A straight forward allegation of legal malpractice is the first step in a successful claim.  A second step is connecting the described shortcomings and the claimed damages.  In Lisi v Lowenstein Sandler LLP  2017 NY Slip Op 32411(U)  November 16, 2017  Supreme Court, New York County
Docket Number: 160298/2016  Judge Shirley Werner Kornreich finds that where a claim might be stated, damages cannot be linked to the shortcomings.

“In May 2012, Lisi hired LS, a law firm with its principal office in New York City, to negotiate the terms of his employment as a Senior Vice President with A vadel Pharmaceuticals flk/a as Flame! Technologies SA and Eclat Pharmaceuticals, LLC (Flame!). AC iii! 2, 9-11; Dkt. 49 (Retainer Letter). Defendants Defalco and Greenbaum were partners at LS; Defalco was the LS attorney primarily responsible for representing Lisi in the negotiations with Flame!. AC ml 3- 6; Dkt. 49 at 1. ”

“On May 17, 2012, Defalco sent Lisi an email (the Defalco Email) concerning the ongoing negotiations, attaching a revised draft of Lisi’s employment agreement. Dkt. 22 (Defalco Email); Dkt. 60 (copy of DeFalco Email with attachments included). In the email, DeFalco discussed the possibility of making an 83(b) election under the Internal Revenue Code with respect to a grant of restricted stock that was part of Lisi’ s compensation under the attached draft of his employment agreement. 2 See Defalco Email; Dkt. 60 at 6. Defalco began the discussion by informing Lisi that “restricted stock [received] in connection with the provision of services … is taxable to the recipient as compensation income (since it is received in connection with employment); i.e., ordinary income subject to payroll taxes,” based on the stock’s value less any amount paid for it. Defalco Email (emphasis in original). Lisi’s employment agreement was executed on May 28, and took effect on June 25, 2012. Employment Agreement at 1.”

“On December 8, 2016, Lisi commenced this action by filing his summons and initial complaint. Dkt. 1. He subsequently filed the AC on February 6, 2017. Dkt. 3. The AC asserts a single cause of action for legal malpractice, seeking $5,300,000 in damages. AC iii! 75-85. It alleges that LS negligently failed to advise Lisi that he would be taxed at the ordinary income rate on the increase in the value of his option shares upon exercise, rather than at the capital gains rate upon disposition of the shares. It further alleges that, but for this failure to advise, Lisi would not have been “left vulnerable to market fluctuations in the stock price of Flamel,” because he “would have” employed alternative investment strategies, that accounted for the true amount of his tax liabilities, to “receive the optimal market value for [his] Flamel shares.” AC iii! 68-83. LS moved to dismiss on March 21, 2017. Dkt. 13. The court reserved on the motion after oral argument. See Dkt. 67 (8/30/17 Tr.). ”

“Although Lisi’ s lack of records and recollection are insufficient to challenge the authenticity of the Defalco Email, the court finds that the content of the email itself does not unambiguously refute Lisi’ s allegation of professional negligence. The Defalco Email does mention stock options in passing, but not in the portion of the email that discusses the tax treatment of stock “received in connection with employment.” That portion of the email is specifically couched as a general description of the tax consequences that attach to the receipt of restricted stock. And although the email may easily be read to imply that other forms of stocksuch as non-qualified stock options-are likewise subject to ordinary income tax because they are “received in connection with employment,” that advice is never explicitly stated. Accordingly, the Defalco Email does not refute Lisi’s allegation of negligence in a manner that is “essentially undeniable.” See Amsterdam Hosp. Grp., 120 AD3d at 432. Lisi’s malpractice claim nevertheless fails because his allegations are insufficient to show that but for LS’s failure to give proper tax advice, his trading losses would have been avoided. See Leder v Spiegel, 31 AD3d 266, 268 (I st Dept 2006) (“The failure to demonstrate proximate cause mandates the dismissal of a legal malpractice action regardles~ of whether the attorney was negligent.”). Lisi does not (and cannot) allege that LS’s failure to advise him had any effect on the nature of his tax liability-the exercise of his options was always going to be subject to ordinary income tax. He does not allege that he would not have executed the separation agreement had he been properly advised. Rather, Lisi’s theory of loss causation is that, absent proper tax advice, he was unaware of the true amount of the tax liability incurred by the exercise of his options, and was therefore unable to strategically manage his investment post-exercise in a manner that minimized market risk and allowed him to realize “the optimal market value” of his shares. AC iii! 68-71. He acknowledges that the exercise of his options exposed him to “market fluctuations in the stock price of Flame!,” but asserts that, with proper advice, he would not have been left vulnerable to such fluctuations because he “would have locked in his sales price for all options exercised to allow and account for the fixed exercise price and tax basis,” and “would have capitalized on the sale of the shares at a fixed and higher price.” iii! 74, 82-83. “

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Andrew Lavoott Bluestone

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened…

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened his private law office and took his first legal malpractice case.

Since 1989, Bluestone has become a leader in the New York Plaintiff’s Legal Malpractice bar, handling a wide array of plaintiff’s legal malpractice cases arising from catastrophic personal injury, contracts, patents, commercial litigation, securities, matrimonial and custody issues, medical malpractice, insurance, product liability, real estate, landlord-tenant, foreclosures and has defended attorneys in a limited number of legal malpractice cases.

Bluestone also took an academic role in field, publishing the New York Attorney Malpractice Report from 2002-2004.  He started the “New York Attorney Malpractice Blog” in 2004, where he has published more than 4500 entries.

Mr. Bluestone has written 38 scholarly peer-reviewed articles concerning legal malpractice, many in the Outside Counsel column of the New York Law Journal. He has appeared as an Expert witness in multiple legal malpractice litigations.

Mr. Bluestone is an adjunct professor of law at St. John’s University College of Law, teaching Legal Malpractice.  Mr. Bluestone has argued legal malpractice cases in the Second Circuit, in the New York State Court of Appeals, each of the four New York Appellate Divisions, in all four of  the U.S. District Courts of New York and in Supreme Courts all over the state.  He has also been admitted pro haec vice in the states of Connecticut, New Jersey and Florida and was formally admitted to the US District Court of Connecticut and to its Bankruptcy Court all for legal malpractice matters. He has been retained by U.S. Trustees in legal malpractice cases from Bankruptcy Courts, and has represented municipalities, insurance companies, hedge funds, communications companies and international manufacturing firms. Mr. Bluestone regularly lectures in CLEs on legal malpractice.

Based upon his professional experience Bluestone was named a Diplomate and was Board Certified by the American Board of Professional Liability Attorneys in 2008 in Legal Malpractice. He remains Board Certified.  He was admitted to The Best Lawyers in America from 2012-2019.  He has been featured in Who’s Who in Law since 1993.

In the last years, Mr. Bluestone has been featured for two particularly noteworthy legal malpractice cases.  The first was a settlement of an $11.9 million dollar default legal malpractice case of Yeo v. Kasowitz, Benson, Torres & Friedman which was reported in the NYLJ on August 15, 2016. Most recently, Mr. Bluestone obtained a rare plaintiff’s verdict in a legal malpractice case on behalf of the City of White Plains v. Joseph Maria, reported in the NYLJ on February 14, 2017. It was the sole legal malpractice jury verdict in the State of New York for 2017.

Bluestone has been at the forefront of the development of legal malpractice principles and has contributed case law decisions, writing and lecturing which have been recognized by his peers.  He is regularly mentioned in academic writing, and his past cases are often cited in current legal malpractice decisions. He is recognized for his ample writings on Judiciary Law § 487, a 850 year old statute deriving from England which relates to attorney deceit.