Plaintiffs Eighth Ave. Garage Corp. ("Eighth Ave. Corp."), Eighth Ave. Garage LLC ("Eighth Ave. LLC"), M & E NY Holdings LLC ("M & E"), Relative Holding LLC ("Relative") and Jacob I. Sopher ("Sopher"; collectively "plaintiffs"^[FN1]) brought this action for legal malpractice against defendants Kaye Scholer LLP ("Kaye Scholer"), Michael Sapienza ("Sapienza") and Richard C. Seltzer ("Seltzer"; collectively "defendants"). Defendants move to dismiss the Amended Complaint (the "complaint") pursuant to CPLR 3211 (a) (1), (5) and (7).

This lawsuit arises out of legal representation provided by defendants to plaintiffs between 2004 and 2008 in connection with the sale of certain real estate interests held by the plaintiffs and related litigation. [*2]

Defendants move to dismiss the complaint on several grounds. First, as to the claim in connection with the sale of the parking garage itself, defendants argue that plaintiffs fail to state a claim because the claim is refuted by documentary evidence and barred by collateral estoppel. As to the litigation arising out of the sales transaction, defendants argue that plaintiffs fail to state a claim as a matter of law.

The allegations below are taken from the complaint.

In June 1994, Eighth Ave. Corp. entered into a written 15-year lease ("the Lease") for a parking lot located at 303-311 West 46th Street, New York, New York ("the Property") with H.K.L. Realty Corporation, Forty-Six Parking Associates, and Lila Scheiner (collectively "the Landlord", not a party to this action).

Sopher was the majority owner of Eighth Ave. Corp., as well as several other affiliated corporations that were also the lessees of other parking facilities.

Under Section 11 of the Lease, any assignment of the Lease required the Landlord's consent, which could not be unreasonably withheld. Under Section 47 of the Lease, an "assignment" requiring the Landlord's consent was defined to include, among other things, "a transfer of all or the majority of the capital shares of any corporate tenant." Section 47 (c) of the Lease also contained a provision that if Landlord gave consent, the rent for the Property would increase by five percent.

However, the Landlord's consent was not necessary under Section 47 for (1) any transfer of shares of a corporate tenant to members of Sopher's immediate family, his wife or trusts for their benefit ("the Family Exception"); or (2) an assignment in conjunction with the sale of ten or more parking facilities controlled by Sopher to a single entity ("the Ten Garage Exception").

In addition, Sopher personally guaranteed Eighth Ave Corp's obligation under the Lease pursuant to a limited guaranty dated June 29, 1994 ("the Limited Guaranty"). Under Section 15 of the Limited Guaranty, Sopher would be released from the obligations of the Limited Guaranty upon an assignment if he were able to deliver a substitute guaranty from an individual, or no more than two individuals, who were principals of the assignee and who together had a net worth of not less than $5 million as evidenced by a financial statement prepared in accordance with generally accepted accounting principles and certified by an independent certified public accountant.

Between 1994 and 2004, there occurred three transactions between entities owned and/or controlled by Sopher involving the Property: the 1998 Assignment, the 2000 Assignment and the 2003 Assignment.

In 1998, Eighth Ave. Corp. assigned the Lease to Eighth Ave LLC, for plaintiffs' tax planning purposes. While the Landlord's consent was required for this assignment because it did not meet the criteria for the Family or the Ten Garage Exceptions, Eighth Ave Corp. did not seek or obtain the Landlord's consent for this assignment.

In 2000, M & E acquired a controlling interest in Eighth Ave LLC, which qualified as an assignment under the terms of the Lease. However, because at the same time, M & E also acquired a controlling ownership interest in 13 entities that operated parking lot facilities owned or controlled by Sopher, this assignment qualified for the Ten Garage Exception and did not require the Landlord's consent.

Kaye Scholer did not represent any of the plaintiff entities in the above two transactions. [*3]However, in 2003, Sopher retained Kaye Scholer ^[FN2] to represent and advise him on a "roll up" of his various business entities, including the plaintiff entities.

In December 2003, for the purposes of the roll up, plaintiffs formed Relative as the entity to take over ownership and control of 45 parking lot facilities that Sopher owned or controlled through various entities (including the Property and Eighth Ave LLC). The Relative roll up was not an assignment for which the Landlord's consent was required because it qualified for the Ten Garage Exception.

In late 2004, Sopher reached an agreement with Richard Llopiz ("Llopiz") to sell the parking lots facilities he owned or controlled through Relative. In October 2004, Relative entered into a sales agreement with Llopiz to sell at least ten parking garage businesses and leases owned or controlled by Sopher, including the Property, for $31 million ("the Garage Sales") and the parties entered a written agreement ("the Garage Sales Contract"). The proposed Garage Sales were scheduled to close in April 2005.

Llopiz later assigned his rights to Marathon/Quik Park NYC, LLC ("Marathon"; collectively with Llopiz "the Buyer") and the Garage Sales Contract was amended to reflect this assignment.

