Rothstein v Krane LLP

2024 NY Slip Op 30016(U)

January 3, 2024

Supreme Court, New York County

Docket Number: Index No. 157694/2017

Judge: Gerald Lebovits

Cases posted with a "30000" identifier, i.e., 2013 NY Slip

Op 30001 (U), are republished from various New York State and local government sources, including the New

York State Unified Court System's eCourts Service.

This opinion is uncorrected and not selected for official publication.The following e

- filed documents, l isted by NYSCEF document number (Motion 001) 40, 41, 42, 43, 44, 45, 46, 47, 48, 49, 50, 51, 52, 53, 54, 55, 56, 57, 58, 59, 60, 83, 95, 106, 107, 108, 112, 113, 115, 117

were read on this motion for SUMMARY JUDGMENT

.

The following e

- filed documents, l isted by NYSCEF document number (Motion 002) 61, 62, 63, 64, 65, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 77, 78, 79, 80, 81, 82, 84, 85, 86, 87, 88, 89, 90, 91, 92, 93, 94, 96, 97, 98, 99, 100, 101, 102, 103, 104, 105, 109, 110, 111, 114, 116, 118

were read on this motion for SUMMARY JUDGMENT

.

Hubell & Associates LLC , New York, NY (Richard A. Hubell of counsel), for plaintiff. Vouté Lohrfink McAndrew Meisner & Roberts, LLP , White Plains, NY (Jeffrey S. Peske of counsel), for defendant Michael Steger.

Krane LLP , Woodbury, NY (Steven S. Krane of counsel), defendant pro se.

Gerald Lebovits, J.:

On motion sequence 001 , defendant Michael Steger moves, pursuant to CPLR 3212, for summary judgment dismissing the co mplaint against him in this action for professional malpractice and breach of contract. On m otion s equence 002, plaintiff, Michael Rothstein, moves, pursuant to CPLR 3212, for summary judgment on the co mplaint ; and d efendants Krane

LLP and Steven S. Krane cross

- move, pursuant to CPLR 3212, to dismiss the c omplaint.

Motion Sequence s 001 and 002 are consolidated for disposition. Steger’s summary

judgment motion (mot seq 001) is granted

. Plaintiff’s summary

- judgment motion (mot seq 002)

is granted only with respect to liability on his malpractice claim against defendants Krane LLP and Krane, and is otherwise denied. Krane LLP/Krane’s cross

- motion for summary judgment (mot seq 002) is granted only with respect to plaintiff’s breach

- of

- contra ct claims against them,

and is otherwise denied. 

### SUPREME **COURT OF THE STATE OF NEW YORK**

**NEW YORK COUNTY** 

**PRESENT: HON. GERALD LEBOVITS**  **PART 07** 

**Justice**

----------------------------------------------------------------- -- -------------- X **INDEX NO.** 157694/2017

**MOTION SEQ. NO.** 001 002

**DECISION + ORDER ON**

**MOTION** MICHAEL ROTHSTEIN,

Plaintiff,

- v

-

KRANE LLP F/K/A STEGER KRANE LLP, MICHAEL STEGER, and STEVEN S. KRANE,

Defendants.

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### [* 1]2 **BACKGROUND**

Plaintiff commenced this action t o recover damages from defendants, Krane LLP, Steger, and Krane, for professional malpractice and breach of contract ( see Complaint, NYSCEF Doc. No. 1). The following facts are gleaned from the parties’ su bmissions.

Steger and Krane are former partners of Steger Krane, LLP, a New York limited

- liability partnership ( id. )

. The partnership was registered with the New York Sta te Department of State on January 28, 2013, when the name of the entity was changed from Krane LLP to Steger Krane, LLP ( see NYSCEF Doc. No.100). It is unclear from the submissions whether the partnership

dissolved ( see NYSCEF Doc. No. 79, p. 13). However, the individual defendants stopped practicing law under the name Steger Krane, LLP

, in March 2016 ( id ), and the name of the partnership was changed back to Krane LLP on July 15, 2016 ( see NYSCEF Doc. 100).

