SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK
---X RED ZONE LLC,
Plaintiff,
-against-CADWALADER, WICKERSHAM & TAFT LLP, Defendant.
---X
Index No. 650318/2011 IAS Part 45
Mot. Seq. No. 001
Hon. Melvin L. Schweitzer
PLAINTIFF RED ZONE LLC’S
MEMORANDUM IN OPPOSITION TO
DEFENDANT CADWALADER’S MOTION TO DISMISS
JEFFREY A. JANNUZZO, ESQ. Counsel for Plaintiff
10 East 40th Street, 35th Floor New York, NY 10016-0301 212-932-8524
jeff@jannuzzo.com Dated: April 11, 2011
FILED: NEW YORK COUNTY CLERK 04/11/2011
INDEX NO. 650318/2011TABLE OF CONTENTS
TABLE OF AUTHORITIES . . . ii PRELIMINARY STATEMENT . . . 1 STATEMENT OF FACTS . . . 2
I. A CAUSE OF ACTION FOR BREACH OF AN AGREEMENT TO ACHIEVE A
SPECIFIC RESULT IS NOT “DUPLICATIVE” OF A NEGLIGENCE CLAIM . . 4
II. THE ORIGINAL COMPLAINT IS CLEAR, BUT THE AMENDED
COMPLAINT CANNOT BE ASSAILED EVEN BY CADWALADER . . . 9
CONCLUSION . . . 10
-i-TABLE OF AUTHORITIES
Cases
Chase Scientific Research, Inc. v. NIA Group, Inc.,
96 N.Y.2d 20, 725 N.Y.S.2d 592 (2001) . . . 7 Diamond v. Sokol, 468 F.Supp.2d 626 (S.D.N.Y. 2006) . . . 6 Ferdinand v. Crecca & Blair, 5 A.D.3d 538,
774 N.Y.S.2d 714 (Second Dept. 2004) . . . 6 Fin. Servs. Vehicle Trust v. Saad, 72 A.D.3d 1019,
900 N.Y.S.2d 353 (Second Dept. 2010) . . . 5 Glens Falls Ins. Co. v. Reynolds, 3 A.D.2d 686, 159 N.Y.S.2d 95 (Third Dept. 1957) . . . 6 Hallman v. Kantor, 22 Misc.3d 1123(A), 880 N.Y.S.2d 224 (T), 2009 WL 399985
(Sup.Ct. N.Y.Co. 2009), aff’d, 72 A.D.3d 895, 901 N.Y.S.2d 284 (Second Dept. 2010) . . . 5 InKine Pharm. Co. v. Coleman, 305 A.D.2d 151, 759 N.Y.S.2d 62 (First Dept. 2003) . . . 4 Rivas v. Raymond Schwartzberg & Assocs., PLLC, 52 A.D.3d 401,
861 N.Y.S.2d 313 (First Dept. 2008 . . . 5 Sage Realty Corp. v. Proskauer Rose LLP, 251 A.D.2d 35,
675 N.Y.S.2d 14 (First Dept. 1998) . . . 4, 6 Sarasota, Inc. v. Kurzman & Eisenberg, LLP, 28 A.D.3d 237,
814 N.Y.S.2d 94 (First Dept. 2006) . . . 8 Senise v. Mackasek, 227 A.D.2d 184, 642 N.Y.S.2d 241 (First Dept. 1996) . . . 6
Statutes
PRELIMINARY STATEMENT
Plaintiff Red Zone LLC’s Complaint against Cadwalader, Wickersham & Taft LLP presents an unusually strong case of legal malpractice. Red Zone’s claims are based on the sworn testimony of Cadwalader partner, Dennis Block, Esq. that during a proxy contest, his firm agreed to obtain a specific result, i.e., a specific contract amendment, and told its client that it had done so. The First Department has now held that Cadwalader failed to do so, as a matter of law. This is a summary judgment case, and Cadwalader knows it.
Mr. Block testified that on the eve of a proxy context by Red Zone involving the amusement park company Six Flags, Red Zone told him that unless Red Zone got a contract amendment with its investment bank UBS Securities, that capped Red Zone’s obligation for fees to UBS at no more than $2 million for anything that did not result in Red Zone owning a majority of the voting stock of Six Flags, Red Zone was halting the deal, then and there.
