After several go-rounds the matter of Prospect Capital Corp. v Morgan Lewis & Bockius LLP 2024 NY Slip Op 33322(U) September 19, 2024 Supreme Court, New York County Docket Number: Index No. 653941/2022 Judge: Margaret A. Chan is moving forward. Initially dismissed, then re-argued, the case turns on “the real harm “flowing from defendants’ alleged negligence was Prospect’s loss of [the Turnover Claim] cause of action and its distinct remedies, rather than its ability to obtain a more favorable economic result in the SVB Litigation after losing the turnover remedy” (NYSCEF # 90, Reargument Decision, at 6).”

More to the point of this blog post, plaintiff has been required to turn over its mediation statements and documents from the underlying US District Court case.

“The parties are now in discovery. Several months ago, Morgan Lewis filed a Rule 14 letter arguing that Prospect should produce its “mediation statements and other communications submitted in connection with Prospect’s efforts to resolve” the SVB Litigation (see NYSCEF # 113, Morgan Lewis R 14 Ltr, at 1). Prospect responded that it should not be made to produce the mediation statement because (a) doing so would violate Magistrate Judge Wang’s individual rules regarding confidentiality of communications during settlement, and (b) the court should adopt a “mediation privilege” that no court in New York has yet to accept (see NYSCEF # 114, Prospect R 14 Ltr). The court held a Rule 14 conference on May 8, 2024, at which it agreed with Morgan Lewis’s position that the mediation statements should be produced. However, Prospect asked for the right to appeal, hence, the parties were granted leave to bring this motion and were advised by this court that the decision would be consistent with the conference order (NYSCEF # 115, May 8 Conference Order). Morgan Lewis then filed an OSC and attached both parties’ Rule 14 letters as exhibits (NYSCEF #s 111-114) but did not file a brief in support.”

“Prospect’s mediation statement is relevant to the second prong because it is likely to either verify or challenge the assertion that Prospect could not prove causation or damages for the Section 1 Claim. The mediation statement likely sets out Prospect’s position and proposed proof for all elements of the Section 1 Claim. If Prospect was in fact able to prove causation and damages for that claim, then Prospect and SVB may have had other reasons for settling that were unrelated to the loss of the Turnover Claim, potentially cutting off the causal chain between negligence and damages.2 Moreover, as Morgan Lewis argues in its brief, the mediation statement likely contain facts about what other steps Prospect believed it could have taken in the Loan Workout Process, which also goes towards both causation (if Prospect was not actually relying on Morgan Lewis’s advice) and mitigation of damages (see NYSCEF # 128 at 6-7). In other words, Morgan Lewis does not seek the mediation statements merely for a simple monetary “set-off’ defense or “impeachment” purposes. It seeks to challenge essential elements of Prospect’s case: causation and damages-that Prospect was forced to settle the SVB Litigation because it could not prove causation or damages for the Section 1 Claim but would have won if the Turnover Claim was available. Indeed, the court has already referenced the necessity of this argument (see NYSCEF # 90 at 7 [“even if Prospect’s settlement is considered in the court’s causation analysis, the complaint’s allegations … support a reasonable inference that the eventual settlement of the SVB Litigation was effectively compelled by defendants’ mistakes”] [emphasis added]).”

“Finally, Prospect asks this court to create a so-called “mediation privilege” to protect documents and statements made during the parties’ mediation. Relying on federal case law, Prospect argues that the court should allow disclosure of mediation materials “only upon a showing of “(1) a special need for the confidential material, (2) resulting unfairness from a lack of discovery, and (3) that the need for the evidence outweighs the interest in maintaining confidentiality” (NYSCEF # 117 at 9, quoting In re Teligent, Inc., 640 F3d 53, 58 [2d Cir 2011]).

However, New York courts have not recognized a mediation privilege, and there is no reason to do so here. As recently as last year, courts in this state rejected such a privilege because “New York has not adopted the Uniform Mediation Act, and the New York Court of Appeals has not recognized a mediation privilege in New York” ( liXI Lux Holdco S.A R.L. v SIC Holdings, LLC, 79 Misc 3d 1223(A) [Sup Ct 2023]; see also Time Warner Cable Enterprises LLC v Nokia of Am. Corp., 83 Misc 3d 1254(A) [Sup Ct 2024] [rejecting argument that CPLR 454 7 creates a mediation privilege]). Those words remain as true today as they were a year ago; nothing has changed at the statutory or Court of Appeals levels. Prospect’s request to create a mediation privilege is denied. Morgan Lewis’s request for Prospect’s mediation statement is granted.”

We have often noted that real estate legal malpractice claims take up a large part of the New York legal malpractice world. FTF Lending, LLC v Mavrides, Moyal, Packman & Sadkin, LLP 2024 NY Slip Op 33115(U) September 6, 2024 Supreme Court, New York County Docket Number: Index No. 153620/2020 Judge: Margaret A. Chan is a prime example.

