The conduct is not easily explainable.  A law firm is hired to become escrow agent for a real estate venture, and to earn fees while preparing and filing mortgages.  Inexplicably, the law firm simply stops filing the mortgages.  The result is predictable.

TSR Group, LLC v Levitin  2016 NY Slip Op 31322(U)  July 13, 2016  Supreme Court, New York County  Docket Number: 651356/2015  Judge: Eileen A. Rakower.  The judge explains breach of fiduciary duty in the escrow holding situation.

“This action arises from a business venture between plaintiff, TSR Group, LLC (“TSR” or “plaintiff’) and non-parties Stuart Bienenstock, Judah Bloch, and Ariel Gantz, involving the acquisition, renovation, stabilization, and conversion of commercial real estate in New Jersey into residential condominiums. Plaintiff alleges that defendants Jeffrey Levitin, Esq., and Levitin & Associates, P.C. (collectively, “defendants”) released from escrow approximately $2.1 million of plaintiff’s funds and delivered such funds to defendants’ other clients or third parties without plaintiff’s authorization and without ensuring that mortgages over certain properties were recorded on behalf of plaintiff equal to the full amount of plaintiff’s loan and investment. Plaintiff asserts causes of action for breach of fiduciary duty, breach of contract, fraud, negligent misrepresentation, conversion, legal malpractice, conspiracy, aiding and abetting tortious conduct, failure to return property following bailment, negligence, and accounting.”

“An escrow is generally defined as a written instrument entrusted by a grantor to a third party agent or trustee who, in accordance with instructions, subsequently delivers the instrument to the grantee once certain conditions are met. See 99 Commercial St., Inc. v. Goldberg, 811 F. Supp. 900, 905 (S.D.N.Y. 1993). Although the strict definition limits the subject of escrow to written instruments, money deposited with a third person and to be delivered to the beneficiary upon the happening of an event or the performance of a condition may also be treated as an escrow, with the same rules of other escrow agreements applying. 55 N.Y. Jur. 2d Escrows§ 2; Falk v. Goodman, 7 N.Y.2d 87 (1959); Matter of Burton, 200 A.D.2d 324, 327 (1st Dept. 1994) (“When parties to a real estate transaction agree that the lawyer of one party or another will hold money in escrow it is not either party’s money to disburse at will.”). No precise form of words is necessary to constitute an escrow; conversely, calling a transaction an escrow does not make it one. Farago v. Burke, 262 N.Y. 229, 233 (1933). An escrow agreement requires: (a) an agreement as to the subject matter and delivery of the instrument or funds; (b) a third-party depositary; ( c) delivery of the instrument or funds to a third party depositary, to be held conditioned upon the performance of some act or occurrence of some event; and (d) relinquishment of the instrument or funds by the grantor. See Menkis v. Whitestone Sav. & Loan Ass ‘n, 78 Misc. 2d 329, 330-31 (Nassau Cnty. Dist. Ct. 197 4 ). An escrow agreement does not have to be in writing. Russell v. Demandville Mortgage Corp., 815 N.Y.S.2d 496 (Kings Cnty. Sup. Ct. 2006). Generally, whether an escrow has been created depends on the intention of the parties, which is a question of fact. Clark v. Gifford, 1833 WL 3077 (N.Y. Sup. Ct. 1833). An escrow agent has contractual duty to comply with the escrow agreement, and additionally becomes a trustee of anyone with a beneficial interest in the trust with the duty not to deliver the escrow to anyone except upon strict compliance with the conditions imposed. Takayama v. Schaefer, 240 A.D.2d 21, 25, 669 N.Y.S.2d 656, 659 (1998) (internal citations and quotations omitted); Animalfeeds Int’! Inc. v. Banco Espirito Santo E Comercial De Lisboa, 420 N.Y.S.2d 954, 957 (Sup. Ct. 1979) (“An escrow agreement, while imposing a fiduciary relationship, and assuming some of the characteristics of a trust, is in essence a contractual undertaking[.]”); Grinblat v. Taubenblat, 107 A.D.2d 735, 736 (2d Dept. 1985) (escrow agent is charged with duty not to deliver escrow funds except upon strict compliance with conditions imposed and is subject to damages for his failure to so act). The purpose of an escrow is to assure the carrying out of an obligation already contracted for and in furtherance of the obligation the promisor deposits money, goods, or documents to an escrow agent who agrees to part with it only on a specified condition. Nat ‘l Union Fire Ins. Co. Pittsburgh, Pa. v. Proskauer Rose Goetz & Mendelsohn, 634 N.Y.S.2d 609, 614 (Sup. Ct. 1994), ajf’d sub nom. Nat’! Union Fire Ins. Co. of Pittsburgh, Pennsylvania v. Proskauer, Rose Goetz & Mendelsohn, 227 A.D.2d 106 (1st Dept. 1996). Upon delivery of the subject of the escrow to the escrow agent, “the escrow agent becomes the fiduciary of both parties and owes them the highest kind of loyalty.” Muscara v. Lamberti, 133 A.D.2d 362, 363 (2d Dept. 1987). ”

