When might the professional be responsible for mistakes, yet given a pass because of the client’s conduct?  It happens with some regularity in the accountant malpractice area.  Accountant makes a professional error, yet client is unable to sue because it has “dirty hands.”  One frequent fact pattern is a rogue insider who causes problems that the accounting professionals should have detected.  They fail to detect the problems, and when sued, blame the rogue insider which then allows them to avoid all liability.  As an example CRC Litig. Trust v Marcum, LLP   2015 NY Slip Op 07811  Decided on October 28, 2015  Appellate Division, Second Department shows us how the accounting firm escapes suit.

“In an action, inter alia, to recover damages for accounting malpractice, the plaintiff appeals from a judgment of the Supreme Court, Nassau County (Driscoll, J.), dated July 12, 2013, which, upon an order of the same court dated June 20, 2013, granting the defendants’ separate motions pursuant to CPLR 3211(a) to dismiss the amended complaint insofar as asserted against each of them and denying the plaintiff’s cross motion for leave to amend the amended complaint, is in favor of the defendants and against it dismissing the complaint. The notice of appeal from the order dated June 20, 2013, is deemed to be a notice of appeal from the judgment dated July 12, 2013 (see CPLR 5512[a]).”

“In addition to the expiration of the statute of limitations as to the accounting malpractice causes of action against Marcum, the Supreme Court properly concluded that all of the plaintiff’s claims, against both defendants, were barred by the doctrine of in pari delicto, which “mandates that the courts will not intercede to resolve a dispute between two wrongdoers” (Kirschner v KPMG LLP, 15 NY3d 446, 464; see Schwartz v Leaf, Salzman, Manganelli, Pfiel & Tendler, LLP, 123 AD3d 901, 902). Contrary to the plaintiff’s contention, the allegations of the complaint do not implicate the “adverse interest” exception to the doctrine, because the allegations do not support a finding that the corporate insiders who allegedly committed the wrongdoing totally abandoned the corporation’s interests and acted entirely on their own (see Kirschner v KPMG LLP, 15 NY3d at 467-468; Chaikovska v Ernst & Young, LLP, 78 AD3d 1661, 1663-1664; cf. Symbol Tech., Inc. v Deloitte & Touche, LLP, 69 AD3d at 198).”

Katzrin Fin. Group, LLC v Arcapex LLC  2015 NY Slip Op 31971(U)  October 22, 2015
Supreme Court, New York County  Docket Number: 651129/2014  Judge: Anil C. Singh presents the very troubling question of how did a sophisticated business entity, used to lending $1 Million on a handshake end up losing $5 Million in a loan deal with a sovereign nation, all the while being represented by a law firm?

“This action arises out of investments made by Katzrin Finance Group, LLC (plaintiff or Katzrin) in Blue King, Inc. (Blue King), a payday lending corporation wholly owned by the Chukchansi Indian tribe (the tribe), a sovereign nation recognized by the United States government. The defendants in this action are Vincent Ney (Ney) and Jon Geidel (Geidel), as well as companies owned by them Arcapex LLC (Arcapex), Blackthorn Advisory Group LLC (Blackthorn), and Light Sword LLC (Light Sword) (collectively, defendants). Plaintiff claims that defendants induced it to invest in Blue King, a doomed-to-fail enterprise, by misrepresenting key aspects of the venture’s financial situation. Plaintiff claims (1) negligent misrepresentation against Ney, Arcapex, Blackthorn, and Light Sword; (2) fraud against Ney, Arcapex, Blackthorn, and Light Sword; (3) unjust enrichment against all defendants; and (4) aiding and abetting fraud against Geidel. Plaintiff also brought professional malpractice and breach of fiduciary duty claims against the law firm Katten Muchin Rosenman LLP, its counsel during the alleged fraud, but ultimately dropped those claims against te firm. Facts David Azar (Azar) is the principle of Katzrin. He was introduced to Ney in or about 2005, where Ney discussed his success in the payday lending business (Azar had no prior experience or knowledge of the industry). 1 Over the next several years, Azar and Ney met periodically at business conferences and social gatherings. In 2010, Ney asked Azar for a $1 million loan for his payday lending business. Azar reviewed Ney’s financial information and agreed to give Ney the loan, unsecured by any collateral. Ney subsequently repaid the loan in full. In 2012, Azar made another similar loan to Ney that was also repaid in full. In or about February 2012, Ney solicited Azar’s investment in the Blue King payday lending operation, claiming that the enterprise would be lucrative and low risk. The secret to the operation’s success would lie in Blue King’s corporate structure. The corporation was to be wholly owned by the Chukchansi Indian tribe, who-as a federally recognized sovereign nation–enjoyed limited sovereign immunity and was not subject to state or local payday lending regulations. This beneficial regulatory position, combined with the expert services provided by Arcapex, Blackthorn, and Light Sword, would make Blue King low risk and high reward. ”

