Judge Paul Crotty of the Southern District of New York recently ruled that a “sufficiently egregious” action motivated by an intent to deceive the court suffices to support a claim under New York’s attorney deceit statute even in the absence of a broader pattern of misrepresentation. The holding could expose New York lawyers to sizable legal claims for filing papers with the court that assert facts directly contrary to facts stated in other papers they previously prepared for the client. The attorney deceit statute is broad, providing that attorneys are liable even where the deceit is not ultimately successful. See Amalfitano v. Rosenberg, 12 N.Y.3d 8 (N.Y. Feb. 12, 2009).
New York’s attorney deceit statute is codified at Section 487 of the New York Judiciary Law as “Misconduct by attorneys.” The statute provides that an attorney or counselor is guilty of a misdemeanor and liable for civil treble damages where he or she “is guilty of any deceit of collusion, or consents to any deceit of collusion, with intent to deceive the court or any party” or “willfully delays his client’s suit with a view to his own gain; or willfully receives any money or allowance for or on account of any money which he has not laid out, or becomes answerable for[.]” N.Y. JUD. § 487 (2009). In a recent decision, the New York Appellate Division’s First Department held that the statute does not apply to arbitrations. See Doscher v. Mannatt, Phelps & Phillips, LLP, 2017 BL 82000, N.Y. App. Div. 1st Dept., No. 650469/15 (N.Y. App. Div. 1st Dept. March 16, 2017).
In Canon U.S.A., Inc. v. Divinium Techs., Inc., Canon U.S.A., Inc. sued attorney Jay J. Freireich and his law firm, Brach Eichler LLC, for allegedly aiding and abetting their client in defrauding Canon. 2017 WL 696693, at *1 (S.D.N.Y. Feb. 21, 2017). Judge Crotty’s ruling permitted Canon to amend its complaint to include an attorney deceit claim under Section 487. Id. at 2.
The dispute arises out of Canon’s refusal to grant a business equipment dealership to Empire Technology due, in part, to the fact that two of Empire’s principals, Anthony Grimaldi, and Steven Hernandez, had been arrested previously in connection with a fraudulent scheme involving business leases. Grimaldi, Hernandez, and their two partners, Leonard Harac and Catherine Mattiucci, realized that in order to obtain a business equipment dealership from Canon they would need to conceal Hernandez and Grimaldi’s involvement. They agreed to create a new corporation, EZ Docs, with Mattiucci as president and nominal shareholder. In reality, Grimaldi and Hernandez were to split ownership and manage the company. Grimaldi, Hernandez, and Mattiucci retained attorney Jay J. Freireich and Brach Eichler to help set up EZ Docs. Canon subsequently granted two dealerships to EZ Docs. See Canon, 2017 WL 696693, at *1-2.
EZ Docs committed various illegal acts in the course of managing the dealerships. Canon, 2017 WL 696693, at *1. Mattiucci became worried about these illegal activities, and requested that Freireich draft a Nominee Declaration asserting that at the time EZ Docs was founded it was intended that Grimaldi and Hernandez would hold 100% ownership and that Mattiucci was merely holding the shares for their benefit. It also stated that Mattiucci, Grimaldi, and Hernandez understood that Canon would otherwise have been unwilling to permit Grimaldi and Hernandez to have an ownership interest in a Canon licensed dealership. Id.
Upon learning of Hernandez and Grimaldi’s involvement in EZ Docs, Canon terminated its retail dealer agreement with EZ Docs. EZ Docs retained Freireich and Brach Eichler to sue Canon for wrongful termination of the dealership agreement, seeking to reinstate the dealership. Together with the complaint filed with the New York Supreme Court, Freireich filed an application for a temporary restraining order supported by an affidavit of Mattiucci that contained such statements as “[n]o other person has ever held any equity interested in [EZ Docs],” contradicting the Nominee Declaration Freireich and Eichler prepared previously. Canon, 2017 WL 696693, at *1.
Justice Melvin L. Schweitzer of the Supreme Court of the State of New York denied Freireich’s request for a temporary restraining order. Canon, 2017 WL 696693, at *2. Subsequently, Canon sued Freireich and Brach Eichler for aiding and abetting EZ Docs in committing fraud by concealing the true principals of EZ Docs. Canon sought to amend its complaint to include a claim under Section 487 based on Freireich’s filing of a client affidavit that contradicted facts contained in other legal documents he had previously prepared for the client. In his February 21 ruling, Judge Crotty found that Canon had plausibly alleged that Freireich and Brach Eichler had violated Section 487 and permitted it to amend its complaint accordingly. Id. at *3-4.
Attorneys licensed in New York should follow this case as it may serve to broaden the scope of liability for attorney deceit under Section 487 in New York. Under Judge Crotty’s holding, attorneys could be held liable for filing with the court documents that contain factual assertions that contradict factual assertions contained in other legal documents that the attorney or others have prepared. Attorneys should be careful to consider whether a filing asserts facts that are inaccurate or that contradict a previous legal document that they drafted or submitted. Noting the reason for any inconsistency or change in position may help mitigate the risk of liability under the New York attorney deceit act.