AQ Asset Mgt. LLC v Levine  2014 NY Slip Op 30489(U) February 27, 2014  Sup Ct, New York County  Docket Number: 652367/2010  Judge: Shirley Werner Kornreich is the story of a big deal gone bad, and how that failure devolves into looking for suspects.  Put another way, the clients are now looking to see how and why they might get more money back.  In a case that has spanned 37 motions and more than 1200 documents the parties aren’t even through depositions.  One thing is clear…it’s too late to sue for legal malpractice.  The only question left is fraud and accounting for $30 Million.

"Pursuant to an order dated March 22, 2013, Levine deposited $3,420,787.01 into court, which he claimed represented the remaining balance of the escrow funds at issue in this action. By order dated April 9, 2013, he was directed to account for his handling of the escrow from the time of receipt until the time of deposit. Levine produced an affidavit of account, which he claims sets forth all of the transactions related to the escrow, with supporting exhibits attached. According to Levine’s affidavit, the principal, original escrow amount remaining was $3,405,979.68; the amount
deposited with the court included accrued interest to which Levine claims he is entitled. By order dated October 16, 2013, pursuant to a decision by the Appellate Division, the court directed that the monies deposited by Levine be released to defendants’ attorney (NYSCEF Doc No. 1053).
On April 22, 2013, plaintiffs served a reply to defendants’ original counterclaims. On May 6, defendants served an amended answer, containing counterclaims against plaintiffs  and cross-claims against Michael Levine. Though the amended answer contained a demand that Levine answer (see amended cross-claims~ 305; CPLR 3011 ), Levine has refused to do so. "

"A. Default Judgment
As indicated at oral argument, the issue of Levine’s responsive pleading shall be resolved by requiring him to serve an answer to defendants’ cross-claims within twenty days. That branch of the motion seeking to hold him in default for failing to answer, therefore, is denied.

B. Cross-Motion to Dismiss
In their amended answer defendants allege that, acting in concert with Zimmermann and Artist House, Levine misled Patrizzi as to the contents of the Distribution Agreement, thereby inducing him to sign it. That agreement was later used to confer voting rights on Zimmermann, who in tum used his power to join with Artist House in removing Patrizzi from management and, later, in reducing defendants’ shares in the Company to zero. Defendants also have called into question the final $300,000 payment Levine claims to have made from the escrow to procure a financing commitment from an entity known as Karastir LLC (Karastir), contending that they never authorized that disbursement. These allegations are sufficient to sustain defendants’ third and fourth cross-claims against Levine for fraud and breach of his fiduciary duties as escrow agent. Similarly, defendants’ first cross-claim for a declaratory judgment that they are entitled to all funds or shares that were delivered to or held by Levine as part of the stock transaction is viable, as is their demand for an accounting.
The other cross-claims challenged here lack merit. The second cross-claim seeks a declaration that defendants have satisfied all of their obligations under the stock purchase agreement and bear no further liability arising out of the stock transaction. Defendants do not explain how any controversy regarding their obligations thereunder could implicate Levine, who was not a party to the transaction. The second cross-claim is dismissed. Since the court has previously held that defendants cannot maintain any claim based on their supposed entitlement to a certain payment of $2 million that was made to Levine’s escrow account in 2006 and released by him to  Antiquorum in 2010 (decision & order, Mar 28, 2013, 18-19), the eighth, eleventh and twelfth cross-claims (for constructive fraud, conversion and fraudulent concealment) are dismissed in their entirety, and the third cross-claim for fraud is also dismissed to the extent it relates to the transfer of these funds. Defendants are attempting to use their right to replead to improperly circumvent a decision on the merits which has not been reversed or modified and for which they did not seek reargument (DiPasquale v Sec. Mut. Life Ins. Co. of New York, 293 AD2d 394, 395 [1st Dept 2002] citing Societe Nationale d’Exploitation Jndustrielle des Tabacs et Allumettes v Salomon Bros. Intl., Ltd., 268 AD2d 373, 374 [1st Dept 2000] Iv denied 95 NY2d 762 [2000]; Romanov Kassebaum, 250 AD2d 661, 662 [2d Dept 1998]; see also The Plaza PH2001 LLC v Plaza Residential Owner LP, 98 AD3d 89, 98 [lst Dept 2012] [upholding dismissal of second action commenced prior to  modification of motion court’s dismissal of first action on merits])."

