The New York Court of Appeals Rejects The First Department’s “Nullity” Rule In Cases Where Attorneys Violate Section 470 of The Judiciary Law

• Posted on: Feb 19 2019

Section 470 of New York’s Judiciary Law, provides:

A person, regularly admitted to practice as an attorney and counsellor, in the courts of record of this state, whose office for the transaction of law business is within the state, may practice as such attorney or counsellor, although he resides in an adjoining state.

Section 470 requires that “non-resident attorneys must maintain an office within New York to practice in [New York State].”  (Schoenefeld v. State, 25 N.Y.3d 22 (2015).)

Our July 3, 2018, Blog post, “Out Of State Attorneys Admitted In New York, Cannot Rely On New York Virtual Offices If They Intend To Practice In New York,” addressed the need for an attorney admitted to practice law in New York, but who resides outside of the State, to maintain a physical office within the State in order to practice law in the State.  The Blog highlighted case-law holding that the in-state office requirement is not satisfied by maintaining a “virtual” office.

In our follow-up Blog posted on January 2, 2019, we reported that one of the cases discussed in the July 3 Blog, Arrowhead Capital Finance v. Cheyne Specialty Finance Fund, 154 A.D.3d 523 (1st Dep’t 2017), was scheduled for oral argument before the New York Court of Appeals.  The Court of Appeals heard oral argument on January 9, 2019 [HERE FOR THE VIDEO OF THE ORAL ARGUMENT].  We now report that on February 14, 2019, the Court rendered a decision.

In Arrowhead, the First Department affirmed the dismissal of the underlying action, without prejudice, because it was commenced by a non-resident attorney admitted in New York, but without an office in New York.  The First Department, subscribing to the “nullity” rule, found that “Plaintiff’s subsequent retention of co-counsel with an in-state office did not cure the violation, since the commencement of the action in violation of Judiciary Law § 470 was a nullity.”

In its brief before the Court of Appeals, Arrowhead argued, among other things, that the First Department’s “nullity” rule should not be the law in New York State.  Instead, Arrowhead argued that the New York Court of Appeals should resolve the conflict that exists amongst the Departments by adopting the rule followed by the Second and Third Departments, which permits a party to cure a section 470 violation.  See, e.g., Elm Mgmt. Corp. v. Sprung, 33 A.D.3d 753 (2nd Dep’t 2006); Sovereign Bank v. Calderone, 84 A.D.3d 778 (2nd Dep’t 2011); Stegemann v. Rensselaer County Sheriff’s Office, 153 A.D.3d 1053 (3d Dep’t 2017).

In their brief, the Arrowhead defendants/respondents argued, inter alia, that adopting a “cure” rule as followed by the Second and Third Departments, would render section 470 meaningless.  Accordingly, the respondents argued that the Court of Appeals should, like the First Department, establish the “nullity” rule as the law in New York for violations of Judiciary Law section 470.

Arrowhead argued and the Court of Appeals agreed, that the Court of Appeals’ decision in Dunn v. Eickhoff, 35 N.Y.2d 698 (1974), is dispositive of the Arrowhead appeal.   In Dunn, plaintiff’s attorney was disbarred in the middle of a personal injury trial.  Defendant’s motion for a mistrial was denied several days before the jury rendered a defense verdict.  Thereafter, and unhappy with the outcome of the trial, plaintiff moved for a mistrial.  The denial of the motion was affirmed by the Appellate Division, First Department.  The Dunn Court of Appeals affirmed, on the Appellate Division’s majority opinion and added that “[t]he disbarment of a lawyer creates no ‘nullities’, the person involved simply loses all license to practice law, that is, to hold himself out as a lawyer or to receive compensation for legal services.  As for the infant plaintiff, he is generally bound, with obvious limitations, by those who act in his behalf for better or worse, but mostly for his benefit.  Otherwise, as a practical matter, none would be able to deal with an infant’s affairs, to his detriment.”  (Citation omitted.)  Arrowhead, relying on the reasoning of the Second and Third Departments, argued that if the actions of a disbarred attorney were not deemed a nullity, the actions of a New York attorney, in good standing, but who does not maintain an office in New York should not be a nullity.

The Court of Appeals recognized that “[w]hether an action, such as filing a complaint, taken by a lawyer duly admitted to the bar of this State but without the required New York office, is a ‘nullity’ is an issue of first impression for this Court.”  In reversing the First Department, the Court held that a “violation of Judiciary Law § 470 does not render the actions taken by the attorney involved a nullity [and, i]nstead, the party may cure the section 470 violation with the appearance of compliant counsel or an application for admission pro hac vice by appropriate counsel.”  (Citation omitted.)

The Court Reasoned that if “further relief is warranted, the trial court has discretion to consider any resulting prejudice and fashion an appropriate remedy and the individual attorney may face disciplinary action for failure to comply with the statute.”  (Citations omitted.)  Following the outlined procedure, the Court reasoned, would ensure “that violations are appropriately addressed without disproportionately punishing an unwitting client for an attorney’s failure to comply with section 470.”