Diego M. Radzinschi/ALM

A New York appeals court has revived a claim against Willkie Farr & Gallagher brought by a former client who alleges the firm breached ethical rules in a conflict of interest that resulted in $2.8 million in damages.

The Appellate Division, First Department, affirmed the dismissal of several claims from the 2013 lawsuit, but reinstated one claim, breach of fiduciary duty, finding the firm’s ex-client presented evidence of a “continuing wrong” that altered the statute of limitations.

Evidence in the case was “sufficient for a factfinder to determine that defendant breached its duty of loyalty,” the court ruled.

The plaintiff, Dennis Palmeri Jr., was a former co-manager of the stock lending desk at financial services firm Ramius Securities. He left Ramius in 2008 and hired Willkie in early 2009 to represent him in an investigation by the Financial Industry Regulatory Authority, or FINRA.

Before taking the assignment, Willkie informed Palmeri that Ramius, which was then a firm client, would not accept any situation in which the firm was adverse to Ramius, according to the appellate panel. At the same time, Willkie noted that it didn’t foresee any circumstances in which Palmeri would be adverse to Ramius.

About a month after Palmeri hired Willkie, Ramius retained the firm for the same investigation.

In June 2009, Willkie informed Palmeri that it could no longer represent him because of a conflict of interest, and it terminated its representation of him. Then, in a September 2009 letter from Willkie to FINRA, the law firm “appeared to shift to plaintiff all or most of the responsibility for any alleged violations of FINRA’s rules,” noted the appellate panel, composed of Justices John Sweeny, Angela Mazzarelli, Karla Moskowitz and Marcy Kahn.

Ultimately, Ramius entered into an agreement with FINRA that absolved Ramius and its employees of further liability. FINRA brought a disciplinary proceeding against Palmeri, but in November 2011 a hearing panel dismissed the FINRA complaint.

Palmeri sued Willkie in February 2013 for $2.8 million, alleging Willkie shifted responsibility for alleged violations of FINRA’s rules to Palmeri to protect Ramius’ interests and disclosed his privileged information to FINRA. He claims the firm breached its fiduciary duty when it dropped him as a client and then allegedly acted against his interests.

In 2015, Manhattan Supreme Court Justice Eileen Bransten dismissed the suit on summary judgment.

The First Department on Tuesday found Bransten properly dismissed Palmeri’s claims for gross negligence, breach of contract and breach of the implied covenant of good faith and fair dealing as duplicative of his legal malpractice claim. The appeals court also agreed that Palmeri’s claim for legal malpractice was untimely.

But the panel ruled that Bransten should have permitted the breach of fiduciary duty claim to proceed, holding that she was mistaken in finding that the firm’s alleged conduct ended on June 25, 2009, when Willkie ended its representation of Palmeri.

On the contrary, Willkie’s conduct extended through at least June 29, 2011, when the firm was representing Ramius and its employees in connection with Palmeri’s FINRA disciplinary hearing, the appeals court said.

The record contains sufficient evidence “to create an issue of fact” on whether Willkie breached its fiduciary obligations to Palmeri through June 2011, the court found. “Where there is a series of continuing wrongs, the continuing wrong doctrine tolls the limitation period until the date of the commission of the last wrongful act,” the panel said.

Palmeri, who is now a sales trader at The Benchmark Company, is represented by Joshua Bauchner, a partner at Ansell Grimm & Aaron. “Our client is thrilled that the court has vindicated his right to conflict-free representation, and anticipates the long-awaited trial of this action,” Bauchner said.

Willkie’s attorney, Jonathan Lupkin, a partner at Rakower Lupkin, did not respond to a message seeking comment.