Plaintiff’s legal malpractice case rested on whether the attorneys were required to give the client any advice on the purchase of a very expensive apartment. With $ 9.8 Million at stake, and the sponsors changing the “deposit” into a “gift” and a “loan” was there any malpractice?
Riviera Prop. Holdings, LLC v Ferber Chan Essner & Coller, LLP 2017 NY Slip Op 27424
Decided on July 31, 2017 Supreme Court, New York County Billings, J. tells us that: “Section 4.1 of the purchase agreement provided that the condominium unit’s purchase price was $9,850,000.00 and that the deposit was $985,000.00, 10% of the purchase price. In connection with the purchase, plaintiff, whose members were nonparties Neil Yaris, Alan Green, and Wendy Maitland, executed the second and third riders to the purchase agreement regarding the 10% deposit required by the agreement. The riders provided for payment of the deposit to the sponsor and its controlling owners, instead of the escrow agent as the purchase agreement specified. Specifically, the second rider required plaintiff to pay a non-refundable deposit of 1% of the purchase price to the sponsor itself. The third rider required plaintiff to pay a deposit of the remaining 9% of the purchase price by making a loan to the sponsor’s majority owner and the majority owner’s individual members Marc Jacobs and Ira Shapiro.
Plaintiff contends that defendants committed legal malpractice by failing to advise plaintiff that the arrangement to pay the deposit directly to the sponsor and its controlling entity and individuals instead of to an escrow agent was void under the applicable statute and regulations. NY Gen. Bus. Law (GBL) § 352-h; 13 N.Y.C.R.R. § 20.3(o)(2) and (3)(xii). Defendants do not dispute that, had plaintiff’s deposit complied with the law, plaintiff would have recouped its deposit from the escrow agent when plaintiff invoked its right to rescind the purchase and the sale never closed. Defendants contend that the statute and regulations were inapplicable and that plaintiff’s members were aware that the deposit arrangement with the sponsor posed heightened risks.”
“To determine whether an offering of condominium units for sale is public, the court considers the offering’s circumstances, including the number of purchasers, their relationship to each other and to the sponsor, the information about the sponsor available to purchasers, and whether their relationship with the sponsor substituted for the statutory protections. People v. Landes, 84 NY2d 655, 661-62 (1994). A small number of investors and lack of advertising indicate that an offering is not public. Roni LLC v. Arfa, 74 AD3d 442, 443 (1st Dep’t 2010), aff’d, 18 NY3d 846, 848-49 (2011).
Susan Green’s testimony regarding use of the “friends and family” deal does not indicate that it was necessarily an insider deal. Her testimony described both how she was permitted to implement the same process for purchase of the building’s units for any “friends,” who were undefined, as well as family members, and how other brokers, including Wendy Maitland, were permitted to do likewise.
Nor does the deposition testimony by Neil Yaris, Alan Green, and Wendy Maitland, who formed plaintiff for the purpose of purchasing the unit, undermine the offering’s public character, as their testimony nowhere indicates a long or close relationship or a history of many past dealings either among themselves or with the sponsor. People v. Landes, 84 NY2d at 662. The testimony by Neil Yaris and Alan Green indicated a desire to work with the sponsor, but not any familiarity with the sponsor or its managers or members. See id. at 663. Although Wendy Maitland worked as a broker for Brown Harris Stevens, which had entered an exclusive sales agreement with Slazer Enterprises, she largely left negotiations for the purchase of plaintiff’s unit to Neil Yaris and Alan Green. Finally, the testimony by all three of plaintiff’s members revealed no knowledge of the purchasers of any other units in the building. See id. In sum, although factual issues whether the offering was public would preclude summary judgment in plaintiff’s favor, Clark Const. Corp. v. BLF Realty Holding Corp., 54 AD3d 604, 605 (1st Dep’t 2008), defendants’ evidence, recounted above, shows no such issues.”
“Yaris’s uncontradicted affidavit that he would not have agreed to the terms of the transaction he entered for plaintiff, had he known that a statute and regulation prohibited the transaction on those terms, establishes that defendants’ failure to provide that advice proximately caused plaintiff’s damages from the transaction. Russo v. Rozenholc, 130 AD3d 492, 497 (1st Dep’t 2015). See Heritage Partners, LLC v. Stroock & Stroock & Lavan LLP, 133 AD3d 428, 429 (1st Dep’t 2015); Candela Entertainment, Inc. v. Davis & Gilbert, LLP, 126 AD3d 656, 656 (1st Dep’t 2015); Stackpole v. Cohen, Ehrlich & Frankel, LLP, 82 AD3d at 610. Defendants neither dispute that plaintiff retained them to represent it in purchasing the condominium unit and thus to provide advice applicable to the purchase, nor contradict Yaris’s testimony that he would have followed any advice by plaintiff’s attorneys to keep its deposit in escrow.
For plaintiff to recover its damages caused by legal malpractice, the damages sustained must be more than mere speculation. Gallet, Dreyer & Berkey, LLP v. Basile, 141 AD3d 405, 406 (1st Dep’t 2016); Heritage Partners, LLC v. Stroock & Stroock & Lavan LLP, 133 AD3d at 428; Engelke v. Brown Rudnick Berlak Israels LLP, 111 AD3d 444, 444 (1st Dep’t 2013); Hass & Gottlieb v. Sook Hi Lee, 55 AD3d 433, 433 (1st Dep’t 2008). Defendants’ failure to advise plaintiff of the impact of the statute and regulation transformed plaintiff’s non-refundable deposit into a gift and the loan into a simple loan, instead of a deposit toward purchase of the unit. The failure to place the deposit into escrow eliminated any recourse for plaintiff to recoup its deposit. Plaintiff’s loss of its deposit and its expenses in endeavoring to recover the deposit constitute its damages. See Hass & Gottlieb v. Sook Hi Lee, 55 AD3d at 433.”