Does N.Y. Judiciary Law §487 Apply to Arbitrations?

An attorney violates Section 487 of the N.Y. Judiciary Law (Section 487) when she or he “is guilty of any deceit or collusion or consents to any deceit or collusion with intent to deceive the court or any party…” N.Y. Judiciary Law §487. Such a violation may lead to severe consequences: criminal liability and/or treble damages awarded to the plaintiff. Id. Recently, New York courts have read the statute expansively, concluding that a single act of “intentional deceit” may be enough to impose liability. See, e.g., Dupree v. Voorhees, 102 A.D.3d 912, 913 (2d Dept. 2013) (the “alternative predicate for liability under Judiciary Law §487 based upon an attorney’s chronic, extreme pattern of legal delinquency … should not be followed, as the only liability standard recognized in Judiciary Law §487 is that of an intent to deceive”) (internal citations omitted). Perhaps more importantly, in two recent decisions the New York Court of Appeals expanded the statute to cover only attempted deceit. See Amalfitano v. Rosenberg, 12 N.Y.3d 8, 12 (2009)], (holding that a six-year statute of limitations applies to Section 487 claims); Melcher v. Greenberg Traurig, LLP, 23 N.Y.3d 10, 14 (2014).

Owing to Section 487’s harsh consequences and growing reach, it is important to understand how this centuries-old statute applies to modern-day law practice. This is particularly true when increasingly cases are being litigated outside the traditional courtroom setting and instead through some form of alternative dispute resolution. This article will address the application of Section 487 to non-judicial proceedings such as mediations and arbitrations. We conclude that Section 487 should not apply in those settings.

Statutory Language and Legislative History

In pertinent part, Section 487 states:

An attorney or counselor who:

1. Is guilty of any deceit or collusion, or consents to any deceit or collusion, with intent to deceive the court or any party …

Is guilty of a misdemeanor, and in addition to the punishment prescribed therefor by the penal law, he forfeits to the party injured treble damages, to be recovered in a civil action. (Emphasis added).

The italicized language (“the court or any party”) is key to our analysis. It suggests that, by its plain terms, this statute is intended to apply only to proceedings in actual courts, not in extra-judicial proceedings such as arbitration. Commonwealth of N. Mariana Islands v. Canadian Imperial Bank of Commerce, 21 N.Y.3d 55, 60, (N.Y. 2013) (“‘[w]here the statutory language is clear and unambiguous, the court should construe it so as to give effect to the plain meaning of the words used.’”) (quoting Patrolmen’s Benevolent Assn. of City of New York v. City of New York, 41 N.Y.2d 205, 208 (N.Y. 1976)); Natural Res. Def. Council, Inc. v. Muszynski, 268 F.3d 91, 98 (2d Cir. 2001) (“[s]tatutory analysis begins with the plain meaning of a statute. The plain meaning can be extrapolated by giving words their ordinary sense.”) (internal citations omitted).

This treatment of the statutory language finds support in Section 487’s venerable legislative history. Section 487 is the direct successor of a law enacted in England seven centuries ago and has been on the books in New York since 1787. The statute has long been construed to require that the attorney’s conduct occur before a court or during a judicial proceeding. See Melcher v. Greenberg Traurig, LLP, 23 N.Y.3d 10, 14 (N.Y. 2014) (detailing history of Section 487, and showing its central provisions were first enacted in 1275 as part of the Statute of Westminster); Amalfitano v. Rosenberg, 12 N.Y.3d 8, 12 (2009) (same). The original statute read (in relevant part): “if any Serjeant, Pleader, or other, do any manner of Deceit or Collusion in the King’s Court, or consent [unto it] in deceit of the Court [or] to beguile the Court¸ or the Party…” Amalfitano, 12 N.Y.3d at 12 (quoting 3 Edw, ch. 29) (emphasis added). When the New York Legislature adopted the law five centuries later, the language was markedly similar. See L. 1787, ch. 35, §5 (“…if any counsellor, attorney, solicitor, pleader, advocate, proctor, or other, do any manner of deceit or collusion, in any court of justice, or consent unto it in deceit of the court, or to beguile the court or the party, and thereof be convicted…”) (emphasis added); see also Amalfitano, 12 N.Y.3d at 13–14 (“‘[t]o mislead the court or a party is to deceive it; and, if knowingly done, constitutes criminal deceit under the statute cited.’”) (quoting Looff v. Lawton, 14 Hun 588, 590 (2d Dept. 1878)). There is nothing in the legislative history of Section 487 to suggest that the statute was ever intended to apply to extrajudicial proceedings such as arbitration.

