Risk Update

Law Firm Risk Analysis — When Conflicts Failures Cross From Malpractice to Fraud

Attorney’s Failure To Disclose Conflict Of Interest Before Accepting Representation Can Constitute Fraud And Negligent Misrepresentation” —

  • “Attorneys often argue that attempted claims of fraud against them are nothing more than legal malpractice claims and therefore are duplicative and must be dismissed. This is indeed a viable defense. See Gourary v Green, 143 A.D.3d 580 (1st Dep’t 2016)
  • “As shown by a new decision of the Supreme Court in New York County, that defense may not always be effective to dispense with fraud claims at the pleadings stage. Federal Insurance Company v. Lester Schwab Katz & Dwyer, LLP, Index No. 151093/2021 (NY Sup. Ct, NY Co., Nov. 16, 2021).”
  • “Plaintiff alleged various acts of alleged malpractice, and also included claims of fraud and negligent misrepresentation against the attorneys. Both of those claims were based upon the same underlying factual assertion – that defendants allegedly had a conflict of interest with a co-defendant in the underlying personal injury action and did not disclose that to the insurance company plaintiff prior to being retained to defend the insureds in that action. (The defendants did contend that the conflict of interest was disclosed ‘to the carrier’ and was further identified in their initial report on the underlying personal injury litigation.)”
  • “In rejecting defendants’ attempt to dismiss the fraud claim, the Court simply commented in passing that the allegations were sufficient to state such a claim, ‘distinct from the legal malpractice claim.'”
  • “Identifying actual or potential conflicts of interest is obviously an important obligation for an attorney prior to accepting a representation. This should always be undertaken and adequately documented. This is not only required by the Rules of Professional Conduct (see,e.g., Rules 1.7 through 1.12), but failing to do so adequately and properly prior to the representation and/or when conflicts may arise can in fact form the basis for fraud claims.”