“From February 2012 to August 2012, Ney and his associate Geidel aggressively solicited plaintiffs investment in Blue King. Ney and Geidel met with Azar multiple times over this period, participated in numerous conference calls and emails, and provided Katzrin various business and financial documents to further solicit his investment. The three men discussed Blue King’s structure, operations, and profitability. On April 9, 2012, Plaintiff sent copies of Blue King’s business proposal and business structure to the law firm Katten Muchin Rosenman LLP seeking the firm’s legal advice. Katten would provide counsel and conduct due diligence for Katzrin throughout the negotiation process. On May 21, 2012, Geidel sent an email to Azar stating that the servicing agreements, which allegedly contained information on how much the servicing entities owned by Ney and Geidel were to be paid by Blue King, but the documents were never provided to either Katzrin or Katten, despite request. On or about June 22, 2012, August 1, 2012, August 2, 2012, and August 22, 2012, Katzrin invested amounts totaling $5 million in Blue King. Upon completion of this initial investment, Katzrin received a closing binder that failed to disclose payments to the servicing entities and the Indian tribe. On or about November 26, 2012, Katzrin invested an additional $3 million in Blue King. In or about February 2014, Blue King failed to make a monthly payment due to Katzrin and Katzrin exercised its rights to recover half of its investment. Katzrin commenced this action by filing its Summons and Complaint on April 11, 2014. ”

“In order to succeed on a fraud claim, a plaintiff must show both that they relied upon the defendant’s misrepresentations and that such reliance was justifiable. Stuart Silver Assocs. v. Baco Dev. Corp., 245 A.D.2d 96, 98-99 (1st Dep’t 1997). As the Court of Appeals has repeatedly stated: [I]f the facts represented are not matters peculiarly within the party’s knowledge, and the other party has the means available to him of knowing, by the exercise of ordinary intelligence, the truth or the real quality of the subject of the representation, he must make use of those means, or he will not be heard to complain that he was induced to enter into the transaction by misrepresentations. Centro Empresarial Cempresa SA. v. America M6vil, S.A.B. de C. V, 17 N.Y.3d 269, 278-79 (2011) (citation omitted). Assuming defendants had a duty to disclose the information contained in the service agreements, plaintiff still needs to show that its alleged reliance was justified given the nature of their relationship. A plaintiff will generally have no difficulty showing it was justified in relying on representations made by its fiduciary, while a plaintiff alleging fraud within the context of an ordinary arm’s length transaction will have a much tougher time. Similarly, it is much more difficult for sophisticated parties acting under the advice of counsel to plead justifiable reliance than those with little-to-no business experience. Centro is particularly instructive. As in the current case, the plaintiffs fraud claim partially hinged on the allegation that the defendants failed to disclose financial information necessary to determine the value of plaintiffs investment. Centro Empresarial Cempresa, 17 N. Y.3d at 279. As here, the plaintiffs were a sophisticated business entities with the benefit of legal counsel. Id. The plaintiffs were aware that defendants had not supplied all the information that they were entitled to but failed to take actions necessary to protect their interests. Id. In the court’s words, this was “an instance where plaintiffs have been so lax in protecting themselves that they cannot fairly ask for the law’s protection.” Id. (citation omitted). In the current case, plaintiff hired counsel to conduct due diligence, was aware that defendants possessed information that was potentially important to its business decisions, was denied access to that information, and decided to invest anyway. CF ACA Fin. Guar. Corp. v Goldman, Sachs & Co., 25 NY3d 1043, 1045 [2015] (finding reasonable reliance was sufficiently stated when plaintiff sought information on how defendant would participate in the transaction, defendant made an affirmative misrepresentation). ”