“Plaintiff FTF Lending, LLC (FTF) brings this action against defendants Mavrides, Moyal, Packman & Sadkin, LLP (MMPS) and Matthew Weinberger (Weinberger together with MMPS, defendants), asserting a claim for legal malpractice arising out of defendants’ representation of FTF in a loan transaction (the Loan Transaction) (NYSCEF # 1) .1 Before the court are (1) FTF’s motion, pursuant CPLR 3212, for summary judgment on its legal malpractice claim, and (2) defendants’ cross motion for summary judgment dismissing FTF’ s claim (NYSCEF #s 103, 130-131). For the following .reasons, both motions are denied.”

“Here, FTF has established the first element of its legal malpractice claim. At the outset, FTF has marshalled sufficient evident establishing that FTF had a duty to properly review the title report as part of its representation of FTF in the Loan Transaction. For example, FTF’s employees had understood and expected that MMPS would (1) draft and review all documents necessary to effectuate the Loan’s closing, including the Title Reports, (2) ensure that 2330 Dutch owned the Property, and (3) ensure that FTF was secured by a first-priority mortgage on the Property (see Rodak aff,r,r 14-16, 21; Kuclo tr 24:13-23, 31:17-22, 33:8-14, 125:3-126:18; Ferrante tr so:15-52:12). Packman and Weinberger, effectively corroborated FTF’s understanding by testifying that the responsibility of lender’s counsel was to “properly produce enforceable, recordable, and useful loan documents” and “to review the title report” (see Packman tr 39:14-23, 42:7-43:6, 57:13·16, 86:12-18; Weinberger tr 22=13·21, 40:2•15). FTF has further demonstrated that defendants breached that duty through their negligent conduct. As the record makes clear, the Title Reports were riddled with indicia of fraud-a fact that was only discovered by FTF after the Loan’s closing (see Pltf 19-a 11 25, 31; Defts 19-a 11 48·52; Rodak aff ,i,i 24-25). According to FTF’s expert, these discrepancies, as well as other anomalies with the Loan Transaction in general, should have, at minimum, caused defendants to have suspicion as to veracity of the documents that had been provided Borrowers and, in turn, triggered additional review, particularly given the importance of the title report in a typical real estate transaction (see Delshad aff 11 12, 14, 17, 16, 18·24 & exhs B & C). Yet neither defendants nor their legal staff · identified or flagged any issues with the Title Report to FTF prior to the Loan’s closing (see e.g., Packman aff 1 16). This failure to identify issues in the Title Report was seemingly accentuated by defendants’ lack of supervision over Lapka in her management of the Loan Transaction. Indeed, as Weinberger testified, she “should have noticed” the discrepancies in the Title Reports (see Weinberger tr 76:5-11). All told, these facts, considered in their totality, provide a sufficient basis to conclude that defendants’ representation of FTF fell below the ordinary and reasonable skill and knowledge commonly possessed by members of the profession (see Benitez v United Homes of N. Y., LLC, 142 AD3d 867, 867 [1st Dept 2016] [plaintiff made a prima facie showing of negligence where defendant “fail[ed] to advise that the subject property lacked a certificate of occupancy, fail[ed] to advise of the risk of funding the loan under these circumstances, and faiHed] to confirm that plaintiff’ met a condition of the loanD. In opposition, defendants fail to demonstrate the existence of material issues of fact on the issue of negligence or that FTF cannot otherwise meet this element of its claim. Defendants’ primary contention is that it had no duty to investigate, detect, eliminate, or rectify fraudulent activity or to otherwise be a guarantor of any particular result for FTF (see Defts 19-a ,i114, 16, 30, 54; Packman aff 1,i 11-12). Defendants’ self-serving attempt to narrow the scope of their duties are, however, belied by essentially unrefuted testimony in the record establishing that defendants were, in fact, responsible for ensuring FTF’s first-priority interest in the Property by, among other things, reviewing the title report (see Kuclo tr 24=13·23, 125:3-126=18; Packman tr 39:14-23, 86:12-18). The opinions set forth in the Hughes Report regarding defendants’ purported duties do not alter this conclusion. In fact, the Hughes Report seemingly corroborates the above conclusions by opining, based on his review of the record, that defendants had an obligation to “produce enforceable, recordable and useful loan documents” and “to review the title report” (see Hughes Report ,, 22, 28). Turning to the issue of proximate causation, FTF has made prima facie showing that defendants’ negligence was the “but for” cause of FTF’s damages. As various FTF employees have affirmed and/or testified, FTF’s decision to lend to Borrowers hinged on the security it felt it had in extending the Loan (see Pltf 19-a ,i 39; Rodak aff 11 18, 28; Kuclo tr 110: 13112:5; seealsoPackman tr 49:4-13). However, because the Loan Transaction did not, in fact, result in FTF obtaining a first-priority interest the Property, FTF was left without security for the Loan (Pltf 19-a ,r,r 25, 41; Defts 19-a ir,r 49·52; Rodak aff ,r 25; Packman tr 49:10-13). This was, of course, the precise security interest that both parties understood that defendants were working to secure through their review and approval of the Loan Transaction’s documents (see Rodak aff,r,r 14·16, 21; Ferrante tr 60:15-62:12; Packman tr 39:14-23, 86:12-18). Yet, despite the obvious errors in the Title Reports, defendants’ review failed to uncover any issues with the Title Reports or otherwise result in reasonable assurances that FTF would be protected in the event of a default following the Loan’s closing (see Delshad aff ,rir 12·27; Packman aff ,r 16). A trier of fact, when presented with this evidence, could reasonably conclude that “but for” defendants’ failure to identify and advise on these issues, FTF would have avoided entering into the Loan or otherwise haven taken remedial steps to protect itself in extending the Loan. Nevertheless, summary judgment in FTF’s favor is not warranted.4 The record undoubtedly supports a conclusion that defendants had a duty to properly review the Title Reports and ensure FTF’s security interest in the Property. But there is also evidence in the record that FTF had its own due diligence obligations as part of the Loan Transaction (see Term Sheet at 3-4; Defts 19·a ,r 86; Packman aff ,r,r 8·9). It was through this diligence that FTF seemingly obtained the credit reports and background checks identifying certain details about Samuels’s checkered financial history and potential liens/foreclosure actions on the Property (see Defts 19-a ,r,r 56[A], [D]-[E], 57; Rodak Reply aff ,r,r 6·10). Yet, despite being on notice of these issues-which seemingly conflicted with its own underwriting requirements for approving borrowers (see Hughes Report Ex. U)-FTF nevertheless approved the Loan. Presented with this evidence and testimony, a trier of fact could determine that, notwithstanding defendants’ negligent conduct, the proximate cause of FTF’s losses following Borrowers’ default was its own deficient diligence efforts (cf Garten v Shearman & Sterling LLP, 102 AD3d 436, 437 [1st Dept 2013] [affirming dismissal of complaint on summary judgment where defendant established that plaintiffs losses were caused by a borrower’s “poor financial condition” and plaintiffs “misjudgment of risk,” rather than defendant’s failure to prepare and procure documents necessary to provide plaintiff with a first-priority security interest]). As a result, although a close call, defendants proffered just enough evidence in admissible form to create a material issue of fact as to proximate causation. In sum, although FTF has established defendants’ negligence, material issues of fact on the issue of proximate causation preclude summary judgment. Accordingly, both motions are denied.”

