A Legal Malpractice Case Leads to Lawyer Suspension

The story has a potential for pathos.  Attorney working for a law firm receives fee payments meant for the firm, and treats them as if a loan.  Why?  He has Parkinson's disease, and perhaps needed the money.  The payments continue until the law firm moves to withdraw as attorney because of non-payment.Client sues for legal malpractice and it all comes to light.   Attorney now is suspended until the disciplinary matter is over.  That may be a long long time.

Matter of Hornstein  2014 NY Slip Op 05370  Decided on July 17, 2014  Appellate Division, First Department  Per Curiam

"At his September 25, 2013 deposition before the Committee, respondent, who was represented by counsel, admitted that between 2010 and 2011 he diverted approximately 10 payments (via checks) totaling approximately $83,000 made by a client, which were intended as payments of legal fees to his law firm in connection with a zoning matter respondent had been handling for the client. Rather than remit the funds to his firm, respondent used the funds for his own personal purposes, mostly for expenses related to his Parkinson's disease. Respondent also admitted that he failed to declare the $83,000 as taxable income because he considered it to be more in the "nature of a loan" which he intended to pay back.

Respondent's firm was unaware that the client had paid respondent directly, and in May 2012 the firm filed a motion asking to withdraw as attorney of record in another matter it was handling for the client in light of his total unpaid balance for legal fees and disbursements. The firm only learned of the client's payments to respondent in July 2012 after the client had commenced an action against respondent and the firm for, inter alia, legal malpractice, at which time the firm confronted respondent. Shortly thereafter, respondent left the firm and self-reported his diversion of legal fees to the Committee. In December 2012, respondent reimbursed the firm in full.

"The record sufficiently establishes that respondent repeatedly misappropriated and/or converted law-firm funds and used the funds without permission for his own personal purposes. Further, this Court has issued interim suspensions under similar circumstances to those here (see e.g. Matter of Getreu, 113 AD3d 148 [1st Dept 2013] [interim suspension for, inter alia, misappropriation and/or conversion of client funds for own personal purposes based on, inter alia, substantial admissions under oath]; Matter of Gibson, 104 AD3d 228 [1st Dept 2013] [same]; Matter of Armenakis, 58 AD3d 222 [1st Dept 2008][interim suspension based on admission during deposition to, inter alia, conversion of escrow funds]; Matter of Wertis, 307 AD2d 15 [1st Dept 2003] [interim suspension for, inter alia, misappropriation of trust funds based on, inter alia, substantial admissions under oath]).

Accordingly, the Committee's motion is granted and respondent suspended from the practice of law, effective immediately, and until such time as disciplinary matters pending before the Committee have been concluded, and until further order of this Court.."

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Huge Money Dealings and Transfers and Legal Malpractice

The back and forth of this large commercial stock purchase agreement, and the money transfers that ensued have had us read the opinion several times.  Even after multiple reads, we find the description of transfers still confusing.  For our context, the legal malpractice case was time barred.  However, in AQ Asset Mgt., LLC v Levine  2014 NY Slip Op 05244  Decided on July 10, 2014  Appellate Division, First Department the facts should be read in admiration for the twisted nature of this commercial transaction.

"By an amended stock purchase agreement (SPA) effective December 9, 2005, defendants Habsburg and Patrizzi (together the Sellers) agreed to sell half of the shares in a group of companies (the Antiquorum entities) to Artist House Holdings, Inc. (Artist House), predecessor to plaintiff AQ Asset Management, LLC (AQ)[FN1]. The Antiquorum entities included plaintiffs Antiquorum, S.A. (ASA) and Antiquorum USA, Inc. (AUSA). Defendant Michael Levine, an attorney, provided legal counsel to the Sellers, drafted the SPA and other transaction documents, and served as the escrow agent for the deal. Plaintiff Evan Zimmermann, also an attorney, helped broker the transaction and is alleged by the Sellers to have been their legal counsel throughout.

The SPA provided that the Sellers would receive $30 million dollars in cash, as well as proceeds from the sale of certain inventory held by the Antiquorum entities. In order to pay the book value of the inventory, the SPA provided that ASA was to execute a promissory note obligating it to pay, to an unspecified third party, the sum of 16 million Swiss Francs (CHF) within six months of the SPA's execution date. The SPA further provided that, "[a]lternatively, Patrizzi may become personally responsible [for payment of the CHF 16 million] to any Stockholder which is entitled thereto."

