A real estate development gone wrong.  It’s a common litigation situation, and attorneys are often in for the legal malpractice aspect of the case.  Here, in YDRA,LLC v Mitchell   2014 NY Slip Op 50505(U)    Decided on April 3, 2014   Supreme Court, Queens County   Siegal, J.
 

Supreme Court, Queens County untwists the skein of relationships and claims. 

"On or about September 2, 2012, Plaintiff commenced the within action asserting claims of legal malpractice, architectural malpractice, fraudulent inducement, contract recision and negligence.

Papa was retained by Paul Sklar ("Sklar") by written agreements dated March 15, 2006 and August 9, 2006, to provide a zoning analysis of the subject real property to get Department of Building approval for the construction of a new building on an adjacent lot while the existing building remained. Papa completed his services but Whitestone 8888 Corp opted not to construct the new building. Papa contends that its services were completed at this point.

Plaintiff took title to the property from Whitestone in January of 2009, retaining defendant Mitchell, & Incantalupo ("Mitchell") and Wax Ferraro Architect, PC ("Ferraro") to assist with the purchase.

Plaintiff ultimately brought the within action for breach of contract and negligence as a result of Plaintiff’s inability to secure approval for new construction. On or about November 23, 2011, Plaintiff executed a Stipulation of Discontinuance in favor of Christopher V. Papa. However, prior to the discontinuance defendant Mitchell and Ferraro asserted cross-claims against Papa for contribution and indemnification. "

"Initially, Papa contends that Mitchell and Ferraro may not maintain an action for contribution because the Plaintiff seeks to recover only economic losses. Pursuant to CPLR 1401, "two or more persons who are subject to liability for damages for the same personal injury, injury to property or wrongful death, may claim contribution among them whether or not an action has been brought or a judgment has been rendered against the person from whom contribution is sought." Contribution is unavailable for claims seeking recovery for purely economic loss resulting from the breach of contractual obligations. (Capstone Enterprises of Port Chester, Inc. v. Board of Educ. Irvington Union Free Capstone Enterprises of Port Chester, Inc. v. Board of Educ. Irvington Union Free [*3]School Dist., 106 AD3d 856 [2nd Dept 2013] citing Clark-Fitzpatrick, Inc. v. Long Island R. Co., 70 NY2d 382 [1987]; Galvin Brothers, Inc. v. Town of Babylon, 91 AD3d 715 [2nd Dept 2012].) In the within action, Plaintiff is seeking the purely economic relief of recovery of the purchase price of the Property. Accordingly, a claim for contribution from Papa must be dismissed. "

"A right to indemnification can only arise where there is a written contract providing for indemnification or whether indemnification is implied under common law. (Facilities Dev. Corp. v Miletta, 180 AD2d 97 [3rd Dept 1992]; Rosado v Proctor & Schwartz, 66 NY2d 21 [1985] citing Prosser and Keeton, Torts § 51, at 341 [5th ed].) It is undisputed that there is no contractual relationship between Mitchell or Ferraro. Furthermore, Mitchell and Ferraro’s liability is based upon the their alleged breach of obligations owed to the Plaintiff, rather than upon vicarious liability attributed solely to the fault of Papa, therefore Mitchell and Ferraro do not have a legally viable claim for implied indemnification against Papa. (Mount Vernon Fire Ins. Co. v Mott, 179 AD2d 626 [2nd Dept 1992]; Dormitory Auth. of State of NY v Caudill Rowlett Scott, 160 AD2d 179 [2nd Dept 1990].) Accordingly, as Mitchell and Ferraro have no contractual relationship with Papa and each of the defendants were retained separately from Papa, there can be no claim for indemnification as against Papa."

 

 

 

 

Legal malpractice is a tort, right?  Everyone knows that it’s a variety of negligence, and it can be pled in tort or in contract?  Technically, yes, but its really a different kind of tort.  It does not have unlimited damages (think emotional disturbance) it does not allow for windfalls (think "ascertainable damages") and in generally, the rules are very, very special for attorneys.

As an example, take Chang Yi Chen v Zhen Huang   2014 NY Slip Op 50517(U)   Decided on March 31, 2014   Supreme Court, Kings County  where Judge Schmidt freely admits that legal malpractice has public policy and other considerations attached to it that no other branch of the law requires.

"For the purpose of this motion, defendant does not dispute plaintiff’s central allegation that the sale transactions were structured in a way that would have qualified for the deferral of the payment of capital gains taxes but for defendant’s release of the proceeds relating to the sale property directly to plaintiff in contravention of the requirement that plaintiff could not receive such proceeds actually or constructively in order to take advantage of the section 1031 exchange (see United States v Okun, 453 Fed Appx 364, 366 n1 [4th Cir 2011], cert denied ___ US ___, 132 SCt 1953 [2012]; see also Endless Ocean, LLC, v Twomey, Latham, Shea, Kelly, Dubin & Quartararo, 113 AD3d 587, 588-589 [2d Dept 2014]; Wo Yee Hing Realty Corp. v Stern, 99 AD3d 58, 64 [1st Dept 2012]).[FN3] The court’s determination thus turns on whether plaintiff has a legal basis for obtaining damages from defendant.

"Damages in a legal malpractice case are designed to make the injured client whole’" (Rodolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 443 [2007], quoting Campagnola v Mulholland, Minion & Roe, 76 NY2d 38, 42 [1990]). Generally, the same compensatory damages rules applicable in contract cases apply to damages allowed in legal malpractice cases (Campagnola, 76 NY2d at 42). Such damages are not intended to provide a party with a windfall (id. at 45). However, in light of the unique fiduciary and ethical obligations of attorneys, public policy, at times, requires that traditional contract rules of damages be applied in a different manner in cases involving legal malpratice (id. at 43-44).

Here, defendant correctly asserts that taxes paid are generally not recoverable as damages under New York law (see Menard M. Gertler, M.D., P.C. v Sol Masch & Co., 40 AD3d 282, 283 [1st Dept 2007]; Alpert v Shea Gould Climenko & Casey, 160 AD2d 67, 71-72 [1st Dept 1990]; see also Lama Holding Co. v Smith Barney, 88 NY2d 413, 422-423 [1996]). This is because tax liability results from a taxable event and allowing recovery for the payment of such tax would therefor constitute a windfall for a plaintiff (see Alpert, 160 AD2d at 71-72; Apple Bank for Sav. v PricewaterhouseCoopers, LLP, 23 Misc 3d 1126 [A], 2009 NY Slip Op 50948 * 6 [U] [Sup Ct, New York County 2009], modified on other [*4]grounds 70 AD3d 438 [1st Dept 2010]; see also, Lama Holding Co., 88 NY2d at 423; Gaslow v KPMG LLP, 19 AD3d 264, 265 [1st Dept 2005], lv dismissed 5 NY3d 849 [2005]). In addition, damages that are uncertain or unduly speculative may not be recovered in New York (Ashland Mgt. Inc. v Janien, 82 NY2d 395, 403 [1993]; Farrar v Brooklyn Union Gas Co., 73 NY2d 802, 804 [1988]; see also Solin v Domino, 501 Fed Appx 19, 22 [2d Cir 2012]).

