-party complaint
fails to state a claim for legal malpractice because: it had no duty to
conduct the due diligence suggested by Comerica; Comerica cannot allege
that R&O's negligence, if any, was the proximate cause of Islanders'
loss; any damages caused by R&O's negligent acts will be chargeable to
its principal, Islanders, and thus, offset any claim for contribution,
rendering the third-party complaint unnecessary; and permitting R&O to be
sued as Third-Party Defendants would subvert public policy, depriving
Islanders of their chosen counsel.
In opposition, Comerica argues that the release obtained from Islanders
was not given in good faith, and is thus outside of the provisions of
Gen. Obl. L. § 15-108(b); that the third-party complaint adequately
states a claim for legal malpractice; and that the contribution claim is
necessary to protect Comerica's rights and does not offend public
policies. Without obtaining leave of the Court, Comerica also filed a
sur-reply brief, purporting to address issues raised by R&O for the first
time in its reply brief. The Court has examined the sur-reply and finds
that it raises no arguments that could not have been address by Comerica
in its initial opposition brief. Therefore, the Court has not considered
any of the arguments in Comerica's surreply. Bonnie & Co. Fashions Inc.
v. Bankers Trust Co., 945 F. Supp. 693, 707 (S.D.N.Y. 1996).
The court may not dismiss a third-party complaint under Fed.R.Civ.P. 12
(b)(6) unless it appears beyond doubt that the defendant can prove no set
of facts in support of its claim which would entitle it to relief. King
v. Simpson, 189 F.3d 284, 286 (2d Cir. 1999); Beruheim v. Litt,
79 F.3d 318, 321 (2d Cir. 1996). The court must accept as true all
factual allegations in the third-party complaint as true and draw all
reasonable inferences in favor of defendant. Id.; Jaghory v. New York
State Dep't of Educ., 131 F.3d 326, 329 (2d Cir. 1997). The issue to
consider is not whether the defendant will ultimately prevail on the
third-party complaint, but whether the claimant is entitled to offer
evidence to support the claims. Villager Pond, Inc. v. Town of Darien,
56 F.3d 375, 378 (2d Cir. 1995). The court must confine its consideration
"to facts stated on the face of the third-party complaint, in documents
appended to the complaint or incorporated in the complaint by reference,
and to matters of which judicial notice may be taken." Tarshis v. Riese
Organization, 211 F.3d 30, 39 (2d Cir. 2000); Leonard F. v. Israel
Discount Bank of N.Y., 199 F.3d 99, 107
(2d Cir. 1999); Hayden v. County of Nassau, 180 F.3d 42, 54 (2d Cir.
R&O's first argument is that it has been granted a release by Islanders
and is thus immune from contribution claims under Gen Obl. L. §
15-108(b). This theory relies on a document- the release itself —
that is neither appended to nor incorporated by reference in the
third-party complaint, nor any of the other pleadings filed to date.
Because Comerica contests the validity of the release, given the
less-than-arm's-length relationship between Islanders and R&O and the
nominal consideration of $10 paid by R&O for the release when Islanders
are claiming damages of $10 million against Comerica, the Court cannot
rule on the issue without converting the instant motion to a motion for
summary judgment under Rule 56. Leonard F., 199 F.3d at 107, citing Rule
12(b) ("[if] matters outside the pleading are presented to and not
excluded by the court, the motion shall be treated as one for summary
judgment and all parties shall be given reasonable opportunity to present
all material made pertinent to such a motion by Rule 56"). Because
converting the instant motion to a summary judgment motion under Rule 56
would necessarily entail adjourning the matter to permit Comerica to
conduct discovery on the issues regarding the release, the Court finds
that the more appropriate course of action is to exclude the release
defense and deny R&O's motion without prejudice on this ground.
However, the Court finds that the third-party complaint should be
dismissed on another ground. As Comerica alleges, R&O served as counsel
to Islanders throughout the transaction in question. As such, Islanders
is bound by the acts and omissions of R&O, and suffers the consequences
of any missteps made by R&O in the course of its authorization. Link v.
Wabash RR Co., 370 U.S. 626, 633-34, 82 S.Ct. 1386, 8 L.Ed.2d 734
(1962); S.E.C. v. McNulty, 137 F.3d 732, 739 (2d Cir. 1998); Prate v.
Freedman, 583 F.2d 42, 48 (2d Cir. 1978). Consequently, any culpable
conduct by R&O, such as a negligent failure to properly investigate
Spano's financial means, would be attributable to Islanders through agency
principles. Connell v. Weiss, 1985 WL 428 (S.D.N.Y. 1985) ("any recovery
by the Connells against Weiss would be subject to an appropriate
reduction for their agent's negligence" alleged in the third-party
Comerica cites Schauer v. Joyce, 54 N.Y.2d 1, 444 N.Y.S.2d 564,
429 N.E.2d 83 (1981), for the proposition that the New York law permits
just such an action. In Schauer, the plaintiff retained Joyce as her
attorney in a divorce action, and secured a divorce judgment including
alimony. However, because of Joyce's negligence in filing a false
affidavit, the plaintiff's ex-husband was able to have the alimony order
dismissed. 54 N.Y.2d at 4, 444 N YS.2d at 564, 429 N.E.2d 83. The
plaintiff terminated Joyce and retained a second attorney, Gent, who was
eventually able to partially restore the order. The plaintiff then sued
Joyce for malpractice, and Joyce commenced a contribution action against
Gent, alleging that Gent negligently failed to seek reinstatement of the
order earlier. 54 N.Y.2d at 4-5, 444 N YS.2d at 565, 429 N.E.2d 83.
