Andejo Corp. v South St. Seaport L.P.  2018 NY Slip Op 33431(U)  December 28, 2018
Supreme Court, New York County  Docket Number: 655410/16  Judge: Shlomo S. Hagler catalogues a large number of fraud and fraud related claims, as well as legal malpractice claims, and discusses the elements and the statute of limitations implications for each of them.  This case concerns a large number of tenants who banded together, with little success, to sue the landlord in the years after superstorm Sandy.

“Plaintiffs, commercial tenants who formerly conducted business at the South Street Seaport (“Seaport”), seek compensation from other such tenants for breach all of these parties’ agreement to jointly prosecute a lawsuit against their mutual landlord, and for other alleged tortious conduct.  Plaintiffs also allege tortious conduct by their former landlord, and the landlord’s counsel, and plaintiffs’ former counsel. All of the defendants move to dismiss the complaint (CPLR [a] [1], [5], [7]). ”

“Plaintiffs allege that, in 2004, when the Tenants were considering filing a lawsuit against Landlord, Shapiro recommended Rosenberg as counsel to represent the Tenant Group. In August 2004, the plaintiffs entered into a Joint Claim Agreement with each other, and with Salad and Booth, entitled “South Street Seaport’s Tenants’ Association Joint Claim Agreement (the “JCA”), which was drafted by Rosenberg in collaboration with Shapiro.

In the JCA, the Tenants that executed the agreement, defined in the JCA as “Tenants,” each agreed to share both the expenses in prosecuting the lawsuit against Landlord and any recovery received from Landlord (Felix Moving Affirmation, Exhibit “B”, at 1 [the Tenants agreed to “pool their claims and share in any recovery, payment or compensation of any nature paid by” Landlord]). Paragraph Four of the JCA prohibits a Tenant from individually settling “any claim” with Landlord. Paragraph Four also provides that any Tenant that violated the settlement prohibition would be required to contribute “any compensation or the value of any other consideration received by such Tenant or paid or given for the benefit of such Tenant” to the Tenant Group (JCA, ii 4). 1 Paragraph Six of the JCA (the “Rent Exception Provision”), also prohibits a Tenant from settling with Landlord “except in connection with a settlement or compromise made on behalf of the Tenants.” The Rent Exception Provision requires a Tenant to pay to the Committee for the benefit of other Tenants any “recovery payment, credit or settlement” received by such tenant other than rent relief or a forgiveness of rent arrears [emphasis supplied]. Thus, the Rent Exception Provision explicitly excludes from the settling Tenant’s contribution requirement “any rent relief or forgiveness of rent arrears” (JCA, if 6).

Plaintiffs allege that, prior to the JCA’s execution in August 2004, Shapiro and Rosenberg did not discuss with them the inclusion in the JCA of the Rent Exception Provision, or its implications. Plaintiffs further claim that, based on Shapiro and Rosenberg’s representations about the JCA, plaintiffs understood that any settlement consideration of rent relief, or forgiveness ofrent arrears, that a Tenant received from Landlord belonged to the Tenant Group. Plaintiffs allege that they would not have entered into the JCA, retained Rosenberg, or jointly commenced the lawsuit against Landlord had they been advised of Rosenberg and Shapiro’s current interpretation of the JCA, as permitting a Tenant to individually settle rent arrears claims without the Tenant Group’s consent or without paying the settlement’s value to the group. Plaintiffs contend that Rosenberg and Shapiro were fiduciaries to plaintiffs and, thus, obligated to explain their interpretation of the JCA. ”

“By Order, dated February 16, 2018, this Court granted the motion by RFS to dismiss plaintiffs’ complaint alleging legal malpractice, breach of contract and fraudulent inducement as against Rosenberg and RFS (Fulton Market Retail Fish, Inc. v Todtman Nachamie Spizz &  Johns, P.C. (Sup Ct, NY County, index No. 151002/2015 [“2015 Malpractice Action”]). Although the claims for legal malpractice herein would be barred by the statute of limitations, plaintiffs argue that the claims in this action against the RFS Defendants relate back to the 2015 Malpractice Action. However, without deciding this relation-back issue, given that the 2015 Malpractice Action was dismissed, plaintiffs’ malpractice cause of action asserted herein against Rosenberg and RFS is dismissed.”

The law firm is paid to safeguard escrow deposits in a film industry case.  Proceeds are misapplied and money is said to be missing.  Sue the lawfirm?  But…what about the agreement which states that the law firm in neither required to nor authorized to investigate?  What of the agreement that the escrow shall not be liable absent bad faith or willful disregard?

