Cassaforte Ltd. v Pourtavoosi  2022 NY Slip Op 32063(U)  June 30, 2022 Supreme Court, New York County  Docket Number: Index No. 451426/2020 Judge: Margaret A. Chan is a complicated real estate breach of fiduciary duty and breach of contract case which cannot adequately be recited in a blog article.  However, this is a short version:

“This action arises out of a series of loan agreements and real estate dealings that plaintiffs allege non-party Aaron Johnson and his affiliated entities breached. A related action centers on the dispute of Cassaforte and FRF with Johnson directly (the Johnson Action, index number 653387/2019). Plaintiffs allege that they were damaged as a result of the refinancing of senior debt by the Fee Owners (the Refinancing), which were controlled by Johnson at the time of the Refinancing.

Prior to the Refinancing, Cassaforte and Johnson, in 2017, structured an arrangement whereby Cassaforte made loans to support the acquisition and development of Brooklyn real property (the Projects). The Projects were to be directly held by the Fee Owners. The corporate structure chart that resulted from this arrangement involved XYZ Holdings LLC (XYZ Holdings) owning all of the membership interests in the Fee Owners. XYZ Partners LLC (XYZ Partners) held 90% of the membership interests in xyz Holdings. Another special purpose entity, XYZ Group LLC (XYZ Group) held the remaining 10% of the membership interests in XYZ Holdings and also served as its operating manager. Johnson wholly owns
XYZ Group. Johnson was the common unit holder ofXYZ Partners, and he was also appointed to be its managing member. On April 20, 2018, FRF became the Preferred Mezzanine Unit Holder of XYZ Partners via a joinder agreement (NYSCEF # 215). XYZ Holdings managed the Fee Owners as their member. Although Cassaforte and Johnson had considered granting Cassaforte security interests directly in the real property, this was opposed by other potential lenders, so it was ultimately agreed that Cassaforte would instead receive LLC security
interests in the membership units of the Fee Owners, XYZ Partners, and XYZ Holdings.”

“Without obtaining the Cassaforte Authorization, Johnson proceeded with the Refinancing. Plaintiffs allege that, around the beginning of 2019, Johnson proposed refinancing the Old Mortgages but failed to share sufficient information about the proposal, or even required financial reports regarding the Projects, such that Cassaforte understood that Johnson was acting secretly to refinance the properties in his favor and to plaintiffs’ detriment. Cassaforte withheld the Cassaforte Authorization, but Johnson nonetheless proceeded. The Refinancing raised approximately $5.85 million by encumbering the Projects with replacement mortgages issued by Sharestates (the New Mortgages). Approximately $4.2 million
went to pay off the Old Mortgages. Plaintiffs allege that Johnson wrongfully diverted the balance, amounting to approximately $1.6 million (the Refinancing Net Proceeds). Sharestates later assigned the new 1535 Pacific mortgage and the 42 Van Buren mortgage to Toorak (the Toorak Mortgages). ”

“Counts One through Eight of the Complaint assert various claims against the Attorney Defendants for Pourtavoosi’s role in assisting Johnson complete the Refinancing. Plaintiffs assert claims for breach of fiduciary duty, professional negligence, violation of the Rule of Professional Conduct 1.13, aiding and abetting breach of fiduciary duty, negligence, tortious interference with contract, contribution, and indemnification. Plaintiffs assert that the Attorney Defendants were the attorneys for XYZ Partners, XYZ Holdings, and the Fee Owners, and, therefore, owed fiduciary duties to these entities, which they breached including by _assisting with the Refinancing even though Pourtavoosi understood the intricacies
of the operating agreements and loan documents and therefore the need to get the Cassaforte Authorization. ”

“The allegations in the Complaint are sufficient to state a claim for breach of fiduciary duty with respect to the claim of the Fee Owners but not with respect to the claim of Cassaforte and FRF.

“To establish a breach of fiduciary duty, the movant must prove the existence of a fiduciary relationship, misconduct by the other party, and damages directly caused by that party’s misconduct” (Poko1k v Poko1k, 115 AD3d 428, 429 [1st Dept 2014]). “[T]he relationship of client and counsel is one of unique fiduciary reliance” and an attorney has the “duty to deal fairly, honestly and with undivided loyalty” ( Ulico Gas. Co. v Wilson, Elser, Moskowitz, Edelman & Dicker, 56 AD3d 1, 9 [1st Dept 2008]). “[I]n the context of an action asserting attorney liability, the claims of malpractice and breach of fiduciary duty are governed by the same standard of recovery … [and] plaintiff must establish the ‘but for’ element of malpractice,”
which requires that “‘but for’ the attorney’s conduct the client … would not have sustained any ascertainable damages” (id. at 10; Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hi11s, Inc., 10 AD3d 267, 272 [1st Dept 2004]).

All the plaintiffs allege a breach of fiduciary duty against the Attorney Defendants (NYSCEF # 153, 1’s 97-104). Respecting the claim of Cassaforte and FRF, plaintiffs do not explain the basis for the Attorney Defendants owing Cassaforte and FRF a fiduciary duty, so this cause of action fails the first prong of a breach of fiduciary duty claim with respect to those two plaintiffs. Respecting XYZ Partners and XYZ Holdings, plaintiffs assert that the Attorney Defendants were counsel thereto (NYSCEF # 153, 1 98). Even if that were true, which the Attorney Defendants dispute, nonetheless this claim fails for the independent reason that those two are not parties to this action. “

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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.