In conjunction, these principles preclude plaintiff from recovering as damages the amount he paid to the IRS as capital gains taxes, at least on the facts here, where plaintiff has not sold the replacement property. In this regard, in a properly completed section 1031 exchange, the basis from the property sold becomes the basis for the replacement property, and the recognition of any gain or loss is deferred until the replacement property is sold in a sale that does not involve a section 1031 exchange (see Ocmulgee Fields, Inc. v C.I.R., 613 F3d 1360, 1364-1365 [11th Cir 2011]). The tax consequences of such a deferral depend on many factors, including any change in the capital gains tax rate, IRS rules for determining capital gains, market forces affecting the value of the property, and plaintiff’s ability to offset the gain against the losses (see generally Internal Revenue Code [USC] § 1001; Internal Revenue Code [USC] subtitle A, Chapter 1, subchapter P; IRS, Topic 409 – Capital Gains & Losses, http://www.irs.gov/taxtopics/tc409.html [last reviewed or updated Feb. 27, 2014, accessed March 28, 2014]). As plaintiff has not sold the Purchase Property, any determination at this time that his capital gains liability would be less at the time of a future sale of the Purchase Property than he was actually required to pay involves future changeable events, and is thus inherently speculative (see Farrar, 73 NY2d at 804; Solin, 501 Fed Appx at 22; see also Ashland Mgt. Inc, 82 NY2d at 403; see also Menard M. Gertler, M.D., P.C., 40 AD3d at283; Alpert, 160 AD2d at 71-72).[FN4] "

 

Legal malpractice is a tort, right?  Everyone knows that it’s a variety of negligence, and it can be pled in tort or in contract?  Technically, yes, but its really a different kind of tort.  It does not have unlimited damages (think emotional disturbance) it does not allow for windfalls (think "ascertainable damages") and in generally, the rules are very, very special for attorneys.

As an example, take Chang Yi Chen v Zhen Huang   2014 NY Slip Op 50517(U)   Decided on March 31, 2014   Supreme Court, Kings County  where Judge Schmidt freely admits that legal malpractice has public policy and other considerations attached to it that no other branch of the law requires.

"For the purpose of this motion, defendant does not dispute plaintiff’s central allegation that the sale transactions were structured in a way that would have qualified for the deferral of the payment of capital gains taxes but for defendant’s release of the proceeds relating to the sale property directly to plaintiff in contravention of the requirement that plaintiff could not receive such proceeds actually or constructively in order to take advantage of the section 1031 exchange (see United States v Okun, 453 Fed Appx 364, 366 n1 [4th Cir 2011], cert denied ___ US ___, 132 SCt 1953 [2012]; see also Endless Ocean, LLC, v Twomey, Latham, Shea, Kelly, Dubin & Quartararo, 113 AD3d 587, 588-589 [2d Dept 2014]; Wo Yee Hing Realty Corp. v Stern, 99 AD3d 58, 64 [1st Dept 2012]).[FN3] The court’s determination thus turns on whether plaintiff has a legal basis for obtaining damages from defendant.

"Damages in a legal malpractice case are designed to make the injured client whole’" (Rodolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 443 [2007], quoting Campagnola v Mulholland, Minion & Roe, 76 NY2d 38, 42 [1990]). Generally, the same compensatory damages rules applicable in contract cases apply to damages allowed in legal malpractice cases (Campagnola, 76 NY2d at 42). Such damages are not intended to provide a party with a windfall (id. at 45). However, in light of the unique fiduciary and ethical obligations of attorneys, public policy, at times, requires that traditional contract rules of damages be applied in a different manner in cases involving legal malpratice (id. at 43-44).

Here, defendant correctly asserts that taxes paid are generally not recoverable as damages under New York law (see Menard M. Gertler, M.D., P.C. v Sol Masch & Co., 40 AD3d 282, 283 [1st Dept 2007]; Alpert v Shea Gould Climenko & Casey, 160 AD2d 67, 71-72 [1st Dept 1990]; see also Lama Holding Co. v Smith Barney, 88 NY2d 413, 422-423 [1996]). This is because tax liability results from a taxable event and allowing recovery for the payment of such tax would therefor constitute a windfall for a plaintiff (see Alpert, 160 AD2d at 71-72; Apple Bank for Sav. v PricewaterhouseCoopers, LLP, 23 Misc 3d 1126 [A], 2009 NY Slip Op 50948 * 6 [U] [Sup Ct, New York County 2009], modified on other [*4]grounds 70 AD3d 438 [1st Dept 2010]; see also, Lama Holding Co., 88 NY2d at 423; Gaslow v KPMG LLP, 19 AD3d 264, 265 [1st Dept 2005], lv dismissed 5 NY3d 849 [2005]). In addition, damages that are uncertain or unduly speculative may not be recovered in New York (Ashland Mgt. Inc. v Janien, 82 NY2d 395, 403 [1993]; Farrar v Brooklyn Union Gas Co., 73 NY2d 802, 804 [1988]; see also Solin v Domino, 501 Fed Appx 19, 22 [2d Cir 2012]).

In conjunction, these principles preclude plaintiff from recovering as damages the amount he paid to the IRS as capital gains taxes, at least on the facts here, where plaintiff has not sold the replacement property. In this regard, in a properly completed section 1031 exchange, the basis from the property sold becomes the basis for the replacement property, and the recognition of any gain or loss is deferred until the replacement property is sold in a sale that does not involve a section 1031 exchange (see Ocmulgee Fields, Inc. v C.I.R., 613 F3d 1360, 1364-1365 [11th Cir 2011]). The tax consequences of such a deferral depend on many factors, including any change in the capital gains tax rate, IRS rules for determining capital gains, market forces affecting the value of the property, and plaintiff’s ability to offset the gain against the losses (see generally Internal Revenue Code [USC] § 1001; Internal Revenue Code [USC] subtitle A, Chapter 1, subchapter P; IRS, Topic 409 – Capital Gains & Losses, http://www.irs.gov/taxtopics/tc409.html [last reviewed or updated Feb. 27, 2014, accessed March 28, 2014]). As plaintiff has not sold the Purchase Property, any determination at this time that his capital gains liability would be less at the time of a future sale of the Purchase Property than he was actually required to pay involves future changeable events, and is thus inherently speculative (see Farrar, 73 NY2d at 804; Solin, 501 Fed Appx at 22; see also Ashland Mgt. Inc, 82 NY2d at 403; see also Menard M. Gertler, M.D., P.C., 40 AD3d at283; Alpert, 160 AD2d at 71-72).[FN4] "

 

Yesterday, we discussed Chang Yi Chen v Zhen Huang   2014 NY Slip Op 50517(U)   Decided on March 31, 2014   Supreme Court, Kings County   Schmidt, J. .  Put in short, Plaintiff initiated a 1031 like-kind real estate exchange, only to have it fail because the attorney returned the escrow money to Plaintiff in order to do the purchase.  Plaintiff paid capital gains taxes.  Are they recoverable?  No.
 

""Damages in a legal malpractice case are designed to make the injured client whole’" (Rodolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 443 [2007], quoting Campagnola v Mulholland, Minion & Roe, 76 NY2d 38, 42 [1990]). Generally, the same compensatory damages rules applicable in contract cases apply to damages allowed in legal malpractice cases (Campagnola, 76 NY2d at 42). Such damages are not intended to provide a party with a windfall (id. at 45). However, in light of the unique fiduciary and ethical obligations of attorneys, public policy, at times, requires that traditional contract rules of damages be applied in a different manner in cases involving legal malpratice (id. at 43-44).

