There are many differences between contract liability and tort liability.  One difference is the scope of persons to whom a duty applies.  In contract the question of privity looms over every analysis; in tort, it is almost the entire world.  Another difference is the measurement of damages.  In contract damages are generally related to the contractual duty, in tort, one who is injured is due that compensation which is needed to make whole.

Ferro Fabricators, Inc. v 1807-1811 Park Ave. Dev. Corp.[127 AD3d 479]   2015 NY Slip Op 03048   April 9, 2015  Appellate Division, First Department discusses whether a tort claim for professional negligence is necessarily duplicitive of a contract claim for professional negligence. It is not, but the Court nevertheless affirmed dismissal.

“The second cause of action, for fraud/negligent misrepresentation, is not duplicative of defendant/third-party plaintiff ESF’s breach of contract counterclaim against plaintiff/third-party defendant Ferro Fabricators, Inc., since it does not allege that Ferro entered into a contract intending not to perform (see MBIA Ins. Corp. v Countrywide Home Loans, Inc., 87 AD3d 287, 293 [1st Dept 2011]). However, the claim must still be dismissed for failure to plead with requisite particularity pursuant to CPLR 3016 (b) (see e.g. Gregor v Rossi, 120 AD3d 447, 447 [1st Dept 2014] [holding that claims were not pleaded with requisite particularity because the words used by the defendants and the date of the alleged false representations were not set forth]). Here, the third-party complaint only contains general allegations as to the alleged [*2]misrepresentations and virtually no information as to when and by whom these representations were made.

Similarly, third-party plaintiffs’ fourth cause of action, for negligence/professional malpractice, is not duplicative of ESF’s breach of contract counterclaim, because “[a] legal duty independent of contractual obligations may be imposed by law as an incident to the parties’ relationship [and] [p]rofessionals . . . may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties” (Sommer v Federal Signal Corp., 79 NY2d 540, 551 [1992]). However, although the third-party complaint alleges that Ferro and third-party defendant Gregory Dec owed a duty to perform engineering services in a professional manner and without negligence, it fails to state nonconclusory allegations as to how the third-party defendants negligently discharged the alleged duties and what damage the alleged failure caused (cf. 17 Vista Fee Assoc. v Teachers Ins. & Annuity Assn. of Am., 259 AD2d 75, 82-83 [1st Dept 1999]).

DSW Lenox LLC v Rosetree on Lenox Ave. LLC  2015 NY Slip Op 32244(U)  November 23, 2015  Supreme Court, New York County  Docket Number: 652786/2011  Judge: Saliann Scarpulla is an example of the principal of privity and how it affects a legal malpractice case.  DSW was a 30% owner of a condominium at 381 Lenox Avenue, New York.  They alleged fraud in the marketing and sale of units at the condo and sued a wide swath of persons and entities.  However, the Court found that when the balance of the owner/board decided not to sue the individuals, and for us, more importantly, the attorneys, the business judgment rule protected that decision, as well as the fact that the Board hired the attorneys, not DSW.

“According to the SAC, this derivative action seeks recovery for construction defects in a building at 381-387 Lenox Avenue (the “Condominium”) in New York, and it also seeks “damages for fraud committed by defendants in co~ection with the marketing and sale of the units in the [Condominium] pursuant to material misrepresentations and omissions in the Offering Plan which were never disclosed despite the eight amendments thereto.” Plaintiff DSW is allegedly a 30% owner of the Condominium. The Court incorporates by reference the facts of the SAC as discussed in the May 2014 Order, and I only address additional facts as they relate to this motion. In the May 2014 Order I found, in pertinent part, that the:breach of fiduciary duty claims could not be sustained because the board’s decision not to file suit was protected by the business judgment rule. I additionally dismissed the SAC in its entirety because “[ e ]very cause of action asserted in the Complaint seeks to remedy the same wrongs that the Board voted not to pursue.” I also noted that while some defendants did not move to dismiss, the business judgment rule nonetheless applied to claims against them, “and ‘[i]t would exalt form over substance’ to await motions from the nonmoving defendants that would be granted as ‘compelled by the doctrine of the law of the case.”‘ (Citation omitted) Therefore, the claims against the nonmoving defendants were also dismissed. ”

