FKB Professional Liability Alert: Court of Appeals Holds that an Attorney can be Liable for Treble Damages for an Attempt to Deceive a Court or Adversary2/20/09

In seeking to re-enforce New York attorneys' "special obligation to protect the integrity of the courts and foster their truth-seeking function," the New York State Court of Appeals recently held that an attorney can be subject to treble damages in New York for an unsuccessful attempt to deceive a court or an adversary. See Amalfitano v. Rosenberg, 428 F. Supp. 2d 196 (S.D.N.Y. 2006).

Judiciary Law § 487

N.Y. Judiciary Law § 487 inter alia provides that an attorney is guilty of a misdemeanor and is liable for treble damages to the aggrieved party if the attorney:

". . . is guilty of any deceit or collusion, or consents to any deceit or collusion, with the intent to deceive the court or any party."

See McKinney's Judiciary Law § 487; see also Oakes v. Muka, 56 A.D.3d 1057, 868 N.Y.S.2d 796 (3d Dept. 2008).

The District Court Action

In Amalfitano v. Rosenberg, plaintiff Amalfitano (a non-client) filed a diversity action in federal court alleging that attorney Rosenberg's deceptive conduct in an underlying state (Supreme Court, New York County) litigation violated New York Judiciary Law § 487, and caused plaintiff Amalfitano damages. The federal court found that attorney Rosenberg acted with intent to deceive the underlying state court with respect to numerous alleged misrepresentations he made during the course of the underlying litigation, and that these misrepresentations caused injury to Amalfitano in the form of Amalfitano's legal fees in that underlying litigation. See Id., at 209, 211-12. The district court assessed damages in the amount of $89,415.18, comprising Amalfitano's legal fees from the inception of the underlying litigation to the judgment, and because § 487 provides for treble damages, the court trebled the award to $268,245.54.

The district court found that attorney Rosenberg's intentional misrepresentations included: (1) knowingly false allegation contained within the underlying verified complaint that attorney Rosenberg's client was a partner in a residential real estate partnership; and (2) the submission of an underlying affidavit representing that an August 1993 Settlement Agreement was a sham (the affidavit claimed that the Agreement, which attorney Rosenberg drafted for his client, was executed to throw off creditors and should thus be disregarded as it had no real legal effect; the affidavit was submitted in connection with a motion for summary judgment). The district court found that Rosenberg knew both that the client had no interest in the real estate partnership and that the Agreement was valid. Id., at 208.

One of Rosenberg's arguments on appeal to the Second Circuit was that the district court erred in finding that an unsuccessful attempt to deceive a court would support liability under § 487. He pointed out that the alleged attempts to deceive the trial court were unsuccessful because the underlying Judge (Justice Gammerman) consistently found in favor of Amalfitano (in other words, that Justice Gammerman was evidently not "deceived" by any alleged misrepresentation by attorney Rosenberg). Attorney Rosenberg argued that Judiciary Law § 487 was analogous to a tort claim for fraud and that, as such, the Court or adversary must actually be "deceived and damaged" as the result of an attorney's falsehood, citing Channel Master Corp. v. Aluminum Ltd. Sales, 4 NY2d 403 (1958).

After reviewing 'conflicting state court interpretations of state Judiciary Law § 487,' the 2nd U.S. Circuit Court of Appeals asked for guidance from the New York State Court of Appeals via two certified questions:

1. whether state Judiciary Law § 487 allowed for treble damages when an attorney is "guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party" (the 2nd Circuit was uncertain as to whether the statute applies when an attorney tries, but fails, to deceive the court); and
2. whether the cost of litigation instituted by a complaint containing a 'material misrepresentation of fact' should be treated as the proximate result of the misrepresentation if the court was not fooled by the deception.

The Second Circuit's Order and Certification in Amalfitano v. Rosenberg (docket No.: 06-2364-cv) can be found by clicking here.

The Court of Appeals Decision - Historical Analysis

The Court of Appeals (Judge Susan Phillips Read, writing for a unanimous 6-0 Court) ruled that Judiciary Law § 487 does not derive from common law fraud, but instead evolved from and can be traced back to the First Statute of Westminster (a statute enacted by the English Parliament at Westminster in 1275 during the reign of King Edward I). (The 1275 Statute, which dealt with many facets of English Civil and Criminal law, inter alia set penalties of imprisonment for a year and a day and a lifetime ban from court for pleaders engaging in "any manner of Deceit or Collusion in the King's Court" or efforts to "beguile the Court" or parties to its proceedings).

Judge Read held that in 1787, the fledgling New York Legislature adopted a "strikingly similar" a statute and that laws like it had remained effective in New York ever since. New York's Legislature added the penalty of a misdemeanor to deceiving the courts in 1836 and, in 1881, prescribed the forfeiture of treble damages to attorneys for deceiving the court. The statute was transferred from Penal Law to Judiciary Law and numbered § 487 in 1965. "There it remains today, the modern-day counterpart of a statute dating from the first decades after Magna Carta; its language virtually (and remarkably) unchanged from that of a law adopted by New York's Legislature two years before the United States Constitution was ratified," Judge Read wrote.

