Plaintiff’s legal malpractice case rested on whether the attorneys were required to give the client any advice on the purchase of a very expensive apartment.  With $ 9.8 Million at stake, and the sponsors changing the “deposit” into a “gift” and a “loan” was there any malpractice?

Riviera Prop. Holdings, LLC v Ferber Chan Essner & Coller, LLP  2017 NY Slip Op 27424
Decided on July 31, 2017  Supreme Court, New York County  Billings, J. tells us that:  “Section 4.1 of the purchase agreement provided that the condominium unit’s purchase price was $9,850,000.00 and that the deposit was $985,000.00, 10% of the purchase price. In connection with the purchase, plaintiff, whose members were nonparties Neil Yaris, Alan Green, and Wendy Maitland, executed the second and third riders to the purchase agreement regarding the 10% deposit required by the agreement. The riders provided for payment of the deposit to the sponsor and its controlling owners, instead of the escrow agent as the purchase agreement specified. Specifically, the second rider required plaintiff to pay a non-refundable deposit of 1% of the purchase price to the sponsor itself. The third rider required plaintiff to pay a deposit of the remaining 9% of the purchase price by making a loan to the sponsor’s majority owner and the majority owner’s individual members Marc Jacobs and Ira Shapiro.

Plaintiff contends that defendants committed legal malpractice by failing to advise plaintiff that the arrangement to pay the deposit directly to the sponsor and its controlling entity and individuals instead of to an escrow agent was void under the applicable statute and regulations. NY Gen. Bus. Law (GBL) § 352-h; 13 N.Y.C.R.R. § 20.3(o)(2) and (3)(xii). Defendants do not dispute that, had plaintiff’s deposit complied with the law, plaintiff would have recouped its deposit from the escrow agent when plaintiff invoked its right to rescind the purchase and the sale never closed. Defendants contend that the statute and regulations were inapplicable and that plaintiff’s members were aware that the deposit arrangement with the sponsor posed heightened risks.”

“To determine whether an offering of condominium units for sale is public, the court considers the offering’s circumstances, including the number of purchasers, their relationship to each other and to the sponsor, the information about the sponsor available to purchasers, and whether their relationship with the sponsor substituted for the statutory protections. People v. Landes, 84 NY2d 655, 661-62 (1994). A small number of investors and lack of advertising indicate that an offering is not public. Roni LLC v. Arfa, 74 AD3d 442, 443 (1st Dep’t 2010), aff’d, 18 NY3d 846, 848-49 (2011).

Susan Green’s testimony regarding use of the “friends and family” deal does not indicate that it was necessarily an insider deal. Her testimony described both how she was permitted to implement the same process for purchase of the building’s units for any “friends,” who were undefined, as well as family members, and how other brokers, including Wendy Maitland, were permitted to do likewise.

Nor does the deposition testimony by Neil Yaris, Alan Green, and Wendy Maitland, who formed plaintiff for the purpose of purchasing the unit, undermine the offering’s public character, as their testimony nowhere indicates a long or close relationship or a history of many past dealings either among themselves or with the sponsor. People v. Landes, 84 NY2d at 662. The testimony by Neil Yaris and Alan Green indicated a desire to work with the sponsor, but not any familiarity with the sponsor or its managers or members. See id. at 663. Although Wendy Maitland worked as a broker for Brown Harris Stevens, which had entered an exclusive sales agreement with Slazer Enterprises, she largely left negotiations for the purchase of plaintiff’s unit to Neil Yaris and Alan Green. Finally, the testimony by all three of plaintiff’s members revealed no knowledge of the purchasers of any other units in the building. See id. In sum, although factual issues whether the offering was public would preclude summary judgment in plaintiff’s favor, Clark Const. Corp. v. BLF Realty Holding Corp., 54 AD3d 604, 605 (1st Dep’t 2008), defendants’ evidence, recounted above, shows no such issues.”

