Sebco Dev., Inc. v Siegel & Reiner, LLP 2024 NY Slip Op 50292(U) Decided on March 20, 2024 Supreme Court, Bronx County Gomez, J. is the kind of legal malpractice case that comes up often enough to support the idea that real estate in NYC is a paramount, driving economic force, and that the extensive lawyering necessary results in many legal malpractice cases.

The case is fantastically fact-driven, and the decision is almost appellate in depth. It is impossible to summarize for a blog, but it is definitely worth reading completely for the definitions, the explanations and the discussion of the rules of legal malpractice, continuing representation and the effect of violation of the disciplinary rules.

“The instant action is for legal malpractice, breach of fiduciary duty, tortious interference [*2]with business relations, declaratory judgment, and replevin. The complaint, filed on May 26, 2023, alleges the following. Plaintiff SEBCO DEVELOPMENT, INC. (Sebco) is a not-for-profit organization which provides affordable housing and charitable services in the Bronx. Nonparty Salvatore Gigante (SG) is Sebco’s Chief Operating Officer and nonparty Latoya Allen (LA) is Sebco’s Vice President of Operations and Director of Management. The remaining plaintiffs (property owners), own affordable housing buildings in Bronx County and each is either Sebco’s direct affiliate or subsidiary. The property owners hold beneficial title to their buildings, which provide subsidized, affordable housing to low-income families and low-income senior citizens who reside therein. With respect to the property owners and their properties, Sebco sponsored and developed each of the affordable housing projects existing at the buildings owned by the property owners and Sebco provides oversight on all fiscal matters for the property owners. Defendant SIEGEL & REINER, LLP (SR) is a law firm at which defendant IRWIN SIEGEL (Siegel) is a partner. Siegel and SR previously provided both legal and accounting services for plaintiffs, essentially acting as outside general counsel. Specifically, Siegel previously, inter alia, advised plaintiffs on all corporate matters, ensuring plaintiffs’ compliance with corporate formalities, advising plaintiffs on all refinancing projects, and advising plaintiffs on all governmental regulatory matters to ensure that plaintiffs were in full compliance therewith. In addition to representing plaintiffs, defendants also represented other entities, including nonparties Building Management Associates, Inc. (BMA), Fox River Properties, Inc. (Fox), Sebco IV Associates, LP (Sebco IV), and Father Louis Gigante (FLG), and or his estate. FLG founded Sebco and BMA and upon his death, Siegel became the executor of FLG’s estate. In that capacity, Siegel controls BMA, has an interest in and also controls Fox, the latter being Sebco IV’s general partner, which Siegel also controls. Nonparty Luigino Gigante (GG) is FLG’s son, the beneficiary of FLG’s estate, and Siegel’s client. BMA is a not-for-profit property management agency, that, until February 25, 2023, managed the property owners’ buildings. Prior to BMA’s termination, Sebco and BMA had a close working relationship. They shared office space at premises owned by and leased from Fox and also shared staff. Prior to BMA’s termination, SG was BMA’s President. Although defendants counseled and represented BMA, Fox, and Sebco IV on a host of transactions and did so while simultaneously representing Sebco in those transactions, defendants never disclosed such dual representation. To the extent that with respect to the foregoing transactions, Sebco’s interests were divergent from BMA, Fox, FLG, and Sebco IV’s interest, the dual representation created a conflict of interest, obligating defendants to disclose the dual representation and to recommend that Sebco obtain independent counsel. The failure to advise plaintiffs of the foregoing conflicts of interest, including decisions made by Siegel after FLG’s death when Siegel was FLG’s attorney-in-fact, have caused plaintiffs damage. In April 2022, defendants were terminated and, after plaintiffs retained new counsel, it was discovered that defendants had failed to provide legal advice to plaintiffs, which as a result, meant that they had not complied with corporate and regulatory formalities. Specifically, Sebco’s documentation was inadequate, its corporate documents were never properly updated to reflect FLG’s death, and after Sebco was audited by the City of New York, the latter raised issues concerning transactions to which Sebco was a party. Significantly, transactions between Sebco, Sebco IV, and nonparty Crotona Belmont, continued to bear FLG’s signature even after he had resigned and ultimately died. Siegel never advised Sebco that FLG had to be omitted from these [*3]documents and, in fact, refused to remove him from the same. In 2018, Sebco began work as a sponsor and developer on a project whereby it sought to obtain refinancing in order to rehabilitate an affordable housing property owned by Sebco IV. Defendants acted as Sebco’s counsel in the foregoing endeavor for which Sebco expended significant labor and financial resources. Despite the obligation to provide Sebco with their undivided loyalty, defendants represented other entities and individuals in the foregoing transaction, including BMA, Fox, Sebco IV and FLG. To that end, since defendants failed to disclose the conflict of interest and Sebco was paying defendant for legal services that benefitted parties with interests adverse to Sebco, defendants violated New York Rules of Professional Conduct 1.7 and 18(f). Prior to defendants’ termination in April 2022, all parties were cooperatively working to accomplish the ultimate goal on the Sebco IV project. However, thereafter, in order to aid their other clients, defendants began to interfere with the completion of the project, by (1) asserting in 2018 that the refinancing sought by Sebco IV required the consent of Sebco IV’s limited partner, which advice was at variance to defendants’ advice to Sebco in 2015; and (2) asserting that Sebco would not be entitled to a developer fee, which meant that defendants, after a review of the budget for the project, knew that Sebco was involving itself in a financially detrimental project. But for defendants’ legal advice in 2015 and its failure to advise Sebco that it would earn no developer fee on the project, Sebco would have never undertaken the Sebco IV project. Additionally, defendants, inter alia, submitted documentation to the New York City Department of Housing Preservation and Development (HPD) seeking to establish an HDFC for Sebco IV, which would confer tax benefits to Sebco IV and none to Sebco. With respect to BMA’s termination, on January 9, 2023, GG and Siegel entered the space jointly occupied by Sebco and BMA. GG and Siegel were accompanied by armed guards. Siegel intimidated the employees at the premises and encouraged many of Sebco’s employees to resign and begin working for BMA. GG and Siegel attempted to break into SG’s office, gained entry, rummaged through SG’s desk, and took some of SG’s property. Siegel left notices at the office, indicating that SG was no longer BMA’s president and that GG was BMA’s new president. On January 10, 2023, GG and Siegel engaged in similar behavior and Siegel threatened Sebco’s employees. On January 10, 2023, Fox served a 10-day Notice to Quit upon Sebco, seeking to prematurely terminate its lease. Based on the foregoing, and because GG lacked the requisite knowledge to be defendant’s President, on January 11, 2023, the property owners decided to terminate their relationship with BMA and further determined that Sebco would assume the management of the property owners’ properties. Thereafter, on January 17, 2023, BMA and GG, at Siegel’s behest, denied plaintiffs the ability to access their own bank accounts. Between January 19 and February 8, 2023, based on GG and Siegel’s actions, many BMA employees resigned. On February 3, 2023, Sebco terminated their lease with Fox. Despite representing plaintiffs when the management agreements were executed, such that Siegel was aware that BMA’s termination was authorized thereunder, Siegel nevertheless interfered and obstructed Sebco’s assumption of the management of the property owners’ buildings. Such obstruction, which included the denial of access to plaintiffs’ own bank accounts, has caused financial damage to Sebco and the property owners. The foregoing obstruction by Siegel constitutes a breach of the fiduciary duty he then owed to plaintiffs. In addition to the foregoing, Siegel also breached his fiduciary duty to Sebco when at his behest, BMA sued SG and LA, solely to prevent plaintiffs from terminating their prior management [*4]agreements with BMA. Said lawsuit frivolously asserted that SG and LA interfered with BMA’s business relationships with the property owners and that SG and LA encouraged BMA’s employees to resign. While the law suit was ultimately discontinued, on March 13, 2023, Siegel sent a letter to nonparty St. Barnabus Housing Development Corporation (St. Barnabas), with whom Sebco had an ongoing beneficial relationship, wherein Siegel apprised St. Barnabas that he had requested that HPD and other agencies not allow any company in which SG had any interest to manage any property, apprised St. Barnabus that BMA had sued SG and LA, and shared links to newspaper reports which contained negative information about SG and LA. As a result, on April 24, 2023, in a telephone call between Sebco and United States Department of Housing and Urban Development (HUD), the latter indicted that the call was prompted by the dispute between Sebco and BMA about which HUD learned from GG and Siegel. HUD then indicated that it did not want Sebco to manage several properties. On May 15, 2023, Siegel sent Sebco a letter asking it to remove FLG’s name and likeness from Sebco’ website. Since Siegel had previously approved of Sebco’s use of FLG’s name and likeness on Sebco’s website, the letter taking a contrary position constitutes a breach by Siegel of his fiduciary duty to Sebco. After defendants were terminated, Sebco demanded that they return all files and documents relating to Sebco’s operations and corporate matters. Said files were the result of defendants’ decades-long representation of Sebco. Despite the request, defendants have refused to return the aforementioned files.”

