N.Y.C. Attorney Faces Escrow Theft Suit Alongside Criminal Probe

Aug. 18, 2021, 10:01 PM

Neither a pending criminal investigation nor the involuntary bankruptcy proceeding of the a real estate practitioner’s law firm warrants a pause in a former client’s civil suit alleging the lawyer pocketed $4 million in escrow funds, a federal court in New York ruled.

The fact that the Manhattan District Attorney’s Office hasn’t indicted Mitchell H. Kossoff weighs against a stay of the civil proceeding, Judge Ronnie Abrams said Tuesday for the U.S. District Court for the Southern District of New York.

And Kossoff himself isn’t the debtor in the bankruptcy court, she said. His status as a partner or responsible officer of his firm, Kossoff PLLC, doesn’t entitle him to a stay either, she said.

Gran Sabana Corp. hired Kossoff to help close New York City real estate transactions, according to the court. From 2014 to April 2021, they allegedly had a fiduciary relationship in which Kossoff put funds in an escrow trust account for Gran Sabana, totaling about $8 million over the years. They allegedly signed an agreement in 2019 under which Gran Sabana would approve all disbursements.

But in April 2021, Gran Sabana was allegedly told that the escrow fund, which should have contained $4 million, was empty, and that Kossoff had disappeared. It sued him for breach of contract, breach of fiduciary duty, conversion, unjust enrichment, and legal malpractice.

The suit can remain active despite the criminal investigation, Abrams said. When “a civil defendant has not been indicted, it is difficult for a court to assess precisely the extent to which the criminal and civil matters overlap—an assessment that is usually made by comparing the allegations in the criminal indictment and the civil complaint,” she said.

The court can’t guess what crimes Kossoff might be charged with, and thus isn’t “in a position to determine with any precision to what extent the matters overlap,” she said.

Pillsbury Winthrop Shaw Pittman LLP represents Gran Sabana. Furman Kornfeld & Brennan LLP represents Kossoff.

The case is Gran Sabana Corp. N.V. v. Kossoff, 2021 BL 309941, S.D.N.Y., No. 21-CV-3154, 8/17/21.

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Nicholas Datlowe at ndatlowe@bloomberglaw.com

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