A recent decision by the
Appellate Division, First Department, underscores how important it is for
attorneys who engage in other business activities to keep those activities separate
from their law practices. The decision is instructive to attorneys in small law
firms who are also involved in other business ventures.
Lee & Amtzis, LLP v
American Guar. & Liab. Ins. Co.
(2015 NY Slip Op 02919; April 7, 2015), involved the law firm Lee & Amtzis.
One of the firm’s two partners was also the principal of a real estate company,
Astoria Station, LLP (“Astoria”).
Jane Kurtin, a client of the firm, made loans of about $1.5 million to Astoria. Lee & Antzis
acted as counsel to both Kurtin and Astoria.
When the loans went into default, Kurtin sued Astoria and obtained judgments against it.
However, she also sued Lee & Antzis for malpractice, alleging that the
attorneys had “induced her to proceed with certain financial transactions in
which they had a financial interest; they failed to recommend that she obtain
independent legal counsel; they had allowed their legal services to her to be
influenced by their own business ventures outside the practice of law; and the
attorneys knew their interests and Kurtin's interests were adverse.”
The attorneys advised their
malpractice insurance carrier of the claim against the firm. However, the
carrier refused to cover the claim, citing a clause in the policy that excludes
coverage for any claim arising out of the insured’s capacity as an officer,
director, manager, etc. of any business enterprise. Lee & Antzis sought a
declaratory judgment that the carrier was required to defend the firm and was
granted summary judgment in the Supreme Court.
The Appellate Division
reversed, holding that “Lee was a partner in the law firm, by assuming dual
roles of providing legal advice to a client, while simultaneously pursuing his
own business interests, Lee placed himself, his law partner and the law firm
firmly within the exclusions in the professional policy plaintiffs seek
protection under.”
Lee’s partner, who was not
financially involved in Astoria,
also sought a declaratory judgment that the carrier had to defend him. This
request was also denied by the Appellate Division: “[U]nder the Business
Enterprise Exclusion, it is immaterial that Amtzis did not have an interest in
Astoria Station; AGLIC still has no duty to provide him with a defense.”
You can read the decision at
It is not unusual for
members of small firms, particularly those whose practices are concentrated in
a specific area, to be involved in outside business ventures. We know of
attorneys who are involved in real estate, investment, consulting,
manufacturing and marketing businesses. The decision in Lee & Amtzis
underscores how important it is to keep those activities separate from the
firm’s practice. It’s clearly not a good idea to be involved in business
transactions with clients of the firm. If you must do so, make sure that full
disclosure is made and that the client is represented by independent counsel.
If you are a partner in a firm, you also need to be aware of your partners’
outside business activities, so you and the firm do not become the victims of
your partner’s malfeasance. Although cross indemnification provisions in your
partnership agreement may provide some level of comfort, those provisions are
only going to be as good as your partner’s ability to pay.
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