FKB’s A. Michael Furman and Spencer A. Richards successfully obtain a CPLR §3211 pre-answer dismissal of a legal malpractice claim commenced in New York Supreme Court, New York County, arising from a private equity fund manager’s guilty plea to grand larceny of $9.3 million dollars in investor funds

01/23/2019

In this matter, FKB’s client was retained by the plaintiff to represent him in a criminal proceeding arising from the plaintiff’s money laundering scheme used to misappropriate  $9.3 million dollars through a network of shell companies, entities, and accounts that were under the plaintiff’s control.  Against all odds, FKB’s client negotiated with New York prosecutors to obtain a two to six year sentence for plaintiff, and plaintiff accepted the guilty plea to Grand Larceny in the First Degree and Falsifying Business Records in the First Degree. Prosecutors dropped the money laundering charge as a direct result of FKB’s client’s negotiations. The New York Supreme Court imposed a sentence of two to six years of incarceration, restitution, and the relinquishment and forfeiture of plaintiff’s interests in the private equity fund. The U.S. Securities and Exchange Commission  additionally imposed sanctions on the plaintiff. Shortly after his guilty plea, the plaintiff moved to vacate his conviction arguing that FKB’s client provided ineffective assistance of counsel and that generals partner of a limited partnership could not be convicted of grand larceny under New York law. The New York Supreme Court denied plaintiff’s application to vacate the guilty plea, the Appellate Division First Judicial Department affirmed, and the New York Court of Appeals denied plaintiff leave to appeal the First Department’s decision.

In June 2018, after the plaintiff’s release from incarceration, the plaintiff commenced an action against FKB’s client asserting allegations of legal malpractice, breach of contract, breach of fiduciary duty, breach of ethics, and tortious interference with a business contract for FKB’s client’s supposed “failure” to raise New York law holding that general partners cannot be convicted of grand larceny. Plaintiff additionally alleged that FKB’s client’s political fundraising gave rise to a conflict of interest. As damages, plaintiff asserted $25 million in compensatory damages, $25 million in front pay, and $50 million in punitive damages all arising from plaintiff’s relinquishment and forfeiture of his interests in the private equity fund.

On January 7, 2019, the Supreme Court of New York County granted FKB’s CPLR §3211 pre-answer motion to dismiss agreeing with FKB that plaintiff’s legal malpractice allegations were barred by the doctrine of collateral estoppel because plaintiff raised the issue of whether general partners could be convicted of grand larceny and the First Department “rejected” his argument. In addition, the New York Supreme Court agreed with FKB’s argument that “plaintiff’s conviction, which has not been vacated, prevents plaintiff from claiming innocence, which is a prerequisite for a legal malpractice claim arising from a criminal conviction.” Finally, the Supreme Court agreed with FKB that plaintiff failed to “sufficiently plead proximate cause” given his other felonies and that FKB’s client’s political fund raising did not give rise to a conflict of interest.   

If you have any questions about this decision, or the defense of attorneys in general, please contact A. Michael Furman or Spencer A. Richards.

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