Breslin Realty Development Corp. v. Shaw

72 A.D.3d 258, 893 N.Y.S.2d 95
CourtAppellate Division of the Supreme Court of the State of New York
DecidedJanuary 5, 2010
StatusPublished
Cited by28 cases

This text of 72 A.D.3d 258 (Breslin Realty Development Corp. v. Shaw) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Breslin Realty Development Corp. v. Shaw, 72 A.D.3d 258, 893 N.Y.S.2d 95 (N.Y. Ct. App. 2010).

Opinion

OPINION OF THE COURT

Chambers, J.

We are asked in this case to decide whether the defendants are entitled to summary judgment dismissing the plaintiffs’ causes of action which are based upon allegations of legal malpractice allegedly occurring during the defendants’ representation of the plaintiff debtors in bankruptcy proceedings.

[260]*260I. Relevant Facts

The plaintiff Breslin Realty Development Corp. (hereinafter Breslin Realty) is a real estate developer, and the plaintiff Wilbur F. Breslin (hereinafter Breslin), is an officer, director, and shareholder of Breslin Realty. Breslin, along with the plaintiffs Easa Easa and Jack Easa, are principals in one or more of the plaintiff debtors. The plaintiffs Bay Harbour Associates, L.E (hereinafter Bay Harbour), Huntington Square Associates, L.E (hereinafter Huntington Square), Busy Bee Associates, L.E (hereinafter Busy Bee), Rochester Associates, L.E (hereinafter Rochester), Riverwood La Place Associates, LLC (hereinafter Riverwood), and Verleye & Jericho Associates, L.E (hereinafter Verleye), are debtors that owned several shopping centers. The debtors filed bankruptcy petitions pursuant to chapter 11 {see 11 USC § 1101 et seq.) in the United States Bankruptcy Court for the Eastern District of New York (hereinafter the Bankruptcy Court). They were represented in the bankruptcy proceedings by the individual defendants, J. Stanley Shaw and John H. Hall, also known as John H. Hall, Jr., of the defendant law firm, Shaw, Licitra, Gulotta, Esernio & Schwartz, EC. (hereinafter referred to collectively as Shaw).

Owing to the illness of J. Stanley Shaw, the law firm of Dollinger, Gonski & Grossman (hereinafter the Dollinger firm) was appointed special counsel for Bay Harbour, Huntington Square, Rochester, and Verleye to handle adversary proceedings conducted in the summer of 2000. Matthew Dollinger, a member of the Dollinger firm, stated in an affidavit that since he was actually engaged in another trial at the time of the confirmation hearing, the Dollinger firm did not participate in the confirmation hearing, which was instead handled by Shaw.

In a verified complaint dated March 18, 2005, the plaintiff alleged three causes of action. The first cause of action alleged acts of legal malpractice with respect to the so-called Leucadia agreement entered into in July 1999 between the debtors and Leucadia, Inc. (hereinafter Leucadia). Pursuant to this agreement, Leucadia, through its entity Luk-Shop, Inc., purchased mortgages on property owned by the debtors in exchange for entering into joint venture agreements with the debtors. The agreement set a deadline of December 15, 1999, by which date the debtors were required to obtain financing for restructuring. When Breslin was unable to obtain financing by that date and demanded “consensual foreclosure” and conveyance to the appropriate joint venture, Leucadia exercised its rights under the agreement to foreclose the mortgages for its own benefit.

[261]*261The second cause of action alleged that in the summer of 2000, in adversary proceedings before the Bankruptcy Court, Shaw failed to assert that the mortgages held by Leucadia were non-recourse loans which could be asserted against the mortgaged properties only, and not against other assets of the debtors. The plaintiffs asserted that as a result of Shaw’s failure to assert that the mortgages were non-recourse loans, “Leucadia not only took title to the Premises, but took all assets of the Breslin entities.” The plaintiffs further alleged that Shaw failed to submit updated appraisals of the properties involved.1

In their third cause of action, the plaintiffs argued that Shaw breached a fiduciary duty to the plaintiffs by engaging in these acts of legal malpractice. This cause of action stands or falls with the causes of action sounding in legal malpractice (see Adamski v Lama, 56 AD3d 1071 [2008]; Weil, Gotshal & Manges, LLP v Fashion Boutique of Short Hills, Inc., 10 AD3d 267, 271-272 [2004]).

