It was a $22 Million real estate purchase, and it was built on faulty foundations.  In 71 Park Ave. S., LLC v Fox Rothschild LLP  2018 NY Slip Op 32451(U)  October 1, 2018  Supreme Court, New York County  Docket Number: 158900/2017  Judge Saliann Scarpulla determines that one of the entities has no privity (and therefore no case) while the other can (for now) state a cause of action.

“In 2014, NP, a real estate development company, identified two adjacent parcels of land – 71 4th Avenue and 82 East 10th Street – for a potential new development (the “Project”). NP intended to purchase the two parcels, combine them into one lot known as 80 East 10th Street (the “Property”),  and construct a 10-story, 34,300 gross square foot mixed-use building (the “Building”) on the Property.

As the Property was located within a C6-2A zoning district, the proposed Building was subject to certain restrictions regarding the maximum allowable floor area ratio (“FAR”). 1 The maximum allowable FAR varies on whether Inclusionary Housing is included.2 The FAR for the proposed Building, without the Inclusionary Housing bonus, was 5.95. NP states that the maximum permissible FAR for the Building was an important factor in gauging the economic feasibility of the Project, which included the purchase price for the Property.

In June 2014, NP retained SBLM to determine whether the proposed Building design conformed with the requirements set forth in New York City Zoning Resolution § 35-30. SBLM’s principal, George Fanous, allegedly confirmed that the FAR, without Inclusionary Housing, was 6.02.

NP also retained Fox as its legal counsel. On September 5, 2014, NP, through Stewart Osborne (“Osborne”) as its agent, executed an engagement letter (the “Engagement Letter”) with Fox wherein Fox agreed to provide “counsel on zoning matters for 71 4th Avenue … and 82 East 10th Street.” The Engagement Letter specifically identifies “Nava Partners LLC” as Fox’s client and in a section entitled, “Identity of Client,” further states that:

[ t ]he Firm’s only client in the Engagement is the party [Nava Partners LLC]
identified as Client in the first paragraph of this Letter. The Engagement is
not an agreement to represent any of Client’s affiliates, subsidiaries, parents
or related individuals, officers, directors, partners, members, shareholders,
employees, independent contractors or agents (collectively, “Affiliates”)
unless the Firm has specifically agreed to do so in writing. Client agrees
that the Firm’s representation of Client in the Engagement does not give
rise to an attorney-client relationship between the Firm and any of Client’s
Affiliates. ”

“In June 2015, SBLM filed a new building application with the Department of Buildings (“DOB”). The application proposed a Building with a total of25,567 square feet and a 6.02 FAR. DOB rejected the application because the proposed Building’s FAR exceeded the permissible 5.4 FAR for a mixed-use building without an Inclusionary Housing component.

Plaintiffs allege that the fair market value of the Property, using the correct 5.4 FAR, was $14.5 million, significantly less than the purchase price of $22.5 million. Plaintiffs further allege that they grossly overpaid on the purchase price, and that they were forced to pay more than $2 million in development rights to ensure that the Building was compliant with New York City Zoning Resolution§ 35-30. ”

“Here, the documentary evidence plainly and expressly refutes Plaintiffs’ claim of an attorney-client relationship between Fox and 71 Park. NP is the sole client identified in the Engagement Letter, and that letter clearly and unambiguously states that Fox does not represent any of NP’s affiliates, subsidiaries or agents. The Engagement Letter, and the attached Standard Terms, specifically disclaim the creation of an attorney-client relationship between Fox and NP’s affiliates arising out of Fox’s representation. And, contrary to Plaintiffs’ assertion, it was not umeasonable for Fox to narrowly define “client” in the Engagement Letter.