Here, defendant correctly asserts that taxes paid are generally not recoverable as damages under New York law (see Menard M. Gertler, M.D., P.C. v Sol Masch & Co., 40 AD3d 282, 283 [1st Dept 2007]; Alpert v Shea Gould Climenko & Casey, 160 AD2d 67, 71-72 [1st Dept 1990]; see also Lama Holding Co. v Smith Barney, 88 NY2d 413, 422-423 [1996]). This is because tax liability results from a taxable event and allowing recovery for the payment of such tax would therefor constitute a windfall for a plaintiff (see Alpert, 160 AD2d at 71-72; Apple Bank for Sav. v PricewaterhouseCoopers, LLP, 23 Misc 3d 1126 [A], 2009 NY Slip Op 50948 * 6 [U] [Sup Ct, New York County 2009], modified on other [*4]grounds 70 AD3d 438 [1st Dept 2010]; see also, Lama Holding Co., 88 NY2d at 423; Gaslow v KPMG LLP, 19 AD3d 264, 265 [1st Dept 2005], lv dismissed 5 NY3d 849 [2005]). In addition, damages that are uncertain or unduly speculative may not be recovered in New York (Ashland Mgt. Inc. v Janien, 82 NY2d 395, 403 [1993]; Farrar v Brooklyn Union Gas Co., 73 NY2d 802, 804 [1988]; see also Solin v Domino, 501 Fed Appx 19, 22 [2d Cir 2012]).

In conjunction, these principles preclude plaintiff from recovering as damages the amount he paid to the IRS as capital gains taxes, at least on the facts here, where plaintiff has not sold the replacement property. In this regard, in a properly completed section 1031 exchange, the basis from the property sold becomes the basis for the replacement property, and the recognition of any gain or loss is deferred until the replacement property is sold in a sale that does not involve a section 1031 exchange (see Ocmulgee Fields, Inc. v C.I.R., 613 F3d 1360, 1364-1365 [11th Cir 2011]). The tax consequences of such a deferral depend on many factors, including any change in the capital gains tax rate, IRS rules for determining capital gains, market forces affecting the value of the property, and plaintiff’s ability to offset the gain against the losses (see generally Internal Revenue Code [USC] § 1001; Internal Revenue Code [USC] subtitle A, Chapter 1, subchapter P; IRS, Topic 409 – Capital Gains & Losses, http://www.irs.gov/taxtopics/tc409.html [last reviewed or updated Feb. 27, 2014, accessed March 28, 2014]). As plaintiff has not sold the Purchase Property, any determination at this time that his capital gains liability would be less at the time of a future sale of the Purchase Property than he was actually required to pay involves future changeable events, and is thus inherently speculative (see Farrar, 73 NY2d at 804; Solin, 501 Fed Appx at 22; see also Ashland Mgt. Inc, 82 NY2d at 403; see also Menard M. Gertler, M.D., P.C., 40 AD3d at283; Alpert, 160 AD2d at 71-72).[FN4] "

What about interest paid to the IRS?  It maybe recoverable.  "On the other hand, plaintiff may be entitled to recover the amounts paid to the IRS as interest and penalties. Interest imposed by the IRS based on a failure to pay a tax generally may not be recovered as damages because the interest represents a payment to the IRS for the taxpayer’s use of the money while the taxpayer was not entitled to the use of the money (see Shalam v KPMG LLP, 43 AD3d 752, 754 [1st Dept 2007]; Alpert, 160 AD2d at 72). Here, however, plaintiff, but for defendant’s alleged malpractice, would have been entitled to the use of this money during the time for which IRS imposed interest. As such, plaintiff suffered a loss as the result of the IRS’s imposition of interest and plaintiff’s recovery of damages for such a loss would not constitute a windfall (see Jamie Towers Hous. Co. v William B. Lucas, Inc.,, 296 AD2d 359, 359-360 [1st Dept 2002]; Ronson v Talesnick, 33 F Supp2d 347, 355 [DNJ 1999]; see also Liebowitz v Kolodny, 24 AD3d 733, 733 [2d Dept [*5]2005]; Apple Bank for Sav., 2009 NY Slip Op 50948 * 6-7). For the essentially the same reasons, any penalty imposed by the IRS may be recovered as damages.[FN5]"

 

 

Yesterday, we discussed Chang Yi Chen v Zhen Huang   2014 NY Slip Op 50517(U)   Decided on March 31, 2014   Supreme Court, Kings County   Schmidt, J. .  Put in short, Plaintiff initiated a 1031 like-kind real estate exchange, only to have it fail because the attorney returned the escrow money to Plaintiff in order to do the purchase.  Plaintiff paid capital gains taxes.  Are they recoverable?  No.
 

""Damages in a legal malpractice case are designed to make the injured client whole’" (Rodolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 443 [2007], quoting Campagnola v Mulholland, Minion & Roe, 76 NY2d 38, 42 [1990]). Generally, the same compensatory damages rules applicable in contract cases apply to damages allowed in legal malpractice cases (Campagnola, 76 NY2d at 42). Such damages are not intended to provide a party with a windfall (id. at 45). However, in light of the unique fiduciary and ethical obligations of attorneys, public policy, at times, requires that traditional contract rules of damages be applied in a different manner in cases involving legal malpratice (id. at 43-44).

Here, defendant correctly asserts that taxes paid are generally not recoverable as damages under New York law (see Menard M. Gertler, M.D., P.C. v Sol Masch & Co., 40 AD3d 282, 283 [1st Dept 2007]; Alpert v Shea Gould Climenko & Casey, 160 AD2d 67, 71-72 [1st Dept 1990]; see also Lama Holding Co. v Smith Barney, 88 NY2d 413, 422-423 [1996]). This is because tax liability results from a taxable event and allowing recovery for the payment of such tax would therefor constitute a windfall for a plaintiff (see Alpert, 160 AD2d at 71-72; Apple Bank for Sav. v PricewaterhouseCoopers, LLP, 23 Misc 3d 1126 [A], 2009 NY Slip Op 50948 * 6 [U] [Sup Ct, New York County 2009], modified on other [*4]grounds 70 AD3d 438 [1st Dept 2010]; see also, Lama Holding Co., 88 NY2d at 423; Gaslow v KPMG LLP, 19 AD3d 264, 265 [1st Dept 2005], lv dismissed 5 NY3d 849 [2005]). In addition, damages that are uncertain or unduly speculative may not be recovered in New York (Ashland Mgt. Inc. v Janien, 82 NY2d 395, 403 [1993]; Farrar v Brooklyn Union Gas Co., 73 NY2d 802, 804 [1988]; see also Solin v Domino, 501 Fed Appx 19, 22 [2d Cir 2012]).

