Applestein et al vs. Kleinhendler et al

Case Background

On March 19, 2020, Plaintiff Allan H. Applestein filed a fraud lawsuit in the District Court of New York Eastern (Case number: 1:20cv1454). Judge Frederic Block and Magistrate Judge Marcia M. Henry presided over the case.

Cause

Allan Applestein, born in 1932, was a Harvard Law School graduate and a successful business investor residing in Aventura, Florida. He founded Diatomite Corporation of America (DCA), which owned approximately 1,000 acres of valuable land known as the Fones Cliffs Land in Richmond County, Virginia. By 2015, Applestein experienced a significant decline in health and was diagnosed with Alzheimer's disease, requiring round-the-clock care. Howard Kleinhendler, an attorney and partner at Wachtel Missry LLP in New York, began representing Applestein and DCA in 2010. The initial engagement started with a $100,000 retainer, and total legal fees paid reached approximately $175,000. Kleinhendler regularly visited Applestein's home, gathering information about his personal life and financial affairs from staff members. Dr. Andrea Bivens, Applestein's daughter, explicitly warned Kleinhendler about her father's declining health. The attorney observed Applestein's diminished capacity firsthand, noting his inability to focus during meetings or handle basic tasks. In 2013, Peter M. Jarowey offered $8.3 million for the Fones Cliffs Land, later increasing the offer to $12.5 million in cash. Kleinhendler convinced Applestein to reject these offers, claiming fraudulent aspects related to the transactions. A subsequent deal with the Chesapeake Conservancy also fell through. Kleinhendler's Scheme: In 2017, Kleinhendler orchestrated a complex scheme that involved:

• Forming Virginia True Corporation to purchase the property
• Structuring a $12 million deal ($5 million cash, $7 million financed)
• Advising against securing a mortgage or lien
• Obtaining a separate $500,000 personal loan
• Creating conflicting agreements with investors
• Violating promises regarding property encumbrance

Injuries

Applestein suffered substantial financial losses due to Kleinhendler's exploitation of his diminished mental capacity and breach of fiduciary duties. The attorney's actions resulted in:

• Loss of the opportunity to sell the property for the $12.5 million cash offer
• Acceptance of unfavorable terms in the property sale
• Exposure to unnecessary risk through the lack of a security interest
• Unauthorized encumbrance of the property
• Unpaid $500,000 personal loan to Kleinhendler

Damages

The plaintiffs sought damages exceeding $7,724,200.36, including:

• Compensatory damages for the difference between the property's value and the amount received
• Restitution for the $500,000 personal loan
• Punitive damages for willful misconduct
• Costs of pursuing legal action
• Additional damages to be determined at trial

Key Arguments and Proceedings

Legal representation

• Plaintiff(s): Allan H. Applestein | Diatomite Corporation of America, a Maryland Corporation
  • Counsel for Plaintiff: Benjamin S. Akley| Jessica R. Stone | Rebecca Mandel | Shamar Toms-Anthony | Thomas H. Vidal | James George Sammataro
  • Experts for Plaintiff(s): Sanford I. Finkel | Anthony V. Alfieri

• Defendant(s):Howard Kleinhendler | Wachtel Missry LLP
  • Counsel for Defendants: Corey Simpson Booker| Michael Hugh Brady | Stephen Matthew Faraci, Sr. | Vernon Eugene Inge, Jr. | Marc O. Litt

Claims

The complaint alleged seven causes of action in a Fraud lawsuit: Legal Malpractice (two counts) - for failure to disclose conflicts of interest and negligent advice regarding security interests Breach of Fiduciary Duty - for acting against the client's interests and engaging in self-dealing Elder Abuse - for exploiting a vulnerable adult under Florida Statutes Fraud - for making false representations and concealing material facts Unjust Enrichment - for wrongfully retaining benefits from the $500,000 loan Conversion - for failing to repay the personal loan despite demands The plaintiffs requested a jury trial and sought both compensatory and punitive damages, along with the imposition of a constructive trust over the defendants' assets.

Defense

Howard Kleinhendler denied all substantive allegations of legal malpractice, breach of fiduciary duty, elder abuse, and fraud brought by Allan H. Applestein and Diatomite Corporation of America. He asserted that Applestein lacked standing to bring claims individually due to alleged incompetence and the absence of an appointed guardian. Kleinhendler maintained that Diatomite lacked proper corporate authority to bring claims because of Applestein's alleged incompetence as its principal. He argued that Marian Hasty, not he, acted as the attorney for Applestein and Diatomite during the 2017 sale of the Fones Cliffs Land to Virginia True. Kleinhendler stated that Applestein possessed the mental capacity to approve the sale and was fully informed of the risks regarding the unsecured promissory note. In his role as Executive Vice President of Virginia True in 2017, Kleinhendler acted on behalf of the purchasing company, not as legal counsel for the sellers. He contended that Applestein and Diatomite failed to mitigate their alleged damages and that their claims were barred by applicable statutes of limitations. Additionally, he filed a third-party complaint against Marian Hasty, her law firm, Steven Dohan, and his accounting firm, seeking contribution for any damages he might be ordered to pay, claiming they were the ones who actually represented and advised Applestein and Diatomite during the transaction.

Expert Testimony

The plaintiffs introduced two key experts. Dr. Sanford I. Finkel, a geriatric psychiatrist, assessed Allan H. Applestein's mental state during the sale of the Fones Cliffs property on April 27, 2017. Dr. Finkel evaluated whether Applestein was a vulnerable adult under Florida law and whether he had been a victim of deception and exploitation during the transaction. Additionally, Anthony V. Alfieri provided an opinion on the professional responsibilities of Howard Kleinhendler and Wachtel Missry LLP, assessing their conduct under the Rules of Professional Conduct and legal standards governing lawyers and law firms in Florida and New York.

Jury Verdict

On September 20, 2024, the jury awarded the plaintiffs $11,163,984.85 in compensatory damages against Kleinhendler and $112,767.52 in compensatory damages against Wachtel Missry LLP. Additionally, the jury imposed punitive damages of $15,000,000 against Kleinhendler. The total damages awarded amounted to $26,276,752.37 in a Fraud lawsuit. Court Documents: Available Upon Request