Legal Malpractice

Game Changer in Estate Legal Malpractice

By (Andrew Lavoott Bluestone)

It's usually the Court of Appeals which issues a game changing decision, which sets stare decisis on its ear.  From time immemorial, the question of privity has predominated the estate legal malpractice area.  In essence, is the estate in privity with the attorney who set up the estate?   Mostly the answer was no.  Now, we have Estate of Saul Schneider v Finmann
2010 NY Slip Op 05281 ;Decided on June 17, 2010 ;Court of Appeals ;Jones, J.  The plain statement of the case is: "At issue in this appeal is whether an attorney may be held liable for damages resulting from negligent representation in estate tax planning that causes enhanced estate tax liability. We hold that a personal representative of an estate may maintain a legal malpractice [*2]claim for such pecuniary losses to the estate."
 

"Strict privity, as applied in the context of estate planning malpractice actions, is a minority rule in the United States [FN1]. In New York, a third party, without privity, cannot maintain [*3]a claim against an attorney in professional negligence, "absent fraud, collusion, malicious acts or other special circumstances" (Spivey v Pulley, 138 AD2d 563, 564 [2d Dept 1988]). Some Appellate Division decisions, on which the Appellate Division here relied, have applied strict privity to estate planning malpractice lawsuits commenced by the estate's personal representative and beneficiaries alike (Deeb v Johnson, 170 AD2d 865 [3d Dept 1991]; Spivey, 138 AD2d at 564; Viscardi v Lerner, 125 AD2d 662, 663-664 [2d Dept 1986]; Rossi v Boehner, 116 AD2d 636 [2d Dept 1986]). This rule effectively protects attorneys from legal malpractice suits by indeterminate classes of plaintiffs whose interests may be at odds with the interests of the client-decedent. However, it also leaves the estate with no recourse against an attorney who planned the estate negligently. "

"We now hold that privity, or a relationship sufficiently approaching privity, exists between the personal representative of an estate and the estate planning attorney. We agree with the Texas Supreme Court that the estate essentially "'stands in the shoes' of a decedent" and, therefore, "has the capacity to maintain the malpractice claim on the estate's behalf" (Belt v Oppenheimer, Blend, Harrison & Tate, Inc., 192 SW3d 780, 787 [Tex 2006]). The personal representative of an estate should not be prevented from raising a negligent estate planning claim against the attorney who caused harm to the estate. The attorney estate planner surely knows that minimizing the tax burden of the estate is one of the central tasks entrusted to the professional. Moreover, such a result comports with EPTL § 11-3.2(b)[FN2], which generally permits the personal representative of a decedent to maintain an action for "injury to person or property" after that person's death.

Despite the holding in this case, strict privity remains a bar against beneficiaries' and other third-party individuals' estate planning malpractice claims absent fraud or other circumstances. Relaxing privity to permit third-parties to commence professional negligence actions against estate planning attorneys would produce undesirable results — uncertainty and limitless liability. These concerns, however, are not present in the case of an estate planning malpractice action commenced by the estate's personal representative. "

Full post as published by New York Attorney Malpractice Blog on June 21, 2010 (boomark / email).