Additionally, the fact that NP allegedly informed Fox of its intention to form a single-purpose entity does not mean that Fox agreed to represent that single-purpose entity, given the Engagement Letter’s limitation on who was the “client.” 5 Notably, the “unilateral belief of a plaintiff alone does not confer upon him or her the status of a client.” Wei Cheng Chang v. Pi, 288 A.D.2d 378, 380 (2d Dept. 2001). Further, despite that the Engagement Letter provided a mechanism by which Fox’s representation could extend to an NP affiliate – i.e., an agreement to such representation by Fox in writing – NP never requested written approval of representation for 71 Park following that entity’s formation. “

It is the rare legal malpractice case that falls into the privity exception.  As a matter of social policy and definitely to limit legal malpractice cases, Courts impose a very strict privity requirement.  No attorney-client relationship, no legal malpractice case, with a small exception for fraud or malice. Webster v Sherman  2018 NY Slip Op 06590  Decided on October 3, 2018  Appellate Division, Second Department does fall into this small crack.  However, even so, plaintiff was not afforded any continuous representation tolling.

“This action arises out of a 1995 agreement between the plaintiff and the defendant Rochelle Sherman (hereinafter Rochelle) pursuant to which Rochelle agreed to transfer half of her shares in Garden Care Center, Inc. (hereinafter Garden Care), to the plaintiff. Garden Care operated a nursing home, so governmental approval for the transfer of ownership was required. In connection with the proposed transfer, the plaintiff and Rochelle entered into an escrow agreement on or about April 1, 2003, in which the defendant, Tenzer and Lunin, LLP (hereinafter T & L), was appointed to act as the escrow agent.

Conditional approval of the transfer of Rochelle’s shares to the plaintiff was granted by the New York State Public Health Council in a letter dated November 19, 2003. T & L was instructed that to complete the requirements for certification approval, it had to contact the regional office of the New York State Office of Health Systems Management within 30 days of receipt of the letter. In a follow-up letter to T & L dated December 5, 2005, the New York State Department of Health (hereinafter DOH) noted that the regional office had not been contacted and that the project would be considered abandoned unless T & L provided to the DOH documentation that the regional office was contacted within 30 days from the date of the follow-up letter. By letter dated January 11, 2006, T & L informed the DOH that the closing of the transfer had not taken place because the consent of the other shareholders of Garden Care, as well as the consent of Garden Care’s lender, had not been obtained. In March 2006, the DOH notified T & L that it considered the transfer application abandoned.”

“With respect to the cause of action alleging legal malpractice, although the Supreme Court properly determined that there was no attorney-client relationship between the plaintiff and T & L (see Lindsay v Pasternack Tilker Ziegler Walsh Stanton & Romano LLP, 129 AD3d 790, 792; Lombardi v Lombardi, 127 AD3d 1038, 1042; Terio v Spodek, 63 AD3d 719, 721), the second amended complaint set forth a cause of action which fell “within the narrow exception of fraud, collusion, malicious acts or other special circumstances under which a cause of action alleging attorney malpractice may be asserted absent a showing of privity” (Mr. San, LLC v Zucker & Kwestel, LLP, 112 AD3d 796, 797 [internal quotation marks omitted]; see Ginsburg Dev. Cos., LLC v Carbone, 85 AD3d 1110, 1112).”

“The statute of limitations for a cause of action alleging legal malpractice is three years [*3]from the accrual of the cause of action (see CPLR 214[6]; Quinn v McCabe, Collins, McGeough & Fowler, LLP, 138 AD3d 1085, 1086; Farage v Ehrenberg, 124 AD3d 159, 163). “Accrual is measured from the commission of the alleged malpractice, when all facts necessary to the cause of action have occurred and the aggrieved party can obtain relief in court . . . regardless of when the operative facts are discovered by the plaintiff” (Farage v Ehrenberg, 124 AD3d at 164 [internal citations omitted]; see McCoy v Feinman, 99 NY2d 295, 301; Quinn v McCabe, Collins, McGeough & Fowler, LLP, 138 AD3d at 1086).

