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NAFL Investments, LTD. v. Van Ness Feldman LLP

United States District Court, M.D. Florida, Fort Myers Division

June 6, 2018




         This matter comes before the Court on defendant's Motion to Dismiss for Failure to State a Claim (Doc. #10) filed on April 9, 2018. Plaintiff filed a Response in Opposition (Doc. #15) on April 16, 2018, and defendant filed a Reply (Doc. #18). For the reasons set forth below, the Motion is denied.


         This is a one-count legal malpractice suit in which NAFL Investments, Ltd, accuses the law firm Van Ness Feldman LLP, of negligently providing incorrect legal advice and representation in connection with a real estate project involving land owned by plaintiff in Collier County, Florida (the “Florida Land”) and related litigation.[1] (Doc. #2.) More specifically, plaintiff alleges that defendant breached its fiduciary duties to plaintiff and negligently drafted land transfer documents in a manner that (unbeknownst to plaintiff) made certain desirable options unavailable to plaintiff, resulting in litigation.

         Plaintiff's Complaint alleges the following: Plaintiff hired defendant and its attorneys in 1985 in connection with a long-term project regarding the Florida Land, and the representation continues to this date. (Doc. #2, ¶¶ 10-11.) In 1985, the U.S. Department of the Interior approached plaintiff in Naples, Florida to discuss acquiring the Florida Land. The Government lacked a budget appropriation, so it proposed paying for the Florida Land by trading land in Arizona (the “Arizona Land”) accompanied by long-term Government financing for any valuation differential. (Id., ¶ 12.) Plaintiff agreed to explore the proposal, and hired defendant to help it do so based on the firm's representation that it would provide plaintiff with “the highest quality professional services tailored to the needs and resources of plaintiff.” (Id., ¶¶ 13-14.) Defendant holds itself out as having represented clients in land exchanges for more than 40 years. (Id., ¶ 15.)

         Since plaintiff would be trading the Florida Land for unknown and yet-to-be developed land (the Arizona Land) in a long-term project, plaintiff sought to manage its risk by insisting that the project be “non-recourse, ” meaning that plaintiff could end its obligations at any time, for any or no reason, and simply walk away. (Doc. #2, ¶ 16.) Defendant advised plaintiff that the project documents that it had drafted (collectively, the “Transfer Documents”) gave plaintiff such a right, that is, to unilaterally cease making payments and walk away at any time with no obligation other than the transfer of ownership in any remaining collateral (i.e., “non-recourse”). (Id., ¶¶ 17, 19.) The non-recourse nature of the project was material to plaintiff's decision to enter the deal. In reliance on Van Ness' advice, plaintiff agreed to the 30-year exchange project and defendant finalized the Transfer Documents. (Id., ¶ 18.)

         As is customary in real estate development projects, plaintiff sought the right (also documented by defendant in the Transfer Documents) to obtain a partial release of lien if the value of the collateral at the time of release was equal to not less than 130% of the amount of the debt. (Doc. #2, ¶ 20.) Instead, defendant drafted a maintenance of collateral term that, without plaintiff's knowledge, eliminated the non-recourse provision. (Id.) In addition, the Transfer Documents gave the Government the right to enforce the collateral term without having to foreclose or seek damages for nonpayment of the note. (Id.)

         Some years later came the Great Recession, and plaintiff desired to exercise its right to walk away from the project. Therefore, with the help and advice of defendant, plaintiff notified the Government that it deemed itself released from all obligations under the Transfer Documents, including payment obligations, and it was exercising its right to walk away without recourse, as defendant had continuously advised plaintiff it was permitted to do. (Doc. #2, ¶¶ 22-23.) Although the Government agreed that the note was non-recourse, the Government asserted that the documents allow a claim for specific performance because plaintiff had taken advantage of the release provisions for certain parcels and promised additional security in return.[2] (Id.) Plaintiff alleges that defendant failed to disclose to plaintiff that the Transfer Documents were written in such a manner that as soon as plaintiff obtained one partial release, plaintiff automatically “lost the essence of its bargain, i.e., the nonrecourse provision.” (Id.)

         Rather than admit its drafting mistake, Van Ness continued to advise plaintiff that the Government's position was wrong, that the Transfer Documents were unambiguous, and that plaintiff could walk away without paying additional money or furnishing additional collateral. (Doc. #2, ¶ 25.) Defendant also advised plaintiff that plaintiff should not settle with the Government. (Id.) Defendant told plaintiff's that the Transfer Documents would be enforced by a court and that the Government would be ordered by to pay plaintiff's legal fees and costs. (Id.)

         In 2014, the Government filed suit against plaintiff in Arizona. (Doc. #2, ¶ 26.) Plaintiff hired a law firm in Phoenix to assist in its defense, but continued to be advised by defendant, unaware of defendant's negligence and conflicts of interest. (Id.) The parties engaged in settlement discussions in 2015, and Van Ness advised plaintiff not to settle. (Id., ¶ 30.)

         In early 2016, the Arizona court ruled in favor of the Government. (Doc. #2, ¶ 31.) After entry of final judgment, defendant advised plaintiff to appeal, but failed to disclose its erroneous draftsmanship, its foreseeable consequences, or defendant's conflicts. (Id.) Instead, defendant advised plaintiff that the court was wrong and plaintiff would likely succeed on appeal. (Id.) Following defendant's advice, plaintiff appealed and hired an appellate law firm for that purpose. (Id., ¶ 32.) Thereafter, the litigation risk caused by defendant's careless drafting became clear and settlement became the only viable option. (Id.) As a result, with defendant's approval, the case was settled at essentially full value in favor of the Government in August 2017. (Id.) In 2017, plaintiff discovered defendant's negligence and realized that its advice had been wrong all along. (Id., ¶¶ 3, 19.)

         Under the legal malpractice count, plaintiff alleges the following breach:

Defendant breached both its fiduciary duties and heightened level of professional care by, among other things, (1) structuring and drafting documents and continuing to advise on the project in a way that failed to provide non-recourse protection for plaintiff; (2) willfully or recklessly failing to disclose its drafting error or conflicts to plaintiff; and (3) furnishing negligent representation and advice in litigation.

(Doc. #2, ΒΆ 39.) Plaintiff alleges that it never knowingly agreed to a deal with the Government that was anything except nonrecourse, but as a result of defendant's continuous advice, counsel, conflicts, and willful or reckless failure to disclose material facts over more than 20 years, plaintiff ...

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