Commercial Division Blog

Posted: June 8, 2022 / Written by: Jeffrey M. Eilender, Samuel L. Butt, Christopher R. Dyess, Joshua Wurtzel, Hillary S. Zilz / Category Commercial Division Justices

Attorney Malpractice Properly Plead Where Complaint Alleges Attorney’s Faulty Advice Forced Arbitration

On May 2, 2022, Justice Chan of the New York County Commercial Division issued a decision in Cutie Pie Baby Inc. v. Sasson Law PLLC, 2022 NY Slip Op 31450(U) holding that a complaint properly alleged attorney malpractice where the plaintiff alleged that the attorney’s faulty advice was the “but for” cause of its damages resulting from an arbitration proceeding, stating.

"[A]n action for legal malpractice requires proof of three elements: the negligence of the attorney; that the negligence was the proximate cause of the loss sustained; and proof of actual damages" (Schwartz v Olshan Grundman Frome & Rosenzweig, 302 AD2d 193, 198, 753 N.Y.S.2d 482 [1st Dept 2003]). Negligence is shown if a plaintiff can demonstrate that "the attorney failed to exercise that degree of care, skill and diligence commonly possessed by a member of the legal profession, and that this failure caused damages" [*10] (Cosmetics Plus Group, Ltd. v Traub, 105 AD3d 134, 140, 960 N.Y.S.2d 388 [1st Dept], denied 22 N.Y.3d 855, 978 N.Y.S.2d 114, 1 N.E.3d 316 [2013]).

To satisfy the pleading requirement for causation, it must be alleged that "'but for' the attorney's conduct [or nonfeasance], the client would have prevailed in the underlying action or would not have sustained any ascertainable damages" (Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 272, 780 N.Y.S.2d 593 [1st Dept 2004]; Cosmetics Plus Group, Ltd. v Traub, 105 AD3d at 140). Regarding damages, "to survive a ... pre-answer dismissal motion, a pleading need only state allegations from which damages attributable to the defendant's conduct [or nonfeasance] may be reasonably inferred" (Lappin v Greenberg, 34 AD3d 277, 279, 825 N.Y.S.2d 18 [1st Dept 2006] [internal citations omitted]).

Under these standards, the court finds that the complaint adequately pleads professional negligence based on allegations that Sasson failed to use "the level of skill and knowledge possessed common to my members of the legal profession" by incorrectly advising plaintiffs that JY could be removed at a special meeting and that they were not obligated to provide JY notice of the meeting (NYSCEF # 1, ¶¶ 50, 56). And contrary to Sasson's position, dismissal is not warranted on the ground that the alleged failure to properly advise plaintiffs was a matter of professional judgment.

Regarding causation, the complaint alleges that because Sasson gave the wrong advice to plaintiffs "that notice of the [*11] Special Meeting to JY was not necessary -- CPB was forced into arbitration with JY, and it was Sasson's improper legal advice on notice that caused the arbitrators ruled in JYs favor (id., ¶¶ 52-54). The complaint also alleges that "[a]s a result of [Sasson's] improper legal advice, Plaintiffs have been damaged in the amount of $4,844,451.00" (id, ¶ 55).

These allegations are sufficient to plead that "but for" the alleged malpractice, plaintiffs would not have been required to incur the legal fees, costs, [**6] and expenses associated with the arbitration proceeding. And while JY would have been entitled to payment for the value of his shares even if he were provided with notice, plaintiffs are not seeking to recover the $7,972,511 that the Award required them to pay for JYs shares. Instead, plaintiffs seek legal fees, costs, and expenses resulting from the allegedly unnecessary arbitration (Rudolph v Shayne, Dachs, Stanisci, Corker & Sauer, 8 NY3d 438, 443, 867 N.E.2d 385, 835 N.Y.S.2d 534 [2007] [damages in a legal malpractice action may include "litigation expenses incurred in an attempt to avoid, minimize or reduce the damage caused by the attorney's wrongful conduct").

Moreover, the documentary evidence, including the Partial Arbitration Award, does not flatly contradict the allegations in [*12] the complaint, including that defendants' failure to advise plaintiffs to provide JY notice caused their losses. In this regard, Sasson's assertions -- that even if JY had been provided notice of the Special Meeting, an arbitration would still have been required and its outcome would have been the same -- are not supported by the Partial Arbitration Award, which found that plaintiffs' failure to provide JY notice constituted shareholder oppression2 (NYSCEF # 12 at 13, 14). In any event, Sasson's argument that the same losses would have been incurred by plaintiffs had notice been provided to JY is insufficient to support a preanswer motion to dismiss the complaint.

Contact our attorneys at commercialdivisionblog@schlamstone.com if you or a client have questions regarding these issues.

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