Legal malpractice is always a comparison between the actual outcome and the hypothetical better outcome had the attorneys not departed from good practice. Courts often refuse to allow plaintiff to “prove” the hypothetical better outcome. While plaintiff can succeed where there has been a total shutout in the actual outcome (and can show that a reasonable jury would have awarded some recovery), here in Bei Yang v Pagan Law Firm, P.C. 2024 NY Slip Op 03394 [228 AD3d 547] June 20, 2024
Appellate Division, First Department the speculation was too great in trying to show that a reasonable jury would have awarded more than $ 1.3 million for the injuries.

“Defendants met their prima facie burden on a motion for summary judgment by submitting the affidavit of their legal expert, who averred that defendants did not depart from the applicable standard of care in prosecuting plaintiff’s medical malpractice action (see Orchard Motorcycle Distribs., Inc. v Morrison Cohen Singer & Weinstein, LLP, 49 AD3d 292 [1st Dept 2008]; see e.g. Merlin Biomed Asset Mgt., LLC v Wolf Block Schorr & Solis-Cohen LLP, 23 AD3d 243 [1st Dept 2005]). Defendants established that the decisions they made in that case were reasonable and strategic courses of action (see Orchard Motorcycle, 49 AD3d 292).

Plaintiff cannot show that, but for defendants’ negligence, she would have obtained a verdict after trial that exceeded the $1.3 million settlement amount defendants negotiated (see Gallet, Dreyer & Berkey, LLP v Basile, 141 AD3d 405 [1st Dept 2016]; see also Schloss v Steinberg, 100 AD3d 476 [1st Dept 2012]). Concur—Oing, J.P., Friedman, González, Rodriguez, O’Neill Levy, JJ. [Prior Case History: 75 Misc 3d 757.]“

Balta v Graner 2024 NY Slip Op 51273(U) Decided on August 28, 2024
Supreme Court, Kings County Rivera, J.

An attorney is hired to litigate a fire case. He files a Summons with Notice and then fails to serve a complaint when it is demanded. A motion to dismiss is granted on default. Opposition to the motion is late and several motions to vacate are denied.

A legal malpractice case is started. The Defendant appears pro-se. Is there insurance?

