NY: Underlying Disparagement Claim
Facts: The underlying case involves Fashion Boutique, plaintiff, who sued Fendi (which was owned by Prada), for violating the Lanham Act and New York State law that prohibited product disparagement. While it represented Fashion Boutique against Fendi, defendant law firm was retained by Prada, which owned Fendi. Fendi made a settlement offer of $1.4 million to Fashion Boutique, which Fashion Boutique rejected even though it was recommended to accept by the law firm. After going to trial, Fashion Boutique was awarded $35,000 in compensatory damages and $75,000 in punitive damages and the Lanham Act claim was dismissed. The dismissal of the Lanham Act claim was later affirmed by the United States Court of Appeals for the Second Circuit on appeal. This litigation began, at first, as a suit for fees by the law firm against its former client, Fashion Boutique. Fashion Boutique then sued the law firm for malpractice and breach of fiduciary duty. The law firm then moved to dismiss these claims. The plaintiff contended that the law firm’s representation of Prada created a conflict of interest and therefore a breach of fiduciary duty. Moreover, as a result of their representation of Prada, the law firm did not adequately use the testimony of a witness, who was a former officer of Fendi, that plaintiffs asserted would have resulted in a higher amount of awarded damages. The lower Court dismissed the legal malpractice claim.
Issue: Whether the law firm properly controverted the plaintiff’s claim that a debilitating conflict of interest and subsequent lack of use of a witness can constitute proximate cause with respect to a legal malpractice claim.
Ruling: The Court ruled in favor of the plaintiff, stating that the claim that, but for the law firm’s failure due to its debilitating conflict of interest, to make proper use of the witness’s testimony, the Fashion Boutique case against Fendi would have had a more favorable result, was not conclusively controverted.
Lesson: Under New York law, in order to establish proximate cause and actual damages for a legal malpractice claim, where the injury is the value of the claim lost, the plaintiff must meet the “case within a case” requirement. This would require the plaintiff to demonstrate that but for the attorney’s conduct, the plaintiff would have prevailed in the underlying case or would not have sustained ascertainable damages.
Posted in: New York