Litigation

Party bringing a lawsuit must be prepared to produce discovery responses in a timely fashion.

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Allstar Elecs., Inc. v DeLuca, 188 AD3d 1121 [2d Dept 2020] is a good reminder that, even in the context of a legal malpractice case, the party bringing the lawsuit must be prepared to produce all discovery responses to the other side in a timely fashion or risk the complaint being dismissed. The court held:

“The nature and degree of the penalty to be imposed pursuant to CPLR 3126 against a party who refuses to comply with court-ordered discovery is a matter within the discretion of the court” (Smookler v. Dicerbo, 166 A.D.3d 838, 839, 88 N.Y.S.3d 235; see Pastore v. Utilimaster Corp., 165 A.D.3d 685, 686, 84 N.Y.S.3d 547; Quinones v. Long Is. Jewish Med. Ctr., 90 A.D.3d 632, 933 N.Y.S.2d 907). The striking of a pleading may be appropriate where there is a clear showing that the failure to comply with discovery demands or court-ordered discovery was the result of willful and contumacious conduct (see Ozeri v. Ozeri, 135 A.D.3d 838, 839, 23 N.Y.S.3d 363; McArthur v. New York City Hous. Auth., 48 A.D.3d 431, 851 N.Y.S.2d 271). “The willful and contumacious character of a party’s conduct can be inferred from the party’s repeated failure to respond to demands or to comply with discovery orders, and the absence of any reasonable excuse for these failures” (Tos v. Jackson Hgts. Care Ctr., LLC, 91 A.D.3d 943, 943–944, 937 N.Y.S.2d 629; see Smookler v. Dicerbo, 166 A.D.3d at 839, 88 N.Y.S.3d 235; Commisso v. Orshan, 85 A.D.3d 845, 925 N.Y.S.2d 612).

Here, contrary to the plaintiff’s contention, the willful and contumacious character of its conduct could properly be inferred from its repeated failures, without an adequate excuse, to timely respond to discovery demands and to comply with the Supreme Court’s orders to provide outstanding discovery and set a date for the plaintiff’s deposition (see Marino v. Armogan, 179 A.D.3d 664, 666, 113 N.Y.S.3d 613; Broccoli v. Kohl’s Dept. Stores, Inc., 171 A.D.3d 846, 847–848, 97 N.Y.S.3d 660; Smookler v. Dicerbo, 166 A.D.3d at 839–840, 88 N.Y.S.3d 235; Montemurro v. Memorial Sloan–Kettering Cancer Ctr., 94 A.D.3d 1066, 1066–1067, 942 N.Y.S.2d 623).

R. A. Klass
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A client must be cognizant of the strict bar under the statute of limitations for suing his attorney.

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A client must be cognizant of the strict bar under the statute of limitations for suing his attorney. In Flintlock Constr. Services, LLC v Rubin, Fiorella & Friedman, LLP, 188 AD3d 530, 531 [1st Dept 2020], the court affirmed dismissal based on the statute of limitations, holding:

“On a motion to dismiss a cause of action pursuant to CPLR 3211 (a) (5) as barred by the applicable statute of limitations, a defendant must establish, prima facie, that the time within which to sue has expired. Once that showing has been made, the burden shifts to the plaintiff to raise a question of fact as to whether the statute of limitations has been tolled, an exception to the limitations period is applicable, or the plaintiff actually commenced the action within the applicable limitations period.” (Quinn v McCabe, Collins, McGeough & Fowler, LLP, 138 AD3d 1085, 1085-1086 [2d Dept 2016] [internal quotation marks omitted].)

“An action to recover damages for an attorney’s malpractice must be commenced within three years from accrual (see CPLR 214 [6]). A legal malpractice claim accrues when all the facts necessary to the cause of action have occurred and an injured party can obtain relief in court. In most cases, this accrual time is measured from the day an actionable injury occurs [or when the damages are sufficiently calculable], even if the aggrieved party is then ignorant of the wrong or injury.” (McCoy v Feinman, 99 NY2d 295, 301 [2002] [internal quotation marks and citation omitted]; King Tower Realty Corp. v G & G Funding Corp., 163 AD3d 541 [2d Dept 2018].) Any damages arising from defendant’s alleged malpractice were sufficiently calculable for pleading purposes when the jury rendered its verdict on July 29, 2013, and the action commenced on September 17, 2018 is time-barred.

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Joint Venture Agreements – I would do anything for [my partners] but I won’t do that…

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Three business partners arguing to illustrate an article by Richard Klass about Joint Venture Agreements

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Two partners owned vacant lots in Manhattan and wanted to build on them. They found two developers who pitched building townhouses on the lots. The four of them entered into a joint venture agreement (“JVA”). [1] Essentially, the agreement was that, in return for the developers paying off debts owed on the lots, refinancing an existing mortgage and obtaining a new construction loan, the lot owners would transfer the property to a limited liability company (“LLC”) to be jointly owned by all four of them.

