Hattem v. Smith

• Decision Date: 21 November 2013
• Parties: Peter HATTEM, Respondent, v. Robert J. SMITH et al., Appellants.
• Court: New York Supreme Court — Appellate Division

111 A.D.3d 1107

977 N.Y.S.2d 411

2013 N.Y. Slip Op. 07791

Peter HATTEM, Respondent,

v.Robert J. SMITH et al., Appellants.

Supreme Court, Appellate Division, Third Department, New York.

Sept. 5, 2013.

Nov. 21, 2013.

Smith, Sovik, Kendrick & Sugnet, PC, Syracuse (Laurence F. Sovik of counsel), for appellants.

Gozigian, Washburn & Clinton, Cooperstown (Edward Gozigian of counsel), for respondent.

Before: ROSE, J.P., LAHTINEN, SPAIN and GARRY, JJ.

GARRY, J.

Appeals (1) from an order of the Supreme Court (Dowd, J.), entered May 16, 2012 in Otsego County, which, among other things, denied defendants' cross motion to set aside a verdict, and (2) from a judgment of said court, entered May 16, 2012 in Otsego County, upon a verdict rendered in favor of plaintiff.

In 2003, plaintiff retained defendant Robert J. Smith, an attorney with defendant Coughlin & Gerhart, LLP, to represent him in the sale of his business, JMF Associates, Inc., to O'Connor and Shew Construction, Inc. (hereinafter OSC). The sale documents included a stock purchase agreement by which the shares in JMF would be conveyed to OSC for a down payment and a balance paid pursuant to a promissory note guaranteed by OSC's two individual owners. The note was backed by a security agreement naming plaintiff as the secured party and JMF as the debtor, and covering all of JMF's assets, including vehicles and construction equipment. In September 2004, Smith sent the proposed sale documents to OSC's attorney; that attorney forwarded the documents to one of OSC's owners and asked that individual to have all parties—including plaintiff—sign the documents and thereafter return them to him. The OSC owners met plaintiff at a branch of NBT Bank, where the documents were fully executedand notarized. Immediately thereafter and without the knowledge of either attorney, OSC obtained a loan from NBT that was secured by the assets of OSC and JMF and consisted of funds sufficient to cover the down payment, bank fees and a line of credit. On October 5, 2004, NBT perfected its security interest by filing a UCC–1 financing statement (hereinafter a UCC–1). Neither Smith nor OSC's attorney learned about this UCC–1 or the underlying loan from NBT until several years later.

Following these transactions, OSC's owners returned the executed sale documents to OSC's attorney, who sent them to Smith on October 25, 2004. Smith prepared but never filed a UCC–1 securing plaintiff's security interest in the construction equipment, and did not prepare or file Department of Motor Vehicle (hereinafter DMV) liens securing plaintiff's interest in the vehicles ( seeVehicle and Traffic Law § 2118). In 2006 and 2007, the Internal Revenue Service (hereinafter IRS) filed federal tax liens against JMF, now owned by OSC. OSC's owners stopped making payments upon plaintiff's promissory note and, in 2007, filed for bankruptcy. When plaintiff attempted to repossess the vehicles and equipment pursuant to the security agreement, he discovered that his first-priority security interest had not been protected. Thereafter, NBT sold its security interest to a third party and, in October 2011, by a default order and judgment in a civil action prosecuted by the third party against plaintiff and other defendants, Supreme Court awarded possession of all assets, inventory and other property of JMF and OSC to this third party.

In September 2007, plaintiff commenced this legal malpractice action. Following a trial, the jury was asked whether Smith was negligent in failing to file a UCC–1 prior to NBT's filing, and in failing to file DMV liens. The jury answered both questions in the affirmative and awarded damages to plaintiff. Supreme Court denied defendants' cross motion to set aside the verdict, and judgment was entered thereon. Defendants appeal from the order denying the cross motion and from the judgment.

We agree with defendants' contention that Supreme Court erred in refusing to charge the jury regarding plaintiff's comparative fault. The culpable conduct of a plaintiff client may be asserted as an affirmative defense in a legal malpractice action in mitigation of damages ( seeCPLR 1411, 1412; Schaeffer v. Lipton, 243 A.D.2d 969, 971, 663 N.Y.S.2d 392 [1997]; Caiati v. Kimel Funding Corp., 154 A.D.2d 639, 639–640, 546 N.Y.S.2d 877 [1989]; see also Shapiro v. Butler, 273 A.D.2d 657, 658, 709 N.Y.S.2d 687 [2000] ). Here, the evidence was sufficient to support a finding that plaintiff could reasonably have been expected to understand the underlying obligations and formalities ( compare Cicorelli v. Capobianco, 90 A.D.2d 524, 524 [1982], affd.59 N.Y.2d 626, 463 N.Y.S.2d 195, 449 N.E.2d 1273 [1983] ). Plaintiff was experienced in commercial transactions, including secured loans, understood that loans such as the one from NBT to OSC generally require collateral, and testified that his purpose in retaining Smith was to protect his security interest in the vehicles and equipment. He acknowledged that none of the discussions among the parties and their counsel leading up to the execution of the sale documents had included any mention of outside loans to OSC, and that he introduced OSC's owners to the NBT officer who later approved the loan.

Plaintiff's testimony as to his purpose in making this introduction and his...