The law of legal malpractice is ancient. Rules regulating the behavior of attorneys are among the oldest in Anglo-American law. Amalfitano v. Rosenberg, 12 NY3d 8 (2009). The earliest predecessor of the attorney regulating Judiciary Law §487 arose in 1275.1 Legal malpractice cases in this state date from almost the birth of the United States.
Change comes incrementally and slowly to the law. Rarely are there significant structural changes. Thomas Kuhn2 wrote about revolution in scientific theory. “Paradigm shifts” mark an abrupt departure which opens up a discussion or path that had never been considered valid before. Revolution is rarely seen in the law, although even incremental change can seem huge. As an example, putting limits on a portion of pain and suffering recovery in some personal injury matters is seen as revolutionary “tort reform,” rather than incremental change. Recently seismic change came in the form of a Court of Appeals decision in Estate of Schneider v. Finmann, 15 NY3d 306 (2010). This case deals with legal malpractice and privity, and changes the way in which we look at estates and trusts.
No similar change has come to the basic requirements for a legal malpractice cause of action. Rudolph v. Shayne, Dachs, Stanisci, Corker & Sauer LLP, 8 NY3d 438 (2007). The elements of legal malpractice are still that the attorney failed to “exercise the ordinary reasonable skill and knowledge commonly possessed by a member of the legal profession,” that the “breach of this duty proximately caused plaintiff to sustain actual and ascertainable damages” and that plaintiff “would have prevailed in the underlying action or would not have incurred any damages but for the lawyer’s negligence.” Id. at 442.
There are several areas of blanket immunity in legal malpractice. Criminal defense attorneys are almost universally immune from legal malpractice lawsuits. The policy reason for this seems to go hand-in-hand with the ancient rule of pari delicto. A person of equal fault may not benefit from the wrongs of the other.3
Put one way, a criminal defendant may not sue the criminal attorney unless “actual innocence” can be shown. “To state a cause of action for legal malpractice arising from negligent misrepresentation in criminal proceedings, plaintiff must allege his innocence or colorable claim of innocence of the underlying offense, for so long as the determination of his guilt of that offense remains undisturbed, no cause of action will lie.” Carmel v. Lunney, 70 NY2d 169, 172 (1987). Actual innocence is often defined as “acquittal, reversal or exoneration.”
The stated reason for this policy decision is that “criminal prosecutions involve constitutional and procedural safeguards designed to maintain the integrity of the judicial system and to protect criminal defendants from overreaching governmental actions. These aspects of criminal proceedings make criminal malpractice claims unique….” Id. at 173. There are numerous prisoner vs. criminal defense attorney cases dismissed for this social policy reason.
Another area of blanket immunity in legal malpractice law is the question of trusts and estates malpractice. The genesis of this particular situation lies in the undeniable fact that the attorney who is to be sued was retained by the deceased, and not by the estate (which could not then have existed) the executor or the beneficiaries.
Privity is the relationship between plaintiff and defendant. “The well-established rule in New York with respect to attorney malpractice is that absent fraud, collusion, malicious acts or other special circumstances, an attorney is not liable to third parties, not in privity, for harm caused by professional negligence.” Spivey v. Pulley, 138 AD2d 563 (2d Dept. 1988).
In these circumstances fraud means a false or misleading representation with reliance on the representation. Collusion means a secret agreement between two or more to defraud one of rights. Malicious acts are intentional, wrongful and are undertaken with an intent to inflict an injury upon another.4
“Special circumstances” are largely undefined, but in Good Old Days Tavern Inc. v. Zwirn, 259 AD2d 300 (1st Dept. 1999), it meant that the relationship between plaintiff and the attorney already existed and was “tantamount to one of contractual privity. Indeed, plaintiff Day was for all intents and purposes a foreseeable third-party beneficiary of the contract” at question.
In a typical legal malpractice case, plaintiff has retained the attorney to perform work, which may later be said to have been negligently handled. Think, for example of an automobile passenger in a crash. Victim retains attorney who then waits too long to commence the action. Plaintiff now brings an action against the attorney, alleging legal malpractice.
Now, compare this situation to one in the estates area. Take this particular fact pattern and subject it to a privity analysis: Decedent purchases a life insurance policy. He later transfers ownership of that policy from himself to an entity of which he was the principal owner, and then to another similar entity and then back to himself.
At his death, the proceeds of the policy were included as part of his gross taxable estate. It is alleged in a legal malpractice action that defendant attorneys gave negligent advice concerning the intra-vivos transfer, and that the advice resulted in increased estate tax liability to the estate.
Plaintiff, the executor of the estate, manifestly is alive. The person who retained the attorneys is dead. There is no privity between plaintiff and the attorney. This is true whether plaintiff is an executor, a friend, a beneficiary of the estate, or anyone else.
