CIT Lending Serv. Corp. v Morrison & Foerster LLP  2013 NY Slip Op 31980(U)  August 20, 2013
Sup Ct, New York County  Docket Number: 653797/2012  Judge: Melvin L. Schweitzer has a well written discussion of the difference between contribution and indemnity, as well as an exposition on how "pure economic loss" applies to legal malpractice.  We discussed the contribution issues several days ago.  Here are the indemnity issues. 

"Implied Indemnity Claim
Morrison & Foerster amended its complaint to include an implied indemnity claim after the Third-Party Defendants’ motion to dismiss. Morrison & Foerster objects to Third-Party Defendant’s  attempt to expand their motion to address that separate claim for relief in their reply papers. "[T]he moving party has the option to decide whether its motion should be applied to the new pleadings." Sage Realty Corp. v Proskauer Rose LLP, 251 AD2d 35, 38 (1 st Dept 1998). Morrison & Foerster has fully argued the issues in dispute in its memoranda and sur-reply papers. In favor of judicial efficiency, the Third-Party Defendants motion to dismiss applies to the claim for implied indemnity.
The common law doctrine of implied indemnity permits one who is held vicariously liable, solely on account of the negligence of another, to shift its burden of the loss to the actual wrongdoer. Third Party Defendants argue that in the absence of vicarious liability, the claim for implied indemnity should be dismissed. Although indemnity commonly arises in cases involving an express contract, an implied indemnity obligation may be based upon the law’s notion of what is fair and proper between the parties. See Mas v Two Bridges Assoc. by Nat. Kinney Corp., 75 NY2d 680, 690 (1990). Third-Party Defendants argue that the claim for implied indemnity should be dismissed
because Morrison & Foerster is being sued for its own alleged wrongdoing, attorney malpractice, which bears no relation to the Third-Party Defendants’ actions. A party cannot seek common law implied indemnification, when its liability is predicated on its own fault. See Bleecker St. Health & Beauty Aids, Inc. v Granite State Ins. Co., 38 AD3d 231, 233 (1st Dept 2007); Mathis v Central Park Conservancy, AD2d 171, 172 (1998). The basis for liability in claims of implied indemnity "arises from the principle that ‘every one is responsible for the consequences of his own negligence, and if another person has been compelled … to pay the damages which ought to have been paid by the wrongdoer, they may be recovered from him. ", Raquet v Braun, 90 NY2d 177, 183 (1997). CIT’s malpractice claim against Morrison & Foerster is primarily based on the improper filing of the Building Loan Agreement which, as alleged in the Third-Party Complaint, resulted from the Third-Party Defendants’ untimely filing of the Amendment to the Building Loan Agreement.

Morrison & Foerster has properly alleged a claim for implied indemnity against Third- Party Defendants."

The Court of Appeals has ruled that the only damages available in legal malpractice are  purely economic.  Dombrowski v Bulson  2012 NY Slip Op 04203 [19 NY3d 347]  "We see no compelling reason to depart from the established rule limiting recovery [*4]in legal malpractice actions to pecuniary damages."  "Wolkstein v Morgenstern, 275 AD2d 635, 637 [1st Dept 2000] ["A cause of action for legal malpractice does not afford recovery for any item of damages other than pecuniary loss so there can be no recovery for emotional or psychological injury"]).

Coming at the issue from a slightly different vantage point, CIT Lending Serv. Corp. v Morrison & Foerster LLP; 2013 NY Slip Op 31980(U); August 20, 2013 Sup Ct, New York County ; Docket Number: 653797/2012 Judge: Melvin L. Schweitzer discusses the effect of a law suit that seeks solely "pure economic loss". 

""[P]urely economic loss resulting from a breach of contract does not constitute ‘injury to property’ within the meaning of New York’s contribution statute [CPLR 1401]" Board of Educ. of Hudson City School Dist. v Sargent, Webster, Chrenshaw & Folley, 71 NY2d 21, 26 (1987). The nature of the industry here differs greatly from the one in Sommer. Insurers have an obligation to deal fairly
and protect the fiscal interest of those insured, not to protect the personal safety of citizens. NY  Univ. v Continental Ins. Co., 87 NY2d at 317 (1995). Insurers’ liability is based on contract law, and governed by agreements, terms, provisions, and conditions of the insurance policy. CWbank, NA. v
Commonwealth Land Tit. Ins. Co, 228 AD2d 635, 637 (2d Dept 1996). Though the Third-Party
Defendants’ conduct, as alleged here, did violate NY Lien Law 22, statutory law regulates the insurer’s performance of its contractual obligation, and it does not impose a separate duty of care. NY Univ, 87 NY2d at 317-318."