However, legal malpractice claims which would otherwise be barred by the statute of limitations are timely if the doctrine of continuous representation applies (see Glamm v Allen, 57 NY2d 87, 91-94; Alizio v Ruskin Moscou Faltischek, P.C., 126 AD3d 733, 735; Farage v Ehrenberg, 124 AD3d at 164), in which case the three-year statute of limitations is tolled for the period following the alleged malpractice “until the attorney’s continuing representation of the client on a particular matter is completed” (Farage v Ehrenberg, 124 AD3d at 164; see Zorn v Gilbert, 8 NY3d 933, 934; Glamm v Allen, 57 NY2d at 93). For the doctrine of continuous representation to apply, there must be clear indicia of “an ongoing, continuous, developing, and dependent relationship between the client and the attorney” (Aseel v Jonathan E. Kroll & Assoc., PLLC, 106 AD3d 1037, 1038 [internal quotation marks omitted]; see Farage v Ehrenberg, 124 AD3d at 164).

Here, T & L met its prima facie burden by establishing that the last date of the alleged malpractice occurred on January 11, 2006, and the action against it was not commenced until February 6, 2013 (see 3rd & 6th, LLC v Berg, 149 AD3d 794, 795; Aseel v Jonathan E. Kroll & Assoc., PLLC, 106 AD3d at 1038). In opposition, the plaintiff failed to raise a triable issue of fact as to whether continuous representation tolled the statute of limitations (see 3rd & 6th, LLC v Berg, 149 AD3d at 795-796; Quinn v McCabe, Collins, McGeough & Fowler, LLP, 138 AD3d at 1087).”

Golub v Shalik, Morris & Co., LLP  2018 NY Slip Op 32358(U)  September 21, 2018  Supreme Court, New York County  Docket Number: 158055/2017  Judge: Barbara Jaffe presents a difficult analysis of the statute of limitations. When it commences and whether continuing representation tolls the statute are the cornerstones of this opinion.

“On August 16, 2012, ARG transferred his 50 percent interest in a property in Southampton, New York, as a gift to The Aaron Richard Golub 2012 Qualified Personal Residence Trust (QPRT). As of August 27, 2012, the property as a whole was appraised at $9 million. In reporting the value of the gift as one-half the appraised value, defendants erred as the 50 percent interest was “hon-controlling” and not easily sold. Defendants also failed to observe that the correct value of the gift should have been the remainder interest after the expiration of the QPRT, not the gross value of the non-controlling interest. These errors resulted in the gift being “overreported” and the expenditure of too much of AR G’s lifetime gift tax exemption.

Defendants also incorrectly prepared and filed the 2012 Form 709 by reporting that the recipient was plaintiff Darrow Golub (DG) instead of the QPRT. As a result, the gift was also “under-reported” by $13,000 due to defendants’ erroneous application of the annual gift tax exclusion to the gift which does not qualify for it. The basis of the gift was also incorrectly reported as $4.5 million, which will result in an inaccurately high figure for purposes of calculating capital gain or loss.”

“Apart from ARG’s self-serving and unsupported allegations, plaintiffs offer no clear indicia of an ongoing, continuous, developing, and dependent relationship between the parties such that absent other circumstances, defendants’ representation was continuous with respect to the QPRT. WFS’s website, containing a general description of services rendered does not constitute an agreement between the parties, and the assurance of the SM partner that he would continue to provide the same accounting services performed by Frushtick is not sufficiently
specific to satisfy the legal requirements for proving continuous representation as to the
underlying malpractice relating to the QPRT. That defendants offer no affidavit is of no moment
as it is plaintiffs’ burden to demonstrate continuous representation. (See Davis v Cohen &
Gresser LLP, 160 AD3d 484 [l51 Dept2018] [plaintiff bears burden of showing that statute of
limitations has been tolled or does not apply]).