“”Reargument is not designed to afford the unsuccessful party successive opportunities to reargue issues previously decided or to present arguments different from those originally asserted.” William P. Pahl Equip. Corp. v. Kassis, 182 A.D.2d 22, 27 (1st Dep’t 1992) (internal citation omitted). Pursuant to CPLR § 2221 ( d)(3 ), counsel must move for leave to reargue “within thirty days after service of a copy of the order determining the prior motion and written I notice of its entry.” On May 19, 2014, the MSF Defendants filed their Notice of Entry with the May 2014 Order. On June 19, 2014, thirty-one days after the Notice of Entry was filed, qsw filed this motion for leave to reargue. Pursuant to the discussion at oral argument, held on February 5, 2015, I deny the motion to reargue as against the MSF Defendants as untimely.2 Also as articulated during oral argument, the narrow question that I review on this I motion is whether the cases cited by plaintiff indicate that I erred in finding that the application of the business judgment rule effectively ended this lawsuit. The other portions of plaintiffs motion are denied because plaintiff has not shown that I overlooked or misapprehended any law or fact.”

Pine Street, however, is distinguishable. Pine Street, the trial court described the plaintiffs as “owners of condominium units in defendant 20 Pine Street Condominium, and allege that they represent the Homeowners Association (HOA) thereof,” and they ‘ . brought suit “for damages allegedly sustained by plaintiffs as a result of defendants’ failure to construct the condominium in accordance with the promises appearing in the offering plan, the plans and specifications filed with and approved by the Department of Buildings (DOB), the New York City Building Code (Building Code), and local industry standards.” 2012 N.Y. Misc. Lexis 2365, 2012 NY Slip Op 31302(U), *5 (Sup Ct, NY County May 16, 2012), ajf’d as modified 109 A.D.3d 733 (lst Dep’t 2013). It is clear from the trial court’s opinion that this was a direct, rather than a derivative action. E.g., id. at 12 (“Although it is well-settled that ‘individual unit owners lack standing to seek 652786/2011 Motion No. 019 Page 7 of 8 [* 7] damages for injury to the building’s common elements’ the offering plan specifically grants such a right to the individual unit owners under circumstances in which the condominium Board fails to act to enforce the Sponsor’s obligati~ns” [citation omitted]). Notably, nowhere in the opinion does the trial court claim that this is a derivative action, and I do not find it instructive in this derivative action where DSW has stepped into the shoes of the board of directors. Accordingly, for those defendants as against whom the motion was timely, I deny that part of the motion referencing the business judgment rule because plaintiff has not shown that I overlooked or misapprehended any law or fact. I decline to award costs and sanctions as requested by the CTSW Defendants.”

797 Broadway Group, LLC v Stracher Roth Gilmore Architects  2014 NY Slip Op 08689 [123 AD3d 1250]  December 11, 2014 Appellate Division, Third Department discusses when and how a professional relationship between an architect and a client begins, ends, and the terms upon which the architect serves.  There are “design-build” agreements and more simple ones for “professional services” alone.  Depending on which agreement is reached between the architect and the client determines when the statute commences.

“Plaintiff owns an office building in the City of Schenectady, Schenectady County. In response to a 2006 request for proposals by the County of Schenectady to provide newly constructed or renovated office space to house its Department of Social Services and Job Training Agency, defendant, a professional partnership that provides architecture services, submitted a proposal to plaintiff to redevelop the premises. Plaintiff accepted the proposal and also entered into a separate agreement with the general contractor, BCI Construction, Inc., for construction administration and management services. Following substantial completion of the work, the County assumed use and occupation of the building in early 2009. Approximately three years later, the stucco facade of the building began to crack and fail, with delamination allegedly occurring over most of the building’s exterior vertical surfaces.

In December 2012, plaintiff commenced this action, asserting claims sounding in strict liability, breach of implied warranty of fitness for a particular purpose, breach of implied warranty of merchantability, negligent design or review, breach of contract and negligent misrepresentation. In lieu of answering, defendant moved to dismiss all six causes of action in the complaint. As relevant here, defendant argued that the claims either failed to state a cause of action or that they were time-barred under the three-year statute of limitations applicable to claims of professional malpractice. Supreme Court granted defendant’s motion, prompting this appeal.