On March 31, 2015, plaintiff retained Steger Kran e LLP to represent him in an investment opportunity with nonparty Shane Dax Taylor and/or Isolation Film LLC (“Isolation”), an entity formed to produce a film project ( see Engagement Letter, NYSCEF Doc. No. 48). Thereafter, Taylor, Isolation’s managing mem ber

, executed a promissory note, dated April 6, 2015, pursuant to which he agreed to repay plaintiff the principal amount of $150,000.00, plus 25% interest, for a total of $187,500.00, by October 1, 2015 ( see Promissory Note, NYSCEF Doc. No. 60). Plaintiff and Isolation also executed a film financing agreement, dated April 7, 2015 ( see Film Financing Agreement, NYSCEF Doc. No. 60). T he agreement, among other things, memorialized the promissory note ( id. ). In addition, Taylor executed a guaranty, dated April 8, 2015, unconditionally guaranteeing repayment of the $150,000.00 loan, plus 25% interest ( see Guarantee, NYSCEF Doc. No. 60).

Isolation failed to repay the loan timely , with interest ( see Complaint, NYSCEF Doc. No. 1, supra ) . On March 16, 2016, plaintiff retained Steger Krane LLP to represent him in the loan dispute with Isolation and Taylor ( as guarantor ) ( see Engagement Letter, NYSCEF Doc. No. 55).

Thereafter, plaintiff commenced an action ( Rothstein v Isolation , Sup Ct, NY County,

Inde x No. 152589/ 2016 ) to recover the $187,500.00 due under the promissory note ( see Complaint, NYSCEF Doc. 71). D efendants in that action successfully removed the action to federal court, based on diversity jurisdiction , and made a written offer to settle the action ( see Email, NYSCEF Doc No. 72) , which

, plaintiff contends, defendants a dvised him to decline. T he

federal court eventually granted the defendants’ motion to dismiss the action “ on the ground that

the contract is void because the interest rate on th e loan was criminally usurious” (Judgment, NYSCEF Doc. No. 76). Plaintiff asserts that defendants failed timely to reargue or appeal the judgment, and specifically advised him that a motion to reargue or an appeal would be futile.

Plaintiff commenced this action against defendants to recover for the loss of his

investment ( see NYSCEF Doc. No. 1

, supra ). The co mplaint alleges claims for professional malpractice (first cause of action) and breach of contract (second cause of action) against

defendants ( id. ). Plaintiff essentially claims that defendants committed professional malpractice and breached the retainer agreement by allowing him to enter into a loan agreement deemed by a federal district court to be criminally usurious, rendering pla intiff unable to collect under a loan INDEX NO. 157694/2017

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### [* 2]3 agreement that had been prepared by defendants ( id. )

. Plaintiff seeks to recover $150,000.00, the principal amount due under the loan agreement, promissory note, and guaranty, plus $37,500.00

in interest due as of Octo ber 21, 2015, and $52,500.00 for attorney f ees and costs ( id. ).

Steger answered, generally denying the allegations in the c omplaint and asserting multiple affirmative defenses ( see Answer, NYSCEF Doc. No. 2). The answer of defendants

Krane LLP and Krane s imilarly includes general denials of the allegations in the Complaint and multiple affirmative defenses ( see Answer, NYSCEF Doc. No. 6). Krane LLP and Krane also

counterclaim ed against plaintiff for sanctions and attorney fees based on assertedly frivolous conduct ( id .).

The parties filed competing motions for summary judgment.

**DISCUSSION**

The proponent of a summary

- judgment motion must make a prima facie showing of entitlement to judgment as a matter of law, tendering sufficient evidence to demonstrate t he absence of any material issues of fact ( see Zuckerman v City of New York , 49 NY2d 557, 562 [1980]). The court must view the evidence in the light most favorable to the nonmoving party ( see Branham v Loews Orpheum Cinemas, Inc. , 8 NY3d 931, 932 [2007]). The failure to make

this prima facie showing requires denying the motion, regardless of the sufficiency of the opposing papers ( see Winegrad v New York Univ. Med. Ctr ., 64 NY2d 851, 853 [1985]). O nce the movant makes a prima facie showing of entitlement to summary judgment, the burden shifts to the party opposing the motion to produce evidentiary proof in admissible form sufficient to

establish the existence of material issues of fact that require a trial of the action ( see Zuckerman v City of New York

, sup ra , at 562). Mere conclusions, expressions of hope

, or unsubstantiated allegations or assertions are insufficient to defeat summary judgment ( id. ).

As stated, plaintiff seeks to recover damages for professional malpractice and breach of

contract. To p reva il on the claim for legal malpractice, plaintiff must prove the existence of an

attorney

- client relationship ( see Federal Ins. Co. v North Am. Specialty Ins. Co.

