Rothstein v Krane LLP 2024 NY Slip Op 30016(U) January 3, 2024 Supreme Court, New York County Docket Number: Index No. 157694/2017 Judge: Gerald Lebovits is that very rare species of summary judgment in a legal malpractice case in favor of plaintiff.

“On motion sequence 001, defendant Michael Steger moves, pursuant to CPLR 3212, for summary judgment dismissing the complaint against him in this action for professional malpractice and breach of contract. On motion sequence 002, plaintiff, Michael Rothstein, moves, pursuant to CPLR 3212, for summary judgment on the complaint; and defendants Krane LLP and Steven S. Krane cross-move, pursuant to CPLR 3212, to dismiss the complaint.
Motion Sequences 001 and 002 are consolidated for disposition. Steger’s summary judgment motion (mot seq 001) is granted. Plaintiff’s summary-judgment motion (mot seq 002) is granted only with respect to liability on his malpractice claim against defendants Krane LLP and Krane, and is otherwise denied. Krane LLP/Krane’s cross-motion for summary judgment (mot seq 002) is granted only with respect to plaintiff’s breach-of-contract claims against them, and is otherwise denied.”

“On March 31, 2015, plaintiff retained Steger Krane LLP to represent him in an
investment opportunity with nonparty Shane Dax Taylor and/or Isolation Film LLC
(“Isolation”), an entity formed to produce a film project (see Engagement Letter, NYSCEF Doc. No. 48). Thereafter, Taylor, Isolation’s managing member, executed a promissory note, dated April 6, 2015, pursuant to which he agreed to repay plaintiff the principal amount of $150,000.00, plus 25% interest, for a total of $187,500.00, by October 1, 2015 (see Promissory Note, NYSCEF Doc. No. 60). Plaintiff and Isolation also executed a film financing agreement, dated April 7, 2015 (see Film Financing Agreement, NYSCEF Doc. No. 60). The agreement, among other things, memorialized the promissory note (id.). In addition, Taylor executed a guaranty, dated April 8, 2015, unconditionally guaranteeing repayment of the $150,000.00 loan, plus 25% interest (see Guarantee, NYSCEF Doc. No. 60).

Isolation failed to repay the loan timely, with interest (see Complaint, NYSCEF Doc. No.
1, supra). On March 16, 2016, plaintiff retained Steger Krane LLP to represent him in the loan dispute with Isolation and Taylor (as guarantor) (see Engagement Letter, NYSCEF Doc. No. 55). Thereafter, plaintiff commenced an action (Rothstein v Isolation, Sup Ct, NY County, Index No. 152589/2016) to recover the $187,500.00 due under the promissory note (see Complaint, NYSCEF Doc. 71). Defendants in that action successfully removed the action to federal court, based on diversity jurisdiction, and made a written offer to settle the action (see Email, NYSCEF Doc No. 72), which, plaintiff contends, defendants advised him to decline. The federal court eventually granted the defendants’ motion to dismiss the action “on the ground that the contract is void because the interest rate on the loan was criminally usurious” (Judgment, NYSCEF Doc. No. 76). Plaintiff asserts that defendants failed timely to reargue or appeal the judgment, and specifically advised him that a motion to reargue or an appeal would be futile.”

Plaintiff commenced this action against defendants to recover for the loss of his investment (see NYSCEF Doc. No. 1, supra). The complaint alleges claims for professional malpractice (first cause of action) and breach of contract (second cause of action) against defendants (id.). Plaintiff essentially claims that defendants committed professional malpractice and breached the retainer agreement by allowing him to enter into a loan agreement deemed by a federal district court to be criminally usurious, rendering plaintiff unable to collect under a loan agreement that had been prepared by defendants (id.). Plaintiff seeks to recover $150,000.00, the principal amount due under the loan agreement, promissory note, and guaranty, plus $37,500.00 in interest due as of October 21, 2015, and $52,500.00 for attorney fees and costs (id.).”

“Krane and Krane LLP acknowledge representing plaintiff in the film financing
transaction with Isolation and Taylor, but argue that plaintiff’s special financial relationship with Taylor, prior financial dealings, and unlawful financial dealings with Isolation and Taylor warrant dismissing plaintiff’s claims. Defendants also assert that Taylor dictated the terms, covenants, and conditions of the promissory note to plaintiff, who subsequently dictated the terms to Krane, without his input about any inherent legal issues. Defendants further assert that Krane prepared the promissory notes, film financing agreement, and personal guaranty according to those terms, and that plaintiff was not interested in any input, comment, or suggestion about
the substance of the documents. Krane insists that he was never asked for a legal opinion in connection with the promissory note, film financing agreement, or guaranty.

Krane’s failure to draft documents for the film financing transaction that were not
usurious reflects a failure to exercise the care, skill, and diligence commonly possessed and exercised by an ordinary member of the legal community (see Theresa Striano Revocable Trust v Blancato, 71 AD3d 1122, 1124 [2d Dept 2010] [holding that an attorney’s reliance on the advice of another’s attorney in lieu of reviewing usury statutes himself “reflects a failure to exercise ordinary reasonable skill”]). A professional-malpractice claim “may be based upon the creation of a loan document which is usurious and does not fall under any exceptions to the law of usury” (DeStaso v Condon Resnick, LLP, 90 AD3d 809, 812 [2d Dept 2011]). Plaintiff established, prima facie, that Krane and Krane LLP acted negligently with respect to the usury issue.

Furthermore, defendants’ negligence regarding the usury issue proximately caused the
dismissal of plaintiff’s action to recover the amount allegedly due under the loan agreement, promissory note, and guaranty in the film financing transaction. Thus, plaintiff has met his burden of establishing entitlement to summary judgment as to liability on his claim for professional malpractice against Krane and Krane LLP.

Defendants fail to provide any evidence to establish the existence of material issues of
fact that require a trial on the issue of liability for the professional malpractice, or to warrant judgment in favor of defendants. Even assuming that plaintiff dictated the terms of the documents for the transaction, a review of the relevant statutes would have revealed that the proposed loans did not fall under any usury exceptions (see id.). Thus, the branch of plaintiff’s motion that seeks summary judgment on the issue of liability for professional malpractice against Krane and Krane LLP is granted, and the matter is referred to a special referee to hear and report on the issue of plaintiff’s damages due to the malpractice of Krane and Krane LLP.”