Courts applying Section 487 view its purpose as protecting the integrity of New York judicial proceedings. As the Second Circuit noted, the statute is “intended to regulate, through criminal and civil sanctions, the conduct of litigation before the New York courts.” Schertenleib v. Traum, 589 F.2d 1156, 1166 (2d Cir. 1978). The Court in Schertenleib used that reasoning to hold that Section 487 did not apply to conduct before courts outside of New York because the legislature’s primary concern was “for the integrity of the truth-seeking process of the New York courts…” Id. See also Cinao v. Reers, 27 Misc. 3d 195, 203 (N.Y. Sup. Ct. 2010) (“[t]he statute’s evident intent [is] to enforce an attorney’s special obligation to protect the integrity of the courts and foster their truth-seeking function.”) (quoting Amalfitano, 12 N.Y.3d 8, 14 (N.Y. 2009)).

The same reasoning exempts extrajudicial proceedings such as arbitration from Section 487’s reach. As Schertenlieb and others make clear, the statute is not supposed to police New York lawyers in whatever venue they appear but instead to regulate their conduct before New York courts. Accord Kaye Scholer LLP v. CNA Holdings, Inc., No. 08 Civ. 5547 (NRB), 2010 WL 1779917, at *1 (S.D.N.Y. Apr. 28, 2010) (Section 487 claim must involve “‘the conduct of litigation before the New York courts’”) (quoting Schertenlieb, 589 F.2d at 1166); Amalfitano v. Rosenberg, 533 F.3d 117, 123 (2d Cir. 2008) (“the statute applies to any oral or written statement related to a proceeding and communicated to a court or party with the intent to deceive”) (emphasis added); Polanco v. NCO Portfolio Mgmt., Inc., 23 F. Supp. 3d 363, 376 (S.D.N.Y. 2014) (“Section 487(1), only allows for claims against attorneys who engage in acts of deceit or collusion that are directed at a court or that ‘occur during the course of a pending judicial proceeding’”) (quoting Shutz v. Kagan Lubic Lepper Finkelstein & Gold, LLP, No. 12 CIV. 9459 (PAE), 2013 WL 3357921, at *10 (S.D.N.Y. July 2, 2013), aff’d, 552 F. Appx. 79 (2d Cir. 2014)) (emphasis added); O’Brien v. Alexander, 898 F. Supp. 162, 168-69 (S.D.N.Y. 1995), aff’d, 101 F.3d 1479 (2d Cir. 1996) (“Since no lawsuit was pending when the alleged representations in question were made … plaintiff’s claim must be dismissed, for section 487 by its terms applies only to statements made to the court or any party to a lawsuit”) (emphasis added); Costalas v. Amalfitano, 305 A.D.2d 202, 204 (1st Dept. 2003) (“the alleged deceit forming the basis of such a cause of action, if it is not directed at a court, must occur during the course of a pending judicial proceeding”) (emphasis added) (quotations omitted); Singer v. Whitman & Ransom, 83 A.D.2d 862, 862-63 (2d Dept. 1981) (Section 487 requires deceit or collusion at a “judicial proceeding”).

Application to Arbitration

The history of Section 487 as well as the plain text suggest, therefore, that the statute should not apply to arbitrations. The fact that the statute has been amended several times — including amendments after New York’s passage in 1920 of the Arbitration Act (see 2 N.Y. Laws 803), now codified in Article 75 of the CPLR — suggests that the legislature has never intended to extend Section 487’s reach. This is particularly noteworthy since, on the other hand, the legislature did amend other important provisions of the Judiciary Law, Sections 475 and Sections 475-a, to expand New York lawyers’ rights to assert charging liens in, inter alia, arbitrations and mediations. See 2012 Sess. Law News of N.Y. Ch. 478 (S. 1546) (Oct. 3, 2012).

