Uberoi v. Stark & Stark (S & S) is not groundbreaking for the law it presents, but rather for the idea it reinforces in New Jersey legal malpractice claims. Often times, clients may believe they have suffered as a result of the malpractice of attorneys. However, no liability will accompany this feeling of helplessness unless the court is convinced that the attorney's mistake proximately caused damage to the client. As a side note, the case also showed that arbitration will not preclude a successive action if the burden is more strenuous at arbitration.
In Uberoi, there was a business-sale involving the Uberois and Cognicase. On May 1, 2001 Cognicase approached the Uberois and expressed an interest in acquiring a business owned by the Uberois. The offer was contained in a term sheet which addressed certain debt to asset ratios that Cognicase required in order for the sale to go through. Eventually on July 18, 2001 Cognicase's attorney distributed an initial draft containing a stock purchase agreement. A second draft of the stock purchase agreement was distributed on July 22, 2001. The first and second draft identified the ratio the Uberois would be required to meet, as well as the amount of money they would have to surrender if this ratio was not met.
Following receipt of the 2nd agreement, the Uberois consulted with S & S for legal advice concerning the stock purchase agreement. After the initial consultation, a new draft was distributed on August 1, 2001. The 4th, 5th, 6th, and 7th drafts were also prepared without changing this ratio term. The 8th and final draft was prepared August 15, 2001. This draft changed the ratio required to close the deal, and afterwards, the Uberois lost some of the closing price because they could not meet the ratio.
The Uberois raised the issue of the changed ratio with their attorney in 2003, while the deal was pending. At that time, their attorney conceded that he did not notice the ratio changed because it had not been redlined or highlighted. In September 2004, Cognicase demanded arbitration concerning this ratio term which was now in dispute. At arbitration an argument was asserted by the Uberois concerning definition of this term. The arbitrator foundthey failed to meet their burden to prove beyond a clear and convincing standard about the definition of the term and ruled in Cognicase's favor.
On August 1, 2007, the plaintiffs filed the malpractice action. The plaintiffs did get expert testimony as required by New Jersey law. The expert stated that S & S deviated from acceptable standards of care. The expert also stated that the attorney's mistake proximately caused damage to the Uberois.
The defendants S & S raised a defense at this level that the plaintiffs were collaterally estopped from suing for legal malpractice because they agreed to a different intention regarding the main clause at arbitration. The court noted however, that the arbitration had a clear and convincing standard, but the court itself had a lesser preponderance of the evidence standard to prove their claims. Any findings at the arbitration thus did not preclude the finder of fact in a subsequent action from finding in favor of the plaintiffs.
S & S also argued that even if they were negligent with regards to failing to notice the change in clause, they did not proximately cause damage to the plaintiffs through their malpractice. To establish proximate cause, the plaintiff must show that negligent conduct was a substantial contributing factor of the loss. S & S attempted to persuade the court that, the plaintiff also must show the 3rd party business would have accepted the change they suggested. The court however, noted that there was not evidence in the record at the time, thus there was a genuine dispute concerning whether the change would have been accepted by the 3rd party.
The main reason this case survived summary judgment is because S & S badly miscalculated what was required. The attorney from S & S was clearly negligent; however, his argument was that they did not proximately cause damage. S & S could not prove proximate cause one way or another because it would require speculation regarding the mindset of the 3rd party business. Once the attorney-client relationship is shown, and expert testimony about standards of care are exhibited, the plaintiffs still carry the burden of showing the lawyer's behavior is the substantial contributing factor to any damage suffered.