Supreme Court, New York County dealt with a number of arguments on why the legal malpractice complaint should be dismissed in 538 Morgan Realty LLC v Law Off. of Aihong You, PC 2024 NY Slip Op 32300(U) July 2, 2024 Supreme Court, New York County Docket Number: Index No. 153886/2023 Judge: Richard G. Latin. Only one stuck, and that addressed the speculative issue of how a court would have decided a case had a specific motion actually have been made.

“Plaintiffs 538 Morgan Realty LLC, SD International Inc., Dian Kui Su, Qing Mei Zhao, and Tian Fang Su (“Plaintiffs”) were owners of a property located at 540 Morgan Avenue, Brooklyn, New York 1122 (the “Property”) (NYSCEF # 9 ¶ 14; NYSCEF # 31 at 2). On March 3, 2015, Plaintiffs entered into a contract to sell the Property to 538 Morgan Avenue Properties LLC and NY Stone Kitchen Depot, Inc. (“Buyers”) for $4 million (“Property Contract”) (NYSCEF # 9 ¶ 15). On the same day on March 3, 2015, the Buyers also entered into a contract to purchase Plaintiff SD International Inc.’s business assets for $702,793.00 (the “Business Contract”), which was located at the Property (NYSCEF # 9 ¶ 16). The Business Contract was fully performed (NYSCEF # 9 ¶ 16). Allegedly the Property Contract was not fully performed and on June 24, 2015, Buyers sued Plaintiffs in New York for the failed real estate deal (the “Underlying Litigation”) (NYSCEF # 9 ¶ 17). The action was captioned 538 Morgan Avenue Properties LLC, et all., v. 538 Morgan Realty LLC, et al., Index No. 507788/2015 (NYSCEF # 9 ¶ 18; NYSCEF # 31 at 3). The Underlying Litigation involved the Buyers suing Plaintiffs for breach of contract and sought the full $5 million liquidated damages amount stated in the Property Contract’s liquidated damages clause (NYSCEF # 9 ¶ 20). Additionally, Buyers sued Plaintiffs for conversion, seeking $1.8 million by alleging that Plaintiffs wrongfully took possession of that sum, which was purportedly made as a “cash down payment on the Property” (NYSCEF # 9 ¶ 20). In response, Plaintiffs denied these allegations and filed counterclaims regarding the alleged breach of contract claim (NYSCEF # 9 ¶ 20).”

“However, negligence alone is insufficient to establish legal malpractice. For the reasons stated below, the malpractice claim is dismissed for failure to adequately allege causation and damages. To satisfy the pleading requirement for causation, it must be alleged that “but for” the attorney’s conduct, the client would have prevailed in the underlying action or would not have sustained any ascertainable damages” (Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 272 [1st Dept 2004]; Cosmetics Plus Group, Ltd. v Traub, 105 AD3d 134, 140 [1st Dept 2013]). As to damages, “to survive a … pre-answer dismissal motion, a pleading need only state allegations from which damages attributable to the defendant’s conduct for nonfeasance] may be reasonably inferred” (Lappin v Greenberg, 34 AD3d 277, 279 [1st Dept 2006] [internal citations omitted]). But conclusory allegations of damages predicated on speculation cannot suffice for a legal malpractice action (Volpe v Munoz and Associates, LLC, 190 AD3d 661, 661 [1st Dept 2021] citing Bua v Purcell & Ingrao, P.C, 99 AD3d 843, 848 [2d. Dept 2012] lv denied 20 NY3d 857 [2013]). All of the Defendants argue that Plaintiffs’ allegations for failure to argue or file a motion against the liquidated damages provision fail to prove causation that “but for” this failure, Plaintiffs would not have suffered injury (NYSCEF # 31 at 6; NYSCEF # 37 at 11). Defendants also argue that Plaintiffs’ allegations are mere speculation (NYSCEF # 31 at 6; NYSCEF # 37 at 11). Plaintiffs respond that the claims are not speculative and satisfies the “but for” standard (NYSCEF # 61 at 5; NYSCEF # 62 at 10). In response to Aihong You’s motion, Plaintiffs aver that the allegations meet the burden to survive a motion to dismiss because Plaintiffs need to only plead facts that permit the inference of causation and need not to establish causation (NYSCEF # 61 at 5; [citing Voluto Ventures, LLC v Jenkens & Gilchrist Chapin LLP, 46 AD3d 354, 355 [1st Dept 2007]). Plaintiffs respond to Defendants Joseph & Smargiassi LLC’s speculation argument that had the motion been filed contesting the liquidated damages provision, it would be highly likely that the provision would have been deemed an enforceable penalty, thus sufficiently establishing causation that “but for” Defendants’ failure, Plaintiffs would have had a more favorable outcome (NYSCEF # 62 at 11). Even under the standard of a motion to dismiss, after affording Plaintiffs every favorable inference, the court finds that the complaint fails to adequately plead causation to survive the motion at this stage. Plaintiff sufficiently alleges that, “but for” defendants’ negligence, it would have obtained a more favorable result through litigation (see Katebi v Fink, 51 AD3d 424, 425 [1st Dept 2008] [finding malpractice not viable since the settlement of the underlying action was the client’s own choice and not compelled by the mistakes of counsel]). Alternatively, Plaintiffs claim but for Defendants’ negligence, they would still have settled but obtained a better settlement outcome (see Perkins v Norwick, 257 AD2d 48, 51-52 [1st Dept 1999] [finding that plaintiff’s allegations that he might have negotiated different terms but for defendant’s negligence is “entirely speculative”]).

Plaintiffs’ claim fails as it is based on mere speculation of uncertain future events (id.). Plaintiffs allege that if Defendants had argued against the liquidated damages provision, Plaintiffs would have won that argument, and therefore would have received a favorable outcome (NYSCEF # 61 at 5). The court disagrees. It is speculative that Plaintiffs would claim and assume that they would have prevailed if the argument against the liquidated damages clause was made (see Lisi v Lowenstein Sandler LLP, 170 AD3d 461, 462 [1st Dept 2019] [rejecting plaintiff’s claim of proximate cause as merely speculative]; see also Sherwood Group v Dornbush, Mensch, Mandelstam & Silverman, 191 AD2d 292, 294 [1st Dept 1993] [finding that hypothetical course of events on which any determination of damages would have to be based on constitutes “gross speculations on future events”]). Liquidated Damages Clause Plaintiffs’ argument regarding the liquated damages clause, stems from claiming that the liquidated damages clause would automatically be deemed unenforceable (NYSCEF # 61 at 7). Plaintiffs reference Justice Silber’s comments concerning Defendants’ failure to file any motions contesting the liquidated damages clause within seven years of litigation and 39 motions during the Underlying Litigation (NYSCEF # 61 at 7-8). The court disagrees. A liquated damages provision is not automatically considered unenforceable but rather it would be based on what was stated in the provision, such as if damages flowing from a breach in contract were easily ascertainable at the time of the execution or if the damages are conspicuously disproportionate to the probable losses (see JMD Holding Corp. v Cong. Fin. Corp., 4 NY3d 373, 380 [2005]). “