In conjunction, these principles preclude plaintiff from recovering as damages the amount he paid to the IRS as capital gains taxes, at least on the facts here, where plaintiff has not sold the replacement property. In this regard, in a properly completed section 1031 exchange, the basis from the property sold becomes the basis for the replacement property, and the recognition of any gain or loss is deferred until the replacement property is sold in a sale that does not involve a section 1031 exchange (see Ocmulgee Fields, Inc. v C.I.R., 613 F3d 1360, 1364-1365 [11th Cir 2011]). The tax consequences of such a deferral depend on many factors, including any change in the capital gains tax rate, IRS rules for determining capital gains, market forces affecting the value of the property, and plaintiff’s ability to offset the gain against the losses (see generally Internal Revenue Code [USC] § 1001; Internal Revenue Code [USC] subtitle A, Chapter 1, subchapter P; IRS, Topic 409 – Capital Gains & Losses, http://www.irs.gov/taxtopics/tc409.html [last reviewed or updated Feb. 27, 2014, accessed March 28, 2014]). As plaintiff has not sold the Purchase Property, any determination at this time that his capital gains liability would be less at the time of a future sale of the Purchase Property than he was actually required to pay involves future changeable events, and is thus inherently speculative (see Farrar, 73 NY2d at 804; Solin, 501 Fed Appx at 22; see also Ashland Mgt. Inc, 82 NY2d at 403; see also Menard M. Gertler, M.D., P.C., 40 AD3d at283; Alpert, 160 AD2d at 71-72).[FN4] "

What about interest paid to the IRS?  It maybe recoverable.  "On the other hand, plaintiff may be entitled to recover the amounts paid to the IRS as interest and penalties. Interest imposed by the IRS based on a failure to pay a tax generally may not be recovered as damages because the interest represents a payment to the IRS for the taxpayer’s use of the money while the taxpayer was not entitled to the use of the money (see Shalam v KPMG LLP, 43 AD3d 752, 754 [1st Dept 2007]; Alpert, 160 AD2d at 72). Here, however, plaintiff, but for defendant’s alleged malpractice, would have been entitled to the use of this money during the time for which IRS imposed interest. As such, plaintiff suffered a loss as the result of the IRS’s imposition of interest and plaintiff’s recovery of damages for such a loss would not constitute a windfall (see Jamie Towers Hous. Co. v William B. Lucas, Inc.,, 296 AD2d 359, 359-360 [1st Dept 2002]; Ronson v Talesnick, 33 F Supp2d 347, 355 [DNJ 1999]; see also Liebowitz v Kolodny, 24 AD3d 733, 733 [2d Dept [*5]2005]; Apple Bank for Sav., 2009 NY Slip Op 50948 * 6-7). For the essentially the same reasons, any penalty imposed by the IRS may be recovered as damages.[FN5]"

 

 

Chang Yi Chen v Zhen Huang   2014 NY Slip Op 50517(U)   Decided on March 31, 2014  Supreme Court, Kings County  Schmidt, J. is ostensibly about a single real estate deal, but it discusses two very significant issues.  One is the very nature of legal malpractice damages and the other is when interest paid by plaintiff is a recoverable damage.  We’ll cover one today and one tomorrow.

"Plaintiff Chang Yi Chen alleges that defendant Zhen Huang, Esq., failed properly effectuate a real estate transaction intended to be structured as a "like-kind exchange" under Internal Revenue Code (26 USC) § 1031 in order to defer payment of capital gains taxes on the transaction.[FN1] Plaintiff alleges that he approached defendant, who held herself out as an attorney who specialized in real estate transactions, for advice regarding the tax consequences of selling property he owned in order to purchase another property. Defendant allegedly informed plaintiff that he could avoid paying capital gains taxes on the sale and purchase of a new property by way of a section 1031 transfer. Plaintiff thereafter retained defendant to represent him in the sale and purchase of properties through a section 1031 exchange.

On May 28, 2009 plaintiff entered into an agreement to purchase a property (Purchase Property) and on June 15, 2009, reached an agreement to sell the property he owned (Sale Property). Plaintiff alleges that these properties qualified as "like kind property" for purposes of a section 1031 exchange. The closing for the Sale Property occurred on September 1, 2009, and defendant held the proceeds of this sale in escrow until September 2, 2009, when she transferred these proceeds back to plaintiff. At a closing held on November 1, 2009, plaintiff used these sale proceeds to purchase the Purchase Property. Although plaintiff believed that these actions were sufficient to qualify for section 1031 tax treatment, the United States and New York State tax authorities thereafter issued tax warrants notifying plaintiff of deficiencies and penalties because the property transfers did not qualify for section 1031 treatment. According to plaintiff, the transfer did not qualify for such treatment because the proceeds from the sale of the Sale Property were held by defendant in escrow and then released directly to plaintiff in contravention of section 1031’s requirement that such proceeds be held by a "qualified intermediary."

Plaintiff has since commenced this action, alleging causes of action for breach of contract, breach of fiduciary duty and legal malpractice based on defendant’s alleged failure to insure that the transactions qualified for section 1031 treatment. Defendant now moves for summary judgment dismissing the complaint on the ground that, regardless of whether defendant committed malpractice in failing to effectuate a section 1031 exchange, plaintiff has not alleged any compensable damages. In this respect, defendant, pointing to the complaint, asserts that "plaintiff only seeks to recover the tax liabilities he incurred from the sale of the 57th Street property" (Memorandum of Law at 6). According to defendant, such damages are not recoverable because a section 1031 exchange only defers the payment of capital gains tax until the replacement property is sold, and that as such, plaintiff may not recover the capital gains tax he was required to pay since such a recovery would constitute [*3]a windfall. In addition, as plaintiff has not sold the Purchase Property,[FN2] a determination of the capital gains taxes he will owe with respect to the sale of the property would be unduly speculative. "

The Court eventually rules against Plaintiff on damages from the taxes paid.  

"In conjunction, these principles preclude plaintiff from recovering as damages the amount he paid to the IRS as capital gains taxes, at least on the facts here, where plaintiff has not sold the replacement property. In this regard, in a properly completed section 1031 exchange, the basis from the property sold becomes the basis for the replacement property, and the recognition of any gain or loss is deferred until the replacement property is sold in a sale that does not involve a section 1031 exchange (see Ocmulgee Fields, Inc. v C.I.R., 613 F3d 1360, 1364-1365 [11th Cir 2011]). The tax consequences of such a deferral depend on many factors, including any change in the capital gains tax rate, IRS rules for determining capital gains, market forces affecting the value of the property, and plaintiff’s ability to offset the gain against the losses (see generally Internal Revenue Code [USC] § 1001; Internal Revenue Code [USC] subtitle A, Chapter 1, subchapter P; IRS, Topic 409 – Capital Gains & Losses, http://www.irs.gov/taxtopics/tc409.html [last reviewed or updated Feb. 27, 2014, accessed March 28, 2014]). As plaintiff has not sold the Purchase Property, any determination at this time that his capital gains liability would be less at the time of a future sale of the Purchase Property than he was actually required to pay involves future changeable events, and is thus inherently speculative (see Farrar, 73 NY2d at 804; Solin, 501 Fed Appx at 22; see also Ashland Mgt. Inc, 82 NY2d at 403; see also Menard M. Gertler, M.D., P.C., 40 AD3d at283; Alpert, 160 AD2d at 71-72).[FN4] 