“Yaris’s uncontradicted affidavit that he would not have agreed to the terms of the transaction he entered for plaintiff, had he known that a statute and regulation prohibited the transaction on those terms, establishes that defendants’ failure to provide that advice proximately caused plaintiff’s damages from the transaction. Russo v. Rozenholc, 130 AD3d 492, 497 (1st Dep’t 2015). See Heritage Partners, LLC v. Stroock & Stroock & Lavan LLP, 133 AD3d 428, 429 (1st Dep’t 2015); Candela Entertainment, Inc. v. Davis & Gilbert, LLP, 126 AD3d 656, 656 (1st Dep’t 2015); Stackpole v. Cohen, Ehrlich & Frankel, LLP, 82 AD3d at 610. Defendants neither dispute that plaintiff retained them to represent it in purchasing the condominium unit and thus to provide advice applicable to the purchase, nor contradict Yaris’s testimony that he would have followed any advice by plaintiff’s attorneys to keep its deposit in escrow.

For plaintiff to recover its damages caused by legal malpractice, the damages sustained must be more than mere speculation. Gallet, Dreyer & Berkey, LLP v. Basile, 141 AD3d 405, 406 (1st Dep’t 2016); Heritage Partners, LLC v. Stroock & Stroock & Lavan LLP, 133 AD3d at 428; Engelke v. Brown Rudnick Berlak Israels LLP, 111 AD3d 444, 444 (1st Dep’t 2013); Hass & Gottlieb v. Sook Hi Lee, 55 AD3d 433, 433 (1st Dep’t 2008). Defendants’ failure to advise plaintiff of the impact of the statute and regulation transformed plaintiff’s non-refundable deposit into a gift and the loan into a simple loan, instead of a deposit toward purchase of the unit. The failure to place the deposit into escrow eliminated any recourse for plaintiff to recoup its deposit. Plaintiff’s loss of its deposit and its expenses in endeavoring to recover the deposit constitute its damages. See Hass & Gottlieb v. Sook Hi Lee, 55 AD3d at 433.”

Professionals such as doctors, lawyers, architects, engineers, can be held for tort.  Others, almost never.  But, what is the difference when they are being sued?  Dormitory Auth. of the State of N.Y. v Samson Constr. Co.  2018 NY Slip Op 01115  Decided on February 15, 2018  Court of Appeals DiFiore, Ch. J. with its two dissenting opinions, does not exactly clear up the issue.

“The two questions on this appeal are whether plaintiff City of New York (the City) is an intended third-party beneficiary of the architectural services contract between plaintiff Dormitory Authority of the State of New York (DASNY) and defendant Perkins Eastman Architects, P.C. (Perkins) and whether DASNY’s negligence claim against Perkins is duplicative of its breach of contract claim. We hold that summary judgment should have been granted in defendant Perkins’ favor on both issues.”

“”It is a well-established principle that a simple breach of contract is not to be considered a tort unless a legal duty independent of the contract itself has been violated” (Clark-Fitzpatrick, Inc. v Long Is. R.R. Co., 70 NY2d 382, 389 [1987]). Put another way, where the damages alleged “were clearly within the contemplation of the written agreement . . . [m]erely charging a breach of a duty of due care,’ employing language familiar to tort law, does not, without more, transform a simple breach of contract into a tort claim (70 NY2d 390).

We have also recognized that “[a] legal duty independent of contractual obligations may be imposed by law as an incident to the parties’ relationship” and that several types of defendants — including professionals — can be held liable in tort “for failure to exercise reasonable care, irrespective of their contractual duties” (Sommer v Federal Signal Corp., 79 NY2d 540, 551 [1992]). In certain circumstances, this independent duty has been imposed based on the nature of the services performed and the defendant’s relationship with its customer — specifically, where the defendant “perform[s] a service affected with a significant public interest [and where the] failure to perform the service carefully and competently can have catastrophic consequences” (79 NY2d at 553). To determine whether a tort claim lies, we have also evaluated the nature of the injury, how the injury occurred and the harm it caused (see 79 NY2d at 552). However, we have made clear that “where plaintiff is essentially seeking enforcement of the bargain, the action should proceed under a contract theory” (79 NY2d at 552).

