For Whom The Statute Tolls

The New York Appellate Division for the First Judicial Department affirmed the lower court’s disposition of motions in a dispute between a law firm and its insurer

Order, Supreme Court, New York County (Joel M. Cohen, J.), entered October 30, 2023, which, to the extent appealed from as limited by the briefs, granted plaintiff’s motion for summary judgment dismissing defendant’s counterclaims and on its first and second causes of action declaring that there is no coverage for defendant under the subject policy because (i) the claim, as defined in the policy, predates the policy and (ii) the policy’s prior knowledge condition is not satisfied, and denied defendant’s cross-motion for summary judgment on its counterclaims and dismissing plaintiff’s first and second causes of action, unanimously affirmed, without costs.

Defendant law firm represented nonparty Workspace, Inc. regarding certain real estate sales from 2015-2017. One of the properties, a unit in 106 Spring Street in Manhattan, sold in 2015, and by virtue of the sale the purchaser became a shareholder in Workspace. In November 2017, the purchaser sued Workspace in the action captioned 106 Spring Street LLC v. Workspace, Inc., index No. 657050/2017 [Sup Ct, New York County] (the 106 Spring Street Action), alleging that Workspace, by concealing certain documents and facts both during the 106 Spring Street sale and thereafter, acted to deprive the purchaser of significant monetary benefits in the pending sale of another of Workspace’s properties at 93 Mercer Street in Manhattan. The 93 Mercer Street transaction never closed due to, among other things, the pendency of the 106 Spring Street Action, resulting in an alleged loss to Workspace’s shareholders of more than $18 million.

In 2018, Workspace and defendant entered into a tolling agreement, which set forth that Workspace “believes that it may hold claims against [defendant] . . . and wishes to preserve the Claims — if any — until the final adjudication of the [106 Spring Street Action].” The tolling agreement also provided that defendant “believes that it may hold claims against Workspace for unpaid legal fees,” and that “[t]he parties desire to avoid litigation at this time.” Finally, the parties entered into the agreement “to toll the statute of limitation on their claims against one another at this time.”

The court

The tolling agreement establishes that defendant had both subjective and objective knowledge of a potential legal malpractice claim sufficient to trigger an obligation to disclose such fact to plaintiff under the policy. The tolling agreement expressly states that Workspace believed it may hold claims against defendant, and that such claims were preserved pending the outcome of the 106 Spring Street Action. Lastly, defendant’s own reserved claims for unpaid legal fees provide further support for such conclusion.

Accordingly, by virtue of the tolling agreement and the parties’ exclusive attorney-client relationship, defendant knew or should have known that Workspace sought to preserve its potential claims regarding defendant’s legal representation during the transactions underlying the 106 Spring Street Action. For these reasons, we affirm the lower court’s order.

(Mike Frisch)