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The Appellate Division, First Department, at 27 Madison Ave.
The Appellate Division, First Department, at 27 Madison Ave.

The New York-based law firm Pryor Cashman can’t avoid a malpractice lawsuit by relying on language in an assignment-of-rights agreement that the firm itself drafted for the client.

In a four-page decision issued Tuesday, the Appellate Division, First Department, ruled that Pryor Cashman “should be equitably estopped” from arguing that the assignment-of-rights language it drafted for plaintiff Deep Woods Holdings LLC “did not assign tort claims,” including malpractice claims, and therefore Deep Woods has no right to sue the law firm.

Pryor Cashman, a 140-lawyer firm with headquarters in Times Square, had remained “silent,” the panel said, as it drafted the assignment-of-rights agreement, about whether the assignment included rights for the assignee—Deep Woods—to bring tort claims.

The panel implied that the law firm may have shirked its duty to its client by remaining silent on an important legal issue that called for guidance. In addition, the panel made clear that Pryor Cashman’s silence on what the assignment-language covered does not now shield it from having to answer to malpractice claims.

“Contrary to defendants’ contention, estoppel can be based on silence as well as conduct,” wrote Justices Angela Mazzarelli, Rolando Acosta, David Saxe, Karla Moskowitz and Ellen Gesmer.

Pryor Cashman’s managing partner, Ronald Shechtman, pointed out Tuesday that the appellate decision is based on allegations assumed to be true. “We are confident that when the facts are established, our position will prevail,” Shechtman said.

The decision Tuesday reversed a lower court ruling issued in February by Manhattan Supreme Court Justice Saliann Scarpulla. Scarpulla had dismissed malpractice allegations brought by Deep Woods in a 2015 $37 million malpractice lawsuit against Pryor Cashman, ruling that the assignment language at issue did not explicitly assign tort claims.

The malpractice case, which will now continue, revolves around a dispute over a call option tied to a shares in a nonparty bank, the Park Avenue Bank. According to the panel, Pryor Cashman represented nonparty David Lichtenstein in a transaction in which Lichtenstein was to purchase $10 million worth of bank stock.

Before the transaction could close, nonparty Savings Deposit Insurance Fund of the Republic of Turkey sued the holder of 99 percent of the bank’s shares and obtained a restraining order preventing any transfer of shares.

In 2004, Lichtenstein and SDIF entered into a stipulation under which Lichtenstein had the right to exercise a call option to buy shares of stock in the bank for a specified sum.According to the suit, SDIF was able to deliver the shares on July 12, 2005, but Pryor Cashman did not exercise Lichtenstein’s call option until Nov. 2, 2005, missing the deadline to exercise the call option.Pryor Cashman recommended to Lichtenstein that he, together with other nonparties, form Deep Woods Holding, and that Lichtenstein assign the call option to Deep Woods, which would then sue SDIF to exercise the call option.

That assignment language is the source of the malpractice dispute.

The lawyer for Deep Woods, Douglas Capuder, a partner at Capuder Fazio Giacoia, declined to comment. Frederick B. Warder III, of Patterson Belknap Webb & Tyler, represented Pryor Cashman and did not return a call. The case is 1758 Deep Woods Holdings LLC v. Pryor Cashman, 652886/15.

Jason Grant can be reached via email or on Twitter @JasonBarrGrant.

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