Swift v. Choe

• Decision Date: 04 June 1998
• Citation: 674 N.Y.S.2d 17,242 A.D.2d 188
• Parties: J. David SWIFT, Plaintiff-Appellant, v. Ki Young CHOE, et al., Defendants-Respondents.
• Court: New York Supreme Court — Appellate Division

Page 17

674 N.Y.S.2d 17

242 A.D.2d 188

J. David SWIFT, Plaintiff-Appellant, v. Ki Young CHOE, et al., Defendants-Respondents.

Supreme Court, Appellate Division First Department.

June 4, 1998.

John M. Brickman, of counsel (Howard B. Sachs, on the brief, Ackerman, Levine & Cullen, L.L.P., attorneys), for plaintiff-appellant,

Lester Esterman, of counsel (Bergadano, Zichello & McIntrye, L.L.P., attorneys), for defendants-respondents.

Before MILONAS, J.P., and WILLIAMS, TOM, ANDRIAS and SAXE, JJ.

SAXE, Justice.

Where two clients with potentially competing interests agree to have the same attorney represent them, and ratify this dual representation by a written acknowledgment and release, are claims of attorney malpractice necessarily foreclosed? We hold that they are not.

The essential facts are as follows: until December 20, 1991, plaintiff J. David Swift ("David") was nominally the owner of properties located at 130 South Second Street and 342 Bedford Avenue, in Brooklyn. However, his uncle, Carl Swift ("Carl"), who had originally owned the properties and deeded them to David, continued to manage them and live off their income. Indeed, David had furnished Carl with powers-of-attorney so he could control and deal with the properties.

Prior to December 20, 1991, Carl agreed to convey title to the properties to Gilbert Morrell ("Gilbert"), with the intent to live off the income from Gilbert's periodic payments for the purchase of the property. In addition, Gilbert had agreed to purchase a third property from a separate seller, with David lending the purchase money; Carl expected Gilbert's monthly payments on this loan to contribute to his income as well.

Gilbert retained defendant Ki Young Choe, an attorney with the defendant law firm of Hershman & Choe, to handle the transactions. When Carl met with Gilbert and Choe, he declined to hire separate counsel to represent his interests in the planned transaction, relying instead upon Choe. The parties' understanding was not that Carl was acting without counsel, but rather, that he, too, was retaining Choe to act as his attorney.

There are sharp disputes of fact as to the number of meetings between counsel and the parties to the transaction; the parties also dispute what was discussed. However, Choe acknowledged in his deposition that as the deal was initially structured, the parties intended to utilize purchase money mortgages, and that only subsequently was it suggested that mortgages would prevent Gilbert from obtaining loans to accomplish the intended renovation of the properties.

The transaction, as ultimately structured, was one-sided. At the closing, Carl was first informed that Gilbert's wife, Milagros Morrell ("Milagros"), a nursery school teacher with no assets, was to take title to the three properties. Neither Gilbert nor Milagros paid any money up front, either as a down payment or as closing costs, nor was a mortgage or UCC-1 statement filed against the properties. The consideration paid by Gilbert and Milagros Morrell in exchange for obtaining title to three properties consisted solely of Milagros's promissory notes and confessions of judgment, to be held in escrow by defendants. In sum, David was turning over title to two properties, making a substantial loan for the purchase of a third, and paying all closing costs, in exchange for only a promise of future monthly payments and the right to execute judgment against a virtually judgment-proof individual. Gilbert and Milagros were obtaining title to three properties in exchange for mere promises.

On December 20, 1991, before proceeding with the closing, defendants required Carl, Gilbert and Milagros to sign both a letter of acknowledgment and a release in favor of defendants. The letter, dated December 20, 1991, provides in part as follows:

At the outset, it has been fully explained to you that it is in the best interests of both parties to retain individual counsel with regards to these matters. That irrespective of same, both of you expressly acknowledge that you have decided and agreed to have our office handle these closings on behalf of both parties. With respect to same you hereby agree to waive and release our firm as against any claim you may have with respect to these matters concerning this dual representation.

That you further expressly acknowledge that both parties have mutually agreed that they will not be filing mortgages with the deeds with the Kings County Clerks Office with regards to these properties. We have explained to you the ramifications of such action, including but not limited to the fact that by reason of this action the seller is consequently in the position of an unsecured creditor with respect to claims arising from these premises. As an attempt to protect the interest of the seller thereby, confessions of judgment have been executed by Mrs. Morrell in favor of Mr. Swift, and our office shall be holding same in escrow. With respect to same you hereby agree to waive and release our firm against any claim you may have with respect to these matters concerning your independent decision not to file mortgages herein. You also expressly acknowledge that we have advised you that the proper procedure in these regards would be for said mortgages to be filed and paid for by the parties.

Seeking to protect themselves as fully as possible, defendants also had their clients sign a general release containing language waiving "all actions, causes of action, [etc.] ... for all claims arising from the representation by [defendants] of [Gilbert Morrell, Milagros Morrell, and Carl Swift as attorney in fact for J. David Swift] with regards to closings held on December 20, 1991...." Carl and the Morrells executed both documents, and the closing proceeded.

In the months following the closing, the Morrells failed to make the requisite payments. It is further claimed that at this point defendants failed to timely comply with their contractual and fiduciary duties when informed of the Morrells' default in payment. Following commencement of this action, Carl Swift died on February 13, 1995.

Defendants' summary judgment motion was based upon Carl's execution of the letter of acknowledgment and the release, which defendants contend preclude this action for malpractice, breach of contract and breach of fiduciary duty.

The motion court agreed, concluding that since both the buyers and the sellers were fully advised of their rights and nevertheless made a determination to go forward with the transaction, as a matter of law, counsel acted properly under DR 5-105(C) of the Code of Professional Responsibility. We disagree.

Initially, DR 5-105(C) permits lawyers to represent multiple clients only "if it is obvious that the lawyer can adequately represent the interest of each and if each consents to the representation after full disclosure of...