People entering into a commercial transaction, buying into a business, for example, face a large number of potential investment problems.  These range from misunderstanding complex UCC documents, not obtaining proper shareholder rights, running afoul of the bulk transfer tax problem.  They reasonably retain attorneys to navigate these waters.  What happens when a law firm takes on the work with a severely limited retainer and problems thereafter arise?

Ferenets v Kenworthy  2019 NY Slip Op 33751(U) November 22, 2019
Supreme Court, Queens County Docket Number: 712299/2019
Judge: Cheree A. Buggs is an example of how the client loses in these situations.

“This action arises out of an attorney-client relationship that existed between Plaintiffs and  Defendants. Plaintifflryna Ferenets (individually referred to as “lryna”) alleges that as a licensed real estate broker she visited Roosevelt Island on numerous occasions because her brokerage office is located at 552 Main Street. She observed an already existing bubble tea business located at 559 Main Street and visited the shop on September 14, 2018. During Iryna’s visit she met with Guanghao Zhang (“Zhang”), who represented that he was the owner and operator of the business Sparkling Bubble Tea Inc. (hereinafter referred to as  Business”), and “briefly observed the operation of the business”. lryna alleges that the co-plaintiff her husband Alexander Ferenets expressed interest in becoming a manager of a bubble tea business. Subsequently, Plaintiffs met with Zhang and informed him of their interest. Zhang informed the Plaintiffs that he was looking for a partner and the Business was worth approximately $100,000. Plaintiffs and Zhang agreed that Plaintiffs would purchase 45 out of the 100 shares of the business for $45,000. On September 18, 2018, Plaintiffs visited the  Business and Zhang showed them a Shareholders Agreement signed the prior day illustrating that
Zhang held a 100% shareholder interest in the company and an individual named Shiwei Pan (“Shiwei”) held a 0 % interest.

Iryna represents that due to a referral and subsequent search of Defendants’ website the Plaintiffs decided to contact the Defendants seeking legal representation related to the purchase of the stock. On September 20, 2018, Plaintiffs contacted Defendants via phone and email. Iryna alleges on September 20, 2018 she forwarded the store lease including the rider, the Shareholders Agreement, the filing receipt of the business and the employer identification number for Defendants’ review. Plaintiffs entered into a retainer agreement with the Defendants on October 2, 2018 (hereinafter referred to as “Retainer Agreement”).”

“The relevant portions of the Retainer Agreement signed between the parties reads as follows:
1. Scope of Representation
This Jaw firm (“The Law Firm”) has been retained by both of you
(collectively “You”) to prepare the Shareholders Agreement for Sparkling Bubble Tea Inc. (the “Company”) that has already been formed with the New York State Department of State Division of Corporations. The Law Firm will be representing Your interests, not the interests of the Company or the other shareholder(s).
All of our services in this matter will end upon the preparation an execution of the Shareholders Agreement. Not included within the scope of our representation is tax or financial advice, any other transactional document, or the commencement of any litigation, which would be subject to a separate Retainer Agreement.”

“Plaintiffs allege Defendants failed to conduct and order a corporate lien search of the Business to ascertain corporate liens, judgments, obligations and liabilities and failed to determine whether the Business had any rent arrears and whether the lease was in full force and affect. Based upon the language in the Retainer Agreement there is no indication that Defendants had a duty to perform the above conduct. Nevertheless, Plaintiffs failed to establish causation. Iryna within her affidavit confirms that the Defendants agreed to purchase 45 shares of
the Business prior to retaining the Defendants. The Defendants paid $25,000 out of the agreed upon $45,000 purchase price for the shares prior to retaining the Defendants. Therefore, in light of the already existing agreement to purchase, Plaintiffs have failed to plead facts that indicate that Defendants’ lack of conduct caused the damages they allegedly sustained.
Finally, Plaintiffs allege Defendants failed to indicate who the Defendants represent in the Shareholders Agreement and failed to obtain information regarding Zhang’s citizenship. Plaintiffs have failed to establish a correlation between the above conduct and the damages they sustained. Nonetheless, within the Retainer Agreement Defendants state “[t]he Law Firm will be representing Your interests, not the interests of the Company or the other shareholder(s).” Plaintiffs
have not plead facts indicating that the either themselves or the other shareholders were unsure or unclear about who the Defendants represented. Furthermore, Plaintiffs have not plead facts that indicate how, if in anyway Zhang’s immigration status in this country affected the damages they allegedly sustained. Therefore it is,

ORDERED, that the Defendants’ motion is granted in its entirety. The Verified Complaint is dismissed.”

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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.