The parties agreed that the CHF 16 million was to be paid from the sale of inventory on hand and owned by the Antiquorum entities as of the date of the SPA. The SPA also required Patrizzi to put the inventory up for sale before the due date of the promissory note, and provided that any funds received in excess of the CHF 16 million would belong to Patrizzi or his designees. According to the Sellers, Habsburg was entitled to the first CHF 16 million in inventory sale proceeds and Patrizzi was entitled to the remainder. It is undisputed that ASA never executed a promissory note, and the Sellers contend that they received no proceeds from the sale of inventory.

Patrizzi and Zimmermann also entered into a Stock/Sales Proceeds Distribution Agreement (SPDA) in which they agreed that certain shares of the Antiquorum entities, which were held in escrow for Patrizzi's benefit, [*3]would be transferred to a new entity that Patrizzi and Zimmermann would equally own. The SPDA also provided that Patrizzi and Zimmermann would equally split Patrizzi's share of the inventory sale proceeds. The SPDA, which was drafted by Levine, disclosed that Levine had a personal economic interest in part of Zimmermann's share of those proceeds. The agreement further stated that the parties had been advised of Levine's conflict of interest, had elected to have Levine draft the agreement nevertheless, and had been represented by independent counsel.

Patrizzi alleges that Levine and Zimmermann purposely misrepresented the contents of the SPDA to induce him to sign it. According to Patrizzi, because he does not fully comprehend written English, he did not read the document and instead relied on Levine and Zimmermann to inform him of its contents. Patrizzi alleges that Levine and Zimmermann falsely told him that Zimmermann would receive Patrizzi's shares after a period of three years. The SPDA, however, states that the shares would be transferred to an entity jointly owned by Patrizzi and Zimmermann without a three-year delay. Patrizzi further alleges that Levine and Zimmermann did not tell him that the SPDA gave Zimmermann rights to half of Patrizzi's share of the inventory sale proceeds, or that Levine had an economic interest in part of those monies. Finally, Patrizzi claims that he was never told that he should retain independent counsel.

In December 2005 and January 2006, Artist House delivered $30 million into Levine's escrow account, and various sums were subsequently disbursed. According to the Sellers, in May 2006, Levine advised them that the SPA required that the inventory sale proceeds be deposited into his escrow account. In fact, the SPA did not require this. In December 2006, ASA transferred $2 million into Levine's escrow account, an amount the Sellers contend constitutes a portion of the inventory sale proceeds.

In July 2007, Leo Verhoeven, Habsburg's principal, sent Levine an email requesting that he return the $2 million to ASA. In the email, Verhoeven stated that the $2 million was for other expenses pursuant to the SPA, and thus was not inventory sale proceeds. Levine, however, did not return the $2 million to ASA at that time. It is the Sellers' position in this litigation that the $2 million is in fact inventory sale proceeds to which they are entitled. They admit that Verhoeven's July 2007 email was a ruse, and that he asked for the money back to avoid tax consequences to Habsburg arising from its direct receipt of inventory sale proceeds."

"The Sellers contend that after the $2 million was transferred to Levine's escrow account, Artist House, Levine and Zimmermann wrongfully conspired to oust the Sellers from ASA. At a shareholders meeting held in August 2007, Artist House and Zimmermann relied on the SPDA's purported grant to Zimmermann to vote half of Patrizzi's shares. Using this power, Artist House and Zimmermann gained control of the company, Patrizzi and Verhoeven were removed from the board of directors, and Zimmermann ultimately became the new CEO.

In January 2008, Levine wrote to Habsburg, Patrizzi, Zimmermann and Artist House asking whether they consented or objected to his returning the $2 million to ASA. Levine stated that he would not release the funds absent consent of all necessary parties or a judicial direction to do so. Both Patrizzi and Habsburg wrote back to Levine objecting to release of the money. In August 2010, Zimmermann notified Levine that the $2 million had nothing to do with the sale of inventory and requested its return to ASA. In October 2010, Levine released the $2 million to ASA and/or Zimmermann.

