The New York Law Journal, April 4, 1997, p. 1 (cont. on p. 4, col 4),

"Judge Rejects Time-Bar Limit on Legal Claim"

Federal Court Ties Order to Expected State Ruling

by Deborah Pines

ALTHOUGH New York's highest court has not yet decided the issue a federal judge in Manhattan predicted Tuesday that the State Court of Appeals would not permit retroactive application of a new three-year limitations period for legal malpractice suits.

Based on that prediction, Southern District Judge Sonia Sotomayor declined to dismiss as untimely a malpractice suit against Kornstein Veisz & Wexler for alleged inadequate representation of a former securities firm partner during a 1989 arbitration hearing in Estate of Joseph Re v. Kornstein Veisz & Wexler, 94 Civ. 2369.

Acknowledging the unsettled nature of the issue, Judge Sotomayor also gave Kornstein Veisz permission to bring an interlocutory appeal -- an interim appeal before final judgment -- on the retroactivity question to the U.S. Court of Appeals for the Second Circuit. If the Circuit declines to hear it, Judge Sotomayor ruled that the malpractice case plaintiff, the Estate of Joseph Re, can proceed with one of its claims, breach of fiduciary duty. She dismissed three other claims for factual failings.

Because the Estate's suit was timely when filed, dismissal of the entire suit through retroactive application of the amended limitations period "would offend notions of due process under New York law," Judge Sotomayor wrote.

The plaintiffs filed suit in April 1994, more than four years after an arbitrator ruled against Joseph Re in proceedings where he contested his forced resignation in 1985 as a general partner with Bear Stearns & Co. The resignation, he said, was timed to deprive him of the financial benefits of participating in the firm's public offering shortly afterwards.

Mr. Re -- and then upon his death, his estate -- asserted four claims against Kornstein Veisz: breach of contract, breach of fiduciary duty, legal malpractice and unjust enrichment.

Legislative Intent

In a motion for summary judgment the law firm argued that the full suit should be dismissed as untimely. Kornstein Veisz cited the New York State Legislature's passage of an amendment. In CPLR 214[6], which took effect on Sept. 4, 1996, restating that the correct statute of limitations for attorney malpractice is three years.

Kornstein Veisz maintained that the amended law was intended to apply retroactively. The firm, cited the law's language that it "take effect immediately." It also noted that the legislative intent was to override a line of cases which had found that lawyer malpractice cases like Estate of

Joseph Re, which assert what are essentially contract claims, may proceed under the six-year limitations period applicable in contract actions.

Judge Sotomayor agreed with some of Kornstein Veisz's arguments but rejected its conclusion.

State's High Court

She found the language of the statute and its framers suggest the Legislature intended that the new limitations period apply retroactively. But Judge Sotomayor predicted the State Court of Appeals would not permit that.

She noted the two state courts which have considered the issue have reached opposite results, Garcia v. Jonathan, NYLJ, Jan. 17 (1st Dept, finding the amendments have prospective application only) and Russo v. Walter, Feb. 25 (2d Dept., applying the amendments retroactively).

While she faulted Garcia for downplaying the amendment's legislative history, she called the Russo court "overly deferential." That court, she added, avoided what it perceived to be constitutional problems relating to retroactivity by accepting the Legislature's view that it was not passing new law, but merely correcting judicial error. Crediting this approach would compromise the separation of powers, and would provide too simple a tool for legislatures to enact improper ex post facto provisions under the guise of 'correcting prior court pronouncements."

Judge Sotomayor then said that New York's highest court would "view it as antithetical to long-held notions of equity and fairness to apply a revised limitations period retroactively to bar an action that was timely when filed."