Opinion
50604, 116952/04.
Decided April 10, 2006.
In this action for malpractice against defendant Akin, Gump, Strauss, Hauer Feld, LLP, defendants move to dismiss and plaintiffs cross move to amend their answer. Defendants' motion is based on documentary evidence and the failure of plaintiffs to set forth a cause of action.
Gerald and Alan Goldman, the plaintiffs, were general partners of seven limited partnerships, each of which owned a self-storage facility. These self-storage facilities were located in various parts of New York City, Westchester, Philadelphia and Long Island. The Goldmans also wholly owned two additional partnerships which never became operational.
Steven Hochman, an attorney was a significant investor who led the formation of one of the limited partnerships. He entered into a joint venture with the Goldmans which applied to all the limited partnerships in which he held a 29% interest and the Goldmans held a 71% interest. Hochman was very instrumental in gaining investors for the limited partnerships.
During 1997-98, unbeknownst to their limited partners the Goldmans negotiated the sale price of all the facilities with a company by the name of Storage USA. The deal became very lucrative to the Goldmans as they allocated shares that were ultimately determined to be excessively disproportionate in favor of the two inactive partnerships owned by the Goldmans. These allocations were taken out of the allocations that would have gone to the limited partnerships.
After five months of these negotiations, the Goldmans wrote to their limited partners informing them of the deal with Storage USA.
Many of the limited partners expressed strong reservations about the deal including Steve Hochman. Hochman wrote to the Goldmans, warning them that they were breaching their fiduciary duties to the limited partners. At this point, they called in Akin, Gump to assist in consummating the deal. Akin, Gump reconstructed the sale, obtaining releases from all but the two dissenting limited partnerships, and the sale was closed on September 25, 1998.
Negotiations for the two dissenting partnerships resumed. That transaction closed on June 18, 1999 without releases from the limited partners.
The two dissenting partnerships sued the Goldmans, eventually agreeing to binding arbitration before Justice Schackman. Justice Schackman awarded the limited partnerships approximately $1.4 and $1.1 million dollars respectively. Then Hochman served a new arbitration demand on the Goldmans, claiming a breach of their joint venture agreement.
In August, 2002, two of the limited partnerships commenced their own arbitrations against the Goldmans in which they sought to set aside their releases. The partnerships obtained an award of $700,000 for a breach of the Goldmans' fiduciary duties.
On December 2, 2004, the Goldmans commenced the malpractice action against the defendants.
The gravamen of the Goldmans' claims are that Akin, Gump and its attorneys negligently told them that they could successfully sell the limited partnerships without incurring any liability. Akin, Gump and its defendant partners counter that both Goldmans went into the deal, which had already been negotiated, with full appreciation of the risks. Akin, Gump's role was to draw the necessary legal documents and render advice if any problems arose out of the transaction.
After the instant motion to dismiss was made, the Goldman's cross moved to amend their complaint. The defendants have responded to the motion to amend, insisting that the complaint is still dismissible. Therefore, the Court will concentrate on the allegations in the amended complaint, thereby deciding both the motion to dismiss and the cross motion at the same time.
The amended complaint asserts four causes of action: (1) the first cause of action asserts malpractice in failing to advise the Goldmans that going through with these sales would amount to self-dealing in violation of their fiduciary obligations to their limited partners; (2) malpractice is also alleged in the fourth cause of action which contends that in advising the Goldmans not to raise the defense in the arbitrations that they had a defense based on their attorneys incorrect advice; (3) the second and third causes of action claim deceit based on the misleading advice that the plaintiffs should go ahead with the sales of the limited partnership and that they advised the defendants not to assert their defense that they relied on the defendants' incorrect advice and request treble damages pursuant to Judiciary Law § 487. In the second, third and fourth causes of action, the plaintiffs demand treble damages under the judiciary law.
The defendants argue that their representation in the sales of the partnerships ended in 1999. Therefore, the three-year statute of limitations had expired in 2004 when this action was filed. Not so, say the plaintiffs. They contend that the arbitrations were the direct result of the sales of the limited partnerships. Accordingly, the doctrine of continuous representation applies. That includes defendant's representation of the arbitrations before Justice Schackman, which ended less than three years before this action was instituted.
