Interesting Legal Malpractice Claim Based on Failure to Assert Exceptional Case

The facts of the case are sparsely set out in the appellate court decision in Smith, Gambrell & Russell, LLP v. Telecomm. Sys., Inc., 63 N.Y.S.2d 384 (N.Y. Sup. Ct. App. Div. Nov. 14, 2017), but are set out in more detail in the trial court’s decision, here.

Apparently, the firm represented the patentee, and won at trial.  It did not argue fees should be shifted under 285 (after Octane), but instead filed a motion for sanctions arguing inherent power. (That, of course, is a much more difficult hurdle than 285.)

The firm sued for fees owed, and the patentee counterclaimed, asserting the firm had missed the deadline for filing the motion, which is the later of 14 days after judgment is entered or post-judgment motions are resolved.  The evidence showed, however, that the motion had been filed within the latter time limit, but it was never ruled on (the underlying patent case settled).  Accordingly, the counterclaim for malpractice was dismissed.

The appellate court affirmed but also addressed an alternative argument made for the first time on appeal, which was that instead of filing for sanctions, the lawyers should have relied on 285 and Octane.  The appellate court stated that choosing inherent power over 285 was a judgment call, and so was not actionable, and also stated that the complaint failed to allege facts that showed the case was exceptional. (You would think those would be in the motion for sanctions that was filed.)

Interesting case for a couple of reasons: (1) if you sue for fees you likely will face a counterclaim for malpractice (it’s not always but it is often); and (2) remember that because of Gunn v. Minton, malpractice cases based upon mishandled patent litigation or prosecution will be decided by state courts. I’ve testified in state courts on patent matters and it is a different world out there.

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