Appeals Court Reverses Jury Verdict and Dismisses Claim Against FKSA Clients
Following a jury trial and the denial of a motion for judgment notwithstanding the verdict, the Appellate Division, First Department issued a decision reversing a $10.5 million malpractice judgment that had been entered against a law firm and one of its former attorneys, both clients of FKSA. The Appellate Division directed entry of judgment dismissing all claims.
The judgment turned on the trial court's decision that, after a comprehensive arbitration, the parties to an arbitration can agree between themselves that the arbitrators' award will have no collateral estoppel effect, and therefore that a third party cannot not assert collateral estoppel as a defense to a claim brought against it by one of the parties. The jury found that, if FKSA's clients had advised plaintiff, one of the parties to the arbitration, that such an agreement could have been effective, plaintiff would have made such an agreement with his adversary. Had that been done, the jury found, the plaintiff would have been successful in a suit he had brought against a third party. That suit was dismissed on collateral estoppel grounds based on the factual findings of the arbitrators.
While the Appellate Division justices were not unanimous in their view of every issue, they were unanimous in holding that, as FKSA had argued, an agreement created after a full and fair arbitration that purports to limit the right of a third party to assert collateral estoppel is unenforceable as a matter of law and policy. Because such an agreement would not have been enforced, the lawyers' failure to advise plaintiff otherwise could not be malpractice, mandating reversal of the judgment and dismissal of the claim.