Joint Venture Agreement

According to the JVA, ownership of the new LLC would be equally divided among the four partners (25% each). The LLC was supposed to refinance the property. The funds from the refinance would first be utilized to satisfy the existing mortgage on the property and then finance all of the construction costs for three single-family townhouses. The developers were to use their best efforts to obtain a construction loan to perform the purpose of the joint venture, and the lot owners were to fully cooperate in these efforts.

Formation of the LLC

One of the developers formed an LLC into which title to the lots would be transferred. The LLC was initially formed with him as the sole member for convenience purposes until the prospective refinance and closing were to take place, at which time all four partners would constitute the members.

Lack of cooperation

In order to comply with the mortgage lender’s requests about the property, the developers needed certain back-up documentation from the lot owners concerning expenses. The lot owners did not provide the requested items. Ultimately, they stopped cooperating with the developers. The developers retained Richard A. Klass, Esq., Your Court Street Lawyer, to pursue their rights under the joint venture agreement, including suing for breach of contract and to enforce a constructive trust over the vacant lots.

In response to the developers’ claims, the lot owners contended that they properly rejected the demand to transfer title to the property to the new LLC. They claimed that they were never provided with an operating agreement that named all four of the partners as members. The lot owners declared, “There was no way it was either reasonable or pursuant to the terms of the JVA that we were going to transfer the property worth at least $4,000,000.00 to an LLC in which we had no ownership interest and no control.”

The developers asserted that this defense was pretext — the lot owners never intended on complying with the joint venture agreement from the start. As fully laid out before the arbitrator, both in testimony and documentary evidence, the developers established that this defense was unfounded based on several facts: (1) the transfer tax documents, prepared by the title company, reflected all four joint venturers’ names and respective 25% interests in the new LLC; [2] (2) One of the lot owners himself emailed the title company the names of all four people for the new LLC; (3) the developer emailed the mortgage lender that all four people were partners in the new LLC; (4) the developer informed the lot owner that the mortgage lender needed a draft of the operating agreement, Excel spreadsheet and all checks following; and (5) the developers made various, substantial payments in furtherance of their joint venture prior to any deed transfer.

The developers claimed that the lot owners wrongfully breached their fiduciary duty that was created when they entered into the joint venture.[3] As joint venturers, the developers asserted the lot owners owed them a fiduciary duty to supply financial information which was within their exclusive control and they breached their duty by intentionally failing to cooperate and disclose pertinent information. Cooperation on the part of both sides to a contract is implied in every contract. See, Madison Pictures, Inc. v Pictorial Films, Inc., 6 Misc 2d 302, 324-25 (Sup. Ct. 1956) (“Where a matter is particularly within the knowledge of one party, it is his duty to supply the information.”); see also Weeks v. Rector of Trinity Church in City of New York, 56 App.Div. 195, 67 N.Y.S. 670, 672 (1st Dept. l900) (“The rule of law is that, when the obligation of performance by one party to a contract presupposes the doing of another act by the other party prior thereto, there arises an implied obligation of the second party to do the act which the performance of the contract necessarily…”).

The arbitrator determined that the developers were entitled to compensation from the lot owners for their substantial investment of time and money into the project. The arbitrator awarded half of the value of the property along with reimbursement for all of their expenses.

[1]  Under New York law, five elements are necessary to form a joint venture: “(1) two or more persons must enter into a specific agreement to carry on an enterprise for profit; (2) their agreement must evidence their intent to be joint venturers; (3) each must make a contribution of property, financing, skill, knowledge or effort; (4) each must have some degree of joint control over the venture; and (5) there must be a provision for the sharing of both profits and losses.” Dinaco, Inc. v. Time Warner Inc., 346 F.3d 64, 67-68 (2d Cir. 2003).

[2]  It was noted that both the Joint Venture Agreement and the NYC Real Property Transfer (RPT) Tax Return served as documentary evidence of the respective LLC ownership interests of the parties. As held in Matter of Pappas v Corfian Enterprises, Ltd., 22 Misc 3d 1113(A) [Sup Ct 2009], affd, 76 AD3d 679 [2d Dept 2010]: “In the real world, particularly that in which close corporations operate, clear evidence of share ownership is often not found in the corporate books and records, for any number of reasons. Other evidence must be found, and the lodestar for admissibility and probative value must be the contractual foundation for shareholder status. A court may consider the intent of the parties, particularly evidence of an agreement to form a corporation. (See Matter of Estate of Purnell v. LH Radiologists, 90 N.Y.2d at 530, 664 N.Y.S.2d 238, 686 N.E.2d 1332; Blank v. Blank, 256 A.D.2d at 689, 681 N.Y.S.2d 377.) * * *

Documentary evidence may be particularly probative when the documents were created under circumstances in which there was no incentive to fabricate. Among the types of documents that courts have considered, and that have been proffered in this case, are corporate and personal tax returns, bank loan documents, and financial statements. (See Matter of Capizola v. Vantage International, Ltd., 2 A.D.3d at 845, 770 N.Y.S.2d 395; Blank v. Blank, 256 A.D.2d at 694, 681 N.Y.S.2d 377; Hunt v. Hunt, 222 A.D.2d at 761, 634 N.Y.S.2d 804.

