As we have noted many times, real estate issues prompt a great number of legal malpractice cases. There is both real money and real complicated litigative issues in big NY real estate and it often ends in legal malpractice disputes. Genesis REOC Co., LLC v Poppel 2020 NY Slip Op 33230(U) October 1, 2020 Supreme Court, New York County Docket Number: 156733/2017 Judge: Carol R. Edmead is one of them.
Genesis is a limited liability company formed in 2011 by Jazz Realty, through its member nonparty Andrew Stone (Stone), and by nonparty Genesis Member, LLC (Genesis Member),
through its member nonparty Karim Hutson (Hutson). The Company was formed for the purpose of investing in “low and moderate-income housing projects backed by tax credit equity investors in New York and New Jersey.” (First Amended Complaint (FAC), iJ 14 [NYSCEF No. 77].) Jazz Realty was “the investor partner and contributed capital to fund the Company’s investment activities …. ” (Id., ii 17.)
Pursuant to the Company’s limited liability agreement (Agreement) dated January 27,2011, Hutson was appointed as the manager of the Company and was responsible for identifying
potential investments for approved projects. (Id., ii 18.) Hutson was also required to receive Jazz Realty’s approval prior to using the Company’s funds for any investment opportunity and was prohibited from referring these opportunities to any other party, including himself, prior to obtaining Jazz Realty’s approval.
Poppel and Williams are both lawyers and were members of Berman Indictor and Pecker & Abramson PC, respectively. The F AC alleges that defendants acted as counsel for the
Company from the date the Company was formed in 2011 through July 2017, when defendants resigned their representation. (Id., ii 23.) Plaintiffs state that Jazz Realty, acting on the advice of defendants, invested over three million dollars to fund the Company’s approved investments. Defendants allegedly represented to plaintiffs that the Company would earn “developer fees, construction revenues, and profits … ” (Id., ii 25.)”
“In December 2015, plaintiffs commenced a separate action against Hutson and his affiliated companies (the Hutson Action), seeking to recover profits earned in connection with
the Company’s projects. Plaintiffs alleged, among other claims, an individual and derivative claim against Hutson for breach of fiduciary duty. This cause of action stated that, as manager, Hutson breached his fiduciary duty to the Company by, among other things, “[m]isappropriating Company investments for his own benefit …. ” (Berman Indictor’s exhibit B, Complaint, ii 154 [NYSCEF No. 85].) Plaintiffs claimed that, as a result ofHutson’s breaches, “the Company and Jazz Realty have been damaged in an amount to be proved at trial but in no event less than $41,306,574.” (Id., ii 155.) ”
“As noted above, plaintiffs settled in the Hutson Action. During oral argument the court asked plaintiffs, “[w]hat is your best case law for that proposition, that if the party is not made
whole, the settlement agreement is not a bar to the malpractice claim?” (See tr at 34.) However, the only case law presented by plaintiffs, or any party, in the context of a settlement agreement and a claim for legal malpractice pertained to when the lawyers provided counsel to plaintiff in negotiating a settlement agreement. (See e.g. Bernstein v Oppenheim & Co., P.C., 160 AD2d 428, 430 [1st Dept 1990]) (“A claim for legal malpractice is viable, despite settlement of the underlying action, if it is alleged that settlement of the action was effectively compelled by the mistakes of counsel.”) However, in this situation, the court finds these decisions inapplicable, as defendants were not plaintiffs’ counsel in the Hutson Action.
Further, plaintiffs’ arguments that they have made “carve outs” in the settlement agreement in order to bring claims against counsel is misplaced, as defendants were not parties to
the settlement agreement. (See tr or oral argument at 33.) In addition, plaintiffs’ declarations in the settlement agreement that they are accepting less than 100% of their damages or their assertions during oral argument that Hutson is not performing his obligation under the agreement, are irrelevant. (See also plaintiffs’ memo oflaw at 19 noting that Hutson has refused to make any payments.) Plaintiffs voluntarily chose to settle in the Hutson action. Plaintiffs brought the Hutson Action to recover for many of the same damages as alleged
in the present action. Plaintiffs argue that their damages are not speculative and can be calculated after full disclosure of the books and records. As it stands, the court agrees with defendants that part of plaintiffs’ requested damages, as they relate to the settlement agreement, are speculative. Plaintiffs have not provided the specific amount of money that they expect to receive under the terms of the settlement agreement as written and it is unclear from the settlement agreement what damages remain.
As noted, “[t]he object of compensatory damages is to make the injured client whole.” (Campagnolla v Mulholland, 76 NY2d 38, 42 .) In addition to the legal expenses above,
the loss sustained by plaintiffs as a result of defendants’ negligence is alleged to be, in pertinent part, the improperly diverted revenues and unauthorized taking of capital that was also sought as damages in the Hutson Action. Thus, if ultimately successful in this action, plaintiffs’ recoverable damages would be limited to the amount of remaining damages not accounted for in the settlement agreement. “To hold otherwise would go beyond the usual purpose of tort law to compensate for loss sustained and would give the client a windfall opportunity …. (internal quotation marks and citation omitted).” (McKenna v Forsyth & Forsyth, 280 AD2d 79, 83 [4th Dept 2001].) “