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New York Appellate Court Adopts Broad Causation Standard in Legal Malpractice Case

Generally, in a legal malpractice case the plaintiff must prove that it would have achieved a better result, but for the attorney’s malpractice. In the litigation context, this means that the plaintiff must prove that it would have succeeded on the underlying claim or defense, but for the attorney negligence, often referred to as proving the “case within the case.” In the transactional context, the plaintiff often uses the “better deal, no deal” dichotomy to prove causation. Under the “no deal” prong, the plaintiff can prove causation by establishing that, but for the attorney negligence, it would have achieved a better result had it not entered into the transaction at issue. Alternatively, under the “better deal” prong, the plaintiff can succeed by proving that, but for the legal malpractice, it would have achieved a better result through a better and different “deal” or agreement than the transaction at issue. A New York appellate court in Leggiadro, Ltd. V. Winston & Strawn applied a broad and plaintiff friendly interpretation of the “better deal” prong of this causation paradigm.

Leggiadro, a high-end women’s clothing store in Manhattan, hired the law firm Winston & Strawn to help them negotiate a buy-out with their landlord, who planned to renovate the building into residential and commercial cooperative units, 6 years before Leggiadro’s lease was due to expire. Leggiadro indicated to Winston & Strawn in their contract that they expected all tax and relocation expenses to be covered by the buy-out, considering all out-of-pocket expenses that might be incurred in connection with the move. However, after a buy-out agreement was negotiated and finalized, Leggiadro discovered they were subject to $400,000 in New York City capital gains tax that was not covered by the agreement.

Leggiadro filed, among others, a claim for malpractice against Winston & Strawn, alleging that but for Winston & Strawn’s negligence in overlooking the capital gains tax, Leggiadro would have been able to negotiate a better buy-out agreement with the landlord that would have covered the additional tax amount (“better deal”), or, in the alternative, would have chosen to remain in the leasehold and avoid the tax altogether (“no deal”). In response, Winston & Strawn filed a motion for summary judgement arguing that inter alia Leggiadro did not have enough evidence to show that a better deal could have been negotiated. The New York trial court agreed with Winston & Strawn and granted summary judgement on the “better deal” scenario. However, in an opinion issued on June 1, 2017, the New York appellate court held that due to the circumstances and strength of Leggiadro’s bargaining position in the underlying buy-out transaction, its argument that, but for Winston & Strawn’s oversight, it would have avoided the harm by negotiating a higher buy-out amount was not merely “speculative,” even though there was no direct evidence that the landlord would have agreed to such a “better deal.” The court essentially ruled that circumstantial evidence may be sufficient to establish causation under the “better deal/no deal” dichotomy scenario.

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