Plaintiffs commenced this action asserting various claims against the Sellers and Levine, in his capacity as escrow agent. Levine then served a "summons in interpleader," answered the complaint, and asserted interpleader counterclaims against plaintiffs and the Sellers. The Sellers [*4]answered the complaint asserting counterclaims against plaintiffs, and answered Levine's interpleader counterclaims, asserting counterclaims against him. The Sellers also commenced a "fourth-party action" against Levine. This appeal brings up for review the motion court's dismissal of a number of causes of action and counterclaims contained in the Sellers' various pleadings."

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Privity and Dismissal in Legal Malpractice

One of the ways in which legal malpractice is different from other torts is the requirement of privity of contract.  This principal, which for the most part no longer exists for torts, is strictly enforced in legal malpractice.  USHA SOHA Terrace, LLC v Robinson Brog  Leinwand Greene Genovese & Gluck, P.C.  2014 NY Slip Op 31813(U)  July 9, 2014  Supreme Court, New York County
Docket Number: 653377/2013  Judge: Melvin L. Schweitzer  is one example.

"This is a legal malpractice action in which plaintiffs assert both direct and derivative claims against legal counsel for the owner and the developer with regard to a construction project  in which plaintiff USHA SOHA Terrace, LLC was a minority investor in the developer. Defendants urge that plaintiffs cannot pursue their claims as either direct or derivative, and even if they could, the claims are insufficiently plead. The motion is granted and the amended complaint is dismissed"

"In moving to dismiss, defendants urge that as a minority, indirect investor in the Project, plaintiff Minority Member cannot claim any direct injury from actions taken by Legal Counsel. They also urge that plaintiffs lack standing to bring a derivative claim on behalf of 2280 FOB, 
because they are not shareholders of, nor entities which control, 2280 FOB. Further, defendants
argue that the claims are insufficient, because the legal malpractice,claim fails to allege proximate cause, the fiduciary duty claim is duplicative of the malpractice claim, and the Judiciary Law §487 claim fails to allege the requisite pattern of wrongdoing or deceit. "

"The motion to dismiss is granted. First, plaintiff Minority Member, as a member of a limited liability corporation, lacks standing to sue in its individual capacity for losses derived solely from injury to the limited liability company. See Yudell v Gilbert, 99 AD3d 108, 113-114 (1st Dept 2012]; Breslin Realty Dev. Corp. v Shaw, 72 AD3d 258, 266 (2d Dept 2010); Baker v Andover Assoc. Mgt. Corp., 30 Misc 3d 1218 [A], 2009 NY Slip Op 52788[U], * 16-17 (Sup Ct Westchester County 2009). To determine if a claim is direct or derivative, the court must look at the source of the claim of right. If the harm is from the defendants to the corporation, the harm to the shareholders or investors flows through the corporation, and is derivative. On the other hand, if the right flows from a breach of a duty owed directly to the shareholder, then the suit is direct. See Weber v King, 110 F Supp 2d 124, 132 (ED NY 2000); Baker v Andover Assoc. Mgt. Corp., 30 Misc 3d 1218 [A], 2009 NY Slip Op 52788 [U], * 16-17., A claim for diminution in value of the shares is harm to the corporation, the shareholder's injury flows through the corporation, and the claim is derivative even if the decrease in value derives from a breach of fiduciary duty. See Yudell v Gilbert, 99 AD3d at 113-144; O'Neill v Warburg Pincus & Co., 39 AD3d 281, 281-282 (1st Dept 2007). Here, in the amended complaint, plaintiff asserts losses as any "monies owed to [2280 FDB] and [Developer], which were in tum paid to [RGS Holdings and Futterman] resulted in actual monetary losses to [plaintiff Minority Member], in that [plaintiff Minority Member] retains a fourteen percent ( 14%) inter~st in assets of Developer" (amended complaint,~ 43). This claim for diminution in the value of plaintiff's shares involves harm to the corporation, and may only be pursued derivatively. In addition, the only other injury alleged is the failure of 2280 FOB to recover any portion of its award against Racanelli, which is a direct injury only to 2280 FDB. "


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Continuous Representation and the Statute of Limitations

Motions to dismiss under CPLR 3211(a)(5) are often made in legal malpractice cases.  One reason is that there is often a long latency period between the mistake and its surfacing.  This latency period regularly leads to cases that are brought more than 3 years after the mistake.  The continuous representation principal allows a plaintiff 3 years from the last date that the attorney represented the client in the same matter.

