Opinion
INDEX NO. 657134/2017
04-23-2019
OSTROLENK FABER LLP Plaintiff, v. SAKAR INTERNATIONAL, INC., Defendant.
NYSCEF DOC. NO. 87 Motion Sequence No. 001 CRANE, J.:
Plaintiff Ostrolenk Faber LLP (Ostrolenk), a law firm specializing in intellectual property, brings this action against its former client, Sakar International, Inc. (Sakar), to collect on outstanding invoices, totaling $259,841.20 plus interest. The four-count complaint asserts causes of action for breach of implied contract, account stated, quantum meruit, and unjust enrichment. In its answer, Sakar asserts several affirmative defenses and counterclaims for improper billing and malpractice (first and second counterclaims, respectively).
Ostrolenk now moves to dismiss the malpractice counterclaim, pursuant to CPLR 3211 (a)(7).
Unless indicated otherwise, the following facts are taken from the answer and are presumed to be true for purposes of the instant motions.
Sakar is engaged in the business of procuring, distributing and selling consumer electronics and accessories. Ostrolenk represented Sakar in multiple litigations pertaining to intellectual property and advised Sakar on various licensing and distribution agreements.
Of the $259,841.20 that Ostrolenk seeks in this action, approximately $240,000 relates to a patent infringement lawsuit, entitled Voltstar Tech., Inc. v Office Depot, Inc. (civil case No. 9:15-cv-81190) and commenced in the United States District Court for the Southern District of Florida on August 21, 2015 (Underlying Action). In that action, Voltstar Technologies, Inc. (Voltstar) alleged that a product that Sakar manufactured and sold to Office Depot, Inc. (Office Depot) infringed Voltstar's patent. Ostrolenk represented Office Depot in the Underlying Action, at Sakar's expense.
Details relating to the Underlying Action, including date of commencement and title, are taken from Ostrolenk's papers in support of the motion. See Rosenthal affirmation, ¶¶ 1, 4 and exhibit 1.
Sakar disputes the accuracy of Ostrolenk's invoices, alleging that "[t]he Underlying Action Invoices are improper in that they are grossly inflated, include substantial time for services that were unnecessarily rendered, and include charges for time far in excess of anything Sakar was asked to approve or possibly could have reasonably expected" (answer, ¶ 43) and that the invoices "include time for services rendered on behalf of the other entities (unrelated to Sakar) named as defendants in the Underlying Action, for which [Ostrolenk] improperly seeks payment from Sakar." Id., ¶ 44.
In addition, Sakar avers that "[Voltstar] settled for only $30,000 after [Ostrolenk] belatedly located 'prior art' (earlier patents) that invalidated [Voltstar's] patent" and that "[Ostrolenk] reasonably should have located that prior art at the commencement of the Underlying Action and not after expending hundreds of thousands of dollars in unnecessary legal fees and expenses." Id., ¶ 46. Sakar alleges that "an attorney practicing in [Ostrolenk's] specialty exercising reasonable skill and produce [sic] would have found such prior art promptly" (id., ¶ 55) and that Ostrolenk's failure to do so at the outset of the Underlying Action resulted in over $400,000 in fees and expenses.
Ostrolenk contends that the legal malpractice counterclaim must be dismissed because it fails to identify any specific act of negligence or any damages proximately caused to Sakar by the alleged malpractice. It contends that the claim amounts to nothing more than the second-guessing of Ostrolenk's strategy and that Sakar concedes the effectiveness of that strategy when it states that the Underlying Action settled for only $30,000. Sakar counters that its answer sufficiently states a claim for malpractice, by alleging that Ostrolenk failed to discover the prior art at the outset of the Underlying Action and that this failure caused Sakar to incur legal expenses that could have been avoided by a prompt settlement.
