Opinion
Index 512222/2021
03-10-2022
NEXUS CAPITAL INVESTMENTS LLC, Plaintiff, v. DAVID FLEISCHMANN ESQ. and LAW OFFICES OF DAVID FLEISCHMANN, P, C.., Defendants,
Unpublished Opinion
PRESENT: HON. LEON RUCHELSMAN, Judge.
DECISION AND ORDER
Hon. Leon Ruchelsman JSC.
The defendants have moved seeking to dismiss the complaint pursuant to CPLR: §3211. The plaintiff opposes the motion. Papers were submitted by the parties and arguments held. After reviewing all the arguments this court now makes the following determination.
According to the complaint, on October 4, 2018 the plaintiff loaned $5,200,000 to an entity ca 11 ed NY Ave Lofts LLG.-. The defendant David Fleischmann Esq. drafted the loan documents on behalf of the plaintiff. In connection with the loan the borrower executed a mortgage in the amount of the loan against 132 Walnut Street, 25-31 New York Avenue and 13-23 New York Avenue, ail located in Newark New Jersey. Further, the defendant also drafted an Assignment of Leases and Rents and recorded a UCG-1 against the above named mortgaged properties. In addition, Jacob Tauber executed a guaranty concerning the outstanding loan.
The borrower failed to make all the required payments and defaulted in April 2019. To avoid foreclosure of the properties Tauber requested the ability to borrow money from TBG Funding LLC 1 to pay off the debt. Further, TBG agreed to lend additional funds, subordinate to the first loan, in efforts to develop the properties. Thus, a two-tiered loan by TBG was executed wherein the first mortgage remained a lien on the property and TBG loaned the borrower $3,000,000 as a paydown and an additional $2,470,000 in the form of a new note and mortgage which was intended to be subordinate to plaintiff's remaining lien. Amended loan documents including: an amended note and mortgage were executed reflecting a new loan balance of $2, 47 0, 000. Further, as noted, the plaintiff agreed that its mortgage would be subordinated to TBG's loan. According to the amended complaint "upon receipt of the partial Payoff, Defendants, as Lender's counsel, were required to immediately and simultaneously satisfy the First Mortgage and record the Amended Mortgage. This arrangement would have been equivalent to a subordination agreement, providing TBG a priority lien while maintaining the Lender's lien (as reduced by the payment)" (see. Amended Complaint, 122). The amended complaint alleges the amended loan documents were never recorded.
On June 17, 2019 TBG recorded a construction loan in the amount of $8.4 million and Tauber allowed four additional loans to be recorded by an entity called M..P. Management LLC, Thus, while the plaintiff agreed to permit TBG to maintain priority over the plaintiff, the failure to record the amended loan documents effectively placed the plaintiff in third place, behind 2 TBG. and M.P. Management LLC.
The plaintiff instituted a malpractice action against its counsel asserting that the counsel's failure to properly record the amended loan documents negatively affected their priority among other mortgage holders. The complaint further alleges the same defendant also assisted M.P. Management LLC in recording the second place: mortgages. The defendants have now moved seeking to dismiss the complaint on the grounds the plaintiff cannot demonstrate it was damaged in any way by any failure to record such loan documents;. The plaintiff opposes the motion.
Conclusions of Law
It is well settled that upon a motion to dismiss the court must determine, accepting the allegations of the complaint as true, whether the party can succeed upon any reasonable view of those facts (Struian v. Kaufman & Kahn. LLP, 168 A.D.3d 1114, 93 N.Y.S.3d 334 [2d Dept., 2019]). Further, all the allegations in the complaint are deemed true and all reasonable inferences may be drawn in favor of the plaintiff (Weiss v, Lowehberq, 95 A.D.3d 405, 944 N.Y.S.2d 27 [1st Dept., 2012]). Whether the complaint will later survive a motion for summary judgment, of whether the plaintiff will ultimately be able to prove its claims, of course, plays no part in the determination of a pre-discovery CPLR §3211 motion to dismiss (see, Moskowitz v. Masliansky, 198 A.D.3d 637, 3 155 N.Y.S.3d 414 [2021]).
To succeed on a claim for legal malpractice it must be shown that the attorney failed to act with the "ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession" (Darby & Darby, . P.C. v. VSI International, Inc., 95 N.Y.2d 308, 716 N.Y.S.2d 378 [2.000]). Those terms cannot be defined with precision but are rather fact specific and must be judged against the actual representation afforded the client in each particular case. Moreover, the client must further establish that the malpractice was a proximate cause of any loss sustained and the client must also demonstrate 'actual damages' (Prudential Insurance Company v. Dewey Ballantine, Bushby, Palmer & Wood, 170 ftD2d 108, 573 N.Y.S.2d 981 [1st Dept., 1991]). Moreover, in Lindenman v. Kreitzer, 7 A.D.3d 30, 775 N.Y.S.2d 4 [1st Dept., 2004], the court held "a plaintiff's burden of proof in a legal malpractice action is a. heavy one. The plaintiff must prove first the hypothetical outcome of the: underlying litigation and, then, the attorney's liability for malpractice: in connection with that litigation" (id).