In Kitty Jie Yuan v 2368 W. 12th St., LLC  2014 NY Slip Op 05174  Decided on July 9, 2014
Appellate Division, Second Department we see the AD reversing on this issue.  "Here, the defendant Ronen Shiponi established his prima facie entitlement to dismissal of the complaint based on the expiration of the three-year statute of limitations applicable to the cause of action, inter alia, to recover damages for legal malpractice (see CPLR 214[6]). In opposition, however, the plaintiffs raised a question of fact as to whether the applicable statute of limitations was tolled by the doctrine of continuous representation (see Bill Kolb, Jr., Subaru, Inc. v LJ Rabinowitz, CPA, 117 AD3d 978, 980; Macaluso v Del Col, 95 AD3d 959, 960-961; Leon Petroleum, LLC v Carl S. Levine & Assoc., P.C., 80 AD3d 573, 574; Kennedy v H. Bruce Fischer, Esq., P.C., 78 AD3d 1016, 1017-1018; Rehberger v Garguilo & Orzechowski, LLP, 50 AD3d 760, 760; Deutsch v Polly N. Passonneau, P.C., 297 AD2d 571). Accordingly, the Supreme Court should have denied that branch of Shiponi's motion which was pursuant to CPLR 3211(a)(5) to dismiss the complaint insofar as asserted against him as time-barred."

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Hearsay Alone Cannot Support a Legal Malpractice Case

Plaintiff hears that a settlement offer had been made, and knows that his attorney did not convey a settlement offer.  We all know that it can be malpractice for an attorney to fail to convey a settlement offer, so long as Plaintiff would have taken the offer.  So, is this legal malpractice?

Not here, in Guerrera v Zysk  2014 NY Slip Op 05156  Decided on July 9, 2014  Appellate Division, Second Department.  The reason is that there was no admissible testimony about the settlement offer in the motion for summary judgment.  Whether the offeror would not testify, or for some other reason, there was only hearsay on the issue.  Hearsay alone is insufficient to defeat summary judgment.

"Here, the defendant established his prima facie entitlement to judgment as a matter of law dismissing the plaintiff's fifth cause of action to recover damages for legal malpractice based on the defendant's alleged failure to convey a settlement offer to the plaintiff during the 2003 Action. [*2]In support of the motion, the defendant submitted a transcript of his deposition, wherein he testified that he was never informed as to the existence of a settlement offer in the 2003 Action, and a transcript of the plaintiff's deposition, wherein the plaintiff testified that he had no personal knowledge of the existence of a settlement offer and had heard about it through statements made to him by others.

In opposition, the plaintiff failed to raise a triable issue of fact, as the only evidence submitted to show that a settlement offer was communicated to the defendant consisted of hearsay statements. Such evidence, standing alone, is insufficient to defeat the defendant's motion for summary judgment on this cause of action (see Mauskopf v 1528 Owners Corp., 102 AD3d 930, 931-932; Mallen v Farmingdale Lanes, LLC, 89 AD3d 996; Rodriguez v Sixth President, Inc., 4 AD3d 406). Accordingly, the Supreme Court should have granted that branch of the defendant's motion which was for summary judgment dismissing the fifth cause of action."

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It's Pure Speculation Whether Anyone Could Save the Day

Defendant A handles a case, and defects in service take place.  Successor counsel has about 6 months until the statute lapses.  Defendant 1 moves for dismissal.  Defendant 2 opposes.  Was there enough time for Defendant 2 to fix the problems, and if so, is Defendant 1 excused?

Grant v LaTrace  2014 NY Slip Op 05155  Decided on July 9, 2014  Appellate Division, Second Department  answers the question such that both defendants remain in the case.

"The plaintiff commenced this instant action against the defendants asserting a single cause of action sounding in legal malpractice. The defendants Anthony P. LaTrace, Michael E. Glynn, and the Law Offices of Michael S. Lamonsoff, PLLC (hereinafter collectively the Lamonsoff defendants), moved pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against them, contending that the actions of the defendants Colin Liverpool and Liverpool Law Office, P.C. (hereinafter together the Liverpool defendants), were the sole proximate cause of the plaintiff's damages because they had assumed representation of the plaintiff when there was sufficient opportunity to protect the plaintiff's rights. The plaintiff did not oppose the motion; however, the Liverpool defendants did. The Supreme Court denied the Lamonsoff defendants' motion. The Lamonsoff defendants appeal.

