“Strict liability” renders a defendant legally responsible for damage and losses regardless of culpability or intent, fault or negligence. In Tang v Marks  2015 NY Slip Op 08110  Decided on November 12, 2015  Appellate Division, First Department it rendered plaintiff unable to sue defendant for legal malpractice.

“Defendant Marks, an attorney, represented plaintiffs in an underlying federal court action in which plaintiffs were found strictly liable under the Lanham Act, and in which the federal court entered a $400,000 judgment against them. Plaintiffs subsequently brought a legal malpractice and breach of contract action against Marks, claiming that, but for Marks’s negligence, plaintiffs would have faced a lower judgment.

To sustain a cause of action for legal malpractice, a plaintiff must show “(1) that the attorney was negligent; (2) that such negligence was a proximate cause of plaintiff’s losses; and (3) proof of actual damages” (Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005], lv denied 6 NY3d 713 [2006]). “In order to establish proximate cause, a plaintiff must demonstrate that but for the attorney’s negligence, she would have prevailed in the underlying matter or would not have sustained any ascertainable damages” (id. [emphasis added]). “[S]peculation on future events [is] insufficient to establish that the defendant lawyer’s malpractice, if any, was a proximate cause of any such loss” (id. at 734-735).

Here, as plaintiffs were admittedly strictly liable in the underlying federal action, they are unable to show that they would have prevailed and that they would not have sustained any ascertainable damages.”

McPhillips v Bauman  2015 NY Slip Op 08218  Decided on November 12, 2015  Appellate Division, Third Department is the very rare case in which the State defends a legal malpractice case.  Here, a host of prison employees and the state were sued for the death of an incarcerated prisoner .  The physician’s conduct was unfavorably reviewed by the Commission of Correction Medical Review Board, and he was then added to the law suit.  Although offered a settlement in which he did not pay or be held liable, he refused.  He then demanded that a private attorney be assigned to him.  While that motion was pending, his case was dismissed, and the reset of the matter was settled.

First:  “This action followed in July 2013 with plaintiff alleging three bases for malpractice: defendant ignored a conflict of interest; defendant neglected to keep the 2010 memorandum confidential or seek redaction of the strongly worded unfavorable parts thereof; and defendant failed to inform plaintiff in a timely fashion of the existence of the 2010 memorandum (which he asserts he did not know about until 2013) so that he could have pursued a defamation action. He sought damages for injury to his professional reputation and mental anguish. Defendant moved to dismiss the complaint. Supreme Court granted the motion and this appeal ensued.

We affirm. Elements of a cause of action for legal malpractice include the existence of an attorney-client relationship (see Arnold v Devane, 123 AD3d 1202, 1203 [2014]), 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” (Dombrowski v Bulson, 19 NY3d 347, 350 [2012] [internal quotation marks and citations omitted]; see Hyman v Burgess, 125 AD3d 1213, 1215 [2015]). It is undisputed that the federal action against plaintiff was dismissed with no admission of wrongdoing by him, as well as no monetary payment or liability by plaintiff. Although his treatment of inmates with asthma is purportedly now more closely monitored, there is no allegation that plaintiff lost his state job or suffered any economic harm in his employment. Plaintiff’s complaint did not allege pecuniary damages and “‘the established rule limit[s] recovery in legal malpractice actions to pecuniary damages'” (Kaufman v Medical Liab. Mut. Ins. Co., 121 AD3d 1459, 1460 [2014], lv denied 25 NY3d 906 [2015], quoting Dombrowski v Bulson, 19 NY3d at 352).

Second: “Even if there was a conflict of interest constituting an ethical violation as alleged by plaintiff, such a violation would not give rise to a viable legal malpractice claim absent pecuniary damages (see Guiles v Simser, 35 AD3d 1054, 1055-1056 [2006]). The absence of such damages is also fatal to the alleged disclosure error and, moreover, we recently held that the disclosed memorandum was “clearly pertinent” to the pending federal action and defendant’s disclosure thereof was “shielded by absolute privilege” (McPhillips v State of New York, 129 AD3d at 1362). Plaintiff urges that he does not need to allege pecuniary damages regarding defendant’s failure to advise of a potential defamation action because that potential action involved statements that tended to impugn his professional ability (see Schindler v Mejias, 100 AD3d 1315, 1316 [2012]). However, we need not directly address that issue because we agree with Supreme Court that, under the circumstances of this case, defendant did not have a duty in his representation pursuant to Public Officers Law § 17 to advise plaintiff of a potential separate private action involving nonparties (see Matter of O’Brien v Spitzer, 7 NY3d 239, 243 [2006] [“The purpose of Public Officers Law § 17 is, in essence, to provide insurance against litigation”]; Frontier Ins. Co. v State of New York, 87 NY2d 864, 867 [1995]). The remaining issues are either academic or unavailing.”

