Riviera Prop. Holdings, LLC v. Ferber Chan Essner & Coller, LLP

Decision Date31 July 2017
Docket Number2011,104953
Citation66 N.Y.S.3d 391,58 Misc.3d 708
Parties RIVIERA PROPERTY HOLDINGS, LLC, Plaintiff, v. FERBER CHAN ESSNER AND COLLER, LLP, and David I. Ferber, Defendants.
CourtNew York Supreme Court

Guy S. Halperin Esq., Halperin Law Firm, PLLC, 27 East 21st Street, New York, NY 10010, for Plaintiff.

Matthew K. Flanagan Esq., Catalano, Gallardo & Petropoulos, L.L.P., 100 Jericho Quadrangle, Jericho, NY 11753, for Defendants.

Lucy Billings, J.

I. BACKGROUND

Plaintiff limited liability company sues to recover damages for legal malpractice by defendant Ferber and his law firm, defendant Ferber Chan Essner and Coller, LLP, when representing plaintiff in the purchase of a condominium unit from nonparty sponsor Madison Park Group Owner LLC, of which nonparty Slazer Enterprises, LLC, was the majority owner. Its controlling members in turn were nonparties Marc Jacobs and Ira Shapiro.

In an order January 14, 2013, the court denied defendants' motion to dismiss the complaint. Defendants now move for summary judgment dismissing the complaint. C.P.L.R. § 3212(b). Plaintiff cross-moves for summary judgment on defendants' liability and plaintiff's damages for the claimed malpractice.

Id. For the reasons explained below, the court denies defendants' motion, grants plaintiff's cross-motion to the extent of awarding summary judgment on defendants' liability, and otherwise denies plaintiff's cross-motion. C.P.L.R. § 3212(b) and (e).

II. SUMMARY JUDGMENT STANDARDS

To obtain summary judgment, the moving parties must make a prima facie showing of entitlement to judgment as a matter of law, through admissible evidence eliminating all material issues of fact.

C.P.L.R. § 3212(b) ; Friends of Thayer Lake LLC v. Brown, 27 N.Y.3d 1039, 1043, 33 N.Y.S.3d 853, 53 N.E.3d 730 (2016) ; Nomura Asset Capital Corp. v. Cadwalader, Wickersham & Taft LLP, 26 N.Y.3d 40, 49, 19 N.Y.S.3d 488, 41 N.E.3d 353 (2015) ; Voss v. Netherlands Ins. Co., 22 N.Y.3d 728, 734, 985 N.Y.S.2d 448, 8 N.E.3d 823 (2014) ; Vega v. Restani Constr. Corp., 18 N.Y.3d 499, 503, 942 N.Y.S.2d 13, 965 N.E.2d 240 (2012). If the moving parties fail to satisfy this standard, the court must deny summary judgment despite any insufficiency in the opposition. Voss v. Netherlands Ins. Co., 22 N.Y.3d at 734, 985 N.Y.S.2d 448, 8 N.E.3d 823 ; Vega v. Restani Constr. Corp., 18 N.Y.3d at 503, 942 N.Y.S.2d 13, 965 N.E.2d 240 ; Smalls v. AJI Indus., Inc., 10 N.Y.3d 733, 735, 853 N.Y.S.2d 526, 883 N.E.2d 350 (2008) ; JMD Holding Corp. v. Congress Fin. Corp., 4 N.Y.3d 373, 384, 795 N.Y.S.2d 502, 828 N.E.2d 604 (2005). Only if the moving parties meet their initial burden, does the burden shift to an opposing party to rebut that prima facie showing, by producing evidence, in admissible form, sufficient to require a trial of material factual issues. De Lourdes Torres v. Jones, 26 N.Y.3d 742, 763, 27 N.Y.S.3d 468, 47 N.E.3d 747 (2016) ; Nomura Asset Capital Corp. v. Cadwalader Wickersham & Taft LLP, 26 N.Y.3d at 49, 19 N.Y.S.3d 488, 41 N.E.3d 353 ; Morales v. D & A Food Serv., 10 N.Y.3d 911, 913, 862 N.Y.S.2d 449, 892 N.E.2d 842 (2008) ; Hyman v. Queens County Bancorp, Inc., 3 N.Y.3d 743, 744, 787 N.Y.S.2d 215, 820 N.E.2d 859 (2004).

In a stipulation dated April 14, 2016, the parties stipulated to the authenticity and admissibility of the condominium's offering plan, the form purchase agreement for the unit plaintiff was to purchase, the second and third riders to the agreement, and emails between Ferber and Neil Yaris, one of plaintiff's members. In evaluating the evidence for purposes of the motion and cross-motion, the court construes the evidence in the light most favorable to the opposing parties. De Lourdes Torres v. Jones, 26 N.Y.3d at 763, 27 N.Y.S.3d 468, 47 N.E.3d 747 ; Vega v. Restani Constr. Corp., 18 N.Y.3d at 503, 942 N.Y.S.2d 13, 965 N.E.2d 240 ; Cahill v. Triborough Bridge & Tunnel Auth., 4 N.Y.3d 35, 37, 790 N.Y.S.2d 74, 823 N.E.2d 439 (2004).

III. PLAINTIFF'S LEGAL MALPRACTICE CLAIM

Section 4.1 of the purchase agreement provided that the condominium unit's purchase price was $9,850,000.00 and that the deposit was $985,000.00, 10% of the purchase price. In connection with the purchase, plaintiff, whose members were nonparties Neil Yaris, Alan Green, and Wendy Maitland, executed the second and third riders to the purchase agreement regarding the 10% deposit required by the agreement. The riders provided for payment of the deposit to the sponsor and its controlling owners, instead of the escrow agent as the purchase agreement specified. Specifically, the second rider required plaintiff to pay a non-refundable deposit of 1% of the purchase price to the sponsor itself. The third rider required plaintiff to pay a deposit of the remaining 9% of the purchase price by making a loan to the sponsor's majority owner and the majority owner's individual members Marc Jacobs and Ira Shapiro.

