Opinion ID: 4520914
Heading Depth: 2
Heading Rank: 1

Heading: Plaintiffs Seek Legal Advice from Defendants

Text: Plaintiffs are Bill Birds, Inc., a New York corporation that manufacturers and distributes decorative metal automotive parts for antique autos, and its president and owner, William Pelinsky. In February 1995, under a licensing agreement with General Motors automobiles, Pelinsky, then doing business as Bill Birds, acknowledged, amongst other things, GM’s title to certain trademarks and manufacturing technology and agreed not to attack or impair GM’s intellectual property rights. -2- -3- No. 19 After eleven years of renewing the agreement, Pelinsky became concerned that he was being treated unfairly by GM. He sought legal advice from defendant Mitchell A. Stein, principal of codefendant Stein Law Firm, P.C., regarding Bill Birds’ ownership of trademarks and copyrights ostensibly covered by the agreements. According to plaintiffs, defendants represented that they thoroughly researched this area of the law and concluded that GM did not own the rights licensed to Bill Birds. On the strength of this advice, plaintiffs chose not to renew the agreement with GM. B. Defendants File a Federal Lawsuit on Plaintiffs’ Behalf Thereafter, GM, through its licensing manager, Equity Management, Inc. (EMI), threatened legal action to prevent plaintiffs’ manufacture of the parts covered under the prior agreements. Based on defendants’ legal advice that plaintiffs would prevail against GM because “plaintiffs had superior rights to the trademarks and copyrights,” plaintiffs retained defendants to litigate on their behalf against GM and EMI. Defendants filed an action in New York federal district court alleging fraud on the ground that GM knowingly misrepresented that it had registered trademarks so that Polinsky would enter the licensing agreements. By way of example, the complaint alleges, “plaintiffs paid a license fee and royalties, pursuant to various purported license agreements and term sheets, to defendants in order for plaintiff to use certain intellectual property defendants represented were owned by them, only to now find out that defendants either did not own or have authority to license said intellectual property, or that said intellectual property does not exist or apply to the goods sold by plaintiffs. ... -3- -4- No. 19 “[D]espite representing otherwise, defendants do not own valid rights for the vast majority of the products and marks included in the purported License Agreements for use with General Motors automobile emblems and/or trim . . . .” The federal complaint also alleged that GM’s false claims of ownership or merchandising rights to the trademarks, trade names, service marks, copyrights, and related items licensed to plaintiffs constituted a breach of the licensing agreements between the parties. GM and EMI moved to dismiss, in part, under Federal Rule of Civil Procedure rule 12 (b) (3) for improper venue, based on the forum selection clause in the parties’ last two licensing agreements. The clause provides that “any court proceeding relating to any controversy arising under this agreement shall be in the state or federal courts located in Michigan.” Stein filed an affirmation and memorandum of law in opposition to the motion to dismiss, arguing that the licensing agreement, including the venue provision, was unenforceable because plaintiffs entered the agreement based on GM’s fraudulent misrepresentations. His affirmation states that the licensing agreements “never appear to represent and warrant that the licensor (defendants) have the rights to license or that there is any IP to license” (emphasis in original). Stein further affirms that GM induced plaintiffs to enter into the licensing arrangement with GM by asserting ownership over certain intellectual property that “GM does not own.” Stein states, “had plaintiffs known that defendants did not own the intellectual property plaintiffs would have never relied upon the same, paid money to their detriment, and agreed to become bound by the same.” The court granted the motion based on improper venue, concluding that plaintiffs “failed to rebut the presumption of enforceability” of the forum selection clause as they did -4- -5- No. 19 not “meet the heavy burden of establishing that an enforceable forum selection clause should be deemed unreasonable based on fraud.” In rejecting plaintiffs’ fraud argument, the court noted that “[p]laintiffs overlook the prevailing law governing this issue” and that plaintiffs’ “[i]nconvenience and expense do not meet the test for unreasonableness.” According to plaintiffs, despite