Morrison & Foerster argues that its contribution claim is not barred by the pure economic loss doctrine, because a tort claim remains pending against Third-Party Defendants, even if that claim may eventually fail. Sound Refrig. and A. C,Inc. v All City Testing & Balancing Corp., 84 AD3d 1349,1350 (2d Dept 2011). As previously mentioned, the Appellate Divisions have held that merely including an alternative tort claim in a breach of contract action will not create a right of contribution if the plaintiff s sole measure of damages is the lost benefit of the bargain. See e.g. Children’s Corner Learning Center v A. Miranda Contracting Corp., 64 AD3d 318 [1 st Dept 2009]; Scalp &  Blade, Inc. v Advest, Inc., 300 AD2d 1 068 (4th Dept 2002); Rothberg v Reichelt, 270 AD2d 760 (3d  Dept 2000)."

Is legal malpractice still a tort?

Commercial lender makes three loans to building developer.  Lender hires law firm to make necessary filings to protect the loans.  Law firm hires title company to provide title insurance and title insurance company hires another  company to do the physical filing.  A dispute over payment to the law company delays the paper filing, all to disastrous effect.  How might the liability be parsed?

Since we know that a law firm can be held liable in legal malpractice for the acts of its agents, what recourse does the law firm have against the agents?  In CIT Lending Serv. Corp. v Morrison & Foerster LLP  2013 NY Slip Op 31980(U)  August 20, 2013  Sup Ct, New York County  Docket Number: 653797/2012  Judge: Melvin L. Schweitzer discusses the difference between contribution and indemnity.

"Third-Party Defendants’ Independent Duty of Care
Morrison & Foerster allege that independent from their obligations under the contract, the Third-Party Defendants agreed to take on the responsibility of filing the Amendment to the Building Loan Agreement and, in doing so, owed a duty of care to CIT to perform that act correctly and in compliance with Section 22 of New York Lien Law. Morrison & Foerster rely heavily on Sommer for the proposition that New York law has recognized a legal duty independent of contractual obligations as an incident to the parties’ relationship and the nature of the services covered by the contract. Sommer v Federal Signal Corp.,79 NY2d 540, 551 (1992); See Sound Refri .& A.C., Inc. v All City Testing & Balancing Corp., 84 AD3d 1349 (2d Dept 2011). In Sommer, the plaintiff, a building owner, contracted with the defendant, a fire alarm company, to inform the New York City Fire Department when fire alarms sounded in the building. Because of a misunderstanding between the building engineer and one of the defendant’s dispatchers with regard to the reactivation of the fire alarm system, the defendant did not inform the fire department when the alarm went off due to a fire in the building ‘one evening. The plaintiff filed a complaint for breach of contract as well as for negligence arising out of the same nucleus of fact. The Court of Appeals allowed both claims noting that: "A legal duty independent of contractual obligations may be imposed by law as an incident to the parties’ relationship. Professionals, common carriers and
bailees, for example, may be subject to tort liability for failure to exercise reasonable care, irrespective of their contractual duties. In these instances, it is policy, not the parties’ contract, that gives rise to a duty of due care" Sommer v Federal Signal Corp., 79 NY2d at 551-552.
The court noted that "the nature of the injury, the manner in which the injury occurred and the resulting harm" are all relevant in assessing whether a claim for both breach of contract and tort may exist. Id.  An independent duty of care has only been recognized in cases where, as in Sommer, the nature of the industry’s services dealt with the protection of people and property from physical harm, and where the failure to perform the contractual obligations with due care could lead to "catastrophic consequences." N. Y Univ. v Continental Ins. Co, 87 NY2d 308 at 317 (1995)
(citing Sommer). Both the nature of the industry’s service and the injury claimed by CIT make
Sommer inapplicable here. "

Airey v Remmele 2012 NY Slip Op 22299 ; Supreme Court, Erie County NeMoyer, J. is a case we started to read, and then had to go back to the beginning to sort out. Who would have thought that this story would have happened in the Buffalo area?
 