"[O]n a motion to dismiss the complaint for failure to state a cause of action, the complaint must be construed in the light most favorable to the plaintiff and all factual allegations must be accepted as true." Allianz Underwriters Ins. Co. v Landmark Ins. Co., 13 AD3d 172, 174 (1st Dept 2004). "However, factual allegations that do not state a viable cause of action, that consist of bare legal conclusions, or that are inherently incredible or clearly contradicted by documentary evidence are not entitled to such consideration." Skillgames, LLC v Brody, 1 AD3d 247, 250 (1st Dept 2003) (internal citation omitted).
To state a claim for legal malpractice, a claimant must allege "that counsel failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession and that 'but for' the attorney's negligence the [claimant] would have prevailed in the matter or would have avoided damages." Ulico Cas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1, 10 (1st Dept 2008) (internal quotation marks and citations omitted); see also Dweck Law Firm v Mann, 283 AD2d 292, 293 (1st Dept 2001) ("the client must plead specific factual allegations establishing that but for counsel's deficient representation, there would have been a more favorable outcome to the underlying matter"). While the claimant "is not obliged to show, at this stage of the pleadings, that [it] actually sustained damages," it must plead "allegations from which damages attributable to [the attorney's] conduct might be reasonably inferred." InKine Pharm. Co. v Coleman, 305 AD2d 151, 152 (1st Dept 2003) (internal quotation marks and citation omitted); see also Pellegrino v File, 291 AD2d 60, 63 (1st Dept 2002) ("[i]n order to survive dismissal, the complaint must show that but for counsel's alleged malpractice, the plaintiff would not have sustained some actual ascertainable damages").
Here, accepting the counterclaim's allegations as true and according Sakar the benefit of every favorable inference, Sakar states a claim for legal malpractice. The answer specifically alleges that Ostrolenk "reasonably should have located [the] prior art at the commencement of the Underlying Action" (answer, ¶ 46) and that its failure to do so constitutes malpractice. Id., ¶ 55. In addition, the answer alleges that the discovery of this prior art resulted in a favorable settlement of the Underlying Action, which could have been accomplished sooner had Ostrolenk been more prompt in conducting the prior art search. See id., ¶ 46. Sakar is, therefore, not merely second-guessing Ostrolenk's litigation strategy and speculating about alternative results, which would be insufficient to state a malpractice claim. See Dweck Law Firm, 283 AD2d at 293 ("[a]ttorneys may select among reasonable courses of action in prosecuting their clients' cases . . . so that a purported malpractice claim that amounts only to a client's criticism of counsel's strategy may be dismissed"). Rather, Sakar is alleging that, but for Ostrolenk's unreasonable delay in locating the prior art, the same result could have been achieved sooner, thus avoiding unnecessary legal expenses. Therefore, the counterclaim sufficiently alleges that Ostrolenk was negligent. Compare AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 436 (2007) (internal quotation marks and citations omitted) (affirming dismissal of legal malpractice claim based on allegations that an underlying action could have been resolved more expeditiously, where "there [was] no way to know whether the advice not given . . . would have altered the [duration] of the [underlying] action"), with Lieberman v Green, 139 AD3d 815, 817 (2d Dept 2016) (denying motion to dismiss counterclaim for legal malpractice, where the defendant alleged that the plaintiffs "were negligent in failing to have a written stipulation of settlement signed by the parties and in failing to have the settlement so-ordered by the Supreme Court" and that, "as a result, he incurred additional legal fees in having to continue litigating the divorce action").
In addition, the answer sufficiently alleges that but for Ostrolenk's negligence, Sakar would have avoided damages. Sakar states that the settlement of the Underlying Action was unnecessarily delayed by Ostrolenk's inaction and that this proximately caused it to incur additional legal expenses. These allegations are sufficient at this stage of the litigation to maintain a claim for malpractice. See Macquarie Capital (USA) Inc. v Morrison & Foerster LLP, 157 AD3d 456, 457 (1st Dept 2018) (internal citation omitted) (finding that "[i]t may be reasonably inferred from plaintiff's allegations that it incurred damages attributable to defendant's conduct, including litigation expenses incurred in an effort to avoid, minimize, or reduce the damages caused by defendant's alleged negligence); see also Fielding v Kupferman, 65 AD3d 437, 442 (1st Dept 2009) (finding that the "complaint sufficiently assert[ed] that 'but for' defendants' faulty advice . . . , [plaintiff] would not have incurred" an unplanned tax liability and that this assertion was not "pure speculation").