Sometimes legal malpractice cases are an exercise in looking back.  Plaintiffs look backwards to what happened at the first trial, or what went wrong years ago.  Burbige v Siben & Ferber
2014 NY Slip Op 01426  Decided on March 5, 2014  Appellate Division, Second Department  is an example.  Plaintiff fell from a broken ladder at work.  Not stated, but presumed is that he had a workers’ compensation case. Two years later he hired the defendant attorneys to sue the manufacturer.  They did, and the manufacturer promptly filed for bankruptcy.  Left unexplained is who has the ladder?
Now, plaintiff sues the attorneys for lack of diligence in suing the manufacturer.  While the case discusses timing of expert witness notifications, it does hold that the attorneys cannot be sanctioned for not having the ladder.  They have a picture, but it’s a mystery who has the ladder.

"In August 1989, the plaintiff was injured when a metal railing on a ladder he was descending broke off, causing him to fall. In June 1991, he retained the defendant Siben & Ferber, a partnership consisting of Gary L. Siben and Steven B. Ferber (hereinafter S & F), to represent him in a products liability lawsuit against the ladder manufacturer. The action was commenced in August 1991. After issue was joined in October 1991, the manufacturer filed for bankruptcy. The products liability action remained dormant until March 2004, when the defendant Leonard G. Kapsalis, then an associate at S & F, contacted the plaintiff to sign authorizations to verify his responses to interrogatories. One of the responses indicated that the plaintiff’s employer had retained the subject ladder after his accident. However, while S & F’s legal file contained photographs of the ladder, the location of the ladder was unknown. In 2007, the plaintiff commenced this legal malpractice action alleging, inter alia, that the defendants were negligent in failing to diligently prosecute the products liability action. The plaintiff now appeals from an order of the Supreme Court which granted the defendants’ motion to preclude his expert from testifying at a retrial and which denied his cross motion pursuant to CPLR 3126 to impose a sanction upon the defendants for the spoliation of evidence.

CPLR 3101(d)(1)(i) "does not require a party to respond to a demand for expert witness information at any specific time nor does it mandate that a party be precluded from proffering expert testimony merely because of noncompliance with the statute,’ unless there is evidence of intentional or willful failure to disclose and a showing of prejudice by the opposing [*2]party" (Cutsogeorge v Hertz Corp., 264 AD2d 752, 753-754, quoting Lillis v D’Souza, 174 AD2d 976, 976 [internal quotation marks omitted]; see Barchella Contr. Co., Inc. v Cassone, 88 AD3d 832, 832; Saldivar v I.J. White Corp., 46 AD3d 660; Fava v City of New York, 5 AD3d 724, 724-725). Here, the record does not support a conclusion that the plaintiff’s delay in retaining his expert or in serving his expert information was intentional or willful. Furthermore, any potential prejudice to the defendants was ameliorated by a two-month adjournment of the retrial agreed to by the parties (see Shopsin v Siben & Siben, 289 AD2d 220, 221). Accordingly, the Supreme Court improvidently exercised its discretion in granting the defendants’ motion to preclude the plaintiff’s expert from testifying at the retrial (see Johnson v Greenberg, 35 AD3d 380; Dailey v Keith, 306 AD2d 815, affd 1 NY3d 586).

Contrary to the plaintiff’s contention, the Supreme Court properly denied his cross motion pursuant to CPLR 3126 to impose a sanction upon the defendants for the spoliation of evidence, as there is no evidence that the defendants were responsible for the loss or destruction of the subject ladder (see Gotto v Eusebe-Carter, 69 AD3d 566, 567). "

The Client comes in and tells you, "They didn’t know the case!  They didn’t prepare!  They lost the case!"  Is that enough for a good legal malpractice case?  A demonstrated lack of skill and a failure to prepare for litigation might seem proper fodder for a legal malpractice case, it’s not always enough.

