Plaintiff hired attorneys to help transfer the rights and title to a movie being produced.  From there, all went wrong, and at this time, plaintiff may not even own the film anymore.  How did this happen, and why was the legal malpractice case lost?  In Candela Entertainment, Inc. v Davis & Gilbert, LLP   2013 NY Slip Op 50835(U)    Decided on May 16, 2013   Supreme Court, New York County, Judge Bransten determines that there is no privity for the individual plaintiff and no causation for the corporate plaintiff.
 

"According to the Complaint, Plaintiff Candela Entertainment, Inc. retained Defendant Davis & Gilbert, LLP ("D & G") in October 2007 to assist in financing and transferring ownership of a movie entitled "Dance Cuba." (Cmpl. ¶¶ 1,3.) Since 1999; Plaintiff [*2]Cynthia Newport has invested nearly $4,500,000 in "Dance Cuba" through her non-profit organization, Illume Productions, Inc. ("Illume"). (Cmpl. ¶¶ 1, 7.) In 2005, Newport formed Candela together with Curb Gardner, with both serving as co-presidents. (Affidavit of Mary M. Luria ("Luria Aff."), Ex. 1 at 1-2.) Candela retained D & G in order to, specifically, transfer ownership of "Dance Cuba" from Illume to Candela, as well as to assist in "completion of the film with new investors." (Affidavit of Cynthia Newport ("Newport Aff.") ¶ 2.) Mary M. Luria is the partner at D & G who was responsible for the representation. (Cmpl. ¶ 17.) The retainer agreement had as its signature line, "Agreed to and Accepted Candela Entertainment, Inc.," and all invoices from D & G were sent to Candela, "attn: [Co-President] Curb Gardner II." (Affirmation of Vincent J. Syracuse ("Syracuse Affirm."), Ex. 4 at 3; Newport Aff. Ex. F at 1.)

There are two transactions relevant to this motion, both occurring in October 2007. In the first transaction, Illume assigned all rights and agreements related to "Dance Cuba" to Candela in exchange for Candela assuming a portion of Illume’s outstanding debts. (Newport Aff. Ex. I at 3, 5, 9-11.) The second transaction was a secured loan by Factory Pond, LLC ("Factory Pond") to Candela, with the use of "Dance Cuba" as loan collateral and with Newport and Gardner providing personal guarantees of the debt. (Newport Aff. Ex. E.)

On behalf of D & G, Luria revised and drafted several documents for both transactions, including a bill of sale, a trademark assignment, a Candela/Factory Pond deal memorandum and an "Assignment and Assumption Agreement" between Illume and Candela. [FN2] (Newport Aff. ¶ 9.) However, D & G was not the sole attorney consulted during these transactions. Candela also retained an attorney named Kojo Bentil, who drafted a promissory note and a security agreement for the Factory Pond transaction. (Newport Aff. ¶ 9, Ex. D.) In addition, at a July 2008 meeting regarding "Illume tax issues," attorneys from Patterson Belknap Webb & Tyler LLP were consulted. (Newport Aff. Ex. L.)

"Relevant to the instant litigation, significant portions of the "Dance Cuba" film incorporate copyrighted materials for which Illume had signed licensing agreements. (Newport Aff. ¶ 2.) These licensing agreements required that Illume obtain consent from the licensors before any transfer of intellectual property rights could be made. (Newport Aff. ¶ 3.) While there is a dispute as to whose duty it was to obtain the consents, the Complaint alleges that no consents to assignment were ever obtained from the licensors. (Cmpl. ¶ 8.) The Complaint further alleges that the Defendant’s failure to obtain or to [*3]advise on obtaining the necessary consents to any transfer of copyrighted material in "Dance Cuba" created a cloud on the film’s title that prevents Plaintiffs from seeking new investors and completing the film. (Cmpl. ¶ 20; Newport Aff. ¶ 3.)

Plaintiffs commenced this action on December 1, 2011, asserting that Defendant’s "failures to properly understand and advise Plaintiffs as to the structure, the transactions and the effect of the documents utilized in the transactions," constitute (i) negligence, (ii) breach of contract, (iii) breach of fiduciary duties, and (iv) negligent misrepresentation. (Cmpl. ¶¶ 8, 23, 27, 36, 40.) Defendant now seeks dismissal of the Complaint in its entirety. Plaintiffs oppose. "

"As a threshold matter, to maintain a cause of action for legal malpractice, the plaintiff must plead the existence of an attorney-client relationship. See, e.g., AG Capital Funding Partners, L.P. v. State St. Bank & Trust Co., 5 NY3d 582, 595 (2005) (affirming dismissal of legal malpractice claim for failure to plead facts showing actual privity, near privity, or an exception to privity). In order to defeat a motion to dismiss, a party must plead facts showing the privity of an attorney-client relationship, or a relationship so close as to approach privity. Cal. Pub. Employees Ret. Sys. v. Shearman & Sterling, 95 NY2d 427, 434 (2000) (affirming dismissal of legal malpractice claim for failure to plead actual privity or near privity). 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 plaintiff’s reliance. Cal. Pub. Employees, 95 NY2d at 434.

