I have remarked that when the highest court in the State of New York renders a decision about the species of fraudulent conduct, it is indeed exciting! See New York High Court Reinforces Justifiable Reliance and Loss Causation in Fraud (“As a commercial litigator and author of this blog, which is an up-to-date compendium of significant decisions involving fraud claims under New York law, I am keenly interested when New York’s highest court renders a decision reflecting on principles involving fraud claims.”)
Last week, the New York Court of Appeals rendered a definitive decision in Urias v Daniel P. Buttafuoco & Assoc., PLLC, 2024 NY Slip Op 01497 (Decided Mar. 19, 2024) resolving a perplexing issue under New York Judiciary Law Section 487, ruling that new and separate lawsuits can be brought against attorneys for fraud on the court even after the prior case in which the alleged fraud occurred has been terminated.
Some background and context is in order.
Fraud on the Court
In my post Distinctions in Claims of “Fraud on the Court,” Common Law Fraud and Judiciary Law 487, I explained the distinct claims and remedies involved under the rubric of “fraud on the court.” There are different considerations and requirements for each separate category:
- Common Law Fraud
- Common Law “Fraud on the Court”
- Statutory “Fraud on the Court” under New York Judiciary Law Section 487.
The Urias decision concerned the third category — New York Judiciary Law Section 487. This is a specific statute that provides for remedies against attorneys who have committed intentionally-deceitful conduct during the course of actual litigation. It provides:
An attorney or counselor who:
-
- Is guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party; or,
- Wilfully delays his client’s suit with a view to his own gain; or, wilfully receives any money or allowance for or on account of any money which he has not laid out, or becomes answerable for,
Is guilty of a misdemeanor, and in addition to the punishment prescribed therefor by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action.
Questions have arisen as to when a claim under Section 487 can be brought against the attorneys involved. For example, must it be raised in and before the court in which the allegedly fraudulent conduct occurred, or can it be brought in an entirely new lawsuit even after the subject case has concluded? I have reviewed these issues in Challenging Judgments Procured by Fraud and Obtaining Resulting Damages. A complicating factor in answering this question is New York CPLR 5015. That provision provides that the “court which rendered a judgment or order may relieve a party from it upon such terms as may be just, on motion of any interested person with such notice as the court may direct” upon proving certain things, including “fraud, misrepresentation or other misconduct of an adverse party.” The court in which the judgment was rendered also has inherent authority to vacate a judgment in the interests of substantial justice. See Woodson v Mendon Leasing Corp., 100 N.Y.2d 62, 68 (2003).
Thus, does this mean that only the court in which the conduct in question arose can adjudicate claims regarding an attorneys’ alleged fraud on the court? The Court of Appeals in Urias says definitely not. The law provides no such limitation.
Court Rules Plenary Actions Are Allowed
In Urias, the question arose in the context of a fee dispute in an underlying medical malpractice action. There were four separate plaintiffs in the same malpractice action. The case was settled. Since attorney fees in medical malpractice actions are governed by a statutory sliding scale, the issue was whether the fee is calculated based upon the overall settlement recovery (which would result in a lower fee) or applied to each separate plaintiff. Plaintiff’s attorney contended that the fee should be calculated separately and submitted demonstrative evidence to the court in which the action was pending, which approved of the fee in accordance with that position.
One of the plaintiffs later brought a new action against the attorney, challenging that fee calculation method, alleging, among other causes of action, that the attorney violated Section 487 by making that argument, which the prior court had accepted.
Upon motion by the attorney, the lower court in Urias granted summary judgment, reasoning that the subject claim arose from the attorneys’ representation in the underlying action, and “‘the remedy for fraud allegedly committed during the course of a legal proceeding must be exercised in that lawsuit by moving to vacate the civil judgment . . . not by another plenary action collaterally attacking that judgment.’” The Appellate Division affirmed, agreeing that plaintiff’s sole remedy was to move under CPLR 5015 to vacate the underlying judgment.
The threshold question for the Court of Appeals, therefore, was whether the claim under Section 487 could be brought in a subsequent plenary action. The Court relied upon what it considered to be the plain language of the Section 487, which did not limit the “action” permitted therein to bar subsequent plenary actions.