Defendant Sapienza was the Kaye Scholer attorney principally responsible for advising Sopher and the other plaintiffs and representing their interests in the Garage Sales transaction.

As a condition of closing the Garage Sales transaction, the Buyer required an estoppel certificate from the Landlord of the Property stating that the Lease was in effect and that there was no default by the tenant. Under Section 60 of the Lease, the Landlord was required to provide such a certificate. If plaintiffs failed to get an estoppel certificate, then the Eighth Ave. garage would be removed from the sale and the purchase price would be reduced by $1 million.

On February 16, 2005, Kaye Scholer sent a letter to the Landlord notifying it of the pending transaction and requesting that the Landlord provide plaintiffs with an estoppel certificate. Moreover, the letter requested that Landlord acknowledge that its consent was not necessary for the pending transaction as it qualified under the Ten Garage Exception and release Sopher from the Limited Guaranty once it is assumed by the Buyer and one of its principals.

By letter dated February 25, 2005, Landlord's counsel requested documentation pertaining to the corporate ownership of garages that were intended to be part of the transaction as well as certified financial information of the proposed substitute guarantors, pursuant Section 15 of the Limited Guaranty.

In response, Kaye Scholer attached to a letter, dated March 9, 2005, excerpted pages of the Purchaser and Sale Agreement for the sale of the properties by Relative to Marathon/Quik Park NYC, LLC (as proof of Sopher's control of at least ten properties being transferred) and financial information about the replacement guarantors. Plaintiffs contend that the financial information was not certified, was not prepared in accordance with generally accepted accounting principles, and indicated that the individual substitute guarantor's net worth did not exceed $5 million as required by Section 15 of the Limited Guaranty.

The Landlord's attorney rejected the financial information as deficient and refused to release [*4]Sopher from the Limited Guaranty on March 15, 2005. Further, Landlord's counsel requested proof that Sopher was the owner or controlling member of Relative.

Landlord's counsel further supplemented its correspondence on March 21, 2005 noting that there was an apparent default under the Lease based on the assignment of the Lease from Eighth Ave Corp to Relative.

Sapienza responded on March 24, 2005 that the transfer to Relative fell under the Family Exception and that Kaye Scholer was working on procuring proof of ownership acceptable to Landlord's counsel.

In response, Landlord's counsel challenged Sapienza's characterization of the assignment since the Family Exception provision of Article 47 (d) permits the transfer of shares to individuals, not another entity. Landlord's counsel further suggested that "to avoid issuance of a notice default," Sapienza and Kaye Scholer direct their client (plaintiffs) to request Landlord's consent "to the assignment to Relative Holdings, LLC." (complaint ¶ 49, citing exhibit G to the complaint).

Plaintiffs allege that at no time did Kaye Scholer advise them that they were in breach of the Lease because of the failure to obtain the Landlord's consent to the 1998 Assignment or that they should seek and obtain retroactive consent. While obtaining Landlord's consent would have meant a five percent increase in rent both retroactively and going forward. (complaint ¶ 50), plaintiffs contend that had Kaye Scholer done so, plaintiffs would have been able to close the Garage Sales transaction with the Property included, which would have resulted in a higher purchase price ^[FN3].

On December 23, 2005, Kaye Scholer brought a lawsuit on behalf of the plaintiffs against the Landlord to recover damages for breach of the Lease (Eighth Avenue Garage Corp. v H. K. L. Realty Corp., et al., New York County Index No. 604472/2005 [the "HKL Lawsuit"]). Defendant Seltzer was the attorney principally responsible for representing plaintiffs' interests in the HKL Lawsuit.

Plaintiffs claims that Kaye Scholer knew, or reasonably should have known, when it brought the suit that the complaint it filed was substantially undermined by plaintiffs' failure to obtain the Landlord's consent for the 1998 Assignment. Plaintiffs contend that when Kaye Scholer realized its error, it filed an amended complaint on January 12, 2006, in a "sudden reversal" of litigation strategy.

On October 17, 2006, Landlord moved for summary judgment. Plaintiffs opposed summary judgment and cross-moved for summary judgment and to compel discovery. By judgment and order dated May 7, 2007, the court granted the Landlord's motion and denied plaintiffs' cross-motion. When on June 21, 2007, plaintiffs moved to argue and renew summary judgment, and further amend the complaint, the motion was denied by court's decision and order dated March 7, 2008. At this point, plaintiffs retained new counsel and pursued an appeal. The appellate court affirmed the judgment in Landlord's favor. (Eighth Ave. Garage Corp. v H. K. L. Realty Corp., 60 AD3d 404 [1st Dept], lv dismissed 12 NY3d 880 [2009]).