In Chibcha Rest., Inc. v David A. Kaminsky & Assoc., P.C. 2013 NY Slip Op 00281 Appellate Division, First Department the court held: "Plaintiffs’ allegations that defendants made "no useful attempt" to argue against a TRO sought and obtained by the landlord, and that defendants were both unprepared and unskilled in defending them, do not suffice. As the motion court observed, plaintiffs do not allege, for example, that defendants missed any deadlines or otherwise failed to protect or preserve plaintiffs’ rights (see Mortenson v Shea, 62 AD3d 414, 414-415 [1st Dept 2009])."

This case demonstrates the bold difference between a failure to file within a deadline, and almost all other shortcomings. Presentation of a certain witness, selection of an expert, questions put in cross-exam. All very important, but none of them a failure to file within a deadline or a failure to preserve a client’s rights.

The Court explains further: "Contrary to plaintiffs’ assertions, the record supports the motion court’s conclusion that plaintiffs’ damages, sustained from the closing of the subject premises after issuance of the TRO, were not caused by defendants’ conduct, but rather by plaintiffs’ failure to obtain the necessary insurance before the landlord brought its motion for a temporary restraining order. Plaintiffs concede that the insurance coverage required by the lease initially was not in place, and that the TRO against them was lifted only after the requisite insurance was obtained. As the premises were closed due to the lack of insurance, it cannot be said that plaintiffs would not have incurred any damages, but for defendants’ purported negligence (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 442 [2007])."
 

Plaintiff must always prove that departures from good and accepted practice by the defendant were a proximate cause of the injury. Note that there need be no proof that the departure was the proximate cause. In Arbor Realty Funding, LLC v Herrick, Feinstein LLP 2013 NY Slip Op 01216
Appellate Division, First Department we see such an application.
"Defendant argues that even if, but for its allegedly erroneous legal advice as to zoning issues, plaintiff would not have made bridge loans to the developer of a residential tower at 303 East 51st Street in Manhattan, plaintiff cannot establish legal malpractice or negligent representation because it cannot demonstrate that the zoning advice proximately caused its loss on the defaulted loans. Plaintiff made the loans in mid-2007. Defendant contends that the crane collapse at the project site in March 2008, which killed seven people, the market collapse beginning in late 2007 and continuing through 2008, and plaintiff’s insufficient response to the Department of Buildings letter notifying plaintiff of its intent to revoke the project’s building permits, constituted intervening events that severed the causal link between defendant’s zoning advice and plaintiff’s loss (see Derdiarian v Felix Contr. Corp., 51 NY2d 308 [1980]).

There is, however, evidence in the record that raises an issue of fact as to causation (see Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005], lv denied 6 NY3d 713 [2006]). It appears [*2]that potential takeout lenders had concerns about the zoning issues even before March 2008. To the extent later events contributed to plaintiff’s loss, they are properly considered by a fact-finder (see e.g. Schauer v Joyce, 54 NY2d 1 [1981])."
 

Plaintiff was charged with violating the Cornell University Campus Code by allegedly harassing a professor.  From there on in her legal arc was consistently downward.  She hired defendant attorneys to represent her in a CPLR Art. 78 and in a Title IX claim.  Both were unsuccessful.  She then sued all the attorneys, both individually and as a firm. 

In Hyman v Schwartz   2014 NY Slip Op 01362   Decided on February 27, 2014   Appellate Division, Third Department  the AD dismissed legal malpractice claims against all.

"However, defendants correctly argue that Supreme Court should have granted their motion to dismiss the legal malpractice claim. It is well established that, "[i]n order to sustain a claim for legal malpractice, a plaintiff must establish both that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to a plaintiff, and that the plaintiff would have succeeded on the merits of the underlying action but for the attorney’s negligence" (Leder v Spiegel, 9 NY3d 836, 837 [2007], cert denied sub nom. Spiegel v Rowland, 552 US 1257 [2008] [internal quotation marks and citation omitted]; accord Alaimo v McGeorge, 69 AD3d 1032, [*3]1034 [2010]; see Kreamer v Town of Oxford, 96 AD3d 1128, 1128-1129 [2012]; see also MacDonald v Guttman, 72 AD3d 1452, 1454-1455 [2010]; Bixby v Somerville, 62 AD3d 1137, 1139 [2009]). Here, although the complaint is replete with allegations of Schwartz’s alleged failures to use reasonable and ordinary skill in connection with both of plaintiff’s underlying claims, it contains no allegation that, but for these alleged failures, plaintiff would have been successful on either claim [FN2]. Therefore, even if we accept the allegations as true and liberally construe the complaint to allege negligent representation by Schwartz (see Leon v Martinez, 84 NY2d 83, 87-88 [1994]; Moulton v State of New York, ___ AD3d ___, ___, 977 NYS2d 797, 801 [2013]; Scheffield v Vestal Parkway Plaza, LLC, 102 AD3d 992, 993 [2013]), the allegations are insufficient to make out a prima facie case of legal malpractice (see Kreamer v Town of Oxford, 96 AD3d at 1128; MacDonald v Guttman, 72 AD3d at 1455). "

