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Nexus Capital Invs. LLC v Fleischmann2022 NY Slip Op 30808(U)March 10, 2022Supreme Court, Kings CountyDocket Number: Index No. 512222/2021Judge: Leon RuchelsmanCases posted with a "30000" identifier, i.e., 2013 NY SlipOp 30001(U), are republished from various New YorkState and local government sources, including the NewYork State Unified Court System's eCourts Service.This opinion is uncorrected and not selected for officialpublication.

[*FILED:1]KINGS COUNTY CLERK 03/10/2022 03:27 PMINDEX NO. 512222/2021NYSCEF DOC. NO. 30RECEIVED NYSCEF: 03/10/2022SUPREME COURT OF THE STAT OF NEW YORKCOUNTY OF KINGS : CIVIL TERM: l?ART COMMERCIAL 8--- ·. "'."'.; ·--.------- . -----. ---- . --·--·- . --. -,--,-:xNE;XUS CAPITAL INVESTMENTS LLC,Plaintiff,. . , against -Decision and orderIndex No. 512222/2021DAVID FLEISCHMANN ESQ. and Lli.W OFFICESOF DAVID FLEISCHMANN, P,C.,Defendants,March 10, 2022----:-- . ---·- .·· ------------·--·--. -- .· -- . -·-----. :XPRESENT: HON. LEON RUCHELSMANThe defendants have. moved seeking to dismiss the complaintpursuant to CPLR §3211.The plaintiff opposes the motion.Papers were submitted by the parties and arguments held.AfterJ::eviewing all the arguments this c.o urt nqw makes the followingdetermination.According to the complaint, on October 4, 2018 the plaintiffloaned 5,200,000 to an entity called NY Ave Loft LLC.Thedefendant David Fleischmann Esq. drafted the loan documents onbehalf of the plaintiff.In connection with the loan theborrower executed a mortgage in the amount of the lpan agaiI1st132 Walnut Street, 25.,31 New York Avenue arid 13-23 New YorkAvenue, all located irt Newark New Jersey.Fu.r ther, the defendantalso drafted an },.ssignment of Le.a.ses and Rents and recorded aUCC-1 against the above named mortgaged properties.In addition,Jacob Tauber executed a guaranty concerning the outstanding loan.The borrower failed to make all t h e required payments anddefaulted in April 2019.Tei avoid foreclosure o'f the propertiesTauber requested the ability to borrow mop:eyfro111 TBG Funding LLC1 of 9

[*FILED:2]KINGS COUNTY CLERK 03/10/2022 03:27 PMINDEX NO. 512222/2021NYSCEF DOC. NO. 30RECEIVED NYSCEF: 03/10/2022to pay off the debt.Further, TBG agrE ed to lend additionalfundssubordin.a te to the first lo n, in efforts to develop the. Iproperties.Thus, a two.,.tiered loan PY Ti3c; was exect1t.e d whereinthe first mortgage remained a lien on the property and TBG loanedthe borrower 3,000,000 as a paydown and an additional 2,470,000in the form of a new note and mortgage which was intended to besubordinate to plaintiff's remaining lien.documents including an amendednoteAmended loanand mortgage were executedreflecting a new loan balc:ince of 2,470,000.Further, as noted,the plaintiff agreed that its mortgage would be subordinated toTBG' s loan.Acc::orc;:ling to the amepded complaint ''upon receipt ofthe partial Payoff, Def ndants, as LE;! n der' s counsel, wererequired to immediately and simultaneously satisfy the FirstMort.gage and record the Amended Mortgage.This arrangement wouldhav been equivalent to a subordination agreement, providing TBG-· priority lien while maintaining the Lender' .s lien (as reducedby the payment)" (see, Amended Complaint, lZ2) .The amendedcomplaint alleges the amencled loan documents were never recorded.On June. 17; 20.19 TBG recorded a construction loan in theamount o.f ' 8. 4 million and Tal:l)oer allowed four additional loansto be recorded by an entity called M.P, Management LLC.Thus,while the plaintiff agreed to permit TBG to maintain priorityover the plaintiff, the failure to record the amended loandocuments e:': ffectively placed the p];airitiff in third plate, behind22 of 9

[*FILED:3]KINGS COUNTY CLERK 03/10/2022 03:27 PMNYSCEF DOC. NO. 30INDEX NO. 512222/2021RECEIVED NYSCEF: 03/10/2022TBG and M.P. Management LLC.The plaintiff instituted a malpractice action against itscoun.s e.l asse,rting that tr;ie counsel's failure to properly r.ecor.dthe a:mended loan document negatively affected their priorityamong other mort(Jage holders.The complaint .further alleges thesame defendant also assisted M.P. Management LLC in recording thesecond place mortgages.The defendants have now moved seeking todisiniss the complaint on the grounds the plaintiff cannotdemonstrate it was damag.e d in any way by any failure to recordsuch loan documents.The plaintiff opposes the motion.Concl:usions of LawIt is well settled that upon a motion to dismiss thecourt must determine, accepting the allegations of the complaintas true, whether the party can succeed upon any reasonable viewof those factsNYS3d 334(Strujan v. Kaufman[2d Dept., 2019]).&Kahn, LLP, 168 AD3d 1114; 93Further, all the allegations in thecomplaint are deemed true and all reasonable inferences may bedrawn in, favpr of the plaintiff (Weiss944 NYS2d 27[ pt Dept., 20i2]) .v.Lowenberg, 95 AD3d 405,Whether the complaii;it will.later survive a motion for summary judgment, ot:: whether theplaintiff will ultimatelybeable to prove its cila1.ms, of course,plays no part in the determination of a pre-discovery CPU §3211motion to dismiss . (see, Moskowitz v. Masliansky, 198 AD3d. 637,33 of 9