Defendant moves to dismiss based on CPLR 3211(a)(1) and (7), arguing that documentary evidence refutes the Complaint’s claims of privity between Newport and D & G, and thus Plaintiffs fail to state a cause of action for legal malpractice. [FN3] Plaintiff Newport argues that she was in privity or "near privity" with D & G because she (i) personally guaranteed the Factory Pond loan to Candela, (ii) signed a promissory note with Candela, and (iii) communicated directly with Defendant D & G. (Newport Aff. ¶ 19; Plaintiffs’ Memorandum in Opposition to Motion to Dismiss ("Pls.’ Br.") 15.) Defendant argues that there can be no privity because the retainer agreement is addressed solely to Candela and closing documents were signed by Newport on behalf of Candela. (Defendant’s Memorandum in Support of Motion to Dismiss ("Def’s Br.") 16.) "

"Here, despite Newport’s personal guarantee of corporate debt and direct communication with D & G, the retainer agreement states, "Agreed to and Accepted Candela Entertainment, Inc.," and at least two other attorneys were involved. (Syracuse Affirm. Ex. 4 at 3; Newport Aff. ¶ 9, Exs. D, L.) In addition, all invoices from D & G were sent to Candela, "attn: [Co-President] Curb Gardner II." (Newport Aff. Ex. F at 1.) Therefore, as in Griffin, since the Complaint does not plead facts showing that D & G performed any task specifically to benefit Newport as an individual apart from the corporation, the Complaint fails to establish that an attorney-client relationship existed between Newport and D & G. "
 

"Here, according every possible inference favorable to Plaintiffs, the Complaint fails to allege facts tending to show that, but for Defendant’s alleged negligence in failing to properly counsel Plaintiffs on the ramifications of the two transactions or to advise Plaintiffs on the need to obtain consent from various licensors, Plaintiffs would have secured the requisite licensor consents that are mandatory for any transfer of significant portions of "Dance Cuba," and that Plaintiffs would still own the "Dance Cuba" film.

The damage that Candela suffered as alleged in the Complaint is a cloud on title to "Dance Cuba," such that Candela can no longer seek investors for the film and may not even own the film. (Cmpl. ¶¶ 8, 19.) Therefore, it is incumbent upon Candela to plead that but for the Defendant’s failure to properly advise on the various transactions and the need to obtain consent agreements, Candela would have full and clear title to the "Dance Cuba" film.

Plaintiffs’ claims fail because they do not plead that the consents would have been given, even if D & G had instructed Plaintiffs to obtain the consents or structured and documented the transactions differently. Nor do Plaintiffs claim that they would have foregone the transactions had they been properly advised. In fact, there are several reasons that obtaining the consents would have been unlikely. First, as stated in Exhibit A of Newport’s Affidavit, the original license agreements were the result of "highly personal negotiations between the granting entity/individual and Cynthia Newport," and [*8]were not boilerplate documents. (Newport Aff. Ex. A at 1.) Further complicating the consent issue, (i) payment for the licenses may have been "based on Illume’s status as a not-for-profit;" (ii) the original "Dance Cuba" film was made "under a series of Treasury Department licenses granted to Illume, a not-for-profit organization;" and (iii) the Cuban embargo "prevents most US companies from realizing a ‘profit’ ‘on (sic) any ‘product’ made under such a license." (Newport Aff. Ex. A at 1.) Finally, the Plaintiffs state that the "Dance Cuba" film "involved huge careers, personal and business relations and reputations, and impacted the international and political relations that relate to the project." (Pls.’ Br. at 13.) Plaintiffs failed to plead that all of these factors would have aligned such that, but for D & G’s failure to properly advise Candela, all of the necessary consents would have been given. See Eighth Ave. Garage Corp. v. Kaye Scholer LLP, 93 AD3d 611, 612 (1st Dep’t 2012) (holding that "plaintiffs failed to demonstrate that they would have sold the subject garage but for defendants’ alleged malpractice"). "