Plaintiff contends that defendants committed legal malpractice by failing to advise plaintiff that the arrangement to pay the deposit directly to the sponsor and its controlling entity and individuals instead of to an escrow agent was void under the applicable statute and regulations. NY Gen. Bus. Law (GBL) § 352–h ; 13 N.Y.C.R.R. § 20.3(o)(2) and (3)(xii). Defendants do not dispute that, had plaintiff's deposit complied with the law, plaintiff would have recouped its deposit from the escrow agent when plaintiff invoked its right to rescind the purchase and the sale never closed. Defendants contend that the statute and regulations were inapplicable and that plaintiff's members were aware that the deposit arrangement with the sponsor posed heightened risks.

To establish legal malpractice, plaintiff must demonstrate that defendants failed to use the ordinary reasonable skill and knowledge of members of the legal profession and that the breach proximately caused plaintiff actual, ascertainable damages. Nomura Asset Capital Corp. v. Cadwalader, Wickersham & Taft LLP, 26 N.Y.3d at 49, 19 N.Y.S.3d 488, 41 N.E.3d 353 ; Dombrowski v. Bulson, 19 N.Y.3d 347, 350, 948 N.Y.S.2d 208, 971 N.E.2d 338 (2012). Plaintiff establishes proximate cause by demonstrating that plaintiff would not have sustained ascertainable damages but for defendants' negligence. Nomura Asset Capital Corp. v. Cadwalader, Wickersham & Taft LLP, 26 N.Y.3d at 50, 19 N.Y.S.3d 488, 41 N.E.3d 353 ; LaRusso v. Katz, 30 A.D.3d 240, 243, 818 N.Y.S.2d 17 (1st Dep't 2006) ; Brooks v. Lewin, 21 A.D.3d 731, 734, 800 N.Y.S.2d 695 (1st Dep't 2005). See Stackpole v. Cohen, Ehrlich & Frankel, LLP, 82 A.D.3d 609, 610, 920 N.Y.S.2d 31 (1st Dep't 2011).

For defendants to prevail by summary judgment, they must show that they advised plaintiff with the due diligence and skill of members of the legal profession or that a breach of that standard was not the proximate cause of plaintiff's damages. Nomura Asset Capital Corp. v. Cadwalader, Wickersham & Taft LLP, 26 N.Y.3d at 50, 19 N.Y.S.3d 488, 41 N.E.3d 353. While defendants' failure to advise plaintiff of an inapplicable statute or regulation would not support a legal malpractice claim, Gabrielli v. Dobson & Pinci, 51 A.D.3d 571, 572, 859 N.Y.S.2d 59 (1st Dep't 2008), defendants fail to show that the statute or regulations on which plaintiff relies did not apply. See Lichtenstein v. Willkie Farr & Gallagher LLP, 120 A.D.3d 1095, 1098, 992 N.Y.S.2d 242 (1st Dep't 2014).

IV. DEFENDANTS' INADEQUATE ADVICE TO PLAINTIFF
A. Whether Plaintiff's Purchase Was Through a Public Offering

Defendants present the affidavit of Kenneth Jacobs, a real estate attorney, who reviewed the evidence presented and concluded that GBL § 352–h and the regulation that implements the statute did not apply because the securities for the condominium had not been offered to the public. Part of this evidence on which defendants rely is the deposition testimony by Susan Green, a real estate broker on site to facilitate unit sales, that plaintiff's purchase of a unit was pursuant to a "friends and family" deal available to her as a broker on site. Aff. of Matthew K. Flanagan Ex. E, at 49. This deal permitted her to contact friends and family about purchasing units before sales were offered to the public, enabling the early purchasers to pay the original price, which was lower than after sales were publicized.

To determine whether an offering of condominium units for sale is public, the court considers the offering's circumstances, including the number of purchasers, their relationship to each other and to the sponsor, the information about the sponsor available to purchasers, and whether their relationship with the sponsor substituted for the statutory protections. People v. Landes, 84 N.Y.2d 655, 661–62, 621 N.Y.S.2d 283, 645 N.E.2d 716 (1994). A small number of investors and lack of advertising indicate that an offering is not public. Roni LLC v. Arfa, 74 A.D.3d 442, 443, 903 N.Y.S.2d 352 (1st Dep't 2010), aff'd, 18 N.Y.3d 846, 848–49, 939 N.Y.S.2d 746, 963 N.E.2d 123 (2011).

Susan Green's testimony regarding use of the "friends and family" deal does not indicate that it was necessarily an insider deal. Her testimony described both how she was permitted to implement the same process for purchase of the building's units for any"friends," who were undefined, as well as family members, and how other brokers, including Wendy Maitland, were permitted to do likewise.

Nor does the deposition testimony by Neil Yaris, Alan Green, and Wendy Maitland, who formed plaintiff for the purpose of purchasing the unit, undermine the offering's public character, as their testimony nowhere indicates a long or close relationship or a history of many past dealings either among themselves or with the sponsor. People v. Landes, 84 N.Y.2d at 662, 621 N.Y.S.2d 283, 645 N.E.2d 716. The testimony by Neil Yaris and Alan Green indicated a desire to work with the sponsor, but not any familiarity with the sponsor or its managers or members. See id. at 663, 621 N.Y.S.2d 283, ...

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