Lastly, the malpractice counterclaim is not based on simple allegations of overbilling. Generally, allegations of improper billing, without more, are insufficient to state a claim for malpractice. See Chowaiki & Co. Fine Art Ltd. v Lacher, 115 AD3d 600, 601 (1st Dept 2014) (finding that "[p]laintiffs' claims of excessive billing and related conduct, which actions [were] not alleged to have adversely affected their claims or defenses in the underlying action, [did] not state a claim for legal malpractice"); see also Gottlieb, Rackman & Reisman, P.C. v Zencolor Corp., 2015 WL 4206982, *6, 2015 US Dist LEXIS 90345, *14 (SD NY, July 10, 2015, No. 13-CV-5715 [JGK]) (finding that "allegations of improper billing—standing alone—[did] not state a claim for legal malpractice," where former client "[did] not allege that but for this improper billing, its patent applications would have been approved"); Byrne & Storm, P.C. v Handel, 2013 WL 2444092, *4, 2013 US Dist LEXIS 78708, *14-15 (ND NY, June 5, 2013, No. 1:12-CV-716 [GLS/RFT]) (finding "no support for the proposition that overbilling by itself 'constitute[s] an act of legal malpractice'"). Here, Sakar does not allege that Ostrolenk's billing practices constitute malpractice. Instead, Sakar alleges that Ostrolenk was negligent in failing to discover promptly the purportedly dispositive prior art, which unnecessarily prolonged the litigation and resulted in unnecessary legal expenses. The unnecessary billing is the alleged harm, not the alleged act of negligence. Therefore, Sakar states a claim for malpractice.
The court takes note of Ostrolenk's submissions in reply, that seek to demonstrate that: (1) Ostrolenk did not unreasonably delay the prior art search; (2) the subject prior art did not invalidate Voltstar's patent, because the Underlying Action was settled without a court determination of the patent's validity; (3) the discovery of the prior art did not cause Voltstar to settle, because it continued to pursue its infringement claim for months after being presented with the purportedly dispositive prior art; and (4) Sakar's malpractice claim is disingenuous, because it has continued to employ the services of Douglas A. Miro, the Ostrolenk partner who, prior to leaving for a new firm, oversaw the Underlying Action and approved all invoices to Sakar. First, these additional arguments, and the supporting exhibits, are improperly presented as part of Ostrolenk's reply. "The function of reply papers is to address arguments made in opposition to the position taken by the movant and not to permit the movant to introduce new arguments in support of, or new grounds [or evidence] for the motion." Matter of Kennelly v Mobius Realty Holdings LLC, 33 AD3d 380, 381 (1st Dept 2006) (internal quotation marks and citation omitted). Nothing in Sakar's opposition, which merely reiterated the answer's allegations, merits Ostrolenk's response. Therefore, the court declines to consider these new arguments. See Matter of Leewen Contr. Corp. v Department of Sanitation of City of N.Y., 272 AD2d 246, 247 (1st Dept 2000) (declining to address an issue "improperly raised for the first time by petitioner in its reply papers"). However, even if the court were to consider Ostrolenk's submissions on reply, all they do it add to the issues of fact about the alleged legal malpractice. The reply submissions do not put the issue of legal malpractice or overbilling to bed which will be for the finder of fact to determine.
For the foregoing reasons, Ostrolenk's motion to dismiss the second counterclaim is denied.
Accordingly, it is hereby
ORDERED that the motion of plaintiff Ostrolenk Faber LLP is denied; and it is further
ORDRED that counsel are directed to appear for a status conference in Room 304, 71 Thomas Street, on April 26, 2019, at 9:30 a.m. Dated: 4-23-2019
ENTER:
/s/_________
J.S.C.