While this is not a legal malpractice case, it does have implications for the value of damages in a breach of fiduciary duty claim. "The complaint states discrete causes of action for breach of contract, breach of fiduciary duty, negligence, and fraud or misrepresentation (or, more accurately, fraudulent omission of a material fact). The gravamen of each cause of action is that Remmele held herself out to the public and to plaintiff and plaintiff’s then wife as a "marital counselor"; that plaintiff and his then wife engaged defendant to provide "marriage counseling" to the couple in an attempt to "reconcile" their "differences"; that as part of such counseling, plaintiff disclosed to defendant intimate details with respect to his "marriage and his relationship"; that plaintiff paid defendant for such counseling; but that plaintiff eventually learned that defendant had a sexual relationship or extramarital affair with plaintiff’s wife, leading to the commencement of divorce proceedings between plaintiff and his wife. "

"The Court has no intention here to delineate all of the categories or species of damages that might be recovered by plaintiff upon proof of a breach of a contractual or tort duty allegedly assumed by defendants. The Court would note, however, that it probably would countenance an effort by plaintiff to recover his alleged economic or "out-of-pocket" damages in the form of the loss of the benefit of his bargain with defendants. In other words, this Court would have no problem with plaintiff’s recouping any money he had paid [FN2] to defendants specifically for marital counseling if, as alleged, Remmele did not in fact use her best efforts to help the marriage but instead subverted it by embarking on a sexual relationship with plaintiff’s wife. Quite simply, the idea that a self-professed counselor could accept and keep a fee earmarked for marriage or relationship counseling despite entering into a secret sexual relationship with one of the counseled parties is beyond this Court’s acceptance.

Addressing defendants’ challenges to the individual causes of action, the Court concludes that plaintiff has sufficiently alleged the existence of a contract whereby defendants would provide marital counseling to plaintiff and his then wife, and that plaintiff further has sufficiently alleged a breach of that contract and resultant damages. Plaintiff alleges that beginning in 2009 and continuing into 2011, plaintiff engaged the paid services of defendants for the purposes of providing marriage counseling. Although defendants have denied that, they have not done so conclusively, their documentary evidence notwithstanding. Although the e-mail exchange of November 2010 and the more formal written contract of January 2011 certainly tend to show that plaintiff was engaged as a "business coach," neither the exchanged e-mails nor the terse written contract on their face refute the allegation that defendant was already engaged in providing marriage counseling to the couple. Indeed, this Court notes that the November 29, 2010 e-mail from defendant to plaintiff’s wife — which e-mail defendant herself describes as having formed the first consultation contract — afforded the couple an $800 "[c]ourtesy, current client discount" from defendants’ "[r]egular [c]ost." That contractual term at least arguably buttresses plaintiff’s assertion that there was a pre-existent counseling relationship and undermines defendant’s contrary assertion. Similarly, and again, the January 28, 2011 meeting summary, which is relied upon by [*5]both parties, tends to show that defendant counseled the couple with regard to their personal or marital relationship as well as their relationship at work.

By the same token, and for similar reasons, the Court concludes that plaintiff has adequately pleaded the essential elements of cause of action for breach of fiduciary duty, professional negligence or malpractice, and fraudulent concealment. These causes of action present a somewhat closer question for the Court, however, given defendant’s apparent lack of State licensing or other recognized professional credentials or certification as a psychologist, social worker, therapist, or the like. Nevertheless, it appears to the Court that defendant may have held herself out to the public as someone qualified to counsel individuals or couples in their relationships, including their marriages, and that indeed is plaintiff’s explicit allegation. Thus, the Court concludes, plaintiff has sufficiently alleged the existence of a fiduciary duty [FN3] and other relationship of trust between himself and defendant, defendant’s breach thereof,

defendant’s exploitation of intimate information, and defendant’s concealment of the arguably material fact that, while purporting to counsel the couple in their marriage, defendant was having a sexual affair with plaintiff’s wife.[FN4] Further, plaintiff has sufficiently alleged that defendant provided negligent and careless counseling to plaintiff and did not possess the ordinary skill, knowledge, or ability of those holding themselves out to the public as marriage counselors.