It is well settled that a legal malpractice action is not yet ripe, if based upon other matters which have not yet concluded (Stonewell Corp., v.. ConestOaa Title Insurance Company, 678 F.Supp.2d 203 [S.D.N.Y. 2010]). Therefore, a party could not assert a legal malpractice action: in a mortgage foreclosure 4 action if the foreclosure action was still pending (Kahan Jewely Corp., v. Rosenfeld, 295 A.D.2d 261, 744 NYS2.&. 644 [1st Dept., 2002]). Moreover, a claim for legal malpractice is not ripe where the matter upon which the malpractice rests is the subject of an ongoing litigation.: In Whitney Lane Holdings LLC v. Scrambettera & Associates, P.C., 2010 WL 4259797 [E.D.N.Y. 2010] the plaintiff sought to purchase property from sellers. The defendants represented the sellers and a contract was signed. The sellers did not inform the plaintiff the municipality sought to acquire the property through eminent domain and the plaintiff closed upon the property. Thereafter, the plaintiff hired defendant, and waived any conflict..,, to represent them in efforts to stop the eminent domain. The defendants never informed plaintiff they had a breach of contract claim against the sellers for failing to inform them of the eminent domain proceeding although they sued the sellers and asserted other claims. The plaintiff sued the defendants, their Counsel, for failing to inform them of the breach of contract claim. The court dismissed the cause of action without prejudice rioting that since: the lawsuit against the sellers was. still pending "its contingent negligence/legal malpractice claim against Defendants is not ripe" (id). Thus, where: the harm is only potential and not yet actual no cause of action for legal malpractice is possible.
The plaintiff presents six reasons why the motion must be 5 denied. Specifically, the plaintiff asserts it lost its priority following TBG, that it would not have entered into any of the loan agreements if it would have known it would lose that priority, that it expended attorney's fees in connection with a state court action and a New Jersey action, that it lost business opportunities with the money they loaned and had to incur costs, fees, mortgage payments, taxes and similar expenses with respect to the mortgaged properties. Thus, the allegations are ripe and the motion to dismiss: must be denied.
It is true that some of the losses alleged are actual, even if the precise amounts cannot be ascertained with definiteness at this time. For example, engaging in litigation in attempts to minimize or avert the alleged damage caused by the attorney's conduct Can support claims for legal malpractice (DePinto v. Rosenthal & Curry, 237 A.D.2d 4 82, 655 . NYS.2d 102 [2d Dept., 1997].) Thus, while the plaintiff would have been required to initiate a foreclosure action if it had remained in the first or even -the second position, the allegations it was required to expend additional litigation as a result of its reduced third position cannot be dismissed. Further discovery will sharpen the extent of those expenses incurred, however, at this juncture the motion seeking to dismiss has alleged actual damages.
However, regarding the crux of the allegations, namely that the failure to record the mortgage resulted in a reduction in 6 priority;, ho such damages exist at this time since the foreclosure has not been completed. There are three possible scenarios that could result upon a foreclosure sale. Either there will not be enough funds to even pay the first lender or there will be enough to pay the plaintiff as well. In those; two scenarios any alleged malpractice will not have caused any damage to the plaintiff. The third scenario may exist where enough funds are available to pay the first and the second in line and not the plaintiff,, the third in line. In that eventuality the failure to record the mortgage: could result in damages. As noted, this possibility really means that no malpractice claim exists at this time.
However, a dismissal of the action could forever forestall the ability to assert any malpractice claim since by the time any claim could ripen the statute: of limitations could pass. In Collins V. Felder, 251 F.Supp3d 634 [S.D.N.Y. 2017] the court Was faced with this exact dilemma, balancing the retention of the action to preserve any potential claims and allowing discovery to proceed on presently unripe claims. The court denied the motion to dismiss the complaint on ripeness grounds but stayed any further proceedings until a final judgment on appeal was rendered. The appeal was the basis the malpractice claim was unripe. This: had the effect of preserving the allegations of malpractice but staying the burdens of discovery in case they 7 prove to be unwarranted.
Therefore, the court hereby denies the: motion seeking to dismiss the action, however, all discovery is stayed pending the outcome of the foreclosure sale. The motion is granted to this extent.
Turning to the motion seeking to dismiss the second count, it is yell settled that a violation of the rules of professional responsibility do not create an independent cause of action (Long Island Medical Anesthesiology, P.C., v. Rosenberg Fortuna & Laitman, LLP, 191 A.D.3d 864, 142 N.Y.S.3d 194 [2d Dept., 2021]}. The second count of the amended complaint titled 'ethical violations'' states that the defendants "breached their ethical duties" by allowing M.P. Management to record their lien ahead of the plaintiff and also "breached their ethical duties" by failing to obtain a waiver of consent to such an obvious conflict of interest. In opposition, the plaintiff asserts the cause of action is really ah action for the breach of a fiduciary duty and the breach of a duty of loyalty. However, the amended complaint never asserts there was any breach of any fidueiary duty at all. In paragraphs 60 and 61 the amended complaint does assert the defendants owed and breached a duty of loyalty/ however, a close reading of the amended complaint reveals that is not what the cause of action is based upon. Thus, the introductory paragraphs Of the second count only deal with the Rules of Professional 8
Conduct and what constitutes a violation of such conduct (see, Amended Complaint, ¶¶58-;60): Other than the passing references to a breach of loyalty as noted the amended complaint does not allege anything other than ethical violations. Consequently, the motion seeking to dismiss the second cause of action is granted.
So ordered. 9