 

A constant in legal malpractice litigation is the fact that it always arises from a former representation of the client by the attorney.  How does the underlying record influence or limit the scope of legal malpractice.  Take the example of a company getting information from its attorney and acting on that information.  Assume that the company makes certain decisions which it later claims were influenced by attorney malpractice.  Are they bound by those decisions, or can they argue that they are not bound, because they acted on negligent advice.

The answer, as in all important legal questions is, “sometimes.”   Wachtell, Lipton, Rosen & Katz v CVR Energy, Inc.  2015 NY Slip Op 30270(U)  February 24, 2015  Supreme Court, New York County  Docket Number: 654343/2013 Judge: O. Peter Sherwood is a good example.  The board of this company agreed to a first set and a second set of retainer agreements with banks. The board later claimed that they would not have ratified the second retainer agreement if their attorney had not misled them.

“Ratification

When a party has the option to void an agreement, it ratifies, or affirms, the agreement by affirmatively validating the contract, or by failing to speak or act after discovering its rights (In re Marketxt Holdings Corp., 361 BR 369, 402 [Bankr SDNY 2007] [applying New York law]; Schenck v State Line Tel. Co., 238 NY 308, 313 [1924]). IfCVR’s Board had full knowledge of the fee terms 5 [* 5] of the Second Engagement Letters and failed to object or take immediate action to void the agreements, it ratified those agreements, and is responsible for fulfilling its obligations. Further, CVR’s ratification of the Second Engagement Letters would mean its obligation to pay the Banks pursuant to those agreements could not be caused by any negligence by Wach tell. Therefore, if CVR ratified the Second Engagement Letters, the chain of causation is broken between the alleged negligence and the alleged damages, and the counterclaim must be dismissed. In the Bank Actions, this court determined that CVR ratified the Second Engagement Letters. CVR is collaterally estopped from arguing that there was no ratification.

Collateral Estoppel

“Collateral estoppel, or issue preclusion, ‘precludes a party from relitigating in a subsequent action or proceeding an issue clearly raised in a prior action or proceeding and decided against that party … , whether or not the tribunals or causes of action are the same’ ” (Parker v Blauvelt Volunteer Fire Co., Inc., 93 NY2d 343, 349 [1999], quoting Ryan v New York Tel. Co., 62 NY2d 494, 500 [ 1984 ]). “The doctrine applies if the issue in the second action is identical to an issue which was raised, necessarily decided and material in the first action, and the plaintiff had a full and fair opportunity to litigate the issue in the earlier action” (Parker v Blauvelt Volunteer Fire Co., 93 NY2d at 349). Collateral estoppel will only be applied “to matters actually litigated and determined in a prior action” (Kaufman v Eli Lilly and Co., 65 NY2d 449, 456 [ 1985] [internal quotation marks omitted] citing Restatement [Second] of Judgements §27). In the Bank Actions, this court determined, on motions for summary judgment, that the Board, with knowledge of the fee terms, ratified the Second Engagement Letters. The undisputed facts there were that the Board “passed a resolution authorizing CVR to pay all fees incurred” pursuant to the Second Engagement Letters on April 18, 2012, that the amounts to be paid under those agreements were made explicitly clear to the Board later that same day, and that the Board made no objection to the Second Engagement Letters, either on that day or at the May 4, 2012, meeting when the board approved the minutes of the April 18, 2012 meeting (Bank Action Decisions at 7). At that point, regardless of Wachtell’s alleged prior misrepresentations, failures to provide information, or CVR’s original intentions regarding engaging the Banks, it was undisputed that the Board had all of the relevant information and ratified the Second Engagement Letters. That issue 6 [* 6] was necessary and material in the Bank Actions, it was thoroughly litigated,2 and the parties here are estopped from rearguing that point. CVR suggests the ratification be disregarded for this action because Wachtell ‘s malpractice caused the ratification by “the creation of inaccurate minutes and vague resolutions that failed to specify the amounts to be owed thereunder,” or failing to suggest CVR revoke the ratification and (CVR Opp. at 15). The cases relied upon by CVR in support of its arguments are distinguishable, and do not apply to these facts. In Avon Dev. Enterprises Corp. v Samnick, the First Department declined to apply collateral estoppel to preclude a malpractice claim because the issue in dispute was a pure question of law, unlike the question of ratification, here (see 286 AD2d 581, 582 [I st Dept 200 I]). In Houraney v Burton & Assoc., P. C., the plaintiff had alleged the defendant, acting as counsel in a prior lawsuit, failed to plead certain claims and made various errors at trial (08 CV 2688 CBA LB, 2010 WL 3926907, at *7 [EDNY Sept. 7, 2010] report and recommendation adopted, 08-CV-2688 CBA LB, 2011 WL 710269 [EDNY Feb. 22, 2011]). That court held collateral estoppel did not apply to the question of whether the defendant had been negligent, as that question had not been at issue in the previous litigation (id.). Here, collateral estoppel applies to the question of CVR’s ratification, which was fully litigated in the Bank Actions, not to the question of Wachtell’s negligence. Additionally, the malpractice alleged in each of the cases cited by CVR occurred in an underlying litigation. Here, no malpractice is alleged to have occurred in the litigation of the Bank Actions. CVR does not argue that the Bank Action Decisions were the result of Wachtell’s negligence. Therefore, CVR is not being “precluded from rearguing issues decided adversely to [it] because of [Wachtell’s] negligence” (id.). Schwarz v Shapiro is closer to the facts in this case (202 AD2d 187 [I st Dept 1994 ]). Schwartz sued his former attorney, Shapiro. Shapiro had drafted a letter agreement for Schwartz. In an earlier decision, the Appellate Division First Department had determined that Schwartz could not rescind the agreement because he had ratified it and accepted its benefits. As that court noted subsequently, “the doctrine of collateral estoppel prevents the plaintiff from now claiming that the agreement which he ratified and accepted did not express his understanding. Accordingly, the 2 The issue is currently under appeal. 7 [* 7] agreement cannot now serve as the basis for a claim of ma! practice or other misdeeds on the part of the attorney who drafted the agreement” (id. citing Schwartz v Public Administrator o.f County of Bronx, 24 NY2d 65 [ 1969]). Here, CVR, while in possession of all of the relevant information about the fee terms, ratified the Second Engagement Letters. CVR also accepted the benefits of the Banks’ work performed pursuant to those agreements. Accordingly, New York State law precludes CVR claiming its attorney’s malpractice caused it to enter into those agreements (see id.). As CVR alleges those agreements are the sole source of its damages, it has failed to allege the causation element of a malpractice claim. “

