May 20th, 2016

Andrew R. Jones and Jessica Serrano obtain dismissal of fraud and negligent misrepresentation action against attorney arising from adversary’s failure to conduct appropriate due diligence in sale and transfer of dental practice

FKB successfully obtained a pre-answer dismissal on a motion to dismiss from Justice Shirley Werner Kornreich in New York State Supreme Court, New York County.

FKB’s client, a Manhattan-based legal advisory and consultancy, represented the sole proprietor of a dental practice in the sale and transfer of 50% of the practice’s shares to the proprietor’s new business partner/buyer.  After the dental practice’s landlord exercised an early termination option contained in the dental practice’s lease which the buyer had previously been unaware of, the buyer brought a malpractice suit against his attorney for failing to conduct the appropriate level of due diligence prior to advising the buyer to proceed with the sale and transfer.  In response, the buyer’s attorney impleaded FKB’s client, the “other side of the table” during the sale and transfer, asserting third-party claims for, inter alia, fraud and negligent misrepresentation.  In sum, the seller’s attorney alleged that, in performing his due diligence on behalf of his client, he detrimentally relied on the alleged fraudulent misrepresentations of his adversary regarding the terms of the lease, a document which the seller’s attorney failed to examine.

FKB’s pre-answer motion to dismiss pursuant to CPLR §§ 3211(a)(1) and (a)(7) argued, inter alia, that the third-party complaint failed to state a cause of action against FKB’s client.

In the Court’s decision, issued from the bench after oral argument, Justice Kornreich agreed that the third-party action against FKB’s client failed, as the third-party plaintiff/seller’s attorney, tasked with conducting his own, independent due diligence on behalf of his client, could not claim justifiable reliance on his adversary’s statements or representations regarding the terms of the lease.  Justice Kornreich granted dismissal of the third-party action in its entirety.

If you have any questions about this decision, or the defense of attorneys in general, please contact Andrew R. Jones or Jessica Serrano.