Opinion
INDEX NO. 151266/2015
05-02-2019
83 WILLOW, LLC, Plaintiff, v. STEPHEN APOLLO, Defendant.
NYSCEF DOC. NO. 75 PRESENT: HON. BARBARA JAFFE Justice MOTION DATE __________ MOTION SEQ. NO. 001
DECISION AND ORDER
The following e-filed documents, listed by NYSCEF document number (Motion 001) 17-42, 49, 52- 66, 74 were read on this motion for summary judgment. BARBARA JAFFE, JSC:
In this action for legal malpractice, defendant seeks, pursuant to CPLR 3212, a judgment summarily dismissing the action.
I. COMPLAINT (NYSCEF 20)
Plaintiff limited liability company was formed in New Jersey and has its principal place of business there. Defendant's principal place of business is in New York County.
In reliance on defendant's asserted skill, knowledge, and experience as an attorney, plaintiff's managing member retained him in connection with the development and sale of an undeveloped parcel of land it owned in a redevelopment area in New Jersey. The agreement was entered into at defendant's New York office where he performed all or part of the legal services at issue. Defendant therein agreed to provide plaintiff with legal services in connection with the sale, including ensuring that the terms of any agreement and contract of sale adequately protected plaintiff's interests, would not expose plaintiff to unwarranted and/or unreasonable risk, and accurately and properly reflected the agreement reached between plaintiff and the buyer and their attorneys. Defendant also agreed therein that he would inform plaintiff of any unusual and/or unreasonable risk contained in the contract, clearly explain the terms of the contract of sale, as written, to plaintiff or its principals so that plaintiff would be fully informed of any risks associated with the transaction, ensure that plaintiff's conduct while under the supervision, control, and direction of defendant, would be in compliance with the contractual obligations and limitations so as not to place plaintiff in breach of the contract, provide competent legal advice and guidance as to plaintiff's actions or inactions as they may be related to its contractual obligations or entitlements, ensure compliance with the contract by the buyer, advise plaintiff of any breach by the buyer, and guide and advise plaintiff as to the appropriate and lawful response to a buyer's breach.
Defendant drafted, reviewed, and revised the contract of sale, which provided, inter alia, for a sales price of $3.730 million for the property, a deposit of $50,000, and the contingency that within six months, plaintiff obtain site-plan approval for the development of a structure of a minimum size and/or nature, with a six-month extension. The contingency constituted a material element of and material inducement for entering into the contract, and defendant recommended it to plaintiff, who relied on his professional guidance and advice on the interpretation of the provision.
Unbeknownst to plaintiff, the contingency provision permitted only the buyer to cancel the contract in the event that the contingency remained unsatisfied and contained no date on which the contract would be deemed cancelled if the closing did not occur. In effect, the buyer was given a "de facto option contract, extending in perpetuity, with no remedy to cancel available to [plaintiff] and at a cost of approximately 1% of the agreed upon value of the Property."
Defendant advised plaintiff that the contract allowed it to cancel upon expiration of the contingency provision. Thus, when the contingency provision expired, and on defendant's advice, on or about March 15, 2013, defendant informed the buyer's attorney that the contract was terminated and cancelled. In response, the buyer's attorney objected and advised that the contract permitted only the buyer to cancel.
Soon thereafter, the buyer filed an action against plaintiff in the New Jersey Superior Court seeking specific performance of the contract of sale, and filed a notice of pendency against the property, the value of which then exceeded $5.5 million. Plaintiff was unable to sell the property for fair market value even though there were ready, able, and willing buyers for that amount. It was thus forced to sell the property to the buyer for $3.540 million.
Had it not been for defendant's malpractice, plaintiff would have been able to cancel the contract and sell the property for not less than $5.5 million and would not have incurred 18 months of litigation which cost it more than $200,000 in legal fees.
Based on the foregoing, plaintiff advances a cause of action for legal malpractice, seeking no less than $2.160 million in damages.
