Opinion
Index No. 156653/2022 Motion Seq. No. 001
08-02-2023
WALSAM 316, LLC.WALSAM 316 BOWERY LLC, WALSAM BLEECKER LLC, LAWBER BOWERY LLC, 316 BOWERY NEXT GENERATION LLC Plaintiff, v. THOMPSON & KNIGHT LLP, HOLLAND & KNIGHT, LLP, MICHAEL V. BLUMENTHAL, STUART GLICK, Defendant.
Unpublished Opinion
PRESENT: HON. DAKOTA P. RAMSEUR Justice
DECISION + ORDER ON MOTION
DAKOTA D. RAMSEUR, J.S.C.
The following e-filed documents, listed by NYSCEF document number (Motion 001) 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19,20,21,22,23,24,25,26,27,28,29,30,31,32,33,34,35,36,37,38,39,40,41 were read on this motion to/for DISMISS.
In August 2022, plaintiffs Walsam 316 LLC, Walsam 316 Bowery LLC, Walsam Bleecker LLC, Lawber Bower LLC, and 316 Bowery Next Generation LLC (collectively, "Walsam") commenced this legal malpractice action against defendants Thompson & Knight, Holland & Knight, Michael Blumenthal, and Stuart Glick concerning their representation of Walsam's interests in Arnold, et al. v 4-6 Bleecker St. LLC, et. al. (NYSCEF index no. 158541/2013). In this motion sequence (001), defendants move pre-answer for dismissal pursuant to CPLR 3211 (a) (7). Walsam opposes the motion in its entirety. However, should the Court be inclined to grant the motion, Walsam instead requests the Court grant their cross motion for a stay of the proceeding pursuant to CPLR 2201 pending a final determination in Walsam 316 LLC, et al. v 316 Bowery Realty Corp., et al. (NYSCEF index no. 153318/2017). For the following reasons, defendants' motion to dismiss is granted and the cross-motion to stay is denied.
BACKGROUND
Walsam alleges that defendants failed to act with and/or exercise the degree of skill and knowledge ordinarily possessed by members of the legal profession when representing them in Arnold et. al. v 4-6 Bleecker St. As described more extensively infra, there, four residential tenants' brought rent overcharge claims against the previous owners and successors in interest (including Walsam) of a building located at 4-6 Bleecker Street, New York, New York ("the building"). Since the case has a lengthy procedural posture, significant portions of which are relevant to Walsam's allegations, the Court summarizes the underlying facts and legal findings that ultimately resulted in Walsam agreeing to contribute $700,000 to settle the tenants' claims.
In 2012, non-parties 316 Bowery Realty Corp. ("316 Bowery," as owner of the building) and 4-6 Bleecker Street LLC ("4-6 Bleecker") entered into a Purchase and Sale Agreement ("2012 PSA") to convert the building into two condominium units-one residential, the other commercial-and to sell the residential unit to 4-6 Bleecker. When 316 Bowery failed to complete the conversion within the timeframe the parties agreed upon, the parties restructured the 2012 PSA. Under the new agreement, 316 Bowery agreed to lease the residential unit to 4-6 Bleecker and assign to it 316 Bowery's interest in the individual leases and rents of the nine apartments compromising the residential unit. Separately, by deed dated June 14, 2014, 316 Bowery transferred its interest in the commercial unit to Walsam. Under the parties' contract, Walsam agreed to purchase the unit and assume 316 Bowery's rights and obligations, and 316 Bowery agreed to indemnify Walsam up to $250,000 against losses, damages, liability, and expenses that Walsam might incur defending the rent overcharge action.
The Rent Overcharge Action
In September 2013, four residential tenants in the building commenced the underlying rent overcharge action in New York Supreme Court against 316 Bowery and 4-6 Bleeker, seeking the recoupment of alleged overcharges, treble damages, and attorneys' fees for violating New York's Rent Stabilization Law. After Walsam acquired title to the building's commercial unit, 4-6 Bleecker moved to add Walsam as a co-defendant, which this Court granted. (NYCEF index no. 158541/2013, doc. nos. 140 and 142 [Madden, J.]) Thereafter, in January 2016, this Court granted partial summary judgment in favor of the tenants on their declaratory judgment cause of action, finding that (1) their apartments were rent stabilized, (2) 316 Bowery had improperly deregulated them; and (3) the rents charged were illegal in light of being rent stabilized. (NYSCEF index no. 158541/2013, doc. no. 168 [Madden, J.]) The First Department affirmed both orders. (See Arnold v 4-6 Bleecker St. LLC, 165 A.D.3d 493 [1st Dept 2018].)