In Worldview Entertainment Holdings Inc. v Woodrow  2018 NY Slip Op 33372(U)
December 24, 2018  Supreme Court, New York County  Docket Number: 159948/2014,  Judge Melissa A. Crane holds that such exculpatory agreements may not be used by attorneys, who have a higher duty.

“The complaint alleges that Woodrow had primary responsibility for overseeing the financial, management, and employee relations affairs of Worldview, that he was the only person authorized to handle certain transactions with Worldview’s banks, creditors, and investors, and that he used his authority to misappropriate Worldview’s escrow monies. The complaint alleges that Woodrow defrauded Worldview out of at least $700,000 of escrow funds and that Goetz is liable for part of this sum, because Goetz, acting on Woodrow’s instructions, disbursed escrow monies to inappropriate recipients. Allegedly, Woodrow caused Goetz to pay money to Woodrow for his personal uses, to his mother’s estate, to his wife, to three debt collectors to satisfy Woodrow’s personal debts, and to an individual to settle a dispute for Woodrow. Allegedly, from May 2011 to May 2014, Goetz improperly disbursed $242,302 on Woodrow’s behalf, and perhaps more. ”

“Goetz argues that it is excuplated from plaintiffs’ claims under the provisions of the Film Fund Agreements. While exculpatory agreements have applied to escrow agents who were not attorneys (see Platinum Equity Advisors, LLC v SDI, Inc., 2014 WL 3670674, *4 [Sup Ct, NY County 2014]), these agreements are disfavored as to attorneys, particularly when the attorney drafted the agreement with the exculpatory provision (see Galasso, Langione, & Batter, LLP v Galasso, 53 Misc 3d 1202[A], 2016 NY Slip Op 51308[U], n 50 [Sup Ct, Nassau County 2016]). Boyajian drafted the Film Fund Agreements.

Both as escrow agent and as attorney, Goetz owed Worldview a fiduciary duty (Greenapple v Capital One, NA., 92 AD3d 548, 549 [l51 Dept 2012]; Ulico, 56 AD3d at 8). The attorney-client relationship comprises a “unique fiduciary reliance,” whereby the client is entitled to depend on the attorney “maintaining confidentiality, avoiding conflicts of interest, operating competently, safeguarding client property and honoring the clients’ interests over the lawyer’s” (Matter of Cooperman, 83 NY2d 465, 472 [1994]). “An agreement prospectively limiting a lawyer’s liability to a client for malpractice or other kinds of civil liability is unenforceable” (Restatement [Third] of the Law Governing Lawyers§ 54, Comment b).

Section 2 ( e) states that the escrow agent is released from liability provided that it holds the money in accordance with the agreement’s terms and pays such money to the “designated production company … ” This provision does not exculpate Goetz, because plaintiffs allege that Goetz paid at least some money other than to a production company. Goetz points out that the agreement does not require it to investigate any payments provided that the authorizing documents are correct and that the third-party investors and Worldview release Goetz against all claims arising out of Goetz following Woodrow’s instructions (,-r 2 [ e ]). Nonetheless, the court does not see how an attorney can be exculpated in regard to the misappropriation of funds, even if the attorney had no duty to investigate or did not benefit.

The Film Fund Agreements provide that the escrow agent is not liable for any act unless taken in bad faith, willful disregard of the agreement, or gross negligence (,-r 5). Goetz argues  that this provision means that it cannot be charged with negligence. As already stated, that is incorrect. “

Knox v Aronson, Mayefsky & Sloan, LLP    2018 NY Slip Op 09030  Decided on December 27, 2018  Appellate Division, First Department  Singh, J. points up some recurring issues that take place in matrimonial-legal malpractice cases:  there are often multiple attorneys (6 or more in this case), there are many opportunities for the husband and wife to make their own agreements, the parties often take things into their own hands and bust agreements, and when the case settles, the settlement often takes many issues off the board.

“Plaintiff Jodi Knox brings this action against her former counsel, Aronson, Mayefsky & Sloan, LLP and Karen Robarge (collectively, AMS) for legal malpractice, breach of fiduciary duty, fraud, and violation of Judiciary Law § 487 in connection with a divorce action brought by her former husband, nonparty James McGinnis (the husband), in New York County Supreme Court (McGinnis v McGinnis). She alleges that her successor legal counsel, defendant Fredman Baken & Kosan, LLP (FBK), also committed legal malpractice.

