Atlanta, GA—A Fulton County State Court jury awarded over $1.5 million to two men who lost their entire investment in a failed Costa Rican resort real estate venture and then brought a legal malpractice action against their real estate attorney. Eli Peretz et al. v. S. Alan Cohn et al. (12EV015232).
According to documents filed in the case and other information, Eli Peretz was a contractor who participated in a number of Atlanta area real estate transactions involving renovating and reselling apartment complexes. In 2008, he entered into discussions regarding a possible Costa Rican real estate resort investment with four individuals who had worked with him on some of his earlier projects. These individuals, who were referred to throughout the litigation as the “California Group,” wanted Peretz to loan money to their company, Lifestyles Ventures Cayman, that would be used to help develop the Costa Rican property.
Cohn drafted an operating agreement that created an LLC, Elite at Golfito Bay, owned by Peretz and Dr. Gabbay, that would be the actual party participating in the investment. He also reviewed various documents prepared by the California Group. These documents included a promissory note, a Subscription for Promissory Notes, and a “letter agreement” which was the basis for the underlying controversy in the case. The “letter agreement” purported to be a guarantee from an entity named LGDK, LLC and stated that the entity had an estimated worth of $2.1 million.
Peretz subsequently transferred $1 million, and Dr. Gabbay transferred $500,000 to the account of Lifestyles Ventures Cayman. The development subsequently failed and many of the entities involved wound up in bankruptcy proceedings. Neither Peretz, Dr. Gabbay, nor Elite at Golfito Bay ever received any payments from any entity.
Subsequently, Peretz, Dr. Gabbay, and Elite at Golfito Bay filed the current action against Cohn and his law firm. They alleged that Cohn’s actions, particularly in connection with the “letter agreement,” constituted legal malpractice and a breach of his fiduciary duties. In addition, they alleged that Cohn had a previous relationship with the members of the California Group and their various business entities that presented a conflict of interest with his representing Peretz and Dr. Gabbay in the Costa Rican venture.
Peretz and Dr. Gabbay both testified that they informed Cohn that they required a suitable guarantee from the members of the California Group before they would make the loan to Lifestyle Ventures Cayman. They met with Cohn in Peretz’s office on July 16, 2008, at which time Cohn informed them that the members of the California Group had been told by their attorneys that they could not personally guarantee the loan. During the meeting, Cohn spoke via telephone with Peter Gaeckle of the California Group and eventually received some faxed documents.
Dr. Gabbay testified that Cohn informed them the members of the California Group had each put residential property he owned into an LLC that would issue the guarantee. According to Cohn, the LLC had a net worth of $2.1 million. Both Peretz and Dr. Gabbay stated that Cohn never informed them about any liens on the properties. Instead, Dr. Gabbai testified, Cohn told him the venture was a “good deal” and that he would make a great deal of money on the venture.
On cross examination, both Peretz and Dr. Gabbay acknowledged that they had received the subscription agreement, which contained language describing the venture as “highly speculative,” and that they knew the venture had substantial risks. In addition, neither of them made any independent effort to verify the net worth of the LLC before signing the documents and wiring the money.
The members of the California Group testified by video deposition. Peter Gaeckle stated that the properties mentioned in the letter agreement were subject to liens and that he had disclosed that fact to Cohn prior to the finalization of the Costa Rican transaction.
Kurt Hilbert, an Atlanta real estate attorney, testified as an expert witness for plaintiffs. He examined the various documents in the case and expressed a number of concerns. In particular, LGDK, LLC, the entity purportedly guaranteeing the loan, did not exist. A company named LGDK Investors, LLC, existed and later filed for bankruptcy, listing plaintiffs as its creditors, and indicating that the properties it held were subject to substantial liens.
In Hilbert’s opinion, the failure to list an actual existing legal entity as guarantor rendered the guarantee invalid. However, even if LGDK Investors, LLC, was considered the guarantor, the company was insolvent and unable to satisfy the guarantee. However, on cross examination, Hilbert acknowledged making mistakes in pleadings he had prepared in various cases. Further, Hilbert said he had never seen a net worth statement in a real estate guarantee. According to Hilbert, if Cohn knew there were liens on the properties and failed to disclose that to plaintiffs, then his actions would fall below the standard of care required for an attorney. It was also improper not to inform Peretz and Dr. Gabbay of any potential conflicts of interest involved in representing them in the Costa Rican transaction.
In his testimony, Cohn denied that Dr. Gabbay was his client or that he had made statements calling the Costa Rican investment a good deal. He said he had told Peretz about the existence of possible liens against the properties in the guarantee and that he had made no effort to verify the company’s net worth. He stated that he did not advise Peretz one way or the other about verifying the company’s net worth.