[*FILED:4]KINGS COUNTY CLERK 03/10/2022 03:27 PMNYSCEF DOC. NO. 30INDEX NO. 512222/2021RECEIVED NYSCEF: 03/10/2022155 NYS3d 414 [2021] ) .To succeed on a claim. forXega1malpractice it must be hownthat the attorney failed to act with the ''ordinary .r easonableskill and knowledge commonly possessed by a member of the legalprofessionl/ (Darby & Darby, P.C. v. VSI International, Inc., 95NY2d 308, 716 NYS2d 378 [2.0 00]).Those terms canno.t be definedwith precision but are rather fact specific and must be judgedagainst the actual representation afforded the client in eachparticular case.Moreover, the client must further establishthat the malpractice was a proximate cause of any loss sustainedand the client must also demonstrate 'actual damages'( PrudentialInsurance Company v. Dewey Ballantine, Bushby, .Palmer&AD2d 108, 573 NYS2d 981 [Pt Dept., 1991]).Wood, 170Moreover; inLindentnan v. Kreitzer, 7 AD3d 30, 775 NYS2d 4 [1 st Dept., 2004 J,the court held "a plaintiff's burden of proof in a legalmalpractice action is a heavy one.The plaintiff must provefirst the hypothetical outcome of the underlying litigation and,then, the attorney's liability for malpractice in cormectiori withthat ii ti.gation 11(id) .lt .is well settled th t a legal alpractice action is notyet ripe if based upon othermattf:rs whichhave not yetconcluded(Stonewell Corp., v. Conestoga Title Insurance Company, 678F.Supp2d 203 [S.D.N.Y. 2010]).Therefore,.clparty could notassert a leg l malpractice action iri: a mortgage foreclosure44 of 9. ······----·----·- ·----- ----- ---------·- - - - - - - - - - - -

[*FILED:5]KINGS COUNTY CLERK 03/10/2022 03:27 PMNYSCEF DOC. NO. 30INDEX NO. 512222/2021RECEIVED NYSCEF: 03/10/2022action if the foreclosure action was still pending (Kahan Jew.e1vCorp., v. Rosenfeld, 2QS AD2.d 261, 744 NYS2d. 44 [l9t Qept.,2002]) .Moreover.,a.clai.rri for legal malpractice i not :ripewhere the matter upon which the malpractice rests is the subjectof an ongoing litigation.Sgambettera&In Whitney Lane Holdings LLC v.Associates, P.C., 2010 WL 4259797 [E.D.N.Y. 2010]the plaintiff sought to purchase property from sellers.Thedefendants represented the sellers and a contract was signed.The sellers did not inform the plaintiff the mµnicipality s.o ughtto acquire the property through eminent domain and the pla.intiffclosed upon theprbperty.Thereafter, the plaintiff hireddefendant, an6 waived any on1lict,to stop the eminent domain.t9represent them in. effortsThe defendants never informedplaintiff they had a breach of contract claim against the sellersfor failing to inform them of the eminent domain proceedingalthough they sued the sellers and asserted other claims.Theplaintiff sued the defendants, their counsel; for failing toinform them of the breach of contract claim.The court dismissedthe cause of action without prejudice notirig that since thelawsuit against the selle.rs was. still pending "its conti:ng ntnegligence/legal malpractice clairh against Defendants is not.,, .('d)ripei. .Thus, where the harm is only potential and not yetactual no cause of action for legal malpractice is pqssible.The plaintiff presents six reasons why the moti.o n must be.55 of 9