The Lamonsoff defendants' contention, that the ability of successor counsel, i.e., the Liverpool defendants, to remedy any negligence of the predecessor counsel, i.e., the Lamonsoff defendants, during the approximately six-month period that the Liverpool defendants represented the plaintiff prior to the lapse of the applicable statute of limitations, is without merit. Unlike the cases relied upon by the Lamonsoff defendants (see Katz v Herzfeld & Rubin, P.C., 48 AD3d 640, 641; Ramcharan v Pariser, 20 AD3d 556, 557; Perks v Lauto & Garabedian, 306 AD2d 261; Albin v Pearson, 289 AD2d 272; Golden v Cascione, Chechanover & Purcigliotti, 286 AD2d 281, 281; Kozmol v Law Firm of Allen L. Rothenberg, 241 AD2d 484), here, the Liverpool defendants could not have moved as of right to remedy the defects in service alleged. The Supreme Court would have had to exercise its discretion in the underlying action to extend the time to serve process (see CPLR 306-b, CPLR 2004), and it is pure speculation as to whether the court would have permitted such late service (see generally Glamm v Allen, 57 NY2d 87; Lanoce v Anderson, Banks, Curran & Donoghue, 259 AD2d 965). Accordingly the Supreme Court properly denied the Lamonsoff defendants' motion."

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Who Was At Fault Here?

Plaintiff blames the attorney and the attorney blames the client.  Someone was at fault for not appearing in court for the trial of this case.  A motion to vacate fails.  Was it because the motion was badly written, or because plaintiff-client had no excuse for the default?

Di Giacomo v Langella  2014 NY Slip Op 05150  Decided on July 9, 2014  Appellate Division, Second Department  says that it was client's fault, hence no legal malpractice.

"Here, the alleged malpractice relates to the sufficiency of the order to show cause and supporting papers prepared by the Langella defendants and submitted on behalf of the plaintiffs in the personal injury action, pursuant to which they moved to vacate their default in the personal injury action. A motion to vacate a default by a plaintiff in appearing for trial requires the demonstration of a reasonable excuse and an affidavit setting forth the merits of the cause of action (see CPLR 5015; Tuthill Fin., L.P. v Ujueta, 102 AD3d 765; G.D. Van Wagenen Fin. Servs., Inc. v Sichel, 43 AD3d 1104; Tyberg v Neustein, 21 AD3d 896; Kumar v Yonkers Contr. Co., Inc., 14 AD3d 493, 494; Hargett v Health & Hosps. Corp. of City of N.Y., 88 AD2d 633). An attorney's conduct and performance in connection with a motion to vacate a default may constitute legal malpractice (see Reznick v Zurich N. Am. Specialties, 45 AD3d 750; DeGregorio v Bender, 4 AD3d 384).

The Langella defendants established, prima facie, that the plaintiffs had no reasonable excuse for their default in appearing for jury selection in the personal injury action, thus establishing that the alleged inadequecy of the motion papers that they prepared on the plaintiffs' behalf was not the proximate cause of the plaintiffs' damages (see DeGregorio v Bender, 4 AD3d 384). In opposition, the plaintiffs failed to raise a triable issue of fact as to whether they had a reasonable excuse for their default that could have been communicated to the Langella defendants for inclusion in the papers submitted in connection with the motion to vacate the plaintiffs' default (see Kotzian v McCarthy, 36 AD3d 863; DeGregorio v Bender, 4 AD3d 384).

Accordingly, the Supreme Court properly granted that branch of the Langella defendant's motion which was for summary judgment dismissing the complaint."

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Differences Between Tort and Contract in Legal Malpractice

Legal malpractice claims are often stated in both tort and in contract, and the general feeling is that a contract cause of action in legal malpractice will almost always be a duplicitive or disguised tort claim that warrants dismissal. 

Not so inState of N.Y. Workers' Compensation Bd. v Madden  2014 NY Slip Op 05000
Decided on July 3, 2014  Appellate Division, Third Department.  Here the court incisively isolates the cause of action for return of fees from that of a professional mistake.

