The opinion of the court was delivered by: Catterson, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on September 11, 2012
David B. Saxe,J.P. James M. Catterson Karla Moskowitz Rolando T. Acosta Dianne T. Renwick, JJ. Index
Defendants appeal from the judgment of the Supreme Court, New York County (Barbara Jaffe, J.), entered June 17, 2011, upon a jury verdict, awarding plaintiff damages, and bringing up for review an order of the same court and Justice, entered June 7, 2011, which, inter alia, denied defendants' motion for judgment notwithstanding the verdict or, in the alternative, for a new trial.
At issue on this appeal is whether the defendant members of a law firm committed legal malpractice by not advising the plaintiff, Herbert Feinberg, that an agreement with his former business partner to limit the collateral estoppel effect of an arbitration award would have been enforceable in Feinberg's lawsuit against a third party. As set forth in greater detail below, precedent, sparse as it is on this issue, nevertheless mandates that such limiting agreements are not carved-out exceptions to normal collateral estoppel principles. We therefore find that where, as here, an issue has been fully and vigorously litigated, no limiting agreement as to an arbitration award may bar the assertion of a collateral estoppel defense by a third party as to that issue.
We further find that the trial court erroneously denied the defendants' motion for judgment notwithstanding verdict on the basis that the enforceability of limiting agreements had already been determined against the defendants by this Court in 2005, and therefore constituted law of the case. First, this was an incomprehensible conclusion given that the same court essentially permitted the parties to "re-litigate" the issue by introducing expert testimony at trial on the enforceability of limiting agreements. More significantly, it underscored the court's misunderstanding of the law of the case concept. The sole determination made by this Court in 2005 was that Supreme Court had properly granted Feinberg's motion for leave to amend his complaint to plead sufficient facts in support of his claim that his former partner Katz would have been amenable to a limiting agreement. Feinberg v. Boros, 17 AD3d 275, 276, 793 N.Y.S.2d 416, 417 (1st Dept. 2005). In the context of deciding Feinberg's motion, this Court rejected the defendants' argument that as a matter of law limiting agreements cannot impose limitations on third parties. However, we never determined the ultimate claim that had Feinberg and his former partner entered into a limiting agreement, Feinberg "most likely" would have succeeded in enforcing the agreement against a third party. Hence, we never reached, nor could we have in the context of the limited appeal, the issue of the enforceability of limiting agreements.
The following facts in this protracted litigation are established in the record as follows: Feinberg is the principal shareholder of I.A. Alliance, a women's clothing manufacturer formerly known as I. Appel Corp. Defendant Jerome Boros was Feinberg's chosen arbitrator in an underlying action, and represented Feinberg in subsequent settlement talks with Feinberg's former business partner, Norman Katz.
Feinberg and Katz were equal partners in I. Appel for 20 years until 1996 when Feinberg decided to purchase Katz's interest in I. Appel. The company's 1995 financials were audited by the accounting firm of nonparty Mahoney Cohen Rashbart & Pockart, which provided Feinberg with accounting services on the Katz transaction.
In June 1996, Feinberg and Katz executed a purchase agreement, and Feinberg made a partial payment based upon the 1995 financials. Within 45 days of closing, Mahoney Cohen was to perform a new determination of value (hereinafter referred to as "DOV"), which would establish a final share price. The DOV, however, was not timely prepared, and Katz sought to enjoin its completion, as well as to lock-in the purchase agreement share price based upon the 1995 financials. The DOV was completed in October 1996 and revealed that the company's "previously stated inventory values [were] grossly overstated resulting in a difference in net worth of approximately $10 million."
In 1997, Feinberg commenced arbitration against Katz alleging fraud in connection with the 1995 financial statement and seeking, among other things, to rescind the purchase agreement. Feinberg asserted, inter alia, that he had detrimentally relied upon the 1995 financial statement when he made his decision to purchase Katz's interest in the company. In December 1998, Feinberg sued Stephen Katz, Norman Katz's son, who had also worked for I. Appel, also alleging fraud with respect to the 1995 financials.
On March 29, 1999, Stephen Katz moved for a stay pending the arbitration, arguing that a finding that Feinberg had not been misled by the 1995 financials would collaterally estop Feinberg from pursuing his claims against Stephen Katz. The court granted the stay.
On November 22, 1999, an arbitration award was rendered. The panel concluded, inter alia, that Feinberg had not relied upon the 1995 financials when making his decision to purchase Katz's interest in I. Appel. On May 19, 2000, Feinberg commenced an action against Mahoney Cohen for accounting malpractice. Mahoney Cohen moved for summary judgment on the ground that the claim was barred by the collateral estoppel effect of the arbitral finding that Feinberg had not relied on the 1995 financials. The motion was granted and affirmed on appeal. I. Appel Corp. v. Mahoney Cohen & Co., CPA, 294 A.D.2d 196, 742 N.Y.S.2d 239 (1st Dept. 2002).
Feinberg then initiated this action against the defendants for legal malpractice. He alleged that the defendants failed to advise him that an amendment to the arbitral award, or a post-award agreement between him and Katz could have barred Mahoney Cohen's collateral estoppel defense. He further contended that he and Katz would have reached such an agreement, and that consequently he would have prevailed in his malpractice suit against Mahoney Cohen.
The defendants moved to dismiss the complaint pursuant to CPLR 3211(a)(7), and the motion was granted on the grounds that Feinberg had failed to allege facts demonstrating that the defendants' alleged negligence was the proximate cause of Feinberg's damage. Feinberg moved to vacate the order, and for leave to amend the complaint.
Supreme Court granted the motion and this Court affirmed, finding that Feinberg's amended pleading was sufficient to survive the defendants' original CPLR 3211(a)(7) motion. 17 AD3d at 276, 793 N.Y.S.2d at 417. Subsequently, the defendants answered, denying Feinberg's allegations and asserting a number of affirmative defenses.
At trial, Feinberg testified that on January 5, 2000, a couple of months after the award was rendered, Feinberg and Boros had met with Katz's arbitrator. Katz's arbitrator proposed that the parties enter into a post-arbitration agreement to limit the collateral estoppel effect as it applied to Mahoney Cohen. Feinberg testified that after the meeting, he asked Boros to advise him concerning collateral estoppel, and whether a limiting agreement would protect his claims against Mahoney Cohen. Boros responded that he would ask his colleagues to look into the matter. However, neither Boros nor anyone else at the firm provided Feinberg with legal advice regarding collateral estoppel. By letter dated May 15, ...