Holding Escrow and Legal Malpractice

In this Case  Egnotovich v. Katten Muchin Zavis & Roseman LLP, 604101/06 , Decided January 23, 2008 ,Justice Bernard J. Fried
NEW YORK COUNTY ,Supreme Court     Plaintiffs joined a vacation club in which they each deposited $ 400,000, and the group was to purchase or lease apartments or houses in prime vacatiion spots.  These spots included Paris, Mexico, Teluride, and other hot spots.  More than $1.6 million was collected, and the Katten law firm drafted escrow agreements in which it was to hold 80% of the collections and pay them out when the club gave the law firm vouchers.  The money was collected and paid out.

For reasons unstated [bad locations? no houses actually available?] some of the members sue the law firm for fraud and escrow violations.  "Plaintiffs are former founding members of nonparty Havens, Inc. (Havens), a resort destination club in the business of acquiring vacation properties to be used by the club members. Funding for these property acquisitions was to be generated principally through the financial contributions of the founding members. To become founding members, plaintiffs were required to sign a membership agreement, and to pay $150,000 in membership dues. A portion of the membership dues was to be held as a deposit in escrow. Defendant Katten Muchin Rosenman LLP, sued here as Katten Muchin Zavis & Roseman LLP (Katten), acted as escrow agent for the escrow account. In 2006, Havens failed as a going concern, and is now apparently without funds to pay damages suffered by plaintiffs. Plaintiffs then brought this action against Katten seeking return of their deposits, and alleging wrongful release of escrowed funds and furtherance of fraud by the club's sponsors. Katten now moves for summary judgment dismissing the amended complaint1 on the ground that it fails to state a cause of action, and is contradicted by clear and unambiguous documentary evidence.

For the reasons set forth below, Katten's motion is granted. "

"absolutely secured were not collateral to the Membership Documents (see e.g. Martian Entertainment , LLC v. Harris, 12 Misc 3d 1190[A], * 5 [representations underlying fraudulent inducement claim must be "collateral to the contract"]). To the contrary, the degree of security backing the Deposits is expressly provided by the Certificates (see Certificate, ¶1 [the membership deposits are subject to refund 30 years from the date of the Certificate and "pursuant to and subject to the terms and conditions of the Membership Agreement and the Membership Plan]"; id., ¶2 [the refund right "is backed by and subject to the availability of the assets of (Havens)"]). Indeed, it is plaintiffs' own position that each of the Membership Documents "discusses Deposits and their use and repayment . . . and thereby implicates use of an escrow" (Pls Facts, ¶¶2, 4, 6). An issue "central" to a contract cannot be construed as collateral to that contract (PSI Intl., Inc. v. Ottimo, 272 AD2d 279 [1st Dept 2000]).

Moreover, even fraudulent inducement requires "misrepresentations of present Facts (rather than merely of future intent)" (Martian Entertainment, LLC v. Harris, 12 Misc 3d 1190[A], * 5). Plaintiffs allege that Havens promised that "deposits would be handled in a specified way," that they "would be held in escrow . . . for the protection and benefit of the Founding Members," and that "[Founding Members] would be protected by the continuing existence of cash on deposit or real estate available to fund repayment if the venture failed" (Opp Br., at 24, 25 [emphasis added]; Egnotovich Aff., ¶6 [emphasis added]; see also Loeb Aff., ¶¶4-5). To the extent, if any, that these representations made by Havens are untrue, they are broken promises, and not fraudulent statements of fact (see e.g. Morgan, Lewis & Bockius LLP v. IBuyDigitial.com, Inc., 14 Misc 3d 1224[A], 2007 NY Slip Op 50149[U], *7 [Sup Ct, NY County 2007] [dismissing counterclaim that plaintiff "fraudulently induced (defendant) into entering the engagement letter by stating that (plaintiff) would be personally involved in handling the IPO, that the fees would be capped at $425,000, that the IPO would be consummated by March 2005 and that the legal fees charged would be limited to work on the IPO"] [emphasis added]; Ullmann v. Norma Kamali, Inc., 207 AD2d 691, 692-693 [1st Dept 1994] ["cause of action for fraud does not arise" based on "failure to perform promises of future acts"] [citation omitted]).