On the other hand, plaintiff may be entitled to recover the amounts paid to the IRS as interest and penalties. Interest imposed by the IRS based on a failure to pay a tax generally may not be recovered as damages because the interest represents a payment to the IRS for the taxpayer’s use of the money while the taxpayer was not entitled to the use of the money (see Shalam v KPMG LLP, 43 AD3d 752, 754 [1st Dept 2007]; Alpert, 160 AD2d at 72). Here, however, plaintiff, but for defendant’s alleged malpractice, would have been entitled to the use of this money during the time for which IRS imposed interest. As such, plaintiff suffered a loss as the result of the IRS’s imposition of interest and plaintiff’s recovery of damages for such a loss would not constitute a windfall (see Jamie Towers Hous. Co. v William B. Lucas, Inc.,, 296 AD2d 359, 359-360 [1st Dept 2002]; Ronson v Talesnick, 33 F Supp2d 347, 355 [DNJ 1999]; see also Liebowitz v Kolodny, 24 AD3d 733, 733 [2d Dept [*5]2005]; Apple Bank for Sav., 2009 NY Slip Op 50948 * 6-7). For the essentially the same reasons, any penalty imposed by the IRS may be recovered as damages.[FN5]

Accordingly, defendant has failed to demonstrate her initial summary judgment burden of demonstrating, as a matter of law, that plaintiff cannot recover damages. As such, this portion of defendant’s motion must be denied regardless of the sufficiency of plaintiff’s opposition papers (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). The court further notes that the motion turns almost entirely on the pleadings and that the only evidentiary fact before the court is plaintiff’s admission that he has not sold the Purchase Property. Thus, to the extent that this motion, couched as a motion for summary judgment, should more appropriately be addressed as a motion to dismiss for failing to state a cause of action pursuant to CPLR 3211 (a) (7) (see Light v Light, 64 AD3d 633, 634 [2d Dept 2009]), the motion is denied because plaintiff has adequately pleaded that he suffered some cognizable damage as the result of the alleged malpractice (see Kocak v Egert, 280 AD2d 335, 336 [1st Dept 2001]). "

 

 

 

Chang Yi Chen v Zhen Huang   2014 NY Slip Op 50517(U)   Decided on March 31, 2014  Supreme Court, Kings County  Schmidt, J. is ostensibly about a single real estate deal, but it discusses two very significant issues.  One is the very nature of legal malpractice damages and the other is when interest paid by plaintiff is a recoverable damage.  We’ll cover one today and one tomorrow.

"Plaintiff Chang Yi Chen alleges that defendant Zhen Huang, Esq., failed properly effectuate a real estate transaction intended to be structured as a "like-kind exchange" under Internal Revenue Code (26 USC) § 1031 in order to defer payment of capital gains taxes on the transaction.[FN1] Plaintiff alleges that he approached defendant, who held herself out as an attorney who specialized in real estate transactions, for advice regarding the tax consequences of selling property he owned in order to purchase another property. Defendant allegedly informed plaintiff that he could avoid paying capital gains taxes on the sale and purchase of a new property by way of a section 1031 transfer. Plaintiff thereafter retained defendant to represent him in the sale and purchase of properties through a section 1031 exchange.

On May 28, 2009 plaintiff entered into an agreement to purchase a property (Purchase Property) and on June 15, 2009, reached an agreement to sell the property he owned (Sale Property). Plaintiff alleges that these properties qualified as "like kind property" for purposes of a section 1031 exchange. The closing for the Sale Property occurred on September 1, 2009, and defendant held the proceeds of this sale in escrow until September 2, 2009, when she transferred these proceeds back to plaintiff. At a closing held on November 1, 2009, plaintiff used these sale proceeds to purchase the Purchase Property. Although plaintiff believed that these actions were sufficient to qualify for section 1031 tax treatment, the United States and New York State tax authorities thereafter issued tax warrants notifying plaintiff of deficiencies and penalties because the property transfers did not qualify for section 1031 treatment. According to plaintiff, the transfer did not qualify for such treatment because the proceeds from the sale of the Sale Property were held by defendant in escrow and then released directly to plaintiff in contravention of section 1031’s requirement that such proceeds be held by a "qualified intermediary."

Plaintiff has since commenced this action, alleging causes of action for breach of contract, breach of fiduciary duty and legal malpractice based on defendant’s alleged failure to insure that the transactions qualified for section 1031 treatment. Defendant now moves for summary judgment dismissing the complaint on the ground that, regardless of whether defendant committed malpractice in failing to effectuate a section 1031 exchange, plaintiff has not alleged any compensable damages. In this respect, defendant, pointing to the complaint, asserts that "plaintiff only seeks to recover the tax liabilities he incurred from the sale of the 57th Street property" (Memorandum of Law at 6). According to defendant, such damages are not recoverable because a section 1031 exchange only defers the payment of capital gains tax until the replacement property is sold, and that as such, plaintiff may not recover the capital gains tax he was required to pay since such a recovery would constitute [*3]a windfall. In addition, as plaintiff has not sold the Purchase Property,[FN2] a determination of the capital gains taxes he will owe with respect to the sale of the property would be unduly speculative. "

The Court eventually rules against Plaintiff on damages from the taxes paid.  

"In conjunction, these principles preclude plaintiff from recovering as damages the amount he paid to the IRS as capital gains taxes, at least on the facts here, where plaintiff has not sold the replacement property. In this regard, in a properly completed section 1031 exchange, the basis from the property sold becomes the basis for the replacement property, and the recognition of any gain or loss is deferred until the replacement property is sold in a sale that does not involve a section 1031 exchange (see Ocmulgee Fields, Inc. v C.I.R., 613 F3d 1360, 1364-1365 [11th Cir 2011]). The tax consequences of such a deferral depend on many factors, including any change in the capital gains tax rate, IRS rules for determining capital gains, market forces affecting the value of the property, and plaintiff’s ability to offset the gain against the losses (see generally Internal Revenue Code [USC] § 1001; Internal Revenue Code [USC] subtitle A, Chapter 1, subchapter P; IRS, Topic 409 – Capital Gains & Losses, http://www.irs.gov/taxtopics/tc409.html [last reviewed or updated Feb. 27, 2014, accessed March 28, 2014]). As plaintiff has not sold the Purchase Property, any determination at this time that his capital gains liability would be less at the time of a future sale of the Purchase Property than he was actually required to pay involves future changeable events, and is thus inherently speculative (see Farrar, 73 NY2d at 804; Solin, 501 Fed Appx at 22; see also Ashland Mgt. Inc, 82 NY2d at 403; see also Menard M. Gertler, M.D., P.C., 40 AD3d at283; Alpert, 160 AD2d at 71-72).[FN4] 

On the other hand, plaintiff may be entitled to recover the amounts paid to the IRS as interest and penalties. Interest imposed by the IRS based on a failure to pay a tax generally may not be recovered as damages because the interest represents a payment to the IRS for the taxpayer’s use of the money while the taxpayer was not entitled to the use of the money (see Shalam v KPMG LLP, 43 AD3d 752, 754 [1st Dept 2007]; Alpert, 160 AD2d at 72). Here, however, plaintiff, but for defendant’s alleged malpractice, would have been entitled to the use of this money during the time for which IRS imposed interest. As such, plaintiff suffered a loss as the result of the IRS’s imposition of interest and plaintiff’s recovery of damages for such a loss would not constitute a windfall (see Jamie Towers Hous. Co. v William B. Lucas, Inc.,, 296 AD2d 359, 359-360 [1st Dept 2002]; Ronson v Talesnick, 33 F Supp2d 347, 355 [DNJ 1999]; see also Liebowitz v Kolodny, 24 AD3d 733, 733 [2d Dept [*5]2005]; Apple Bank for Sav., 2009 NY Slip Op 50948 * 6-7). For the essentially the same reasons, any penalty imposed by the IRS may be recovered as damages.[FN5]