There is a social policy at play here, just as in the criminal defense area. In 1988, the Appellate Division, Second Department, felt no need to enlarge the liability (or stop immunizing the attorney) in the will drafting, estate area. Spivey cited Viscardi v. Lerner, 125 AD2d 662 (2d Dept. 1986), where the court found that the “designated beneficiaries of a will were allegedly harmed by virtue of an attorney’s negligence in drafting the instrument. In holding that the plaintiffs could not recover against the attorney, this court pointedly observed that ‘we decline to depart from the firmly established privity requirement in order to create a specific exception for an attorney’s negligence in will drafting.’” Id. at 664.
The effect of this social policy is to create blanket immunity for estate attorneys, or more precisely for attorneys who provide wills, estate planning, or pre-death services of any nature. This social policy has allowed the Appellate Divisions to apply strict privity to estate planning malpractice lawsuits commenced by the estate’s personal representatives and beneficiaries alike. Deeb v. Johnson, 170 AD2d 865 (3d Dept. 1991), Spivey, supra; Viscardi, supra, Rossi v. Boehner, 116 AD2d 636 (2d Dept. 1986).5
The further effect of this policy was to “effectively protect 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.” Estate of Schneider, supra.
Revolution vs. Evolution
Returning to the question of revolution versus incremental change, Estate of Schneider is a revolution in the legal malpractice world. It opens a door which had been firmly closed. Schneider is a case in which the estate planning attorney was alleged to have negligently advised his client in how to handle a $1 million life insurance policy so as to reduce his gross taxable estate. In his lifetime, decedent transferred and re-transferred the policy. At his death, the proceeds of the insurance policy were included as part of his gross taxable estate, which resulted in increased estate tax liability. The proceeds need not have been included.
Judge Theodore T. Jones for the Court of Appeals wrote: “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 (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.” Schneider, supra.
Beyond the mere issue of privity, the Court of Appeals found that the result “comports with EPTL §11-3.2(b), which generally permits the personal representative of a decedent to maintain an action for ‘injury to person or property’ after that person’s death.” Nevertheless, strict privity remains a bar against beneficiaries and other third parties to commence professional negligence actions.
Who are the players in an estate transaction? We start with decedent. In the simple case, decedent made a will. The will appoints an executor. The executor creates an estate. The estate is a hypothetical entity which contains and embodies all rights of the decedent which are now to pass to beneficiaries. Beneficiaries are those who will take from the estate. After Schneider, what are the rights of the players, and to whom do obligations of the pre-death attorney flow?
Beneficiaries continue to have no discernable rights against the pre-death planning attorney, nor even against the estate’s attorney short of fraud, collusion, malicious acts or other special circumstances.
As the Court in Schneider noted, “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 are not present in the case of an estate planning malpractice action commenced by the estate’s personal representative.”
There is little argument that privity is a proper and necessary bar to legal malpractice litigation. There can be no dispute that litigation is mostly a binary and zero-sum situation. Not only are there usually two sides, but only one side will win. If there were no strict law of privity, then each and every lawsuit would be followed by a legal malpractice case brought by the loser against the winner’s attorney. Loser would sue winner’s attorney universally.
All of the examples so far are simple. In more complex settings, the attorneys have multiple responsibilities and represent more than decedent alone. In Nevelson v. Carro, Spanbock, Kaster & Cuiffo, 259 AD2d 282 (1st Dept. 1999), it was the multiple representations that kept the case alive. The attorneys “represented all of the plaintiffs and advised each one of them with respect to variously related matters over the years in question.”
This is not to say that the door is now wide open. Post-Schneider decisions are now trickling in, and Leff v. Fulbright & Jaworski LLP, 78 AD3d 531 (1st Dept. 2010), demonstrates the continued constriction. “Defendants demonstrated that while they represented plaintiff in her estate planning and other matters, she was not in privity with them in regard to her late husband’s estate planning. The absence of such privity remains a bar against her estate malpractice claims.”
The court continued: “Plaintiff’s subjective belief that she had engaged in joint estate planning or was jointly represented with her late husband is insufficient to establish such privity. Contrary to plaintiff’s contention, this case is not akin to Estate of Nevelson.” Id. at 532.
The evidence is not yet sufficiently before the tribunal to determine whether this is revolution or evolution. The wheels of justice grind slowly, and it may be a while before this pattern resolves. We look forward to more developments.
Andrew Lavoott Bluestone is an attorney, specializing in legal malpractice litigation in Manhattan. He is board certified in legal malpractice by the American Board of Professional Liability Attorneys.
1. The Magna Carta was issued only 60 years earlier in 1215.
2. Thomas Kuhn, “The Structure of Scientific Revolutions,” Univ. of Chicago Press, 1962.
3. “Courts do not sit to ‘extricate rogues from their toils’ and sound policy requires that they should be left to the hazards of their devices, and at the mercy of each other.” Schermerhorn v. Talman 14 NY 93 ( 1856).
4. Black’s Law Dictionary, 5th ed., West Publishing Co.
5. Citations are from Schneider, supra.