Here, the negligence allegations in the complaint are, as we held in Clark-Fitzpatrick, “merely a restatement, albeit in slightly different language, of the implied’ contractual obligations asserted in the cause of action for breach of contract” (70 NY2d at 390). Indeed, as noted above, in this case, the factual allegations set forth in each cause of action are identical, except that the negligence claim is framed in terms of Perkins’ failure to comply with professional standards of care. Moreover, despite the fact that the complaint seeks an additional unspecified $4 million in damages under the negligence cause of action, it fails to include a single allegation that contains any distinction between the damages applicable to either claim. The only damages alleged under either theory of recovery are the additional expenses required to complete the project, including the costs to repair the damage to adjacent structures. Significantly, in the contract itself, the parties contemplated Perkins’ responsibility for additional costs or expenses incurred by DASNY or the Client (in effect, the City) as a result of the architect’s design errors or omissions, and addressed it in the contract terms. Likewise, during discovery, the total amount of damages was detailed by DASNY, with no distinction between the “additional expenses” incurred based on one claim or the other.”

Clearly, there are circumstances where a professional architect may be subject to a tort claim for failure to exercise due care in the performance of contractual obligations. In seeking to “disentangl[e] tort and contract claims,” we focused in Sommer both on potential catastrophic consequences of a failure to exercise due care and on the nature of the injury, the manner in which it occurred, and the resulting harm (79 NY2d at 552). We distinguished between the situation where the harm was an “abrupt, cataclysmic occurrence” not contemplated by the contracting parties and one where the plaintiff was essentially seeking enforcement of contract rights (79 NY2d at 552). Here, the C & D building settled during the course of several months, damaging adjacent structures. However, even if any “abrupt” or “catastrophic” consequences either could have or did result from Perkins’ alleged negligence, the fact remains that the only damages alleged appear to have been within the contemplation of the parties under the contract — and, indeed, as set forth above, are identical for both claims. Put another way, there was no injury alleged here that a separate negligence claim would include that is not already encompassed in DASNY’s contract claim. In these circumstances, DASNY “is essentially seeking enforcement of the bargain, [and] the action should proceed under a contract theory” (Sommer, 79 NY2d at 552). Thus, we hold that the negligence claim is duplicative of the breach of contract cause of action and Perkins’ motion for summary judgment to dismiss that cause of action should have been granted.”

From the Dissent

“New York recognizes a distinct claim for professional malpractice and allows parties to pursue simultaneously a professional malpractice claim and a breach of contract claim (see Santulli v Englert, Reilly & McHugh, 78 NY2d 700 [1992]); Sears, Roebuck v Enco, 43 NY2d 389 [1977]; see also Robins v Finestone, 308 NY 543 [1955]). That is because, as the majority recognizes, a tort claim may be maintained in addition to a contract claim where there is a “breach of a legal duty independent of the contract” (see Sommer v Federal Signal Corp., 79 NY2d 540, 551 [1992]). Such an independent legal duty “may be imposed by law as an incident to the parties’ relationship. Professionals, common carriers and bailees, for example, may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties” (id.). Under the clear language of Sommer, architects, by their status as professionals, have the requisite independent legal duty. Of course, a contract might incorporate that duty and the standards of professional negligence, and might or might not include other requirements. Whether the contract includes terms beyond the duty of care owed by a professional in the field, a plaintiff can elect to bring a claim for professional malpractice, breach of contract, or both.

In Santulli, we reversed the Appellate Division’s grant of summary judgment on plaintiff’s breach-of-contract claim, allowing him to proceed at trial on both a legal malpractice and a breach-of-contract claim arising from the same alleged misfeasance, rejecting defendant’s argument that a breach-of-contract action may lie against a professional only where “there is either a specific promise by the attorney to perform and there is a complete failure of any performance or where the attorney has undertaken a specific task and has failed to perform that task” (78 NY2d at 706). In Sears, Roebuck, although the case came to us on a motion to dismiss, not a motion for summary judgment, we held that “inasmuch as the relationship between Sears, Roebuck as property owner and Enco Associates as architects had its genesis in the contract between them . . . the owner may recover contract damages against the architects either on the theory of breach of a particular contract provision or on the theory of failure to exercise due care in the performance of the contract services” (43 NY2d at 392-393).