Accordingly, defendant has failed to demonstrate her initial summary judgment burden of demonstrating, as a matter of law, that plaintiff cannot recover damages. As such, this portion of defendant’s motion must be denied regardless of the sufficiency of plaintiff’s opposition papers (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]). The court further notes that the motion turns almost entirely on the pleadings and that the only evidentiary fact before the court is plaintiff’s admission that he has not sold the Purchase Property. Thus, to the extent that this motion, couched as a motion for summary judgment, should more appropriately be addressed as a motion to dismiss for failing to state a cause of action pursuant to CPLR 3211 (a) (7) (see Light v Light, 64 AD3d 633, 634 [2d Dept 2009]), the motion is denied because plaintiff has adequately pleaded that he suffered some cognizable damage as the result of the alleged malpractice (see Kocak v Egert, 280 AD2d 335, 336 [1st Dept 2001]). "

 

 

 

A child falls from the window.  The window had no child-guards. The landlord is at fault. The law firms sue and get a judgment. The landlord sells the building and disappears.  The money is hidden.  is the attorney at fault?

Noel v. Law Off of Mark E. Feinberg, 2014 NY Slip Op 50516(U)   Decided on March 31, 2014
Supreme Court, Kings County   Schmidt, J. is an awful story.  A landlord without insurance sells the buildings and successfully eludes a collection effort.  What should the PI attorney have done?   A lis pendens?  Pre-judgment attachment?  Sadly, NY law does not permit either.
 

"Plaintiff commenced this action seeking to recover damages for the alleged malpractice committed by defendants in the Personal Injury Action. Therein, plaintiffs sought to recover damages for injuries sustained by the infant plaintiff on July 12, 1997 when he fell out of a window that did not have proper and/or adequate window guards. Plaintiff alleges that in that action, defendants committed malpractice when they failed to obtain a pre-trial order of attachment for properties owned by Mr. George or to file a lis pendens against the properties. They allege that as the result of this malpractice and negligence on defendants’ part, the judgment they obtained is can not be collected, since the properties owned by Mr. George were sold before the judgment was filed and immediately after the trial, Mr. George physically disappeared and cannot be located.

Plaintiff first retained the law firm of Jacoby & Meyers to bring the Personal Injury Action, but apparently due to the lack of liability insurance and general perception that Mr. George was insolvent, that firm did not actively prosecute the case. Accordingly, plaintiff retained defendants. On October 9, 1998, defendants filed a complaint on plaintiff’s behalf in the Personal Injury Action. Defendants retained the firm of Weicholz, Monteleone, Peters & Studley (the Weicholz Firm) to act as trial counsel. Following a four day jury trial before the Honorable Gerald S. Held, the court rendered a directed verdict on the issue of liability and the jury rendered a verdict on the issue of damages in the amount of $500,000 for conscious pain and suffering and $1,500,000 for future conscious pain and suffering. The court accordingly entered a judgment in the amount of $2,010,545 on plaintiff’s behalf.

Defendants then retained Michael T. Sucher, Esq., an experienced collections attorney, to enforce the judgment. Despite his efforts, he was unable to locate Mr. George or any assets belonging to him. Accordingly, plaintiff’s judgment remains unsatisfied. "

"Pursuant to CPLR 6201(3), the only provision that could be applicable to the facts now before the court:

"An order of attachment may be granted in any action . . . where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants, when:
"[T]he defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff’s favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts."

(see generally Crescentini v Slate Hill Biomass Energy, LLC, 113 AD3d 806 [2014]; Corsi v Vroman, 37 AD3d 397 [2007]). " Furthermore, the mere removal, assignment or other disposition of property is not grounds for attachment’" (Corsi, 37 AD3d at 397, quoting Computer Strategies v Commodore Bus. Machs., 105 AD2d 167, 173 [1984]; accord Mitchell v Fidelity Borrowing LLC, 34 AD3d 366, 366-367 [2006]).
As is also of particular relevance in the instant case, "[t]he moving papers must contain evidentiary facts, as opposed to conclusions, proving the fraud" (Benedict v Browne, 289 AD2d 433, 433 [2001], citing Arzu v Arzu, 190 AD2d 87, 91 [1993], Societe Generale Alsacienne De Banque, Zurich v Flemingdon Dev., 118 AD2d 769, 772 [1986]; accord Laco X-Ray Sys. v Fingerhut, 88 AD2d 425, 429 [1982], lv denied 88 AD2d 425 [1983] [fraud cannot be inferred; it must be proved]). It has also been held that " [t]he fact that the affidavits in support of an attachment contain allegations raising a suspicion [*6]of an intent to defraud is not enough’" (Mitchell, 34 AD3d at 366-367, quoting Rosenthal v Rochester Button Co., 148 AD2d 375, 376 [1989]).

Applying these general principles of law to the facts of this case, defendants have made a prima facie showing that plaintiff could not have obtained a pre-judgment order of attachment in the Personal Injury Action. Plaintiff does not refute this showing. Most significantly, in support of his position, plaintiff relies solely upon the fact that Mr. George transferred his properties prior to entry of the judgment. As discussed above, the fact that a defendant transfers property, standing alone, is insufficient to establish fraud (see Mitchell, 34 AD3d at 366-367; Corsi, 37 AD3d at 397; Computer Strategies, 105 AD2d at 173). Plaintiff offers no other evidentiary basis upon which this court can find an intent to defraud on the part of Mr. George (see Benedict, 289 AD2d at 433, Societe Generale Alsacienne De Banque, Zurich, 118 AD2d at 772; Laco X-Ray Sys., 88 AD2d at 429). Thus, in the absence of raising a question of fact with regard to whether the court would have granted a pre-judgment attachment in the Personal Injury Action, it is irrelevant whether defendants made an oral application or submitted a motion on papers.

Lis Pendens

CPLR 6501 provides, in relevant part, that "[a] notice of pendency may be filed in any action in a court of the state or of the United States in which the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property."

"[B]ecause of the powerful impact that this device has on the alienability of property,’ together with the facility with which it may be obtained,’ the courts have applied a narrow interpretation in reviewing whether an action is one affecting the title to, or the possession, use or enjoyment of, real property."

(Shkolnik v Krutoy, 32 AD3d 536, 537 [2006], quoting 5303 Realty Corp. v O & Y Equity Corp., 64 NY2d 313, 315-316, 321 [1984]). Thus, it is well settled that "[a] notice of pendency is not available where a plaintiff claims no right, title or interest in the property itself" (Long Island City Sav. & Loan Asso. v Gottlieb, 90 AD2d 766 [1982], mod on other grounds 58 NY2d 931 [1983]; see also Khanal v Sheldon, 55 AD3d 684, 686 [2008], lv denied 12 NY3d 714 [2009] [notice of pendency should be cancelled where plaintiff asserted only a claim for money, not a right, title, or interest in the property itself]).
Applying these general principles of law to the facts of this case, defendants have also made a prima facie showing that plaintiff could not have obtained a pre-judgment order of attachment in the Personal Injury Action. Again, plaintiff does not refute this showing, since it is clear that plaintiff was seeking money damages in the Personal Injury Action, so that his action clearly did not "affect the title to, or the possession, use or enjoyment of, real property." Accordingly, plaintiff fails to establish that defendants were [*7]negligent in not filing a lis pendens in the Personal Injury Action. "

 

 

A child falls from the window.  The window had no child-guards. The landlord is at fault. The law firms sue and get a judgment. The landlord sells the building and disappears.  The money is hidden.  is the attorney at fault?

