Judiciary Law Section 487(1) provides a potent remedy for litigants who believe a lawyer in their case engages in “fraud and deceit” with the intention of deceiving “the court or any party.” It is an especially tantalizing weapon because a lawyer found to have violated the law is both guilty of a misdemeanor and is liable to an aggrieved party for treble damages in a civil suit. However, in a March 31, 2020 decision in Bill Birds, Inc, v. Stein Law Firm, P.C., a divided New York Court of Appeals limited the potential use of Section 487, holding that: (a) pre-litigation false statements are not within the scope of the statute; and (b) no claim arises under the statute even from the knowing filing of a frivolous litigation pleading.
The decision appears to limit the reach of Section 487 to deceptive statements made during a litigation for the specific purpose of deceiving the court or any party. Misstatements (at least to a client) before a litigation is filed or after its dismissal will not be actionable under the statute. The tension between the majority and Justice Jenny Rivera’s dissent indicates that more will likely be forthcoming in Section 487 jurisprudence. Indeed, the majority left open another disputed aspect of Section 487 law: Whether the statute requires a “chronic and extreme pattern of legal delinquency” or can be satisfied by a single act of deceit.
In Bill Birds, the Stein law firm initially represented Bill Birds (a manufacturer of decorative metal auto parts) in a trademark litigation against General Motors and others. After that litigation was dismissed, Bill Birds sued the Stein firm, claiming that the firm (1) falsely advised it that meritorious claims existed against GM, thus inducing it to file an unmerited claim; (2) filed a knowingly unmerited action against GM solely so it could pocket $25,000 in legal fees for itself; and (3) deceived Bill Birds by concealing for several months that the GM complaint had been dismissed for lack of proper venue.
The Court of Appeals focused on the potential reach of Section 487 beyond the duration of a litigation. It cited two of its prior Section 487 decisions in Amalfitano v Rosenberg, 12 N.Y.3d 8 (2009) and Melcher v Greenberg Traurig, LLP, 23 N.Y.3d 10 (2014) to show that: (a) the statute’s historical roots were to punish deceit or collusion “in any court of justice”; and (b) liability under the statute does not extend to negligent acts or a mere lack of professional competency.
It also cited the 1884 case of Looff v Lawton, 97 N.Y. 478, in which the Court interpreted a predecessor statute to bar a claim that an attorney provided “false and untrue” legal advice to induce plaintiffs to bring an unnecessary lawsuit solely to earn a large fee. Looff reasoned that the statute requires conduct that occurs in “an action pending in a court” - not beforehand, since there was “no court or party to be deceived within the meaning of the statute.” Id. at 482. Relying on Looff, the Court concluded that: “Given the statute’s origins and purpose, it provides a particularized civil remedy, and criminal liability, for a specialized form of attorney misconduct occurring during the pendency of litigation. (emphasis added).
Applying these principles, the court’s majority held that Bill Birds “failed to allege that defendants engaged in deceit or collusion during the course” of the underlying litigation. The Court rejected the argument that false statements intended to induce a litigation were actionable under Section 487 (as opposed to an action fort legal malpractice or fraud) and that the alleged deceit in concealing the dismissal of the case was not actionable because it “occurred after the litigation had ended.”
The majority added in a footnote that other remedies exist “to address the filing of frivolous lawsuits, among other attorney shortcomings, such as litigation sanctions, attorney misconduct proceedings and legal malpractice actions.”
In a lengthy dissent, Justice Rivera held that Bill Birds had sufficiently alleged that the Stein firm perpetuated a “charade on the court” by filing and pursuing what the attorney knew all along was an action “doomed to fail.” The dissent did not challenge the majority’s conclusion that Section 487 was limited to deceptive statements “in litigation," but would have sustained the action because triable issues existed whether the law firm “intended to deceive the court and plaintiffs by knowingly filing and defending a frivolous lawsuit.”
The dissent noted that Amalfitano involved a lawsuit filed by an attorney that “directly conflicted” with his knowledge of the facts. Similarly, the Stein law firm “made initial and continued false representations to the court about the legal and factual basis” for the trademark action.
The majority specifically challenged that statement, noting that the complaint merely alleged that the law firm "made ‘false representations’ to plaintiffs regarding their legal rights, which induced them to file suit. Plaintiffs neither alleged nor offered proof that defendants made ‘any fraudulent statement’ to the court during the underlying intellectual property lawsuit.” (emphasis in original)
The division between the majority and dissent suggest that there is more to come on the question of what kind of additional statements beyond the filing of a “deceptive” or “fraudulent” pleading are required to state a Section 487 claim. There remains a strong incentive for plaintiffs’ lawyers to bring a Section 487 claim because it raises the stakes both in terms of possible criminal liability and treble damages. At the same time, the courts are obviously reluctant to expand the scope of the statute and reserve it only for the most extreme litigation deception. Based on Bill Birds and Amalfitano, one may infer that Section 478 pleaders will focus in the future on trying to allege fraudulent factual statements made to a court or an adversary during a litigation, and not merely unmerited or frivolous legal arguments.