[*2] Plaintiff argues that Supreme Court erred in determining that the contract at issue was not a turnkey or design-build agreement pursuant to which defendant was responsible for all aspects of designing and building the project, as opposed to only professional services. In “turnkey” or “design-build” construction projects, “an owner contracts with one entity to both design and build the project [and] [t]he turnkey builder is responsible for every phase of the construction from final design through subcontracting, construction, finishing, and testing” (Robert A. Rubin, Sarah B. Biser & Catherine M.K. Brown, New York Construction Law Manual § 1:23 [2d ed 33 West’s NY Prac Series 2013]; see Richard K. Allen, Stanley A. Martin & Leah A. Rochwarg, Construction Law Handbook § 6.03 [A] at 134-135 [2d ed 2013]; see also Charlebois v Weller Assoc., 72 NY2d 587, 590-592 [1988]). The design-builder generally cannot shift liability and is the “single point [of] responsibility” under a design-build contract, because it is “the [d]esign-[b]uilder [who] has the responsibility of the preliminary and construction design, the responsibility of submitting a fixed sum for the construction of the project and the responsibility for holding the contracts with its trade contractors” (Richard K. Allen, Stanley A. Martin & Leah A. Rochwarg, Construction Law Handbook § 6.03 [A] at 134 [2d ed 2013] [emphasis added]). As plaintiff asserts, it follows that nearly every design-build project involves the existence of two or more contracts—at least one among the members of the design-build team and one between the design-builder and the owner. Here, however, it was not defendant, the purported design-builder, who held the separate contract with the general contractor, but plaintiff as the owner. Hence, Supreme Court correctly determined that the parties had not entered into a design-build agreement, despite their mislabeling the agreement as such, because the critical factor in a design-build arrangement—that the owner has only a single contract with the design-builder—is absent.”

“In light of the foregoing, we conclude that plaintiff’s fourth and fifth causes of action—alleging that defendant was negligent and breached the parties’ contract by failing to use reasonable care in rendering its professional services—essentially allege professional malpractice (see id. at 542-543; City of Binghamton v Hawk Eng’g P.C., 85 AD3d 1417, 1418 [2011], lv denied 17 NY3d 713 [2011]). Such claims “ ’come[ ] within the purview of CPLR 214 (6),’ ” which sets forth a three-year statute of limitations for nonmedical malpractice, “ ’regardless of whether the theory is based in tort or breach of contract’ ” (City of Binghamton v Hawk Eng’g P.C., 85 AD3d at 1418, quoting Rev Assembly Mem in Support, Bill Jacket, L 1996, ch 623 at 6; accord Matter of R.M. Kliment & Frances Halsband, Architects [McKinsey & Co., Inc.], 3 NY3d at 542). We note that “ ’a claim for professional malpractice against an engineer or architect accrues upon the completion of performance under the contract and the consequent termination of the parties’ professional relationship’ ” (City of Binghamton v Hawk Eng’g P.C., 85 AD3d at 1418, quoting Town of Wawarsing v Camp, Dresser & McKee, Inc., 49 AD3d 1100, 1101-1102 [2008]). Defendant provided both invoices indicating that it last rendered services to plaintiff in early January 2009, and a certificate of substantial completion that was signed by plaintiff’s representative that acknowledged that the work was “sufficiently complete in [*3]accordance with the [c]ontract [d]ocuments so that [plaintiff could] occupy” the premises as of December 19, 2008. Plaintiff signed the certificate of substantial completion in March 2009; defendant signed it in April 2009. Accordingly, in the absence of any contractual obligations extending beyond issuance of the certification of substantial completion, the running of the statute of limitations commenced in April 2009, at the latest (see State of New York v Lundin, 60 NY2d 987, 989 [1983]; City of Binghamton v Hawk Eng’g P.C., 85 AD3d at 1419; cf. Town of Wawarsing v Camp, Dresser & McKee, Inc., 49 AD3d at 1102-1104). Inasmuch as plaintiff did not commence this action until December 2012, plaintiff’s fourth and fifth causes of action are time-barred (see CPLR 214 [6]).”

Kaplan v Khanna  2015 NY Slip Op 25158 [48 Misc 3d 665]  May 15, 2015  Braun, J. illustrates a virtual compendium of errors in litigation.  Starting with making up the names of statutes, and failing to serve a complaint within 120 days, trying to sue a criminal defense attorney for mistakes without “actual innocence alleged, each were cause for dismissal.  On Friday, we’ll look at the “satisfaction” and settlement issue.