, 47 AD3d 52, 59 [1st Dept 2007] [“[A] bsent an attorney

- client relationship, a cause of action for legal malpractice

cannot be stated .”])

. Plaintiff must also establish that defendants failed to exercise that degree of care, skill, and diligence commonly possessed and exercised by an ordinary member of the legal community; that this negligence was the proximate cause of the actual damages sustained by plaintiff; and that but for defendants’ negligence, plaintiff would have been successful in the underlying action ( see Logalbo v Plishkin, Rubano & Baum , 163 AD2d 511, 513 [2d Dept

1990 ]). “While the issue of whether certain conduct constitutes legal malpractice normally requires a factual determination to be made by a jur y, a plaintiff will be entitled to summary judgment in a case where there is no conflict at all in the evidence, the defendants’ conduct fell below any permissible standard of due care, and the plaintiff’s conduct was not really involved” ( id. at 514 [internal citations omitted]).

A claim for breach of contract requires proof of the existence of a valid and enforceable contract, performance by the plaintiff, and a breach of the contract by the defendant, resulting in damages ( see Harris v Seward Park Hous. Corp.

, 79 AD3d 425, 426 [1st Dept 2010] ). INDEX NO. 157694/2017

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### [* 3]4 Here, plaintiff maintains that he retained all of the defendants to repre sent him on the film financing transaction. He states that he first contacted Krane to represent him, and that Krane immediately introduced him to his partner, Steger, who reportedly had expertise in handling film financing agreements. Plaintiff further st ates that he had a telephone conversation with both Krane and Steger, who assured him that Krane LLP and Steger had the requisite expertise to advise him and protect his interests in the film financing transaction. Plaintiff states that he hired

defendants to draft and review the film financing agreement, promissory note, and guaranty. He also states that it was always represented to him that he was retaining both Steger and Krane, and that Steger had the necessary expertise to counsel him and draft legally binding film financing

agreements.

Plaintiff essentially claims that defendants were negligent in failing to advise him that the film financing transaction was usurious and subject to being held void and unenforceable, and in preparing unenforceable documents. Plaintiff maintains that defendants breached a duty to exercise the care, skill, and diligence commonly exercised by a member of the legal profession, causing him to suffer substantial losses in the action against Isolation and Tay lor

.

**I. Defendant Steger’s Summary Judgment Motion (Mot Seq 001)** 

In seeking summary judgment, Steger denies the existence of an attorney

- client relationship with plaintiff. In particular, he denies signing the retainer agreement with plaintiff, communicating with plaintiff during the document preparation, preparing any documents for plaintiff, or submitting invoices to plaintiff. He also argues that Partnership Law § 26 immunizes him from any liability since he did not represent plaintiff in the film financing transaction and did not supervise the work of Krane, who performed all the work for plaintiff on the film financing transaction.

To support his position, Steger offers copies of the engagement letter, loan financing agreement, promissory no te, invoices, guaranty, and transcripts of the examination before trial (“EBT”) of the parties. Although the engagement letter was drafted on Steger Krane LLP letterhead, it was endorsed only by plaintiff and Krane ( see NYSCEF Doc. No. 48).

At an EBT held on January 12, 2021, plaintiff testified that during his initial conversation with Krane, the most he had “was an intro [with Steger] because he was in the

-- wherever he was located his office” ( Rothstein EBT Transcript, NYSCEF Doc. No. 51, pp. 58

- 59). H e further testified that “[t]here was a hello, and yes, this is my entertainment law person who has all the experience” ( id. ). Plaintiff also testified that he had no other verbal or written communication with Steger ( see id. , pp. 65

- 66). Plaintiff further acknowledged that “Taylor provided the terms” of the deal ( id. p. 52), and that the film financing agreement, promissory note, and guaranty were emailed to him by Krane ( id. , p. 86). However, plaintiff testified that it was his “understanding” that Steger would be involved in plaintiff’s representation since Steger “was the expert” that “would be the guiding force, overseeing whatever agreements would be drawn up” for him and provided ( id. , p. 65). INDEX NO. 157694/2017

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### [* 4]5 At an EBT held on March 3, 2021, Krane testified that he prepared the engagement letter ( see NYSCEF Doc. No. 78, p. 16), film financing agreement ( id. , p. 18), and guaranty ( id. ) in connection with the services provided to plaintiff. He also testified that he represented to plaintiff that Steger would provide wo rk on the matter, if asked ( id. , p. 142), but that he could not recall whether Steger had any involvement reviewing the loan transaction documents before they were given to plaintiff for his signature ( id. , p. 36), or performed any legal services on plaint iff’s matter ( id. , pp. 37, 143).