Accordingly, the New York Court of Appeals held that § 487 is a "unique statute of ancient origin" and not a codification of common law fraud. Thus, Judge Read wrote, "The operative language at issue, 'guilty of any deceit,' focuses on the attorney's intent to deceive, not the deceit's success" [emphasis added]. Judge Read continued that to limit forfeiture of treble damages under § 487 to only successful deceits would "run counter to the statute's evident intent to enforce an attorney's special obligation to protect the integrity of the courts and foster their truth-seeking function."

By finding that deceitful conduct need not be successful to fall under the forfeiture ambit of § 487, Read, answering the second certified question, found that recovery of treble damages does not depend on whether or not a court was able to 'see through' the attempted material misrepresentation of fact in a complaint (the mere existence of such misrepresentation was sufficient). The Court of Appeals' February 12, 2009 Opinion can be found at: http://www.nycourts.gov/reporter/3dseries/2009/2009_01069.htm (2009 NY Slip Op 01069).

Defense counsel for attorney Rosenberg (William J. Davis of Scheichet & Davis), who previously confirmed that his client posted the damages ordered by the Southern District, now concedes that attorney Rosenberg will almost certainly forfeit the same when the case goes back to the Second Circuit. Mr. Davis commented that he could "understand [the Court of Appeals] having done this. But, on the other hand, it is somewhat unfair [to attorney Rosenberg] because this is the first instance of a 487 case in which a violation was found without their having been an actual deception of the court or the other side." (Mr. Davis also said he tried to give the Court of Appeals an alternative theory to the one dating back to the Middle Ages as for how to interpret violations under Judiciary Law § 478). The Southern District had previously sent the matter to the SDNY Committee on Grievances and to the Appellate Division, First Department's Disciplinary Committee. Mr. Davis said that both matters were on hold and that he assumed they would go forward once the Second Circuit finally rules in light of the Court of Appeals decision.

Impact of the Rosenberg Decision

The Rosenberg decision will likely give encouragement to legal malpractice plaintiffs seeking to assert treble damages claims against attorneys, since plaintiffs will now only need to demonstrate that the attorney tried to deceive the court or an adversary, even if that attempt fails. Plaintiffs may also interpret Rosenberg as providing for a less rigorous standard to establish that the attorney's conduct rose to the level of deceit or collusion (actual or attempted), since it appears that § 487 claims will no longer be subject to the heightened pleading standards applicable to causes of action for fraud. Previously, it was understood that the elements of a deceit or collusion claim were essentially the same elements that constitute a fraud claim, namely "representation, falsity, scienter, deception and injury." See Henry v. Brenner, 271 A.D.2d 647, 706 N.Y.S. 2d 465 (2d Dept. 2000); Gelmin v. Quickie, 224 A.D.2d 481, 638 N.Y.S. 2d 132 (2d Dept. 1996). In light of Rosenberg, it could be argued that fraud-based analyses and case law is no longer applicable to Judiciary Law § 487 claims (although it appears likely that plaintiffs will continue to have to plead and prove representation, falsity and scienter – an intent or knowledge of wrongdoing).

However, Judiciary Law § 487 claims will likely still require plaintiffs to plead and prove that the alleged deceit occurred during the course of "a pending judicial proceeding," if the deceitful act was not directed at a court. Singer v. Whitman & Ransom, 83 A.D.2d 862, 863 (2d Dept. 1981); Stanski v. Ezersky, 228 A.D.2d 311, 313 644 N.Y.S.2d 220 (1st Dept. 1996) lv. denied 89 N.Y.2d 805, 653 N.Y.S.2d 918. It is well settled that Judiciary Law § 487 claims do not apply to incorrect advice given outside the courtroom, which results in injury and expense to the client (or adversary) where there is no pending judicial proceeding. See Henry v. Brenner, 271 A.D.2d 647 (2d Dept. 2000).

Moreover, plaintiffs must seemingly still demonstrate that the conduct giving rise to the Judiciary Law claim was part of a "pattern of willful conduct." The courts have previously required that plaintiffs demonstrate a "chronic, extreme pattern of legal delinquency" in order to state a viable Judiciary Law § 487 claim. See Frank v. Pepe, 186 Misc. 2d 377, 717 N.Y.S.2d 873 (Nassau Co. 2000). The decision in Rosenberg arguably adds weight to the position that the legislature intended to punish only those attorneys who conduct rises to the level of willful deceit, as opposed to mere negligence or the simple mishandling of a file.

We would be happy to discuss the Rosenberg decision in more detail at your convenience. Please feel free to call or e-mail Mike Furman (mfurman@fkblaw.com) or Andrew Jones (ajones@fkblaw.com) for a more in-depth discussion of this issue.

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