[3]  It is well settled that joint venturers are governed by the same good-faith requirements as co-partners and the creation of a joint venture “imposes a fiduciary relationship, and not a simple contract.” Learning Annex Holdings, LLC v Whitney Educ. Group, Inc., 765 F Supp 2d 403, 412 [SDNY 2011]. In order to demonstrate a breach of fiduciary duty, there must be: “(i) the existence of a fiduciary duty; (ii) a knowing breach of that duty; and (iii) damages resulting therefrom.” N. Shipping Funds I, LLC v Icon Capital Corp., 921 F Supp 2d 94, 101 (S.D.N.Y. 2013)(Citing Johnson v. Nextel Communications, Inc., 660 F.3d 131, 138 (2d Cir. 2011)).

 

R. A. Klass
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Scales of justice illustrating article about legal malpractice.

Attorney retainer agreement should state matters for which the attorney is NOT retained.

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It is important for a retainer agreement to lay out not only the matters that the attorney will represent the client on but also those that the attorney will not provide representation. The client defeated the motion to dismiss in Katz v Siano, 187 AD3d 639, 640 [1st Dept 2020], as the court held:

Plaintiff adequately plead that defendant, who was retained to represent him in a criminal matter, owed him a duty of care with respect to legal advice he allegedly offered in connection with a pending civil action (see Jane St. Co. v Rosenberg & Estis, 192 AD2d 451 [1st Dept 1993], lv denied 82 NY2d 654 [1993]). While the parties entered into a written retainer agreement stating that the legal representation was for the criminal matter, on this motion to dismiss the written retainer does not eliminate any possibility that defendant owed plaintiff a duty of care in connection with legal advice he had given and was continuing to give regarding the separate civil matter, insofar as plaintiff relied upon it within that matter rather than in the criminal matter (see Genesis Merchant Partners, L.P. v Gilbride, Tusa, Last & Spellane, LLC, 157 AD3d 479, 482 [1st Dept 2018]). Accordingly, there is no documentary evidence here sufficient to require dismissal of the legal malpractice claim pursuant to CPLR 3211 (a) (1) (see IMO Indus. v Anderson Kill & Olick, 267 AD2d 10 [1st Dept 1999]). Issues of fact precluding dismissal exist as to whether defendant’s legal malpractice was the proximate cause of any damages suffered by plaintiff in the civil matter and as to whether plaintiff suffered cognizable damages in that matter.

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Complaint failed to adequately allege actual, ascertainable damages.

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In Katsoris v Bodnar & Milone, LLP, 186 AD3d 1504 [2d Dept 2020], the court affirmed dismissal of the case, holding that:

Here, the complaint failed to adequately allege actual, ascertainable damages. The general allegations that, as a result of the alleged acts of malpractice, the plaintiff was caused to incur “additional legal fees,” and caused to suffer “financial damages and expense,” “adverse financial consequences,” and “direct financial damage,” were all conclusory and inadequate to constitute “actual, ascertainable damages” (Dempster v. Liotti, 86 A.D.3d at 177, 924 N.Y.S.2d 484). To the extent that the complaint addressed the plaintiff’s settlement, the complaint alleged that the defendant’s negligence in its handling of the divorce action caused the plaintiff to suffer “direct prejudice … in both trial and/or settlement,” and that, but for such negligence, the plaintiff “would have fared far better at trial and/or in settlement of the Divorce Action.” These allegations are conclusory and lack any factual support, and they are inadequate to sufficiently allege that the stipulation of settlement that the plaintiff entered into with his former wife was “effectively compelled” by the mistakes of counsel (Rau v. Borenkoff, 262 A.D.2d 388, 389, 691 N.Y.S.2d 140; see Benishai v. Epstein, 116 A.D.3d 726, 728, 983 N.Y.S.2d 618). “The fact that the plaintiff subsequently was unhappy with the settlement [he] obtained … does not rise to the level of legal malpractice” (Holschauer v. Fisher, 5 A.D.3d 553, 554, 772 N.Y.S.2d 836). “Moreover, the plaintiff failed to plead specific factual allegations showing that, had he not settled, he would have obtained a more favorable outcome” (Schiller v. Bender, Burrows & Rosenthal, LLP, 116 A.D.3d 756, 758, 983 N.Y.S.2d 594; see Keness v. Feldman, Kramer & Monaco, P.C., 105 A.D.3d at 813, 963 N.Y.S.2d 313; Tortura v. Sullivan Papain Block McGrath & Cannavo, P.C., 21 A.D.3d at 1083, 803 N.Y.S.2d 571; Dweck Law Firm v. Mann, 283 A.D.2d 292, 293, 727 N.Y.S.2d 58; Rau v. Borenkoff, 262 A.D.2d at 389, 691 N.Y.S.2d 140). Accordingly, we agree with the Supreme Court’s determination to grant that branch of the defendant’s motion which was pursuant to CPLR 3211(a)(7) to dismiss the first cause of action, alleging legal malpractice.

R. A. Klass
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Scales of justice illustrating article about legal malpractice.