One does not often see legal malpractice cases reported out of Surrogate’s Court. Matter of Schleifer  2017 NY Slip Op 31501(U)  July 14, 2017  Surrogate’s Court, New York County
Docket Number: 2010-3599/A  Judge: Rita M. Mella is a big-number, multi-defendant real estate and commercial estate-fraud-legal malpractice case.  It discusses a number of fraud-rescission-release-pleading issues which we rarely see.

“Decedent Jack Schleifer was a real estate investor, and his will left his estate to his lifetime trust that benefits his only child, Natalie Schleifer (“Schleifer”) and charity. Schleifer, along with decedent’s estate planning counsel, Martin Rosen, serve as two of the co-executors under decedent’s will and co-trustees of his trust, and they have commenced the instant proceeding against Richard Yellen, the third co-executor and co-trustee, as well as against certain real estate companies and the developer managing or controlling those companies, David Marx (“Marx”), and his father, Robert Marx. Petitioners seek to rescind, on the basis of fraud and other grounds, a September 30, 2011 settlement agreement entered into among all the parties to this proceeding. By its terms, the agreement resolves claims that decedent and decedent’s estate had against Marx and his companies in connection with loans or investments decedent made during his life. The respondents have moved to dismiss the petition on several grounds, namely, that documentary evidence bars petitioners’ claims, that their claims have been released, and that the petition fails to state a claim for which relief may be granted (CPLR 321 l[a][l], [5] & [7]). Additionally, respondents argue petitioners have not pled fraud and mistake with the requisite particularity (CPLR 3016[b]). ”

“In support of his motion, Yellen argues that the breach of fiduciary duty claim against him and his law firm (the 9th claim) is merely a duplication of both the fraud claims asserted against him in the second claim, and the legal malpractice alleged in the tenth claim, requiring its dismissal. He further argues that, even if not duplicative of the other claims, no damages have been specified for the alleged breach, which likewise provides grounds for dismissal. Regarding the legal malpractice cause of action, Yellen claims that no attorney-client relationship existed regarding the settlement agreement, and that petitioners have failed to plead “but for” causation necessary to state a legal malpractice claim. Because the allegations supporting the claimed breach of fiduciary duty and legal malpractice are distinct and establish the necessary elements for each, dismissal of these two claims is not appropriate.

The allegations regarding breach of fiduciary duty must show the existence of a fiduciary relationship, misconduct by the other party, and damages directly caused by that party’s misconduct (Pokoik v Pokoik, 115 AD3d 428, 429 [1st Dept 2014]). Here, they involve Yellen’s actions as co-executor and co-trustee, and as attorney and, additionally, as escrow agent for Marx’s financials under the agreement, which relationships are fiduciary in nature as a matter of law (Sanke! v Spector, 33 AD3d 167 [1st Dept 2006] [trustee-beneficiary]; Graubard Mallen Dannett & Horowitz v Moskovitz, 86 NY2d 112 [1995] [attorney-client]; Talansky v Schulman, 2 AD3d 355, 770 NYS2d 48 [1st Dept 2003] [escrow agent]; see Parker v Rogerson, 49 AD2d 689 [4th Dept 1975] [co-fiduciaries]).

No authority is provided by Yellen to support his assertion that a breach of fiduciary duty claim must be dismissed because it involves a claim of fraud for which relief is also sought. To the contrary, fraud claims can be integral to claims of breach of fiduciary duty (see, e.g., Carbon Capital Mgt., LLC v Am. Exp. Co., 88 AD3d 933, 939 [2d Dept 2011]; Kaufman v Cohen, 307 AD2d 113, 123 [1st Dept 2003]). In any event, the allegations supporting the claimed fiduciary duty breach by Yellen are not limited to affirmative fraud as pied by petitioners in their second claim, but extend to his alleged failure as co-fiduciary and the estate’s attorney to disclose documents and information concerning decedent’s transactions with Marx (see Dube-Forman v D’Agostino, 61AD3d1255, 1257 [3d Dept 2009]; see also Pokoik, 115 AD3d at 429).

Concerning allegations of damages, a party asserting a claim for breach of fiduciary duty “must, at a minimum, establish that the offending parties’ actions were ‘a substantial factor’ in causing an identifiable loss” (Gibbs v Breed, Abbott & Morgan, 271AD2d180, 189 [1st Dept 2000]). Here, the allegations that fees were paid to Yellen in his various fiduciary capacities and should be returned is sufficient to identify a loss and plead damages, and makes this case distinguishable from those relied upon by him (compare Estate of Feder v Winne, Banta, Hetherington, Basralian & Kahn, P.C., 117 AD3d 541, 542 [1st Dept 2014] [damages claimed were speculation based on “uncertainties, including future tax laws, tax rates, and the future value of the trust property”]; Greenberg v Jaffee, 34 AD3d 426, 427 [2d Dept 2006] [fact that real estate agent had known ultimate purchaser was interested in estate property for investment before its sale did not create issue of fact on summary judgment as to agent’s breach of fiduciary duty]).

Nor does the fact that damages may overlap with those sought for Yellen’s malpractice mean that the breach of fiduciary duty claim duplicates it since Yellen is being sued in capacities as co-fiduciary that are not a part of the legal malpractice claim (Pillard v Goodman, 82 AD3d 541, 542 [1st Dept 2011] [breach of fiduciary duty not dismissed as against corporate director, even though malpractice relief sought against director as attorney]).

A legal malpractice claim has three essential elements: (1) the attorney’s failure to exercise that degree of care, skill and diligence commonly possessed by a member of the legal profession; (2) causation; and (3) actual damages (Prudential Ins. Co. of America v Dewey Ballantine, Bushby, Palmer & Wood, 170 AD2d 108 [1st Dept 1991], affd 80 NY2d 377 [1992]). While an attorney-client relationship is a necessary prerequisite (Moran v Hurst, 32 AD3d 909 [2d Dept 2006]), Yellen cannot avoid having a malpractice claim stated against him by asserting that his attorney-client relationship had ended for purposes of negotiating the 2011 settlement. This is a misunderstanding of the claim which is based on the allegations that Yellen was retained and paid to duly and diligently provide petitioners with information concerning the extent of decedent’s investments and loans with the Marx Group. The malpractice claimed is Yellen’ s negligent carrying out of this work, which, petitioners also allege, led them to enter into the settlement that they would not have otherwise agreed to, and which damaged the estate (see Theresa Striano Revocable Trust v Blancato, 71 AD3d 1122, 1124 [2d Dept 2010] [attorney may not shift to the client the legal responsibility he was specifically hired to undertake because of his superior knowledge]). 15

Overall, these allegations are sufficient to claim malpractice. Additionally, petitioners have provided specific factual allegations in this instance, which satisfy the more stringent requirement of “but for” causation required to be alleged for legal malpractice (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442 [2007]; Urias v Daniel P. Buttafuoco & Assoc., PLLC, 120 AD3d 1339, 1342 [2d Dept 2014]; Gallet Dreyer & Berkey, LLP v Basile, 2013 NY Slip Op 30101 [U], at *6 [Sup Ct, NY County Jan. 16, 2013] [settlement compelled by mistakes of counsel actionable in legal malpractice]; see also Gottlieb v Karlsson, 295 AD2d 158 [1st Dept 2002]).

It follows that the motion by Yellen and his law firm to dismiss the ninth and tenth claims for breach of fiduciary duty and legal malpractice, respectively, is denied. “