“Here, Katzrin had the power to refuse to invest any of its money into Blue King until it had an opportunity to examine the service agreements: It was a sophisticated investor represented by a major law firm considering entering into an industry its own attorneys had warned was risky due to regulatory concerns. But here, Katzrin knew exactly what information it required, knew defendants likely possessed the information, and even knew what specific documents to ask for, but failed to take reasonable steps to protect its investment. Moreover, plaintiff continued investing for months following the last alleged discussion concerning the service agreements, even investing an additional $3 million months after completing the initial investment and months after plaintiffs own documentary evidence indicates it was made aware of the amounts being paid to the service providers and the Indian tribe. Thus, it is not the court’s role to insulate sophisticated businesses entities from the consequences of their own risky investments. “

A successful legal malpractice case is to regular litigation as billiards is to pool.  To the uninitiated, pool is a gave with 15 balls and a cue ball.  One uses the cue ball to propel the subject balls into pockets.  On ocassion, a combination shot is required.Carom or three-cushion billiards requires much more sophisticated play with the cue ball striking first one and then the other ball, or caroming off three cushions prior to striking the subject ball.

Legal malpractice requires the lining up of departure, proximate case, but for causation and ascertainable damages.   Heritage Partners, LLC v Stroock & Stroock & Lavan LLP
2015 NY Slip Op 08074  Decided on November 5, 2015  Appellate Division, First Department shows how difficult the shot is to play, even in the big leagues when experts are playing the game.

“The court applied the correct standard and properly dismissed the complaint. Its unsupported factual allegations, speculation and conclusory statements failed to sufficiently show that but for defendant’s alleged failure to advise plaintiffs to pursue Chapter 11 bankruptcy upon their default on a $47 million loan, plaintiffs would not have lost approximately $80 million in equity in the underlying condominium project in Tribeca (Dweck Law Firm v Mann, 283 AD2d 292, 293 [1st Dept 2001]; see also David v Hack, 97 AD3d 437, 438 [1st Dept 2012]; O’Callaghan v Brunelle, 84 AD3d 581 [1st Dept 2011], lv denied 18 NY3d 804 [2012]).

Plaintiffs, who defaulted on the loan in May 2009, alleged damages of approximately $80 million in lost equity based on sales figures of units that sold after the lender assumed ownership of the underlying property in 2010. While plaintiffs argue that the amount was also based on an expert appraisal, no basis for the amount is apparent, other than later sales in 2010 and 2011, after the lender took over, and after the market had improved. Plaintiffs’ calculation also ignores that the Attorney General would not, as of December 2009, allow the sponsor, plaintiff 415 Greenwich LLC, to sell any units because it had failed to submit a plan that sufficiently stated how it would pay its arrears and other financial obligations in connection with the condominium units. Thus, plaintiffs’ speculative and conclusory allegations do not suffice to show actual ascertainable damages (Pellegrino v File, 291 AD2d 60, 63 [1st Dept 2002], lv denied 98 NY2d 606 [2002]).

Moreover, plaintiffs failed to allege sufficient facts to show that but for defendant’s failure to advise them to pursue a Chapter 11 reorganization, they would have retained the building and thus preserved their owner equity (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442 [2007]; Dweck Law Firm at 293). Among other things, plaintiffs speculate that the individual plaintiffs would agree to trigger the “bad boy” guarantees in the loan agreement, which would hold them personally liable for the debt if the borrowing company pursued the bankruptcy option. Plaintiffs further speculate that a bankruptcy court might agree to enjoin or stay any such proceeding to enforce those carveout guarantees. Plaintiffs also fail to allege facts sufficient to establish that they had funds to even initiate bankruptcy proceedings, and speculate that they would have obtained debtor-in-possession financing in a troubled economic climate. Plaintiffs argue that they would overcome these and other hurdles to obtaining Chapter 11 reorganization because their alleged $80 million “equity cushion” exceeded its roughly $63 million in total debt, but as noted above, this does not suffice. In light of the numerous obstacles to pursuing, let alone successfully achieving, Chapter 11 reorganization, plaintiffs’ allegations were “couched in terms of gross speculations on future events and point[ed] to the speculative nature of plaintiffs’ claim” (Sherwood Group v Dornbush, Mensch, Mandelstam & Silverman, 191 AD2d 292, 294 [lst Dept 1993]; see also Perkins v Norwick, 257 AD2d 48, 50-51 [1st Dept 1999]).