“This is an action with two formally designated causes of action, for legal malpractice and breach of contract, plus numerous others mentioned by pro se plaintiff in his papers, in connection with defendant’s representation of plaintiff in a criminal prosecution in the United States District Court, District of New Jersey, in which plaintiff pleaded guilty. Defendant moves to dismiss the complaint, pursuant to CPLR 3211 (a) (8), because service of the summons and complaint was not completed within the required 120 days of filing thereof, in violation of CPLR 306-b, and for failure to state a cause of action under CPLR 3211 (a) (7). Plaintiff filed a “Counter Motion” “pursuant to NY State Court Rules L.R. 83.1,” “Rule 47-Jury Trials-Civil Actions,”^[FN1] and “for Discovery.”^[FN2]

[1] The first issue to determine is whether to apply New York or New Jersey law. Matters of procedure are to be{**48 Misc 3d at 667} determined under New York law (see Tanges v Heidelberg N. Am., 93 NY2d 48, 53 [1999]; Lerner v Prince, 119 AD3d 122, 127-128 [1st Dept 2014]). Whether the summons and complaint were timely served is a procedural issue under CPLR 306-b, a New York statute governing the time period of service of process to obtain personal jurisdiction over a party in a New York action (see Federal Ins. Co. v Fries, 78 Misc 2d 805, 808 [Civ Ct, NY County 1974] [“matters dealing with the conduct of the litigation are procedural”]). The summons and complaint were not timely served within the required 120 days under CPLR 306-b,^[FN3] and plaintiff did not seek leave to extend the time in which to serve them and does not do so in his “Counter Motion” (see Qing Dong v Chen Mao Kao, 115 AD3d 839, 840 [2d Dept 2014]; Webb v Greater N.Y. Auto. Dealers Assn., Inc., 93 AD3d 561, 562 [1st Dept 2012]). Thus, the motion must be granted for this reason.

[2] As to whether the complaint alleges a cause of action, “[t]he first step in any case presenting a potential choice of law issue is to determine whether there is an actual conflict between the laws of the jurisdictions involved” (Matter of Allstate Ins. Co. [Stolarz—New Jersey Mfrs. Ins. Co.], 81 NY2d 219, 223 [1993]; see generally Cooney v Osgood Mach., 81 NY2d 66, 72-73 [1993]). Here, there is no conflict. Plaintiff’s complaint fails to state a cause of action under both New York and New Jersey law.

On a motion pursuant to CPLR 3211 (a) (7), a complaint must be liberally construed, the factual allegations therein must be accepted as true, the plaintiff must be given the benefit of all favorable inferences therefrom, and the court must decide only whether the facts alleged fall under any recognized legal theory (Miglino v Bally Total Fitness of Greater N.Y., Inc., 20 NY3d 342, 351 [2013]; Lee v Dow Jones & Co., Inc., 121 AD3d 548, 549 [1st Dept 2014];{**48 Misc 3d at 668} Siegmund Strauss, Inc. v East 149th Realty Corp., 104 AD3d 401, 403 [1st Dept 2013]). This motion also must be granted under CPLR 3211 (a) (7).

Where a plaintiff pleads guilty in an underlying criminal prosecution, expressly admitting his or her guilt, and that plea remains undisturbed, it precludes a legal malpractice claim as a matter of law (see Carmel v Lunney, 70 NY2d 169, 173 [1987] [“To state a cause of action for legal malpractice arising from negligent representation in a criminal proceeding, plaintiff must allege his innocence or a colorable claim of innocence of the underlying offense, for so long as the determination of his guilt of that offense remains undisturbed, no cause of action will lie. [*2]Here, because plaintiff’s conviction by plea of a misdemeanor violation of the Martin Act has not been successfully challenged, he can neither assert, nor establish, his innocence. He has thus failed to state a cause of action” (citation omitted)]; Alampi v Russo, 345 NJ Super 360, 371, 785 A2d 65, 72 [2001] [to permit the plaintiff in a legal malpractice action to “go behind his federal guilty plea . . . would undermine the integrity of the federal guilty plea in pursuit of a highly speculative thesis—that plaintiff would have achieved an ‘optimum outcome’ of no prosecution if his first attorney had in retrospect used different tactics”]).”

In a professional services setting, (in this case an accountant) when you can’t claim malpractice, you claim fraud.  Malpractice in this case was not possible to claim, because there was no privilty, and the paper documents ruled out “near privity.”

Israel Discount Bank of N.Y. v EisnerAmper LLP  2014 NY Slip Op 51620(U) [45 Misc 3d 1218(A)]  Decided on November 14, 2014  Supreme Court, New York County  Kornreich, J. demonstrates the importance of privity, and when a third-party may or may not rely on “near-privity.”