It is well settled that on a motion to dismiss pursuant to CPLR 3211, the allegations in the complaint must be accepted as true, the court must grant the plaintiffs the "benefit of every possible inference, and determine only whether the facts as alleged fit within any cognizable legal theory." [*5](Goldman v Metro. Life Ins. Co., 5 NY3d 561, 570-571 [2005] [internal citations omitted]). Allegations that consist of "bare legal conclusions" or that are inherently incredible," however, need not be accepted as true. (See e.g. Beattie v Brown & Wood, 243 AD2d 395, 395 [1st Dept 1997] [internal citations omitted]). Under CPLR 3211 (a) (1), a dismissal "may be granted where the documentary evidence submitted conclusively establishes a defense to the asserted claims as a matter of law." (Goldman, supra at 571).This complaint contains one cause of action for legal malpractice. However, there are two separate instances of malpractice alleged. The first is defendants' representation during the Garage Sales transaction and the second is representation in the subsequent litigation against the Landlord.

Malpractice in the Garage Sales transaction

A plaintiff in a legal malpractice action must show "that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to a plaintiff and that the plaintiff would have succeeded on the merits of the underlying action but for the attorney's negligence." (AmBase Corp. v Davis Polk & Wardwell, 8 NY3d 428, 434 [2007] [internal citations omitted]).

In other words, to establish proximate cause, plaintiffs must allege that "but for the alleged malpractice plaintiff would have prevailed" (Sonnenschine v Giacomo, 295 AD2d 287, 287 [1st Dept 2002]) or "not have sustained any damages" (Dupree v Voorhees, 68 AD3d 810, 810 [2d Dept 2009] [citing AmBase Corp., supra at 434; Leder v Spiegel, 9 NY3d 836, 837 [2007], cert denied sub nom. Spiegel v Rowland, 552 US 1257 [2008]]).

Here, even as amplified by the affidavit of Benjamin Orbach, plaintiff's employee, and according every possible inference favorable to the plaintiffs, the complaint fails to allege facts tending to show that, but for defendants' alleged negligence in failing to get the Landlord to issue an estoppel certificate, the plaintiffs would have been able to consummate the Garage Sales transaction.

First, plaintiffs do not allege that the Purchaser would have agreed to keep the Property as part of the transaction if rent were increased. Obtaining Landlord's consent would have meant a five percent rent increase both retroactively, and going forward. While the economics of the transaction may have made sense to plaintiffs, it does not appear that it was acceptable to Buyer's counsel who wrote in an email on February 11, 2005 that the Buyer did not want to incur the five percent increase in price. (Defendants' exhibit 10).

Plaintiffs allege only that "such payments were far less than the portion of the Garage Sales purchase price allocated for the [Property] - $1 million." (complaint ¶ 50). The allegations in the following paragraphs that "Had Kaye Scholer obtained such an estoppel certificate, plaintiffs would have been able to successfully close the Garage Sales transaction such that it would have included the sale of the Eighth Avenue Garage" (complaint ¶ 52) are conclusory and not based on any facts previously pled in the complaint.

Moreover, there were other issues, including the Property in the Garage Sales transaction that could not have been remedied by the defendant attorneys' alone. For example, the replacement guarantors put forward by the Purchaser were unsatisfactory to the Landlord under the terms of the Limited Guaranty and would have further prevented the consummation of the transaction with the Property included. (complaint ¶ 46). [*6]

"The failure to demonstrate proximate cause mandates the dismissal of a legal malpractice action regardless of whether the attorney was negligent." (Leder v Spiegel, 31 AD3d 266, 268 [1st Dept 2006] affd 9 NY3d 836 [2007], cert denied sub nom. Spiegel v Rowland, 552 US 1257 [2008]).

Therefore, defendants' motion to dismiss the portion of the complaint related to malpractice in connection with the Garage Sales transaction is granted.

Malpractice in the HKL Lawsuit

The standard for legal malpractice in connection with litigation is the same as the standard set out above for malpractice in connection with a transaction: a plaintiff must show "that the defendant attorney failed to exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession which results in actual damages to a plaintiff and that the plaintiff would have succeeded on the merits of the underlying action but for the attorney's negligence." (AmBase, 8NY3d at 434).

However, by their own attorney's memorandum, plaintiffs concede that they "do not claim that they would have prevails in the HKL Lawsuit under the circumstances it was filed." (Plaintiffs' memorandum of law, at 17). Moreover, plaintiffs' counsel admitted during oral argument that the description of the HKL Lawsuit was solely for the purposes of "conveying to the Court that the representation in the same matter continued over a period of time" so as to toll the statute of limitations on the legal malpractice claim. (Transcript, at 32-33).

Therefore, plaintiffs, admit that they have not pled a cause of action for legal malpractice in connection with the HKL Lawsuit when the standard set out above is applied.As such, defendants' motion to dismiss with regard to the HKL Lawsuit is also granted.

Accordingly, it is

ORDERED that defendants' motion to dismiss the complaint (Motion Sequence No. 002) is granted and the Complaint is dismissed with costs and disbursements; and it is further

ORDERED that the Clerk is directed to enter judgment accordingly.

Dated: February 17, 2011



ENTER:

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J.S.C.