Concerning plaintiff’s demand for punitive damages, the fact is that punitive damages might well be recoverable upon proof of defendants’ commission of fraud and possibly their breach of fiduciary duty and negligence as well (see Dupree, 87 AD3d at 978 [upholding punitive damages award against physician who assumed role as plaintiff’s mental health therapist but who had sexual affair with her]). Any such award would be aimed at punishing the wrongdoer and deterring similar conduct by others (see Laurie Marie M. v Jeffrey T.M., 159 AD2d 52, 59 [2d Dept 1990], affd 77 NY2d 981 [1991]; Peters v Newman, 115 AD2d 816, 817 [3d Dept 1985], appeal dismissed 67 NY2d 916 [1986]; see also Le Mistral, Inc. v Columbia Broadcasting Sys., 61 AD2d 491, 494 [1st Dept 1978], appeal dismissed 46 NY2d 940 [1979] [citing 14 NY Jur, Damages, § 176 for proposition that "exemplary damages are [generally] recoverable in all actions ex delicto based upon tortious acts which involve ingredients of malice, fraud, oppression, insult, wanton or reckless disregard of the plaintiff’s rights, or other circumstances of aggravation, as a punishment of the defendant and admonition to others"]; see generally Walker v Sheldon, 10 NY2d 401, 404-405 [1961]). Thus, punitive damages may be awarded where the [*6]wrong complained of is "actuated by evil and reprehensible motives" (Walker, 10 NY2d at 404), is "intentional and deliberate, and has the character of outrage frequently associated with crime" (Prozeralik v Capital Cities Communications, 82 NY2d 466, 479 [1993], quoting Prosser and Keeton, Torts § 2, at 9 [5th ed 1984] [internal quotation marks omitted]). However, such punitive damages may be awarded only in proportion to any actual injury inflicted by the defendant (see generally Correia v Suarez, 52 AD3d 641 [2d Dept 2008]).

Here, in the absence of an order dismissing the tort causes of action, there is no basis for ruling out any claim for punitive damages that might be premised thereon, certainly not at the threshold. Plaintiff is entitled to explore through discovery defendant’s alleged conduct, both with respect to this couple and in general.

Accordingly, the motion of defendants to dismiss the complaint is DENIED, although it is DETERMINED as a matter of law that plaintiff may not recover damages, including for emotional distress, on account of the sexual relationship between defendant and plaintiff’s then wife or the consequent damage to or destruction of the marriage.
 

Well, actually not "buying" the case and not losing the "receipt", nevertheless, plaintiff purchased 50% of an intended legal malpractice case and then lost the contract…or did he?

Pearlman v Faulisi  2013 NY Slip Op 31963(U)  August 7, 2013  Supreme Court, Suffolk County
Docket Number: 15123-2011  Judge: Emily Pines.  "In the Amended Verified Complaint, the plaintiff, Lee R. Pearlman (“Plaintiff’) alleges, among other things, that on or about July 13, 2007, he tendered $125,000 to defendant Peter Faulisi (“Faulisi”) in accordance with an agreement with Faulisi pursuant to which Plaintiff “purchased the rights to one half of any and all proceeds payable or attributable to Faulisi, whether directly from Faulisi’s claims in [a legal malpractice action pending in Federal court] or from his share of any monies paid to Protostorm, in an anticipated legal malpractice lawsuit to be brought by Protostorm and Faulisi against various attorneys.” Plaintiff alleges that he and Faulisi entered into a written contract regarding the Protostorm case and that Faulisi maintained sole custody of the written contract. Plaintiff claims that after they entered into the contract, Faulisi failed to respond to Plaintiffs repeated requests for a copy of the contract and documents regarding the Protostorm case. In the First cause of action, Plaintiff seeks a declaratory judgment and accounting from the defendants declaring that Plaintiff is entitled to 50% of Faulisi’s proceeds from the Protostorm case. In the Second cause of action, Plaintiff
seeks equitable relief (injunction, attachment, receivership) to safeguard Faulisi’s proceeds from the Protostorm case given what Plaintiff calls Faulisi’s extensive pattern of fraud, deceit and unsavory business practices. A copy of the alleged written contract is not annexed to the Amended Verified Complaint. Neither party produced the original or a copy of the written contract during discovery."