“As noted above, it is well settled that an escrow agent owes the parties to the transaction a fiduciary duty. Greenapple v. Capital One, NA., 92 A.D.3d 548, 549 (1st Dept. 2012); Talansky v. Schulman, 2 A.D.3d 355, 359 (1st Dept. 2003). As a fiduciary, the escrow agent has a strict obligation to protect the rights of the parties for whom the agent acts as escrowee. Grinblat v. Taubenblat, 107 A.D.2d 735, 736 (2d Dept. 1985). An escrow agent “can be held liable for breach of the escrow agreement and breach of fiduciary duty as escrowee.” Takayama v. Schaefer, 240 A.D.2d 21, 25 (2d Dept. 1998) (internal citations omitted). “

Print:
EmailTweetLikeLinkedIn
Andrew Lavoott Bluestone

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened his private law office and took his first legal malpractice case.

Since 1989, Bluestone has become a leader in the New York Plaintiff’s Legal Malpractice bar, handling a wide array of plaintiff’s legal malpractice cases arising from catastrophic personal injury, contracts, patents, commercial litigation, securities, matrimonial and custody issues, medical malpractice, insurance, product liability, real estate, landlord-tenant, foreclosures and has defended attorneys in a limited number of legal malpractice cases.

 

Bluestone also took an academic role in field, publishing the New York Attorney Malpractice Report from 2002-2004.  He started the “New York Attorney Malpractice Blog” in 2004, where he has published more than 4500 entries.

Mr. Bluestone has written 38 scholarly peer-reviewed articles concerning legal malpractice, many in the Outside Counsel column of the New York Law Journal. He has appeared as an Expert witness in multiple legal malpractice litigations.

Mr. Bluestone is an adjunct professor of law at St. John’s University College of Law, teaching Legal Malpractice.  Mr. Bluestone has argued legal malpractice cases in the Second Circuit, in the New York State Court of Appeals, each of the four New York Appellate Divisions, in all four of  the U.S. District Courts of New York and in Supreme Courts all over the state.  He has also been admitted pro haec vice in the states of Connecticut, New Jersey and Florida and was formally admitted to the US District Court of Connecticut and to its Bankruptcy Court all for legal malpractice matters. He has been retained by U.S. Trustees in legal malpractice cases from Bankruptcy Courts, and has represented municipalities, insurance companies, hedge funds, communications companies and international manufacturing firms. Mr. Bluestone regularly lectures in CLEs on legal malpractice.

Based upon his professional experience Bluestone was named a Diplomate and was Board Certified by the American Board of Professional Liability Attorneys in 2008 in Legal Malpractice. He remains Board Certified.  He was admitted to The Best Lawyers in America from 2012-2019.  He has been featured in Who’s Who in Law since 1993.

In the last years, Mr. Bluestone has been featured for two particularly noteworthy legal malpractice cases.  The first was a settlement of an $11.9 million dollar default legal malpractice case of Yeo v. Kasowitz, Benson, Torres & Friedman which was reported in the NYLJ on August 15, 2016. Most recently, Mr. Bluestone obtained a rare plaintiff’s verdict in a legal malpractice case on behalf of the City of White Plains v. Joseph Maria, reported in the NYLJ on February 14, 2017. It was the sole legal malpractice jury verdict in the State of New York for 2017.

Bluestone has been at the forefront of the development of legal malpractice principles and has contributed case law decisions, writing and lecturing which have been recognized by his peers.  He is regularly mentioned in academic writing, and his past cases are often cited in current legal malpractice decisions. He is recognized for his ample writings on Judiciary Law § 487, a 850 year old statute deriving from England which relates to attorney deceit.