The scope of legal malpractice litigation is wide, and sometimes surprisingly deep.  Wachtell, Lipton, Rosen & Katz v CVR Energy, Inc.  2015 NY Slip Op 30270(U)  February 24, 2015
Supreme Court, New York County  Docket Number: 654343/2013  Judge: O. Peter Sherwood is a case that involves Carl Ichan, huge sums of money and a starkly stated claim of legal malpractice.  It involves litigation in Kansas, the Southern District, and this case in Supreme Court, New York County.

“This dispute arises out of the same transaction as the related actions; Goldman Sachs & Co. v CVR Energy, Inc. (Index No. 652149/2012) and Deutsche Bank Securities, Inc. v CVR Energy (Index No. 652800/2012) (the Bank Actions). In January 2012, CVR Energy, Inc. (CVR) learned that Carl Icahn and his affiliated companies (collectively, Icahn) had acquired a substantial minority interest in CVR. CVR believed Icahn was preparing to acquire or influence control over CVR. CVR wanted to resist this attempt. Wachtell was CVR’s counsel. CVR hired Goldman Sachs and Deutsche Bank (the Banks) to act as CVR’s financial advisors. CVR entered into initial agreements with each of the Banks. The agreements were embodied in letters of engagement (the Initial Engagement Letters). ”

“Each Initial Engagement Letter provided for flat rate fees, applicable in a variety of transactions or situations in which CVR may become involved, and for reimbursement of each Bank’s reasonable out-of-pocket expenses. In each Initial Engagement Letter, the contracting parties anticipated that, in the event of a sale or similar transaction, the parties would enter into a second agreement governing the specific transaction and setting forth new fee provisions. After Icahn announced a tender offer for outstanding CVR stock, each Bank advised CVR that it required a new fee arrangement. CVR then entered into a new engagement letter with each Bank (the Second Engagement Letters). The Second Engagement Letters confirmed CVR’s retention of the Banks to provide advisory and investment banking services to CVR and its Board relating to Icahn’s attempt to obtain control over CVR. Each letter also set forth schedules of flat rate fees, including an independence fee, an announcement fee, a proxy contest fee, and a termination fee, and fees based upon a percentage of the value CVR stock, such as a sale transaction fee and a success fee, each payable upon different triggering events and dates, among other terms. CVR claims the Board was never aware the Second Engagement Letters were operative and did not understand the terms of those agreements. Mr. Frank Pici, CVR’s Chief Financial Officer, signed the Second Engagement Letters on behalf of CVR. Mr. Edmund Gross, General Counsel of CVR, was also aware of the Second Engagement Letters, but did not understand that the Banks would earn the fee for a successful sale if the Icahn tender offer succeeded (counterclaim, ~ 28). CVR’s counterclaim alleges Wachtell “failed to advise CVR that under the terms of the [Second Engagement Letters], CVR would face claims by [the Banks] for $36 million even if [Icahn] acquired control of CVR … , double the fees that [the Banks] would charge if CVR remained independent” (counterclaim,~ 3). CVR claims it would not have agreed to the Second Engagement Letters if it had understood the fee term (id.). ”