their numerous inquiries, defendants did not inform them that the action had been dismissed for over eight months, waiting to notify them of the dismissal until the final month before the expiration of the statute of limitations. C. Plaintiffs File a State Court Action Against Defendants for, Among Other Things, Violation of Judiciary Law § 487 Represented by new counsel, plaintiffs filed the instant state court action against defendants, seeking damages for defendants’ alleged violation of Judiciary Law § 487, as well as malpractice, fraud and breach of contract arising from defendants’ representation in the federal lawsuit.1 As relevant to this appeal, plaintiffs alleged that defendants induced plaintiffs to bring a “fictitious cause of action” as a means to achieve a nonlegitimate end, i.e., “solely” for the purpose of generating $25,000 in attorney fees, in violation of section 487. Specifically, plaintiffs alleged that defendants falsely represented they had “thoroughly researched” plaintiffs’ claims, that they were valid claims, and that plaintiffs 1 The complaint asserted legal malpractice and breach of contract based on Stein’s alleged failure to prosecute plaintiffs’ claims properly, diligently, competently and fully. Plaintiffs’ cause of action for fraud alleged Stein falsely held himself out to the public as an expert in intellectual property and, misrepresented to plaintiffs that their claims had merit and that they would prevail should they proceed to litigation, intending to induce plaintiffs to pay fees to defendants. -5- -6- No. 19 had superior rights to the trademarks at issue, knowing defendants could not successfully prosecute those claims. Defendants disclaimed liability and eventually moved for summary judgment under CPLR 3212. In support of the motion, defendants submitted a memorandum of law, an attorney affirmation and reply affirmation, a sworn affidavit of Stein, filings from the federal litigation, the licensing agreement dated March 21, 2001, excerpts from the transcript of Pelinsky’s deposition, and a letter from Stein’s counsel to Pelinsky’s counsel seeking execution of the transcript of Pelinsky’s deposition under CPLR 3116 and requesting the production of certain documents and information. They argued, in part, that plaintiffs could not have prevailed in the federal action as a matter of law because they were estopped by the licensing agreement’s “no challenge” clause from contesting GM’s ownership of the trademarks. As to the Judiciary Law § 487 cause of action, defendants asserted three legal bases for dismissal: (1) any alleged misrepresentations were unactionable because they occurred outside the federal litigation; (2) plaintiffs failed to establish “a chronic, extreme pattern of legal delinquency;” and (3) plaintiffs could not establish that defendants’ wrongdoing cause plaintiffs to suffer damages. In opposition, plaintiffs submitted the affidavit of an attorney specializing in intellectual property, who averred it was “clear” to him defendants did not “accurately represent the situation between the plaintiffs as licensees of GM.” He explained that Stein’s alleged statement, “I looked in the trademark office files and found nobody really owned anything . . .” was “not an accepted practice to determine whether a trademark is ‘owned’ by anyone.” Instead, plaintiffs’ expert explained that to properly search “the -6- -7- No. 19 trademark office files,” each of the over 200 products in an attachment incorporated into the licensing agreement would have to be “clearly identified . . . . For many of the Licensed Products it [was] unclear what specific model name/trademark [was] identified by the Licensed Product.” Thus, it would not have been possible for Stein to determine GM’s ownership interest in at least this subset of licensed products. In fact, three trademarks for goods directly related to automobiles were current registered trademarks at the United States Patent and Trademark Office in early 2006, at the time defendants allegedly “looked into the trademark office files.” Thus, GM had exclusive rights to at least these trademarks at the time plaintiffs filed the federal lawsuit.2 The attorney further commented on the failure to properly advise plaintiffs: “[D]efendant[’]s statements leave me in awe in that the defendants did not explain that in fact plaintiffs had no rights to the decorative parts they were manufacturing and that it did not matter whether they were bona fide registered trademarks or parts in the public domain, they were subject to the terms of the License Agreement.” The lack of advice was stunning enough, but the