Defendants now move (Mot. Seq. 002) for summary judgment dismissing the First  and Second causes of action. In an affidavit in support of Defendants’ motion, Faulisi states, among other things, that the $125,000 check given to him by Pearlman on July 13, 2007, was a personal loan, and that there was no arrangement of any kind, or even any discussion, that the $125,000 was in exchange for a 50% interest in the Protostorm case. Defendants argue, among other things, that Plaintiff cannot meet his burden of demonstrating the existence of an enforceable contract between the parties because there is no writing signed by the parties containing the terms of such an agreement. Defendants contend that the $125,000 was nothing more than a loan between  Pearlman and Faulisi, to be repaid when Faulisi or Lean for Life Products, LLC, a start-up company of which Faulisi is Chief Operating Officer, had sufficient funds. "

Here, the Defendants allege that a written agreement forming the basis of the First and Second causes of action asserted by the Plaintiff never existed and contend that summary judgment must be granted because Plaintiff cannot produce the agreement and, therefore, cannot prove the existence of an enforceable contract. However, the Defendants cannot satisfy their initial burden by merely pointing to gaps in Plaintiff‘s case (see Johnson v Culinary Institute of America, 95 AD3d 1077, 1078 [2d Dept 2012). Moreover, the Defendants have failed to establish, as a matter of law, that secondary evidence of the contents of the agreement would be inadmissible at trial under the best evidence rule (see Schozer v William Penn Life Ins. Co. ofNew York, 84 NY2d 639,644
[1994]; Matter of Eshaghian; 100 AD3d 751, 752 [2d Dept 2012). "

Reading this case produces an image of a train rolling through the countryside, without anyone at the controls. It is the story of a car accident, an unjoined party, and mistake after mistake. In the end plaintiffs are non-suited and all the efforts are for naught.

Di Giacomo v Michael S. Langella, P.C. 2012 NY Slip Op 32658(U)  Supreme Court, Suffolk County Docket Number: 08-7307 Judge: John J.J. Jones J

This action for legal malpractice was commenced to recover damages allegedly sustained by the
plaintiffs as the result of the failure of the defendants to properly present a motion to vacate the dismissal of the plaintiffs’ underlying action for personal injuries. On May 23, 2000, the plaintiff Lisa Di Giacomo Frangione (Di Giacomo) was involved in a motor vehicle accident. In May 2000, the plaintiffs retained Ira Levine, Esq. (Levine), to commence an action against Barbara Daniels (Daniels), the owner and operator of the other vehicle involved in the underlying accident. On September 18, 2003, the plaintiff executed a Consent to Change Attorney substituting Hankin, Handwerker & Mazel, PLLC (HHM) as her attorneys in place of Levine. Depositions in the personal injury action were conducted on or about April 2,2004, and Daniels testified that at the time of the accident she had been operating her vehicle in the course of her employment with Weight Watchers. After the underlying action (or Daniels action) had been placed on the trial calendar, HHM moved for leave to withdraw as counsel for the plaintiffs. By order of the Court dated May 15, 2006 (Molia, J.), the motion was granted, counsel was directed to serve a copy of the order on the plaintiffs on or before May 19, 2006, and the discharge was to be effective ten days after filing proof of service. In addition, the order set down July 12,2006 as the date for jury selection. When the plaintiffs failed to appear for jury selection on July 12,2006, the matter was adjourned until July 19, 2006. The record before this Court reveals that the plaintiffs again failed to appear on July 19,2006, and upon oral application made on the record by defense counsel in the underlying action, the action was dismissed with prejudice by the Honorable Denise F. Molia. On or about August 9,2006, the plaintiff retained the defendants to represent them in the underlying action. The defendants prepared and submitted an order to show cause dated August 10, 2006, seeking to vacate the plaintiffs default and to restore the case to the trial calendar. By order dated November 16, 2006, the Court (Molia, J.) denied the plaintiffs’ motion to vacate their default ."

