A New York appellate court has overruled a trial court that had granted a motion to dismiss a legal malpractice claim. In Phoenix Erectors, LLC v. Fogarty, a construction contractor sued its former attorney for negligently failing to protect its claim against a surety company.
A general contractor had filed a breach of contract action in New York against the client, who was a subcontractor on a construction project. The general contractor had obtained a payment bond from the surety. The subcontractor then hired the attorney to file a separate action against the general contractor and the surety in New Jersey seeking payments due under the contract.
The attorney elected to consolidate the two claims into a single action in the state of New York. The attorney prepared a stipulation, which dismissed the New Jersey case “with prejudice” and made the surety a third party defendant only in the New York action. The case went to trial before a jury in New York, resulting in a verdict and judgment for the client against the general contractor.
However, the Court dismissed the third party claim against the surety, finding that indemnification and contribution claims were the only available remedies against a third party defendant under New York law. Because the general contractor had purchased the bond, there was no privity between the client and the surety and thus indemnification and contribution were not available remedies.
When the general contractor had no assets available to satisfy the judgment, the client sued his attorney, who moved to dismiss the claim for failure to state a claim. The trial court granted the motion and the client appealed.
The Appellate court reversed, finding that the client’s complaint had alleged an actionable claim to the effect that the stipulation entered in the New Jersey action had prevented the client from recovering its judgment on the bond provided by the surety. The case was remanded to the trial court for further proceedings.
Decision: Phoenix Erectors, LLC v. Fogarty