In all legal malpractice cases one compares the hypothetical better outcome to that of the actual. Where there is a significant difference, it can be said that there is a proximately caused outcome. That, however, is different from the “but for” causation which is unique to legal malpractice. Here, one must show that there is no other cause, except for the attorney mistakes that led to the worse actual outcome.
So, litigants are often required to argue that if the attorney had taken a certain course of action, there would have been a better or more favorable outcome. Heritage Partners, LLC v Stroock & Stroock & Lavan LLP 2015 NY Slip Op 08074 [133 AD3d 428] November 5, 2015 Appellate Division, First Department is an example. Plaintiffs were borrowers in a large condo development, were unable to meet their obligations, and went into a tail-spin. Could a Chapter 11 filing have saved the day? The Appellate Division thought there were too many assumptions necessary on how the Bankruptcy Court would rule to allow for a legal malpractice case.
“The court applied the correct standard and properly dismissed the complaint. Its unsupported factual allegations, speculation and conclusory statements failed to sufficiently show that but for defendant’s alleged failure to advise plaintiffs to pursue Chapter 11 bankruptcy upon their default on a $47 million loan, plaintiffs would not have lost approximately $80 million in equity in the underlying condominium project in Tribeca (Dweck Law Firm v Mann, 283 AD2d 292, 293 [1st Dept 2001]; see also David v Hack, 97 AD3d 437, 438 [1st Dept 2012]; O’Callaghan v Brunelle, 84 AD3d 581 [1st Dept 2011], lv denied 18 NY3d 804 [2012]).
Plaintiffs, who defaulted on the loan in May 2009, alleged damages of approximately $80 million in lost equity based on sales figures of units that sold after the lender assumed ownership of the underlying property in 2010. While plaintiffs argue that the amount was also based on an expert appraisal, no basis for the amount is apparent, other than later sales in 2010 and 2011, after the lender took over, and after the market had improved. Plaintiffs’ calculation also ignores that the Attorney General would not, as of December 2009, allow the sponsor, plaintiff 415 Greenwich LLC, to sell any units because it had failed to submit a plan that sufficiently stated how it would pay its arrears and other financial obligations in connection with the condominium units. Thus, plaintiffs’ speculative and conclusory allegations do not suffice to show actual ascertainable damages (Pellegrino v File, 291 AD2d 60, 63 [1st Dept 2002], lv denied 98 NY2d 606 [2002]).
Among other things, plaintiffs speculate that the individual plaintiffs would agree to trigger the “bad boy” guarantees in the loan agreement, which would hold them personally liable for the debt if the borrowing company pursued the bankruptcy option. Plaintiffs further speculate that a bankruptcy court might agree to enjoin or stay any such proceeding to enforce those carveout guarantees. Plaintiffs also fail to allege facts sufficient to establish that they had funds to even initiate bankruptcy proceedings, and speculate that they would have obtained debtor-in-possession financing in a troubled economic climate. Plaintiffs argue that they would overcome these and other hurdles to obtaining Chapter 11 reorganization because their alleged $80 million “equity cushion” exceeded its roughly $63 million in total debt, but as noted above, this does not suffice. In light of the numerous obstacles to pursuing, let alone successfully achieving, Chapter 11 reorganization, plaintiffs’ allegations were “couched in terms of gross speculations on future events and point[ed] to the speculative [*2]nature of plaintiffs’ claim” “