In November 2018, the residential tenants moved for summary judgment on their second and third causes of action seeking treble damages against all defendants, including Walsam, in the amount of $1,010,061.01. (See Index No. 158541/2013, doc. no. 417, 426 notice of motion for mot, seqs. 012 and 013.) Around this time, Walsam retained Thompson & Knight, specifically Blumenthal and Glick, to defend against the overcharge claims and treble damages and to pursue indemnification from 316 Bowery in Walsam 316 LLC, et al. v 316 Bowery Realty Corp., et al.
Residential Tenants were represented by two different attorneys, who each filed motions for partial summary judgment seeking the same relief for their clients.
While the residential tenants' motions were pending before the Court, the New York State Legislature passed, and the Governor signed into law, the Housing Stability and Tenant Protection Act of 2019 ("HSTPA"). Among other things, the law expanded the statute of limitations on rent overcharge claims from four years to six years and, by its plain language, applied retroactively to all pending rent overcharge proceedings. Soon after, on June 26 and July 1, 2019, counsel for the tenants submitted two letters to the Court informing it of their position that the new legislation would significantly raise their calculation of damages. (NYCEF doc. nos. 13, 14, letters to the Court.) Glick filed a letter responding to tenants' counsel on July 2, 2019, in which he took the position that (1) tenants must make a formal application to the Court if they wanted to revise their damage calculation, and (2) Walsam should be "given a full and fair opportunity to contest the applicability of HSTPA..., including HSTPA's constitutionality if retroactively applied to the facts and circumstances here." (NYSCEF doc. no. 16, Glick letter.) By Decision and Order dated August 19, 2019, the Court rejected Walsam's position and held that since HSTPA was passed during the pendency of the matter, plaintiffs were permitted to recalculate the amounts owed on the overcharge and treble damages amount. (NYSCEF index no. 158541/2013, doc. nos. 555, 556 at 3-4 [Chan, J.])
Approximately one month later, on September 17, 2019, the First Department weighed in on the issue of HSTPA's retroactivity in Dugan v London Terrace Gardens, L.P. (117 A.D.3d 1 [1st Dept 2019].) There, in a consolidated appeal challenging various provisions of HSTPA, the court rejected a Due Process-based argument that the law could not constitutionally extend the statute of limitations to causes of action arising pre-enactment. Quoting Matter of St. Vincent Hosp. & Med. Ctr. of N.Y. v New York State Div. of Hous. & Community Renewal (109 A.D.2d 711, 712 [1st Dept 1985]), the First Department explained, "where a statute has been amended during the pendency of a proceeding, the application of that amended statute to the pending proceeding is appropriate and poses no constitutional problem." (Id. at 4.) The same day, the Court of Appeals issued a Notice to the Bar, inviting amicus curiae participation in pending appeals impacted by the HSTPA, specifically whether the act governs appeals taken after enactment. (NYSCEF doc. no. 35, notice to the bar.)
By Decision and Order dated October 18, 2019, this Court granted the residential tenants summary judgment pursuant to their revised, HSTPA-inclusive damages calculation against 316 Bowery and Walsam. (See NYSCEF index no. 158541/2013, doc. no. 705.) And on November 4, 2019, the Court entered judgment against these defendants, jointly and severally, for $2,081,539.92 (exclusive of attorneys' fees). After, counsel for Walsam ultimately recommended they settle the matter with the tenants and 316 Bowery, which they did. According to the parties' settlement agreement, 316 Bowery paid $1,600,000 and Walsam paid $700,000.
Walsam asserts that this order conflicts with the Court's Decision and Order dated September 5, 2019, in which Justice Chan may have exempted them from treble damages. Such a conflict, however, is immaterial in resolving the current motion and, therefore, the Court takes no position on the issue.