Consequently, the aiding and abetting fraud claim must be dismissed."


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Legal Malpractice Cases 1/4/06 to 1/16/06

Sabo v. Alan B. Brill, P.C., 7561-7561A, Index 100055/04 , SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FIRST DEPARTMENT , 2006 NY Slip Op 221; Decided, January 12, 2006, This is a summary judgment dismissal of what appears to be a real estate transaction gone wrong. Both the attorney and the title company won dismissal.

Frost Line Refrigeration, Inc. v. Gastwirth, Mirsky & Stein, LLP, 2005-03137 , SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT , 2006 NY Slip Op 139; January 10, 2006, Decided. Here, plaintiff signed a consent to change attorney which started the statute of limitations running. Plaintiff's argument that the statute started running upon later dismissal of the case does not convince the court nor the appellate court.

Izko Sportswear Co., Inc. v. Flaum, 2004-00279, 2004-01167, 2004-05260 , SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT , 2006 NY Slip Op 142; This is an interesting and unusual case of Judiciary Law 487, which is usually dismissed. The plaintiffs alleged that their attorney, who represented them in a chapter 11 bankruptcy misled the court, as well as having committed malpractice. The attorneys were eventually awarded legal fees in the Bankruptcy court. Because a court granted legal fees, the malpractice action was dismissed upon res judicata. After dismisal of the legal malpractice portion, the judiciary law portion remains.

Achtman v. Kirby, McInerney & Squire, LLP, 02 Civ. 9913 (JES) , UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK , Decided, January 5, 2006. This is the Broker's case reported in yesterday's Blog under "Legal Malpractice and Securities Litigation. This case ends with the plaintiff's attorneys foreclosed from filing any further matters without express permission.


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Illinois GM Legal Malpractice and Proximate Cause

Here is an Illinois appellate case reported by the Illinois Legal Malpractice Blog arising from an action against General Motors where "the plaintiffs sued their former lawyers for malpractice, alleging that the lawyers were negligent when they failed to sue General Motors for strict liability of a manufacturing defect in a car the plaintiffs were in an accident in. After the defendants argued that proximate causation and damages elements could not be established because the plaintiffs' successor lawyer successfully sued GM for strict liability the trial court dismissed the plaintiffs' complaint, and on December 19, 2005, the Illinois Appellate Court affirmed this ruling."

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Legal Malpractice Cases this Week 1-3-06

1. Menicucci Villa & Assoc., PLLC v. Pickett, 2004-02339 , SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT , 2005 NY Slip Op 10103; December 27, 2005. AD affirms CPLR 3211[a][7] dismissal for attorney.

2. Nationwide Assoc., Inc. v. Epstein, 2004-06060 , SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT , 2005 NY Slip Op 10105. Case dismissed because plaintiff failed to list this cause of action in bankruptcy petition or schedule. Cause of action is now trustee's, not plaintiff's.

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Legal Malpractice Cases this Week 12-26-05

1. Ellsworth v. Foley, 1458 SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FOURTH DEPARTMENT , 2005 NY Slip Op 9871; Decided, December 22, 2005. Plaintiff lost medical malpractice and on appeal when it was determined that attorneys failed to make sufficient jury instruction request/objection. Nevertheless, Attorney malpractice action dismissed for failure to allege sufficient facts in complaint.

2. Brooks v. Ross, 2003-10491, 2004-06192 , SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT , 2005 NY Slip Op 9666; December 19, 2005, Decided. In this Legal Malpractice matter, Attorney successfully moved for permission to file late motion for summary judgment, and successfully moved for summary judgment. Plaintiff unable to demonstrate deviation.

3. Levy v. Laing, 570666/05. , SUPREME COURT OF NEW YORK, APPELLATE TERM, FIRST DEPARTMENT , 2005 NY Slip Op 52066U; December 19, 2005, Decided. Attorney 1 starts legal malpractice case, from which he is substituted out, arranging for a 30% lien. Case 1 is dismissed, and new attorneys start case 2. Case 2 settles. Attorney 1 is due no fees at all based upon the dismissal of case 1.

