Legal malpractice is always an exercise in hindsight, since it is always a comparison of the actual outcome of attorney representation v. the hypothetical better outcome had the attorney not departed from good practice.  Nonetheless, Lisi v Lowenstein Sandler LLP  2017 NY Slip Op 32411(U)  November 16, 2017  Supreme Court, New York County  Docket Number: 160298/2016
Judge: Shirley Werner Kornreich is a good example of how the court treats a “hindsight” case.

“In May 2012, Lisi hired LS, a law firm with its principal office in New York City, to
negotiate the terms of his employment as a Senior Vice President with Avadel Pharmaceuticals
f/k/a as Flamel Technologies SA and Eclat Pharmaceuticals, LLC (Flamel). ” “On April 4, 2015, Lisi hired LS to negotiate the terms of his separation from Flamel. Lisi’s separation agreement, which was executed on April 7, 2015, accelerated the vesting of the 495,000 stock options granted to Lisi under his employment agreement and Flamel’s stock option plans, and extended the period in which Lisi could exercise his options.”

“Lisi’s malpractice claim nevertheless fails because his allegations are insufficient to show
that but for LS’s failure to give proper tax advice, his trading losses would have been avoided.
See Leder v Spiegel, 31 AD3d 266, 268 (I st Dept 2006) (“The failure to demonstrate proximate
cause mandates the dismissal of a legal malpractice action regardless of whether the attorney was negligent.”). Lisi does not (and cannot) allege that LS’s failure to advise him had any effect on
the nature of his tax liability-the exercise of his options was always going to be subject to
ordinary income tax. He does not allege that he would not have executed the separation
agreement had he been properly advised. Rather, Lisi’s theory of loss causation is that, absent
proper tax advice, he was unaware of the true amount of the tax liability incurred by the exercise
of his options, and was therefore unable to strategically manage his investment post-exercise in a
manner that minimized market risk and allowed him to realize “the optimal market value” of his
shares. AC iii! 68-71. He acknowledges that the exercise of his options exposed him to “market
fluctuations in the stock price of Flame!,” but asserts that, with proper advice, he would not have
been left vulnerable to such fluctuations because he “would have locked in his sales price for all
options exercised to allow and account for the fixed exercise price and tax basis,” and “would
have capitalized on the sale of the shares at a fixed and higher price.” iii! 74, 82-83.
Though vague, Lisi appears to allege that, properly advised, he would have: shorted more
Flame! stock, thereby eliminating market risk for a corresponding number of options by locking
in the price for those shares; only exercised options that he could hedge with a corresponding
short sale; and exercised his options and/or sold his shares at different, more opportune times.
Such speculative allegations of what Lisi might have done differently, made with the benefit of
hindsight, do not suffice to establish the causal link necessary to state a prima facia claim of legal
malpractice. See Heritage Partners, LLC v Stroock & Stroock & Lavan LLP, 133 AD3d 428,
429 (1st Dept 2015) (affirming dismissal of malpractice claim based on “allegations ‘couched in
terms of gross speculations on future events”‘), quoting Sherwood Group, Inc. v Dornbush,
Mensch, Mandelstam & Silverman, 191 AD2d 292, 294 (1st Dept 1993 ); Leff v Fulbright &
Jaworski, LLP, 78 AD3d 531, 533 (I st Dept 2010) (“[P]laintiff cannot recover damages that are  grossly speculative.”); Barbara King Family Trust v Voluto Ventures LLC, 46 AD3d 423, 424-25
(1st Dept 2007) (“mere speculation” insufficient to demonstrate proximate cause).
Lisi’s suggestion that he would have eliminated market risk by engaging in more short
sales is belied by his allegation that, when he exercised his shares, he had already shorted Flame)
stock “to his utmost capacity.” AC~ 56; Dkt. 50 (Lisi Aff.) ~ 11. He alleges no facts to suggest
that additional short sales were possible, but nevertheless speculates that he might have pursued
such a strategy. Equally speculative is Lisi’s suggestion that he might not have exercised option
shares that he could not hedge with a corresponding short sale. Such a course of action makes
sense only with hindsight knowledge that Flamel’s stock price was about to collapse. By not
exercising, Lisi would have potentially allowed more than half of his options to expire at a point
in time when the value of the associated shares well exceeded his tax liabilities. The
suggestion that Lisi would have left millions of dollars on the table to avoid exposure to market
risk is simply not credible. Lisi knowingly assumed the very market risk that he now, with the
benefit of hindsight, claims that he would have sought to avoid when he exercised all his options,
and not just those that were hedged by a corresponding short sale. “