By notice of motion dated August 22, 2006, Shaw moved for summary judgment against all of the plaintiffs. In its affirmation in support of the motion, it noted that Riverwood and Busy Bee did not participate in the adversary proceedings and confirmation hearing conducted in the summer of 2000.

Shaw’s fee awards against Riverwood and Busy Bee were approved on September 22, 1999 and February 14, 2000, respectively, prior to the legal malpractice which allegedly occurred in the summer of 2000. Shaw stated that the assets of Busy Bee were sold less than 60 days after the commencement of its bankruptcy proceeding, for the sum of $12,000,000, which was distributed. Further, Riverwood’s assets were not sold, and it emerged from bankruptcy in July 1999 without the equity holders losing their property.

Shaw argued that the claims of Bay Harbour, Huntington Square, Rochester, and Verleye were barred by the doctrine of res judicata, because they failed to object to Shaw’s fee applications in the bankruptcy proceedings, despite the fact that they were aware of the alleged acts of malpractice. Shaw noted that, by letter dated January 29, 2003, counsel for one of Breslin’s partners wrote to Paul Berger, Breslin’s in-house counsel, that, [262]*262in Ms view, the faiMre to object to a claim for professional fees in a bankruptcy proceeding barred a subsequent malpractice claim; therefore, a detailed objection should be prepared, setting forth the alleged malpractice claims. The letter noted that the Bankruptcy Court’s interpretation of the Leucadia agreement was not affirmed by the United States Court of Appeals for the Second Circuit until January 23, 2003 (see In re Bay Harbour Assoc., L.P., 56 Fed Appx 21 [2003], cert denied sub nom. Bay Harbour Assoc., L.P. v Leucadia Natl. Corp., 540 US 818 [2003]). Therefore, the plaintiffs could explain their delay by claiming that their legal malpractice objections were premised upon the decision of the Second Circuit.

Shaw also observed that, on June 20, 2003, it entered into an agreement with Breslin Realty whereby Breslin Realty agreed to pay Shaw $100,000 in “final discharge” of any obligation for legal fees, “without prejudice to Client’s or any of the Debtors’ or partners of the Debtors’ rights to pursue any claim against the Firm for acts of malpractice relating to the Luk-Shop Proceedings.” This agreement was drafted at least in part by the Dollinger law firm, acting as attorney for Bay Harbour, Huntington Square, Rochester, and Verleye. Nevertheless, Shaw contends that the plaintiffs did nothing to pursue their claims, and on December 31, 2003 the Bankruptcy Court issued an order approving Shaw’s fee application with respect to Bay Harbour, Huntington Square, Rochester, and Verleye.

As to the plaintiffs Wilbur Breslin, Breslin Realty, Easa Easa, and Jack Easa, Shaw sought summary judgment, based upon the defense of lack of standing, arguing that they were not Shaw’s clients in the bankruptcy proceedings.

The plaintiffs, in opposition, acknowledged that Busy Bee’s assets were sold separately. Breslin, in an affidavit, argued that even if the value of Busy Bee’s property was excluded from the computation, the plaintiffs “had substantial equity that we lost and forfeited as a result of the Shaw defendants’ malpractice.”

In an order entered October 3, 2007, the Supreme Court rejected Shaw’s claim of res judicata, focusing instead on the “equitable doctrine of collateral estoppel”

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Bluebook (online)
72 A.D.3d 258, 893 N.Y.S.2d 95, Counsel Stack Legal Research, https://law.counselstack.com/opinion/breslin-realty-development-corp-v-shaw-nyappdiv-2010.