However, as it is undisputed that a 2014 Form 709 was required for the QPRT to achieve its purpose and that the errors in the 2012 Form 709 were not discovered until 2016, it was reasonably expected that until the termination of their services, defendants would follow through with the filing of a 2014 Form 709. This reasonable expectation reflects both a mutual understanding of the need for further representation with respect to the QPRT and plaintiffs’ reliance upon a continuous course of services related thereto. That defendants failed to file the 2014 Form 709, that they were not asked to do so, or that the alleged errors in the 2012 Form 709 precluded the filing of a 2014 Form 709 does not disprove the mutual understanding absent any offer of proof from defendants and given Harris’s assertion that the duty to file a 2014 Form 709 is implicit in the filing of the 2012 Form 709. Thus, plaintiffs satisfy their burden of demonstrating a factual issue as to whether defendants continuously represented them with respect to the QPRT. To accept defendants’ argument that they are shielded from liability by their own negligence would be inequitable at this stage of the proceedings. (Cf Deitz vKelleher & Flink, 232 AD2d 943 [3d Dept 1996] [defendant cannot use own negligence to shield itself from malpractice]). “

Jonns v Fischbarg  2018 NY Slip Op 32353(U)  September 18, 2018  Supreme Court, New York  County  Docket Number: 150729/2017 Judge: Kathryn E. Freed which we discussed yesterday for its lesson on the statute of limitations is also worthwhile to read for how litigation costs can be part of legal malpractice damages.  In short, those damages can include litigation expenses incurred in an attempt to avoid, minimize or reduce the damage caused by the attorney’s wrongful conduct.

“To prevail on a claim for legal malpractice, a plaintiff must establish three elements: (1) that the attorney failed to exercise the degree of care, skill, and diligence commonly possessed and exercised by a member of the legal community, (2) that such negligent failure was a proximate cause of the loss in question, and (3) that the plaintiff sustained actual and ascertainable damages. (See Barbara King Family Trust v Voluto Ventures LLC, 46 AD3d 423, 424 [1st Dept 2007].)

The plaintiffs burden of proof in a legal malpractice action is a heavy one. (See Lindenman v Kreitzer, 7 AD3d 30, 34 [1st Dept 2004].) In regard to the element of proximate causation, an “attorney’s conduct or inaction is the proximate cause of a plaintiffs damages if but for the attorney’s negligence the plaintiff would have succeeded on the merits of the underlying action, or would not have sustained actual and ascertainable damages.” (Gallet, Dreyer & Berkey. LLP v Basile, 141AD3d405, 405 [1st Dept 2016].) A plaintiffs damages in connection with such a claim may include “litigation expenses incurred in an attempt to avoid, minimize, or reduce the damage caused by the attorney’s wrongful conduct.” (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 443 [2007] (quotations omitted).) But mere “speculation of a loss resulting from an attorney’s alleged omissions … is insufficient to sustain a claim for legal malpractice.” (Gallet, _Dreyer & Berkey, LLP, 141 AD3d at 405-06 (quotations omitted).)”

“Here, Fischbarg argues that the purchase agreement that he drafted obligated Dorsia to assign the lease for the business premises to Jonns and to transfer the Charles Restaurant’s liquor license to Jonns. (Docs. 6 at 8, 23 at 2.) He argues that, because it was Dorsia’s responsibility to fulfill those obligations, Jonns’ complaint fails to state a legal malpractice cause of action against him. (Id. at 8-10.) Viewing the pleadings in a light favorable to plaintiff and affording him the benefit of every inference, which this Court must do on a motion to dismiss (see Leon, 84 NY2d at 87-88), this Court finds that the amended complaint sets forth sufficient factual allegations that Fischbarg did not use the reasonable degree of care, skill, and diligence commonly exercised by one in the legal community. Specifically, Jonns alleges in his amended complaint that Fischbarg failed to properly act as his attorney by, inter alia, allowing Jonns to sign the purchase agreement in his personal capacity, representing the investors and Dorsia during the business transactions, and by failing to file the necessary papers and applications for a liquor license with the SLA. (Doc. 21 at 9.) The amended complaint therefore alleges the first element of a professional malpractice claim. ”