“Here, the defendant filed a notice of appearance on October 31, 2023 and on November 1, 2023. The defendant, however, neither interposed an answer to the complaint nor made a motion to dismiss the complaint. Consequently, the defendant waived any claim to lack of [*4]personal jurisdiction and the plaintiff is not required to prove service of the commencement papers upon the defendant.

To obtain a default judgment under these circumstances, the plaintiff must still file proof of the facts constituting the claim, the default, and the amount due by an affidavit made by the plaintiff. To demonstrate facts constituting the claim, the movant need only proffer proof sufficient to enable a court to determine that a viable cause of action exists (see Woodson v Mendon Leasing Corp., 100 NY2d 62, 71 [2003]). The movant may do so either by submission of an affidavit of merit or by verified complaint, if one has been properly served (see id. at 70; see CPLR 3215 [f]).

Where a verified complaint has been served, it may be used as the affidavit of the facts constituting the claim and the amount due (see CPLR 105 [u]). The complaint in the instant action was not verified and therefore may not serve as an affidavit of the facts constituting the claim.

On April 11, 2024, plaintiff Yusuf Balta filed an affirmation setting forth the merits of plaintiffs’ claim. The affirmation of merit set forth a viable claim against the defendant for legal malpractice. Moreover, “[a] defaulting defendant ‘admits all traversable allegations in the complaint, including the basic allegation of liability, but does not admit the plaintiff’s conclusion as to damages'” (Commonwealth Land Title Ins. Co. v Islam, 220 AD3d 739, 741 [2d Dept 2023], quoting Castaldini v Walsh, 186 AD3d 1193, 1194 [2d Dept 2020], quoting Rokina Opt. Co. v Camera King, 63 NY2d 728, 730 [1984]). Plaintiffs’ motion papers established their entitlement to a default judgment against the defendant on the issue of liability on their claim for legal malpractice.

“Once the plaintiff has made such a showing, the defendant, in order to avoid entry of a default judgment, must show either that there was no default, or that [the defendant] has a reasonable excuse for its delay and a potentially meritorious defense” (Hersko v Hersko, 224 AD3d 810, 812 [2d Dept 2024], quoting Pemberton v Montoya, 216 AD3d 988, 989 [2d Dept 2023]). “The determination as to whether an excuse is reasonable is committed to the sound discretion of the motion court” (Hersko, 224 AD3d at 812, quoting Deutsche Bank Natl. Trust Co. v Allenstein, 201 AD3d 783, 786 [2d Dept 2022].”

“The defendant’s opposition papers did not provide an excuse or an explanation for not interposing an answer to the complaint. Defendant has argued that plaintiffs improperly served the commencement papers and therefore defendant is not in default. That argument was rendered meritless by the defendant’s filing of a notice of appearance (Ming Xue Xir v 422 Sunshine Ct., LLC, 227 AD3d 980, 982 [2d Dept 2024]). The defendant also made a vague and unsubstantiated claim of illness. However, the defendant’s claim of illness was not offered as an explanation for not answering the complaint. Thus, it is unnecessary to consider whether the defendant sufficiently demonstrated the existence of a potentially meritorious defense to the action (HSBC Bank USA, N.A. v. Daniels, 163 AD3d 639, 640-641 [2d Dept 2018]). The plaintiffs’ motion is granted, and the plaintiffs may continue to prosecute their claim on the issue of damages.”

Poquee v Wheldon 2024 NY Slip Op 51245(U) Decided on September 5, 2024 Supreme Court, Albany County, Hartman, J., restates the well settled (and perhaps unfair) rule that a criminal defendant has no good claim against the defense attorney absent “actual innocence” which generally means acquittal, exoneration or reversal on appeal.

Practitioners get a large volume of calls asking whether the criminal defense attorney can be sued, accompanied with specific shortcomings of the attorneys. Sadly, the answer is almost always a categorical “no.”

“In this legal malpractice action, defendants John Wheldon, Esq., individually and as Assistant Public Defender for the County of Albany, and the County of Albany (defendants),^[FN1] move pre-answer to dismiss the amended complaint pursuant to CPLR 3211 (a) (5) and (a) (7). Plaintiff opposes. For the reasons that follow, defendants’ motion is granted, and the action is dismissed with prejudice.”

“It is well established that “[t]o state a cause of action for legal malpractice arising from negligent representation in a criminal proceeding, [a] plaintiff must allege [the additional element of] his innocence or a colorable claim of innocence of the underlying offense” (Carmel v Lunney, 70 NY2d 169, 171 [1987]; see Britt v Legal Aid Soc., Inc., 95 NY2d 443, 445 [2000]; Shields v Carbone, 78 AD3d 1440, 1443 [3d Dept 2010]). But “so long as the determination of his guilt of that offense remains undisturbed, no cause of action will lie” (Carmel, 70 NY2d at 171). Said another way, “[i]t is only when the criminal proceeding has been terminated without a conviction that a plaintiff can assert innocence or at the very least a colorable claim thereof” (Britt, 95 NY2d at 448 [2000]).