attorney was “further in awe” that defendants encouraged plaintiffs to litigate because “the specific trademark subject matter of the litigation was precluded from being litigated during and after licensing by the License Agreement” and that defendants “then pursued the litigation in New York when the defendants knew or should have known that the select[ion] clauses are virtually always 2 The federal complaint alleges: “This case involves plaintiffs, who paid a license fee and royalties, pursuant to various purported license agreements and term sheets, to defendants in order for plaintiff to use certain intellectual property defendants represented were owned by them, only to now find out that defendants either did not own or have authority to license said intellectual property . . . .” -7- -8- No. 19 binding and honored by the courts” (internal citation omitted). Finally, he opined: “[I]n my opinion the totality of the acts of the defendants has every appearance to me of a fraudulent scheme in which the plaintiffs were lured into litigation that could never be won . . . ” (emphasis added). Plaintiff Pelinsky also submitted his affidavit describing Stein’s alleged misrepresentations. Pelinsky testified that Stein gave him “improper advi[ce], without even acquiring the knowledge he needed to have to give any such advi[ce]” thereby inducing Pelinsky to pay $25,000 in attorney fees to “chas[e] rainbows” in pursuit of a “fictitious cause of action.” He averred that defendants never discussed with him the forum in which the federal litigation would be brought. He explained that defendants had Pelinsky sign a document, which defendants represented was required to bring the litigation in a New York Court. Plaintiffs later learned the document was to support their opposition to General Motors’ motion to dismiss. Pelinsky explained that once the court dismissed the case for improper venue, defendants failed to notify him until the limitations period had nearly run. When confronted about defendants’ dilatory communication about dismissal of the complaint, Stein fabricated the excuse that the district judge had held the decision in chambers. Pelinsky also explained that, during the litigation, he made numerous inquiries into the status of the case, and he was assured that litigation “takes time.” According to Pelinsky, when he confronted Stein about why he did not refile in Michigan, Stein responded it does not matter because plaintiffs had superior rights. Stein offered to file copyrights on plaintiffs’ behalf for an additional $37,000 legal fee. Plaintiffs also submitted evidence that they paid defendants an initial fee of $7,500 to perform initial -8- -9- No. 19 research and draft a complaint. To commence the litigation, plaintiffs agreed to an additional fee that brought the total fees paid defendants to $25,000. Pelinsky’s brother, at the time counsel for plaintiffs, submitted an affirmation corroborating his brother’s version of defendants’ conduct, recounting his brother’s statements and his own personal observations of defendants’ conduct during and after the filing of the federal lawsuit. Supreme Court granted the motion in part and dismissed all but the Judiciary Law § 487 cause of action, concluding there were triable issues of fact as to whether plaintiffs sustained any damage proximately caused either by defendants’ alleged deceit or alleged chronic, extreme pattern of legal delinquency. The Appellate Division reversed in so far as appealed from by defendants and granted defendants’ motion to dismiss the section 487 cause of action (164 AD3d 635 [2d Dept 2018]). We granted plaintiffs leave to appeal (32 NY3d 913 [2019]). Plaintiffs’ sole contention before us is that their Judiciary Law cause of action was wrongly dismissed on summary judgment because there are triable issues of fact regarding defendants’ alleged deceit.3 In response, defendants argue that, as a matter of law, section 487 does not apply to prelitigation statements and acts, and plaintiffs cannot establish any damages caused by Stein’s alleged misconduct. I would reverse the Appellate Division because plaintiffs state a viable cause of action under Judiciary Law § 487 for post-filing 3 Plaintiffs do not challenge dismissal of their negligence, malpractice and breach of contract causes of action and so I have no occasion to opine on the merits of those theories of liability. -9- - 10 - No. 19 misconduct as there exist triable factual issues whether defendants intended to deceive the court and plaintiffs by knowingly filing and defending a frivolous lawsuit and if so whether plaintiffs suffered damages as a result.