Summary judgment motion practice is the new trial, or put another way, there are very few trials in legal malpractice (or elsewhere) and a lot more dispositions on summary judgment.  This obviously renders the various components of a motion for summary judgment all the more important.  The expert’s affidavit can be the paramount item in the broth, and in Aur v Manhattan Greenpoint Ltd.  2015 NY Slip Op 07912  Decided on October 29, 2015  the Appellate Division, First Department found everyone’s affidavits to be lacking…defendants’ a little more than plaintiff’s.

“The court erred in denying the Fernandez defendants’ motion for summary judgment on the ground that they failed to submit an affidavit by a person with personal knowledge of the facts underlying the motion (CPLR 3212[b]). Their counsel’s affirmation properly served as a vehicle for the submission of evidentiary proof in admissible form, such as plaintiff’s deposition testimony (Zuckerman v City of New York, 49 NY2d 557, 563 [1980]).

Nevertheless, the Fernandez defendants failed to establish their entitlement to summary dismissal of the complaint as against them (see AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434 [2007]). “In an action to recover damages for legal malpractice, a plaintiff must demonstrate 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 this duty proximately caused plaintiff to sustain actual and ascertainable damages (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442 [2007][internal quotation marks omitted]). However, a defendant seeking dismissal of a malpractice case against him has the burden of making a prima facie showing of entitlement to summary judgment (see Suppiah v Kalish, 76 AD3d 829, 832 [1st Dept 2010], appeal withdrawn 16 NY3d 796 [2011]). Where the motion is premised on an argument that the plaintiff could not succeed on her claim below, it is the defendant’s burden to demonstrate that the plaintiff would be unable to prove one of the essential elements of her claim (see Velie v Ellis Law, P.C., 48 AD3d 674 [2d Dept 2008]). Here, the Fernandez defendants failed to make a prima facie showing of entitlement to judgment as a [*2]matter of law, tendering sufficient evidence to eliminate any material issues of fact from the case (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). The Fernandez defendants’ bare conclusory assertion that they were not negligent is insufficient.

Whether or not the complexities of this particular case involving a real estate transaction require an expert affidavit (see Wo Yee Hing Realty Corp. v Stern, 99 AD3d 58, 63 [1st Dept 2012]), the conclusory, self-serving assertions submitted, lacking any reference to specific industry standards and/or practices, to support the conclusion that the work at issue was done in a professionally competent manner, do not satisfy the movants’ burden. Nor do the Fernandez defendants eliminate all material issues of fact on causation and/or damages. Plaintiff’s expert affidavit on damages is not so deficient that it lacks probative value (see Romano v Stanley, 90 NY2d 444 [1997]; Amatulli v Delhi Constr. Corp., 77 NY2d 525, 533 [1991]).

LaTouche v Terezakis  2015 NY Slip Op 07821  Decided on October 28, 2015  Appellate Division, Second Department illustrates the perils of summary judgment motion practice.  In all litigation, and in legal malpractice litigation to a higher degree, cases are sorted out and culled at the summary judgment level on a increasing basis.  Defendants almost always make the motion, and plaintiffs sometimes do as well.  Here, the case was lost for plaintiffs on the basis that there was no mention of “proximate cause” in their expert’s opposition affidavit.

“In an action, inter alia, to recover on promissory notes and accounts stated, and for legal malpractice, the plaintiffs appeal, as limited by their brief, from so much of an order of the Supreme Court, Queens County (Pineda-Kirwan, J.), dated June 28, 2013, as denied their motion for summary judgment on their causes of action against the defendant Nicola Cavallo to recover on promissory notes and accounts stated and for summary judgment on their causes of action against the defendant James Follander to recover damages for legal malpractice, and granted those branches of the motion of the defendant James Follander which were for summary judgment dismissing the causes of action to recover damages for legal malpractice asserted against him by the plaintiffs Jaurel LaTouche, Kimberly Joseph, Emmanuel Joseph, and Tracy Monel. The defendant James Follander cross-appeals from so much of the same order as denied those branches of his motion which were for summary judgment dismissing the causes of action to recover damages for legal malpractice and for punitive damages asserted against him by the plaintiffs Sheila Audige, Garcia Montfleury, and Vladimir Monel.