The Court did recognize the importance of respecting prior judgments and the need to avoid “collateral attacks in subsequent actions”:
We recognize, of course, that common law has long shielded a final judgment from collateral attack in a subsequent action (see e.g. Smith v Lewis, 3 Johns. 157, 168 [NY Sup Ct 1808] [Kent, Ch. J., concurring]; Crouse v McVickar, 207 NY 213, 219 [1912]). Although subsequent actions have been permitted for fraud that is extrinsic to the underlying proceeding (see e.g. Mayor of City of New York v Brady, 115 NY 599, 617 [1889]; United States v Throckmorton, 98 US 61, 68 [1878]), or part of a “larger fraudulent scheme” (Newin Corp. v Hartford Acc. & Indem. Co., 37 NY2d 211, 217 [1975]), the interest in finality of judgments generally constrains a court’s authority to revisit a final judgment in a collateral action (see Crouse, 207 NY at 219). Such a challenge may instead be brought under CPLR 5015, which authorizes “[t]he court which rendered a judgment or order” to “relieve a party from it upon such terms as may be just . . . upon the ground of[,]” among others, “fraud, misrepresentation, or other misconduct of an adverse party” (CPLR 5015 [a] [3]).
The Court also noted that the attorney “correctly points out that, although [plaintiff] does not technically seek to vacate the orders of the medical malpractice court approving the fee award, she seeks to recoup the difference between the actual fee charged and the amount she contends was permissible under the fee schedule as a remedy for alleged deceit in procuring that award. Moreover, the conduct at issue is not extrinsic to the underlying medical malpractice action, and the claim for damages does not arise from allegations of a more extensive fraudulent scheme.”
Nevertheless, based upon the plain wording of Section 487, the Court ruled
that section 487 authorizes a plenary action for attorney deceit under these circumstances. The text of the statute allows recovery of treble damages “in a civil action” where “[a]n attorney . . . [i]s guilty of any deceit or collusion . . . with intent to deceive the court or any party.” The phrase “in a civil action” is most naturally read to include a plenary action. Notably, the provision does not differentiate between an action that might undermine or undo a final judgment and one that does not, or between allegations of fraud that are intrinsic to the underlying action, as opposed to extrinsic. Interpreting the statute to permit a plenary action where the remedy would not entail undermining a final judgment (for example, when the deceit harms a prevailing party), but deny one where a final judgment could be impaired, would require us to rewrite the statute. That we cannot do.
Specifically as to CPLR 5015, the Court ruled that Section 487 “cannot be read to make CPLR 5015 the exclusive avenue here [and] … we decline to confine a plaintiff alleging attorney deceit to the sole option of proceeding under CPLR 5015.”
Attorney Did Not Violate Section 487
The Court then went past the threshold question and determined as a matter of law that the plaintiff did not sufficiently establish that the attorney actually violated Section 487. In this part of the decision, the Court emphasized the high degree of proof required to establish such a claim, which cannot be established from the exercise of professional judgment:
Section 487 “guards against false statements by lawyers during litigation, rising to the level of intentional deceit or collusion; it was not designed to curtail attorneys’ expressions of views concerning what the law is or should be, nor does it include merely poor lawyering, negligent legal research or the giving of questionable legal advice” (id. at 180 n 3). Thus, we have previously made clear that “[t]he statute does not encompass the filing of a pleading or brief containing nonmeritorious legal arguments” (id. at 180), or the provision of ” ‘false and untrue’ legal advice to induce plaintiffs to bring an unnecessary lawsuit, motivated solely by the attorney’s desire to collect a large fee” (id. at 178, quoting Looff v Lawton, 97 NY 478, 480 [1884]). Professional shortcomings or disagreements as to litigation strategy that do not involve intentional false statements in the context of litigation may sound in legal malpractice, but not in attorney deceit (id. at 180 n 3). …
Plaintiff has not identified a material issue of fact as to whether [the attorney’s] representations that the fee calculations comport with the statutory schedule amounted to false statements. …
[The attorney’s] calculations were supported by a legal argument that was not clearly foreclosed by any existing precedent.
Commentary
In Urias, the Court of Appeals resolved a murky issue, in fact rejecting the two lower courts’ decisions to the contrary: Claims under Judiciary Law Section 487 can in fact be brought in plenary actions, not solely in or before the court in which the allegedly fraudulent conduct occurred.