Reversing the dismissal of Joyce's claim against Gent, the Court of
Appeals observed that both attorneys were potentially liable for the same
harm-namely, the plaintiff's loss of alimony following Gent's retention
— and that Joyce thus had a viable claim for contribution under
CPLR § 1401. 54 N.Y.2d at 6, 444 N.Y.S.2d at 565-66, 429 N.E.2d 83.
However, in doing so, the Court of Appeals observed that this cause of
action for contribution existed even though Joyce could assert the
plaintiff's failure to mitigate damages as a defense to the main action.
54 N.Y.2d at 6-7, 444 N.Y.S.2d at 566, 429 N.E.2d 83.
While Schauer superficially appears to authorize Comerica's third-party
complaint, a closer reading reveals it to be distinguishable on several
bases. First, in Schauer, the Court of Appeals stated that
a party may assert an affirmative defense of failure to mitigate and a
third-party action for contribution against the main plaintiff's attorney
simultaneously. However, in this case, Comerica's allegations that R&O
was negligent are not in the nature of an affirmative defense of failure
to mitigate, but rather, are an element of Islanders' claims for fraud
and misrepresentation on which Islanders, not Comerica, will bear the
burden of proving that R&O was not negligent. An essential element of a
claim for fraud or negligent misrepresentation is that the plaintiff
justifiably relied on the misleading statements. Cofacredit, S.A. v.
Windsor Plumbing Supply, 187 F.3d 229, 239 (2d Cir. 1999). In other
words, to prove its case, Islanders must demonstrate that it was
justified in continuing to rely on Comerica's representations of Spano's
wealth, even as the evidence that no such wealth existed slowly
accumulated. Id. at 241 ("[w]here sophisticated businessmen engaged in
major transactions enjoy access to critical information but fail to take
advantage of that access, [courts] are disinclined to entertain claims of
justifiable reliance"), quoting Grumman Allied Indus. v. Rohr Indus.,
Inc., 748 F.2d 729, 737 (2d Cir. 1984). The Court of Appeals' decision in
Schauer does not necessarily compel the conclusion that a defendant can
maintain a third-party action for contribution where the claim
essentially duplicates an element of the plaintiff's own cause of
Finally, R&O cites several cases in which courts have dismissed
third-party actions for contribution where the third-party plaintiff's
interests were adequately protected by application of the doctrine of
comparative fault in the main action. See Eurocom, S.A. v. Mahoney, Cohen
& Co., 522 F. Supp. 1179 (S.D.N.Y. 1981); Hercules Chemical Co. v. North
Star Reinsurance Corp., 72 A.D.2d 538, 421 N.Y.S.2d 67 (1st Dept. 1979).
At least one of these cases, Connell v. Weiss, supra., was decided after
the Court of Appeals' decision in Schauer. In Connell, the seller in a
failed real estate transaction brought an action for tortious
interference with contract against the buyer's attorney, alleging that
the attorney misrepresented to his client that the sellers had canceled a
scheduled closing. Id. The buyer's attorney then commenced a third-party
action for contribution against the seller's attorneys, claiming that
their own negligence or misrepresentations caused the cancellation of the
closing. The court dismissed the third-party action, finding that any
acts by the sellers' attorney would be imputed to the seller for purposes
of the main action against the buyer's attorney, and thus, there was no
practical necessity to permit the third-party complaint for contribution.
Id. at *4. Although Connell does not directly cite Schauer, the court
clearly found that the controlling state law at the time permitted
dismissal under very similar circumstances to this case.
Accordingly, because the Court finds that the allocation of proof on
Islanders claim against Comerica fully protects Comerica from liability
for any negligence committed by R&O, the Court finds that Comerica's
third-party complaint fails to state a claim for contribution, and is
However, the Court has serious concerns about the potential conflict of
interest that arises from R&O's continued representation of Islanders in
this matter. New York's Code of Professional Responsibility DR 5-102(d)
states that "If, after undertaking employment in contemplated or pending
litigation, a lawyer learns that the lawyer or a lawyer in his or her
firm may be called as a witness on a significant issue other than on
behalf of the client, the lawyer may continue the representation until it
is apparent that the testimony may be prejudicial to the client at which
point the lawyer and the firm must withdraw from acting as an advocate."
Here, R&O acknowledges that the attorneys who handled to transaction
will necessarily be major witnesses in the trial of this matter.
However, in light of the discussion above, it is clear that Islanders
will be calling these attorneys as its own witnesses, because Islanders
must demonstrate justifiable reliance on Comerica's misstatements. Thus,
R&O attorneys will not be "called as [witnesses] . . . other than on
behalf of the client" under D.R. 5-102(d). Moreover, there is no
indication that R&O will necessarily be giving testimony adverse to
Islanders. D.R. 5-102(d)'s mandatory disqualification only occurs if it
is shown that the lawyer's testimony will be adverse to the client. Toren
v. Anderson, Kill & Olick, P.C., 185 Misc.2d 23, 710 N.Y.S.2d 799, 803
Although the Court would ordinarily consider R&O's involvement with the
Islanders' deal to be a conflict of interest warranting
disqualification, under the particular circumstances of this case, the
Court finds that R&O may continue to represent Islanders. As principal,
Islanders will be charged with any acts or omissions committed by their
agent R&O. Therefore, the two parties are, in actuality, completely
united in interest for purposes of this proceeding. While it is
conceivable that Islanders may, in the future, seek to hold R&O liable
for alleged acts of negligence, in this case, the two parties will, by
operation of law, present a united front. Accordingly, the Court finds
that it is not necessary to disqualify R&O at this time.
For the foregoing reasons, R&O's motion to dismiss the third-party
complaint is GRANTED, and the third-party case is dismissed.
© 1992-2003 VersusLaw Inc.