Failed Real Estate Deal Lands Carlton Fields A Malpractice Claim

Legal Malpractice Carlton Fields

Daily Business Review reported that a former client is suing Am Law 200 member Carlton Fields Jorden Burt, LLP and two of its attorneys, for legal malpractice over a failed $25 million land deal.

Background

Real estate investor 276 Port L.P., sought to buy an 8.5-acre parcel of land in Fort Lauderdale, several minutes from Fort Lauderdale International Airport. 

The property was encumbered by five ground leases with a remaining term of about 40 years. The leaseholder was interested in selling the leases, but Port believed “certain perceived defaults” would allow it to terminate them, including the leaseholder’s removal of a motel and other structures, and failure to post surety bonds.

The parties agreed on a purchase price of $25 million. Port put down a deposit of $200,000, which would become non-refundable after the 60-day due diligence period expired.

According to court filings, “the $25 million purchase price for the property was premised on the assumption that the leases were in default or would be in default at some future time and could be terminated.” If the leases stayed in place, the $25 million price tag would have “been excessive and unjustified”.

Port retained Carlton Fields and its attorneys Gross and Steinman in April, 2016, to work on the deal, including “Review and analyze ground leases for potential defaults and develop strategy for resolving same including possible litigation…”, according to the engagement letter between the parties. The firm charged $595 per hour with a $10,000 retainer.

Port claims that:
“Carlton Fields sent a six page Opinion Letter to Port, opining that there were numerous violations of the Leases based on defaults that had occurred in 2007 and Carlton Fields also opined that:

“We believe that the likelihood of prevailing on some of these claims, at least in connection with terminating the Ground Leases, would be greater than 50% . . . .”

Port said it relied on that opinion, but it turned out be erroneous, which caused it to lose its deposit, when the deal didn’t close.

Port also claims that:
“Carlton Fields terminated its representation of Port on September 12, 2016, and Port had to find successor counsel. Carlton Fields refused to turn over Port’s file until after Port gave the law firm a full release. Carlton Fields attempted to coerce a release from Port and conceal further evidence of its malpractice.”

Berger Singerman, Port’s successor counsel, concluded that “there was no viable way to acquire the Property and then terminate the…Leases, because all such claims were barred as a matter of law. “

Malpractice Claim

Port’s complaint alleges negligence and breach of fiduciary duty against Carlton Fields, Gross and Steinman, and negligent misrepresentation against Carlton Fields and Gross.

“The Carlton Fields Opinion Letter was erroneous. Carlton Fields failed to reasonably investigate the facts and failed to research and analyze the relevant law.

Among other things, the Leases were not in default and could not be terminated because:

-The alleged defaults occurred in 2007 and 2008. Any claims of default under the Leases would be barred by the 5-year statute of limitations, waiver and estoppel.

-In May 2013, the existing landlord had issued an Estoppel Certificate for the benefit of the Tenant’s predecessor in interest, which stated that “Tenant is not in default under any of the Leases.”

“…Carlton Fields was wrong,” said Port’s attorney. “If the opinion had been, ‘You can’t terminate the ground leases,’ my client would have gotten their deposit and gone on to do different things.”

Firm’s Response

Carlton Fields filed an answer alleging that Port had contributory/comparative negligence for its damages, failed to mitigate its damages, etc. It also filed a counterclaim for breach of contract, alleging that Port failed to pay its invoices, which according to Port totaled at least $96,311, and asked the court to award compensatory damages, pre- and post-judgment interest, reasonable costs and other relief.

It denies any wrongdoing, and promised to “staunchly defend” itself against the plaintiff’s attempt “to blame Carlton Fields for its own business decisions.”

“Against Carlton Fields’ advice, Port publicized the litigation strategy to potential investors, which then caused problems between Port and the seller,” said the law firm’s outside malpractice defense counsel. “The deal failed to close for this and other reasons unrelated to the firm’s work.”

The ‘publicity’ counsel referred to was an information package that Port sent to potential investors, which included the Carlton Fields Opinion.

Boies, Schiller & Flexner, which was counsel for the ground lease tenant NAP 17th Street, obtained it, and advised Carlton Fields that NAP 17th Street would sue for slander of title if Port or JDM (the property seller) asserted that the leases were in default or tried to cancel them.

JDM then informed Port that it would not extend the closing on the sale of the property, unless Port agreed to indemnify it, if NAP 17th Street sued it. Port declined to do so, and the transaction did not close, which caused Port to lose its deposit

Analysis
If Port’s allegations are true, then attorney Gross should’ve concluded that the ground leases couldn’t be terminated.

Despite that, the firm appears to have a good contributory negligence claim, as Gross’ letter stating “We believe that the likelihood of prevailing on some of these claims, at least in connection with terminating the ground leases, would be greater than 50%”, while incorrect, was hardly a ringing endorsement, let alone a guarantee of victory.

Also, Port’s hard damages appear to be limited to its lost deposit of $200,000 and the fees it (presumably) paid Berger Singerman. Assuming the total is $250,000 or less, it’s likely within Carlton Fields’ malpractice insurance deductible or self-insured retention.

All of these factors should encourage a settlement of this matter, before litigation expenses mount.

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About Curtis Cooper

Curtis Cooper is principal of Lawyers Insurance Group, a legal malpractice insurance brokerage that aggressively comparison shops on attorneys' behalf to find them the best terms available in the market. Contact him by phone: (202) 802-6415, or email: ccooper “at” lawyersinsurer.com.