130 E. 18 Owners Corp. v Axelrod 2025 NY Slip Op 32210(U) June 23, 2025 Supreme Court, New York County Docket Number: Index No. 158632/2024 illustrates the common problem of what to do when the statute of limitations for legal malpractice is approaching yet the underlying case (where the malpractice took place) is not yet resolved. If plaintiff cannot demonstrate all the elements of legal malpractice, the case should be dismissed. However, if it is too early to demonstrate all the elements, then what is to be done?
“Plaintiff owns a multi-unit residential cooperative located at 130 E 18 Street, New York, New York 10003 (the building) (NYSCEF Doc No 9 ¶ 2). On February 10, 2020, a fire broke out in the apartment of building tenant/shareholder David Yanson, which caused damage to certain units and common areas in the building (id. ¶ 3).
Plaintiff retained defendant Peter A. Axelrod Esq., counsel for defendant Axelrod, Fingerhut & Dennis (the firm), “to represent it in connection with investigating and pursuing claims against Yanson relating to his negligence and misuse of his apartment, as well as negotiating with Yanson to sell his shares or otherwise move out of the Building” (the buy-out agreement) (id. ¶ 4). Plaintiff alleges that as it engaged in settlement negotiations with Yanson, it “repeatedly instructed Defendants that any Buy-Out Agreement needed to be approved by their
insurer, Strathmore Insurance Company/Greater New York Insurance Company (‘GNY’), to avoid voiding Plaintiff’s coverage for claims in an action filed by certain unit owners/tenants against Owners Corp. and others relating to the fire” (id. ¶ 5).
On February 27, 2021, several tenants of the building filed an action against plaintiff, the City of New York, Yanson, and several others to recover for personal injuries and property damage arising from the fire: Cassels et al v The City of New York, Index No 152026/2021 (the tenant action).
On April 13, 2021, Axelrod sent to GNY representative Julio Urribiera a draft of the buyout agreement which included the following language in paragraph 3: “Upon the closing of the purchase by Proprietary Lessor, Proprietary Lessor agrees to withdraw with prejudice the Notice of Default Under Proprietary Lease dated February 9, 2021 and each party agrees not to pursue any claim against the other party for any breach or claimed breach of the Proprietary Lease” (the proposed language) (id. ¶ 34).
Urribiera responded that the proposed language was too broad, and suggested that paragraph 3 be replaced with the following language: “Upon the closing of the purchase by Proprietary Lessor, Proprietary Lessor agrees to withdraw with prejudice the Notice of Default Under Proprietary Lease dated February 9, 2021 and Proprietary Lessor agrees to release Proprietary Lessee from any claim for an increase in insurance premium due to the claimed breach set forth in the Notice of Default. Proprietary Lessee agrees to release Proprietary
Lessor for any breach or claimed breach set forth in the Notice of Default” (the approved language) (id. ¶¶ 35-36 [emphasis added to indicate changes]). Urribiera followed up to clarify that GNY “would not agree to anything” that failed to “preserve[] all liability defenses and rights to indemnification, contribution, and apportionment of liability,” and “reserve the right to deny coverage if any agreement impacts our ability to enforce the[se] rights against the shareholder” (id. ¶ 37; NYSCEF Doc No 26).
Axelrod responded: “[I] cut out the revised paragraph 3 that I sent you earlier today and replaced it with the paragraph 3 that you forwarded to me in your e mail of 2:45 pm today” (i.e., the approved language) and attached the buy-out agreement (id. ¶ 39). He asked Urribiera to confirm that the “agreement as modified [is] now acceptable to GNY,” and Urribiera did so confirm (id. ¶¶ 40-41). However, no one noticed that the version of the agreement Axelrod attached—which was then signed by Yanson—still mistakenly contained the proposed language, and not the approved language (id. ¶¶ 43-45 [plaintiff alleges that it “reviewed the cover email
but was not asked to and did not review the attached draft”]).”
“Defendants argue that plaintiff cannot establish that they proximately caused plaintiff’s damages because Yanson would not have agreed to the approved language; Yanson has not appeared or invoked paragraph 3 in the tenant action; the contract does not bar plaintiff from making contribution or indemnification claims; and plaintiff’s failure to challenge GNY’s disclaimer of coverage broke the causal chain (NYSCEF Doc No 23). Defendants also argue that plaintiff’s alleged damages are speculative and not ripe because the tenant action (and the issue
of GNY’s coverage) has not been determined, and notes that plaintiff is a sophisticated client that
voluntarily agreed to the contract as Axelrod presented it (id.).
Plaintiff argues that it has sufficiently alleged proximate causation by alleging that, but for Axelrod’s drafting error and/or misrepresentation of the contents of the agreement, the approved language would have been included, Yanson would have signed the correct agreement, and GNY would not have denied coverage (NYSCEF Doc No 29). Plaintiff further argues that it has sufficiently alleged actual damages, as it has already incurred attorneys’ fees and expenses in its negotiations with GNY, and may suffer additional damages, depending on the outcome of the
tenant action (id.). It also asserts that even if it was comparatively negligent in failing to review the final draft of the buy-out agreement, this would not be dispositive as to defendants’ liability (id.).
On a motion to dismiss, the court “must accept the facts as alleged in the complaint as true, accord the plaintiff the benefit of every reasonable inference, and determine only whether the facts, as alleged fit within any cognizable legal theory” (Bangladesh Bank v Rizal Commercial Banking Corp., 226 AD3d 60, 85-86 [1st Dept 2024]). Under this lenient standard, plaintiff has sufficiently stated a claim for legal malpractice.1 Notably, defendants do not directly address plaintiff’s assertion that Axelrod’s error was negligently made; plaintiff explains its basis for reasoning that Yanson would have signed the agreement with the approved language (NYSCEF Doc No 29, p. 12); GNY specifically stated that it was disclaiming coverage because plaintiff “signed a release that did not contain our approved release language” (NYSCEF Doc No 9, ¶ 51); and plaintiff alleged that it has already incurred legal fees in negotiating this matter with GNY.
Plaintiff does, however, acknowledge that it is unable to ascertain all its damages at this time, as they “are derived substantially from [plaintiff’s] increased costs and potential liability in the Tenant Action,” and the outcome of that action “will determine whether [its] legal malpractice claim is worth pursuing” (NYSCEF Doc No 29). Plaintiffs therefore cross-move to stay this action pending the outcome of the tenant action. Defendants argue that “Plaintiff’s motion to stay the litigation—which Plaintiff themselves commenced—should be denied because
the underlying Shareholders’ Action is still in its early stages and a stay would unjustly prejudice Attorney Axelrod by forcing him to wait an indefinite period for resolution” (NYSCEF Doc No 31). Reasonable as these objections may be, as plaintiff notes, its only options were to bring the action when it did or allow the statute of limitations to expire (NYSCEF Doc No 25 [the statute of limitations was first set to expire in April 2024; defendants agreed to toll the statute of limitations to October 2024; in September 2024, plaintiff requested an extension, which defendants denied]). Since the extent of plaintiff’s damages—and its desire to further pursue this matter at all—depend on the outcome of the tenant action and GNY’s ultimate determination on coverage, the action must be stayed.
CONCLUSION
Based on the foregoing, it is
ORDERED that defendants’ motion to dismiss the complaint is denied; and it is further ORDERED that plaintiff’s cross-motion to stay this matter pending a final determination in Cassels et al v The City of New York, Index No 152026/2021, is granted”.