Co-Counsel’s Malpractice Win Sinks Parallel Suit

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By Samson Habte

A company can’t sue a Manhattan firm that represented it in a business dispute after losing—and settling before appeal—a parallel malpractice action in New Mexico against a firm that served as co-counsel in the underlying litigation, an intermediate New York appeals court held Jan. 11.

The panel tackled a question that few courts have addressed: whether an ex-client who accuses two firms of botching its case can bring a malpractice action against one of the firms despite having lost a malpractice suit in another jurisdiction against the other firm.

The plaintiff in this case, Guidance Endodontics LLC, initially sued both of the defendants in New Mexico. But the company was forced to litigate two suits when one defendant, Olshan Frome Wolosky LLP, invoked a forum selection clause and removed the claims against it to New York. The action against Olshan was then stayed pending resolution of Guidance’s claims in New Mexico against the other firm, Modrall, Sperling, Roehl, Harris & Sisk P.A.

After Modrall Sperling won a summary judgment order in New Mexico, Guidance made what appears to be a strategic move aimed at preserving its chances of winning the stayed case against Olshan Frome: it entered a confidential settlement with Modrall Sperling while an appeal of the summary judgment order was still pending.

Guidance then argued that Olshan Frome couldn’t invoke collateral estoppel to defeat the malpractice suit in New York.

"[C]ollateral estoppel cannot apply because [the New Mexico] summary judgment order was not ‘a final judgment’ on the merits,” Guidance said in a court filing. "[T]he actual final judgment in the New Mexico case was a joint voluntary dismissal of the entire case, which rendered all earlier decisions and orders as if they did not exist.”

Not So Fast

A trial judge rejected that argument. "[T]here is no authority to support Guidance’s assertion that its settlement and joint discontinuance of the Modrall action with prejudice renders the prior, unfavorable summary judgment decisions as if they had never existed,” the trial judge said.

The appellate panel agreed. “There is an identity of issues necessarily decided in plaintiff’s related malpractice action against defendant’s co-counsel in New Mexico and decisive of this action, and plaintiff does not dispute that it vigorously contested co-counsel’s successful motions for summary judgment dismissing the New Mexico action,” the panel said, in holding that the claim against Olshan was estopped.

Both the trial judge and the appellate panel said that Olshan Frome was entitled to summary judgment for other reasons as well.

Guidance accused the defendants of mishandling a business lawsuit, and then settled the underlying litigation. The company’s decision to settle that case, rather than pursue an allegedly viable appeal, precluded it from suing its lawyers for their alleged malpractice in handling the case, the panel said.

Landman Corsi Ballaine & Ford P.C. represented Olshan Frome. Andrew Lavoott Bluestone, New York, represented Guidance.

The case is Guidance Endodontics, LLC v. Olshan Grundman, Frome Rosensweig & Wolosky, LLP , 2018 BL 9795, 2018 NY Slip Op 00240, N.Y. App. Div., No. 163139/15, 1/11/18 .

To contact the reporter on this story: Samson Habte in Washington at shabte@bloomberglaw.com

To contact the editor responsible for this story: S. Ethan Bowers at sbowers@bloomberglaw.com

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