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The 2nd U.S. Circuit Court of Appeals has asked New York’s highest court to resolve uncertainty over the law on a legal malpractice claim. Citing two questions of New York law that are “important, recurring and undecided” the circuit, in an opinion written by 2nd Circuit Judge Guido Calabresi, asked the Court of Appeals, to decide the issues presented in the 5-year-old legal malpractice case of Stichting v. Schreiber, lead docket 03-9066. The first question concerns the choice of law between New York and New Jersey on the validity of an assignment of a legal malpractice claim. The second concerns the standard for judging whether an attorney who has an ongoing relationship with a law firm can be said to have acted with the “apparent authority” of that firm when dealing with third parties. The case involves New York attorney Phillippe S.E. Schreiber, who allegedly advised executives with Saybolt Inc. and Saybolt NA, that bribes paid to Panamanian officials in order to acquire land in Panama would not violate the Foreign Corrupt Practices Act. Both companies ultimately pleaded guilty to violating the act. Company principal David Mead was convicted following a trial in which he argued unsuccessfully that he was relying on the advice of counsel in authorizing the payments. Schreiber began working with Saybolt in 1994, six years after he relinquished his partnership in the New York firm of Walter, Conston, Alexander & Green. When Schreiber broke away from the firm in 1988, he arranged to have an ongoing of-counsel relationship. The nature of that relationship became an issue when Saybolt sued Schreiber, and the firm, in connection with the advice Schreiber gave on the Panamanian bribe. In 1995, Dutch Corporation Saybolt International, B.V. and its New Jersey-based subsidiaries arranged to send $50,000 to Panama for the bribes. At meetings held in New Jersey before the payments were made, Schreiber had allegedly told principals of the companies that the bribes would violate the Foreign Corrupt Practices Act. But in the weeks following those meetings, he allegedly counseled the companies that the bribes would not be illegal if they were channeled through the Dutch parent corporation. Saybolt BV and Saybolt NA were purchased by another company in 1997. As part of that transaction, the purchasing company assigned to Saybolt shareholders all claims it may have had against Schreiber and the Walter Conston firm. In 1999, Stichting, a Dutch corporation formed to represent the Saybolt shareholders, sued Schreiber and Walter Conston seeking damages of upwards of $4 million for legal malpractice, breach of fiduciary duty and breach of contract. CHOICE OF LAW In July 2003, Southern District Judge Jed S. Rakoff ruled that New Jersey law prohibited the assignment of legal malpractice claims like the one brought by Stichting and so Stichting was not the real party in interest. One month later, Rakoff ruled that Stichting’s attempt to cure the problem by joining the Saybolt entities was to no avail and he dismissed the complaint. On the appeal, Judge Calabresi said that, with New York law permitting the kind of assignments prohibited in New Jersey, a key question was how to determine whether New York or New Jersey law should apply. But “because we are unable to glean from the current body of New York law a clear answer” to the question of which state’s law should apply, he said, the circuit was certifying that question to the New York Court of Appeals. The second question certified for consideration by the Court of Appeals concerned the argument of Walter Conston that no apparent authority relationship existed between the firm and Schreiber. Absent such a relationship, the firm could not be held vicariously liable for the advice Schreiber gave on the Panamanian transaction. RELIANCE NEXUS Calabresi said, “A principal may be bound by the actions of an agent on the basis of apparent authority only where it is shown that a third party — here Saybolt — reasonably relied upon the misrepresentation of the agent” because of misleading conduct on the part of the principal. “Thus, irrespective of the representations made by the agent — here, Schreiber — and relied upon by the third party — here, Saybolt — there must also be demonstrated some reliance nexus between the principal — Walter, Conston — and that third party,” he said. While Walter Conston had no direct contact with Saybolt, the judge said, the firm “did have contact with the public at large, in the form of advertisements, publications in legal directories, and other modes of communication, and through several of these media the firm did represent that it had an of counsel relationship with Schreiber.” Taken together with other representations, the judge said, “Walter, Conston not only held out Schreiber as affiliated with the firm, but it also may be said to have had at least a generalized knowledge that Schreiber would make use of this affiliation in the course of his personal and business dealings.” Mead said in a deposition that he was aware that Schreiber maintained an independent practice separate from the firm, but he also testified that the company placed “a lot of weight” on Schreiber’s relationship with the firm in deciding to hire him. He also said that meetings were held at Walter Conston offices and the companies directed some communications to Schreiber there. “Whether this evidence is sufficient to raise a triable issue regarding Saybolt’s reliance on Walter, Conston, depends in large part on the significance that New York law places upon the firm’s public representations regarding its affiliation with Schreiber and the terms of its of-counsel relationship with him,” Calabresi said. The circuit, he said, deemed it “prudent” to certify this question to the Court of Appeals because the issue appears to have been unaddressed and it “also raises important concerns pertaining to New York state regulation of the legal profession.” And the court emphasized that “whether New York law of apparent authority permits liability for Walter, Conston has a significant bearing on the choice of law issue as well.” Judges Reena Raggi and Robert Sack joined in the opinion. But Sack issued a brief opinion in which he said he was deferring to the judgment of the others on the panel, while expressing “serious doubts” as to whether the questions should be certified. Norris D. Wolff of Kleinbergg, Kaplan, Wolff & Cohen represented Stichting. John S. Siffert of Lankler Siffert & Wohl represented Schreiber. David N. Ellenhorn of Proskauer Rose represented Walter Conston.

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