Wimbledon Fin. Master Fund, Ltd. v Weston Capital Mgt. LLC  2017 NY Slip Op 31515(U)
July 17, 2017  Supreme Court, New York County  Docket Number: 653468/2015 as explained by  Judge Shirley Werner Kornreich is the material of a movie.  Here it is in a nutshell:

“This action involves approximately 30 defendants and has already, in the pre-answer motion to dismiss stage, resulted in more than 1,000 e-filed documents and more than 40 motions. It concerns two related fraudulent schemes for which some of the defendants are going to prison pursuant to federal prosecution. Hallac and Galanis have pleaded guilty and admitted to the fraud. Hallac directly implicated Bergstein in his allocution. Bergstein has since been indicted and arrested. Galanis, the mastermind of the Gerova scheme, has been sentenced to more than a decade in federal prison. 5 That being said, a detailed understanding of the two schemes is necessary to evaluate the causes of action in this civil case and ascertain whether all of the named defendants bear responsibility for the fraudulent schemes.

The first scheme was a pump-and-dump scam involving Gerova Financial Group, Ltd. (Gerova). As explained herein, after that scheme began to unravel, Wimbledon’s investment in Gerova was transferred to Arius Libra, Inc. (Arius Libra). The money then allegedly was stolen by some of the defendants through a fraudulent collateralized loan scheme. The court recently discussed these schemes in two turnover proceedings, but only in broad strokes.”

“For the purpose of this motion, it is sufficient to explain that, prior to the alleged schemes, Wimbledon’s assets were illiquid interests in hedge funds. 7 Hence, an investor in Wimbledon was really investing in those hedge fund interests (the Assets). What happened next was a series of complicated events in which WCAM, which managed Wimbledon, transferred the Assets on multiple occasions in exchange for equity in other companies. According to Wimbledon, all of these transfers were fraudulent in nature because the companies in which Wimbledon was given equity were scams – one (Gerova) was a sham reinsurance company, while the other (Arius Libra) was a sham medical billing company. The end result, Wimbledon claims, was that it lost its Assets, which were pledged as collateral on a loan that defaulted because the individuals who controlled Wimbledon stole the loan proceeds. ”

Justice Kornreich’s opinion is a detailed description of the world-class fraud which ensued. “Weingarten seeks dismissal of Wimbledon’s claim against him for legal malpractice. The alleged malpractice concerns Weingarten’ s purported drafting of some of the contracts used by Bergstein in the alleged schemes and his failure to adequately protect Wimbledon’s interests in the Aramid bankruptcy action. There are legal malpractice and Judiciary Law § 487 claims against defendant Weingarten. ”

“The parties dispute whether Weingarten personally drafted the subject contracts. On this motion to dismiss, where no definitive documentary evidence resolving this dispute was submitted, the question of whether Weingarten drafted the subject contracts must be resolved in Wimbledon’s favor. The court, nonetheless, dismisses the malpractice claim to the extent it relates to Weingarten’s contract drafting. Redress for the claim that Weingarten harmed Wimbledon by virtue of these contracts is more properly pursued with the other well-pleaded claims asserted against Weingarten, which are addressed below. The malpractice claim is dismissed because Weingarten is not alleged to have negligently drafted the contracts, but, instead, aided in a fraudulent scheme. In other words, Weingarten is not accused of transactional malpractice (because the contracts effectuated the intended transactions) but of fraud. The allegation that an attorney defrauded its client may be maintained (both substantively and for statute of limitations purposes) independently of a malpractice claim. See .Johnson v Proskauer Rose LLP, 129 AD3d 59, 69 (1st Dept 2015) (fraud claim considered independent of malpractice claim though harm arose out of accountant’s failure to properly protect its client), citing Mitschele v Schultz, 36 AD3d 249, 254 (1st Dept 2006). That said, Weingarten’s representation of Wimbledon in the Aramid bankruptcy action may give rise to malpractice liability. Wimbledon explains:

‘Weingarten’s representation of Wimbledon was undertaken at the instruction of Bergstein, and his principal purpose was to aid Bergstein in his litigation war against Aramid and David Molner. Bianco admits that the Wimbledon investment in Aramid was one of the reasons Bergstein joined Galanis’ conspiracy. Weingarten was representing Bergstein in various capacities in this war, and was owed millions of dollars by him. He agreed to represent Wimbledon in an attack on Aramid and Molner, but did not protect Wimbledon’s interests, instead seeking to advance Bergstein’s interests. Bergstein settled with Aramid and Molner in 2014, and during settlement discussions Weingarten purported to enter into a tolling agreement and standstill on behalf of Bergstein and Wimbledon. Bergstein subsequently settled with the Aramid bankruptcy for $6 million, but Wimbledon received nothing. Wimbledon’s liquidators then appeared in the bankruptcy, and the Court sustained Wimbledon’s objection to any release of Wimbledon’s claims in the Bergstein settlement. Weingarten, who had been representing Wimbledon since 2012 in its dispute with Aramid, used that litigation in part to ensure that Bergstein received a settlement, to the detriment of his client Wimbledon. This was malpractice. ‘”

“These allegations suffice to state a claim that Weingarten failed to zealously represent Wimbledon in the Aramid action and, as a result, Wimbledon lost out on the chance to get more money out of that litigation. And, Weingarten’s representation of Bergstein, whose interests are directly adverse to Wimbledon’s, would appear to be problematic. See Rules of Professional Conduct, Rule l.7(a)(l) (“a lawyer shall not represent a client if a reasonable lawyer would conclude that … the representation will involve the lawyer in representing differing interests.”). Weingarten’s conclusory denials of the conflict, especially given the obvious nature of the conflict, or the lack of harm suffered by Wimbledon, do not merit dismissal. See Fielding v Kupferman, 65 AD3d 437, 442 (1st Dept 2009). With respect to the remaining claims, Weingarten is correct that all of the claims asserted against him other than fraud and violation of Judiciary Law § 487 (breach of fiduciary duty, aiding and abetting fraud, negligence, gross negligence, and unjust enrichment) must be dismissed as duplicative. ”

“With respect to Judiciary Law§ 487, the portion of such claim relating to Weingarten’s contract drafting is dismissed. Neither § 487(1) (“deceit or collusion … with intent to deceive the court or any party”) nor§ 487(2) (“[w]ilfully delays his client’s suit with a view to his own gain; or, wilfully receives any money or allowance for or on account of any money which he has not laid out, or becomes answerable for”) apply to Weingarten’s transactional work. Wimbledon cites no case where similar transactional work gave rise to § 487 liability. The statute and the cited cases concern deceiving the court or the client within litigation.

However, to the extent the§ 487 claim relates to Weingarten’s conduct in the Aramid action, the claim remains. The Appellate Division has held that the intent element of a § 487 claim (as opposed to the negligence element of malpractice) precludes the claim from being dismissed as duplicative. See Sabalza v Salgado, 85 AD3d 436, 438 (1st Dept 2011); Moormann v Perini & Hoerger, 65 AD3d 1106, 1108 (2d Dept 2009). Weingarten’s alleged loyalty to Bergstein was incompatible with his duty to zealously advocate for Wimbledon. Bergstein is alleged to have defrauded Wimbledon, aided and abetted by Weingarten. Weingarten was conflicted and should not have given up Wimbledon’s claims in favor of Bergstein’ s. The court finds this alleged ethical violation rises to the requisite level of egregiousness necessary to state a claim under § 487. See Savitt v Greenberg Traurig, LLP, 126 AD3d 506, 507 (I st Dept 2015).”

 

 

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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…

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.