A law firm's termination by a client cannot protect it from a request for sanctions by the former client and the former client's adversary in a loan repayment action, a Nassau County, N.Y., judge has ruled.
Marek, Christine and Gabrielle Rozen and Mohammed and Sally Omar have joined forces to ask the court to impose a penalty against Massapequa, N.Y.-based Russ & Russ, the Omars' former attorney. The law firm responded that the court lacked jurisdiction because it no longer was on the case.
Supreme Court Justice Ira B. Warshawsky of Nassau County, in Rozen v. The Nite Rider Group, Inc. , 00148/05, declined to dismiss the motion, ruling that doing so would "allow a lawyer to escape liability for frivolous conduct by arranging to be fired after engaging in mischief, or, by a more civilized approach, by moving to withdraw as counsel."
The action arose out of a dispute between two firms in the livery industry, according to Richard G. Gertler, a Westbury, N.Y., attorney whose firm represents the Rozens.
The Rozens are principals of a Manhattan taxi medallion firm and had loaned around $500,000 to Mohammed and Sally Omar, who own a limousine service.
In 1999, the Omars sought another loan of $200,000, which was collateralized with property they owned in Mattituck, N.Y. An option retained by Sally Omar allowed her to purchase the property back at market value within five years.
The loan was not paid back and the Rozens received the deed to the property in lieu of foreclosure in March 2001, said Gertler, of Thaler & Gertler, in an interview.
In August 2007, a Nassau County jury awarded the Rozens by Russ & Russ, more than $800,000 after a 10-day trial. After the verdict, settlement offers were made, involving a proposal that required the Omars to relinquish the option right and pay $200,000 over time.
However, the Rozens became aware that in May 2007, "[t]he option had ... been assigned by Omar to her attorneys, seemingly in lieu of payment of fees," Warshawsky wrote. The firm was discharged in October 2007.
According to Gertler, the option was eventually transferred to a company wholly held by Jay E. Russ, one of the principals of Russ & Russ. Another principal of the firm, Daniel P. Rosenthal, declined to comment and referred all questions to the firm's attorney, Andrew T. Miltenberg.
Miltenberg, a partner in Manhattan's Nesenoff & Miltenberg, also declined to comment.
In March of this year, the Rozens and the Omars both moved for sanctions against Russ & Russ, alleging that the firm's "conduct undermined the integrity of the judicial process and increased the legal fees of the plaintiffs."
The parties claim that the firm, without regard to the parties expenses, instructed the Omars not to divulge any bank records, tax returns or corporate records and asserted meritless defense in an attempt to delay the litigation.
According to court documents submitted by the Rozens, quoted in the decision, Russ & Russ intended "to take the option to the Mattituck property from the Omars and then cause the Rozens to incur extensive delays and expense so that they would relinquish their rights to the Mattituck property without the knowledge that the Russ & Russ Attorneys sought to develop and profiteer from the property."
Further, according to the decision, Russ & Russ allegedly "did not disclose plaintiffs' settlement offers that involved the Mattituck property."
Gertler said that Ms. Omar "told her attorneys to settle the case because I have no more money," but "Mr. Russ was very adamant that this case could not be settled."
The settlement offers were never conveyed to his clients, claimed Peter S. Gordon of Gordon & Gordon, the Forest Hills, N.Y., attorney who now represents the Omars.
'INVITATION TO TRICKERY'
The Omars and the Rozens relied on 22 NYCRR 130-1.1, which provides that a court may award "to any party or attorney in any civil action or proceeding before the court" costs for expenses and attorney's fees incurred as the result of frivolous conduct as well as sanctions.
First, Warshawsky rejected a claim by Russ & Russ that the parties were "forum shopping" by pursuing sanctions before him instead of seeking relief in two malpractice actions assigned to other judges.
Warshawsky ruled that a motion for sanctions was separate from a claim for legal malpractice, holding that "to the view of the court the quantum of proof is not identical in each situation, nor are the available remedies."
According to §487 of the Judiciary Law, to sustain a claim of attorney misconduct, rather than malpractice, all that must be shown is "either a pattern of or chronic unprofessional behavior ... or a single egregious act as a lawyer."
Warshawsky then rejected the defendants' argument that they could not be held liable for sanctions because they no longer represented the Omars.
"In this case where the essence of the frivolous conduct lays in Russ' concealment of Omar's assignment of its option to him, it would be particularly unjust to allow the concealment to operate as a shield against sanctions," the judge wrote.
"Irregardless of the inherent invitation to trickery that would be created if counsel could escape liability by purposely withdrawing, it has been established that lawyers no longer serving as counsel for even non-collusive reasons are within reach of judgment," held the judge, citing Principe v. Assay Partners, 154 Misc.2d 702.
Courts have the "jurisdiction and discretion to impose sanctions in order to pursue the goals of such penalties," long after a case has been settled or dismissed, Warshawsky held.
Finally, he said, "it must be remembered that a judge should take measures against a lawyer for unprofessional conduct of which the judge may become aware."
Thus, the judge ruled that Russ & Russ firm had not shown "why this court should not entertain" a motion for sanctions.
The judge ordered both parties to submit briefs on the merits of the sanction request later this month.