Plaintiff’s amended complaint makes no allegation of innocence. And it is undisputed that plaintiff entered a guilty plea, which remains undisturbed, in satisfaction of the underlying charges once his initial conviction after trial was vacated on the ground of ineffective assistance of counsel. Under these circumstances, plaintiff’s undisturbed “plea of guilty in the criminal proceeding bars recovery for legal malpractice allegedly committed by the defendant[s] in that proceeding” (Kaplan v Sachs, 224 AD2d 666, 667 [2d Dept 1996], appeal dismissed & lv denied 88 NY2d 952 [1996]; see Britt, 95 NY2d at 448; Carmel, 70 NY2d at 171; Shields, 78 AD3d at 1443; cf. Arnold v Devane, 123 AD3d 1202, 1203 [3d Dept 2014]). Moreover, plaintiff fails to advance any compelling reason to depart from the long-standing “policy considerations [that] require different pleading and substantive rules” in legal malpractice actions arising from representation in criminal proceedings (Carmel, 70 NY2d at 173 [citation omitted]).

And “the fact that the alleged malpractice neither induced nor otherwise had any causal effect on the plaintiff’s ultimate conviction, and instead allegedly caused plaintiff to remain in prison longer than necessary, has no bearing on the elements of a cause of action, as public policy prevents the maintenance of a malpractice action where the plaintiff cannot assert his innocence” (Rosado v Legal Aid Socy., 12 AD3d 356, 357 [2d Dept 2004]; see Boomer v Gross, 34 AD3d 1096, 1096-1097 [3d Dept 2006]; Biegan v Paul K. Rooney, P.C., 269 AD2d 264, 265 [1st Dept 2000]; Malpeso v Burstein & Fass, 275 AD2d 476, 477 [1st Dept 1999]). Plaintiff’s argument that this is a unique case warranting an exception to the rule of Carmel v Lunney is unavailing.”

In Smith, Gambrell & Russell, LLP v 3 W. 16th St., LLC 2024 NY Slip Op 33084(U) September 3, 2024 Supreme Court, New York County Docket Number: Index No. 654238/2021 Judge: Lyle E. Frank, neither the attorney claiming an account stated nor defendants, claiming the passage of the statute of limitations gets summary judgment.

“Plaintiff Smith, Gambrell & Russell, LLP (Plaintiff) commenced this action on July 8, 2021, asserting causes of action for breach of contract, account stated, quantum meruit, unjust enrichment and constructive trust, to recover unpaid attorneys’ fees from defendant 3 West 16th Street, LLC (Defendant) (see complaint [NYSCEF Doc No. 2]).1 For the reasons set forth below, Plaintiffs motion for summary judgment, and Defendant’s motion to dismiss the complaint in its entirety, converted to a motion for summary judgment pursuant to CPLR 3211 ( c ), are denied.”

“Motion sequences numbered 001 and 002 were consolidated for disposition. By decision and order dated December 15, 2022 (December 2022 Decision [NYSCEF Doc No. 52]), this Court granted Defendant’s motion to dismiss, finding that the statute of limitations period on Plaintiffs claims for unpaid fees had expired before this action was commenced, and that Plaintiffs motion for summary judgment was thereby mooted. In doing so, this Court described Plaintiffs arguments in opposition to dismissal, premised on Section 17-101 of New York’s General Obligation Law (GOL), as unavailing because the proof of claim Defendant filed in the Ancona Bankruptcy, which Plaintiff asserted was an acknowledgement of Defendant’s attorneys’ fee debt that restarted the limitations periods on Plaintiffs causes of action, did not renew the limitations period because it “was unrelated to plaintiff and [] the defendant subsequently sued plaintiff for legal malpractice” (id.). On October 3, 2023, however, the Appellate Division, First Department, unanimously reversed the December 2022 Decision, on the law, denying Defendant’s motion on the ground that its post-answer motion to dismiss was untimely under CPLR 3211 ( e) and remanded the matter, directing this Court to notify the parties that it will treat Defendant’s motion to dismiss as a motion for summary judgment in accordance with CPLR 3211 (c), and “to thereafter consider the merits of the motion, and if necessary, to consider the merits of plaintiff’s motion for summary judgment” (First Department Decision [NYSCEF Doc No. 59]).”

“Upon reconsideration, the Defendant’s motion, now for summary judgment, must be denied as Paragraph 102 of the POC is an acknowledgment of Defendant’s legal fee debt sufficient to satisfy Section 17-101, and the date of its filing with the United States Bankruptcy Court occurred less than six years before Plaintiff commenced this action. Section 17-101 of New York’s General Obligation Law (GOL) provides that: “An acknowledgment or promise contained in a writing signed by the party to be charged thereby is the only competent evidence of a new or continuing contract whereby to take an action out of the operation of the provisions of limitations of time for commencing actions under the civil practice law and rules other than an action for the recovery of real property” ( emphasis added).”