On April 2, 2020, approximately two months after Walsam paid the residential tenants, the Court of Appeals, in Matter of Regina Metro. Co., LLC v New York State Div. of Hous. & Community Renewal (35 N.Y.3d 332, 375 [2020]), reversed Dugan and the line of cases in the First Department that had found HSTPA's retroactivity provision constitutional. The Court of Appeals specifically considered how the retroactive provision extended the statute of limitations for treble damages in pending cases and found that the law impermissibly altered the substantive rights by "expanding] the scope of owner liability... based on conduct that was inoculated by the old law". (Id. at 367, 368.) Given the Court of Appeals' holding, Walsam alleges that, had they not entered into the settle agreement, they might have paid substantially less than the $700,000 they did since the tenants' damages calculation, as originally submitted to the Court, would not have exceeded approximately $1,010,061.00.
The Instant Motion Sequence
In paragraph 100 of their complaint, Walsam summarizes how defendants' conduct did not comport with the standard of care and skill expected of competent and qualified members of the legal community. According to them, defendants' negligence consists in failing to (1) investigate their defenses to the claims in the overcharge proceeding, (2) research applicable case law, (3) advise them as to the constitutionality of retroactive application of HSTPA to the residential tenants' claims, (4) file any motions raising a constitutional objection to the retroactive application, and (5) advise them about the Regina case pending before the Court of Appeals and/or of potential arguments that would be raised on appeal. (NYSCEF doc. no. 4 at ¶100, Walsam complaint.) Had defendants done these things, Walsam asserts, they would have been fully appraised of the possibility the Court of Appeals might reject Dugan and could have made a fully informed decision as to whether to accept the $700,000 settlement.
DISCUSSION
On a motion to dismiss for failure to state a cause of action under CPLR 3211 (a) (7), courts afford the pleadings a liberal construction, accept the facts as alleged in the complaint as true, and give the plaintiff the benefit of every possible favorable inference. (Leon v Martinez, 84 N.Y.2d 83, 87 [1994]; JF Capital Advisors, LLC v Lights tone Group, LLC, 25 N.Y.3d 759, 764 [2015].) The Court is not required to accept factual allegations that consist of bare legal conclusions or that are inherently incredible. (Mamoon v Dot Net Inc., 135 A.D.3d 656, 658 [1st Dept 2016].) A courts' inquiry is limited to assessing the legal sufficiency of the plaintiffs pleadings; accordingly, its only function is to determine whether the facts as alleged fit within a cognizable legal theory. (JF Capital Advisors, 25 N.Y.3d at 764.)
To plead a malpractice cause of action, the plaintiff must set forth three elements: (1) the negligence of the attorney(s); (2) that the negligence was the proximate cause of the loss sustained; and (3) actual damages. (Rudolf v Shayne, Dachs, Stanisci, Corker & Sauer, 8 N.Y.3d 438, 442 [2007]; Bishop v Maurer, 33 A.D.3d 497, 498 [1st Dept 2006].) In demonstrating the attorney's negligence, the plaintiff must plead facts that show the attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession. (McCoy v Feinman, 99 N.Y.2d 295, 301-302 [2002].) Further, to establish proximate causation, plaintiff must demonstrate that "but for" the attorney's negligence, plaintiff would either have prevailed in the matter at issue or would not have sustained any ascertainable damages. (Lederv Spiegel, 31 A.D.3d266, 268 [1st Dept 2006].) "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 v Basile, 141 A.D.3d 405, 406 [1st Dept 2016].)
On their motion to dismiss for failure to state a cause of action, defendants raise two principal arguments: (1) as a matter of law, their conduct did not rise to the level of negligence; and (2) even assuming their conduct could be considered negligent, Walsam has not plead the proximate-cause element since their injury is entire speculative.
