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ARTICLE ID 184536

$________ @INTRO = Legal Malpractice - Contract - Client sues after Arbitration Agreement fails to prevent a collateral estoppel against a third party - Capacity to seek against accounting firm.

New York County, New York

@INTRO = In this case, a New York businessman sued his lawyer and the lawyer’s firm for their alleged failure to provide advice regarding the potential collateral estoppel effect of an arbitration award. The plaintiff received a verdict in the Supreme Court of New York for 60 percent of the $________ in damages that the jury determined was caused by the defendants’ failure to provide advice.

For nearly two decades H. Feinberg and N. Katz were partners in the ownership and operation of I. Appel Corp., a New York women’s apparel company. In ________ they began negotiations for Feinberg to buy out Katz and take sole ownership of the company. Financial information assembled by I. Appel’s accounting firm, Mahoney Cohen, was a primary basis in this decision-making process. Additionally, in July ________ Mahoney Cohen recommended and encouraged Feinberg to purchase additional inventory and undertake other obligations by acquiring another apparel company, Val Mode. On July 1, ________, the plaintiff finalized the purchase of I. Appel, after finalizing a share price in the month previous. Mahoney Cohen became the subject of litigation by Katz after a delay in delivering the Determination of Value Engagement, which when finally delivered, revealed accounting improprieties previously unknown to Feinberg.

Feinberg commenced an arbitration against Katz, accusing him of inflating the Determination of Value, as well as defrauding him in connection with the Purchase Agreement. Attorney J. Boros was Feinberg’s party arbitrator in the arbitration. After these proceedings Feinberg hired attorney J. Boros of Robinson Silverman Pearce Aronsohn and Berman LLP ("Robinson Silverman"), to negotiate a settlement with Katz and provide advice regarding avoiding the collateral estoppel effect of the arbitration with Katz in possible future claims against Mahoney Cohen. Mahoney Cohen was not named in Feinberg’s arbitration against Katz. J. Boros failed to provide the requested advice regarding collateral estoppel and J. Boros and Feinberg terminated their relationship due to a conflict identified by the firm.

Feinberg later sued Mahoney Cohen for, among other things, accounting malpractice. That action was dismissed on the grounds that the findings in the previous arbitration against Katz collaterally estopped the claims against Mahoney Cohen.

Feinberg subsequently filed suit in the Supreme Court of New York, New York County. Named in the suit were J. Boros, Robinson Silverman, and Bryan Cave LLP (which had since acquired Robinson Silverman). The plaintiff sought over $15 million in damages resulting from the defendants’ breach of the standard of care.

Feinberg at trial presented evidence that the accountants, by failing to show the true value of the company, facilitated his material loss. Further, Feinberg showed that this loss was a direct result of defendants’ failure to advise Feinberg regarding ways to limit the collateral estoppel effect of the arbitration with Katz, a topic upon which the plaintiff requested advice from the defendants in the case. Plaintiffs therefore argued that J. Boros’s failure to provide advice regarding collateral estoppel and its impact on plaintiffs’ intention to pursue legal action against Mahoney Cohen, resulted in a finding of collateral estoppel in a subsequent action brought by Feinberg against Mahoney Cohen.

After a trial of approximately six days, the jury of six found 5- 1 for the plaintiff. The jury found that plaintiff had been damaged in the amount of $________ and assigned 60% of the liability for those damages to defendants, with the other 40% assigned to the plaintiff, resulting in a total verdict of approximately $5.2 million.

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