Contrary to the majority’s contention, Brushton-Moira Cent. School Dist. v Thomas Assoc. (91 NY2d 256 [1998]) has nothing to do with a plaintiff’s ability to bring both claims simultaneously. The sole issue in that case [*3]was whether damages should be measured at the time of breach or the time of trial. Moreover, the majority mischaracterizes the Appellate Division’s decision in that case. The Appellate Division did not hold — or even suggest — that a party may not simultaneously pursue both a malpractice claim and a contract claim through the conclusion of trial. Instead, the plaintiff in Brushton-Moira had pursued both such claims through trial. Supreme Court denied recovery to the plaintiff on both theories. The Appellate Division reversed and awarded judgment to the plaintiff on its contract claim, and held that, because the proof and damages on the malpractice claim were identical, the plaintiff was not aggrieved by Supreme Court’s dismissal of the malpractice claim, because recovery on the contract claim fully compensated the plaintiff (195 AD2d 801, 801-802 [3d Dept 1993]; see Parochial Bus Sys., Inc. v Bd. of Educ. of City of New York, 60 NY2d 539, 544 [1983] [“Generally, the party who has successfully obtained a judgment or order in his favor is not aggrieved by it, and, consequently, has no need and, in fact, no right to appeal”]). Thus, Brushton-Moirasupports DASNY’s ability to pursue both theories through the completion of trial, and certainly contains no implication that a pretrial dismissal on the ground of duplication is appropriate. Today’s decision cannot be squared with our prior precedents.”

A decade long real estate litigation which eventually ends in a legal malpractice case with sanction hearings.  This particular decision is about whether the judge who presided over the 10 year long real estate case should then have recused himself in the subsequent proceedings.

If Fulton Mkt. Retail Fish Inc. v Todtman, Nachamie, Spizz & Johns, P.C.  2018 NY Slip Op 01038  Decided on February 13, 2018 Appellate Division, First Department teaches us anything, it is that legal malpractice cases ratchet up the stakes and the atmosphere, and can lead to strong emotional responses from bench and bar.

“The court acted within its discretion in denying plaintiffs’ motion for leave to renew their recusal motion (see People v Moreno, 70 NY2d 403, 405 [1987]; People v Glynn, 21 NY3d 614, 618-619 [2013]; Mehulic v New York Downtown Hosp., 140 AD3d 417 [1st Dept 2016]; CPLR 2221[e]). The new facts arising from the court’s conduct at three hearings that post-date the filing of the prior recusal motion would not change the prior determination (CPLR 2221[e][2], [3]). No bias is demonstrated by the court’s comments upon learning of the grounds for the recusal motion and its conduct at oral argument on that motion and at the sanctions hearing, either standing alone or in combination with credibility rulings in the landlord-tenant litigation that gave rise to the instant legal malpractice action and that were cited in the prior recusal motion. The court was at times annoyed by plaintiffs’ counsel’s disrespectful attitude and by the grounds raised in the recusal motion, which plaintiffs never proved or adequately investigated. However, the record does not demonstrate that the court was so vexed that it could not be impartial (22 NYCRR 100.3[E][1]; see Liteky v United States, 510 US 540, 555-556 [1994]; Hass & Gottlieb v Sook Hi Lee, 55 AD3d 433, 434 [1st Dept 2008]; People v A.S. Goldmen, Inc., 9 AD3d 283, 285 [1st Dept 2004], lv denied 3 NY3d 703 [2004]). The court also acted within its discretion in ordering a sanctions hearing to ascertain whether the recusal motion was frivolous (see 22 NYCRR 130-1.1[a], [c]; see also 22 NYCRR 130-1.1[a][b]).

Plaintiffs’ claims are undermined by the fact that, while they argue that the court made biased rulings in the underlying landlord-tenant litigation, they never moved for recusal in that lawsuit, which lasted over a decade (see Glatzer v Bear, Stearns & Co., Inc., 95 AD3d 707 [1st Dept 2012]). Even after the same justice was assigned to the instant action, plaintiffs did not move for recusal until 10 months after the case commenced, and then only after the court, at oral argument on a motion to dismiss, questioned the viability of plaintiffs’ legal malpractice claim on collateral estoppel grounds.”

Here is a short but complete description of duplicitive pleading in professional negligence cases.  It is found in Delphi Healthcare PLLC v Petrella Phillips LLP   2018 NY Slip Op 01012  Decided on February 9, 2018  Appellate Division, Fourth Department.