As to (1), Walsam alleges that defendants failed to advise them as to the constitutionality of relevant portions of HSTPA and that the Court of Appeals had sought amicus briefs in Regina specifically in regard to the proper calculation of damages in pending rent overcharge cases. Such allegations are adequate to support its claim that defendants' failed to exercise the skill and knowledge of an ordinary member of the legal community. (See Leggiadro, Ltd. v Winston & Strawn, LLP, 151 A.D.3d 413, 413-414 [1st Dept 2017] [holding that, on a summary judgment motion, the defendant had not eliminated issues of fact as to whether their failure to inform plaintiff of the existence of a corporate tax was the but-for cause of the plaintiffs injury]; Escape Airports (USA), Inc. v Kent, Beatty & Gordon, LLP, 79 A.D.3d 437, 438-439 [1st Dept 2010] [finding issues of fact as to whether a failure to recommend a termination provision be added to individual contracts with airlines was the proximate cause of plaintiff s injury].)
In their memorandum of law in opposition, Walsam contends that the source of defendants' negligence was their failure to fully advise them as to Regina and the Court of Appeals' pending decision that constitutes. (See NYSCEF doc. no. 36 at 23-24, plaintiff memo of law ["The malpractice here was not defendant's failure to predict the Regina ruling or even their recommendation [to accept the settlement] ... Rather, it was the failure to apprise the client that there were alternatives at all."]) Its opposition does not argue the failure to investigate or research or file a motion constituted negligence. Accordingly, these arguments are considered abandoned.
Defendants rely on Darby & Darby, P.C. v VSI Int'l, Inc (95 N.Y.2d 308 [2000]) and Mignott v Kreidman (65 A.D.3d 972 [1st Dept 2009]) to argue that there is no duty to "anticipate that controlling law would be overturned." (See NYSCEF doc. no. 9 at 17-18, def memo, of law.) Yet this framing-that Walsam seeks to hold them liable for failing to predict the outcome of Regina-is misleading and does not accurately describe the gravamen of the complaint. Again, Walsam's allegation is that defendants had a legal duty to advised them that the Court of Appeals was, at the very least, considering the merits of the Regina (and doing so within a short timeframe), or viewed in a more favorable light, had already indicated a willingness to overturn First Department law. The present circumstances, specifically the concrete possibility of an imminent change in law, are materially different from those in Darby (in which the attorney failed to advise the client of a novel theory of recovery, one that even industry experts had not fully appreciated) (Darby, 95 N.Y.2d at 313-314), and Mignott (in which the Appellate Division reversed and abrogated its own decision 8 years later) (Mignott, 7 Misc.3d 1021 [A] at *1, aff'd 65 A.D.3d 972).
As to defendants' second argument, the Court holds that Walsam has not sufficiently pled that it suffered ascertainable damages proximately caused by defendants' malpractice. Walsam states that "the negligence of defendants was a proximate cause of plaintiff s damages," which "include[e] the moneys paid by [Walsam] to settle the overcharge claim, the legal fees paid to defendants, and the legal fees incurred by plaintiffs in continuing litigation concerning rent overcharges." (NYSCEF doc. no 4 at ¶ 101, 103.) Though Walsam does not explicitly state how their damages were cause by defendants' alleged malpractice, they appear to argue that, had defendants advised that the Court of Appeals was considering Regina, it would not have entered into the settlement agreement for $700,000 and, post-Regina, would have paid less to the residential tenants. (See NYSCEF doc. no. 36 at 23 ["The settlement decision, whether to accept the $2.3 [inclusive of 316 Bowery] lies with the client; the attorney's duty is to make the client fully aware of the options and the legal landscape."])
The Court notes that this citation is taken from the argument Walsam advanced to establish the negligence element of a malpractice action and that no similar argument is made to show the proximate cause element.
