LEE v. LEIFER (2022)

Order, Supreme Court, New York County (Shawn T. Kelly, J.), entered October 28, 2021, which denied defendants’ motion to dismiss plaintiff's legal malpractice complaint, unanimously affirmed, without costs.

The Leifer defendants (Leifer) represented Lee in a lawsuit against him, which arose out of Lee's ownership of a restaurant.  Lee alleges that Leifer erroneously informed him that the damages sought were limited to an agreed-upon purchase price, although the plaintiff in that case actually sought significantly more in punitive damages.  Lee further alleges that, on Leifer's advice, he did not file an answer.  The court found that Lee had failed to assert a meritorious defense to the punitive damages claim and entered a default judgment for the plaintiff.  At an inquest, the court awarded punitive damages of $700,000, as well as compensatory damages, interest, and attorneys’ fees.  Lee has appealed to the Second Department.  Lee sued for legal malpractice.  The motion court denied Leifer's motion to dismiss.

Lee's legal malpractice complaint adequately alleges that Leifer's failure to advise him of the punitive damages claim asserted against him in the underlying action and failure to file a responsive pleading, “proximately caused plaintiff to sustain actual and ascertainable damages,” i.e., that he would not have incurred the punitive damages award but for Leifer's negligence (Rudolf v. Shayne, Dachs, Stanisci, Corker & Sauer, 8 N.Y.3d 438, 442, 835 N.Y.S.2d 534, 867 N.E.2d 385 [2007]).  Lee claims that he would have avoided the punitive damages award by asserting a meritorious defense in his responsive pleading.  However, Lee's default required the court to accept as true all allegations against him as to liability (see Amusement Bus. Underwriters, Inc. v. American Intl. Group, Inc., 66 N.Y.2d 878, 880, 498 N.Y.S.2d 760, 489 N.E.2d 729 [1985]).  While Lee had the opportunity to contest the punitive damages claim at the subsequent damages inquest, he was not permitted to introduce evidence to counter the underlying cause of action (Suburban Graphics Supply Corp. v. Nagle, 5 A.D.3d 663, 665, 774 N.Y.S.2d 160 [2d Dept. 2004]).

Although the inquest court rejected the substance of Lee's purportedly meritorious defense, it did so on a limited record.  “[W]hile [defaulting] defendants are entitled to present testimony and evidence and cross-examine the plaintiff's witnesses at the inquest on damages, they may not conduct discovery” (Rudra v. Friedman, 123 A.D.3d 1104, 1105, 1 N.Y.S.3d 187 [2d Dept. 2014] [internal quotation marks omitted]).  Because Lee, having defaulted, forfeited the right to discovery, he was deprived of the opportunity to amass a record on which the inquest court might have credited his defense to the punitive damages claim.

We have considered Leifer's remaining arguments and find them unavailing.