II. MOTION FOR SUMMARY JUDGMENT
A. Choice of law
1. Contentions
a. Defendant (NYSCEF 17-42)
Defendant asserts that New York law, not New Jersey law, controls this action, given the relation or contact with the event in issue or the parties, and New York's strong interest in regulating the conduct of lawyers licensed to practice in New York.
b. Plaintiff (NYSCEF 52-61)
Plaintiff argues that the choice of law issue pertains solely to the extent that a conflict of law between New York and New Jersey exists as to the standard of causation in a legal malpractice action, and alleges that there is no such conflict. If, however, New York applies a heightened standard of proof for causation in a transactional context, then New Jersey law applies as defendant was retained by a New Jersey limited liability company to provide counsel with respect to the sale of commercial real estate in New Jersey and sought approvals before New Jersey government agencies. It, moreover, maintains that defendant's New York license should be disregarded because he had been licensed in New Jersey until he was disbarred there. Plaintiff offers an expert opinion concerning the legal standard for attorney malpractice in New Jersey.
c. Defendant's reply (NYSCEF 66)
Defendant reiterates that the "but for" standard applies, not the "substantial factor" standard, and he derides plaintiff for arguing that his New York license should be disregarded, explaining that he voluntarily surrendered his New Jersey license. He otherwise observes that plaintiff offers no legal basis for asserting that New Jersey law applies.
2. Analysis
An attorney's conduct or inaction is the proximate cause of a plaintiff's 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.(Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, 26 NY3d 40 [2015] [citations omitted]; Waggoner v Caruso, 14 NY3d 874 [2010] [absent allegation that, but for defendants' alleged malpractice plaintiffs would have successfully recovered investment in underlying proceeding, no claim stated for legal malpractice]). The "but-for" standard remains the law of this judicial department. (See Aronson, Mayefsky & Sloan, LLP, 168 AD3d 70 [1st Dept 2018] [applying but-for standard]; Heritage Ptners, LLC v Stroock & Stroock & Lavan LLP, 133 AD3d 428 [1st Dept 2015] [same]; Gallet, Dreyer & Berkey v Basile, 141 AD3d 405 [1st Dept 2016] [same]; Cosmetics Plus Group, Ltd. v Traub, 105 AD3d 134, 141 [1st Dept 2013] [same]).
In the 2019 edition of the Pattern Jury Instructions, however, it is observed that "whether the 'but for' standard of causation requires a showing that the malpractice was the sole proximate cause of the loss remains an open question," given the discussion by the Court of the issue in Barnett v Schwartz, 47 AD2d 197 (2d Dept 2007). There, the Court observed that the heightened "but-for" standard for causation was not "actually being applied in legal malpractice cases," and that the varying results in the case law "can be explained by application of general principles of proximate cause," which "do not provide for two different measures of causation in the same standard." Moreover, the Court observed, the "but for" standard that developed from "the lawsuit-within-a-lawsuit" line of cases constitutes "merely a recognition of the factual complexities" inherent in attempting to prove proximate cause when legal advice may be one of several factors contributing to a client's course of action. Thus, the Court held that in a legal malpractice action, the plaintiff need only prove that the defendant's negligence was a proximate cause of his damages. (Id.).
Absent a holding by the Court of Appeals or a clear holding by the First Department that where, as here, a claim of malpractice relies on a claim of incorrect advice to a client in the course of a transaction, the "but for" standard applies. ( But see Candela Entertainment, Inc. v Davis & Gilbert, LLP, 126 AD3d 656, 656 [1st Dept 2015] [evidence submitted on motion established that alleged malpractice for failure to advise did not proximately cause injury, citing Barnett]; Borges v Placeres, 123 AD3d 611 [1st Dept 2014] [charge and verdict sheet in case involving "bad advice" appropriately required that defendant's negligence in attorney malpractice action be "substantial factor in causing plaintiff's harm," citing Barnett]). That Bartnett is cited without discussion in Candela and Borges is no indication that the but-for standard is abrogated, even in a case where the underlying malpractice relates to a transaction and not to litigation.
