Client hires attorney to make sure that a large loan is handled correctly and that the loan transaction would be legal, valid, binding, and enforceable. The loan became noncollectable. When the motions for summary judgment were filed, Supreme Court granted summary judgment to Plaintiff and denied summary judgment to defendants. The Appellate Division disagreed.
Quantum Corporate Funding, Ltd. v Ellis 2015 NY Slip Op 02104 Decided on March 18, 2015 Appellate Division, Second Department is a prime example of the legal malpractice battlefield. It almost always takes place over the “but for” proofs.
“The plaintiff, Quantum Corporate Funding, Ltd., commenced this action against the defendants, Richard I. Ellis and Cassin & Cassin, LLP (hereinafter Cassin), to recover damages for, among other things, legal malpractice. The complaint alleged that the defendants represented the plaintiff in connection with a loan transaction and that, due to the defendants’ malpractice, the note that was given in exchange for the loan was rendered partially uncollectible.
Specifically, the complaint alleged that, in January 2007, nonparty Mardi Gras Celebrations, Inc. (hereinafter Mardi Gras), executed a promissory note in the principal sum of $505,000 in favor of nonparty TCRM Commercial Corp. (hereinafter TCRM), and that the note was contemporaneously assigned from TCRM to the plaintiff. The complaint further alleged that the note was to be secured by the joint personal guaranty (hereinafter the guaranty) of the nonparties Valerie Birkart (hereinafter Valerie) and Nina Birkart (hereinafter Nina). As a condition of the loan, Valerie and Nina were required to give a blanket mortgage on their respective real properties, which were both located in Sanibel, Florida. These mortgages were intended to secure both the note and the guaranty. Although Valerie’s property was allegedly encumbered by a senior mortgage in the amount of $910,000, Nina’s property was allegedly “free and clear of any liens.” In addition, the complaint alleged that all shares of Mardi Gras were pledged to secure the guaranty, and that Mardi Gras would provide a senior security interest in all of its personal property assets.
The complaint alleged that, in November 2007, Mardi Gras defaulted on its obligations under the loan, and that both Valerie and Nina failed to comply with the terms of the guaranty and the mortgages despite due demand. In April 2008, Nina disaffirmed any liability on the ground that she had been less than 18 years old at the time she had signed the guaranty and, thus, lacked legal capacity to be bound by it. The complaint further alleged that, due to certain language in the deeds that had conveyed the real properties to Valerie and Nina, the titles to those properties were not marketable. Furthermore, the UCC financing statements perfecting the security interest in Mardi Gras’s assets were not recorded, and the plaintiff never received the shares of stock of Mardi Gras that had been pledged to secure the note.
The complaint alleged that Ellis and Cassin had been retained to ensure that the loan transaction would be legal, valid, binding, and enforceable against Mardi Gras, Valerie, and Nina. The complaint further alleged that Ellis and Cassin were retained to ensure that the mortgages were enforceable and that the title to the real properties was marketable.
The complaint alleged 11 causes of action against Ellis and 6 causes of action against Cassin, sounding in legal malpractice and breach of contract. The defendants separately moved for summary judgment dismissing the complaint insofar as asserted against each of them. In support of the motions, the defendants argued that they had no duty to inquire into Nina’s age, and were permitted to assume her legal capacity to execute the guaranty. The defendants also asserted that the legal malpractice causes of action should be summarily dismissed because the plaintiff had already recovered an amount in excess of its damages pursuant to a settlement agreement reached with nonparties to this action.”
“Here, the plaintiff failed to establish, prima facie, its entitlement to judgment as a matter of law on the first cause of action, which was asserted against Cassin, or on the second cause of action, which was asserted against Ellis. The plaintiff failed to demonstrate the amount it could or would have collected if the note, the guaranty, and mortgage had been enforceable against Nina (see Jedlicka v Field,14 AD3d 596, 597; Evangelista v Slatt, 295 AD2d 156, 156; McKenna v Forsyth & Forsyth, 280 AD2d 79, 82-83; accord Kay v Bricker, 485 So 2d 486, 487 [Fla 3d DCA]; Freeman v Rubin, 318 So 2d 540, 543 [Fla 3d DCA]). In addition, the plaintiff failed to demonstrate that it was unable to recover the amounts due under the note by other legal means available to it under the terms of the note and guaranty, or that it was unable to obtain equitable relief from Nina even after she disaffirmed liability on the ground of legal incapacity (see Restatement [Second] of Contracts § 14, Comments b, c; see also Restatement of Restitution § 139). Since the plaintiff failed to demonstrate the extent to which it would have been unable to enforce the note and the guaranty after it was disavowed by Nina, and the precise extent to which it would have been able to recover had the note, the guaranty, and the mortgage been enforceable against her, the plaintiff failed to establish, prima facie, that any negligence on the part of Cassin or Ellis was a proximate cause of actual and ascertainable damages (see Bells v Foster, 83 AD3d 876, 877; Snolis v Clare, 81 AD3d 923, 925; cf. Parklex Assoc. v Flemming Zulack Williamson Zauderer, LLP, 118 AD3d 968, 970). [*4]Accordingly, the Supreme Court should have denied those branches of the plaintiff’s cross motion which were for summary judgment on the issue of liability on the first cause of action, which was asserted against Cassin, and on the second cause of action, which was asserted against Ellis.
The Supreme Court properly denied those branches of the defendants’ separate motions which were for summary judgment dismissing various causes of action that were asserted against each of them. “To succeed on a motion for summary judgment, a defendant in a legal malpractice action must establish that the plaintiff is unable to prove at least one” of the essential elements of a legal malpractice cause of action (Parklex Assoc. v Flemming Zulack Williamson Zauderer, LLP, 118 AD3d at 970). It is a defendant’s burden, when it is the party moving for summary judgment, to demonstrate affirmatively the merits of a defense, which cannot be sustained by pointing out gaps in the plaintiff’s proof (see Kempf v Magida, 116 AD3d 736, 736-737; Alizio v Feldman, 82 AD3d 804, 804).
Contrary to Cassin’s contention, it was not entitled to summary judgment dismissing the first cause of action, notwithstanding its contention that it owed no duty to verify that Nina had the legal capacity to execute the guaranty. Cassin’s submissions included evidence that showed that, consistent with the allegations in the complaint, Cassin was retained to ensure that the loan transaction was legal, valid, binding, and enforceable. Accordingly, Cassin failed to eliminate all triable issues of fact as to the scope of its representation of the plaintiff and its concomitant duty in the underlying transaction (see Marshel v Hochberg, 37 AD3d 559, 559-560; see also Shaya B. Pac., LLC v Wilson, Elser, Moskowitz, Edelman & Dicker, LLP, 38 AD3d 34, 39; cf. AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 429).
Contrary to both of the defendants’ contentions, they were not entitled to summary judgment dismissing the legal malpractice causes of action. The defendants failed to establish that the plaintiff recovered in excess of its actual and ascertainable damages by virtue of the settlement agreement it reached with certain of the nonparties that were involved in the underlying loan transaction. In addition, there is no merit to the defendants’ contention that the actual amount that was loaned by the plaintiff was $444,400.03, and that $60,599.97 of the principal loan amount was withheld pursuant to an interest reserve agreement.”