“Causes of action for negligence, breach of contract and breach of fiduciary duty are duplicative of professional malpractice causes of action where they are based on the same factual allegations and seek similar damages (see Board of Trustees of IBEW Local 43 Elec. Contrs. Health & Welfare, Annuity & Pension Funds v D’Arcangelo & Co., LLP, 124 AD3d 1358, 1360 [4th Dept 2015]; Dischiavi v Calli [appeal No. 2], 68 AD3d 1691, 1693 [4th Dept 2009]; TVGA Eng’g, Surveying, P.C. v Gallick [appeal No. 2], 45 AD3d 1252, 1256 [4th Dept 2007]). Here, the negligence and breach of fiduciary duty causes of action are duplicative of the accounting malpractice cause of action inasmuch as they share the same set of underlying facts and seek the same damages as that cause of action. Moreover, the allegation in the breach of fiduciary duty cause of action that defendants concealed their errors and omissions from plaintiffs does not differentiate that cause of action from the accounting malpractice cause of action inasmuch as “there is no independent cause of action for concealing’ malpractice” (Zarin v Reid & Priest, 184 AD2d 385, 387 [1st Dept 1992]).

Upon construing the complaint liberally, and affording plaintiffs the benefit of every possible favorable inference (see generally Leon v Martinez, 84 NY2d 83, 87-88 [1994]), we reject defendants’ contention that the breach of contract cause of action is duplicative of the accounting malpractice cause of action. The breach of contract cause of action is based on allegations that defendants breached their agreements with plaintiffs by failing to perform certain services, and that plaintiffs are entitled to recover all compensation paid to defendants for those unperformed services. That is separate and distinct from the allegations in the accounting malpractice cause of action, which seeks damages based on allegations that defendants did perform services pursuant to the contract but failed to comply with the accepted standards of care.”

In a rather severe reading of a retainer agreement, Justice Freed of Supreme Court, New York County found that the attorneys were not responsible for any investigation into the insurance coverage of their clients.  In Matz v Aboulafia Law Firm, LLC    2017 NY Slip Op 32147(U)
October 10, 2017  Supreme Court, New York County Docket Number: 155506/2016 she determined:

“Construing the complaint in a light most favorable to plaintiffs, they have set forth a claim
for legal malpractice. To set forth a cause of action to recover damages for legal malpractice, a
plaintiff must allege that the attorney failed to exercise the ordinary reasonable skill and knowledge
commonly possessed by a member of the legal profession, and that the attorney’s breach of his or
her duty proximately caused the plaintiff actual and ascertainable damages. Leder v Spiegel, 9
NY3d 836, 837 (2007) (internal citation and quotation marks omitted), cert denied sub nom.
Spiegel v Rowland, 552 US 1257 (2008). Nev~rtheless, plaintiffs’ claim against Aboulafia and
the Aboulafia Firm are dismissed pursuant to CPLR 3211 (a) ( 1 ).

Whether an attorney has an obligation to investigate insurance coverage depends, in large
part, on the scope of the agreed representation by the attorney. See Shaya B. Pac., LLC v Wilson,
Elser, Moskowitz, Edelman & Dicker, LLP, 38 AD3d 34 (2d Dept 2006). Here, since the retainer
agreement executed between plaintiffs and the Aboulafia firm, which constitutes “documentary
evidence” within the purview of that section (see generally Fontanetta v John Doe 1, 73 AD3d 78,
84-85 [2d Dept 2010]), clearly limits the firm’s representation only to commencing a property
damage claim against Marine. Doc. 26. That agreement further provides that the Aboulafia Firm
“is to do no further work on this claim other than starting a suit against [Marine]. If further work
is required, a separate retainer agreement must be executed by [plaintiffs].” Id. Given the express limitation on the scope of the Aboulafia firm’s representation, plaintiffs’ claim that Aboulafia and/or the Aboulafia Firm should have taken further steps to investigate other possible insurance coverage is thus without merit. See Rules of Professional Conduct (22 NYCRR 1200.0) Rule I .2(c). “

First Cent. Sav. Bank v Parentebeard, LLC  2017 NY Slip Op 30974(U)  May 10, 2017
Supreme Court, New York County  Docket Number: 653680/2014  Judge: Shirley Werner Kornreich discusses the burden a defendant has in a professional negligence case.

