Weis v Rheem, Bell & Freeman, LLP 2022 NY Slip Op 31203(U) April 12, 2022 Supreme Court, New York County Docket Number: Index No. 160796/2020 Judge: Barbara Jaffe is a example of how courts burrow into the “but for” portion of the legal malpractice claim.
“Plaintiffs allege that in or about April 2015, plaintiff Weis was contacted by non-parties Zoltan Kovacs and Peter Kovacs (the Kovacses) who sought investors for the development of
two Manhattan properties. The Kovacses introduced Weis to non-parties Erin Wincomb and Joseph Ferrigno, the principals and/or members of the developer Mavrix Equity Group, Inc.
(Mavrix parties). Over several weeks of negotiations, the Mavrix parties and the Kovacses (the co-investors) agreed with Weis that Weis would provide $5 million in interim financing to
acquire and develop the properties, one at 9 Minetta Street and the other at 30 Thompson Street. Plaintiffs allege that in or about April 2015 and thereafter, defendants were retained by Weis for legal advice and counsel regarding the real estate loans and transactions, and that defendants agreed to represent Weis by, inter alia, structuring the transaction and conducting due diligence concerning the potential investments, borrowers, and/or other parties to the transactions. It is thus alleged that defendants owed Weis a duty to provide reasonable care to protect his interests in connection with the contemplated transactions.
In April and/or May 2015, the co-investors represented to plaintiffs and defendants that they had a net worth of $18 million, including Kovacs-owned real properties in Kings County
and Suffolk County worth more than several million dollars. Plaintiffs complain that defendants failed to conduct due diligence to validate these and other representations made by the coinvestors.
In May 2015, Weis loaned the co-investors $1 million for the Minetta property and $4 million for the Thompson property, at an annual interest rate of 18 percent, in exchange for
equity in the projects, a security interest in the membership interests in the co-investors’ future limited liability companies, their personal guarantees, and affidavits of confessions of judgment signed by them.
The co-investors did not close on the Minetta property transaction and the $1 million loaned was thus forfeited to the seller. Although the Thompson property transaction closed on or
about May 20, 2015, shortly thereafter, the co-investors defaulted on the related loans and payment obligations to plaintiffs. Consequently, in January 2016, plaintiffs invested an
additional $240,000 in the Thompson property. Absent sufficient funds in the operating account that had been controlled by the co-investors, plaintiffs were unable to maintain the loan payments for the Thompson property transaction. ”
“Due allegedly to defendants’ structuring of the Minetta property investment and/or transaction and the Thompson property investment and/or transaction, and defendants’
representation relating to the two actions, Zoltan was able to transfer title of a property in Southampton that was owned by him into a corporate entity, thereby avoiding the enforcement and/or effect of any judgment entered against the co-investors. Defendants told Weis that they were arranging a sheriff’s sale of the Southampton
property which had allegedly been pledged as collateral. Plaintiffs then learned that the Southampton property had not been pledged as collateral, that defendants had not properly
arranged for a sheriffs sale, and that it was too late to do so. To date, none of the enforcement actions undertaken by defendants have resulted in a recovery.
On or about February 12, 2018, plaintiffs discharged defendants. In January 2019, Wicomb and Ferrigno were convicted of second-degree grand larceny for embezzling plaintiffs’
loan proceeds for these transactions; the convictions were affirmed on appeal. Plaintiffs maintain that due to defendants’ failure to advise, counsel, and represent plaintiffs properly, plaintiffs lost all of the money invested in the two properties and incurred significant additional interest costs, legal fees, and other related expenses arising from enforcement proceedings, interest costs, legal fees. ”
“Here, even if plaintiffs succeed in demonstrating that defendants were negligent and that their negligence was the proximate cause of the loss sustained, defendants offer undisputed documentary evidence of the judgments they obtained for plaintiffs in New York and California (NYSCEF 25, 29), thereby utterly refuting the element pleaded by plaintiffs of actual ascertainable damages. That the judgments have not been satisfied does not render them uncollectible, nor does the present inability to locate collateral foreclose future success. (See Noel ex rel. Deegas v L. Off of Mark E. Feinberg, 43 Misc 3d 1207[A] [Sup Ct, Kings County 2014] [ as plaintiffs time to enforce judgment not yet expired and cause of action premised on alleged fraudulent transfer still viable for time within which to collect judgment plaintiff has not yet sustained ascertainable damages]). Kish v Bd. of Educ. Of the City of New York, 76 NY3d 3 79 (1990) and CPLR 4545 are inapposite.”