"Next, Glaser — the Trust's former counsel — contends that the unjust enrichment claim against him should have been dismissed in its entirety. The challenged cause of action seeks the return of legal fees paid to Glaser by the Trust, alleging, among other things, that Glaser had an [*5]attorney-client relationship with HWG and its principal before he was retained to represent the Trust, that Glaser did not disclose this prior representation to the Trust, that Glaser thereafter continued to perform legal services for HWG and the principal, and that he was paid from Trust funds for these services. Supreme Court found that, to the extent that this claim relied upon alleged conflicts of interest arising from the multiple representation, it sounded in legal malpractice and was time-barred. However, to the extent that the claim sought to recover fees paid by the Trust for legal services that had allegedly been rendered to HWG and/or its principal, the court found that plaintiff had stated a claim for breach of an express contract. Thus, the court converted that portion of the unjust enrichment claim to one for breach of contract and permitted the claim to survive with respect to the period on and after May 2, 2005. We reject Glaser's assertion that the surviving portion of the cause of action is a disguised professional malpractice claim subject to a three-year statute of limitations, as it does not allege that Glaser's professional services were negligently performed, but instead alleges a breach of the contract between the Trust and Glaser in that the Trust paid for services that Glaser did not render to it. Accordingly, that aspect of the claim is timely (see New York State Workers' Compensation Bd. v SGRisk, LLC, 116 AD3d 1148, 1151-1152 [2014]; see also Natural Organics Inc. v Anderson Kill & Olick, P.C., 67 AD3d 541, 542 [2009], lv dismissed 14 NY3d 881 [2010]; Henry v Brenner, 271 AD2d 647, 648 [2000])."

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Was He My Attorney and How Did This Happen?

Mizrahi v Adler  2014 NY Slip Op 31701(U)  June 30, 2014  Sup Ct, NY County  Docket Number: 650802/2010  Judge: O. Peter Sherwood  is the rather sad story of a man and his attorney, who both took a Las Vegas detour into Trump real estate hell.  Whether the attorney was a fellow traveler, or was leading the expedition is the question in this case.  Plaintiff says that he was simply defrauded by the estate planning attorney he approached, and the attorney says that Plaintiff is a sophisticated investor in sheep's clothing.

"It is uncontested that, in 2006, plaintiff Eitan Mizrahi (plaintiff) entered into a written retainer agreement with Adler and his law firm, non-party, Stem, Adler & Associates, LLP, for the firm to
act as plaintiffs attorneys, to provide advice and services specifically with regard to estate planning
issues (Retainer Letter, attached to Adler Aff. as Exhibit C). At a meeting in February 2007,
plaintiff and Adler discussed a possible real estate opportunity, found by Adler, to purchase
residential units then under construction in Las Vegas, Nevada, called the Trump International Hotel and Tower (Trump Towers). Trump Towers was to be comprised of two towers, Tower I and Tower II. Apparently, Adler had marketing materials on hand at the meeting which described the investment, and plaintiff allegedly expressed interest in investing in the project.  Adler claims that he explained to plaintiff that Saw was in a "unique position" to offer prospective investors the opportunity to purchase units in the Towers before they were offered to the general public (Adler Aff.,14), and that plaintiff could take advantage of Saw's contacts to purchase units by entering a finder's agreement with Saw, and paying Saw a fee. Plaintiff claims that he was told that Saw was owned by an individual named Jack Wishna (Wishna), and that Adler would be working Wishna.

Adler contends that plaintiff knew Saw was Adler's company. Adler adds that he told plaintiff that his "contacts" with Wishna would aid in the process of purchasing property in Trump Towers, as Wishna was alleged to have a relationship with the developer (id.). Plaintiff maintains that Adler told him an investment in Trump Towers would be entirely risk-free, and that by investing through the intervention of Saw (and hence, Wishna), plaintiff would obtain certain benefits, "including, but not limited to, the ability to sell or swap units prior to closing, and postpone the contracted closing date" (Complaint, attached to Adler Aff. as Exhibit A, ~ 15).  Plaintiff calls these alleged rights the "Wishna Umbrella."

The complaint alleges that defendant lost his down payment due to wrongdoing by Adler in representing to plaintiff that the investment was risk-free and that the plaintiff would have rights in
the purchase of units in Trump Towers that he did not actually have under the Purchase Agreement. Plaintiff argues that he labored under the reasonable misconception that Adler was acting as his attorney at all times during the transactions at issue. Plaintiff claims to have only a fragmentary education and a slim grasp of the English language, and that he relied entirely on Adler, as his attorney, in making the investment. Plaintiff never read any document he was asked to sign, under the assumption, that Adler, as plaintiffs attorney, was looking out for plaintiffs interests.