In today’s New York Law Journal Christine Simmons reports on how the big boys play at legal malpractice.  Basically, it’s client with at least $1B in play hires Proskauer to advise them on a new borrowing/lending plan, which goes awry.  Lots of taxes become due, and finger pointing ensues.  The news in this dog bites man story is that Proskauer has counterclaimed against the client for fraud, constructive fraud and misrepresentation.

Here is something from the story: " After its former client sued the firm for malpractice, Proskauer Rose and four of its partners have sued the client’s senior executives, claiming the malpractice suit has harmed the firm’s reputation and led it to incur substantial legal fees (See Complaint).

Proskauer is suing James Edelson, the general counsel to Overseas Shipholding Group (OSG); and Myles Itkin, the company’s former chief financial officer in Manhattan Supreme Court.

The firm and the partners—Alan Parnes, Richard Rowe, Peter Samuels and Steven Weise—claim the executives solicited legal advice from Proskauer based on "materially false and misleading representations."

Ultimately, OSG filed for Chapter 11 relief in 2012 and a year later sued Proskauer for malpractice, claiming the company expected to have to pay hundreds of millions of dollars in U.S. taxes due to Proskauer’s advice (See Complaint).

Proskauer and the four partners are claiming fraud, constructive fraud, negligent misrepresentation and contribution against the executives. They say they have "suffered tremendous reputational damage as a result of OSG’s meritless [claims]."

In May 2011, OSG entered into a new credit agreement, but within a few months began preparing refinancing negotiations, Proskauer said. These discussions drew attention to the "joint and several" language in the 2006 credit agreement and the bank lending group expressed concerns about OSG’s potential tax liability, Proskauer said.

"Spurred by its need for liquidity, and with knowledge that its own false representations were a fundamental basis of the Memorandum, OSG drew down the funds that remained in its 2006 credit facility—approximately $340 million," Proskauer said in its complaint.

Negotiations with the bank lending group broke down, and OSG became focused on a bankruptcy filing. Proskauer was hired as its restructuring counsel.

Around this time, when Proskauer was asked to turn the memo into an opinion, the firm said it learned of a "trove of hidden documents."

In late October 2012, Samuels, while at OSG’s offices, saw for the first time "numerous documents that wholly undermined Edelson’s and Itkin’s repeated assertions" to Proskauer that the parties to the credit agreements never intended that OIN guarantee OSG’s obligations, the firm said in its complaint.

For example, OSG had a document that "plainly indicates that both OSG and its counsel Clifford Chance understood and intended that OIN be a guarantor of OSG’s debts under that agreement via the ‘joint and several’ structure."

"Had Proskauer been aware of these documents prior to drafting the Memorandum, it would have materially altered its conclusion," the firm said. In the end, the firm refused to provide a formal tax opinion.

Also in October 2012, OSG informed the firm that Proskauer would be replaced with new restructuring counsel, and OSG revoked the firm’s access to its offices.

The following month, OSG and 180 of its affiliates, including OIN and OBS, filed for Chapter 11 relief in Delaware bankruptcy court."  Read on for more at: http://www.newyorklawjournal.com/id=1202644791712/Proskauer-Sues-Ex-Client-Accusing-Firm-of-Malpractice#ixzz2ucUkb9Qs

Reading decisions of the Appellate Division in legal malpractice cases involving attorneys on both sides often shows the AD dismissing the complaint on "but for" grounds.  The AD will look closely at the underlying transactions which led to the underlying litigation, and will decide whether there would have been a better or different outcome.