Jumping to the conclusion:

“To the extent that plaintiffs aver that the continuous representation doctrine avails them, as discussed above, it would only avail them with respect to the Sebco IV project, since it is the only claim for legal malpractice which sufficiently pleads damages. However, plaintiffs’ counsel’s assertions are not a substitute for allegations in the complaint and are not tantamount to an affidavit to cure pleading defects in the complaint (Cron at 366 [In opposition to a motion to dismiss for failure to state a cause of action, a plaintiff may submit affidavits to remedy defects in the complaint, and if an affidavit is submitted for that purpose, it shall be given its most favorable intendment]). Here, contrary to counsel’s assertion, the malpractice arising from the Sebco IV project accrued in 2015, when it is alleged that Sebco was provided with incorrect legal advice, without which, it would not have undertaken the Sebco IV project. It is then alleged that sometime thereafter, the Sebco IV project failed and that damages resulted therefrom. Thus, the foregoing claim accrued in 2015 and at best the complaint asserts that defendants continued to provide legal advice to Sebco through 2018, when they changed their position. Thus, even if the instant claim accrued in 2018, by 2023, five years later, when this action was commenced, the statute of limitations had expired. For purposes of continuous representation, that defendants continued to advice plaintiffs on unrelated matters does not avail them.

With respect to the claim for tortious interference with business relations, Long Is. Thoracic Surgery, P.C. v Bldg. Serv. 32BJ Health Fund (215 AD3d 942 [2d Dept 2023]), does not avail plaintiffs. To be sure, as noted by this Court, at best, here, the complaint only sufficiently pleads the foregoing on alleged false statements made by defendants to HUD, which then resulted in the denial by HUD of plaintiffs’ request to manage some properties. As the Court noted, unlike the plaintiffs in Long Is. Thoracic Surgery, P.C., who in addition to asserting a claim for tortious interference with business relations also sufficiently pleaded a claim for defamation, here, the latter claim was neither pleaded nor claimed. Thus, contrary to plaintiffs’ assertion, unlike in Long Is. Thoracic Surgery, P.C., defendants’ conduct was not independently tortious so as to plead a cause of action for tortious interference with business relations. It is hereby

ORDERED that with the exception of the cause of action for replevin the complaint be dismissed. “

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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.