Background
In September 2020, at the height of the COVID-19 pandemic, plaintiff Edward Roberts, LLC engaged the law firm Shipman & Goodwin LLP to advise it on regulatory compliance for the sale of disinfectant products — specifically, on the requirements of the Federal Insecticide, Fungicide, and Rodenticide Act (FIFRA) and related EPA regulations. The client wanted to sell disinfecting wipes under the brand name “DisinfeX.” The law firm counseled that products intended for a pesticidal purpose could not be marketed with “kill language” (claims such as “kills 99.9% of germs”) until the product obtained an EPA registration number. On that advice, the client pursued a dual-track strategy: immediately sell the wipes as “multipurpose wipes” without kill language, then remarket them as disinfecting wipes once EPA registration came through.
The strategy unraveled badly. Walmart canceled its orders and returned the product after the client — in emails and a fact sheet — mischaracterized the wipes’ current EPA registration status, falsely stating they were already registered. The EPA subsequently ordered an embargo of all wipes the client had sold, requiring their recovery and sequestration until they could be exported or destroyed. By the time EPA registration arrived in June 2021, some $40 million in inventory had expired or become unsaleable. The client sued Shipman & Goodwin for legal malpractice, and the law firm moved for partial summary judgment to limit damages to losses unrelated to the Walmart orders — arguing the client’s own deception of Walmart was an intervening cause that severed the causal link. Supreme Court agreed and limited damages accordingly. The First Department reversed that limitation.
The Court’s Holding
The Appellate Division held that Supreme Court erred in limiting the client’s damages at the summary judgment stage. The law firm’s argument — that the client’s own misrepresentations to Walmart were an intervening, superseding act that broke the causal chain between the firm’s allegedly negligent advice and the client’s loss — raised a triable issue of fact, not a legal conclusion. Crucially, the client presented evidence that the law firm’s advice was itself the basis for the characterizations of the wipes’ regulatory status that the client then conveyed to Walmart. Whether the firm’s negligent counsel was the proximate source of the misrepresentations, or whether the client’s independent deceit severed that link, was for the trier of fact to resolve under Hain v Jamison (28 NY3d 524 [2016]) and Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP (26 NY3d 40 [2015]).
On the post-embargo losses — the $40 million in unsaleable inventory — the court found no basis to limit damages at all. The EPA embargo was caused by the law firm’s concededly negligent compliance advice, not by the client’s fraud on Walmart. The inventory couldn’t be resold because the EPA said so, not because of the Walmart cancellation. These are distinct causes with distinct effects, and summary judgment was inappropriate on that component. Finally, the court permitted the client’s lost future profits claim based on two months of Walmart sales to go forward, holding it was not too speculative as a matter of law under Ashland Mgt. v Janien (82 NY2d 395 [1993]).
Key Takeaways
- A law firm seeking summary judgment to limit legal malpractice damages based on the client’s own wrongdoing must demonstrate, as a matter of law, that the client’s conduct was an independent, superseding cause — not merely a contributing factor — severing causation. That is a high bar at summary judgment when the record contains evidence that the firm’s advice informed the client’s misrepresentations.
- Where the firm’s negligence concededly caused an EPA embargo, losses from that embargo are not capped by the client’s fraud on a particular customer: the embargo damages flow from the regulatory violation, not from the contract cancellation.
- Lost future profits in legal malpractice cases are not automatically too speculative; courts will permit the claim to proceed where there is a reasonable basis for computing the loss, leaving challenges to expert methodology for a motion in limine rather than summary judgment.
- Regulatory compliance malpractice during rapidly evolving emergency conditions (here, pandemic-era EPA emergency-use guidance) is fertile ground for causation disputes — practitioners advising clients on novel regulatory frameworks bear heightened responsibility for clarity and accuracy.
Why It Matters
This decision is a significant win for plaintiffs in legal malpractice actions and a caution to law firms defending such claims. The “client’s own fault” argument — that the client’s independent misconduct broke the causal chain — is a powerful defense concept but one that ordinarily requires resolution by a jury, not a judge on summary judgment. Where the record leaves open the question of whether the attorney’s negligent advice was itself the vehicle for the client’s misrepresentations, the firm cannot short-circuit the damages analysis before trial.
For in-house counsel and corporate clients engaging outside law firms on complex regulatory compliance, the case also highlights the stakes of obtaining precise, documented regulatory advice. When legal advice forms the predicate for representations made to counterparties, any malpractice exposure is not neatly compartmentalized. The $40 million inventory loss component of this case illustrates the cascading effect of negligent compliance counsel: the EPA embargo, not the customer fraud, caused the inventory losses — and the firm cannot escape liability for those consequences by pointing to the client’s independent misconduct toward Walmart.