Three Decisions of Interest

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By Lazar Emanuel
[Originally published in NYPRR February 2004]


Business Corp. Law §1505(a) Applies to Lawyer in P.C.

The law firm of Jeffrey S. Dweck is organized as a P.C. Jeffrey S. Dweck is a shareholder in the P.C. The law firm agreed to act as escrow agent of funds deposited by an individual investor in anticipation of a transaction which looked either to the investment of the funds in an Internet company, or the return of the funds with interest. The escrow fund totaled $250,000. Jeffrey Dweck was not a party to the escrow agreement in his individual capacity.

The escrow agreement provided that the funds should be released “simultaneously with the completion of the transaction,” upon receipt by the escrow agent of “joint written instructions” from the investor and one of the companies in the transaction. If the transaction did not close within 60 days, the money would continue to be held in escrow by the law firm or disposed of as directed in writing by the investor. The escrow agreement contained the customary terms absolving the law firm of liability so long as it acted in good faith and was not guilty of willful misconduct or gross negligence.

The transaction contemplated by the escrow agreement closed and the escrow funds were released to the intended party. The investor participated in the transaction by signing some forms.

A first action by the investor in the federal courts against the parties to the transaction, including both the law firm and Dweck individually, was dismissed by the court on grounds which did not dispose of the investor’s claims against the law firm or Dweck.

The investor brought a second action in New York County Supreme Court against the law firm and Dweck individually, alleging that the escrow funds had been released without his written instructions as required by the escrow agreement and that the lawyers had breached their fiduciary duty to him by releasing the funds. The matter came before Justice Herman Cahn on defendants’ motion to dismiss the complaint. [Barbi v. Dweck, NYLJ, 1/8/2004, p. 18.]

Defendant law firm argued that the investor had brought the action to recoup his bad investment; that the agreement as applied did not require written instructions from the investor; that the investor had waived strict compliance with the agreement and had ratified the escrow agent’s actions by executing forms to facilitate the transaction; and that it had acted in good faith and without willful misconduct or gross negligence.

Attorney Dweck argued that he was not individually liable to the investor because he was not a party to the escrow agreement; he had not acted as escrow agent; no one in the law firm had rendered any professional services to the investor as required under Business Corporation Law §1505(a); he did not have an attorney/client relationship with the investor; a lawyer-escrow-agent does not render “professional services;” and BCL §1505(a) is therefore inapplicable.

Judge Cahn denied the motions to dismiss. As to the firm, he found that the facts were in dispute and could not be determined on pre-answer motion. As to Dweck as an individual, he held that the investor had stated a valid cause of action under BCL §1505(a). “The purpose of BCL §1505(a) is to afford some of the same protection to the public for acts of professional malfeasance by a shareholder, etc., of a professional corporation as were had before professionals were afforded the right to incorporate. The court cannot determine on a pre-answer motion whether the services rendered by Dweck fall within the meaning of “professional” services as the term is used in the statute.


Reasonable Advice Is Not Ineffective Assistance of Counsel

In People v. Gatien, (NYLJ, 1/9/2004, p. 18), defendant Gatien was indicted on multiple charges, including grand larceny. His wife was also indicted. The charges were based on the underreporting of nightclub receipts to avoid sales taxes; the failure to report as income personal expenses charged to his business; and misrepresentation of his residency status on tax returns. Under a plea bargaining agreement, defendant was to receive a jail sentence of 90 days and five years’ probation, and to pay restitution and fines totaling $1,500,000. His wife was to receive probation and pay restitution. The agreement allowed defendant to continue running his business.

Defendant was a citizen of Canada. Before he entered his guilty plea, he was advised by his attorney, Benjamin Brafman, that the plea would not lead to his deportation. However, a US Immigration Judge determined that defendant’s crime was an “aggravated felony” under federal law, subjecting the defendant to mandatory removal under the immigration laws.

Defendant moved to vacate his judgment and withdraw his guilty plea, arguing that he had received ineffective assistance of counsel and that he would not have entered a guilty plea if he had known that the plea meant mandatory deportation. The court denied the defendant’s motion and defendant was deported.

In the instant action, defendant renewed his motion to vacate, relying on a recent Court of Appeals decision, People v. McDonald (NY2d, decided 11/24/2003). The motion and the effect of the McDonald decision were considered by Supreme Court Justice Bruce Allen.