Mr. Block testified that Cadwalader agreed to obtain that specific result, and that Cadwalader told Red Zone that it had obtained that specific result. Red Zone signed the contract amendment that Cadwalader told Red Zone had obtained that specific result, and Red Zone then proceeded with the Six Flags deal.
The First Department has now held as a matter of law that Cadwalader did not achieve the specific result that Cadwalader (a) had agreed to obtain, and (b) had told Red Zone it had obtained. Red Zone has thereby become obligated to pay UBS Securities more than $11.5 million, and has incurred some $1.5 million in unsuccessfully defending against UBS Securities’ claim.
Cadwalader partner. Cadwalader essentially pretended that Dennis Block didn’t swear that Cadwalader agreed to obtain a specific result, and didn’t swear that Cadwalader told its client it had done so.
Instead, Cadwalader has cited conclusory dicta about “duplicativeness” from cases where injured clients had merely pled that their lawyers had failed to exercise due care. Cadwalader did not research the cases it cited. The actual record in those cases shows that they have nothing to do with the factual situation pled here, where the law firm undertook to achieve a specific result, told its client it had done so, but did not do so. Case law has long recognized the difference between a mere failure to exercise due care, and the distinct (and frankly, unusual) situation where the lawyer promised to achieve a specific result, and told the client it had done so, but did not do so as a matter of law.
One may wonder why Cadwalader bothered to try to dismiss one cause of action as “duplicative,” when it could simply have answered and asserted “duplicativeness” as an affirmative defense. The answer is likely two-fold. First, Cadwalader has achieved significant delay, which is any defendant’s best friend. Second, when Cadwalader is required to answer the Complaint, it will almost certainly lose on summary judgment. On the sworn testimony of Mr. Block that Cadwalader agreed to obtain a specific result or its client would simply stop the Six Flags deal then and there, that Cadwalader told its client it had achieved that specific result, and that the client relied on Cadwalader having done so, it is hard to imagine that Cadwalader can escape liability.
STATEMENT OF FACTS
share interest in Six Flags, Inc. (the well-known amusement park company), including advising Red Zone in connection with Red Zone’s dealings with the investment bank (UBS Securities LLC) that Red Zone retained for the Six Flags deal. Compl. ¶10-13. After UBS was unable to get Red Zone the financing it needed to buy a majority share interest in Six Flags (because of Six Flags “poison debt”), Red Zone turned its attention to a proxy contest. Compl. ¶15-17.
Red Zone’s contract with UBS provided that UBS would get a $10 million fee if an “Acquisition Transaction” regarding Six Flags occurred within a specified time. Compl. ¶14. Red Zone told Cadwalader that UBS had been unable to get the financing to buy a majority of the voting stock, and that Red Zone was not willing to pay UBS a $10 million fee for anything less. Compl. ¶18-19. Red Zone instructed Cadwalader, through the responsible partner Dennis Block, Esq., to negotiate an agreement with UBS that capped Red Zone’s liability at $2 million for any work by UBS that did not result in Red Zone owning a majority of the voting stock of Six Flags, and to reduce such agreement to a writing that would be signed by and binding on UBS. Compl. ¶20.
In the action commenced by UBS to collect the full $10 million fee, Mr. Block testified that he had received such instructions, that he was told by Red Zone that it would stop all work on the Six Flags deal if the $2 million cap was not agreed to by UBS, that he negotiated such a cap with UBS, and that he turned over to another Cadwalader partner, William Mills, Esq. the job of getting a written agreement. Compl. ¶20. Mr. Block testified that the written amendment which was subsequently prepared, and approved by Cadwalader, was expected and intended to accomplish the instructions of Red Zone, and he identified a side letter dated August 17, 2005 as the document that was supposed to do that. Compl. ¶22-23.
However, on October 28, 2010, the First Department ruled as a matter of law that the side agreement did not cap Red Zone’s liability at $2 million:
-3-In addition, Red Zone’s argument that the side agreement capped UBS’s fee at $2 million is belied by a reading of the document itself. Compl. ¶28. (Emphasis added.)
