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Legal Malpractice and the Wallet

Given this month's column involves a Pennsylvania and New Jersey case involving damages awards, this is a good opportunity to discuss the role damages play in malpractice actions. Gravers v. Lanfrit, A-3205-10T1, 2012 WL 331763 (N.J. Super. App. Ct. 2012), is a good example of the roles damages play in New Jersey cases. The most important point that can be gleaned from the above case is that if damages are initially too speculative, a Judge may declare the damages claimed too speculative, and require a plaintiff to pinpoint a more exact number.

The case is somewhat complex, but the key parties are Renate Gravers, Paul Di Francesco, and the attorney who represented them, Peter Lanfrit. Gravers and a non-party entered into a contract to purchase developable land in Milford, NJ. The property would be bought from a medical center, and then subdivided into residential units. Di Francesco was the third member of the party who wanted to purchase the property. Because the case was a summary judgment claim, factual disputes needed to be decided in favor of the party opposing the motion. Based on the above principle, Lanfrit represented Gravers and Di Francesco in negotiating the contract of sale in April, 2001.

In August 2001, the partners entered into an assignment agreement with a land company. Under the assignment, the plaintiffs were to assign their rights under the purchase contract to the land company. The land company would then develop the property. Lanfrit represented Gravers and the non-party during assignment negotiations at this stage. In exchange for the assignment, the plaintiffs were to receive $10,000 on signing, and another $75,000 per building approved after the sale of the medical center closed. Another requirement of the contract was that all homes constructed be listed with Di Francesco realty, which employed both plaintiffs. As a result of this arrangement, Di Francesco was to receive 2.75% commission on the sale of each residence.

In July 2004, the land company assigned their rights to a construction company. The construction company agreed to perform all obligations of the plaintiffs under the second assignment. Shortly after this assignment was signed, the construction company entered into a contract to resell the property to a national developer as opposed to a local company.

In October, 2004, the land company sought to amend its agreement with the plaintiffs without disclosing the existence of the second assignment. The amendment involved conveying the subdivided lot to the plaintiffs in lieu of requiring that the subdivided properties be listed with Di Francesco realty. The land company confirmed the tentative amendment in an October, 2006 letter to the plaintiffs.

Prior to the first assignment between the plaintiffs and the land company, Lanfrit had begun the zoning process on behalf of the plaintiffs. After the first assignment, he continued to pursue the zoning on behalf of the land company. His involvement with the zoning board continued after the second assignment.

The plaintiffs alleged that they were not made aware of a second assignment until April, 2006. This was 2 years after it was signed. In 2006, prior to closing, an attorney contacted the medical center on behalf of the construction company. They had no knowledge of the assignment, but it was required by the contracts. Nevertheless, the medical center consented. In July, 2006 the plaintiffs entered into an agreement with the construction company acknowledging they had not consented to the second assignment. It also reflected the amendment to the first assignment. The plaintiffs agreed to consent to the second assignment in return for $375,000, and additional compensation payable within 30 days of recording the exchange. The additional compensation was either clear title to the new lot or $250,000 at the construction company's option.

Lanfrit represented the plaintiffs at the closing July 29, 2006. The plaintiffs instructed him to disburse the $375,000 equally to the named plaintiffs, and the non-party. The construction company elected to transfer the lot instead of paying $250,000. In November, 2009, the plaintiffs filed a six-count complaint against their former attorney for malpractice, fraud, and tortious interference. With regard to damages, the plaintiffs pointed to the purchase agreement between the construction company and the national developer as establishing the fair market value for the property as $3,640,000. Taking from that total the improvements required by the zoning board, $823,864, the $750,000 cost to buy the property, and the $250,000 value of the lot, the plaintiffs claimed damages of $1,691,136. Initially, the trial court judge entered summary judgment for Lanfrit, which the plaintiffs appealed.

Assuming for a moment that the case was proven, the biggest problem with this case was the damages requested. The court stated that to recover damages, the plaintiff has the burden of showing that specific damages were sustained as a proximate result of the defendant's conduct. While the court was careful in not requiring a precise number, their must be a reasonably accurate and fair basis for computing alleged lost profits. The court used the term that lost profits to be recognized as a proper measure, must be capable of estimation with a reasonable degree of certainty.

In this case, the assessment of damages was too speculative for several reasons. The Court noted that the first problem was the plaintiffs assumed they could have voided the first assignment because the land company breached a clause of the contract. In plain terms, the plaintiffs made an assumption that there were damages related to this portion of the attorney's wrong which were not actually available. That number therefore should not have been as high as calculated.

The second problem was that in New Jersey, anticipated profits that are purely speculative cannot be recovered. In this case, the plaintiffs executed a contract assigning their interest to another party as opposed to doing the work themselves. They were not assured any profit from this transaction, yet claimed some in calculating the damages. These future profits did not meet the legal standard of reasonable certainty. The Court did not answer whether the plaintiffs could have asked for damages in just the amount the land company was going to pay them.

While ultimately the summary judgment was reversed, the plaintiffs learned there damages assessment was flawed. The most important thing to remember in legal malpractice cases is outside of the attorney-client relationship, and related harms, the damages must be readily attainable. It is not enough that a wronged client believes his attorney has caused harm. The client who receives deficient legal advice must show the damages claimed are reasonably estimable, and were caused by the attorney's conduct. In this case, that situation may have arisen if, assuming the plaintiffs could plead their case, the damages claimed were written in the contract and lost as a result of the attorney's activities. At that point, profits would become part of the damages.

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