ORDERED that the order is affirmed insofar as appealed from; and it is further,

ORDERED that the order is reversed insofar as cross-appealed from, on the law, and those branches of the motion of the defendant James Follander which were for summary judgment dismissing the causes of action to recover damages for legal malpractice and for punitive damages asserted against him by the plaintiffs Sheila Audige, Garcia Montfleury, and Vladimir Monel, are granted;”

“The Supreme Court properly denied that branch of the plaintiffs’ motion which was for summary judgment on their causes of action against the defendant James Follander to recover damages for legal malpractice and granted those branches of Follander’s motion which were for summary judgment dismissing the causes of action to recover damages for legal malpractice asserted against him by the plaintiffs Jaurel LaTouche, Kimberly Joseph, Emmanuel Joseph, and Tracy Monel. In addition, the court should have granted those branches of Follander’s motion which were for summary judgment dismissing the causes of action to recover damages for legal malpractice and for punitive damages asserted against him by the plaintiffs Sheila Audige, Garcia Montfleury, and Vladimir Monel. In opposition to Follander’s prima facie showing of entitlement to judgment as a matter of law, the plaintiffs failed to raise a triable issue of fact (see Zuckerman v City of New York, 49 NY2d 557). The expert affidavit submitted by the plaintiffs in opposition to Follander’s motion failed to address the issue of proximate cause, and the plaintiffs failed to adduce any evidence to demonstrate that Follander’s alleged legal malpractice proximately caused them to sustain any actual and ascertainable damages (see Parklex Assoc. v Flemming Zulack Williamson Zauderer, LLP, 118 AD3d 968).”

Time passes quickly, and the right to sue can simply pass us by.  When time is running in statute of limitations terms, all can be lost, as it was in Yardeny v. Tanenbaum
Decided on October 28, 2015   2015 NY Slip Op 07834  Appellate Division, Second Department.

“he three-year statute of limitations on a cause of action alleging legal malpractice begins to run when the malpractice is committed, not when the client discovers it (see CPLR 214[6]; McCoy v Feinman, 99 NY2d 295, 301; Landow v Snow Becker Krauss, P.C., 111 AD3d 795, 796). Here, the defendant established his prima facie entitlement to judgment as a matter of law dismissing the complaint as untimely by demonstrating that the plaintiff did not commence the action within three years after the claim accrued in 2006. In opposition, the plaintiff failed to raise a triable issue of fact as to whether the action was timely commenced or whether the defendant should be equitably estopped from relying upon the statute of limitations (see Benjamin v Allstate Ins. Co., 127 AD3d 1120, 1121). Accordingly, the Supreme Court properly granted the defendant’s motion for summary judgment dismissing the complaint as time-barred (id.). In light of our determination, we need not reach the plaintiff’s remaining contentions.”

The Appellate Divisions of New York are deluged with appeals. In the First and Second Departments, there are 20 appeals scheduled for oral argument every day.  In the general range of cases before the ADs, one sees a range of decisions.  Some are thoughtful, some summary but each has its own signals embedded.  In Esposito v Noto  2015 NY Slip Op 07814  Decided on October 28, 2015  Appellate Division, Second Department, we see the Second Department telling a Supreme Court judge that it has a significant problem with his decision on summary judgment.  It reversed and sent the case to a different judge.  This happens only very very rarely.

“The defendant attorney represented the plaintiffs in connection with the sale of real property, upon which they had operated an auto salvage business, for the sum of $1.9 million. The plaintiffs entered into negotiations with a developer, Ofer Attia, who wanted to build condominiums on the property and adjoining parcels. The deal, as originally contemplated, fixed a purchase price of $2.5 million, and called for Attia to make a cash payment in the sum of $700,000, and for the plaintiffs to take back a purchase money mortgage for the remainder of the purchase price. Over the course of the next two years, the proposed deal was revised so that it became a complicated equity transaction, pursuant to which the plaintiffs transferred the premises to a limited liability company (hereinafter LLC) created by Attia, of which they were minority members, and, generally, the plaintiffs would be paid the $1.9 million purchase price from the profits of the development, or by December 31, 2009, at the latest, from all sources, while receiving certain consultant fee payments until full payment. The project faltered and the plaintiffs were never paid the purchase price. Another related LLC, which appears to have held the assets of the development project instead of the initial LLC created by Attia, defaulted on a bridge loan, and the premises went into foreclosure. Attia and the related LLC both filed for bankruptcy protection.