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Legal Malpractice Cases this Week 12-13-05

1. Smith v. Cohen, 7076 , SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FIRST DEPARTMENT , 2005 NY Slip Op 9407; Decided, December 8, 2005, Entered. Plaintiff went to attorney A, who referred him to Attorney B for a personal injury case. Attorney A is dismissed, with no proof that he was retained by Plaintiff.


2. Wider v. Heller, 2005-00089 , SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT , 2005 NY Slip Op 9294;December 5, 2005, Decided. Motion for Summary Judgment granted in the court below, reversed without prejudice for defendant's failure to append the pleadings.

3. Williams v. Lindenberg, 2004-10304, 2004-10305 , SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT , 2005 NY Slip Op 9295; December 5, 2005, Decided. Plaintiff loses on statute of limitations.

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Lack of Privity dooms Legal Malpractice Case

Reported in the NYLJ today, [p.20, c.1]Reyes v. Leuzzi, Supreme Court, New York County. A decision by Justice Tolub dismissing a legal malpractice case on the basis that there was insufficient evidence that the attorney actually was retained by the plaintiff. Instead, the evidence indicated that the attorney accomodated the plaintiff by helping to fill out annuity forms. The attorney was representing the estate from which the annuities flowed. Later the estate took a position contrary to granting of the annuities.

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Attorneys as Experts in Legal Malpractice

May an attorney testify as an expert in a Legal Malpractice, or put another way, it is required that an attorney testify on behalf of plaintiff to make out a prima facie case? Here is a case which on appeal overturned the lower court, and which illustrates both sides of the question. Details from Blog 702.

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Privity, Legal Malpractice and the NYS Court of Appeals

Here is an interesting article from Marian C. Rice, Esq., a source we've quoted before [11/15/05]. It discusses a recent NYS Court of Appeals case on privity: the right of a non-client to sue counsel in Legal Malpractice based upon the acts of the non-retained attorney.

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Legal Malpractice Cases this Week 11-29-05

Tropp v. Lumer, 2004-11025 ,
SUPREME COURT OF NEW YORK, APPELLATE DIVISION, SECOND DEPARTMENT , 2005 NY Slip Op 8972;
Plaintiff wins summary judgment motion on continuous representation by showing that defendant attorney was "watching over" the case he referred, and that he participated by at least preparing plaintiff for the EBT.


Merlin Biomed Asset Mgt., LLC v. Wolf Block Schorr & Solis-Cohen LLP,
2005 NY Slip Op 8651, SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FIRST DEPARTMENT
Plaintiff loses summary judgment for failure to offer expert affidavit on motion.

Transcare N.Y., Inc. v. Finkelstein, Levine & Gittlesohn & Partners, SUPREME COURT OF THE STATE OF NEW YORK, APPELLATE DIVISION, FIRST DEPARTMENT
"Summary judgment was improper as fact questions existed surrounding a legal malpractice claim and actual damages alleged to be incidental thereto."


Rogers v. Ciprian,
SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FIRST DEPARTMENT , 2005 NY Slip Op 8663.
Clouded action against immigration attorney, which seems to have lacked privity.


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"Big Defense Wins" in Legal Malpractice

As reported in Verdict Search here are a list of nationwide "big defense wins" in Legal Malpractice.

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Legal Malpractice Cases this Week 11-14-05

DANIEL H. WILLIAMS, III, PLAINTIFF-RESPONDENT-APPELLANT, v DOUGLAS S. COPPOLA, MARK C. RODGERS, RODGERS & COPPOLA, LLP, DEFENDANTS-APPELLANTS-RESPONDENTS

SUPREME COURT OF NEW YORK, APPELLATE DIVISION, FOURTH DEPARTMENT
2005 NY Slip Op 8379

Cause of action for Fraud dismissed: "It is well settled that a cause of action for fraud does not arise where the only fraud alleged merely relates to a party's alleged intent to breach a contractual obligation" (767 Third Ave. v Greble & Finger, 8 AD3d 75, 76, 778 N.Y.S.2d 157; see Modell's N.Y. v Noodle Kidoodle, 242 A.D.2d 248, 249, 662 N.Y.S.2d 24).