In short, Cadwalader’s client told this law firm that it would end the Six Flags deal if it did not get the above contractual protection, Cadwalader told its client it had done so, and Cadwalader has been adjudicated to have failed to do so.
I. A CAUSE OF ACTION FOR BREACH OF AN AGREEMENT TO ACHIEVE A SPECIFIC RESULT IS NOT “DUPLICATIVE” OF A NEGLIGENCE CLAIM
Cadwalader’s motion to dismiss the contract cause of action is fundamentally flawed, and is based on incomplete research. Cadwalader cites conclusory language about “duplicativeness,” but when the record is examined in each of the cases that Cadwalader cites, the actual record shows that in each case, the complaint at issue merely pled that the lawyer had committed malpractice by failing to exercise due care. In none of the cases that Cadwalader cites did the injured client plead facts showing an agreement to obtain a specific result. All of Cadwalader’s cases merely follow the well-known rule, incompletely quoted by Cadwalader, that:
[A] breach of contract claim premised on the attorney’s failure to exercise due care or to abide by general professional standards is nothing but a redundant pleading of the malpractice claim. [cites omitted] Since plaintiffs did not allege that Proskauer breached a promise to achieve a specific result, their breach of contract claim was insufficient. (Emphasis added)
Sage Realty Corp. v. Proskauer Rose LLP, 251 A.D.2d 35, 38-39, 675 N.Y.S.2d 14, 17-18 (First Dept. 1998), Defs. Mem. at 5. Cadwalader’s Memorandum quoted the first sentence, above, but omitted the second sentence. Defs. Mem. at 5.
305 A.D.2d 151, 152, 759 N.Y.S.2d 62, 63 (First Dept. 2003), Defs. Mem. at 4, the actual record reveals that the complaint therein had merely pled as “breach of contract” that:
The Defendants breached the terms of their representation and their agreement with InKine by failing to perform the promise they made, namely to exercise the care, skill and diligence usually employed by attorneys specializing in patent law.” Exhibit C at 6, para. 35. (Emphasis added.)
In Rivas v. Raymond Schwartzberg & Assocs., PLLC, 52 A.D.3d 401, 861 N.Y.S.2d 313, 314 (First Dept. 2008), Defs. Mem. at 3, the complaint therein pled as “breach of contract” that: 18. Upon information and belief, at all times hereinafter mentioned, under
a duly executed retainer agreement, defendant, Raymond Schwartzberg & Associates, PLLC. specifically contracted with plaintiff to skillfully and carefully prosecute his cause of action. Exhibit D at 4. (Emphasis added.)
In Hallman v. Kantor, 22 Misc.3d 1123(A), 880 N.Y.S.2d 224 (T), 2009 WL 399985 at 7 (Sup.Ct. N.Y.Co. 2009), aff’d, 72 A.D.3d 895, 901 N.Y.S.2d 284 (Second Dept. 2010), Defs. Mem. at 6, the complaint therein merely pled as “breach of contract” that:
118. In support of their obligation to represent Plaintiff as her attorneys in conjunction with the matter for which they had been retained, Defendants represented, by virtue of being attorneys-at-law duly admitted to practice in the State of New York, that they would fully and faithfully perform all services in conjunction with their representation of Plaintiff as set forth in the Retainer Agreement. Exhibit E at 10. (Emphasis added.)
In Fin. Servs. Vehicle Trust v. Saad, 72 A.D.3d 1019, 1020, 900 N.Y.S.2d 353 (Second Dept. 2010), Defs. Mem. at 3, the complaint therein is a personal-injury mishmash that is virtually fact-free, but to the extent it is comprehensible, it pleads as a “breach of contract” that GEICO and GEICO’s chosen law firms failed to afford a car-crash defendant proper insurance coverage. Exhibit F at 27-28, paras. 97-100.