The plaintiffs thereafter commenced this legal malpractice action, alleging that the defendant attorney failed to fully explain the transaction and its inherent risks, and should not have recommended continuing with the transaction after it changed to an equity transaction, especially [*2]in light of the existence of another all-cash offer for the purchase of the premises. They further alleged that the defendant had an undisclosed conflict of interest, in that he represented Attia and the LLCs with regard to zoning issues, financing, and acquisition of other parcels for the project. They alleged that, but for the defendant’s malpractice, they would not have entered into the agreement and would not have lost the property without payment. The defendant moved for summary judgment dismissing the amended complaint, arguing that he was not negligent and, in any event, his advice did not proximately cause the plaintiffs’ alleged damages. The Supreme Court granted the motion, and the plaintiffs appeal.”

“Here, the defendant established, prima facie, that he did not depart from the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession by submitting his affidavit and a transcript of his deposition testimony to the effect that he fully explained the transaction and its inherent risks to the plaintiffs, who consented to his representation of Attia with regard to the development project. However, in opposition, the plaintiffs submitted an affidavit disputing these facts, thereby raising triable issues of fact regarding whether the defendant breached his duty of care (see Hearst v Hearst, 50 AD3d 959, 963; Terio v Spodek, 25 AD3d 781). The Supreme Court erred in rejecting the plaintiffs’ submissions based on its determination of their credibility. “The function of the court on a motion for summary judgment is not to resolve issues of fact or to determine matters of credibility, but merely to determine whether such issues exist” (Bonaventura v Galpin, 119 AD3d 625, 625; see Stukas v Streiter, 83 AD3d 18, 23; Kolivas v Kirchoff, 14 AD3d 493).

Further, the defendant failed to meet his prima facie burden on the issue of proximate cause. The governmental- and market-related issues which beset the project were the types of risks that were inherent in the transaction, and not a superseding cause of the plaintiffs’ alleged damages (see generally Derdiarian v Felix Contr. Corp., 51 NY2d 308, 315). Moreover, we cannot say on this record that the plaintiffs’ failure to commence an action against Attia or one of the LLCs means that they will be unable to establish proximate cause (see Birnbaum v Misiano, 52 AD3d 632, 634).

Accordingly, the Supreme Court should have denied the defendant’s motion for summary judgment dismissing the amended complaint. Under the circumstances of this case, we remit the matter to the Supreme Court, Westchester County, for further proceedings before a different Justice.”

Ragunandan v Donado   2015 NY Slip Op 31957(U)  October 23, 2015  Supreme Court, Queens County  Docket Number: 12332 2012  Judge: David Elliot,  is a case which caused us some head-scratching.  Plaintiff was able to purchase a large number of real properties in Queens and rent them out.  How did she cooperate in letting it all come crashing down?  What could have caused her to sell properties, fail to ensure that the mortgage was paid, and then eventually give it all away to a (soon to be) convicted fraud?  On another note, how could one of the attorneys get out of the case on a failure to take a default within a year?

“Plaintiff seeks to recover from Lozada, the attorney who represented her at a real estate closing, because the proceeds of the sale were ultimately stolen by a nonparty. Plaintiff alleges that Lozada failed to properly advise her against putting the proceeds of the sale into an account where it was ultimately stolen. Lozada moves to dismiss the complaint on the ground that plaintiff cannot show that she suffered actual damages as a direct result of his alleged action or inaction. Plaintiff opposes the motion, and cross-moves for summary judgment in her favor.”

“In or about 2009, plaintiff owned and rented out multiple properties in Queens, New York. In July 2009, plaintiff began experiencing financial difficulties as a result of her tenants having failed to pay rent and having caused property damage. Around that time, plaintiff spoke to Imran Badoolah, a person who she had known for several years, about her financial woes. Badoolah told plaintiff that he was in the real estate business. Plaintiff, in turn, informed Badoolah that she was thinking of selling her properties to pay off the outstanding mortgage on her residence. Plaintiff told Badoolah that she wanted the balance of any sale proceeds from the sale of the properties to be put towards her daughters’ education. Plaintiff further informed Badoolah that three of her relatives – Chandika Persaud, Indranie Saphi, and Aari Arif Saphie – were potential purchasers for the property at issue herein. Badoolah offered to help plaintiff sell the property and to handle her financial difficulties. Plaintiff agreed. Specifically, plaintiff felt that Badoolah would be able to relieve her of the “headache” of selling the property since she had known Badoolah for years and he had never given her any reason to doubt his intentions. According to plaintiff, Badoolah arranged to have the subject property sold to her relatives. Plaintiff stated that she never discussed her financial difficulties with her relatives and never informed them of her plans with the sales proceeds. Plaintiff testified that her relatives did not meet Badoolah until the date of the closing.”

