Real Estate claims fill a large part of the Legal Malpractice docket in New York. This is certainly not surprising, as real estate might be the largest economic engine for New York City, and there is certainly a lot of money moving around in the real estate market. Moncho v Miller 2020 NY Slip Op 31821(U) June 12, 2020 Supreme Court, New York County Docket Number: 155382/2017 Judge: W. Franc Perry is a fine example. Here, the question surrounds standing, privity and whose ox was gored.
“The following facts are taken from the second amended complaint. Plaintiffs allege that, at all relevant times, Moncho was the sole shareholder of 261 East 78 Realty Corp. (NY St Cts
Elec Filing System [NYSCEF] Doc No. 149, second amended verified complaint, ¶ 2). From April 1, 2007 through February 28, 2014, 261 East 78 Realty Corp. owned a six-story medical office building located at 261 East 78th Street in Manhattan (id., ¶ 4). Miller was the sole member of 261 Lofts Manager, LLC (id., ¶ 6). Sprei was Miller’s business associate (id., ¶ 8). On December 6, 2011, 261 East 78 Realty Corp. filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of New York (id., ¶ 27).
On January 1, 2013, Moncho, in his capacity as president of 261 East 78 Realty Corp., entered into a retainer agreement with the DelBello firm (id., ¶ 11). Pursuant to the retainer
agreement, the DelBello firm was to provide legal services to 261 East 78 Realty Corp., including, but not limited to, the prosecution of a Chapter 11 bankruptcy proceeding (id., ¶ 12). Pasternak was one of the attorneys who was anticipated to offer services to 261 East 78 Realty Corp. (id., ¶ 13). Pasternak was a non-equity partner in the DelBello firm (id., ¶ 14). Plaintiffs allege that, upon confirmation of the bankruptcy plan, the DelBello firm and Pasternak continued to provide legal services to Moncho individually (id., ¶ 16). The DelBello firm continued to send invoices to Moncho (id., ¶¶ 18-19; exhibit C).
Approximately one week later, on January 10, 2013, Pasternak began suggesting that Moncho utilize Sprei as a plan funder and Madison Realty Capital as lender (id., ¶ 29). Plaintiffs
allege, upon information and belief, that neither Pasternak nor the DelBello firm performed any due diligence as to Sprei or Miller’s suitability as plan funders (id., ¶ 30). Plaintiffs allege that there were at least seven lawsuits filed against Sprei and/or Miller, with similar allegations and which resulted in judgments against Miller and Sprei (id., ¶ 31). Plaintiffs allege, upon information and belief, that Sprei induced Pasternak to recommend him to plaintiffs by promising to pay him a personal brokerage commission in the amount of $25,000 (id., ¶ 32). According to plaintiffs, Sprei, in fact, paid Pasternak a $25,000 commission (id., ¶ 33). In September 2013, Pasternak negotiated a settlement of 261 East 78 Realty Corp.’s debt
with the secured creditor (id., ¶ 43). One of the key terms of the settlement was that the secure creditor would foreclose and plaintiffs would lose the property if the reorganization plan were not fully funded by Friday, February 28, 2014 (id., ¶ 44).”
“Pasternak next argues that the “inability to fund” legal malpractice claim should be dismissed because it is refuted by documentary evidence, and fails to allege but for causation. In
addition, Pasternak contends that the legal malpractice claim based on his alleged conflict of interest in accepting a commission fails to allege but for causation. Pasternak maintains that he only represented 261 East 78 Realty Corp. Finally, Pasternak argues that the Bankruptcy Court’s Fee Order granting fees bars the legal malpractice claims based on the doctrine of res judicata.
To state a cause of action for legal malpractice, the plaintiff must allege that “the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession,” and that the “breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages” (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442 , quoting McCoy v Feinman, 99 NY2d 295, 301-302 ). Violations of disciplinary or ethical rules do not, by themselves, give rise to a cause of action (Sumo Container Sta. v Evans, Orr, Pacelli, Norton & Laffan, 278 AD2d 169, 170-171 [1st Dept 2000]; Lavanant v General Acc. Ins. Co. of Am., 212 AD2d 450, 451 [1st Dept 1995]). However, “liability can follow where the client can show that he or she suffered actual damage as a result of the conflict” (Tabner v Drake, 9 AD3d 606, 610 [3d Dept 2004]). “Unsupported factual allegations, conclusory legal argument or allegations contradicted by documentation, do not suffice” (Dweck Law Firm v Mann, 283 AD2d 292, 293 [1st Dept 2001]). “Moreover, the client must plead specific factual allegations establishing that but for counsel’s deficient representation there would have been a more favorable outcome to the underlying matter” (id.). “To recover damages for legal malpractice, a plaintiff must prove, inter alia, the existence of an attorney-client relationship” (Moran v Hurst, 32 AD3d 909, 910 [2d Dept 2006]). “Since an attorney-client relationship does not depend on the existence of a formal retainer agreement or upon payment of a fee, a court must look to the words and actions of the parties to ascertain the existence of such a relationship” (Nelson v Kalathara, 48 AD3d 528, 529 [2d Dept 2008] [citation omitted]; see also Matter of Priest v Hennessy, 51 NY2d 62, 71  [payment of fee by third party does not create attorney-client relationship between attorney and payor]). “[A]n attorneyclient relationship is established where there is an explicit undertaking to perform a specific task” (Wei Cheng Chang v Pi, 288 AD2d 378, 380 [2d Dept 2001], lv denied 99 NY2d 501 ).
However, “[t]he unilateral belief of a plaintiff alone does not confer upon him or her the status of a client” (Moran, 32 AD3d at 911). Pasternak has failed to establish the absence of an attorney-client relationship with Moncho. While Pasternak points out that the retainer agreement was between 261 East 78 Realty Corp. and the DelBello firm (NYSCEF Doc No. 240), an attorney-client relationship does not depend on the existence of a retainer agreement. Moreover, the fact that the Bankruptcy Court authorized the DelBello firm to appear on behalf of 261 East 78 Realty Corp. is not dispositive (see Terio v Spodek, 63 AD3d 719, 721 [2d Dept 2009] [“the fact that it was purportedly not the attorney of record at the time of a hearing before the United States Bankruptcy Court to determine whether the particular asset at issue qualified as an exemption, is not dispositive of the existence of an attorney-client relationship during the period of the alleged negligence”]). The invoices relied upon by Pasternak do not conclusively establish that Pasternak was not Moncho’s attorney.
In any event, the legal malpractice claims are legally insufficient.
Although plaintiffs allege that Pasternak “introduce[ed] his client to a plan funder who he knew lacked the ability to fund a reorganization plan” (NYSCEF Doc No. 149, second amended
verified complaint, ¶ 162), plaintiffs do not allege any damages resulting from this purported negligence (see Lavanant, 212 AD2d at 451). Moreover, plaintiffs’ allegation that “had Moncho been able to utilize his preferred choice of plan funder, the Lightstone Group, none of the injuries incurred as the result of Miller and Sprei’s acts would have occurred” (NYSCEF Doc No. 149, second amended verified complaint, ¶ 169) is too speculative (see Brooks v Lewin, 21 AD3d 731, 734-735 [1st Dept 2005], lv denied 6 NY3d 713  [“speculation on future events is insufficient to establish that the defendant lawyer’s malpractice, if any, was a proximate cause of any such loss”]). ?