NY: Business Law; Conflicts in transaction
Facts: Defendant represented and assisted plaintiffs in the formation of two limited liability companies. Plaintiffs brought legal malpractice and breach of fiduciary duty claims against defendant, for “advancing the interests of the fourth member of the companies to the detriment of the plaintiffs.” In response, defendant moved to dismiss based on signed waivers from plaintiffs acknowledging and absolving defendant from all present and future conflicts of interest, as well as “agreements to hold defendant harmless from any claims arising from conflict of interest.” The Supreme Court granted defendant’s motion to dismiss. On appeal, the Appellate Division reversed.
Issue: Does a waiver of conflict of interest and “hold harmless” provision provide such blanket indemnity from legal malpractice that there are no issues of triable fact sufficient to defeat a motion for summary judgment?
Rule: The Appellate Division held that the “documentary evidence submitted by the defendant did not conclusively establish a defense to the action as a matter of law” and that the further triable issues of material fact are raised by plaintiffs’ contention that “defendant failed to disclose the nature and extent of any existing and potential conflicts of interest.” Moreover, the documents may very well not provide waiver from defendant’s conduct prior to the signing of the waivers.
Lesson: Conflict waivers should be clear and specific. Also, make sure that the waiver does not limit the liability of the attorney unless the client has consulted with independent counsel.