Avishai Abrahami suing NY law firm MSF for malpractice

Avishai Avrahami Credit: Shlomi Yosef
Avishai Avrahami Credit: Shlomi Yosef

Abrahami, Wix cofounder and CEO, alleges New York law firm Meister Seelig & Fein acted negligently in a $30 million loan default.

Israeli cloud-based web development services provider Wix.com Ltd. (Nasdaq: WIX) cofounder and CEO Avishai Abrahami is suing a New York law firm for allegedly violating its professional obligations and malpractice, causing him to lose $30 million. This was the amount that Abrahami (together with others) loaned a real estate company and was not repaid. Last week a US Federal judge in a New York Court dismissed an attempt by the New York law firm Meister, Seelig & Fein LLP (MSF) to throw the case out of court.

The story began in August 2020, when Abrahami was presented with a business opportunity by HFZ Capital Group principal Ziel Feldman, the former controlling shareholder in Polar Investments, which was traded on the Tel Aviv Stock Exchange, before signing two debt settlements a decade ago with creditors for more than NIS 100 million.

According to the lawsuit, it was proposed that Abrahami provide HFZ will a $30 million loan, which would be partly guaranteed by the holdings of three subsidiaries that owned three buildings (warehouses) in New York, Milwaukee, Wisconsin and Nashville, Tennessee. Abrahami believed that if the loan was not repaid these buildings would serve as collateral and he would receive ownership of them.

The lawsuit details how Abrahami approached MSF to represent him on the matter, while Israeli lawyer Adv. Shachar Shimony handled the issue with the New York law firm. According to the lawsuit, Shimony turned to MSF on a matter that it defined as "critical to Abrahami," so that he could ensure receipt of the properties as quickly and easily as possible, without legal proceedings, in the event that the lenders did not repay the loan. But on the three warehouses there was a previous mortgage, even though the borrowers' holdings in these assets were held in escrow by MSF, so that it was guaranteed that they would be transferred to Avrahami, in the event that the loan amount was not repaid to him.

The lawsuit details how Adv. Shimony sent several emails to MSF trying to clarify the matter and received an answer that these terms, "would guarantee the loan and would be an alternative to legal proceedings. This structure will not require the lender (Abrahami) to go to court, in the event of default on the loan."

The Israeli lawyer was not convinced and asked further questions, to which MSF responded that the borrowers would not be able to prevent the sale of the properties but mentioned that the mortgage could impede efforts by the lender to take control of them. In their words, if Abrahami would pay the debt of the mortgage in full, including interest and fines, if necessary, then he could receive the properties. On the basis of this interpretation, Abrahami agreed to lend the amount, which was transferred in September 2020.

The investment company: Transferring the properties would be fraud and a violate of the agreement with the borrower

The twist in the plot occurred in November 2020, two months after the money was transferred, when the law firm received a letter from US investment company Monroe Capital, which said that it had a lien on the borrower's properties, granted to them in 2017-2018, following two loans amounting to $160 million.

The letter also said that these previous loans provided by Monroe had already been defaulted on before Abrahami had extended his loan and that its loan agreements did not allow the lenders to sign loans agreements of the kind provided by Abrahami, nor did it allow the transfer of the holdings to him. Monroe even pointed out that a sales process for part of the properties (including those related to Abrahami's loan) would already begin at the start of December 2020. MSF did not inform Abrahami of the situation until December 18.

In March 2021, when the repayments of the loan transferred to HFZ were not made to him, Abrahami notified the lenders that they had defaulted, in accordance with the loan agreement. The lenders did not respond and until today have not repaid the sum. Several days after notifying the lenders, Abrahami contacted the law firm asking them to release the properties from the trust but Monroe insisted that such a step could not be taken and alleged that transferring the properties, according to the agreement with Abrahami, would represent fraud and a violation of the agreement it had signed with the lenders. To date, MSF has not released the holdings.

According to a lawsuit filed at the end of 2021 by Abrahami, MSF violated its professional obligation and worked negligently for several reasons. Firstly, by not providing him with proper legal advice regarding the loan and by not telling him that there was a demand regarding the properties; secondly, by promising him that the escrow agreement would protect him in the event of default; thirdly by not reporting to Abrahami about the previous loan that Monroe had extended to the lenders; and fourthly by not notifying him and not taking action on time regarding the announcement of the expected sale of the properties in December 2021.

Abrahami is requesting compensation of at least $30 million, including costs and damages as well as the legal costs of the process. The law firm is apparently claiming that Abrahami was supposed to receive the money from the lender but because they are bankrupt, such a process would be long and complicated. But Abrahami charges that he has been caused damage by the fact of the law firm's malpractice and is therefore suing them for the amount. It is reasonable to assume that should Abrahami win in court, then he would receive the sum from the law firm's insurance.

In its motion to the New York court to have the case dismissed, MSF argued that Abrahami's complaint failed to state a claim for legal malpractice under New York law. "To prevail on a legal malpractice claim in New York, a plaintiff must demonstrate ‘that the attorney was negligent, that the negligence was a proximate cause of the injury and that (the plaintiff) suffered actual and ascertainable damages.'"

For purposes of this motion, MSF did not dispute that the complaint plausibly alleges negligence. Instead, MSF moved to dismiss the complaint on the grounds that Abrahami had failed to adequately plead proximate cause and actual and ascertainable damages.

Abrahami has stakes in 14 companies and has made six exits

Abrahami cofounded Wix in 2006 and in 2013 led a successful IPO on Nasdaq at a company valuation of $600 million. The company is currently worth $3.3 billion, although at its peak in February 2021, it was worth $20 billion.

Abrahami holds a 3.3% stake in Wix worth $112 million. He also holds a stake in Israeli work operating system company monday.com worth $143 million. According to IVC, Abrahami is an active angel investor who has stakes in 14 companies, six of which have held exits, although he has retained his stake in some of these companies after the exit.

Published by Globes, Israel business news - en.globes.co.il - on June 13, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Avishai Avrahami Credit: Shlomi Yosef
Avishai Avrahami Credit: Shlomi Yosef
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