"On February 20, 2008, the plaintiffs commenced this action for legal malpractice against Levine,
HHM, Stacy Rinaldi Guzman, Esq. (Guzman), and the defendants. Among the allegations set forth in the complaint is a claim that the failure to timely join Weight Watchers ( Daniel’s employer) as a party in the underlying action constituted malpractice. In addition, it is asserted that after HHM was relieved as plaintiffs’ counsel, the plaintiffs were represented by Guzman, who had agreed to appear on the plaintiffs’ behalf to obtain an adjournment of the July 12,2006 court date, but failed to do so. It is further alleged that the defendants failed to include an affidavit of merits with the motion to vacate the dismissal of the plaintiffs’ underlying action resulting in its denial, and the loss of the plaintiffs’ ability to recover damages for their injuries.In early 2008, Levine, HHM, Guzman and the defendants separately moved to dismiss the plaintiffs’ complaint on the grounds, among other things, that it failed to state a cause of action. By order dated October 30,2008, the undersigned granted the motions of Levine, HHM and the defendants, dismissing the complaint against them. By order entered on January 12, 2009, the undersigned granted Guzman’s motion, dismissing the complaint against her. After the plaintiffs’ appealed from the judgments entered pursuant to those orders, the Decision and Order of the Appellate Division, Second Department, dated September 14, 20 10, affirmed the dismissal of the complaints against Levine, HHM and Guzman, and reversed that branch of the order dismissing the complaint against the defendants. In a stipulation dated June 15, 20 1 1, the parties agreed to amend the caption to reflect the dismissals in favor of Levine, HHM and Guzman. Said stipulation was so ordered on July 13, 201 1, and filed with the Clerk of the Supreme Court on July 18,2011. Thereafter, the action proceeded against the defendants and, after all discovery was completed, a compliance order dated September 7,201 1, directed the plaintiffs to file a note of issue on or before October 7, 201 1. The computerized records maintained by the Court reflect that the plaintiffs filed a note of issue on October 28, 201 1, resulting in the caption set forth above.’

"At his deposition, the defendant Michael S. Langella (Langella) testified that he was retained by
the plaintiffs on or about August 9,2006, to attempt to vacate the dismissal of the underlying action, to restore the action to the trial calendar, and to litigate that action. He decided to move by order to show cause as quickly as possible to avoid a claim by Daniels that she was prejudiced in the interim. Langella indicated that he was aware of the legal standard required to vacate a default, and that his affirmation and the affidavit of Di Giacomo, submitted in support of the order to show cause, established that the plaintiffs had meritorious causes of action against Daniels. He acknowledged that the order to show cause did not state how the accident happened, and that the court order denying the motion stated that it was denied because it did not contain any proof regarding the merits of the plaintiffs’ action against Daniels. Langella further testified that he was aware of the facts surrounding the dismissal of the Daniels action, and that the case had been on the trial calendar and adjourned a number of times. He indicated that he spoke with Levine by telephone to corroborate the plaintiffs’ claim that Di Giacomo had spoken with Guzman to obtain an adjournment of the July 12, 2006 court date, that he did not advise the plaintiffs that they had a legal malpractice claim against Levine, and that he did not receive the plaintiffs’ file from HHM until October 10, 2006. He stated that he handled a subsequent motion to reargue the denial of the order to show cause differently, attaching a doctor’s affirmation and Levine’s affirmation. Langella testified that the written retainer signed by the plaintiffs provides that he and his firm were going to represent them to collect compensation for their injuries in the car accident, and to sue any persons or entities that may be liable to them for damages under the law. He indicated that the retainer stated that the plaintiffs would be responsible for the costs of any appeals, but that he did not charge them for the costs of the two appeals that he prosecuted on their behalf in the Daniels action. He stated that “based on the circumstances here, I believed that it was my obligation to undertake those costs and responsibilities.” He believed that Di Giacomo should have been compensated for the injuries that she suffered in the car accident. Langella further testified that the plaintiffs’ actions did not contribute lo the denial of the motion to vacate their default, that he was not aware of any third party that would be responsible for the plaintiffs’ damages during his representation of them, that he was not aware of any issues regarding privity of contract regarding the subject retainer, and that he is not claiming that he made any errors in judgment in representing the plaintiffs. He further stated that he had no knowledge that would indicate that the plaintiffs are not the real parties in interest in this action, and that he did not have any facts that would support a claim that this action is barred by the statute of limitations, or that the plaintiffs lack standing to bring this action
 