“Because the underlying Dorsia action is still pending, Jonns cannot conclusively establish that he would have prevailed in that action but for Fischbarg’s negligence. However, Jonns claims in the amended complaint that he has suffered damages as a result of Fischbarg’s failure to draft the purchase agreement as being between Dorsia and an LLC because this caused Jonns to have to defend himself in the Dorsia action. (See Rudo([, 8 NY3d at 443 (litigation expenses to mitigate an
attorney’s negligence satisfy the element of actual damages in legal malpractice actions).)
Contrary to Fischbarg’s assertion, Jonns’ litigation costs in the Dorsia action are not speculative.
(Doc. 29 at 8-9.) Proximate causation is sufficiently alleged since Jonns would not have incurred
those litigation costs if he did not sign the purchase agreement in his personal capacity, i.e., if
Fischbarg had drafted the purchase agreement as being between Dorsia and an LLC, such as
Crazy Asylum. Therefore, this Court finds that Jonns’ amended complaint adequately alleges the
elements of proximate causation and actual damages. ”

It has been our observation that in legal malpractice cases Courts tend to dismiss more than in other settings, and that the probable reason for this higher-than-expected rate of dismissals is that Courts tend to favor attorneys over clients in a legal malpractice setting.  Chu v Legere    2018 NY Slip Op 32269(U)  September 14, 2018  Supreme Court, New York County  Docket Number: 150065/2018
Judge: Arlene P. Bluth is the rare case in which the solemn statements of Leon v. Martinez are actually applied.

“This legal malpractice case arises out of defendant’s relationship with plaintiffs sister (“Anne”). Defendant met Anne in 1988 and began a friendship that lasted until Anne passed away on July 25, 2016. Defendant also represented Anne in various legal matters including, but not limited to, an uncontested divorce in the 1990s, a real estate transfer in 2003 and a lease agreement for a studio in Queens in 2010.

Plaintiff contends that her sister sought legal advice from defendant to ensure that the disposition of her artwork would conform to her wishes. Plaintiff alleges that defendant failed to prepare or execute an updated will, prepare a~ updated inventory of assets and create a trust (or similar vehicle) to convey Anne’s artwork as she desired. Plaintiff maintains that after Anne passed away, her estate has faced numerous baseless claims and that these problems arise directly from defendant’s malpractice.”

“Anne last updated her will in 2003 and plaintiff insists that in the thirteen years before her death, she had made many changes to her assets and had become estranged from her husband. Plaintiff contends that during a deposition in a parallel proceeding in Queens County Surrogate’s Court, defendant admitted that he had not advised Anne about updating her will and waited until the final months of her illness when Anne was no longer able to attempt to complete the required tasks.

Plaintiff also alleges that there were a series of meetings between defendant and Anne about the sale and conservation of her artwork. At a meeiing on June 30, 2016, plaintiff argues that defendant prepared three separate durable power of attorney (“POA”) documents for Anne to execute and that two of the three were executed. Pl~intiffinsists that defendant did not include a statutory gift rider to these POAs which would have allowed an agent to assist Anne with estate planning. ”

“The Court recognizes that an attorney’s representation of a client on several distinct matters over many years does not automatically mean that the attorney represents a client for all matters. However, the fact that defendant was Anne’s sometime attorney helps defeat the motion to dismiss because, taking plaintiffs allegations as true, it is clear that Anne did use his professional services at times. And plaintiff claims that defendant took actions in his capacity as an attorney relating to PO As and to update Anne’s will. Defendant’s denial of plaintiffs allegations is not enough for this Court to grant his motion at this stage of the litigation.

Discovery may reveal that defendant was merely assisting his sick friend to gather information to present to a qualified estate attorney rather than acting as her attorney, that his efforts caused the estate no damage or that, even ifhe did undertake to represent her, he simply did not have enough time to complete certain tasks before Anne passed away. But the Court cannot grant defendant’s motion to dismiss under the circumstances here.”