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Schneider v. Finmann - 2010 NY Slip Op 5281, 15 N.Y.3d 306, 907 N.Y.S.2d 119, 933 N.E.2d 718

Rule:

Strict privity, as applied in the context of estate planning malpractice actions, is a minority rule in the United States. In New York, a third party, without privity, cannot maintain a claim against an attorney in professional negligence, absent fraud, collusion, malicious acts or other special circumstances. Some Appellate Division decisions have applied strict privity to estate planning malpractice lawsuits commenced by the estate's personal representative and beneficiaries alike. 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. 

Facts:

Defendants represented decedent Saul Schneider from at least April 2000 to his death in October 2006. In April 2000, decedent purchased a $ 1 million life insurance policy. Over several years, he transferred ownership of that property from himself to an entity of which he was principal owner, then to another entity of which he was principal owner and then, in 2005, back to himself. At his death in October 2006, the proceeds of the insurance policy were included as part of his gross taxable estate. Decedent's estate commenced this malpractice action in 2007, alleging that defendants negligently advised decedent to transfer, or failed to advise decedent not to transfer, the policy which resulted in an increased estate tax liability. Supreme Court granted defendants' motion to dismiss the complaint for failure to state a cause of action. The Appellate Division affirmed, holding that, in the absence of privity, an estate may not maintain an action for legal malpractice. Plaintiff estate appealed.

Issue:

In a legal malpractice claim by the representative of a decedent's estate, may an attorney may be held liable for damages resulting from negligent representation in estate tax planning that caused enhanced estate tax liability?

Answer:

Yes

Conclusion:

Reversing on appeal, the Court denied defendant attorneys' motion to dismiss plaintiff's legal malpractice claim for pecuniary losses to the estate. The Court held that privity, or a relationship sufficiently approaching privity, existed between the estate and defendants. The estate essentially stood in the shoes of the decedent and, therefore, had the capacity to maintain the malpractice claim on the estate's behalf. The estate was entitled to raise an estate planning malpractice claim against defendants because they caused harm to the estate. Moreover, that type of claim comported with EPTL 11-3.2(b), which generally permitted a personal representative of a decedent to maintain an action for "injury to person or property" after that person's death.

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