by Christopher Graham and Joseph Kelly

Whitney Group LLC v. Hunt-Scanlon Corp., et al, 106 AD3d 671 (N.Y.S. Ct. of Appeals May 30, 2013)

Client corporation filed suit alleging legal malpractice against its outside counsel for failure to notify client of unauthorized loans by client’s CFO.

Outside counsel discovered unauthorized loans made by client’s CFO to another corporation. Outside counsel advised CFO to tell client’s CEO and Board of Directors about the loans. CFO didn’t tell the CEO or the Board and neither did outside counsel.

Outside counsel moved for summary judgment arguing that client knew of CFO’s loans and did nothing to stop CFO and that outside counsel’s failure to notify client about the loans wasn’t a proximate cause of client’s damages.

The court noted that there were fact questions as to whether client knew about the loans and thus whether outside counsel’s failure to notify was a proximate cause of client’s damages.

The court also analyzed outside counsel’s in pari delicto affirmative defenses noting that there was a fact question as to whether client was at equal fault by not doing anything even thought it supposedly knew about CFO’s loans.

Lastly, the court rejected outside counsel’s affirmative defense of comparative fault finding that client’s failure to discovery CFO’s loans didn’t interfere with outside counsel’s performance of its professional duties to client.