Court Opinion

ID: 9916473
Source: CourtListenerOpinion
Date Created: 2024-01-10 01:07:26.944122+00
Date Added: 2024-06-11T13:25:39.902379
License: Public Domain

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
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                                                                                                                      INDEX NO. 157694/2017
  NYSCEF DOC. NO. 120                                                                                           RECEIVED NYSCEF: 01/03/2024

                                   SUPREME COURT OF THE STATE OF NEW YORK
                                             NEW YORK COUNTY
            PRESENT:             HON. GERALD LEBOVITS                                               PART                          07
                                                                                      Justice
            ---------------------------------------------------------------------------------X      INDEX NO.         157694/2017
             MICHAEL ROTHSTEIN,                                                                     MOTION SEQ. NO.     001 002
                                                         Plaintiff,

                                                 -v-
                                                                                                      DECISION + ORDER ON
             KRANE LLP F/K/A STEGER KRANE LLP, MICHAEL                                                      MOTION
             STEGER, and STEVEN S. KRANE,

                                                         Defendants.
            ---------------------------------------------------------------------------------X

            The following e-filed documents, listed 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, listed 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 complaint against him in this action for professional
            malpractice and breach of contract. On motion sequence 002, plaintiff, Michael Rothstein,
            moves, pursuant to CPLR 3212, for summary judgment on the complaint; and defendants Krane
            LLP and Steven S. Krane cross-move, pursuant to CPLR 3212, to dismiss the complaint.

                    Motion Sequences 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-contract claims against them,
            and is otherwise denied.

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  NYSCEF DOC. NO. 120                                                                     RECEIVED NYSCEF: 01/03/2024

                                                    BACKGROUND

                    Plaintiff commenced this action to 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’ submissions.

                    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 State 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 Krane 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 member, 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). The 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,
            Index No. 152589/2016) to recover the $187,500.00 due under the promissory note (see
            Complaint, NYSCEF Doc. 71). Defendants 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 advised him to decline. The
            federal court eventually granted the defendants’ motion to dismiss the action “on the ground that
            the contract is void because the interest rate on the 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 complaint 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 plaintiff unable to collect under a loan

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            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 October 21, 2015, and $52,500.00 for attorney fees and costs (id.).

                   Steger answered, generally denying the allegations in the complaint and asserting
            multiple affirmative defenses (see Answer, NYSCEF Doc. No. 2). The answer of defendants
            Krane LLP and Krane similarly includes general denials of the allegations in the Complaint and
            multiple affirmative defenses (see Answer, NYSCEF Doc. No. 6). Krane LLP and Krane also
            counterclaimed 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 the
            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]). Once
            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, supra, 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 prevail 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 jury, 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]).

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                    Here, plaintiff maintains that he retained all of the defendants to represent 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 states 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 Taylor.

               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 note, 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). He 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).

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                    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 work 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 plaintiff’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 discussed 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 relationship 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 ensuing litigation to collect on the debt.

                    Plaintiff asserts 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). These assertions are
            insufficient to establish an attorney-client relationship between plaintiff 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 individual 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 that 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 that 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 Affidavit,
            NYSCEF Doc. No. 42). Furthermore, plaintiff acknowledges that he had no other

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            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 court 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 dismissing 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 any inherent legal issues. Defendants further assert 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 “reflects 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]). Plaintiff established,
            prima facie, that Krane and Krane LLP acted negligently with respect to the usury issue.

                   Furthermore, defendants’ negligence regarding the usury issue proximately caused 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
            proposed loans did not fall under any usury exceptions (see id.). Thus, 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 special referee to hear and report
            on the issue of plaintiff’s damages due to the malpractice of Krane and Krane LLP.

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                    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.

                    01/03/2024
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                                                                                   HON, GERALD
                                                                                           $SIG$ LEBOV.t6
                      DATE                                                                           J.S.C.
             CHECK ONE:                      CASE DISPOSED                X   NON-FINAL DISPOSITION

                                                             □                                         □
                                         X   GRANTED             DENIED       GRANTED IN PART              OTHER

             APPLICATION:                    SETTLE ORDER                     SUBMIT ORDER

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             CHECK IF APPROPRIATE:           INCLUDES TRANSFER/REASSIGN       FIDUCIARY APPOINTMENT        REFERENCE

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