1.100 - 8. Criminal Deceit Or Collusion, Willful Delay, And Misappropriation Of Funds

JurisdictionNew York

8. Criminal Deceit or Collusion, Willful Delay, and Misappropriation of Funds

Judiciary Law § 487, which derived from former Penal Law § 273,651 makes L guilty of a misdemeanor if L practices deceit or collusion with intent to deceive the court or any party, or if L willfully delays his or her client’s suit with a view toward L’s own gain, or willfully receives any money or allowance for or on account of any money which he or she has not laid out or is not answerable for.652 Violation of this section also subjects L to treble damages to the injured or damaged party, to be recovered in a civil action.653

The injured party need not be L’s client.654 L need not be convicted of a criminal violation of § 487 before being held civilly liable because where a statute grants a civil as well as a criminal remedy, the two are separable.655 Relief under a cause of action based upon Jud. Law § 487 is not lightly given.656

The statute of limitations for a claim under § 487 is six years under CPLR 213(1).657

To make out a claim under Jud. Law § 487(1), plaintiff must show, at a bare minimum, that defendants (1) are guilty of deceit or collusion, or consent to any deceit or collusion; and (2) had an intent to deceive the court or any party.658 So where the documents on which plaintiff’s allegations were based failed to demonstrate that L’s statements were intentionally deceitful, plaintiff’s claim was dismissed.659 Plaintiff may bring an action to recover damages under § 487(1) regardless of whether the attorney's deceit was successful.660 Further, plaintiff may recover the legal expenses incurred as a proximate result of a material misrepresentation in a prior action.661

Section 487(1) requires that the misconduct have been directed at a court or that it occurred in connection with a pending lawsuit.662 The deceit or collusion need not occur during a physical appearance in court, and may instead take place during any oral or written statement related to a proceeding and communicated to a court or party with the intent to deceive.663 The deceit need not have succeeded; it is enough that the deceit was intended.664 Questions of fact existed as to L’s and Law Firm’s intent to deceive a member of limited liability company (LLC) that was formed to build a residential apartment complex where L and Law Firm simultaneously represented another member of the LLC in an arbitration that resulted in dissolution of the LLC and transfer of real property to that other member.665

L must have acted in her capacity as an attorney in the commission of the misconduct.666 The mere fact that a wrongdoer is an attorney is insufficient to impose liability for treble damages under § 487 unless the wrongdoer was acting as an attorney.667 Similarly, asserting that L submitted a false affidavit as fact witness rather than as counsel fails to state a claim against L under § 487(1).668

Statements made by L as attorney in the course of judicial proceedings that are material and pertinent to the issues to be resolved in the proceeding are absolutely privileged and immune from suit under § 487(1).669 A municipal agency staff attorney is absolutely immune to liability under § 487 because § 487 does not apply to the prosecutorial acts of municipal attorneys.670

For L’s statement to be deceitful, the statement must pertain to an undisputed fact within L’s own knowledge in contrast to a statement reflecting L’s position concerning contested issues or unsettled matters.671 The latter type of statement (L’s position statement) is distinguishable from deceitful conduct where, for example, L intentionally misrepresented to the court that L represented a party to the action672 or L filed an allegedly fictitious letter with the court.673

Plaintiff must plead L’s misconduct with particularity both as to L’s act of deceit and L’s scienter.674 Merely reciting the statutory provision and stating conclusorily that L by his actions violated § 487(1) fails to state a cause of action.675 But plaintiff alleged sufficient facts to state a claim against L and Law Firm who represented plaintiff in an underlying personal injury suit where plaintiff was Laotian and did not speak English, the underlying defendant offered $100K, L failed to convey plaintiff’s settlement demand of $150K, L instead demanded $1M and told plaintiff to sign a high-low agreement of $750,000/$25,000, and the jury in the underlying action rendered a verdict of no cause for action in favor of the underlying defendant.676

Subdivision 2 of Jud. Law § 487 has two grounds for liability: (a) L’s willful delay for L’s own gain or (b) L’s misappropriation of funds belonging to C. The first ground (willful delay) is notable for the dearth of cases brought under it. In one reported case, a police officer’s legal malpractice action against his former attorney L alleged a cause of action under section 487(2) for L’s willful delay in failing to timely perfect plaintiff’s article 78 proceeding challenging plaintiff’s dismissal from employment. The First Department, however, held that plaintiff failed to state a cause of action for willful delay under section 487(2) because plaintiff did not allege a chronic and extensive pattern of delinquency.677

With regard to the second prong of section 487(2) (misappropriation of funds), L must receive funds either from or on behalf of C in the scope of representing C. Cases brought under this prong include:

C was denied leave to amend his complaint to allege misappropriation under section 487(2) where C’s proposed claim alleged that L handled C’s royalty payments as agent for a third party and not as C’s attorney).678

C had no cause of action against L for L’s actions as escrow agent in handling C’s down payment in accordance with the contract’s escrow terms.679

Plaintiffs stated a cause of action against their Lawyers for violations of section 487(2) and Rule 1.15(c)(4) where Lawyers had represented plaintiff acupuncturists in collection matters against insurance companies who owed plaintiffs money for plaintiffs’ services. Plaintiffs’ complaint against Lawyers, as amplified by plaintiffs' submissions in opposition to Lawyers’ motions to dismiss, sufficiently alleged that Lawyers conspired with plaintiffs' non-party billing agent to convert funds received from the insurers, and that Lawyers also violated their duties to ensure that plaintiffs received the funds.680

When Judiciary Law § 487 is used as the basis for civil liability against L, some courts require that plaintiff show a chronic and extreme pattern of legal delinquency by defendant L,681 but the statute itself supports liability for a single intentionally deceitful or collusive act if sufficiently egregious and accompanied by an intent to deceive.682 The New York Court of Appeals has not determined whether the heightened “egregious” standard applies, however, and the Appellate Divisions have taken differing positions on the standards for § 487(1) claims.683

Regardless, an essential element of a civil cause of action under § 487 is an injury to the plaintiff resulting from the alleged deceitful conduct of defendant L; therefore, plaintiff must plead with particularity and prove that plaintiff suffered damages that are proximately cause by defendant L’s conduct.684 L’s motion to dismiss will be granted where no injury can reasonably be inferred from the allegations in the complaint.685 For example, C failed to establish proximate cause regarding damages where C alleged that L, while representing C in shareholder action, failed to disclose that L had previously represented Opposing Party. C claimed that she incurred expenses in defending against Opposing Party's independent motion to dismiss, which she claimed she would not have incurred had she known of L’s prior relationship with Opposing Party because C would not have retained L. Speculation was required to conclude whether Opposing Party would not have moved for dismissal if L had disclosed his prior representation.686

But plaintiff was held to have adequately pleaded damages under § 487(1) where plaintiff’s complaint alleged that plaintiff first learned of a default collection judgment fraudulently obtained by L when plaintiff’s employer received an order garnishing plaintiff’s wages. At the same time, plaintiff was denied a mortgage due to her negative credit history, which included the fraudulent judgment which had been on plaintiff’s credit report for six years. Plaintiff also incurred proximately caused damages including missed time from work, out-of-pocket expenses, stress, and emotional distress in vacating the default judgment and getting the collection case dismissed.687

Although civil liability is rarely sustained against an attorney under § 487(1), malpractice complaints with increasing frequency allege causes of action under this section. One of the few actions in which a plaintiff’s claim under Jud. Law...

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