Judge Allen agreed that the Court of Appeals decision in McDonald supported one of the defendant’s arguments — that he had been prejudiced in pleading guilty by the incorrect advice of counsel. In McDonald, the Court of Appeals had imposed a simple standard for prejudice — the defendant has only to show that he would not have pleaded guilty had he been given the proper advice, not that there was some likelihood of success at trial.

But Judge Allen found that defendant had not received ineffective assistance of counsel. Unlike the advice in McDonald, the advice given to defendant was not an affirmative misstatement by counsel. In most cases in which deportation has followed a plea of guilty, the advice given by counsel was clearly wrong at the time it was given.

In this case, Judge Allen found, defendant’s deportation involved two complex and unsettled legal issues. One of the issues was not resolved until two years after defendant’s guilty plea. The other involved differing interpretations of the statutory definition of crimes “involving fraud or deceit.”

Lawyer Brafman had consulted with lawyers specializing in immigration matters before advising the defendant. “While the advice may ultimately have proved to be incorrect, there is no showing that [counsel’s] performance of his duties … fell below a level of reasonable competence … the defendant … could not dispute that in all other respects, Mr. Brafman’s representation was at the highest level”

Judge Allen denied defendant’s motion.


Reciprocal Discipline Imposed for Deceptive Advertising

Attorney John M. Power is admitted to practice and maintains an office in New York and in New Jersey. In 2002, the Supreme Court of New Jersey issued an order reprimanding Power for statements made in an advertising flyer published in several New Jersey papers. The statements provided information about living trusts and invited readers to attend a free public seminar.

Several individuals complained about the advertising to the New Jersey Committee on Attorney Advertising, and the Committee issued a letter to Power advising that his advertising appeared to violate one of its opinions and asking for Power’s response. In lieu of a formal complaint and hearing, Power entered into a stipulation with the Committee.

The stipulation recited several misstatements by Power concerning a comparison of the costs, expenses and time associated with probate of a will and those associated with a living trust; the impact of having a living trust in the event of incapacity; the avoidance of probate by the creation of a living trust; the tax consequences of having a living trust; and the inadequacy of a will to protect assets without a living trust. The stipulation recorded that the flyer “had the potential to mislead prospective clients.” It included a recommendation that Power receive a public reprimand and that he be required, for two years, to submit any advertising to the Committee for its approval before publication.

The New Jersey Disciplinary Review Board and the New Jersey Supreme Court concurred with the Committee.

Following the proceedings in New Jersey, the Departmental Disciplinary Committee of New York’s First Department applied for an order pursuant to 22 NYCRR 603.3, imposing a public censure upon Power. Power requested an order dismissing the Committee’s petition, arguing that the misconduct for which he was disciplined in New Jersey does not constitute misconduct in New York.

The Appellate Division, First Department responded that in a reciprocal-discipline proceeding, the respondent can raise only three defenses: that there was a lack of notice constituting a lack of due process; that there was an infirmity in the proof presented to the foreign jurisdiction; that the conduct for which the respondent was disciplined in the foreign jurisdiction does not constitute misconduct in New York.

Power did not dispute that he had adequate notice or that the findings of the New Jersey authorities were supported by the record. As to his argument that his misconduct in New Jersey is not misconduct in New York, the record shows that the advertising rules for New York and New Jersey are substantially similar. New York’s DR 2-101(a) proscribes dissemination of any public communication containing “statements or claims that are false, deceptive, misleading or cast reflection (sic) on the legal profession as a whole.”

In reciprocal proceedings, the Court “normally defers to the sanction determination made in the State where the misconduct occurred. In this matter, the New Jersey Supreme Court imposed a public reprimand, which is the equivalent of public censure in this State.” [Matter of Power, App. Div. 1st Dept., NYLJ, 12/15/2003.]

Lazar Emanuel is the Publisher of NYPRR

DISCLAIMER: This article provides general coverage of its subject area and is presented to the reader for informational purposes only with the understanding that the laws governing legal ethics and professional responsibility are always changing. The information in this article is not a substitute for legal advice and may not be suitable in a particular situation. Consult your attorney for legal advice. New York Legal Ethics Reporter provides this article with the understanding that neither New York Legal Ethics Reporter LLC, nor Frankfurt Kurnit Klein & Selz, nor Hofstra University, nor their representatives, nor any of the authors are engaged herein in rendering legal advice. New York Legal Ethics Reporter LLC, Frankfurt Kurnit Klein & Selz, Hofstra University, their representatives, and the authors shall not be liable for any damages resulting from any error, inaccuracy, or omission.


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