“Paragraph 102 of the POC satisfies the First Department’s rule as applied in Polimeni (debtor’s personal financial statement, reflecting debts owed to plaintiff creditor, “constituted an ‘acknowledgment or promise’ … sufficient to revive plaintiffs time-barred claims on those debts”) and Banco do Brasil, supra (“an acknowledgement [] must recognize an existing debt and must contain nothing inconsistent with an intention on the part of the debtor to pay it”). Accordingly, Defendant’s motion for summary judgment must be denied.”

“Plaintiff moves for summary judgment on its causes of action for breach of contract, account stated and quantum meruit. Plaintiffs motion for summary judgment for breach of contract is insufficient. To make its prima facie showing of entitlement to summary judgment for breach of contract, it needed to provide “a copy of the agreement, the billing records on the account, and an affidavit from an officer of the company … [averring] that [movant] had fulfilled all of its obligations under the agreement, but had not received the payments from [respondent] required under the agreement” (Yonkers Ave. Dodge, Inc. v BZ Results, LLC, 95 AD3d 774, 774 [1st Dept 2012] [citations omitted]). Plaintiffs submission is deficient as it does not include a copy of its retainer agreement or copies of the unpaid invoices, and so its motion must be denied.”

Xiuwen Qi v Hang & Assoc., PLLC 2024 NY Slip Op 33089(U) September 3, 2024 Supreme Court, New York County Docket Number: Index No. 151821/2023 Judge: Mary V. Rosado is a legal malpractice case arising from a wage and hour case which was dismissed for two reasons. The most immediate was the failure to attend a court conference. The more pervasive reason is “failing to abide multiple discovery orders.”

When a second attorney took over, the “successor counsel” issue arose. Where a successor attorney takes over the case, it is required that the successor attorney fix those problems that can be fixed. Legal malpractice claims against the first attorney are only viable where the successor counsel could not fix the problem.

“This is a legal malpractice action which Plaintiff Xiuwen Qi has asserted against his former attorneys (NYSCEF Doc. 2). Defendants/Third-Party Plaintiffs represented Plaintiff in a wage and hour lawsuit (see Xiuwen Qi v Famous Sichuan New York Inc., Index No. 656826/2019) (the “Dismissed Action”). After failing to abide multiple discovery orders, Plaintiff, while represented by Defendants/Third-Party Plaintiffs, had his case dismissed. A motion seeking to restore Plaintiffs case to the trial calendar and to vacate Plaintiffs default was ultimately denied for failure to provide a reasonable excuse and meritorious defense.
Plaintiff then retained Third-Party Defendants to represent him in the instant malpractice action and to prosecute his wage and hour claims in a new action (see Xiuwen Qi v Famous Sichuan New York Inc., Index No. 650984/2022) (the “New Action”). The New Action faced a motion for summary judgment based on the statute of limitations and the judge presiding in that case ruled that any claims accrued prior to March 2, 2016 were barred by the statute of limitations. There remains pending in the New Action a motion to renew based on clarification of the impact Governor Cuomo’ s Covid-19 Emergency Executive Orders had on the statute of limitations.”

“The Court finds that the allegations regarding failing to raise the Covid-19 toll, prior to it being settled law in the First Department, and while a motion to renew is sub Judice, cannot serve as a basis for a contribution claim against Third-Party Defendants. As a preliminary matter, these allegations are not ripe for adjudication as there remains a pending motion to renew, where Third­ Party Defendants brought to the Court’s attention the application of the Covid-19 toll once the case law was settled in the First Department (Parent Teacher Ass ‘n of P.S. 124M v Board of Educ. Of City School Dist. Of City of New York, 138 AD2d 108 [1st Dept 1988] [controversy cannot be ripe if claimed harm may be prevented or significantly ameliorated by further administrative action]).
It is total speculation that Plaintiff has been damaged as Plaintiff has not yet been definitively barred from having some of his claims restored pursuant to the Covid•19 toll (Pellegrino v File, 291 AD3d 60, 63 [1st Dept 2002], lv denied 98 NY2d 606 [2002]).
Moreover, the statute of limitations is mandatory and not discretionary, and as the law in the First Department regarding application of the Covid-19 toll has now been settled, Plaintiffs claims will likely be restored in the New Action (see Murphy v Harris, 210 AD3d 410 [1st Dept 2022]). Thus, Defendants/Third-Party Plaintiffs claims for contribution arising out of alleged malpractice for failure to raise the Covid-19 toll are dismissed.”

Jingyi Ni v Shenlaw, LLC 2024 NY Slip Op 51148(U) Decided on August 1, 2024 Supreme Court, New York County Lebovits, J. is a fascinating case. To start it is not really a legal malpractice case, and might have been brought for the purpose of saving an EB5 immigration application rather than for money damages.

