Arnav Industries v. Brown Raysman, et al.
| Decision Date | 05 June 2001 |
| Docket Number | No. 91,91 |
| Citation | 727 N.Y.S.2d 688,96 N.Y.2d 300,757 NE2d 936 |
| Parties | (Ct.App. 2001) Arnav Industries, Inc. Retirement Trust et al., Appellants, v. Brown, Raysman, Millstein, Felder & Steiner, LLP, Respondent. 1 |
| Court | New York Court of Appeals Court of Appeals |
The issue before this Court is whether a client has a cause of action for legal malpractice where that client signed a revised settlement stipulation without reading it, relying on its attorney's misstatement that the stipulation was changed to correct only one typographical error. We conclude that the client has stated a cause of action for legal malpractice sufficient to survive a motion to dismiss.
Plaintiffs Arnav Industries Retirement Trust and Rochel Properties settled their claim against David Schick for unpaid loans. The settlement agreement required Schick to make payments totaling $2,500,000, and it permitted plaintiffs to obtain an immediate judgment for the full $6,023,702.95 owed if Schick defaulted on any payment. Schick made an initial payment of $420,000, leaving $2,080,000 unpaid.
Plaintiffs retained defendant law firm to prepare the stipulation of settlement. Defendant sent a copy of the stipulation to plaintiffs, which Joseph Wassner, trustee of the plaintiff Arnav and officer of plaintiff Rochel, allegedly read, then executed and returned. Days later, defendant forwarded a revision of the stipulation, advising plaintiffs that the revision corrected a typographical error in the first paragraph, as the second version correctly stated the amount of the settlement to be $2,080,000 rather than $2,800,000. Defendant allegedly advised Wassner that the terms of the revised stipulation were identical to the first version except for the identified typographical error. Wassner averred that in reliance upon that advice, he did not read through the second version of the stipulation before signing and returning it to defendant. The revision, however, erroneously stated in paragraph thirteen, that the amount of judgment upon Schick's default was $2,080,000 rather than $6,023,702.95. Schick made one more payment of $100,000 under the stipulation, then defaulted.
Pursuant to the stipulation, defendant had judgment entered in both New York County and Kings County against Schick in the amount of $1,980,000, representing the amount due plaintiffs in accordance with paragraph thirteen of the stipulation of settlement less amounts received, plus interest, for a total sum of $2,021,986.85. Later that month, Schick was the subject of an involuntary bankruptcy. His payment of $100,000 was treated as a preferential transfer, and plaintiffs were required to pay the sum to the bankruptcy trustee. Plaintiffs settled the claim against Schick in the bankruptcy proceeding.
Thereafter, plaintiffs commenced this legal malpractice action, arguing that defendant negligently prepared the revised stipulation of settlement. In the second count, plaintiffs asserted that defendant was negligent in failing to have the judgment entered in Kings County, the county in which Schick resided, and that this negligence required plaintiffs to make the preference payment in the bankruptcy proceeding.
On defendant's motion, Supreme Court dismissed the complaint. The court relied on the general rule that a party who executes an agreement is bound by the agreement notwithstanding a failure to read it. The court further reasoned that plaintiffs' failure to read the stipulation in reliance upon defendant's alleged assertion that the first paragraph contained only typographical changes did not constitute a valid excuse because the first paragraph contained factual matters that were absent from the original. The Appellate Division affirmed in a 3-2 decision. The two dissenting Justices concluded that the defendant's alteration of the thirteenth paragraph of the stipulation, materially reducing the amount to be paid to plaintiffs in the event of Schick's default, together with the specific misstatement that there was only one change in the document necessitating plaintiffs' attention, constituted the basis of a cognizable claim for legal malpractice. Plaintiffs appeal on the basis of the two-Judge dissent at the Appellate Division on a question of law (see, CPLR 5601 [a]).1
On this appeal, plaintiffs argue that their failure to read the second version of the stipulation in its entirety and to notice changes other than the typographical changes their attorney had represented to be the only changes to the stipulation does not defeat their cause of action against their attorneys for professional negligence. We agree.
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