[*FILED:6]KINGS COUNTY CLERK 03/10/2022 03:27 PMNYSCEF DOC. NO. 30denied.INDEX NO. 512222/2021RECEIVED NYSCEF: 03/10/2022Specifically, the. plaintiff asserts it lost its priorityfollowing TBG/ that it would not hav -entered into any 9f theloan greements if it would have known it would lose thatpriority, that it expended attorney's fees in connection with astate court action and a New Jersey action, that it lost businessopportunities with the money they loaned and had to incur costs,fees, mortgage payments, taxes and similar expenses with respectto the mortgaged propertiessThus, the allegations are ripe andthe motion to dismiss must be denieq.It is true that some of the losses alleged are actual, evenif the precis.e amounts ca:nnot be as,certaihed with defini tene.s s atFor example, engaging in litigation in attempts tothis time.minimize or avert the alleged damage causedbythe attorney'sconduct can support claims to legal malpractice {DePinto v.Rosenthal&.Curry, 2J7 AD2d 4 82, 655 NYS2d 102 [2d Dept., 1997]}.Thus, while the plaintiff would have been required to initiate aforec:losure action if it had remained in the first or even thesecond position, the aliegations it was required to expendadditiona:.1 litigation as a result of its reduced third positioncannot be dismissed.Furthe.r discovery will sharpen the extentof those expenses incurred, however, at this juncture the motionseeking to dismiss has alleged actual damages.However, regarding the crux of the allegations, namely thatthe failure :to recor.d the. mortgage resulted in a: reduction in66 of 9

[*FILED:7]KINGS COUNTY CLERK 03/10/2022 03:27 PMNYSCEF DOC. NO. 30INDEX NO. 512222/2021RECEIVED NYSCEF: 03/10/2022priority, ho suqh damages exist at this time since thefo.r:'eclosure has not peen c::ompletE:d.Thez,e are t.hre.e pos iblescenarios that could result t1pon a foreclosure sale.E itherthere will not be enough funds to even pay the first lender orthere will be enough to pa,y the plaintiff as well.In those twoscenarios arty alleged malpractice will not have cc1used any damageto the plaintiff.The, third scenario m9 y exist where enoughfunds are available to pay the first and the second in line andnot the plaintiff, thE: third in line.Irr that ::ventua.l ity thefailure to record the mortgage could result in damages.Asnoted, this· pos ibility realiy means th.a t no malpractice claimexists at this. time.However, a dismissal of the action could forever fores.tallthe ability to assert any malpractice claim since by the time anyclaim could ripen the statute of limitations cOuld pass.InCollins v. Felder, 251 F.Supp3d 634 [S.D.N.Y. 2017] the court wasfaced with this exact dilemma, balancing the retention of theaction to preserve any potential claims and allowing discovery toproceed on pr;-esehtly unripe claims.The court denied the motionto dismiss the complaint en ripene.s s grounds but stc3.yed anyfµrther proceedings until a final judgement on appeal wasrendered.unripe.The appeal was the basis the malpractice claim wasThis hac:l the effect of preserving the allegations ofrnalpracti.t e but staying the ourdens of discovery n case they77 of 9

[*FILED:8]KINGS COUNTY CLERK 03/10/2022 03:27 PMINDEX NO. 512222/2021NYSCEF DOC. NO. 30RECEIVED NYSCEF: 03/10/2022prove to be unwarrantedwThcerefore, the court hereby denies the motion seeking todismiss the action, however, all discov.e ry isoutcome of the foreclosure sale.stayed pending theThe motion is granted to thisextent.Turning to the motion seeking to dismiss the second count;it is well settled that a violation of the rules of professionalresponsibility do riot create ari independent caus'e of action (LongIsland Medical Anesthesiology, P. C., . v. Rosenberg Fortuna.&Lait:rrian, LLP, 191 AD3d 864, 142 NYS3d 194- [2d Dept.; 2021]).Theseco·n d count of the amended complaint titled 'ethical violations'states that the. defenda11ts "breached their ethical duti.e " byallowing M.P. Management to record their lien ahead of theplaintiff and also ''breached their ethical ciuties" by failing toobti;l.J.TI a waiver of consent to such an obvious conflict ofinterest.In opposition, the plaintiff asserts the cause ofaction is really ah action for the breach of a fiduciary duty andthe breach of a duty of loyalty.However, tl1e amended complaintnever asserts there was any breach Of any fiduciary duty at all.In paragraphs 60 and 61 the amendeq complaint does as.sert thedefendants owed ahd breached a duty of loyalty,howeve·r, a closereading of the amended complaint reveals that is not what thecause of action is based upon.o.f the second .count onlyThus, the introductory paragraphsdeal with the Rules of Professional88 of 9

[*FILED:9]KINGS COUNTY CLERK 03/10/2022 03:27 PMNYSCEF DOC. NO. 30INDEX NO. 512222/2021RECEIVED NYSCEF: 03/10/2022Conduct and what constitutes a violation of such conduct (see,Amended Complai.nt, CJ[CJ[;38 . 60).toa breachof:Other than the pas.S.ing referenoesloyalty a:s noted the .amended complaint does notallege anything other than ethical violations.Consequently, themotion seeking to dismiss the second cause of action is granted.So ordered.ENTER:DATED: March 10, 2022BrooklynN.Y.Hon.JSC99 of 9

Insurance Company v. Dewey Ballantine, Bushby, .Palmer & Wood, 170 AD2d 108, 573 NYS2d 981 [Pt Dept., 1991]). Moreover; in Lindentnan v. Kreitzer, 7 AD3d 30, 775 NYS2d 4 [1st Dept., 2004 J, the court held "a plaintiff's burden of proof in a legal malpractice action is a heavy one. The plaintiff must prove