The litigation of a claim for attorneys’ fees in small claims court does not have a preclusive effect on a subsequent claim for legal malpractice.

Generally, the law in New York is that “a determination fixing a defendant’s fees in a prior action brought by the defendant against the plaintiff for fees for the same legal services which the plaintiff alleges were negligently performed, necessarily determines that there was no legal malpractice.” Breslin Realty Development Corp. v. Shaw, 72 A.D.3d 258, 263–4, 893 N.Y.S.2d 95, 100 (2d Dep’t 2010). See also Kinberg v. Garr, 28 A.D.3d 245, 811 N.Y.S.2d 568 (1st Dep’t 2006). Thus, where an attorney has prevailed on a claim for attorneys’ fees, he or she cannot later be sued for malpractice arising out of the services in question. A determination that the attorney is entitled to be compensated for the services rendered implicitly finds that there was no malpractice and thus precludes a later determination that the services were rendered negligently.

However, in Tsafatinos v. Stavropoulos, 2013 N.Y. Misc. LEXIS 5363, 2013 NY Slip Op 23390 (App. Term. 2d Dep’t Nov. 12, 2013), the Appellate Term held that this general rule did not apply where the legal fee claim was brought as a small claims action. Stavropolous, an attorney, had commenced a small claims action against Tsafatinos to recover unpaid attorney’s fees for his preparation and negotiation of a commercial lease, and was awarded $350. Subsequently, Tsafatinos commenced an action against Stavropoulos, her former attorney, in Civil Court, alleging negligence in connection with the lease’s preparation and negotiation. Stavropoulos moved to dismiss the complaint on the grounds that the claims were barred by res judicata. While the Civil Court granted Stavropoulos’ motion, the Appellate Term reversed and held that the claims were not precluded by the prior small claims judgment.

The Appellate Term noted that a provision of New York’s Civil Court Act §1808 provides that a small claims judgment “shall not be deemed an adjudication of any fact at issue or found therein in any other action or court; except that a subsequent judgment obtained in another action or court involving the same facts, issues and parties shall be reduced by the amount of a judgment awarded under this article.” As the Appellate Term noted, “[t]his provision divests the small claims judgment only of its ‘issue preclusion’ use.” Accordingly, the prior small claims judgment did not bar a subsequent claim for malpractice against Stavropoulos.

The Court also noted that, while Tsafatinos had initially interposed a counterclaim in the small claims action, her withdrawal of the counterclaim and commencement of the action in Civil Court was proper because the small claims court did not have jurisdiction over counterclaims in excess of the monetary jurisdictional threshold.

Practice Note: An attorney considering whether to bring a small claims action to recover legal fees should consider the risk of duplicative litigation in the event that their former client asserts a claim for malpractice.

Reprinted with permission from the January 2014 lpl eAdvisory – ABA Standing Committee on Lawyer’s Professional Liability.  All rights reserved.