There are legal malpractice cases, and then, there are world-class multi-million dollar cases of legal malpractice.  Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP  2015 NY Slip Op 07693  Decided on October 22, 2015  Court of Appeals  Rivera, J. is one of the latter types.  It involves commercial mortgage-backed securitization and this case was over a $67.5 million problem.  As the Court of Appeals found, Plaintiff made “immense” profits, and Cadwalader did not do so badly for itself, either.

“Now, almost two decades since the events leading to the original securitization, [*3]and almost ten years since Nomura filed this action, the case has reached this Court, and we are presented with the question whether Cadwalader is entitled to summary judgment as to all or part of the first cause of action. For the reasons set forth below, we conclude that Cadwalader has established, as a matter of law, that summary judgment and dismissal of the legal malpractice cause of action are merited in this case.”

“On a motion for summary judgment, the moving party must “make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate the absence of any material issues of fact” (Alvarez v Prospect Hosp., 68 NY2d 320, 324 [1986]). If the moving party produces the requisite evidence, the burden then shifts to the nonmoving party ” ‘to establish the existence of material issues of fact which require a trial of the action’ ” (Vega v Restani Const. Corp., 18 NY3d 499, 503 [2012], quoting Alvarez, 68 NY2d at 324). Viewing the evidence “in the light most favorable to the non moving party,” if the nonmoving party, nonetheless, fails to establish a material triable issue of fact, summary judgment for the movant is appropriate (Ortiz v Varsity Holdings, LLC, 18 NY3d 335, 339 [2011]; see Alvarez, 68 NY2d at 324).

To sustain its cause of action for legal malpractice, Nomura must “establish that [Cadwalader] failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession and that the attorney’s breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages” (Dombrowski v Bulson, 19 NY3d 347, 340 [2012] [internal citations and quotations omitted]). An attorney’s conduct or inaction is the proximate cause of a plaintiff’s damages if “but for” the attorney’s negligence “the plaintiff would have succeeded on the merits of the underlying action” (AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434 [2007]), or would not have sustained “actual and ascertainable” damages (Dombrowski, 19 NY3d at 340; Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005], lv denied 6 NY3d 713 [2006]). Thus, in order for Cadwalader to prevail on its summary judgment motion, it must establish that it provided the advice, and conducted the due diligence expected of counsel “exercis[ing] the ordinary reasonable skill and knowledge [*8]commonly possessed by a member of the legal profession” (Dombrowski, 19 NY3d at 340). If Cadwalader fell short of this professional standard, it must demonstrate that its conduct was not the proximate cause of Nomura’s damages.”

“Essentially Nomura seeks to have us ignore the fact that it assumed the responsibility for ensuring that the loans complied with the 80% test based on independent appraisals that Cadwalader did not conduct or review. However, we cannot ignore that Nomura chose to run its business in this way, and that Cadwalader acted upon and relied on that business model in its representation of Nomura.

Nomura argues, alternatively, that even if Cadwalader did not have a general duty to confirm Nomura’s representations for all the D5 mortgage loans, it had such a duty in the case of the hospital loan. In support, Nomura relies on testimony from Adelman and Cadwalader’s experts that Cadwalader had a legal responsibility to confirm REMIC qualification where a “red flag” suggested that the appraisal valuation of the real property was inconsistent with Nomura’s representations. Cadwalader concedes this point, but argues that there was nothing in the D5 securitization to require that it confirm Nomura’s representations of REMIC qualification.

Nomura contends that the highlights document was a red flag because it contained statements that the loan was “secured by the land, building, and operations,” and that the collateral for the loan is the “land, building and property management (operations).” Nomura argues that this alerted Cadwalader to the possibility that the appraisal was based on the hospital’s operations, and not land and buildings, as required for REMIC qualification. As a consequence, Cadwalader should have taken steps to confirm that the property satisfied the 80% test.

Despite Nomura’s arguments to the contrary, the fact that the operational part of the hospital business may have factored in some way into the appraisal did not mean that Cadwalader should have considered Nomura’s representations unreliable. After all, the D5 securitization consisted of numerous commercial mortgages, all of which Nomura assessed in accordance with Cadwalader’s advice about how to determine REMIC qualification based on the 80%. Therefore, the hospital mortgage loan was no different from the others.”

“Nomura also argues that Cadwalader should not have ignored the fact that the highlights document includes a cost approach valuation of the hospital that is dangerously close to the 80% REMIC minimum. While it is true that the cost approach valued the hospital property at $40,600,000, that number is still above the $40 million required to meet REMIC qualification. [*12]In any case, and more to the point is the fact that the highlights document placed the hospital’s reconciled appraised value at $68 million, $28 million in excess of the $40 million required under the 80% test. That final appraisal was established only after the reconciliation of the three valuation approaches, two of which (the “income” and “sales” approaches) valued the property at over $60 million. Given such a large differential, Cadwalader did not have a basis to doubt Nomura’s representation that the hospital loan complied with the 80% test. Indeed, Adelman testified that in his experience, even if a property valued at $68 million included a significant amount of personal property, its real property valuation would not fall below $40 million dollars. Gershon similarly testified that in his experience in real estate, a $68 million appraisal based on the income approach (which was the case here) means the real estate value likely exceeded $40 million. Rather than establish that triable issues of fact exist, the evidence instead shows that these parties—sophisticated business entities in the securitization field—held similar views that a $68 million appraisal provided sufficient confidence that the property was REMIC-qualified.

Cadwalader, thus, met its burden to establish that it conducted the requisite due diligence, and that it “exercise[d] the ordinary and reasonable skill and knowledge commonly possessed by a member of the legal profession” when it relied on Nomura’s representations in issuing an opinion that the D5 securitization was REMIC-qualified (see Dombrowski, 19 NY3d at 340). In contrast, Nomura failed to meet its burden to establish the existence of a triable issue of fact.

For the foregoing reasons, the Appellate Division’s order should be modified, with costs to Cadwalader, by granting Cadwalader’s motion for summary judgment dismissing the first cause of action in its entirety and, as so modified, affirmed and the certified question answered in the negative.”