Opinion
108296/06.
Decided October 21, 2008.
In this legal malpractice action, plaintiffs claim that they lost the right to produce a Barry Manilow Broadway musical, entitled "Harmony," as a result of the alleged negligent advice of their attorney, defendant Robert Barandes, Esq. Specifically, plaintiffs assert that Barandes erroneously informed them that an option payment due under the contract under which plaintiff Snorkel Productions, Inc. (Snorkel) obtained the rights to produce the show was not due until March 6, 2004, when in fact it was due on October 9, 2003, and consequently Snorkel lost its rights to produce "Harmony."
On this motion, Barandes and the law firm of which he is a member, defendant Beckman, Lieberman Barandes, LLP, move for an order granting summary judgment, pursuant to CPLR 3212, dismissing the amended complaint, dated November 30, 2006 (Complaint) of plaintiffs Snorkel, Harmony on Broadway, LLC (HOB), Mark Schwartz and Nancy LaVista on the ground that the alleged negligence was not the proximate cause of plaintiffs' damages.
BACKGROUND
Snorkel is a Florida corporation. LaVista is Snorkel's owner and president, and Schwartz is its vice president. Snorkel was a managing member of HOB, a New York Limited Liability corporation. HOB was formed to produce a theatrical work entitled Harmony, owned by Barry Manilow and Bruce Sussman.
At some point in 2000 or 2001, Schwartz, on behalf of Snorkel, entered into negotiations with Manilow/Sussman to obtain the rights to produce Harmony. Ultimately, Snorkel reached an agreement with Manilow/Sussman in a written agreement entitled an "Approved Production Contract" (APC). The APC is a form of contract promulgated by the Dramatists Guild, Inc. (Guild), which requires that its members (i.e., Manilow and Sussman) use that form of contract, and that the contract be certified by the Guild before it is declared enforceable.
Barandes acted as counsel to the plaintiffs with respect to the negotiation of the APC. The negotiations for the acquisition of the rights to Harmony took place over several months. Ultimately an agreement was reached as to the terms of the APC and an addendum thereto in October 2002. In accordance with the terms of the APC, Snorkel paid $18,000 to Manilow/Sussman for the first option period under the APC upon both its execution and its submission to the Guild. The APC was certified by the Guild on March 6, 2003.
Plaintiffs goal was to ultimately bring Harmony to Broadway. The plan was to perform rehearwsals in New York and open a "pre-Broadway" performance in Philadelphia. Article II, Section 2.01 of the APC provides that: Snorkel's first option period would run for 12 months following the "effective date" of the APC; and that Snorkel could extend its rights for a second option period upon the payment of $9,000 on or before the expiration of the first option period; and could thereafter extend for successive option period(s) upon the payment of $900 per month for a maximum of 12 months.
Once the APC was executed, plaintiffs began attempting to raise money to finance Harmony. The amount of capitalization needed to get Harmony to Broadway was expected to be $8 to $10 million. Defendants served as counsel to HOB with respect to its legal affairs, including the preparation of offering documents to raise money for the production. From the start, plaintiffs encountered serious problems obtaining the necessary financing and, at any given point in time, were undercapitalized by well over $5 million. Ultimately, plaintiffs were unable to raise the necessary funds (estimated to be an additional $3.5 million) to open Harmony in Philadelphia. On or around October 29, 2003, plaintiffs obtained $1.5 million in bridge financing, in a deal that is referred to as the "GMS Loan." Schwartz and LaVista guaranteed the GMS Loan. On November 12, 2003, Harmony's manager sent an e-mail to Schwartz, among others, advising that Harmony would have to shut down without a large infusion of money. The following day, the last day of rehearsals, the production was shut down.
On November 13, 2003, counsel for Manilow/Sussman sent a letter to Snorkel terminating Snorkel's right to produce and present Harmony under the APC. The letter alleged that Snorkel's rights had lapsed on various grounds, including failure to make an option payment within the time to do so under the APC.
Manilow/Sussman thereafter commenced an arbitration proceeding against Snorkel before the American Arbitration Association (AAA), pursuant to the terms of the APC. An interim award, dated February 18, 2004, declared that Snorkel's rights to produce Harmony had terminated. One of the principal issues in the Manilow Arbitration was whether the first option period ran from: (a) the "effective date" as literally defined in the addendum to the APC; or (b) the date the APC was certified by the Guild, inasmuch as Article XXI, Section 21.09 of the APC provided that the APC would only be effective after certification by the Guild.
The Arbitration Panel ruled that the "effective date" as defined in the APC was October 10, 2002, and that the date was not altered by the language of Section 21.09. The Arbitration Panel proceeded to rule that Snorkel failed to make the option payment within 12 months of the "effective date" and, therefore, Snorkel's rights to produce Harmony terminated.
Separately, GMS LLC commenced an arbitration proceeding against Schwartz and LaVista, also before the AAA, arising out of Schwartz and LaVista's failure to purchase and take by assignment GMS's $1.5 million investment under the terms of the GMS Loan. The GMS Arbitration resulted in a consent award and settlement agreement, whereby Schwartz and LaVista consented to an award against them in the amount of $ 1 million plus interest.