Nevertheless, the facts are startling, and Judge Lebovits’ decision is so shocking, that it requires a full read for the facts. Here are some of the highlights:

“In December 2022, plaintiff, Jingyi Ni, brought this action for declaratory judgment against defendant Shenlaw, LLC, and its sole member and principal, defendant Jianming Shen,, based on an alleged breach of fiduciary duty. Ni now moves to strike defendants’ answer, for the entry of declaratory judgment in his favor, and for punitive damages and attorney fees. (See NYSCEF No. 78.) The motion is granted in part and denied in part.

BACKGROUND

In January 2014, Ni retained Shen to assist Ni with filing an EB-5 Immigrant Investor Program petition. (NYSCEF No. 51 at ¶ 24; NYSCEF No. 49 at ¶ 2.) In March 2014, Shen submitted the EB-5 petition on Ni’s behalf. (NYSCEF No. 49 at ¶ 4; NYSCEF No. 51 at ¶ 33.) [*2]Ni claims that he was not given a copy of the petition at the time. (NYSCEF No. 49 at ¶ 4; NYSCEF No. 51 at ¶¶ 33, 36.)

Several years later, in November 2019, Ni filed an application to register as a permanent resident. (NYSCEF No. 49 at ¶ 14; NYSCEF No. 51 at ¶ 49.) But in October 2022 Ni received a notice of intent to deny (NOID). The NOID indicated that Ni’s application to register as a permanent resident would be denied, because the United States Citizenship and Immigration Services (USCIS) determined that Ni had submitted false documents in his EB-5 petition. (NYSCEF No. 49 at ¶ 13; NYSCEF 51 ¶ 50.)

Ni later learned that Shen had submitted false source-of-funds documentation in connection with Ni’s EB-5 petition. (NYSCEF No. 51 at ¶¶ 51-53.) This is undisputed. Shen admits that the source-of-funds materials were false and that Ni is “100% innocent.” (NYSCEF No. 56; NYSCEF No. 79 at 1-2.) But the parties disagree on the extent of Shen’s culpability. Shen claims that he engaged non-party TPC, Inc., to prepare the materials for Ni’s EB-5 petition. (NYSCEF No. 56; NYSCEF No. 79 at 1-2.) Shen claims that TPC’s owner, Taiping Chen, created the fabricated materials. (NYSCEF No. 79 at 1, 6; NYSCEF No. 52 at ¶ 56; NYSCEF No. 56.) Shen claims that his responsibility is limited to “having believed Taiping Chen’s work products to be true and credible.” (NYSCEF No. 79 at 6.) Ni disputes this; he alleges that Shen himself created the false documents. (See e.g. NYSCEF No. 51 at ¶¶ 45, 59-61, 66.)

In the current motion, Ni claims that Shen has perpetrated fraud on the court by committing perjury, fabricating evidence, and destroying evidence. Ni urges the court to strike defendants’ answer and enter default judgment in Ni’s favor. Ni also seeks an award of punitive damages and attorney fees (NYSCEF No. 78 at 27-28.)”

“

A. Fraud on the Court

A court has the power to strike pleadings and enter default judgment in response to “clear and convincing evidence” of fraud on the court. (See CDR Créances S.A.S. v Cohen, 23 NY3d 307, 311 [2014].) This power derives from CPLR 3126 and the court’s “inherent power to address actions which are meant to undermine the truth-seeking function of the judicial system.” (Id. at 318.) To warrant such an extreme sanction, the fraudulent conduct must be pervasive and concern “issues that are central to the truth-finding process.” (Id. at 320, quoting McMunn v Memorial Sloan-Kettering Cancer Ctr., 191 F Supp 2d 440, 445 [SD NY 2002].) Ni alleges that Shen has perpetrated on the court a fraud that warrants striking defendants’ answer. Specifically, Ni alleges that Shen fabricated two documents produced in discovery and committed perjury through his sworn statements related to those documents.

Ni bears the burden of proving the alleged fraudulent conduct by clear and convincing evidence. (Id.) “The clear and convincing evidence standard is satisfied when the party bearing the burden of proof has established that it is highly probable that what he or she has claimed is actually what happened.” (Home Ins. Co. of Ind. v Karantonis, 156 AD2d 844, 845 [3d Dept 1989].) Ni has satisfied that burden.

In his first request for production, Ni asked Shen to produce any prior communications [*3]with TPC or Taiping Chen. In response, Shen produced two documents labeled Defendants’ Exhibits 4.4 and 4.5. (See NYSCEF No. 63 at 8-10; NYSCEF No. 61; NYSCEF No. 62.) In Shen’s response to plaintiff’s second deficiency letter, Shen stated that these documents were “print-to-PDF” copies of emails he had sent via a Yahoo email account to Taiping Chen on February 27, 2014, and March 5, 2015, respectively. (NYSCEF No. 64.) Each document includes a footer with a date and time stamp corresponding to the dates Shen claimed to have sent the emails. (See NYSCEF No. 61; NYSCEF No. 62.) Shen stated that he had converted each email to PDF on the same day displayed in the footer of each document. (NYSCEF No. 64.)

