A misconduct claim against Kane Kessler, a New York City-based business litigation law firm, was revived by the U.S. Court of Appeals for the Second Circuit on Monday, which reversed the dismissal of attorney misconduct claims under New York's judiciary law.

The panel—composed of Circuit Judges José Cabranes and Peter Hall, and U.S. Judge Timothy Stanceu of the U.S. Court of International Trade, sitting by designation—issued a summary order remanding the suit brought by Oorah Inc., a nonprofit focused on Jewish family services. Oorah's federal claims were a direct outgrowth of state suit brought against a prepaid phone card vendor, Covista Communications Inc., along with Kane Kessler, associate Gerard Schiano-Strain, and other connected parties.

Oorah's legal action alleged Covista was assisted in frustrating the nonprofit's attempts to collect commissions it was contractually owed by referring customers to Covista as part of a fundraising effort. Oorah claimed Kane Kessler and Birch Communications, which acquired Covista, helped manipulate and destroy key records and made sure assets were sold off before Oorah could enforce judgment.

Oorah prevailed in the underlying state action—a fact that framed the decision by U.S. District Judge Paul Engelmayer of the Southern District of New York to dismiss the nonprofit's attorney misconduct claims.

The district court's reading of § 487 of the state judiciary code required that claims be brought in the action where the alleged attorney misconduct occurred, “unless the misconduct is part of a broader fraudulent scheme.”

As the panel noted, the distinction at issue was, under § 487, whether or not the party seeking relief was successful. If that was ultimately the case, the panel said, the party “may bring a separate, plenary action alleging a violation” under state attorney misconduct law. Engelmayer's reading, the panel found, was valid specifically when the party seeking relief failed in the underlying action.

The district court erred in concluding that Oorah sought to “collaterally attack” a judgment that didn't go its way, rather than attempt to recover damages for the additional legal costs incurred “as a result of Kane Kessler's alleged misconduct.”

“In sum, while the court where the alleged misconduct occurred may be better positioned than a federal court sitting under diversity jurisdiction to assess the merits of a § 487 claim, the District Court misread New York state law to require a prevailing party to file its § 487 claim in the pending underlying state action,” the panel stated.

Oorah was represented on appeal by Storch Amini name attorney Steven Storch.

“We respectfully disagree with the Court of Appeals' decision,” said A. Michael Furman of Furman Kornfeld & Brennan, which represented Kane Kessler in the case.  “Kane Kessler vigorously denies the allegations made by the plaintiff, and looks forward to the dismissal of this unwarranted lawsuit.”

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