“In short, this case concerns the IRS’ s disallowance of $2,514, 143 in net operating losses
(the Tax Benefit) claimed by plaintiff First Central Savings Bank (the Bank) on its 2010 tax
return. The IRS disallowed the Tax Benefit because, despite promising to do so, Parente failed
to file a Form 7004 seeking a filing deadline extension on behalf of the Bank. The Bank was not
informed by the IRS of the disallowance of the Tax Benefit until 2012. Prior to that revelation,
in 2011, Parente prepared a September 30, 2010 financial statement for the Bank (the Financial
Statement) based on the assumption that the Bank was entitled to claim the Tax Benefit. The
Bank, relying on the Financial Statement, conducted a Preemptive Rights Offering (the PRO) in
which it sold stock to its shareholders – including the individual plaintiffs (the Shareholder
Plaintiffs), some of whom were on the Bank’s board of directors. The Shareholder Plaintiffs
allege that they relied on the value of the Bank, as depicted in the Financial Statement, in
deciding to purchase additional shares of the Bank at the offering price of $7 per share. ”

“Defendants’ motion to dismiss the second cause of action – the Bank’s claim that Parente
negligently prepared the Financial Statement – is denied. Defendants’ argument is that Parente
had no reason to know that the IRS would disallow the Tax Benefit at the time the Financial
Statement was prepared in 2011 (as noted, the Bank found out in 2012). The relevant inquiry
appears to be whether a reasonably prudent accountant who arguably should have known that the
Bank did not get a filing extension (because the Form 7004 was never received by the IRS) acts
negligently when it prepares a financial statement inaccurately portraying the Bank’s value, not with bad intent, but under a false premise of value (i.e., that the Bank would be able to maintain
the Tax Benefit). See D.D. Hamilton Textiles. Inc. v Estate of Mate, 269 AD2d 214, 215 (1st
Dept 2000) (“A clairri of professional negligence requires proof that there was a departure from
accepted standards of practice.”). To be sure, the parties do not dispute that the Financial
Statement would have been correct if the Bank had the right to the Tax Benefit. However, the
requisite form to receive such Tax Benefit had not been filed at the time the Financial Statement
was prepared. The question of whether, under the somewhat unique facts of this case, Parente
acted negligently in preparing the Financial Statement would appear to require, as in most
professional malpractice cases, expert testimony. 4 See Gert/er v Sol Masch & Co., 40 AD3d 282
(1st Dept 2007); Tung v Mui, 260 AD2d 294 (1st Dept 1999). Defendants, who bear the burden
on a motion to dismiss of demonstrating that the plaintiff has no claim, did not support their lack
of negligence argument with any citation to authority, let alone any analogous case that grappled
with similar facts. See Dkt. 30 at 8-9. Instead, defendants simply rely on some of the court’s
dicta in the Prior Decision. See id. at 7-8. 5

Defendants’ approach is unavailing. 6 If the court thought that the negligence allegations
could not sustain a viable claim, leave to replead would not have been granted. Indeed, in the
Prior Decision, the court did not purport to rule on the substantive viability of the negligence with bad intent, but under a false premise of value (i.e., that the Bank would be able to maintain
the Tax Benefit). See D.D. Hamilton Textiles. Inc. v Estate of Mate, 269 AD2d 214, 215 (1st
Dept 2000) (“A claim of professional negligence requires proof that there was a departure from
accepted standards of practice.”). To be sure, the parties do not dispute that the Financial
Statement would have been correct if the Bank had the right to the Tax Benefit. However, the
requisite form to receive such Tax Benefit had not been filed at the time the Financial Statement
was prepared. The question of whether, under the somewhat unique facts of this case, Parente
acted negligently in preparing the Financial Statement would appear to require, as in most
professional malpractice cases, expert testimony. 4 See Gert/er v Sol Masch & Co., 40 AD3d 282
(1st Dept 2007); Tung v Mui, 260 AD2d 294 (1st Dept 1999). Defendants, who bear the burden
on a motion to dismiss of demonstrating that the plaintiff has no claim, did not support their lack
of negligence argument with any citation to authority, let alone any analogous case that grappled
with similar facts. See Dkt. 30 at 8-9. Instead, defendants simply rely on some of the court’s
dicta in the Prior Decision. See id. at 7-8. 5 “