Court Opinion

ID: 5875496
Source: CourtListenerOpinion
Date Created: 2022-01-13 01:58:15.85641+00
Date Added: 2024-06-11T08:44:50.388647
License: Public Domain

DeGrasse, J.
(dissenting). I disagree with the majority’s conclusion that defendant is entitled to summary judgment on *66the instant legal malpractice cause of action. I would therefore reverse Supreme Court’s order and deny the motion.
According to the complaint, this action stems from a failed like-kind exchange of business property pursuant to Internal Revenue Code (26 USC) § 1031. Plaintiff claims to have incurred a substantial tax liability that could have been avoided or deferred but for defendant’s negligence.
The main purpose of a like-kind or 1031 exchange is to defer the capital gains tax resulting from the sale of commercial or investment property (see In re 1031 Tax Group, LLC, 420 BR 178, 184 [SD NY 2009]). This tax advantage is gained through a “deferred exchange” by which “pursuant to an agreement, the taxpayer transfers property held for productive use in a trade or business or for investment (the ‘relinquished property’) and subsequently receives property to be held . . . [similarly] (the ‘replacement property’)” (26 CFR 1.1031[k]-1 [a]). 26 CFR 1.1031(k)-1 (g) (4) enables a taxpayer to carry out a 1031 exchange by use of a “qualified intermediary.”* For a 1031 exchange to be effective, a taxpayer must (a) give written notice identifying the replacement property within 45 days after the transfer of the relinquished property (the “identification period”) and (b) receive the identified replacement property within 180 days after the said transfer (the “exchange period”) (26 CFR 1.1031[k]-1 [b]).
Defendant, an attorney, was retained to represent plaintiff in connection with the sale of its building located at 496 Broadway. Plaintiff and defendant discussed a written offer from the eventual purchaser that referenced a proposed closing “upon 90 days notice by the seller to identify his 1031 tax exchange needs.” Defendant states in his affidavit that he advised Chun Wo Yung and Chun Hing Yung, two of plaintiffs principals, that he lacked the requisite experience in structuring 1031 exchanges and that that aspect of the deal would have to be handled by the client. Chun Wo Yung states in his affidavit that defendant indicated that “handling the 1031 exchange would not be a problem, and that he [defendant] would take care of all the necessary paperwork to get it done.” In any event, it is undisputed *67that defendant prepared a contract of sale with a rider that cited Internal Revenue Code (26 USC) § 1031 and expressly provided for the assignment of the parties’ rights to a qualified intermediary for purposes of a like-kind exchange.
At the May 29, 2007 closing, checks representing the $10.2 million purchase price were cut and made payable to plaintiff instead of to a qualified intermediary. Chun King Yung states in his affidavit that the proceeds were disbursed that way under defendant’s advice. Defendant, on the other hand, states in his affidavit that the checks were made payable to plaintiff at the insistence of plaintiff’s principals. 26 CFR 1.1031(k)-1 (f) provides that
“[i]f the taxpayer actually or constructively receives money or other property in the full amount of the consideration for the relinquished property before the taxpayer actually receives like-kind replacement property, the transaction will constitute a sale and not a deferred exchange, even though the taxpayer may ultimately receive like-kind replacement property.”
Therefore, the direct payment of the purchase price to plaintiff foreclosed section 1031 treatment.
On this record, I share the majority’s view that there is strong evidence that defendant acted negligently in undertaking to represent a client in a transaction that he was not qualified to handle. To say the least, there is an issue of fact as to whether defendant apprehended the section 1031 provision of the contract he drafted. I disagree, however, that plaintiff failed to demonstrate the existence of a material issue of fact as to a causal link between its inability to effect a 1031 exchange and defendant’s alleged negligence.
As the majority sees it, “the issue of proximate cause turns on . . . whether plaintiff took the requisite actions to identify and purchase a suitable replacement property in the required time frame.” I disagree with this analysis because under 26 CFR 1.1031(k)-1 (f), the opportunity for a like-kind exchange was irretrievably lost once plaintiff received the proceeds of the sale. Stated differently, there was no 1031 exchange, and the 45-day identification period and the 180-day exchange period were never triggered, because of plaintiff’s actual receipt of the proceeds of the sale. Therefore, it would have been impossible for plaintiff to purchase or even identify anything that qualified as replacement property. It would also have been pointless for *68plaintiff to go through the motions of doing so once it received the proceeds of the sale. “[T]he law does not require futile gestures” (Glauber v P. S. F. B. Assoc., 89 AD2d 576, 577 [1982]; Lo Biondo v DAuria, 45 AD2d 735, 737 [1974]).
The majority dwells unnecessarily on whether plaintiff had the means of acquiring a replacement property. The record provides no reason to assume that the $10.2 million realized from the sale would have been insufficient for the purchase of a replacement. Had a 1031 exchange been effected, a qualified intermediary would have acquired, paid for and transferred to plaintiff a replacement property priced at up to $10.2 million, at no cost to plaintiff save incidental expenses. This undeniable $10.2 million in purchasing power is, at least, sufficient to raise an issue of fact as to whether plaintiff had the means of completing the contemplated 1031 exchange. Although plaintiff discussed a deal for a more expensive property, nothing in the record suggests that it was required to identify a replacement property that was priced at more than the $10.2 million sale price of its building.
I also respectfully submit that the majority’s holding is unrealistic because it essentially provides that in order to successfully oppose defendant’s motion for summary judgment, plaintiff was required to demonstrate its financial ability by (a) purchasing a new property without the benefit of a tax-deferred exchange or (b) somehow obtaining a virtual mortgage commitment without showing a prospective lender an executed purchase agreement for a new property. Also, the “preliminary indication of whether a loan applicant would be eligible for a loan” mentioned by the majority would have been inadmissible, speculative and unnecessary in the case of a replacement property priced at $10.2 million or less.
Sweeny, Renwick and Richter, JJ., concur with Saxe, J.E; DeGrasse, J., dissents in a separate opinion.
Order, Supreme Court, New York County, entered February 22, 2011, affirmed, without costs.

 A qualified intermediary is a person, not the taxpayer or one closely related to the taxpayer, who “[e]nters into a written agreement with the taxpayer . . . and, as required by the exchange agreement, acquires the relinquished property from the taxpayer, transfers the relinquished property, acquires the replacement property, and transfers the replacement property to the taxpayer” (26 CFR 1.1031[k]-1 [g] [4] [iii]).