That Plaintiff Read an Allegedly Negligently Drafted Agreement Does Not Bar a Legal Malpractice Claim

On May 2, 2023, Justice Chan of the New York County Commercial Division issued a decision in Prospect Capital Corp. v. Morgan Lewis & Bockius LLP, 2023 NY Slip Op. 31505(U), holding that a plaintiff allegedly read a negligently drafted agreement does not bar a malpractice claim regarding the agreement, explaining:

The court is also not persuaded by defendants’ argument that they cannot be held liable since plaintiff was supposed to read and know the content of the subordination agreement. As defendants contend, a party who signs a document is conclusively bound by its terms absent a valid excuse for having failed to read it. However, plaintiff has not tried to challenge the binding effect of the subordination agreement but instead alleges the negligence of its attorneys in providing advice on the agreement. As the Court of Appeal has held, the binding nature of that agreement is not a complete defense to the professional malpractice of the law firm that generated the agreement to its client’s detriment.

Here, although plaintiff had an in-house counsel who received the draft subordination agreement, plaintiff was not fully advised of the precise issue concerning its turnover right on the SVB Loan. Also, it did not seem readily apparent to plaintiff that narrowing the definition of “Keane Entity” would strip its turnover right against SVB, as defendants themselves were unaware of
that legal consequence for years until the SVB Litigation. As such, defendants cannot shift their negligence to plaintiff merely because plaintiff signed the subordination agreement.

(Internal quotations and citations omitted).

Stay informed!
Sign up for email alerts and notifications here.
Read more about our Complex Commercial Litigation practice.