FKB obtains dismissal of third-party legal malpractice claims against law firm arising out of ERISA-related activities for a union pension fund.
7/28/2008

FKB attorneys Andrew Kowlowitz and Mike Furman obtained dismissal of a $1.3 million third-party legal malpractice claim arising from the law firm's representation of a local union (roofing and lumberyard), and various Taft-Hartley funds. The matter arises from a 2001 investigation by the Department of Labor of improper/excessive allocations (i.e., payments/reimbursements) totaling $1.3 million to union officials and the Funds' trustees. Claims related to these excessive/improper allocations were subsequently paid by the union fidelity bond insurer. Thereafter, the fidelity bond insurer filed suit against the union CPA accounting firm for failing to properly audit the union funds and prevent the excessive/improper allocations. In turn, the CPA firm filed a third-party suit against the law firm, general counsel to the Union and the funds, alleging that the firm breached their fiduciary duties and committed legal malpractice for failing to properly advise the Funds causing them to make improper payments/allocations.

In support of the pre-answer CPLR §3211 motion to dismiss, FKB argued that the CPA's third-party claim fails for lack of privity (as the law firm was retained to represent the funds and Union only, and never entered into an attorney-client relationship with the CPA firm). FKB also argued that CPA firm's claims for contribution/subrogation also fails as the law firm's action never contributed to or caused the funds to sustain a loss. FKB argued that the first-party claim was the result of the failure by the CPA firm to properly audit the Funds' expense allocations, a task solely within the purview of the CPA's responsibilities as set forth in the retainer agreement.

By Order dated July 28, 2008, the trial court (Supreme Court, New York County) dismissed the third-party claim, agreeing with FKB's arguments both on standing (privity) and on causation (no duty, loss caused by CPA firm). By obtaining a pre-answer dismissal, FKB was able to quickly resolve a high exposure ($1.3 million) matter and avoid substantial discovery costs (19 third-party defendants).

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