Noel v. Law Off of Mark E. Feinberg, 2014 NY Slip Op 50516(U)   Decided on March 31, 2014
Supreme Court, Kings County   Schmidt, J. is an awful story.  A landlord without insurance sells the buildings and successfully eludes a collection effort.  What should the PI attorney have done?   A lis pendens?  Pre-judgment attachment?  Sadly, NY law does not permit either.
 

"Plaintiff commenced this action seeking to recover damages for the alleged malpractice committed by defendants in the Personal Injury Action. Therein, plaintiffs sought to recover damages for injuries sustained by the infant plaintiff on July 12, 1997 when he fell out of a window that did not have proper and/or adequate window guards. Plaintiff alleges that in that action, defendants committed malpractice when they failed to obtain a pre-trial order of attachment for properties owned by Mr. George or to file a lis pendens against the properties. They allege that as the result of this malpractice and negligence on defendants’ part, the judgment they obtained is can not be collected, since the properties owned by Mr. George were sold before the judgment was filed and immediately after the trial, Mr. George physically disappeared and cannot be located.

Plaintiff first retained the law firm of Jacoby & Meyers to bring the Personal Injury Action, but apparently due to the lack of liability insurance and general perception that Mr. George was insolvent, that firm did not actively prosecute the case. Accordingly, plaintiff retained defendants. On October 9, 1998, defendants filed a complaint on plaintiff’s behalf in the Personal Injury Action. Defendants retained the firm of Weicholz, Monteleone, Peters & Studley (the Weicholz Firm) to act as trial counsel. Following a four day jury trial before the Honorable Gerald S. Held, the court rendered a directed verdict on the issue of liability and the jury rendered a verdict on the issue of damages in the amount of $500,000 for conscious pain and suffering and $1,500,000 for future conscious pain and suffering. The court accordingly entered a judgment in the amount of $2,010,545 on plaintiff’s behalf.

Defendants then retained Michael T. Sucher, Esq., an experienced collections attorney, to enforce the judgment. Despite his efforts, he was unable to locate Mr. George or any assets belonging to him. Accordingly, plaintiff’s judgment remains unsatisfied. "

"Pursuant to CPLR 6201(3), the only provision that could be applicable to the facts now before the court:

"An order of attachment may be granted in any action . . . where the plaintiff has demanded and would be entitled, in whole or in part, or in the alternative, to a money judgment against one or more defendants, when:
"[T]he defendant, with intent to defraud his creditors or frustrate the enforcement of a judgment that might be rendered in plaintiff’s favor, has assigned, disposed of, encumbered or secreted property, or removed it from the state or is about to do any of these acts."

(see generally Crescentini v Slate Hill Biomass Energy, LLC, 113 AD3d 806 [2014]; Corsi v Vroman, 37 AD3d 397 [2007]). " Furthermore, the mere removal, assignment or other disposition of property is not grounds for attachment’" (Corsi, 37 AD3d at 397, quoting Computer Strategies v Commodore Bus. Machs., 105 AD2d 167, 173 [1984]; accord Mitchell v Fidelity Borrowing LLC, 34 AD3d 366, 366-367 [2006]).
As is also of particular relevance in the instant case, "[t]he moving papers must contain evidentiary facts, as opposed to conclusions, proving the fraud" (Benedict v Browne, 289 AD2d 433, 433 [2001], citing Arzu v Arzu, 190 AD2d 87, 91 [1993], Societe Generale Alsacienne De Banque, Zurich v Flemingdon Dev., 118 AD2d 769, 772 [1986]; accord Laco X-Ray Sys. v Fingerhut, 88 AD2d 425, 429 [1982], lv denied 88 AD2d 425 [1983] [fraud cannot be inferred; it must be proved]). It has also been held that " [t]he fact that the affidavits in support of an attachment contain allegations raising a suspicion [*6]of an intent to defraud is not enough’" (Mitchell, 34 AD3d at 366-367, quoting Rosenthal v Rochester Button Co., 148 AD2d 375, 376 [1989]).

Applying these general principles of law to the facts of this case, defendants have made a prima facie showing that plaintiff could not have obtained a pre-judgment order of attachment in the Personal Injury Action. Plaintiff does not refute this showing. Most significantly, in support of his position, plaintiff relies solely upon the fact that Mr. George transferred his properties prior to entry of the judgment. As discussed above, the fact that a defendant transfers property, standing alone, is insufficient to establish fraud (see Mitchell, 34 AD3d at 366-367; Corsi, 37 AD3d at 397; Computer Strategies, 105 AD2d at 173). Plaintiff offers no other evidentiary basis upon which this court can find an intent to defraud on the part of Mr. George (see Benedict, 289 AD2d at 433, Societe Generale Alsacienne De Banque, Zurich, 118 AD2d at 772; Laco X-Ray Sys., 88 AD2d at 429). Thus, in the absence of raising a question of fact with regard to whether the court would have granted a pre-judgment attachment in the Personal Injury Action, it is irrelevant whether defendants made an oral application or submitted a motion on papers.

Lis Pendens

CPLR 6501 provides, in relevant part, that "[a] notice of pendency may be filed in any action in a court of the state or of the United States in which the judgment demanded would affect the title to, or the possession, use or enjoyment of, real property."

"[B]ecause of the powerful impact that this device has on the alienability of property,’ together with the facility with which it may be obtained,’ the courts have applied a narrow interpretation in reviewing whether an action is one affecting the title to, or the possession, use or enjoyment of, real property."

(Shkolnik v Krutoy, 32 AD3d 536, 537 [2006], quoting 5303 Realty Corp. v O & Y Equity Corp., 64 NY2d 313, 315-316, 321 [1984]). Thus, it is well settled that "[a] notice of pendency is not available where a plaintiff claims no right, title or interest in the property itself" (Long Island City Sav. & Loan Asso. v Gottlieb, 90 AD2d 766 [1982], mod on other grounds 58 NY2d 931 [1983]; see also Khanal v Sheldon, 55 AD3d 684, 686 [2008], lv denied 12 NY3d 714 [2009] [notice of pendency should be cancelled where plaintiff asserted only a claim for money, not a right, title, or interest in the property itself]).
Applying these general principles of law to the facts of this case, defendants have also made a prima facie showing that plaintiff could not have obtained a pre-judgment order of attachment in the Personal Injury Action. Again, plaintiff does not refute this showing, since it is clear that plaintiff was seeking money damages in the Personal Injury Action, so that his action clearly did not "affect the title to, or the possession, use or enjoyment of, real property." Accordingly, plaintiff fails to establish that defendants were [*7]negligent in not filing a lis pendens in the Personal Injury Action. "

 

 

What happens when a non-English speaking, novice litigant goes to an attorney for a simple issue to be resolved, and ends up, years later, paying $ 90,000?  What usually happens is that the client goes off unhappy.  Here in Law Off. of Thaniel J. Beinert v Litinskaya   2014 NY Slip Op 50504(U)
Decided on March 31, 2014  Civil Court Of The City Of New York, Kings County Thompson, J. we see just the opposite.  Attorney is told that no fees are due, and that he has to refund money. The decision is very long, and very descriptive.  It’s worth reading through.
 