Defendant AMS represented plaintiff from approximately February through October 2013. Defendant Robarge is the partner at AMS who was primarily responsible for plaintiff’s case. Defendant FBK represented plaintiff from January 2014 through June 2015.^[FN1]

While represented by AMS, plaintiff repeatedly expressed her desire to move for a protective order against the husband. AMS ultimately made the application for a protective order as a cross motion to the husband’s motion to set a visitation schedule on May 3, 2013. The motion and cross motion were resolved by a temporary stipulation, dated May 7, 2013 (the temporary stipulation), which gave plaintiff and the couple’s infant daughter, born on November 6, 2012 exclusive occupancy of the couple’s apartment in Manhattan and set a schedule for visitation with the husband.

In July 2013, plaintiff sought to temporarily move from the Manhattan apartment to Connecticut for foot surgery. Despite defendant Robarge’s advice to the contrary, plaintiff, after apparently obtaining her husband’s consent, moved with the child to Greenwich, Connecticut.

On October 21, 2013, AMS filed an order to show cause to be relieved as counsel due to plaintiff’s lack of confidence in their advice. Before the order to show cause was heard, plaintiff voluntarily secured new counsel.”

“Turning first to plaintiff’s legal malpractice cause of action against AMS, she alleges that AMS was negligent in failing to move for attorneys’ fees, resulting in her failure to receive an undetermined award to pay her attorneys. This claim fails because plaintiff’s various successor counsel had ample time and opportunity to make such a motion, and in fact one did (although it was purportedly abandoned) (see Davis v Cohen & Gresser, LLP, 160 AD3d 484, 487 [1st Dept 2018]).

Even assuming AMS was negligent in failing to move for attorneys’ fees, by agreeing as part of the settlement ^[FN2] to forgo any award of attorneys’ fees except for $20,000, plaintiff cannot show that but for AMS’s negligence she would not have sustained the loss (see generally Tydings v Greenfield, Stein & Senior, LLP, 43 AD3d 680, 682 [1st Dept 2007], affd 11 NY3d 195 [2008] [to establish proximate cause, the plaintiff must demonstrate that “but for” the attorney’s negligence, plaintiff would have prevailed in the matter in question; failure to demonstrate proximate cause mandates the dismissal of a legal malpractice action regardless of whether the attorney was negligent]); 180 Ludlow Dev. LLC v Olshan Frome Wolosky LLP, 165 AD3d 594, 595 [1st Dept 2018] [“While proximate cause is generally a question for the factfinder . . . it can, in appropriate circumstances, be determined as a matter of law”]).

Next, plaintiff claims that AMS was negligent in allegedly advising her that she was [*3]permitted to move to Connecticut, resulting in the loss of custody of the child. The damages plaintiff seeks are the attorneys’ fees incurred in connection with the husband’s motion to compel her return to New York and future legal fees she will have to expend to recover custody. Again, this claim fails because plaintiff’s alleged damages were not proximately caused by any advice given by AMS, but rather by her own subsequent failure to comply with the terms of the settlement.

Turning to the breach of fiduciary duty claim, plaintiff seeks damages for pain and mental suffering, the $132,000 plaintiff was required to pay the husband for his attorneys’ fees, the attorneys’ fees needed to recover custody of the child, and punitive damages. This claim and ensuing damages sought for the breach are duplicative of the malpractice cause of action (see Alphas v Smith, 147 AD3d 557, 558-559 [1st Dept 2017] [where the court found that the relief sought in the fiduciary duty claim was identical to the legal malpractice claim as it sought similar damages]).”

Utilisave, LLC v Fox Horan & Camerini, LLP  2018 NY Slip Op 33284(U)  December 18, 2018  Supreme Court, New York County  Docket Number: 652318/2014  Judge: Kathryn E. Freed is a complicated case involving rotating ownership of a party in litigation, purchases from the liquidating trustee and 10 lawsuits in multiple states.  Judge Freed eventually rules on summary judgment in what is otherwise a summary decision.