Yet such speculation on future events and choices are insufficient as a matter of law to establish the proximate cause element of a malpractice action. (See Phillips-Smith Special Retail Group II, L.P. v Parker Chapin Flattau & Klimpl, L.L.P, 265 A.D.2d 208, 210 [1st Dept 1999].) As defendants point out, irrespective of Regina, Justice Chan had already found 316 Bowery and Walsam liable, jointly and severally, to the residential tenants, who were seeking $1,010,061.60, exclusive of attorneys' fees. As such, had Walsam become aware of Regina before settling, the universe of choices open to Walsam was still limited. They could have: (1) reached the same settlement agreement (paying $700,000 to avoid a $2.3 million judgment); (2) waited until the Court of Appeals decided Regina (though at no point would it have been certain of a favorable outcome, all the while remaining exposed to the $2.3 million liability; and then, even after the outcome, still been jointly and severally liable for more than $700,000); or (3) attempted to leverage Regina to settle for less than $700,000 (which would have required 316 Bowery and/or the tenants to accept a less beneficial agreement). Even assuming option (3) to be a non-starter, there is no clear reason why Walsam would have chosen option (2) over (1), especially considering that Walsam has only by implication argued that it was damaged in this manner. The counterfactual scenario described above reveals that Walsam's allegations as to proximate cause are couched in terms of gross speculation. (See Sherwood Group, Inc. v Dornbush, Mensch, Mandelstam, & Silverman, 191 A.D.2d 292, 294 [1st Dept 1993] [finding that a party's hypothetical, future conduct, pled in various forms of what "might have" happened, too speculative to demonstrate proximate causation].)
Other than to incorrectly cite the standard for establishing proximate cause on a motion to dismiss, and to say that questions of causation are ordinarily left to the finder of fact, Walsam has not advanced any arguments as to why, in this case, they have sufficiently pled this element. As such, dismissal is required.
Citing to Fontaine v Matthews (25 A.D.3d 477 [1st Dept 2006]), Walsam asserts that plaintiffs do not have to establish that defendants' malpractice was a "but-for" cause of their injury but rather a "substantial factor" in the injury. However, in Fontaine, which considered an appeal of a jury award for legal malpractice as being against the weight of evidence, the First Department described the relative strength of plaintiff's case, and that the attorney's co-counsel's unpreparedness was a "substantial factor" for the no-damages federal verdict. Clearly, the Court was not explaining the elements of a cause of action but describing the evidence the jury relied upon in its deliberation.
Walsam argues that the Court should instead stay the instant action as 316 Bowery still seeks indemnification in Walsam 316 LLC, etal. v 316 Bowery Realty Corp., etal. Walsam contends that since a final determination has not been made in that action, a potential source of damages has not materialized yet. The Court finds it to be inappropriate use of its discretion to stay this action on such grounds. By Decision and Order dated December 14, 2020, this Court [Chan, J.] held that 316 Bowery, instead of being owed indemnification, owed indemnification to Walsam in the amount of $100,000 for attorneys' fees and $250,000 for the rent overcharge payments. (NYSCEF index no. 1533318/2017, doc. no. 650.) By Decision and Order dated April 8, 2022, this Court denied 316 Bowery's motion for leave to amend its answer to assert a counterclaim for indemnification, finding meritless 316 Bowery's claim that Walsam owed indemnification or contribution for payments 316 Bowery made to tenants above the settlement agreement's $1,350,000 cap. (NYSCEF doc. no. 727.) By Decision and Order dated December 12, 2022, the Court denied 316 Bowery's motion to reargue the previously described Decision and Order, reaffirming that "316 Bowery failed to identify any basis for reimbursement" and that its counterclaim was "patently devoid of merit." (NYSCEF doc. no. 775.) To obtain a favorable judgment, then, 316 Bowery would have to perfect its appeal, successfully argue at the First Department that its counterclaim for indemnification is not "patently devoid of merit," assert said counterclaim, obtain a judgment thereon, and then confirm it-all of which would need to happen for Walsam to assert some sort of ascertainable damages. The Court finds that a stay pending a final determination in Walsam 316 LLC, et al v 316 Bowery Realty Corp., et al to be inappropriate.
Accordingly, for the foregoing reasons, it is hereby
ORDERED that defendants Thompson & Knight, Holland & Knight, Michael Blumenthal, and Stuart Glick's motion to dismiss pursuant to CPLR 3211 (a) (7) is granted and the complaint is dismissed; and it is further
ORDERED that plaintiffs Walsam 316 LLC, Walsam 316 Bowery LLC, Walsam Bleecker LLC, Lawber Bower LLC, and 316 Bowery Next Generation's cross-motion to stay the instant proceeding pursuant to CPLR 2201 is denied; and it is further
ORDERED that counsel for defendants shall serve a copy of this order, along with notice of entry, on all parties within twenty (20) day of entry.
This constitutes the Decision and Order of the Court.