In the world of big lending, a simple omission can cause large damages. So it went in Scopia Windmill LP v Olshan Frome Wolosky LLP 2017 NY Slip Op 32031(U) September 26, 2017
Supreme Court, New York County Docket Number: 650616/2016 Judge: Saliann Scarpulla. Plaintiffs were investing in agriculture in order to get into the fracking business. Apparently a certain bean is useful in thickening fracking water. So, the investors hire Olshan to do the loan documents. At the end a UCC-1 is not filed, and big costs ensue. Question: who is the client, who may sue and how do the affidavits in related cases affect everything?
“In its complaint against Olshan Scopia alleges three causes of action: (1) legal malpractice, for failing to file a UCC-1 financing statement when the 2012 Loan and Security Agreement and 2012 Loan were executed and for “drafting the 2012 Loan Agreement with problematic provisions that increased the likelihood that a bankruptcy court would recharacterize the loan as equity; and . . . otherwise failing to draft the 2012 Loan and Security Agreement and 2012 Term Loan Note in a competent manner so as to establish Scopia’s position as a senior secured debtor,” (2) for breaching the retainer agreement; and (3) for breach of fiduciary duty. In its motion to dismiss, Olshan first argues that it has no attorney-client relationship with two of the three named plaintiffs – Holdings and Windmill – and that any claim of malpractice does not extend to these two plaintiffs because they are not in privity with Olshan. Olshan further argues that SCM’s main contention — that due to Olshan’s late filing of the UCC-1 it was prevented from filing a petition for reorganization and enjoying the undisputed status of secured creditor – is disproved as a matter of law by testimony and affidavits filed by the principals of SCM and WTG in other proceedings. Olshan also claims that Scopia’s damages are impermissibly speculative. ”
“On the legal malpractice claim, Olshan claims that it is not in privity with either Windmill or Holdings, thus, their malpractice claims must be dismissed. As Scopia concedes, only SCM signed the retainer agreement with Olshan. Thus, for Windmill and ” Holdings to maintain this action, they must plead facts showing near privity to Olshan. To show “near privity,” a plaintiff must allege that the attorney was aware that its services were used for a specific purpose, that the plaintiff relied upon those services, and that the attorney demonstrated an understanding of the plaintiffs reliance. Cal. Pub. Employees Ret. Sys. v. Shearman & Sterling, 95 N.Y.2d 427, 434 (2000). Scopia alleges that, although SCM retained Olshan, Windmill, the actual lender to WTG, was a “foreseeable third-party beneficiary” of the retainer agreement between Olshan and SCM. The 2012 loan documents submitted show that Windmill was the lender for whom Olshan prepared and/or reviewed loan documents. These documents support Scopia’s allegation that Windmill was in near privity with Olshan. ”
“Finally, with respect to the malpractice claim of SCM and Windmill, Olshan argues that testimony and documents submitted in the bankruptcy and other legal proceedings conclusively refute their allegations of proximate cause and damages. “Under CPLR 3211 (a) (1), a dismissal is warranted only ifthe documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter oflaw.” Leon v. Martinez, 84 N.Y.2d 83, 88 (1994). After reviewing the documents and testimony submitted by Olshan, and the affidavits submitted by Scopia, I find that Olshan has failed to ‘refute conclusively Scopia’s allegations of proximate cause and damages. Accordingly, I deny the motion to dismiss the legal malpractice claim against Olshan asserted by Windmill and SCM. “