In the construction industry, bonding is extremely important.  Huge jobs, and large expenditures of money are based upon the belief that there is a pot of money protecting the process.  Sub-contractors provide work and materials on the basis that there is someone who will pay, eventually.  Sometimes it goes wrong, and a wedge of the legal industry is devoted to construction litigation.  Injuries, as well as provision of work and materials are constantly being litigated.

In Phoenix Erectors LLC v Fogarty  2013 NY Slip Op 31936(U)  August 14, 2013  Supreme Court, New York County  Docket Number: 100701/10 Judge: Louis B. York we see a case that has been dismissed, appealed, reversed and sent back, now to plaintiff’s successful motion for summary judgment.

"Plaintiff is a construction company, which was hired as a subcontractor by Hera Construction, Inc. (Hera) in connection with the construction of a monorail in Newark Airport, in New Jersey (project).
Hera was also the principal under a Subcontractor Labor and Material Payment Bond No. B99-020680 (bond), issued by Ulico Casualty Company (Ulico), as surety for amounts Hera was
obligated to pay subcontractors on the project. The bond, which was for $1,600,000, contained a forum selection clause requiring that Ulico could only be sued in the United States District Court
of the jurisdiction in which the bonded project was situated, here, New Jersey. A pay dispute arose between Phoenix and Hera, in which Phoenix claimed it was due approximately $180,000. Apparently, Hera got wind of plaintiff’s decision to commence a suit against Hera and Ulico in the New Jersey District Court, and commenced a peremptory suit against plaintiff in Supreme Court, Suffolk County, New York, in January 2002 (Hera Construction, Inc. v Phoenix Erectors, LLC., Index No. 00044/02)(Suffolk County action), seeking damages for plaintiff’s alleged failure to provide materials to the project, Fogarty was retained by plaintiff to represent it in the Suffolk County action. Fogarty served an answer on Hera, on plaintiff’s behalf, in April 2002. Plaintiff obtained New Jersey counsel, John Rittley (Rittley), to prosecute an action against Hera and Ulico in the United State District Court, District of New Jersey (New Jersey action). against Hera sounding in breach of contract, plaintiff brought a claim for payment against Ulico under the bond. Besides bringing claims in the New Jersey action Fogarty moved to dismiss the Suffolk County action, claiming
lack of jurisdiction and forum non conveniens. The motion, and a motion for reargument, were denied, based on a forum selection clause in the Hera-Phoenix contract calling for suits against
Hera to be brought in Suffolk County. Hera then moved in the New Jersey action to be dismissed
from the action based on the same forum selection clause. This motion was granted, and the New Jersey action continued against Ulico without Hera. At some point, Fogarty contacted Rittley to discuss adding Ulico to the Suffolk County action. The court notes that Ulico inserted a second affirmative defense in its answer, claiming that the New Jersey action should be dismissed, as the proper venue to settle disputes among plaintiff, Hera and Ulico was in Suffolk County, because Ulico’s forum selection clause was subordinate to Hera’s. Fogarty apparently never saw Ulico‘s
answer in the New Jersey action. Fogarty and Ulico‘s counsel discussed Ulico’s insertion into
the Suffolk County action. Apparently, Ulico refused to enter into a stipulation to become a defendant in a direct action against it, but agreed to stipulate to becoming a third-party
defendant in the Suffolk County action, waiving all jurisdictional defenses."