Indeed, if Section 487 were interpreted so as to apply to “parties” in an arbitration or mediation, it would create an illogical result. The statute would apply to deceit on a court, deceit on parties to a court proceeding, deceit on parties to an arbitration, but not deceit on the arbitrators themselves. Section 487 would then also arguably apply to out-of-state proceedings, as New York lawyers often travel out-of-state to conduct arbitrations [see Model Rule 5.5(c)(3) (permitting out-of-state lawyer to perform services in state if services “are in or reasonably related to a pending or potential arbitration, mediation or other alternative dispute resolution proceeding…”]; as shown, courts have expressly held out-of-state proceedings are not within the statute’s purview. See Schertenlieb, 589 F.2d at 1166.

There may be reasons why the legislature has not expanded the reach of Section 487 to arbitrations or other forms of dispute resolution. Many arbitrations, for instance, are covered by the Federal Arbitration Act (“FAA,” 9 U.S.C. §1 et seq.). That statutory scheme sets forth that judicial review of the Award is limited to vacatur or modification of the Award on specifically enumerated grounds, including “where the award was procured by corruption, fraud or undue means.” 9 U.S.C §10(a)(1); see also 9 U.S.C §§10–11. If such “fraud or undue means” or other grounds for vacatur are found, the statute provides that the most the court can do is direct a rehearing before the arbitrators. Id. §10(b)(2). To the extent a party is to be punished for misconduct, that punishment must be imposed by the Panel. ReliaStar Life Ins. Co. of New York v. EMC Nat’l Life Co., 564 F.3d 81, 86-87 (2d Cir. 2009) (broad arbitration clause permits Panel to impose sanctions and attorneys’ fees for “bad faith conduct” in FAA arbitration). CPLR 7501 et seq. similarly sets forth the standards for judicial review of arbitration awards for arbitrations governed by New York State procedures, and similarly limits the court’s authority to vacatur of the Award — not a sanction against the attorney, much less an award of treble damages.

Put simply, New York has a statutory scheme to address arbitrations, and it is extremely limited in scope. Allowing Section 487 to be interpreted to permit individual lawyers or law firms to be sanctioned for arbitration misconduct would vastly expand the powers of New York courts in this area and undercut the policy of restricting court involvement in arbitrations that underpins CPLR Article 75 and the FAA.

Rule of Lenity

Finally, the age old rule of lenity suggests that Section 487 should be construed to apply only to conduct before courts. In addition to treble damages, the statute also lists a misdemeanor conviction as a penalty for violation. The criminal nature of the statute requires a narrow interpretation. See United States v. Thompson/Ctr. Arms Co., 504 U.S. 505, 518 (1992) (statute with criminal component must be construed in accordance with the rule of lenity); Crandon v. U.S., 494 U.S. 152, 168 (1990) (rule of lenity applies to criminal statute invoked in a civil action); N.Y. Stat. Law §271 (McKinney) (“[g]enerally, penal statutes are strictly construed against the State and in favor of the accused.”); S. Blvd. Sound, Inc. v. Felix Storch, Inc., 165 Misc. 2d 341, 344 (N.Y. Civ. Ct. 1995), aff’d as modified, 167 Misc. 2d 731 (App. Term 1st Dept. 1996) (Section 487 should be strictly construed owing to criminal component); see also City of New York v. Verizon New York, Inc., 4 N.Y.3d 255, 259 (2005) (administrative statute that imposed civil fines must be narrowly construed because of statute’s criminal component). Given that there is nothing in the language or history of Section 487 to suggest that it was meant to apply to conduct in arbitrations, the rule of lenity requires courts to refrain from adding that into the statute.

Contrary Arguments

There are three arguments that can be made to support applying Section 487 to lawyer misconduct in arbitrations. In our view, all are unpersuasive.

First, Section 487 speaks of deceiving “the court or any party.” (Emphasis added.) It does not say “party to a court proceeding,” and thus leaves open the possibility that the statute would apply to a “party” to a non-judicial proceeding as well. Given the historical antecedents of the statute, this argument must fail: the statute was passed at a time when the legal system did not have non-judicial proceedings, and there is no reason to believe that “parties” was meant to mean more than the parties to a court case. It is therefore not surprising that courts have interpreted “parties,” as used in Section 487, exactly that way. Costalas, 305 A.D.2d at 204 (quoting Hansen v. Caffry, 280 A.D.2d 704, 705 (3d Dept. 2001)) (“parties” under Section 487 means “parties to a judicial proceeding”; see also O’Brien, 898 F. Supp. at 168 (“Section 487 … provides that an attorney … may not deceive … the court or any party to that lawsuit”) (emphasis added); Henry v. Brenner, 271 A.D.2d 647, 648 (2d Dept. 2000) (Section 487 may be applied only in a “pending judicial proceeding”).