“Oak Rock, founded in 2001 by non-party John Murphy, is “a specialty asset-based lending company.” Complaint ¶¶ 12-13. Until the fraud at Oak Rock (discussed below) was discovered, Oak Rock was solely managed and controlled by Murphy. ¶ 12. Oak Rock makes “revolving asset-based loans” to installment financing dealers. ¶ 13. Simply put, Oak Rock [*2]funds the dealers’ financing and collateralizes that funding with the receivables in which the dealers have a security interest. Id. Oak Rock, in turn, finances its lending with credit facilities with a lower cost of debt than Oak Rock charges the dealers. ¶ 15. Thus, Oak Rock leverages its ability to obtain relatively low-cost debt and creates credit lines for merchants via the dealers, with the dealers doing the actual merchant lending. The merchant lending is secured by the merchants’ receivables, which is the collateral that flows upward to Oak Rock and its own financers, such as IDB, as the asset that backs this lending channel.

EisnerAmper issued unqualified Independent Auditors’ Reports on Oak Rock’s balance sheet and other financial statements for the years 2002 through 2011. ¶ 19. For 2002 through 2005, these audited reports were prepared by an EisnerAmper partner, Steve Singer. ¶ 20. Singer retired from EisnerAmper in 2006. ¶ 21. Thereafter, the audited repots were prepared by another partner, Steven Guzik. ¶ 22. Guzik, allegedly, “had virtually no experience in auditing asset based lenders.” ¶ 23. According to the complaint, at least four other EisnerAmper employees [see ¶¶ 24-27] also worked on Oak Rock audited reports, “[s]ome or all” of whom “lacked appropriate experience in auditing asset based lenders.” ¶ 28.

Each year, before EisnerAmper conducted its audit, Oak Rock signed substantially similar engagement letters. For instance, the engagement letter dated January 11, 2011 (for the 2010 audit) provided that “[t]he objective of [EisnerAmper’s] audit is to express an opinion about whether [Oak Rock’s] financial statements are fairly presented, in all material respects, in conformity with accounting principles generally accepted in the United States [GAAP].” The engagement letter then explained that the audit would be conducted in accordance with generally accepted auditing standards (GAAS), which required that EisnerAmper “plan and perform the audit to obtain reasonable, rather than absolute, assurance about whether the financial statements are free of material misstatement whether caused by error or fraud. Accordingly, a material misstatement may remain undetected.” The engagement letter further provided that “[t]he engagement is being undertaken solely for [Oak Rock’s] benefit and the parties do not intend to provide contractual rights to any other person” [emphasis added]. The engagement letter also noted that “the financial statements are the responsibility of the management of [Oak Rock]” and that “[m]anagement is responsible for designing and implementing programs and controls to prevent and detect fraud.””

“In this action, IDB seeks to hold EisnerAmper liable for the false information in Oak Rock’s financial statements that IDB allegedly relied on in lending money to Oak Rock. It is undisputed that, each year, Oak Rock’s financial statements contained myriad inaccuracies, which are set forth extensively in the complaint. See, e.g., ¶ 90 (false statements in 2010 financial statements). However, as noted earlier, in a highly unusual (and possibly intentional) decision, the complaint does not identify the cause or causes of action being asserted against EisnerAmper. Rather, a long, detailed narrative is presented, spanning 96 pages. When the court first read the complaint, it was unsure what claims were being asserted, and assumed that, based on the nature of the accusations, IDB was attempting to assert a malpractice claim against EisnerAmper. EisnerAmper’s counsel, understandably, thought so as well, and devoted a significant portion of its moving brief to explain, quite correctly, why such a claim fails as a matter of law. In opposition, IDB claimed its complaint was misunderstood, and, in reality, was only a claim for fraud. Specifically, IDB alleges that EisnerAmper’s false statements in its audit reports about Oak Rock’s financials, which IDB claims were the result of a grossly negligent audit process, amount to actionable fraud.”

“Finally, it should be noted that, while not a basis for this decision, the recently filed adversary proceeding (brought by the Official Committee of Oak Rock’s unsecured creditors) against IDB in Oak Rock’s bankruptcy proceeding suggests that, even if this case survived dismissal, its viability would be very much in question. The recently unsealed adversary complaint [see In re: Oak Rock Financial LLC, Case No. 8-14-08231, Dkt. 21 (Bankr EDNY Oct. 6, 2014)]^[FN5] alleges that IDB “had more contact, control and information about [Oak Rock] than any other lender and was responsible for managing [Oak Rock’s] collateral.” Id. ¶ 2 (emphasis added). The facts alleged in the adversary complaint, if true, would preclude an assertion of reasonable reliance and likely implicate the in pari delicto doctrine. See Kirschner v KPMG LLP, 15 NY3d 446, 464 (2010). Accordingly, it is

ORDERED that the motion to dismiss by defendant EisnerAmper LLP is granted, and the Clerk is directed to enter judgment dismissing the Complaint with prejudice.”