At an EBT held on June 29, 2021, Steger testified that he did not know whether plaintiff was a client when he withdrew from the partnership in March 2016 ( see NYSCEF Doc. No. 79, p. 29). He also stated that Krane never dis cussed plaintiff with him until after the commencement of this action ( id. , p. 22). Steger also notes that the invoices sent to plaintiff in connection with the film financing transaction only indicate work performed by Krane ( see NYSCEF Doc. Nos. 49, 56).

An attorney

- client relationship is established where there is an explicit undertaking to perform a specific task ( see Volpe v Canfield , 237 AD2d 282, 283 [2d Dept 1997]). Here, Steger submits competent evidentiary proof to show that no attorney

- client re lationship existed between him and plaintiff. He satisfactorily demonstrates that he did not sign plaintiff’s engagement letter, explicitly undertake to perform a specific task, or participate in any way in plaintiff’s film financing transaction and ensuin g litigation to collect on the debt.

P laintiff assert s that he emailed Krane on March 31, 2015, to request “any insight from his partner” (Email, NYSCEF Doc. No. 53)

. Plaintiff also asserts that it was represented to him,

and he understood

, that he was retaining both Krane and Steger to counsel him on the film financing transaction ( see Rothstein Affidavit, NYSCEF Doc. No. 80)

. T hese assertions are insufficient to establish an attorney

- client relationship between plain tiff and Steger. “A plaintiff’s unilateral belief does not confer upon him the status of client” ( Volpe v Canfield

, supra , at 283).

Furthermore, Partnership Law § 26 (b) and (c) , which concern the nature of partner’s liability, immunize from indiv idual liability any partner in a partnership registered as a limited liability partnership who did not commit the alleged wrongful act, except, among other things, where the partner directly supervised the person who committed the alleged wrongful act ( see Hagans v Dell , 213 AD3d 812, 813 [ 2d Dept 2023]).

Here, Steger establishes his prima facie entitlement to judgment as a matter of law dismissing the professional

- malpractice claim laid against him. Steger’s evidentiary proof adequately demonstrates tha t he was not involved in handling plaintiff’s film financing transaction and that he did not supervise Krane, who handled the transaction.

Plaintiff fails to raise a triable issue of fact regarding Steger’s involvement in the

transaction. The assertion th at Steger said “hello” during plaintiff’s initial telephone call with Krane is insufficient to defeat summary judgment. In fact, Steger notes that he was on vacation with his family in South Carolina during the alleged initial telephone call ( see Steger Af fidavit, NYSCEF Doc. No. 42). Furthermore, plaintiff acknowledges that he had no other INDEX NO. 157694/2017

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### [* 5]6 communication with Steger ( see NYSCEF Doc. No. 51, supra , pp. 65

- 66). Thus, the legal

malpractice claim against Steger is dismissed.

**II. Plaintiff’s Motion and**  **Krane/Krane LLP’s Cross**

**- Motion for Summary**  **Judgment (Mot Seq 002)**

The gravamen of plaintiff’s remaining malpractice claim is that Krane and Krane LLP caused plaintiff to enter into a film financing transaction that was determined by a cou rt to be criminally usurious, resulting in the transaction's being deemed void and unenforceable, and leaving plaintiff unable to collect on funds he loaned pursuant to documents prepared by Krane.

Krane and Krane LLP acknowledge representing plaintiff in the film financing

transaction with Isolation and Taylor, but argue that plaintiff’s special financial relationship with Taylor, prior financial dealings, and unlawful financial dealings with Isolation and Taylor

warrant dismiss ing plaintiff’s claims. Defendants also assert that Taylor dictated the terms, covenants, and conditions of the promissory note to plaintiff, who subsequently dictated the

terms to Krane , without his input about a ny inherent legal issues. Defendants further a ssert that

Krane prepared the promissory notes, film financing agreement, and personal guaranty according to those terms, and that plaintiff was not interested in any input, comment, or suggestion about

the substance of the documents. Krane insists that he was never asked for a legal opinion in connection with the promissory note, film financing agreement, or guaranty.

