## Facts

- Endless Ocean, LLC retained a law firm and its attorneys to represent it in the sale of real property and a related like-kind exchange under 26 U.S.C. § 1031.
- The client, allegedly based on counsel’s advice, selected LandAmerica 1031 Exchange Services, Inc. as the qualified intermediary to hold approximately $5.5 million of sale proceeds for the exchange.
- The attorneys allegedly reviewed and advised the client to execute an agreement providing that exchange funds would be held in a commingled account, not in a qualified escrow account or trust.
- Soon after the proceeds were transferred, LandAmerica’s parent company filed for bankruptcy, and the exchange funds became unavailable.
- The client alleged it could not complete the § 1031 exchange within required time limits and incurred tax liability and related financial losses.
- The client sued for legal malpractice; the trial court dismissed under CPLR 3211(a), and the client appealed.

## Issues

1. Whether the complaint, liberally construed, stated a cause of action for legal malpractice by sufficiently alleging attorney negligence, proximate causation, and actual, ascertainable damages.
2. Whether dismissal under CPLR 3211(a)(7) was proper given the pleading-stage requirement to accept allegations as true and grant favorable inferences to the plaintiff.

## Decision

- The appeal from the intermediate order was dismissed because entry of judgment terminated the right to appeal from the order.
- The judgment dismissing the complaint was reversed.
- The defendants’ CPLR 3211(a) motion to dismiss was denied.
- The court held the complaint adequately pleaded deviation from accepted professional standards by advising use of a commingled account rather than protective escrow or trust arrangements for § 1031 exchange proceeds.
- The court held the complaint adequately pleaded proximate cause and actual damages, including inability to complete the exchange and resulting tax consequences.

## Legal Principles

- To plead legal malpractice, a plaintiff must allege: (1) the attorney failed to exercise ordinary reasonable skill and knowledge, (2) proximate causation, and (3) actual and ascertainable damages.
- On a CPLR 3211(a)(7) motion, the court must accept pleaded facts as true, give the plaintiff the benefit of every favorable inference, and determine only whether the allegations fit within any cognizable legal theory.
- At the pleading stage, arguments that damages are speculative or that third-party events constitute superseding causes generally do not warrant dismissal where the complaint plausibly links the alleged negligence to concrete financial harm.

## Conclusion

The Appellate Division reinstated the legal-malpractice claim, ruling that allegations that counsel advised placing § 1031 exchange proceeds in a commingled account—followed by unavailability of funds after the intermediary’s bankruptcy and resulting tax and financial losses—were sufficient to plead negligence, causation, and damages and thus could not be dismissed at the CPLR 3211(a)(7) stage.


Endless Ocean, LLC v. Twomey, Latham, Shea, Kelley, Dubin & Quartararo, 113 A.D.3d 587, 979 N.Y.S.2d 84 (2d Dep’t 2014)