In this action, plaintiffs claim that they were informed by Barandes that the second option payment under the APC was not due until March 2004, and, in reliance on that advice, Snorkel did not make an option payment for the second option period in October 2003, and consequently, lost the right to produce Harmony. In the Complaint, plaintiffs assert two causes of action. The first cause of action, asserted by Snorkel and HOB, based on "Professional Negligence" alleges that defendants owed a duty of care and skill, which was breached by "wrongfully advising Snorkel that it was not obligated to tender payment to obtain an extension of the rights to Harmony until March 6, 2004," and seeks judgment against defendants for all of Snorkel's and HOB's debts and expenses incurred in connection with the Production (in the amount of $6,558,441.47 plus interest), as well as sums incurred in connection with the Manilow Arbitration. The second cause of action, asserted by Schwartz and LaVista against defendants, seeks judgment for sums relating to the GMS Arbitration (in the amount of $259,221.54 plus interest).
Defendants, in their answer dated December 11, 2006 (Answer), deny the allegations in the Complaint. The answer also assets five affirmative defenses, to wit: failure to state a cause of action, lack of privity, that the losses were caused in whole or part by plaintiffs' culpable conduct and/or comparative negligence, and failure to mitigate damages.
Defendants take the position that Harmony was shut down because of inadequate capitalization, and not for any other reason. They maintain that the sole cause of plaintiffs' claimed losses and inability to bring Harmony to Broadway was the production's dire undercapitalization and inability to satisfy its debt. Defendants submit evidence showing that, at the time the APC was certified, Harmony's budgeted capitalization necessary to get to Broadway was $8 million to $10 million. However, almost from the inception, Harmony's financing suffered setbacks, with certain planned investors deciding not to invest, and other difficulties obtaining funds to finance the production. The evidence submitted confirms that plaintiffs were short several million dollars from what they needed, and while they had a contract with a Philadelphia theater, they did not have a contract for a Broadway theater. The evidence further shows that the Philadelphia performance was scheduled to begin in November 2003, and was anticipated to run for four to six weeks, but that the production was undercapitalized from the time said rehearsals began. Further, at the time rehearsals began in October 2003, plaintiffs would need at least $6.5 million to bring Harmony to Broadway. At that time, however, Harmony's total financing (inclusive of loans) was less than $1 million, with little or no prospect of obtaining the funds needed to get the production to Broadway. In fact, by late October, 2003, just 17 days before Harmony shut down production, HOB had a negative balance of well over $1 million.
Plaintiffs, on the other hand, contend that this lawsuit has nothing to do with Snorkel's loss of its rights to Harmony based upon its undercapitalization. Rather, plaintiffs claim that this action concerns Barandes' erroneous advice and the tremendous loss of funds suffered by plaintiffs as a result of Snorkel's loss of those rights. Plaintiffs contend that Barandes advised them that the "effective date" for purposes of measuring the date to exercise the option was the date the Guild certified the APC, as opposed to the date the APC was executed. Plaintiffs contend that the advice given to them by Barandes was wrong, that they relied upon that advice, and as a direct consequence thereof, they lost their right to produce Harmony and suffered millions of dollars in damages. Plaintiffs submit that, had Barandes given advice that was not erroneous, HOB would not have expended funds or incurred debts beyond October 10, 2003, and Schwartz and LaVista would not have guaranteed the repayment of the GMS Loan and been forced to make good on that guarantee, nor would Snorkel, Schwartz and LaVista have been required to expend money in attorneys' fees and costs in the Manilow and GMS arbitrations.
DISCUSSION
The requirements of an action for legal malpractice are well known:
"An action for legal malpractice requires proof of three elements: (1) that the attorney was negligent; (2) that such negligence was a proximate cause of plaintiff's losses; and (3) proof of actual damages ( Reibman v Senie, 302 AD2d 290, 290 [1st Dept 2003]). In order to establish proximate cause, a plaintiff must demonstrate that but for the attorney's negligence, she would have prevailed in the underlying matter or would not have sustained any ascertainable damages ( id. at 290-291). The failure to establish proximate cause mandates the dismissal of a legal malpractice action, regardless of the attorney's negligence ( id., at 291; see e.g. Senise v Mackasek, 227 AD2d 184, 185 [1st Dept 1996]; Stroock Stroock Lavan v Beltramini, 157 AD2d 590, 591 [1st Dept 1990])."
( Brooks v Lewin, 21 AD3d 731, 734 [1st Dept 2005]; see also Barbara King Family Trust v Voluto Ventures LLC, 46 AD3d 423 [1st Dept 2007]).