Second, no case in the 224-year history of Section 487 has ever squarely held that the statute does not apply to arbitration misconduct. While the argument has been raised in a handful of cases, all have resulted in dismissal for other reasons. See, e.g., Harbor Consultants Ltd. v. Roth, 26 Misc. 3d 1219(A) at *8 (N.Y. Sup. Ct. Jan. 19, 2010) (dismissing Section 487 claim based on an allegation that lawyer was having secret settlement discussions during arbitration; Court held that conduct did not occur during a pending judicial proceeding); Parametric Capital Mgmt., LLC v. Lacher, 15 A.D.3d 301, 302 (1st Dept. 2005) (affirming dismissal of Section 487 claim based on conduct that occurred during an arbitration for failure to state a claim); see id. Br. For Defendants-Respondents, 2004 WL 5371186 at *13–14).

In fact, in one case, Metropolitan Plaza WP, LLC v. Goetz Fitzpatrick, LLP, No. 115519/2009, 2010 WL 3514929 (Sup. Ct. N.Y. Cnty. Aug. 27. 2010), a Section 487 claim based in part on misconduct in an arbitration was upheld in the face of a motion to dismiss. But this case provides little support for expanding the reach of Section 487, for several reasons. Specifically, Goetz Fitzpatrick pre-dates the most recent Court of Appeals ruling that discusses the historical antecedents of Section 487 and relies on the statute’s textual limitations for its ruling. See Melcher, 23 N.Y. 3d at 10. As discussed above, both the First Department and the Court of Appeals in Melcher took care to discuss the historical significance of the statute and reaffirm its focus on court proceedings. Id. at 15. In other words, since Goetz Fitzpatrick, both the First Department and the Court of Appeals have taken care to discuss the statute’s origin as one regulating lawyers’ conduct before courts. Additionally, though Goetz Fitzpatrick did comment on the sufficiency of the allegations, it did so in response to the defendants’ argument that the plaintiffs’ claims were duplicative. 2010 WL 3514929 at *10–11. It does not appear that the defendants argued that Section 487 was inapplicable to arbitrations. Finally, Goetz Fitzpatrick’s ruling on the applicability of Section 487 to arbitral misconduct was never reviewed because the trial court subsequently dismissed plaintiffs’ claims on collateral estoppel grounds. The reasoning in Goetz Fitzpatrick, therefore, provides little guidance regarding the applicability of Section 487 to arbitrations.

Third, it could be argued that the purpose of Section 487 is to regulate the conduct of New York attorneys, and thereby uphold the integrity of the Bar. This finds support in the statute’s focus on attorney “deceit” and “misrepresentation.” But that argument proves too much: if regulating attorney misconduct is really the goal, why not cover misconduct by all lawyers, not just those involve in judicial (or even non-judicial) proceedings? Why do transactional lawyers get a pass? The reason is that, as explained above, the statute’s focus on attorney deceit and misrepresentation is not to uphold the integrity of the Bar, but to uphold the integrity of the New York court system. See, e.g., Schertenleib, 589 F.2d at 1166; Cinao, 27 Misc. 3d at 203. Section 487 should not be interpreted as going any further than that.

Conclusion

For seven centuries, Section 487 has remained virtually unchanged. It serves an important purpose to penalize some of the most egregious behavior by lawyers. However, the statute should also be read with the understanding that it does not apply to all lawyer deceit or misrepresentation without restriction. As lawyers and courts continue to favor arbitration and other forms of dispute resolution over litigation in court, they should not feel the need to bring the entire Judiciary Law along for the ride. Otherwise, we risk stretching a law older than our founding fathers far beyond its intended purpose.

Ronald C. Minkoff is the Chair of the Professional Responsibility Group at Frankfurt Kurnit Klein & Selz, P.C. Tyler Maulsby is an associate at the firm.

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Arbitration NY Judiciary Law §487 Ronald C Minkoff Tyler Maulsby