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But For the Devil in Document Preparation…

Garten v. Shearman & Sterling LLP, 859 N.Y.S.2d 80 (N.Y. App. Div. 1st Dep’t 2008)

Student Contributor: Melissa Goldberg

NY: Underlying Commercial  Real Estate Transaction

The Facts: Plaintiff stated a cause of action for legal malpractice by alleging that "but for" Defendant’s failure to prepare and procure documents necessary to provide him with a first-priority security interest, he would have been able to recover the amounts owed to him by the defaulting borrower. The agreement between Plaintiff and Defendant mentioned the  "Documentation relating to Security Agreement".  Defendant’s closing documents checklist included "[e]vidence that all other action that the Lender may deem necessary or desirable in order to perfect and protect the first priority liens and security interests created under the Security Agreement has been taken (including, without limitation, UCC-3 termination statements)."

1) Did the Defendant commit legal malpractice by failing to prepare and procure documents that would be necessary to provide Plaintiff with a first priority security interest?

1) The documentary evidence did not establish a defense because Defendant was obligated not only to prepare the loan documents, but also to protect Plaintiff’s expectation that the agreement that he would hold a senior security interest was effective.
• Neither the borrower’s failure to repay the loan nor the senior creditors’ eventual failure to act honorably and adhere to the understanding that their liens were to be junior to Plaintiff’s relieves Defendant of potential liability for its negligence.
• The Plaintiff is not responsible for his own loss simply because he executed the documents that Defendant prepared for him.

Lesson: Generally, the actions of other parties do not relieve a Defendant’s liability for its own legal malpractice. A lawyer has a duty to protect his client’s interests, first and foremost. 

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Posted in: Commercial, New York, Real Estate