Given this result, and as there is no dispute that, assuming New York's higher standard of proof, there is a conflict of law between New York and New Jersey, and as New York's "interest analysis" requires a determination as to "which of two competing jurisdictions has the greater interest in having its law applied in the litigation" (Padula v Lilarn Props. Corp., 84 NY2d 519, 521 [1994]), two factors are considered: "(1) what are the significant contacts and in which jurisdiction are they located; and, (2) whether the purpose of the law is to regulate conduct or allocate loss." (Id. at 521; DaSilva v C & E Ventures, Inc., 83 AD3d 551, 553 [1st Dept 2011]).
Here, it is undisputed that the parties entered into the retainer agreement in New York, where defendant maintained his office and advised plaintiff. Not only does plaintiff fail to cite authority for or explain why the engagement of a New York lawyer by a New Jersey LLC with respect to a New Jersey property which required it to attempt to obtain approvals from New Jersey government agencies constitute "significant contacts" in this attorney malpractice action, but it does not dispute that New York has a strong interest in regulating the conduct of lawyers licensed to practice here. Plaintiff's additional argument that defendant's New York license should be disregarded based on the allegations it advances concerning defendant's New Jersey license is disregarded.
Accordingly, New York law governs.
B. Merits
1. Contentions
a. Defendant (NYSCEF 17-42)
Defendant argues that plaintiff's action is based on the unsubstantiated and speculative assumption that the buyer would have agreed to a contractual provision permitting it to withdraw from the transaction at some point in time, and that based thereon, plaintiff conclusorily alleges that but for defendant's malpractice in failing to negotiate such a provision, it would have been able to cancel the contract and sell the property at a higher price. Defendant maintains that as the buyer had paid a non-refundable deposit, and would have to accumulate funds to pay the necessary costs and obtain a lender which would agree to tie up funds of up to $4 million to purchase the property pending the contingency, the buyer would not have agreed to such a provision and thus, plaintiff's damages are fatally speculative. Moreover, even had the buyer considered such a provision, he would have likely extracted something in return from plaintiff. Consequently, plaintiff cannot show that but for defendant's negligence, it would not have sustained damages.
Defendant also argues, based on the managing member's full-time real estate experience of more than 13 years, his involvement in real estate development since 1995, his completion of at least seven real estate ventures, including both residential and commercial projects, and his ownership of a construction company for more than 15 years, that the member is a sophisticated client which poses an obstacle to holding defendant liable for his handling of the contract.
b. Plaintiff (NYSCEF 52-61)
According to plaintiff, defendant fails to demonstrate, prima facie, that but for his negligence, it would not have incurred damages, observing that in arguing that plaintiff's case is based on a speculative assumption that the buyer would have agreed to the provision permitting him to withdraw from the transaction at some point in time, defendant attempts to satisfy his burden of proof on the motion by pointing out gaps in its proof, thereby failing to view the facts in the light most favorable to it as the non-moving party. It relies on the supporting affidavit of plaintiff's managing member who states that had he been properly advised that the contract gave the seller a "never-ending perpetual obligation to seek approvals and then no matter how many years had elapsed to then sell the property to [buyer] for the stated contract price," plaintiff would not have signed the contract.
Plaintiff also argues that its managing member's alleged status as a "sophisticated client" is inapplicable on a motion for summary judgment as such a claim constitutes a factual issue, and it alleges that there is nothing in the contingency provision affording the buyer the sole the right to terminate the contract upon a failure to satisfy the contingency that would alert even a sophisticated client that the contract would continue in perpetuity beyond the expiration of the contingency period.
In any event, plaintiff maintains that even had defendant met his burden of proof, it raises issues of fact through the deposition of its managing member and two expert reports.
In his affidavit dated September 11, 2018, plaintiff's managing member states that had defendant advised him and his partners that the contract obligated plaintiff to seek approvals in perpetuity and sell the property to the buyer no matter when, plaintiff would never have entered into the contract. Rather, defendant advised that upon the expiration of the two 180-day contingency periods, the contract would legally end. He also denies that defendant ever informed him or his partners that he was not licensed to practice law in New Jersey or that he had been disbarred in New Jersey before representing plaintiff. (NYSCEF 61).