"W&M’s creative summation of the gist of plaintiff‘s complaint does not reflect the actual cause of action plaintiff has brought, and which the Appellate Division recognized in its decision. Plaintiff is claiming that it would have obtained a better result in the underlying litigations if it had been able
to pursue a direct action against Ulico in either New York or New Jersey, because Ulico is a solvent company whose bond covered the subject matter of the payment dispute, and that a judgment against Ulico would have been a more favorable outcome for plaintiff, since the judgment obtained against Hera implicated Ulico’s bond, so that the bond would have been available to pay that judgment. Plaintiff is alleging that Fogarty failed to protect plaintiff’s valid and valuable action against Ulico, in that he should have either gotten a stipulation allowing for a direct
action against Ulico in New York, waiving the statute of limitations, or, failing that, refused to permit Rittley to execute the New Jersey stipulation, so that the direct action could have proceeded against Ulico in New Jersey. Plaintiff is essentially faulting Fogarty for believing, without actual knowledge, that plaintiff could not sue Ulico in the New Jersey action without Hera, and not being aware that a third-party suit in New York was useless as a means to collect from Ulico."

Businesses grow huge, make multi-million dollar loans (read: $ 125 million+) and buy/sell huge ongoing and decrepit stores.  How do they go astray?  We see one example in Ableco Fin. LLC v Hilson  2013 NY Slip Op 05665   Decided on August 20, 2013   Appellate Division, First Department .  Was it attorney error, or merely a delusional business deal?
 

"Plaintiff is in the business of making commercial loans. This action for legal malpractice stem from a $125 million loan that plaintiff made to BH S & B Holdings LLC (Bay Harbor) in August 2008. The loan was made to finance Bay Harbor’s purchase of certain assets from the bankruptcy estate of S & B Industries, Inc. (Steve & Barry’s), a retail clothing chain. According to the controlling asset purchase agreement, Bay Harbor’s desire was "to purchase substantially all the assets and to assume certain lease and other obligations of [Steve & Barry’s] with the present intention of operating the Business as a going concern." Plaintiff retained defendants on August 14, 2008 and the loan closed on August 26, 2008. Without repaying the loan, Bay Harbor filed its own bankruptcy petition in November 2008.

Plaintiff alleges, with respect to the credit card receivables claim, that defendants committed legal malpractice by failing to advise it that, after the closing, the cash proceeds of credit card sales of Bay Harbor’s inventory would be deposited in a Steve & Barry’s bank account on which plaintiff had no lien. Under the inventory claim, plaintiff alleges that defendants failed to adequately advise it that its first priority security interest on Bay Harbor’s assets was collateralized by only a portion of the Steve & Barry’s inventory as opposed to the entire inventory. Plaintiff alleges that it would not have made the loan had defendants provided it with proper legal advice that it was not acquiring a first priority lien on the entire Steve & Barry’s inventory.

The credit card receivables claim was properly dismissed because the record establishes that before making the loan plaintiff knew that agreements creating its liens on the bank accounts would not be negotiated and executed until after the closing. The inventory claim should have [*2]also be dismissed on the basis of information plaintiff indisputably possessed prior to the August 26, 2008 closing.

Defendants deposed Kevin Genda, plaintiff’s vice chair who was in charge of all of its lending activities. After negotiating the loan’s basic terms, Genda, on behalf of plaintiff, retained defendants on or about August 14, 2008. Ten days earlier, Bay Harbor and Steve & Barry’s had entered into an asset purchase agreement (APA). Under the terms of the APA, the Steve & Barry’s inventory purchased by Bay Harbor excluded inventory that constituted GOB (going out of business) inventory. The APA defined "GOB Assets" as "all owned Merchandise and Furniture and Equipment located at Store Closing Locations" as opposed to locations at which Bay Harbor intended to assume the Steve & Barry’s lease obligations and operate the business as a going concern. According to a term sheet that was transmitted on August 15, 2008 by Paul Lusardi, plaintiff’s senior vice president, the collateral for the loan was to consist of "a perfected first priority security interest in all existing and future assets of Borrower." The term sheet lists Newco (Bay Harbor) as the only "Borrower."

The record also contains an August 14, 2008 email to Lusardi from Nate Land, a member of plaintiff’s deal making team. Attached to the email is a press release about the bankruptcy court’s approval of the APA. The press release reads, in part: "The assets to be acquired include but are not limited to . . . all Steve & Barry’s merchandise, with the exclusion of any product located at stores not purchased by [Bay Harbor] [emphasis added] . . ." The foregoing documentary evidence refutes plaintiff’s pivotal claim that it made the loan on August 26, 2008 without knowing that it was not getting a first priority lien on the entire Steve & Barry’s inventory. "