I hold that the statute of limitations prohibits the bringing of the malpractice action. The record reflects that the defendants were retained to consummate the sale. Although they told the plaintiffs they were available if any further litigation occurred, they were not retained until much later when the arbitrations commenced. There was a clear break in the two representations. Moreover, they were distinct — one retention was for papering the deal while the other was for representation in litigation. Plaintiffs have the burden of showing that the continuous representation doctrine applies ( CLP Leasing Company v. Nessen, 12 AD3d 226 [1st Dept 2004]), which they have failed to satisfy. The three-year statute of limitations began when representation in the transaction ceased ( Bergman v. Fingerit, 177 AD2d 448, 576 NYS2d, 544 [1st Dep[1991], lv to app den 79 NY2d 759, 584 NYS2d 447; Schleidt v. Stamler, 106 AD2d 264, 482 NYS2d 481 [1st Dept 1984] [in a failure to advise plaintiff of necessity to file a notice of bulk sales with the tax commission, statute of limitations begins to run at the closing of the sale.]).
If I were to decide the merits of this claim, I would still dismiss. Plaintiffs were obviously sophisticated businessmen who knew the risks they were taking because they were revealed by Hochman's strenuous objections to the deal. Akin, Gump was not retained to advise whether the plaintiffs should have entered into the deal. All the terms of the transaction had already been agreed to by the time Akin, Gump entered the picture. The plaintiffs as much as said so in an affidavit in an action entitled KL-John St. v. Akin, Gump, (NY County Index NO. 105233/03), which is annexed to Richard Godosky's reply affirmation in an unlettered exhibit. At paragraph 21 of that affidavit, Gerald Goldman states:
At the time Akin, Gump was retained (1) the sales price and all other material terms of the Susa deal had been negotiated and agreed; (2) the basis for the allocation of the purchase price between and among the various facilities and assets had been set; (3) we had notified all the investors; and (4) we had obtained the go-ahead to proceed from the owners' of the facilities but two. Akin, Gump had no involvement in any of these events.
In paragraphs 22 and 23, he continues by stating that Akin, Gump ". . . was to advise us and serve as our litigation counsel and . . . to prepare the appropriate sales contracts and other documents to effectuate the deal . . ." and a little later down in that paragraph "Akin, Gump's role was to simply to "paper the transaction."
In the current proceeding the defendant now asserts that Akin, Gump negligently gave them the wrong advice on entering this deal. To the contrary, Akin, Gump did not need to advise them of their potential liability. They already knew from the recalcitrant limited partners, and especially Hochman, that they had significant liability exposure. Moreover, they cannot depart from their previous representations to fit the facts around a defense in this case ( Machado v. Clinton Housing Development, 20 AD3d 307, 798 NYS2d 56 [1st Dept 2005] ["We reject plaintiffs' belated argument that the leak was actually in the wall because it directly contradicts Mrs. Machado's earlier deposition testimony that the water was leaking from both the bathroom faucet and valve at 20 AD2d 308), see, also, Popoters V Northern Boulevard Corp., 11 AD3d 368 [1st Dept 2004]."
Although the plaintiffs' have cited a number of decisions holding that to assert the doctrine of judicial estoppel a party must show that the present position is inconsistent with a position taken by the adversary in a prior proceeding in which the adversary prevailed, courts in this jurisdiction have held that in the appropriate circumstances, success in the prior action is not always necessary ( DL Holdings v. Goldman, 287 AD2d 65, 71, 734 NYS2d 25, [1st Dept 2002], lv. to app den 97 NY2d 611, 742 NYS2d 604).
On the merits, the foregoing discussion justifies the dismissal of the first and second causes of action, based, as they are, on misleading advice that there wasn't a self-dealing issue.
The third and fourth causes of action rely on the allegation that the defendants deceitfully and negligently advised (or failed to advise) the plaintiffs that they had a defense based on the wrong advice of counsel. First of all, a law firm cannot be held liable because it gave erroneous advice, although it can be held liable for not telling its client that liability was uncertain ( Bistriker v. Singer Bienenstock Zamansky and Selenght, 14 AD2d 468, 787 NYS2d 881 [1st Dept 2005]). In this case, no such advice was necessary. Plaintiffs were already aware of their potential liability ( See, also, Kalimian v. Breger, 307 AD2d 813, 763 NYS2d 52 [1st Dept 2003]) where defendants' failure to inform plaintiffs about a long-term lease in the building was not malpractice because a partner in plaintiff knew about the lease prior to the signing of the contract. These plaintiffs are in the same position as the trustees of an estate who cannot limit their liability by claiming they were relying on the advice of counsel when they were well aware of the risks they were engaged in ( Matter of Rothko's Estate, 43 NY2d 305, 401 NYS2d 449).
The Court has considered plaintiffs' remaining claims and finds them without merit.
Accordingly, it is
ORDERED and ADJUDGED that the cross motion to amend the complaint is denied; and it is further
ORDERED and ADJUDGED that this action is dismissed with costs and disbursements awarded to the defendants in the sum of $____ as taxed by the Clerk of the Court.