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A lawyer and his firm may be liable under New York’s attorney deceit statute if they knowingly filed papers with material misrepresentations in a lawsuit against Canon‘s US subsidiary, the U.S. District Court for the Southern District of New York decided Feb. 21 ( Canon U.S.A., Inc. v. Divinium Techs., Inc. , 2017 BL 52171, S.D.N.Y., No. 15 Civ. 1804 (PAC), 2/21/17 ).
Vigorous advocacy isn’t an excuse for intentionally lodging false filings to obtain judicial relief a client otherwise wouldn’t get, Judge Paul A. Crotty said.
The ruling highlights the potential for big claims against New York lawyers who file court papers that make factual assertions directly contrary to facts stated in other materials prepared for the client.
The decision centers on N.Y. Jud. Law §487, which provides a civil cause of action for treble damages against an attorney who is guilty of any deceit or collusion that’s intended to dupe a court or party. The statute isn’t just for chronic and extreme patterns of deception, the court made clear.
Canon U.S.A. Inc. sued Jay J. Freireich and his law firm, Brach Eichler LLC, for allegedly aiding and abetting client fraud. Canon claimed they helped set up a sham company known as EZ Docs so that two fraudsters could get a Canon dealership even though Canon had previously rejected their application to own a dealership.
The court decided that Canon can file an amended complaint against Freireich and his firm under Section 487. The amended complaint alleges that Freireich violated Section 487 in earlier litigation over the termination of the EZ Docs dealer agreement.
The revised complaint says Freireich tried to get a temporary restraining order in the termination lawsuit by filing papers saying that no one other than the shareholder of record ever held an equity interest in EZ Docs. Freireich allegedly knew those statements were false because he had previously drafted a document containing contrary statements for the nominal owner and the people who had been denied a dealership.
The earlier document described the people who had been refused a dealership as the “de facto shareholders, officers and directors” of EZ Docs. The instrument also said the nominal owner of the company was holding its shares for their benefit because Canon was unwilling to let them have an ownership interest in a Canon dealership.
The court said that a single act or decision by an attorney, “if sufficiently egregious and accompanied by an intent to deceive,” is sufficient for liability under Section 487.
Some courts have required a chronic and extreme pattern of legal delinquency to maintain an action under Section 487, but the text of the statute doesn’t say that, the court said.
The court spurned the argument that a lawyer doesn’t have an intent to deceive under Section 487 if he’s merely asserting arguments and points at the client’s request and to advance the client’s position.
“An attorney that has knowingly and intentionally filed material misrepresentations with a court in order to induce the court to take an action that it would not otherwise take cannot stand behind vigorous advocacy as an excuse to avoid § 487 liability.” the court said.
The court also ruled that Canon’s amended complaint plausibly alleges that the material misrepresentations in the termination lawsuit proximately caused harm to Canon.
It doesn’t matter for purposes of the Section 487 claim whether or not the termination suit could have gone forward without the alleged misstatements, the court said. The issue instead is whether the termination action was grounded in a material misrepresentation of fact, it said. Freireich and his firm admitted that the potential fraud perpetrated on Canon was “part and parcel” of the termination suit, the court said.
Dorsey & Whitney LLP and Satterlee Stephens Burke & Burke LLP represented Canon. Brach Eichler LLC and Rivkin Radler LLP represented Brach Eichler and Jay Freireich.
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