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Appeals Court Sides with Real Estate Attorney Over Malpractice Claim

08/01/12

Appeals Court Sides With Real Estate Attorney Over Malpractice Claim


A real estate attorney, Howard Stern, got a close reprieve in a malpractice case filed against him by a former client.

Appeals Court Sides With Real Estate Attorney Over Malpractice Claim


The Appellate Division, First Department, said in a 4-1 ruling that even though there was “strong evidence” that Stern had acted negligently when he handled a real estate deal for Wo Yee Hing Realty there was no evidence that he was the reason that the plaintiff suffered a loss.

Stern was hired by Wo Yee Hing, a firm owned by three brothers, who wanted him to work on the sale of the building as part of a transaction the IRS calls a 1031 exchange. Stern claims that he never claimed to be familiar with these transactions but the brothers told him they would take care of the details.

The 1031 exchange law says that a company can defer the capital gains tax due from its sale of commercial or investment property if a similar “replacement” property is identified within 45 days and possession taken within 180 days. The exchange has to be done via a “qualified intermediary”. The checks for $10.2 million deal were made out to the firm's name instead of the intermediary, because of which the 1031 exchange could not be legally possible.

Justice David Saxe said that “To prevail on its claim of legal malpractice, plaintiff must prove not only that defendant was negligent, but also that defendant's negligence was a proximate cause of its losses”.

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