Plaintiff's claims for legal malpractice, negligent misrepresentation and breach of fiduciary duty are premised on the existence of an attorney-client relationship between plaintiff and Adler. Therefore, this court must consider whether triable issues of fact exist as to the existence of an , attorney-client relationship between plaintiff and Adler.

Plaintiffs action fails on the question of proximate cause. While the issue of proximate 
cause can often be  a jury question (see Bradley v Soundview Healthcenter, 4 AD3d 194 [1st Dept 2004 ]), the court may always determine whether there are questions of fact (see Laub v Faessel, 97 AD2d 28 [1st Dept 2002]). In Laub v Faessel, dealing with claims for fraud, negligent misrepresentation and breach of fiduciary duty, the court, discussing proximate cause, distinguished between a misrepresentation which induces a plaintiff to engage in a transaction ("transaction causation"), and misrepresentations which directly cause the loss to plaintiff ("loss causation") (id. at 31 ). "Loss causation is the fundamental core of the common-law concept of proximate cause: 'An essential element of the plaintiffs cause of action for negligence, or for ... any ... tort, is that there be some reasonable connection between the act or omission of the defendant and the damage which the plaintiff has suffered [citation omitted]'" (id.). "Transaction causation is often synonymous with 'but for' causation" (Amusement Industry, Inc. v Stern, 786 F Supp 2d 758, 776 [SDNY 2011 ]). "

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Entity Stays in Case, Individuals Out of Legal Malpractice Case

Privity, a requirement rather unique to legal malpractice cases in tort, is the reason that the individuals in this case are out, while the entity remains in the case.  It had privity, but they did not.  Leggiadro, Ltd. v Winston & Strawn, LLP   2014 NY Slip Op 05048   Decided on July 3, 2014
Appellate Division, First Department

"In this legal malpractice action, the individual plaintiffs, who are not identified as clients in the written retainer agreement and did not sign the retainer in an individual capacity, failed to establish the existence of an attorney-client relationship (see Federal Ins. Co. v North Am. Specialty Ins. Co., 47 AD3d 52, 59 [1st Dept 2007]; cf. Huffner v Ziff, Weiermiller, Hayden & Mustico, LLP, 55 AD3d 1009 [3d Dept 2008]). Brooks Ross's claim to have requested that defendant advise of "any and all tax liabilities arising from [a] Buy-Out" of Leggiadro's commercial lease, does not, without more, create a duty to advise the individual plaintiffs of the personal income tax ramifications of the buy-out arising by virtue of their status as S-Corporation shareholders. No "special circumstances" upon which to find a "near privity" relationship and extend liability to the individual plaintiffs have been alleged (compare Good Old Days Tavern v Zwirn, 259 AD2d 300 [1st Dept 1999]; Town Line Plaza Assoc. v Contemporary Props., 223 AD2d 420 [1st Dept 1996]). Moreover, the individual plaintiffs' history of paying pass-through taxes on the S-Corporation precludes them from reasonably relying on defendant's alleged failure to identify such liability here (see Ableco Fin. LLC v Hilson, 109 AD3d 438 [1st Dept 2013], lv denied 22 NY3d 864 [2014])."

"In order to defeat the motion to dismiss, Leggiadro only needed to "plead allegations from which damages attributable to defendant's conduct might be reasonably inferred" (InKine Pharm. Co. v Coleman, 305 AD2d 151, 152 [1st Dept 2003] [internal quotation marks and brackets [*2]omitted]). Leggiadro's claim that, had it known of the full tax ramifications of the buy-out, it would have either insisted that the landlord account for such amount in the settlement figure, in order to make relocation financially viable, or refused to relocate, is not speculative and is instead based upon, inter alia, Leggiadro's alleged strong bargaining position with its landlord, as evidenced by the amount of time left on the lease, the absence of an immediate need to relocate, and the alleged importance of the leased space in the landlord's conversion plans (see Fielding v Kupferman, 65 AD3d 437 [1st Dept 2009]; cf. Sherwood Group v Dornbush, Mensch, Mandelstam & Silverman, 191 AD2d 292, 294 [1st Dept 1993])."

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