Defendants seek summary judgment on the ground that plaintiffs cannot establish the required proximate cause element of their legal malpractice claims. Speaking to the issue of proximate and/or intervening cause, the First Department, in the Brooks case, explained:
"Where the record in a professional malpractice case demonstrates that an intervening cause was responsible for the injury, summary judgment will be granted to the defendant ( see D.D. Hamilton Textiles v Estate of Mate, 269 AD2d 214, 215 [1st Dept 2000] [malpractice claim against accountant dismissed where sole proximate cause of injury was plaintiff's severe financial distress]; Phillips-Smith Specialty Retail Group II, L.P. v Parker Chapin Flattau Klimpl, L.L.P., 265 AD2d 208 [1st Dept 1999] . . . [malpractice claim dismissed where connection between plaintiff's injuries and alleged malpractice was purely speculative]).
* * *
[S]peculation on future events is insufficient to establish that the defendant lawyer's malpractice, if any, was a proximate cause of any such loss ( see D.D. Hamilton Textiles v Estate of Mate, supra; Phillips-Smith v Parker Chapin, supra; Sherwood Group v Dornbush, Mensch, Mandelstam Silverman, 191 AD2d 292, 294 [1st Dept 1993] [hypothetical course of events on which any determination of damages would have to be based constitutes such a chain of "gross speculations on future events" as to be incapable of legal proof]; John P. Tilden, Ltd. v Profeta Eisenstein, 236 AD2d 292, 293 [1st Dept 1997] [legal malpractice action based on theory of what Court of Appeals would have done had plaintiff's attorney timely served motion for leave to appeal was "'too speculative' to raise a genuine issue of fact with respect to proximate cause"])."
( Brooks v Lewin, 21 AD3d at 734-735).
In Kristina Denise Enterprises, Inc. v Arnold ( 41 AD3d 788 [2d Dept 2007]), a professional accountants' malpractice action, the Second Department affirmed the lower court's grant of summary judgment to the defendants dismissing the complaint, stating:
"A claim of malpractice requires proof that there was a departure from the accepted standards of practice and that the departure was a proximate cause of the injury ( see D.D. Hamilton Textiles v Estate of Mate, 269 AD2d 214 [1st Dept 2000]; Estate of Burke v Repetti Co., 255 AD2d 483 [2d Dept 1998]). The plaintiffs failed to establish a prima facie case of malpractice since there was no evidence to support a finding that the alleged negligence proximately caused their injuries ( see e.g. Merz v Seaman, 265 AD2d 385, 389 [2d Dept 1999]). Even if, as the plaintiffs alleged, the defendants departed from generally-accepted accounting principles in their preparation of a compilation report on the plaintiffs' financial statements ( see Italia Imports v Weisberg Lesk, 220 AD2d 226 [1st Dept 1995]), the plaintiffs failed to establish, prima facie, that their injuries were proximately caused by such departure rather than their "severe financial distress and inability to meet tax obligations" (D.D. Hamilton Textiles v Estate of Mate, supra at 215). Since the plaintiffs failed to meet their burden, the sufficiency of the opposing papers need not be considered ( see e.g. O'Leary v Bravo Hylan, LLC, 8 AD3d 542 [2d Dept 2004])."
( id., 41 AD3d at 788-789).
Defendants submit that the evidence shows that the sole and proximate cause of Harmony's demise, as well as Snorkel and HOB LLC's claimed losses, was the production's dire undercapitalization and inability to satisfy its increasingly massive debt, and not any negligent advice or malpractice by defendants. On this basis, defendants maintain that, even if Barandes did give negligent advice, summary judgment in their favor is nevertheless mandated because proximate cause is lacking ( see Kristina Denise Enterprises, Inc. v Arnold, supra; Brooks v Lewin, supra; D.D. Hamilton Textiles, Inc. v Estate of Mate, supra).
In opposition, plaintiffs argue that, had Snorkel retained its right to produce Harmony, enough funding could have been raised to overcome Harmony's dire state, including its massive debt at the time Harmony was shut down, and, on top of that, plaintiffs would then be able to raise sufficient funding to bring the show to fruition. This theory is entirely speculative, and financially incredible. The evidence makes clear that plaintiffs cannot meet their burden of proving proximate causation without resorting to gross speculation as to what could have happened in the future had Snorkel retained its rights. Additionally, with respect to the GMS Loan, the record reveals that Schwartz and LaVista's losses were not caused by legal advice, but due to the failure of Harmony to open in Philadelphia.
Upon review, defendants made a satisfactory prima facie showing of entitlement to summary judgment on the ground that Barandes' advice, even if negligent, was not the proximate cause of plaintiffs' injuries. In opposition, plaintiffs fail to raise the existence of a triable issue of fact regarding whether "but for" defendants' allegedly negligent advice regarding the effective date, plaintiffs would have produced the show ( see Barbara King Family Trust, 46 AD3d 423, supra), or alternatively, would have suspended production at an earlier date, and thereby cut their losses. Plaintiffs' arguments, including their claim of damages, are far too speculative to establish proximate causation.
CONCLUSION
Therefore, based on the foregoing, it is hereby
ORDERED that the motion by defendants Beckman, Lieberman Barandes, LLP and Robert Barandes, for summary judgment is granted and the complaint is dismissed with costs and disbursements to defendants as taxed by the Clerk of the court upon the submission of an appropriate bill of costs; and it is further
ORDERED that the Clerk is directed to enter judgment accordingly.