In contrast, and especially in this pro-se v. defendant attorney case, the AD took a more gentle approach and affirmed the denial of summary judgment to the attorney.  Rodolico v Rubin & Licatesi, P.C. 2014 NY Slip Op 01308  Decided on February 26, 2014  Appellate Division, Second Department discussed pre-discovery summary judgment motions.
 

"The plaintiff’s sister worked for the defendant law firm, in which the individual defendants are partners. During his sister’s employment, the plaintiff came to learn of an investment opportunity being organized by the defendants, which involved providing high interest, short-term loans for the development of real estate. The plaintiff and his wife decided to participate. Two bank checks, one of which was purchased by the plaintiff’s wife and bore only her name, were forwarded to the defendants for the purpose of making two loans. When these two loans were not repaid in full, the plaintiff commenced this action seeking to recover from the defendants the money that he was owed, claiming that the defendants effectively borrowed the money from him (first and second causes of action). In the alternative, the plaintiff sought damages for legal malpractice (third cause of action). The plaintiff made a pre-discovery motion for summary judgment on the complaint, and the defendants cross-moved, inter alia, to dismiss the second cause of action pursuant to CPLR 3211(a)(3), for lack of standing, and to dismiss the complaint pursuant to CPLR 3211(a)(1), based upon documentary evidence. The Supreme Court denied the motion and the cross motion.

In support of that branch of their cross motion which was to dismiss the second cause of action for lack of standing, the defendants argued that the plaintiff had no interest in the loaned funds because the funds were provided by his wife. However, the plaintiff established, through his affidavit, that the funds provided for the subject loan belonged to both him and his wife (see Rodolico v Rubin & Licatesi, P.C., 112 AD3d 608, 609-610). The defendants presented no evidence to the contrary. The plaintiff, therefore, had standing to seek the return of the funds (see id.; see generally Wells Fargo Bank Minn., N.A. v Mastropaolo, 42 AD3d 239, 242), and the Supreme Court properly denied that branch of the defendants’ cross motion which was to dismiss the second cause of action for lack of standing. [*2]

The Supreme Court also properly denied that branch of the defendants’ cross motion which was to dismiss the complaint pursuant to CPLR 3211(a)(1). A motion pursuant to CPLR 3211(a)(1) to dismiss a complaint on the ground that a defense is founded on documentary evidence "may be appropriately granted only where the documentary evidence utterly refutes [the] plaintiff’s factual allegations, conclusively establishing a defense as a matter of law" (Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326; see Parkoff v Stavsky, 109 AD3d 646; Benson v Deutsche Bank Natl. Trust, Inc., 109 AD3d 495). Further, the evidence submitted in support of a motion pursuant to CPLR 3211(a)(1) to dismiss a complaint on the ground that a defense is founded on documentary evidence "must be documentary’ or the motion must be denied" (Cives Corp. v George A. Fuller Co., Inc., 97 AD3d 713, 714, quoting Fontanetta v John Doe 1, 73 AD3d 78, 84 [internal quotation marks omitted]; see Rodolico v Rubin & Licatesi, P.C., 112 AD3d at 610). " [N]either affidavits, deposition testimony, nor letters are considered documentary evidence within the intendment of CPLR 3211(a)(1)’" (Cives Corp. v George A. Fuller Co., Inc., 97 AD3d at 714, quoting Granada Condominium III Assn. v Palomino, 78 AD3d 996, 997; see Rodolico v Rubin & Licatesi, P.C., 112 AD3d at 610; Suchmacher v Manana Grocery, 73 AD3d 1017; Fontanetta v John Doe 1, 73 AD3d at 86).

Here, with respect to the first and second causes of action, the defendants submitted two checks that the plaintiff and his wife provided for the investments, which were written to the defendants’ IOLA account. Those checks do not "utterly refute" the plaintiff’s allegations that the defendants borrowed funds from the plaintiff and his wife or "conclusively establish[ ] a defense as a matter of law" (Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d at 326).

The only other evidence submitted by the defendants pertaining to these causes of action as well as the legal malpractice cause of action was affidavits, which do not constitute " documentary evidence within the intendment of CPLR 3211(a)(1)’" (Cives Corp. v George A. Fuller Co., Inc., 97 AD3d at 714, quoting Granada Condominium III Assn. v Palomino, 78 AD3d at 997; see Rodolico v Rubin & Licatesi, P.C., 112 AD3d at 610).