“At some point during the closing, Lozada was told that the sale proceeds would be wired into his escrow account. While Lozada had never done this himself, he had seen sellers’ attorneys in other transactions receive sale proceeds into their escrow accounts. Lozada was then told that he was to disburse the sale proceeds to two entities: AMG3, LLC and Maryann Smith, LLC. Lozada discussed the disbursement arrangement with plaintiff and, after doing so, he drafted disbursement instructions which explicitly outlined the disbursement arrangement. Pursuant to the disbursement instructions, Lozada wasto receive a wire into his escrow account of $442,390.00. He was to disburse $70,000.00 to AMG3, LLC, and the remaining balance was to be disbursed to Maryann Smith, LLC. Plaintiff reviewed the disbursement instructions and signed them. Plaintiff did not inform Lozada as to what she planned to do with the sale proceeds. However, she verbally and in writing authorized the disbursement instructions that were discussed and agreed to at the closing. The sale proceeds were wired into Lozada’s escrow account. Once Lozada confirmed that the wire was effective, Lozada issued two checks from his IOLTA account, one for $70,000.00 to AMG3, LLC, and another for $372,390.00 to Maryann Smith, LLC (the disbursement checks). Plaintiff testified that, sometime after the closing, she contacted Badoolah, who acknowledged stealing the sale proceeds. He explained that he needed to pay certain individuals and would eventually return the sale proceeds. However, to date, he has not done so. After realizing that Badoolah had stolen the sale proceeds without satisfying the mortgage on her residence, plaintiff’s attorney in this action, Ira Cooper, contacted Lozada. Cooper was informed by Lozada that Lozada had disbursed the sale proceeds in accordance with the written disbursement instructions which plaintiff signed at the closing. Lozada also faxed to Cooper a copy of the disbursement document along with copies of the issued checks.

Plaintiff further testified that she owned other properties which she used as rental properties and for her own personal use. She acknowledged that the transaction at issue in this action was not her first real estate transaction and plaintiff states that she trusted Badoolah to take care of her financial difficulties. Plaintiff also signed over deeds to various other properties to third parties, at Badoolah’s direction, allegedly to help plaintiff deal with her financial difficulties.”

“Lozada claims that it is also relevant to note that Badoolah was indicted on charges of defrauding various lending institutions by obtaining mortgages on properties through fraudulent means, including falsifying mortgage loan applications and other documents (United States of America v Imran Ismile Badoolah, Case No. 1:12-cr-00774-KAM (EDNY) (the criminal action). Plaintiff assisted the FBI in its investigation of Badoolah in the federal criminal action. Badoolah has since pleaded guilty to the first count of the indictment, and was sentenced.”

“On this point, Badoolah’s misappropriation of the sale proceeds precludes liability as against Lozada. Courts have routinely rejected that a defendant’s negligence was a direct and proximate cause of a plaintiff’s loss when another party committed a misappropriation and or defalcation that directly caused the alleged loss (see e.g. Liberman v Worden, 268 AD2d 337 [1st Dept 2000] [finding that a subsequent misappropriation of properly deposited funds was the proximate cause of a decedent’s loss]; Geotel, Inc. v Wallace, 162 AD2d 166 [1st Dept 1990] [any loss was a result of the manipulation of accounts by a third nonparty over which the defendant exercised no control]; Nat’l Market Share, Inc. v Sterling Natl Bank, 392 F3d 520 [2d Cir 2004] [an intervening defalcation by a non-party broke the causal link between the defendant’s breach and the complained-of damages and was an integral part of the proximate cause analysis]).”

“Accordingly, Lozada’s motion for an order granting him summary judgment dismissing the complaint is granted. Plaintiff’s cross motion for summary judgment in her favor is denied. The complaint against Lozada is dismissed.”