Cohn also acknowledged sending and receiving a number of e-mails to members of the California Group that Peretz never received or was informed of. Cohn said that Peretz was “not a fan of the e-mail system” and that he usually communicated with Peretz by phone. He denied ever representing the California Group or their affiliated properties prior to the Costa Rican transaction, although he did represent them subsequently.
The defense also called an Atlanta real estate attorney, William Dodson, as an expert witness. Although he had never seen a statement of net worth in a guarantee, Dodson did not believe that language rendered the guarantee invalid, because it was legally superfluous language. In addition, he said it was the parties’ responsibility to verify the net worth of any property, not the attorney’s.
In her closing statement, Cohn’s attorney, Elizabeth O’Neill asked the jury to consider whether any mistakes Cohn might have made were actually the proximate cause of any loss. “Lawyers aren’t perfect. Alan is not perfect. He made some mistakes in the documents. Some of those mistakes were found when Mr. Hilbert picked them apart from his work as an expert. Some of them were found a long time before that… The question for you is not whether mistakes were made but whether they’re the proximate cause of damage.”
In O’Neill’s view, any imperfections in the guarantee did not cause the loss the plaintiffs suffered. Instead, the loss was due to the failure of the underlying investment. “The issue here is did Alan Cohn do or fail to do something that caused the plaintiffs damages. That letter of agreement did not cause the failure of the Costa Rican development. No personal agreement in the world could have prevented the failure of the Costa Rican development or the failure of the California Group’s various companies.”
O’Neill also noted that there was no evidence in the case that Cohn had ever represented the California Group in any prior transactions. Both Cohn and the group members denied that he ever represented them. She labeled plaintiff’s attempts to establish a conflict of interest “just an effort to create the appearance of impropriety.” According to O’Neill, as an experienced real estate investor, Peretz must have known about the possibility of liens on the properties, but he wanted to proceed with the Costa Rican venture. She concluded, “What we’ve been doing here all week is chasing dragons because the plaintiffs don’t want to accept responsibility that their investment failed and what they’d like to do is to … go back to the opportunity to be heroes for themselves and their families that they hoped they would be.”
In his closing statement, plaintiff’s attorney Stephen Katz urged the jury to rely on the documents they saw with their own eyes, specifically the guarantee. He noted that the defense kept stressing the riskiness of the venture and the statements about that risk in the documents but that the defense did not want to discuss the guarantee. “The note and the subscription agreement were risky. That’s exactly why you go see a lawyer. That’s exactly why you say … I’m not doing this deal unless I have a proper guarantee.” Katz also reminded the jury that the defense’s own expert witness testified he had never seen a statement of net worth in a guarantee in over 40 years of practice.
Katz criticized Cohn’s actions in regard to the guarantee once he knew of the existence of liens on the properties. ““When a lawyer is on the phone with the opposite side and he’s undertaking to put a provision in that he shouldn’t even be putting in …and he learns something that is material … critical to my client’s decision to invest at all. When he learns that there’s liens against that, you don’t turn around to your clients and say ‘oh gee, this is a wonderful deal; you’ve got $2.1 million.’ You say, ‘there are liens against that; I can’t advise you to go into that; go verify the lien.’ … That’s what a reasonably prudent lawyer does. Lawyers have a fiduciary obligation. … You have to exercise the utmost good faith.”
Katz also asked the jury to consider the extensive correspondence between Cohn and the members of the California Group of which Peretz was unaware and whether the prospect of getting more legal business from the California Group might have affected Cohn’s actions and the advice he provided Peretz and Dr. Gabbay. Katz concluded, “[Cohn] sold them out. He knew that they weren’t getting the guarantee and he knew for a fact that they would walk away. He didn’t want them to walk away because he was serving two masters. And that’s what this case is about.”
The jury found in favor of plaintiffs on both their theories of legal malpractice and breach of fiduciary responsibility and that an attorney-client relationship did in fact exist between Cohn and Dr. Gabbay. The jury did not award any damages for legal malpractice but did award Peretz $1,002,900 and Dr. Gabbay $500,000 for breach of fiduciary responsibility (the additional $2,900 represented the fee Peretz paid Cohn for his services initially). However, the jury declined to award punitive damages or attorney’s fees in the case.
Representatives for the parties declined comment on the case to Courtroom View Network. Steve Silver can be reached at ssilver@cvn.com.
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Attorneys involved in the case include Stephen Katz of the Katz Law Group of Marietta for plaintiffs and Elizabeth O'Neill and Kathryn Witlock of Hawkins, Parnell, Thackston, & Young of Atlanta for the defendants.
Watch on-demand video of the trial as soon as it becomes available.