"On October 17, 2003, the Hon. Ellen L. Koblitz, the presiding judge over the above action, dismissed the Defendant’s answer and his supporting defenses, and granted LITINSKAYA a Final Judgment of Divorce. The Final Judgment of Divorce, subsequently subsumed by an Amended Final Judgment of Divorce, in addition to the resolution of issues of equitable distribution, child support, and visitation, provides, in relevant part, as follows: "Plaintiff shall receive all title and interest in the condominium located at 4050 Nostrand Avenue, Apartment PH-C, Brooklyn, New York and Judgment is (sic) hereby entered in her favor " (See Exhibit "A" in the BRIEF IN SUPPORT OF PLAINTIFF’S MOTION FOR CERTIFICATION UNDER CPLR §2105-Court Exhibit "1"). The Superior Court appointed Richard Weiner, Esq., attorney-in-fact, to execute and file the New York State Deed and the other recording documents mandated by NY law to complete the transfer of the property to LITINSKAYA. It is irrefutable and undeniable that the deficiency in the aforementioned legal description of the property in the decree is the catalyst for the controversy in this case. "

"In this action, the first course of action for the Plaintiff law firm should have been to communicate with the attorney that handled the divorce action in New Jersey. Although Plaintiff did testify that he spoke to her and obtained her file, he never made any inquiry about the exclusion of the lease agreement or leasehold interest in the divorce decree. Any real estate attorney would have made a determination of any and all liens, tenancies, leases, encumbrances, claims, actions and exceptions to title that were subject to the transfer of the condominium to the Defendant. It is this court’s opinion that the divorce attorney assumed responsibility for all rights, title and interest that the Defendant may have had in the subject property including any leases that may have been made subject of the transfer. But for the neglectful exclusion of such qualifying language in the transfer of this real estate located in Brooklyn, New York, the entire course of litigation undertaken by the Plaintiff’s attorney would have been different or even non-existent.

Of equal importance, it is the opinion of this court that the course of action in the prosecution of the Defendant’s right in the New Jersey Circuit Court was unreasonable and not in conformity with the Rule 1.1 of the Professional Rules. This court finds that the course of action in attempting to modify and/or declare the alleged lease agreement null and void was improper as a matter of fact and law.

The proper course of action would have been to commence a summary proceeding to recover possession of the subject apartment. The Housing Part of the Civil Court of the City of New York has been clearly granted statutory authority pursuant to RPAPL §235-c to declare the alleged twelve (12) year lease agreement at a monthly rent of $590.00 for the duplex Penthouse in Brooklyn unconscionable. RPAPL §235-c provides, in relevant part, as follows: "If the court, as a matter of law, finds a lease or any clause of the lease to have been unconscionable at the time it was made, the court may refuse to enforce the lease, or it may enforce the remainder of the lease without the [*14]unconscionable clause, or it may so limit the application of any unconscionable clause as to avoid any unconscionable result". As compelling, Section 2 of the statute provides that when it is claimed or appears to the court that the lease or any clause thereof may be unconscionable, the parties shall be afforded a reasonable opportunity to present evidence as to its setting, purpose and effect to aid the court in making the determination. This is not a new statute. It is well known to those attorneys that practice Landlord and Tenant law. The statute was enacted in 1976, effective July 26, 1976, and is applicable to all leases regardless of when executed in this state. No evidence, testimonial or otherwise, was introduced to show that BEINERT retained or consulted a Landlord and Tenant attorney notwithstanding the fact that he stated he was a veteran in the Landlord and Tenant Court. Even those that are experts consult with others in decision-making particularly in the legal profession.

This court is in accord with the Defendant’s claims that the proper venue to remove the tenants from possession was the Brooklyn Housing Part of the Civil Court of the City of New York and not the Superior Court in New Jersey. The Hon. Ellen L. Koblitz correctly instructed the Plaintiff law firm that the appropriate venue was New York based upon the fact that the property was located in New York, the occupants were residents of New York and were not parties to the divorce action. The judge was explicit that the tenants, in light of the evidence presented by both parties, may have some rights to occupancy.

Under New York law, both parties would have been given an opportunity to participate in an evidentiary hearing to determine the validity of the lease. LITINSKAYA could have presented expert testimony of a real estate broker and/or real estate appraiser to substantiate that the rental amount was a "sweetheart deal" and well below the fair market value for a comparable apartment of that size, condition and location. Of equal importance, LITINSKAYA would have been offered the opportunity to present evidence to prove that the sum of $590.00 did not reflect the fair market rent for the subject premises and that such a low rental was due to the prior ownership of the subject premises by the Defendant’s former spouse. Evidence should have also been adduced to substantiate, as alleged by the Plaintiff law firm in the New Jersey Order to Show Cause, that the lease was intended to defeat LITINSKAYA’s rights of possession contrary to the divorce decree. On the other side, the occupants would have been granted the statutory right to defend the lease, including but not limited to, the memorandum of lease dated March 25, 2003 that was sent to the title company for recordation, the lease itself and any other admissible evidence, testimonial or documentary, to substantiate its authenticity and its enforceability."

 

"In addition to all of the above, this court finds it a deviation from traditional and customary legal practices for BEINERT to have his junior associate act as trial counsel in this case. As the presiding judge in many legal fee cases and trial counsel in many more cases of like substance, it is customary in the legal community for the Plaintiff to retain outside counsel in cases such as this one. In many instances, those outside counselors have an ongoing relationship with the law firm; many act, of counsel, on behalf of the firm as trial counsel or specialize in areas unfamiliar to the law firm. The trial transcript in this case speaks volumes of imprudence, inexperience and developing trial skills. It is apparent that no one, not even the managing partner, consulted with outside counsel to discern the requisite elements to prove a legal fee dispute case. Had such action been taken, maybe this action would have been avoided altogether. This court was remorseful that a young associate was obligated to act as trial counsel for his employer in this legal fee case. This court would discourage such uncustomary and irresponsible practice.

Based on the above analysis, the legal fees are reduced as stated in the annexed Schedule "A" and are based on these grounds. Any and all teleconference bills with "ALEX" are disallowed. According to the testimony of the principal of the law office, ALEX was a former client who introduced the parties, however, the Defendant retained the law firm. Since ALEX is not the party that retained the law firm and no evidence was produced that he had a Power of Attorney to act on behalf of the Defendant or any testimony that the Defendant authorized him to act on her behalf, all bills to the Defendant which state "teleconference with Alex" or the like are denied.

In addition, any and all bills that lacked specificity and were too generalized to disclose the nature and scope of the legal services rendered, are likewise disallowed. The bills, as described in Schedule "A" that are disallowed is replicated verbatim from the BEINERT legal fee bills. BEINERT also did not annexed to the bills or present to the court for review, any schedule of the names of the different employees that worked on the case. At the very least the Defendant should have known the name(s) and rank of the individual that billed for services.

After a careful review and complete analysis of the trial transcript and documentary evidence admitted at trial, the Plaintiff law firm failed to substantiate entitlement to the legal fees billed the Defendant. "