None of Cadwalader’s cases have anything to do with the situation presented here. It is the difference between suing a contractor for building a house with a roof that leaks because he
-5-did not exercise due care; and suing a contractor for agreeing to build a house with a natural-slate roof, telling you he had done so, but not doing so. The contract cause of action can be adjudicated without need to address whether “due care” was exercised: either the roof was made of natural-slate, or it wasn’t.
The case law has for many years recognized, and still recognizes, the difference between a mere claim for professional negligence, and a contract claim for undertaking to achieve a specific result, but not doing so. The older case law addressed the distinction in the context of which statute of limitations was applicable, but that case law nevertheless recognized that a lawyer’s promise to obtain a specific result was a distinct cause of action from mere negligence. Glens Falls Ins. Co. v. Reynolds, 3 A.D.2d 686, 687, 159 N.Y.S.2d 95, 97 (Third Dept. 1957):
The client may elect to proceed on either the theory of breach of contract or in tort. [cites omitted] But the applicable statute of limitations would depend on the nature of the breach. Carelessness resulting in professional miscarriage, in the absence of agreement to obtain a specific result or to assure against miscarriage, would usually be governed by the three-year statute of limitations for negligence. [cites omitted] (Emphasis added.)
The distinction continued in recent case law, with the contract to obtain a specific result distinguished from a mere claim for negligence. Ferdinand v. Crecca & Blair, 5 A.D.3d 538, 774 N.Y.S.2d 714 (Second Dept. 2004):
That [breach of contract] cause of action, premised on the defendants’ alleged failure to exercise due care or abide by general professional standards, is merely duplicative of her malpractice cause of action. There is no allegation that the defendants promised to obtain a specific result and failed to do so. (Emphasis added.)
Senise v. Mackasek, 227 A.D.2d 184, 642 N.Y.S.2d 241 (First Dept. 1996)(same); accord, Sage Realty Corp. v. Proskauer Rose LLP, supra; Diamond v. Sokol, 468 F.Supp.2d 626, 640 (S.D.N.Y. 2006)(under New York law).
result and mere claims for negligence still remains, notwithstanding the enactment of CPLR 214(6), which applied the three-year statute to all malpractice claims against lawyers, regardless of whether the theory was in tort or in contract. The Court of Appeals recognized the distinction in Chase Scientific Research, Inc. v. NIA Group, Inc., 96 N.Y.2d 20, 24, 725 N.Y.S.2d 592, 595 (2001)(Kaye, C.J.):
While a malpractice action may be grounded in negligence – subject generally to a three-year statute of limitations – it can theoretically also rest on breach of contract to obtain a particular bargained-for result [cites omitted] Breach of contract actions are subject generally to a six-year statute of limitations.
When the Legislature amended CPLR 214(6) to apply a three-year limitations period to all nonmedical malpractice actions, whether based on tort or contract [cites omitted] it ended one quandary but exposed another: who are the “professionals” whose misfeasance toward clients is subject to the shortened limitations period? (Emphasis added.)
In Chase Scientific Research, the Court of Appeals went on to decide that insurance agents were not “professionals” who could commit “malpractice” within the meaning of CPLR 214(6), that therefore CPLR 214(6)’s foreshortening of the time to sue to three-years did not apply, and that insurance agents were thus subject to both the general three-year statute for negligence, and to the six-year statute for breaches of contract. 96 N.Y.2d at 31,725 N.Y.S.2d at 598.
Chase Scientific Research definitively negates the fundamental premise put forward by Cadwalader here, for it upheld a claim for failure to procure proper insurance coverage, even though the facts and the damages were the same under both theories, i.e., that the defendant had failed to obtain proper coverage. 96 N.Y.2d at 24-25, 725 N.Y.S.2d at 594. Indeed, the damages for both negligence and contract were the same, to the penny. Exhibit H (complaint p. 17).
