Beverly Hills Concepts, Inc. v. Schatz and Schatz, Ribicoff and Kotkin

Jeannie Leitao and two others incorporated Beverly Hills Concepts, Inc. (BHC) (plaintiff) to sell fitness-club franchises with a distinctive logo and equipment. BHC opened headquarters in Connecticut, where it licensed purchasers to use its concept and sold exclusive distributorships. A trademark issue prompted Leitao to contact the law firm Schatz and Schatz, Ribicoff and Kotkin (Schatz) (defendant). Schatz partner Stanford Goldman worked with associate Jane Seidl but contracted out work to Ira Dansky, a lawyer not yet admitted to the Connecticut bar (collectively, defendants). Leitao told Goldman and Seidl that Leitao had recently applied for a trademark for “Beverly Hills Concepts” in Washington, D.C. Goldman incorrectly assumed BHC had a federally registered trademark such that it need not register as a “business opportunity” under the Connecticut Business Opportunity Investment Act. Goldman said Schatz had franchising expertise and was well qualified to handle BHC’s legal matters and that Goldman would be personally involved in representing BHC. Instead, after visiting BHC’s headquarters and reviewing its licensing and distributorship agreements and promotional materials, Goldman turned the file over to Seidl and Dansky. Neither had franchising or business-opportunity expertise. Ultimately Goldman billed only two hours of work for BHC. Meanwhile, BHC requested guidelines for conducting sales pending its franchise registration, but Schatz failed to advise that BHC was violating the act by selling franchises without first registering with the state banking commissioner. Instead Goldman advised that whether BHC was selling business opportunities within the act’s meaning was a “gray area” of the law. Seidl began drafting BHC’s franchise documents and sent Goldman and Dansky copies of her work product without seeking supervision, assuming someone was reviewing her work. Eventually another associate told Seidl BHC needed to register. Schatz contacted BHC’s trademark attorney, who confirmed that BHC’s trademark application remained pending and that no federal registration had issued. Still, no one from Schatz informed BHC about the Connecticut registration requirements. Ultimately the state banking commissioner issued a final cease-and-desist order, finding BHC had repeatedly violated the act by selling unregistered business opportunities. BHC sued for malpractice. After the court awarded damages, the parties cross-appealed. The Connecticut Supreme Court transferred the appeals to itself to decide.