Can there be a more complex financial undertaking than getting involved in new stock offerings for a China coal company?  The due diligence was assigned to the defendants as well as Kroll Investigators.  Kroll seems to have gotten it right, while both the attorneys and the client missed the most obvious notes written into the report.  Who might be liable?

Macquarie Capital (USA) Inc. v. Morrison & Foerster, LLP, , Supreme Court, New York  County, Justice Saliann Scarpulla, Index No. 650988 works it way through various defenses.  There is no in pari delicto because this was negligence on everyone’s part, not fraud.  However, there is no proximate case, and the case is to be dismissed.

“Moreover, I find that the complaint must be dismissed because Macquarie has not sufficiently alleged a claim for legal malpractice, specifically, has failed sufficiently to allege proximate cause. A cause of action for legal malpractice requires “three essential elements: (1) the negligence of the attorney; (2) that the negligence was the proximate cause of the loss sustained; and (3) proof of actual damages.” Prudential Ins. Co. v. Dewey Ballantine, 170 A.D.2d 108, 114 (1st Dept. 1991) affd 80 N.Y.2d 377 (1992). To establish proximate cause, a plaintiff must demonstrate that but for the attorney’s negligence, he or she would have prevailed in the underlying matter or would not have sustained any ascertainable damages. The failure to establish proximate cause mandates the dismissal of a legal malpractice action, regardless of the attorney’s negligence. Brooks v. Lewin, 21 A.D.3d 731, 734 (1st Dept. 2005). Macquarie alleges that it hired Morrison, based on its expertise in China-related transactions, to perform due diligence for the transaction and to gain a full understanding of the operating and ownership structure of Puda and its subsidiaries. Macquarie further alleges that Morrison egregiously failed in its duty to carry out its assigned due diligence by neglecting to uncover a crucial component of Puda’s ownership structure, and also failing to pick up on the discovery made by Kroll as set forth in the Kroll Report. However, Morrison’s failures cannot be deemed to have proximately caused Macquarie’s damages, because Macquarie was also in possession of this critical information. See Ableco Fin. LLC v. Hilson, 109 A.D.3d 438 (l st Dept. 2013).

In light of the Court’s holding in the Ableco case that the legal malpractice claim should have been dismissed based on the information the plaintiff “indisputably possessed,” the legal malpractice claim here must be dismissed as well. The allegations of the complaint clearly state that Macquarie possessed the Kroll Report, and the crucial information contained therein, prior to the closing of the transaction. While Macquarie seeks to distinguish this case from Ableco, in that this case resolves a motion to dismiss and Ableco resolved a motion for summary judgment after the completion of discovery, the relevant evidence here was available and referenced in the complaint, specifically the Kroll Report, and was indisputably possessed by Macquarie prior to the closing. Macquarie further argues that proximate cause may ultimately be proven because discovery would reveal that it lacked “actual knowledge” of the subject information in the Kroll Report before the closing. However, in Ableco the Fi~st Department dismissed plaintiff’s malpractice claim based on plaintiff’s possession of the information, not plaintiff’s Subjective understanding of the significance of the information. As it is undisputed here that Macquarie had the information that it complains Morrison failed to uncover, the element of proximate cause cannot be proven, and the legal malpractice claim must be dismissed. “