Last post, we discussed Gad v Kramer Levin Naftalis & Frankel, LLP 2022 NY Slip Op 34357(U) December 20, 2022 Supreme Court, New York County Docket Number: Index No. 156841/2021 Judge: Margaret A. Chan where siblings fight long and hard over a very lucrative business, resulting in years of litigation, costly attorney fees, and the ultimate try at selling a portion of the business at a vast profit. For one of the siblings, it goes very wrong. He turns to legal malpractice after the loss of the sale.

Two grounds were advanced to dismiss: lack of standing and speculative damages. We discuss speculative damages in this article.

Albert is a 45% shareholder of Almod Diamonds Ltd. (Almod), a closely held New York corporation that is family owned and operated (NYSCEF #13 – amended complaint, ,r 8). Albert’s siblings, Morris Gad (Morris) and Donna Gad Hecht (Donna), own the remaining 45% and 10% of the shares, respectively (id.). The Gad siblings have been in conflict for years over the control and operations of Almod, and Donna brought a lawsuit in 2014 against Albert, Morris, and Almod in connection with those conflicts (the Donna Litigation) (id., ,r,r 9, 16).

In April or May 2016, Albert retained defendants for legal advice concerning the business disputes involving his family members, including the Donna Litigation (id., ,r,r 9-15). The parties agreed that defendants would charge a flat fee of $10,000 per month, which was subsequently increased to $15,000 per month starting from May 2018 (id.).

While defendants did not represent Albert in the Donna Litigation, they
represented Albert in negotiating and reaching a settlement with Donna (id., ,r,r 16-
19). Albert asked defendants to protect his financial interests and made clear that
any settlement documents must include certain key points, including that (1) any
“true-up” payments to Donna shall be calculated in consideration of her previous
sale of low-quality jewelry inventory to Almod, which was allegedly improper and
unauthorized, (2) a mechanism shall be included by which either Albert or Morris is
immediately elected as the CEO of Almod, (3) all shareholder distributions, salaries,
and expenses, including legal expenses, must continue to be allocated 45/45/10
according to each shareholder’s respective interest in Almod, and (4) if Almod was to
form an independent board of directors, defendants were to vet any potential
Albert-nominated directors who should represent Albert’s interests and be highly
experienced in running retail businesses (amended complaint, ,19-20).

On June 12, 2018, defendants presented Albert with finalized settlement documents, advising Albert to sign them and assuring him that the settlement agreement and the shareholder and voting agreement supplement contained all key provisions Albert wanted (id., ,r 23). Albert alleges that he reminded defendants that he was busy operating the company and was relying on defendants’ assurances when he executed the documents (id., ,r,r 22-24). After Donna and Morris executed the settlement documents, the documents became binding and the Donna Litigation was discontinued (id.).

Albert alleges that the settlement documents did not include the key provisions defendants assured to be included, causing ascertainable damages to him
(id., ,r,r 26-39, 44).”

“Causation and Damages

Although Albert has standing to bring the legal malpractice claim, for the reasons stated below, the claim must be dismissed for failure to adequately allege causation and damages.

· “[A]n action for legal malpractice requires proof of three elements: the negligence of the attorney; that the negligence was the proximate cause of the loss sustained; and proof of actual damages” (Schwartz v Olshan Grundman Frame & Rosenzweig, 302 AD2d 193, 198 [1st Dept 2003]). To satisfy the pleading requirement for causation, a plaintiff must allege that “‘but for’ the attorney’s conduct [or nonfeasance], the client would have prevailed in the underlying action or would not have sustained any ascertainable damages” ( Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 272 [1st Dept 2004]; Cosmetics Plus Group, Ltd. v Traub, 105 AD3d 134, 140-141 [1st Dept 2013]). Regarding damages, “to survive a … pre·answer dismissal motion, a pleading need only state allegations from which damages attributable to the defendant’s conduct [or nonfeasance] may be reasonably inferred” (Lappin v Greenberg, 34 AD3d 277, 279 [1st Dept 2006] [internal citations omitted]). However, conclusory allegations of damages predicated on speculation cannot suffice for a legal malpractice action (Bua v Purcell & Jngrao, P.C., 99 AD3d 843, 847·848 [2d Dept 2012]).

Under these standards, the court finds that the amended complaint fails to adequately plead causation. Notably, even if Albert had been informed by defendants of the content and risks of the settlement terms and had refused to sign the documents, the settlement agreement would still have become effective. Under Section 1 of the settlement agreement, the settlement stipulation shall become effective upon the approval of Almod board of directors and shall be binding on Albert regardless of whether he executes it or not, so long as Donna and Morris both execute the agreement (NYSCEF # 21- settlement agreement,§§ 1.a, 1.b).2 In fact, Donna and Morris executed the agreement and the board of directors approved it. Thus, the amended complaint does not sufficiently allege that “but for” defendants’ alleged negligence related to their failure to inform Albert of the terms and risks of the settlement documents, the settlement agreement would not have become effective and he would not have been damaged by it (Silverstein v Pillersdorf, 199 AD3d 539, 540 [1st Dept 2021]).
Moreover, the amended complaint fails to allege that but for defendants’ negligence, the outcome of the settlement would have been more favorable with respect to the “true-up” payment to Donna, Donna’s salary and benefits, and the legal fee provisions. In this regard, the parties in the Donna Litigation have complete discretion as to how they chose to arrange the terms of the settlement. For instance, the “true-up” payment was the subject of the Donna Litigation that Donna sued Albert personally to pay for. Under the settlement, the “true-up” would instead be paid to Donna by Almod, not Albert, while Albert forfeited the right to claw back any funds Donna profited from her allegedly improper sale of inventory to Almod. Essentially, to find the “but-for” causation, plaintiff is inviting the court to review the settlement terms and speculate how the Donna Litigation would proceed and what other alternative settlement terms would be like if Albert had objected to the settlement agreement. Thus, the alleged causation and damages are too speculative to support the legal malpractice claim (Perkins v Norwick, 275 AD2d 48, 51-52 [1st Dept 1999] [finding that plaintiffs suggestion that he might have later renegotiated different terms but for defendant’s negligence is simply “gross speculation on future events”]).

Further, the damages which allegedly flowed from naming an unsatisfactory independent director, delay in the election of a CEO, and the loss of the CVC

acquisition caused by the delay and COVID· 19 pandemic are speculative as well,
and the causal relationship between those events and defendants’ negligence is even
more remote. When a plaintiffs claim “requires speculation about future events,” it
“does not sufficiently establish that defendants proximately caused him ascertainable damages” (Ferguson v Hauser, 156 AD3d 425, 425·426 [1st Dept 2017]; Sherwood Group v Dornbush, Mensch, Mandelstam & Silverman, 191 AD2d 292, 294 [1st Dept 1993] [hypothetical course of events on which any determination of damages would have to be based constitutes a chain of “gross speculations on future events”]).”

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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.