Very recent First Department case law not only continues to recognize the distinction, but allows a contract cause of action to proceed, even where it is ambiguous from the complaint
-7-whether a breach of contract to achieve a specific result has been pled. Sarasota, Inc. v. Kurzman & Eisenberg, LLP, 28 A.D.3d 237, 814 N.Y.S.2d 94, 94-95 (First Dept. 2006). In Sarasota, the injured client pled both a claim for mere negligence for failing to enter judgment in a litigation, and a contract cause of action which alleged the very same thing as a breach of contract. Exhibit G at 6-8, paras. 36-38 & 44-46. (Emphasis added.) On that pleading, the First Department upheld the contract cause of action, holding:
There is at least an issue of fact as to whether the contract claim was viable as a promise to achieve a particular result separate from the breach of general professional standards in defendants’ field and thus not duplicative of the legal malpractice cause of action. (Emphasis added.)
Here, plaintiff Red Zone has pled detailed facts showing a promise to achieve a specific result, and that pleading is based on the sworn testimony of the lead Cadwalader partner. Under Sarasota, Inc. v. Kurzman & Eisenberg, LLP, Red Zone is entitled to proceed on its contract cause of action as a matter of law.
The case law thus conclusively refutes Cadwalader’s fundamental premise. None of that case law was referred to in Cadwalader’s motion. That Cadwalader has strung together conclusory dicta about the “same facts and damages,” from decisions that in fact actually addressed claims for “breach of contract” that were based merely an alleged promise to use due care, does not nullify the long-standing case law above. Cadwalader has employed the classic legerdemain of quoting conclusory dicta, while ignoring the actual record and holding of the case. Or to put it another way, for Cadwalader to deny the long-standing distinction between claims for breach of a contract to achieve a specific result, and mere claims for negligence, is to suggest that Chief Judge Kaye did not know what she was talking about when she wrote the unanimous decision in Chase Scientific Research.
II. THE ORIGINAL COMPLAINT IS CLEAR, BUT THE
AMENDED COMPLAINT CANNOT BE ASSAILED EVEN BY CADWALADER
Cadwalader picks nits with the Complaint, asserting it cannot discern that the necessary elements of a contract claim have been pled. Defs. Mem. at 4. The original Complaint is eminently clear in pleading the detailed facts, based on Mr. Block’s testimony, establishing that: (a) Cadwalader agreed to obtain a specific result, knowing that its client would halt the corporate deal if that result was not obtained, (b) Cadwalader undertook to obtain that result, (c) Cadwalader told its client it had obtained that result, (d) Cadwalader did not obtain that result. Exhibit A at pp. 3-5, paras. 18-23, pp. 11-12, paras. 50-54. To eliminate any doubt in Cadwalader’s mind about what it is being sued for, Red Zone has amended pursuant to CPLR 3025(a) to add a simple paragraph, at the end of the pleading of the detailed facts, as follows:
56. As set forth above: (a) defendant Cadwalader contracted with Red Zone to achieve a specific result, namely, to obtain an amendment of Red Zone’s contract with UBS, that capped Red Zone’s liability at no more than $2 million for anything other than the acquisition of a majority of Six Flags’ voting stock; (b) Cadwalader informed Red Zone that it had achieved the result it had contracted to obtain; (c) and Cadwalader did not achieve the result that it had contracted to obtain and that it had told its client it had obtained. Exhibit B (First Amended Compl.)(Emphasis added.)
Cadwalader has also picked the nit that the Complaint alleges (and in two places no less!), that the cause of action is for “breach of contract sounding in legal malpractice.” Defs. Mem. at 7. Since the words “sounding in legal malpractice” so vex Cadwalader, Red Zone has amended to reiterate what is set forth throughout the detailed, factual, pleading: that Red Zone’s claim is for “breach of contract to achieve a specific result.” Exhibit B at 13, paras. 58 & 59 (Emphasis added.). With these modest amendments, any remaining objections that Cadwalader asserts to the First Cause of Action become nugatory.
-9-CONCLUSION
The motion by defendant Cadwalader, Wickersham & Taft LLP to dismiss the First Cause of Action should be denied, with costs to plaintiff Red Zone LLC.
Dated: New York, New York April 11, 2011
JEFFREY A. JANNUZZO, ESQ. Counsel for plaintiff Red Zone LLC
By:__________________________ Jeffrey A. Jannuzzo
10 East 40th Street, 35th Floor New York, NY 10016-0301 (212) 932-8524
jeff@jannuzzo.com