“CVR did not pay the Banks, and litigation followed. The Banks began the Bank Actions, seeking their fees pursuant to the Second Engagement Letters. On October 24, 2013, CVR sued Wachtell and two individual partners of the firm for legal malpractice in the United States District Court for the District of Kansas (the “Federal Action”), claiming that Wachtell advised it poorly about how much it could end up owing Deutsche Bank and Goldman Sachs. That action was removed to the Southern District of New York. Meanwhile, on December 18, 2013, Wachtell filed this action with claims for (I) a declaratory judgment stating that Wachtell’s representation of CVR was consistent with the standards of the legal profession and caused no loss to CVR; (2) breach of a protective order and agreement regarding the production of documents against all defendants, claiming that documents produced by Wachtell pursuant to protective orders in the Bank Actions were improperly disclosed to Icahn and used in the Federal Action; and (3) abuse of process, claiming defendants were using the Bank Actions and the Federal Action to harass and elicit funds from Wachtell. ”

“To state a claim for legal malpractice, a plaintiff must allege negligence of the attorney, which was the proximate cause of the loss sustained, and proof of actual damages (Reibman v Senie, 302 AD2d 290 [1st Dept 2003]; Schwartz v Olshan Grundman Frome & Rosenzweig, 302 AD2d 193, 198 [1st Dept 2003]). To show proximate cause, a plaintiff must demonstrate that “but for” the attorney’s negligence, the plaintiff would not have sustained any “ascertainable damages” (Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005], lv denied 6 NY3d 713 [2006]; Reibman, 302 AD2d at 290-291 ). Wachtell does not dispute that the counterclaim alleges negligence and damages. CVR alleges that Wachtell failed to provide CVR with information about the Second Engagement Letters, failed to “competently represent CVR in negotiating fair and appropriate fee terms,” falsified the minutes of a board meeting to make it appear that Wachtell had provided information about the Second Engagement Letters, and failed to represent CVR’s best interests with respect to the fee terms in the Second Engagement Letters (answer and counterclaim, NYSCEF Doc. No. 42, at ii 44). CVR claims the amounts it will be required to pay the Banks are its damages. Wachtell argues that because the Board ratified the Second Engagement Letters, CVR’s allegation that Wachtell’s negligence proximately caused CVR’s damages must fail. ”

“Here, CVR, while in possession of all of the relevant information about the fee terms, ratified the Second Engagement Letters. CVR also accepted the benefits of the Banks’ work performed pursuant to those agreements. Accordingly, New York State law precludes CVR claiming its attorney’s malpractice caused it to enter into those agreements (see id.). As CVR alleges those agreements are the sole source of its damages, it has failed to allege the causation element of a malpractice claim.”

Legal malpractice claims, in contradistinction to all other professional negligence claims,  enjoy an extra layer of protection for the attorney. Not only must one find a departure from good practice, which proximately damaged the client, but (and only in legal malpractice) one must meet the “exacting standard” that but for the attorney’s negligence the outcome of the matter would have been substantially different.  This is big…very big, as we see in SS Marks LLC v Morrison Cohen LLP  2015 NY Slip Op 08090  Decided on November 10, 2015  Appellate Division, First Department.

“Plaintiff failed to show that defendants were negligent or that their alleged negligence was the proximate cause of the alleged damages (see Kaminsky v Herrick, Feinstein LLP, 59 AD3d 1, 9 [2008], lv denied 12 NY3d 715 [2009]). It did not, as is required in any legal malpractice case, establish that defendants “failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession [or] meet the exacting standard that but for the attorney’s negligence the outcome of the matter would have been substantially different” (id., internal quotation marks and citations omitted]). In particular, the documentary evidence refutes plaintiff’s claim that defendants failed to advise him of the existence and consequence of a subordination provision added to the lease at issue. Further, defendants’ failure to obtain a personal guaranty did not cause plaintiff any damages, as the documentary evidence shows that plaintiff assigned its rights to any guaranty to the lenders on the subject transaction.”

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).”