Cause of action for Punitive Damages dismissed: The causes of action for breach of the contingent fee agreement and legal malpractice do not allege conduct that was directed to the general public or that evinced the [*2] requisite "high degree of moral turpitude" or "wanton dishonesty" to support a claim for punitive damages (Walker v Sheldon, 10 N.Y.2d 401, 405, 179 N.E.2d 497, 223 N.Y.S.2d 488; see Rocanova v Equitable Life Assur. Soc'y., 83 N.Y.2d 603, 613, 634 N.E.2d 940, 612 N.Y.S.2d 339; Robbins v Harris Beach & Wilcox, 291 A.D.2d 797, 799, 737 N.Y.S.2d 486).

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Legal Malpractice Cases this Week

Here are new legal malpractice decisions from 11/1/05 - 11/8/05:

1. Selletti v. Liotti: Plaintiff's motion for summary judgment fails, AD affirms. "Plaintiff failed to submit evidence sufficient to establish, as a matter of law, that his conduct in prosecuting the federal action did not contribute to the imposition of the monetary sanction."

2. Linder v. Dranoff: Defendant successfully moved for summary judgment. AD affirmed. "The plaintiff, in opposition, failed to raise a triable issue of fact. Accordingly, the Supreme Court properly granted the defendants' motion for summary judgment dismissing the complaint."

3. Collymore v. Secretary of Housing & Urban Dev.: Plaintiff sues real estate closing attorney as part of a much larger case. Statute of limitations ran for attorney. "The complaint alleges that the defendants, one of whom was the plaintiff's closing attorney, converted her loan proceeds on August 27, 1993. The [**3] plaintiff did not commence the instant action until July 28, 2003. This clearly falls outside the applicable statutes of limitation."


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NJ and Mass Legal Malpractice Case

A NJ resident who was working in Mass dies in a car accident. The Mass hospital had a giant lien. Through a long string of circumstances it ends up suing the NJ attorney representing the estate and the father. The NJ principal of legal malpractice law? "There is no dispute about the facts bearing on Goldberger's breach of duty, consisting of his correspondence with Kent and his conduct in settling the workers' compensation case without notice to Kent, the attorney for the Medical Providers. An attorney owes a duty of care to non-clients when the attorney knows, or should know, that the non-client will rely on the attorney's representations and the non-client is not too remote from the attorney to be entitled to protection. Petrillo v. Bachenberg, 139 N.J. 472, 485 (1995)."

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Big Nebraska Legal Malpractice Verdict

As reported in the Lincoln Nebraska Journal Star attorney David Domina has won a legal malpractice verdict of $1.6 million dollars. The case is reported here.

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Legal Malpractice in Indiana

Here's a case from the highest court in Indiana on legal malpractice and post-conviction proceedings. Godby v. Whitehead tells the story of an alleged failure to present claims, post-conviction. query: would this legal malpractice case have survived the conviction in New York?

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Legal Malpractice Statute of Limitations

A new case in the CA1 [New Hampshire law] illustrates the difference between a discovery and an occurrence limitations date. Feddersen v. Garvey shows the difference. Here's an article which explains.

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Legal Malpractice Cases this Week [10/24/05]

Two cases are reported this week.

Conti v. Frank, 2005 NY Slip Op 7615; 2005 N.Y. App. Div. LEXIS 10971, October 18, 2005, Decided, October 18, 2005. Plaintiff's complaint for legal malpractice based on the failure to sue a physician [apparently as well as the hospital] was dismissed on CPLR 3211 grounds. The court implied that a medical malpractice case against the physician's hospital employer negated legal malpractice for failure to sue the physician individually.

Rosato v. Zuchlewski, 2005 NY Slip Op 7809; 2005 N.Y. App. Div. LEXIS 11228, October 20, 2005, Decided, October 20, 2005 comes from "secret" negotiations in an employment discrimination case alleged to have caused plaintiff injury. The court denied dismissal on the stated facts.

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