By letter to plaintiff's counsel dated May 14, 2018, plaintiff's legal expert sets forth his 50 years of real estate law practice and resulting familiarity with the standard of conduct governing New Jersey attorneys representing clients in large commercial transactions. Based on his review of the relevant documents, the expert opines that the contingency provision contained in the contract of sale of the property is "completely inadequate" as it allows only the buyer to cancel and is bereft of any term governing the possibility of the buyer not canceling, such as an automatic termination of the agreement upon a failure to satisfy the contingency or a provision for the non-cancelling buyer to take title to the property for a sum certain without the approvals or afford the buyer time to obtain the approvals on his own. By failing to seek such alternatives, and in reliance on the "Rules of Professional Conduct" and New Jersey case law, "more specifically," Conklin v Hannock Weisman, 145 NJ 395 (1996), the expert opines that defendant deviated from the required standard of care which was a substantial contributing factor in causing plaintiff's damages, and that the damages "would not have been sustained but for [defendant's] deviations from the standard of practice as outlined" by him. He also observes that defendant apparently failed to understand the contingency provision or discuss the risks associated therewith with plaintiff and contends that a violation of the Rules is evidence of legal malpractice. (NYSCEF 60).
The expert sets forth plaintiff's damages: (1) the reduced purchase price it was forced to accept from the buyer for the property, (2) costs and attorney fees totaling $126,089.48 incurred to defend the action for specific performance, (3) costs and attorney fees totaling $210,365.04 incurred to defend another action by the buyer, in addition to liability for the judgment, (4) costs and expenses in the amount of $15,925.17 to prosecute an action to secure the release of $95,314.13 in escrow, (5) fees totaling $15,000 paid to defendant, and (6) based on the report of plaintiff's real estate expert, the difference between the market value of the property as of the sale to the buyer and the $3.540 million received from the buyer. (Id.).
By letter dated May 17, 2018. plaintiff's real estate expert opines that the retroactive market value of the property as of November 13, 2014 was $4.320 million, or $780,000 more than the price for which it was sold to the buyer. (NYSCEF 59).
c. Defendant's reply (NYSCEF 66)
Defendant reiterates that plaintiff's legal malpractice claims are based on conclusory and speculative assertions, and are properly subject to dismissal absent any evidence offered in opposition. He also alleges that in its opposition, plaintiff improperly offers a new theory of malpractice in claiming that it would never have agreed to sell the property but for defendant's negligence, whereas in its complaint, plaintiff asserts only that absent defendant's negligence, it would have been able to cancel the contract, sell the property for $5.5 million, and not incurred the expenses of the ensuing litigations.
d. Oral argument (NYSCEF 73)
At oral argument of the motion, defendant cited Russo v Feder, Kaszovitz, Isaacson, Weber, Skala & Bass, 301 AD2d 63 (1st Dept 2002), for the proposition that the opinion of plaintiff's expert is of no consequence on a motion for summary judgment as it is for the court to decide as a matter of law whether there was a departure from the standard of care. Plaintiff did not object to defense counsel's request for leave to furnish the citation to Russo thereafter, and did not seek leave to reply. Thus, the letter efiled by plaintiff's counsel the following day is disregarded.
2. Analysis
Defendant argues only that his conduct was not the proximate cause of plaintiff's damages.
