Shu v. Butensky, 2009 WL 417265 (N.J. Super. Ct. App. Div. 2009)

Brief Summary
Attorney who drafted a right of first refusal that was intended to “survive the passage of time” may owe the client a duty to protect this right nearly 20 years after drafting the contract.

Complete Summary
Attorney Howard Butensky represented Stanley Shu in 1986. Butensky helped Shu purchase real property and also secured for Shu a right of first refusal on an adjacent lot. Butensky noted in the documentation that the right of first refusal “shall survive the passage of time.” Id. at *1.

In 2005, the owners of the adjacent lot retained Butensky to help them sell the lot, not to Shu but to a man named Robert Gaudiosi. Before the sale, Gaudiosi’s attorney discovered a structure on Shu’s property that allegedly encroached on the adjacent lot. Butensky wrote Shu a letter in May 2005, noting that failure to fix the encroachment could result in litigation.

Shu refused to remove the encroachment, and Gaudiosi filed suit. Shu filed a counterclaim alleging trespass, but his claim made no mention of Butensky or the right of first refusal. A month later, Shu sought to enforce the right of first refusal. Butensky responded by claiming, inter alia, he had no recollection of the 1986 transaction. Shu settled the encroachment action and then filed the present legal malpractice action against Butensky.

Shu alleged that he had informed Butensky of his intent to exercise the right of first refusal in May 2005, when Butensky first contacted him about the sale. In response, Butensky moved for summary judgment under the “entire controversy” doctrine arguing that Shu could not sue Butensky now because he could have done so in the prior litigation.

The trial court refused to apply the entire controversy doctrine based on the legal malpractice exception to the doctrine. Instead, the trial court granted Butensky’s motion because Butensky did not owe Shu a duty.

The appellate court reversed on the ground that a duty could be inferred from the pleadings. The court noted that, despite the fact that Butensky and the trial court framed the issue in a summary judgment context, the motion was more properly framed as one for dismissal because no discovery had occurred. The standard for a dismissal motion requires the court to “scour the allegations in the complaint, giving [the non-moving party] every favorable inference that could be gleaned even from an obscure statement or claim, to determine whether a prima facie case of legal malpractice had been pled.”  Id. at *5.

The court then held that the “survive the passage of time” language could be inferred to impose a duty on Butensky to protect Shu’s right of first refusal nearly 20 years after their attorney-client relationship ended.

The court also inferred the possibility of a breach based on Butensky’s failure to draft an instrument that would give notice of the right of first refusal to potential purchasers of the lot. The court also inferred the possibility of a causal link between this breach and Shu’s damages, which came in the form of his lost opportunity to purchase the lot, his settlement paid to Gaudiosi, and his counsel fees in defending the Gaudiosi action.

Significance of Opinion
If the “survive the passage of time” language was the key to the duty that the court found here, this opinion will not affect many transactional lawyers. But if such a long term duty can be inferred more generally in contracts without specific termination dates, the impact could be significant.

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