Walsam 316, LLC v Thompson & Knight LLP 2023 NY Slip Op 32693(U) August 2, 2023
Supreme Court, New York County Docket Number: Index No. 156653/2022 Judge: Dakota D. Ramseur provides a detailed analysis of the first two of three elements of legal malpractice: departure from good practice and the proximate cause result of that departure.

“By Decision and Order dated October 18, 2019, this Court granted the residential tenants summary judgment pursuant to their revised, HSTPA-inclusive damages calculation against 316 Bowery and Walsam. 2 (See NYSCEF index no. 158541/2013, doc. no. 705.) And on November 4, 2019, the Court entered judgment against these defendants,jointly and severally, for $2,081,539.92 (exclusive of attorneys’ fees). After, counsel for Walsam ultimately recommended they settle the matter with the tenants and 316 Bowery, which they did. According to the parties’ settlement agreement, 316 Bowery paid $1,600,000 and Walsam paid $700,000.
On April 2, 2020, approximately two months after Walsam paid the residential tenants,
the Court of Appeals, in Matter of Regina Metro. Co., LLC v New York State Div. of Haus. & Community Renewal (35 NY3d 332, 375 [2020]), reversed Dugan and the line of cases in the First Department that had found HSTPA’ s retroactivity provision constitutional. The Court of Appeals specifically considered how the retroactive provision extended the statute of limitations for treble damages in pending cases and found that the law impermissibly altered the substantive rights by “expand[ing] the scope of owner liability … based on conduct that was inoculated by the old law”. (Id. at 367, 368.) Given the Court of Appeals’ holding, Walsam alleges that, had they not entered into the settle agreement, they might have paid substantially less than the $700,000 they did since the tenants’ damages calculation, as originally submitted to the Court, would not have exceeded approximately $1,010,061.00.”

“Defendants rely on Darby & Darby, P. C. v VSI Int ‘l, Inc (95 NY2d 308 [2000]) and
Mignott v Kreidman (65 AD3d 972 [1st Dept 2009]) to argue that there is no duty to “anticipate that controlling law would be overturned.” (See NYSCEF doc. no. 9 at 17-18, def. memo. of law.) Yet this framing-that Walsam seeks to hold them liable for failing to predict the outcome of Regina-is misleading and does not accurately describe the gravamen of the complaint. Again, Walsam’s allegation is that defendants had a legal duty to advised them that the Court of Appeals was, at the very least, considering the merits of the Regina (and doing so within a short timeframe ), or viewed in a more favorable light, had already indicated a willingness to overturn First Department law. The present circumstances, specifically the concrete possibility of an imminent change in law, are materially different from those in Darby (in which the attorney failed to advise the client of a novel theory of recovery, one that even industry experts had not
fully appreciated) (Darby, 95 NY2d at 313-314), and Mignott (in which the Appellate Division reversed and abrogated its own decision 8 years later) (Mignott, 7 Misc. 3d 1021 [A] at *1, ajf’d 65 AD3d 972).

As to defendants’ second argument, the Court holds that Walsam has not sufficiently pled that it suffered ascertainable damages proximately caused by defendants’ malpractice. Walsam states that “the negligence of defendants was a proximate cause of plaintiff’s damages,” which “include[e] the moneys paid by [Walsam] to settle the overcharge claim, the legal fees paid to defendants, and the legal fees incurred by plaintiffs in continuing litigation concerning rent overcharges.” (NYSCEF doc. no 4 at ,i 101, 103.) Though Walsam does not explicitly state how their damages were cause by defendants’ alleged malpractice, they appear to argue that, had defendants advised that the Court of Appeals was considering Regina, it would not have entered into the settlement agreement for $700,000 and, post-Regina, would have paid less to the residential tenants. (See NYSCEF doc. no. 36 at 23 [“The settlement decision, whether to accept the $2.3 [inclusive of 316 Bowery] lies with the client; the attorney’s duty is to make the client fully aware of the options and the legal landscape.”])4

Yet such speculation on future events and choices are insufficient as a matter of law to
establish the proximate cause element of a malpractice action. (See Phillips-Smith Special Retail Group IL L.P. v Parker Chapin Flattau & Klimpl, L.L.P, 265 AD2d 208,210 [1st Dept 1999].) As defendants point out, irrespective of Regina, Justice Chan had already found 316 Bowery and Walsam liable,jointly and severally, to the residential tenants, who were seeking $1,010,061.60, exclusive of attorneys’ fees. As such, had Walsam become aware of Regina before settling, the universe of choices open to Walsam was still limited. They could have: (1) reached the same settlement agreement (paying $700,000 to avoid a $2.3 million judgment); (2) waited until the Court of Appeals decided Regina (though at no point would it have been certain of a favorable outcome, all the while remaining exposed to the $2.3 million liability; and then, even after the
outcome, still been jointly and severally liable for more than $700,000); or (3) attempted to leverage Regina to settle for less than $700,000 (which would have required 316 Bowery and/or the tenants to accept a less beneficial agreement). Even assuming option (3) to be a non-starter, there is no clear reason why Walsam would have chosen option (2) over (1), especially considering that Walsam has only by implication argued that it was damaged in this manner. The counterfactual scenario described above reveals that Walsam’s allegations as to proximate cause are couched in terms of gross speculation. (See Sherwood Group, Inc. v Dornbush, Mensch, Mandelstam, & Silverman, 191 AD2d 292,294 [1st Dept 1993] [finding that a party’s hypothetical, future conduct, pled in various forms of what “might have” happened, too speculative to demonstrate proximate causation].)”