In Nomura Asset Capital Corp. v Cadwalader, Wickersham & Taft LLP, the Court of Appeals held that where an attorney-defendant moving for summary dismissal of an attorney malpractice case falls short of establishing that it did not commit malpractice, "it must demonstrate that its conduct was not the proximate cause of [the plaintiff's] damages." (26 NY3d 40, 50 [2015]). The Appellate Division, First Department, has held, moreover, that
to survive dismissal, the complaint must show that but for counsel's alleged malpractice, the plaintiff would not have sustained some ascertainable damages [and that a] failure to establish proximate cause requires dismissal regardless of whether negligence is established.(Russo, 301 AD2d at 67). In other words, "[n]otwithstanding counsel's purported negligence, the client must demonstrate his or her own likelihood of success," and "absent such a showing, counsel's conduct is not the proximate cause of the injury." The Court added that "speculative damages or conclusory claims of damage cannot be a basis for legal malpractice," and explained that it had previously made clear "that the 'remedy [of prevailing on a defense motion for summary judgment] relies on prima facie proof that [the client] would have succeeded." (Id., citing Pellegrino v File, 291 AD2d 60, 63 [1st Dept 2002], lv denied 98 NY2d 606, and Price v Herstic, 240 AD2d 151, 152 [1st Dept 1997]; see also Gallet, Dreyer & Berkey v Basile, 141 AD3d 405, 405 [1st Dept 2016] [mere speculation of loss resulting from attorney's alleged omissions insufficient to sustain claim for legal malpractice]). Thus, that plaintiff bears the burden of demonstrating on a defense motion for summary judgment that but for the defendant's conduct she would have obtained a better result remains the law in this jurisdiction. (Katz v Essner, 136 AD3d 575, 576 [1st Dept 2016]; Schloss v Steinberg, 100 AD3d 476, 476 [1st Dept 2012] [even if defendant's acts or omissions role to level of negligence, plaintiff's claims speculative and insufficient to raise trial issues of fact]; Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005, lv denied, 6 NY3d 713 [2006] [failure to establish proximate cause mandates dismissal of legal malpractice action regardless of attorney's malpractice]; Russo, 301 AD2d at 67 [same]).
Here, plaintiff's assertion that absent defendant's negligence, it would have been able to terminate the contract and sell the property is fatally conclusory, and defendant reasonably observes that the buyer would not have agreed to such a provision, having paid a non-refundable deposit and undertaken to obtain the funds needed for the transaction. Thus is revealed the speculative nature of plaintiff's case. Additionally, even if open to the idea, the buyer would likely have sought to extract something in return from plaintiff, a possibility that plaintiff does not address.
Thus, defendant satisfactorily shows, prima facie, that plaintiff's claim that but for his failure to negotiate the inclusion in the contract of sale a clause affording it the right to terminate in the event of a failure to obtain the requisite approvals, it would have been able to terminate the contract and sell the property for a higher amount of money than that set forth in the contract is too conclusory and speculative to prove that he was the proximate cause of plaintiff's damages.
In opposition, plaintiff improperly relies on a new theory of liability, thereby failing to raise a triable issue. (See Mirdita v Musovik Realty Corp., AD3d , 2019 NY Slip Op 03284 [1st Dept 2019] ["A plaintiff cannot defeat a summary judgment motion by asserting a new theory of liability for the first time in opposition papers (see Keilany B. v City of New York, 122 AD3d 424, 425 [1st Dept 2014])"]).
Given this result, defendant's other arguments need not be addressed. It bears noting, however, that on a motion seeking summary dismissal of a cause of action for attorney malpractice, the reviewing court ordinarily has sufficient experience to evaluate whether an attorney had engaged in malpractice. (See e.g. Dimond v Salvan, 78 AD3d 407 [1st Dept 2010] [as it is court's function to determine whether defendant's performance constituted malpractice, opinion offered by plaintiff's legal malpractice expert improper]; Russo, 301 AD2d at 67 [same]). Here, as defendant does not address whether he was negligent, the opinion of plaintiff's expert on that issue is irrelevant. Moreover, his opinion is based on New Jersey law and on plaintiff's new theory of liability. Consequently, the expert's opinion is neither helpful nor relevant.
III. CONCLUSION
For all of the foregoing reasons, it is hereby
ORDERED, that defendant's motion for summary judgment is granted and the complaint is dismissed; and it is further
ORDERED, that the clerk is directed to enter judgment accordingly. 5/2/2019
DATE
/s/ _________
BARBARA JAFFE, J.S.C.