Shen was questioned extensively about the documents during his August 16, 2023, deposition. Consistent with his written responses, Shen testified that he had sent and converted each email on the date shown in its the respective footer. (See e.g. NYSCEF No. 17 at 66:24-67:7, 70:13-71:14.) Ni’s counsel then showed Shen the affidavit of Michael Bierut, a designer who worked on the 2019 rebranding of Yahoo’s logo. (See id. at 76:5-15; NYSCEF No. 65.) Bierut’s affidavit states that the Yahoo logo, which appears in Defendants’ Exhibits 4.4 and 4.5, did not exist until 2019. (NYSCEF No. 65 at ¶¶ 4, 9.) After being shown Bierut’s affidavit, Shen said at the deposition that he was “withdraw[ing]” his prior testimony related to the documents. He then refused to answer any further questions about them. (See NYSCEF No. 53 at 82:4-86:12.)

Shen has since conceded that Bierut is credible; and he does not challenge Bierut’s affidavit. (NYSCEF No. 68 at ¶ 10; NYSCEF No. 79 at 8.) Instead, Shen states that he now believes that the emails must have been converted to PDF sometime after September 2019. (NYSCEF No. 68 at 12-13.) Shen claims that after the deposition he recalled that some computers in his office “automatically backdated” documents. (NYSCEF No. 68 at ¶ 11; NYSCEF No. 79 at 9.) Shen suggests this “automatic backdating” explains the discrepancy between date/time stamps and the logos. Shen further claims that his prior false statements are the result of a chronic memory problem, stemming from a head injury he suffered nearly 40 years ago. (NYSCEF No. 68 at ¶¶ 1-3.)

During oral argument on this motion, Shen offered to speak on these matters under oath. The court swore him in. The court finds Shen’s new (sworn) explanations incredible. As Ni notes, Shen testified at his deposition that his only memory problems were those normally caused by age. (NYSCEF No. 53 at 12:9-16.) And Shen has not produced any evidence of his supposedly decades-long serious memory problem.^[FN1] Furthermore, an affidavit submitted by Ni’s forensics expert notes that it is “highly improbable” that the computers would have automatically backdated the documents to dates “coincidentally aligning with the specific dates that support [Shen’s] position.” (NYSCEF No. 66 at ¶ 7.) Shen has not offered any explanation for how the “automatic backdating” coincides with the events at issue in this case.

Ni has satisfied the burden of showing by clear and convincing evidence that Defendants’ Exhibits 4.4 and 4.5 are fabricated. The inconsistency between the 2019 Yahoo logo and the date stamps on the two documents make it highly probable that Defendants’ Exhibits 4.4 and 4.5 are [*4]fabricated. The probability that Defendants’ Exhibits 4.4 and 4.5 are fabricated is further strengthened by other authenticity concerns. On their face, the documents are drafts, not sent emails, as Shen has represented them to be. (See e.g. NYSCEF No. 53 at 65:19-66:18; NYSCEF No. 66 at ¶ 5.) At Shen’s deposition, Ni’s counsel also noted that the documents appeared to be screenshots, rather than PDFs. (See NYSCEF No. 55:25-56:7.) These inconsistencies, together with the anachronistic logo, convincingly prove Ni’s showing that the documents were fabricated.

The court also finds that Ni has shown by clear and convincing evidence that Shen’s sworn statements relating to Defendants’ Exhibits 4.4 and 4.5 were perjurious. The only explanation for Defendants’ Exhibits 4.4 and 4.5 is that Shen himself fabricated them. Shen has repeatedly attested to their authenticity in both written and oral sworn statements. (See e.g. NYSCEF No. 64 at 1-2; NYSCEF No. 53 at 58:17-59:24.)

Shen’s pervasive and fraudulent conduct relates to central issues in this case. Shen does not dispute that he submitted fraudulent source-of-funds documents in connection with Ni’s EB-5 application. Shen disputes only Ni’s allegation that Shen fabricated the source of funds documents. Shen’s defense in the underlying action is that TPC and Taiping Chen were responsible for creating the fraudulent documents submitted in Ni’s EB-5 application. Defendants’ Exhibits 4.4 and 4.5 are the only support for Shen’s claim that TPC, rather than Shen, prepared those fraudulent documents. (See NYSCEF No. 53 at 4-16.) Therefore, the authenticity of Defendants’ Exhibits 4.4 and 4.5 is relevant to a central issue in this case. Shen’s fraudulent conduct warrants striking defendants’ answer.”