Accordingly, that branch of the defendants’ cross motion which was to dismiss the complaint pursuant to CPLR 3211(a)(1) was properly denied (see Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d at 326; Rodolico v Rubin & Licatesi, P.C., 112 AD3d at 610; Cives Corp. v George A. Fuller Co., Inc., 97 AD3d at 714; Integrated Constr. Servs., Inc. v Scottsdale Ins. Co., 82 AD3d 1160, 1163; Fontanetta v John Doe I, 73 AD3d at 86). "

Schlam Stone & Dolan, LLP v Poch  2014 NY Slip Op 30415(U)  February 17, 2014  Supreme Court, New York County  Docket Number: 105769/11  Judge Shlomo S. Hagler presents the question of whether an attorney may be hired to represent an entity, and then represent the individual officers or members, without their knowledge.  What happens when things do not go so well?

In a housing court proceedings, Arfa and Shpigel came to be represented by defendants.  Arfa and Shpigel say that they did not know there was a case, did not know that they were represented, nor did they know that things were going badly in landlord-tenant court.  Indeed, things did go badly.

"Plaintiff’s assignors, Arfa and Shpigel, claim that Poch, an  attorney, committed malpractice when he purported to represent  them without authority in five Housing Court proceedings, wherein 
numerous violations were brought against Arfa and Shpigel, among  others, in their role as owners of the properties subject to the  violations and which Poch settled by five Consent Orders dated
June 24, 2008 (“Consent Orders”) .Arfa and Shpigel complain that Poch committed malpractice by failing to inform them that he was  representing them in the Housing Court matters (of which they
claim to have been ignorant), failing to discuss the matters with  them including exploring possible defenses, failing to inform  them that they were personally named and liable for fines arid  repairs, and by entering into the Consent Orders allegedly  without their knowledge or consent.  Arfa and Shpigel state that they only became aware of the existence of the Consent Orders when they were  called into court to answer contempt proceedings…. "

Arfa and Shpigel litigated through the Civil Court and to the Appellate Term.  Both courts determined that the defendant attorneys had apparent authority.  Is that Collateral Estoppel?  No.

Judge Hagler determined that "To establish collateral estoppel, there must have been an “identical issue . . . necessarily decided in the prior action or  proceeding [which] is decisive of the present action” and a  showing chat “the party who is attempting to relitigate the issue  had a full and fair opportunity to contest it in the prior action  or proceeding” (Matter of Howard v Stature Elec. Inc., 20 NY3d  522, 525 [2013]  citing Kaufman v Eli Lilly & Co., 65 NY2d 443,  455 [1985]; see also Matter of Hoffman, 287 AD2d 119 [lst Dept  2111).  In the present motion, defendants assert that the Appellate Term Decisions have completely resolved the issues in this case  and that they should not be relitigated here. To properly apply  the doctrine of collateral estoppel, this Court must determine  whether Judge Klein and the Appellate Term decided the “identical issue” which is “decisive” of this legal. malpractice act ion.  The issue before Judge Klein and the Appellate Term was limited to whether defendants had the authority ‘to represent Arfa and Shpigel in two discrete  housing Court proceedings which were  ]settled by two Consent Orders. The issue in this case, however,  is whether defendants’ committed legal malpractice in  representing Arfa and Shpigel in five Housing Court proceedings.  More specifically, Arfa and Shpigel not only allege that
defendants did not have authority to act on their behalf, but  defendants also failed to advise and explore with them any  possible defenses prior to entering into the Consent Orders in  all five Housing Court proceedings.  As such, the only issue that the Appellate Term conclusively
determined is that defendants had the authority to represent Arfa  and Shpigel in those two Housing Court Proceedings and are bound by the resulting two Consent Orders. The Appellate Term never determined the issue as to whether defendants committed legal  malpractice in the five Housing Court proceedings. Irrespective  of the doctrine of collateral estoppel, this Court must also  address whether defendants have met their burden in demonstrating  entitlement to summary judgment dismissing this legal malpractice  action. "