Court Refuses to Dismiss Malpractice Claim By Non-Party to Engagement Letter

On September 26, 2017, Justice Scarpulla of the New York County Commercial Division issued a decision in Scopia Windmill LP v. Olshan Frome Wolosky LLP, 2017 NY Slip Op. 32031(U), refusing to dismiss a malpractice claim made by a plaintiff that was not a party to the firm's engagement letter, explaining:

On the legal malpractice claim, Olshan claims that it is not in privity with either Windmill or Holdings, thus, their malpractice claims must be dismissed. As Scopia concedes, only SCM signed the retainer agreement with Olshan. Thus, for Windmill and Holdings to maintain this action, they must plead facts showing near privity to Olshan. To show near privity, a plaintiff must allege that the attorney was aware that its services were used for a specific purpose, that the plaintiff relied upon those services, and that the attorney demonstrated an understanding of the plaintiffs reliance.

Scopia alleges that, although SCM retained Olshan, Windmill, the actual lender to WTG, was a foreseeable third-party beneficiary of the retainer agreement between Olshan and SCM. The 2012 loan documents submitted show that Windmill was the lender for whom Olshan prepared and/or reviewed loan documents. These documents support Scopia's allegation that Windmill was in near privity with Olshan.

However, there are no similar factual allegations with respect to Holdings. Scopia fails to allege any facts showing that Olshan was aware that it was providing legal
services to Holdings, that Holdings relied upon those legal services, and that Olshan understood that Holdings was relying on Olshan's legal advice. Accordingly, I dismiss Holding's malpractice claim against Olshan.

(Internal quotations and citations omitted) (emphasis added).

We both bring and defend professional malpractice claims and other claims relating to the duties of professionals such as lawyers, accountants and architects to their clients. Contact Schlam Stone & Dolan partner Erik Groothuis at egroothuis@schlamstone.com if you have questions regarding such claims or appeals of such claims.