“Utilisave is a limited liability company organized in Delaware with its principal place of business in this state (affirmation of James G. McCamey [McCamey affirmation], exhibit P [complaint] 1 6). Nonparty Michael H. Steifman (Steifman) founded Utilisave’s predecessor in 1991 and served as a Utilisave employee (id.,  9, 14). Nonparty MHS Venture Management  Corp. (MHS), an entity wholly owned by Steifman, was one of Utilisave’s two managing members (id.,  13). Mikhael Khenin (Khenin), the second managing member, was Utilisave’s CEO (id.) In 2007, Steifman and MHS brought an action against Khenin and Utilisave, Stefman v Khenin, Supreme Court, Westchester County Index Number 8271/2007 (the Prior Action), for wrongfully withholding distributions and salary payments and for removal of Khenin as CEO (complaint 15-16). Fox, a law firm based in New York, and Rivkin, a former partner at Fox, represented Utilisave from January 2008 through July 2011, when a judgment was entered against Utilisave after a bench trial (id.,  7-8, 19 and 32).
Plaintiff alleges that, during the pendency of the Prior Action, Khenin’s term as CEO expired in 2009, as set forth in his employment agreement. Nonetheless, under defendants’ counsel, Khenin renewed his employment agreement without MHS’s knowledge, irrespective of the terms in Utilisave’s operating agreement that required the consent of both managing members (id.,  57). Khenin then paid himself unauthorized distributions and excessive compensation, misappropriated Utilisave’s confidential information, and undertook other actions that caused Utilisave harm (complaint,  26-32, 45). Ultimately, the judgment in the Prior Action included a declaration that Khenin’s renewed employment agreement was void (id., 57-58). ”

“”The doctrine of collateral estoppel … precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party or those in privity, whether or not the tribunals or causes of action are the same” (Ryan v New York Tel. Co., 62 NY2d 494, 500 [1984] [internal citations omitted]). Thus, the two elements necessary to invoke collateral estoppel are “an identity of issue which has necessarily been decided in the prior action and is decisive of the present action” and “a full and fair opportunity to contest the decision now said to be controlling” (Buechel v Bain, 97 NY2d 295, 303-304 [200 I], cert denied 535 US 1096 [2002] [internal citation omitted]). “[T]he burden rests upon the proponent of collateral estoppel to demonstrate the identicality and decisiveness of the issue, while the burden rests upon the opponent to establish the absence of a full and fair opportunity to litigate the issue in the prior action or proceeding” (Ryan, 62 NY2d at 501 ).
The court finds that the Disqualification Order has no preclusive effect on the present action. First, with respect to the element of identicality of issues, the Disqualification Order did not determine any issue that would have precluded a legal malpractice claim against defendants (see Wachtel!, Lipton, Rosen & Katz v CVR Energy, Inc., 143 AD3d 648, 648-649 [I st Dept 2016]). To state a cause of action for legal malpractice, a plaintiff must plead “the negligence of the attorney; that the negligence was the proximate cause of the loss sustained; and actual damages” (Leder v Spiegel, 31 AD3d 266, 267 [1st Dept 2006], a.ffd 9 NY3d 836 [2007], cert denied, 552 US 1257 [2008] [citations omitted]). The two issues necessarily decided in the Disqualification Order related to whether the court should (I) disqualify Butler, Fitzgerald, Fiveson & McCarthy P.C. and Tibbets, Keating & Butler, LLC from representing Utilisave because of purported conflicts of interest and (2) order Khenin to consult with and obtain Steifman’s consent on the selection and retention of counsel for Utilisave. Whether defendants were negligent in providing Utilisave with advice was not at issue in the Prior Action. Likewise, the Prior Action did not determine whether defendants breached their contract to Utilisave, whether defendants aided and abetted Khenin’s breach of his fiduciary duty to Utilisave, and whether defendants were unjustly enriched because they were paid for the legal services rendered.

Furthermore, defendants were not in privity with Utilisave, Steifman, MHS or Khenin in the Prior Action. Privity is an “amorphous concept not easy of application” (D ‘Arata v New York Cen. Mut. Fire Ins. Co., 76 NY2d 659, 664 [1990] [citation omitted]). A nonparty to a prior litigation may be deemed in privity with a party in a prior litigation if “his [or her] own rights or obligations in the subsequent proceeding are conditioned in one or another on, or derivative of, the rights of the party to the prior litigation” (id. [citations omitted]). Plainly, Utilisave’s claims are not derivative of or conditioned upon the rights of any party in the Prior Action. More importantly, the language in thepisqualification Order does not absolve defendants of any a_llegedly negligent actions they may have taken. Indeed, the complaint alleges that Utilisave was harmed by defendants’ representation of it in the Prior Action, not that Khenin’s selection of defendants as Utilisave’s counsel was improper. “