Krane ’ s failure to draft documents for the film financing transaction that were not

usurious reflects a failure to exercise the care, skill, and diligence commonly possessed and exercised by an ordinary member of the legal community ( see Theresa Striano Revocable Trust v

Blancato , 71 AD3d 1122, 1124 [2d Dept 2010] [ holding that an attorney’s reliance on the advice

of another’s attorney in lieu of reviewing usury statutes himself “reflect s a failure to exercise ordinary reasonable skill”] ). A professional

- malpractice claim “ may be based upon the creation

of a loan document which is usurious and does not fall under any exceptions to the law of usury” ( DeStaso v Condon Resnick, LLP , 90 AD3d 809, 812 [2d Dept 2011]). P laintiff established, prima facie , that Krane and Krane LLP acted negligently with respect to the usury issue.

Furthermore, defendants’ negligence regarding the usury issue proximate ly cause d the dismissal of plaintiff’s action to recover the amount allegedly due under the loan agreement, promissory note , and guaranty in the film financing transaction. Thus, plaintiff has met his

burden of establishing entitlement to summary judgment as to liability on his claim for professional malpractice against Krane and Krane LLP.

Defendants fail to provide any evidence to establish the existence of material issues of

fact that require a trial on the issue of liability for the professional malpractice, or to warrant judgment in favor of defendants. Even assuming that plaintiff dictated the terms of the documents for the transaction, a review of the relevant statutes would have revealed that the

propose d loans did not fall under any usury exceptions ( see id. ). T hus, the branch of plaintiff’s motion that seeks summary judgment on the issue of liability for professional malpractice against Krane and Krane LLP is granted, and the matter is referred to a spe cial referee to hear and report on the issue of plaintiff’s damages due to the malpractice of Krane and Krane LLP. INDEX NO. 157694/2017

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### [* 6]7 The breach-of-contract claim against all defendants is dismissed as duplicative of the claim for professional misconduct; the claims are based upon the same facts and do no allege distinct, additional damages ( see Xiong Ping Tang v Marks , 133 AD3d 455 [1st Dept 2015]).

Accordingly, it is

ORDERED that the motion for summary judgment by defendant Steger (mot seq 001) is granted, and the causes of action against Steger are dismissed, with costs and disbursements to Steger as taxed by the court upon the submission of an appropriate bill of costs; and it is further

ORDERED that plaintiff’s claims against defendants Krane and Krane LLP are severed and shall continue; and it is further

ORDERED that the motion for summary judgment by plaintiff Rothstein (mot seq 002), is granted to the extent that plaintiff is awarded judgment against defendants Krane and Krane LLP on the issue of liability for professional misconduct, and the motion is otherwise denied;

and it is further

ORDERED that the cross-motion for summary judgment by defendants Krane and Krane LLP (mot seq 002) is granted to the extent that the branch of the motion that seeks summary judgment dismissing the cause of action for breach of contract is granted, and the motion is otherwise denied; and it is further

ORDERED that the issue of plaintiff’s damages suffered due to the malpractice of Krane and Krane LLP is referred to a special referee to hear and report; and it is further

ORDERED that this matter is hereby referred to the Special Referee Clerk of the General Clerk’s Office for placement at the earliest possible date upon the calendar of the Special Referee’s part which, in accordance with the Rules of that Part, shall assign this matter at the initial appearance to a special referee to hear and report as specified above; and it is further

ORDERED that plaintiff shall serve a copy of this order with notice of its entry on all parties; and shall serve notice of entry in accordance with this court’s e-filing protocol (which may be accessed on the e-filing page of the court’s website, www.nycourts.gov/supctmanh) on the office of the General Clerk and on the Office of the County Clerk, which shall enter judgment accordingly.

**01/0 3**  **/ 2024**  **$SIG$**

**DA TE** 

**CHECK ONE: CASE DISP**  **OSED X NON-FINAL DISPOSITION** 

**X GRANTED DENIED GRANTED IN PART**  **OTHER**

**APPLICATION :**  **SETTLE ORDER SUBMIT ORDER** 

**CHECK IF APP ROPRIATE: INCLUDES TRANSFER/REASSIGN FIDUCIARY APPOINTMENT REFERENCE**  INDEX NO. 157694/2017

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HON, GERALD LEBOV.t6
J.S.C.

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