June 17, 2010 the Court of Appeals determined that the doctrine of privity of
contract, which has previously barred an action for legal malpractice against
an estate planning attorney by an estate or trust and/or its beneficiaries, no
longer applied to an action by an executor.
(Schneider v. Finmann, N.Y.L.J., June 18, 2010 at 25, col. 3, 2010 NY
Slip Op 5281, 2010 N.Y. LEXIS 1169 ).
The prior New York rule which strictly applied privity to estate
planning malpractice actions is a minority rule in the country (see Schneider v. Finmann, supra).
The Court has now adopted a modified
rule that ". . . privity or a relationship sufficiently approaching privity
exists between the personal representative of an estate and the estate planning
attorney in that the estate essentially stands in the shoes of the decedent,"
citing the Texas rule (Belt v. Oppenheimer, Blend et al, 192 S.W.3d 780, 787
[Texas 2006]). The Court of Appeals
concluded that the prior rule effectively protected attorneys and left the
estate with no recourse against an attorney who planned the estate negligently.
The Court also adopted the reasoning
of the Texas courts finding that malpractice actions brought by beneficiaries
should be treated differently. (Barcelo
v. Eliott, 923 S.W.2d 575, 580 [Texas 1996]).
The Court emphasized that strict privity remains a bar against
beneficiaries and other third parties because relaxing privity would produce
the "undesirable result" of "uncertainty and limitless liability."
Thus, executors must consider in the
future whether to bring such an action against the estate planning
attorney. What if the attorney for the
executor is the estate planning attorney?
What then is the executor and his counsel's obligation? There can be little doubt that executors will
be under pressure from some beneficiaries or others to bring legal malpractice
actions. The failure to do so may be the
subject of an objection to the executor's judicial accounting.
Under certain circumstances a
beneficiary may seek limited letters to commence such an action where the
fiduciary fails or refuses to bring such an action [SCPA 702(9)]. Before granting such limited letters, Surrogates
should be vigilant that the action has some merit and that the beneficiary is
not doing an "end run" around the strict privity bar designed to avoid
uncertainty and limitless liability.
A possible solution to this problem
is for the Surrogate to grant limited letters to the petitioner but not
authorize her to use estate assets to pursue the claim. If she is ultimately successful in recovering
assets on behalf of the estate, she may then seek reimbursement from the estate
for the litigation costs (Matter of Leach, N.Y.L.J., June 17, 2010 at 36, col. 5 [Surr. Ct. Bronx
certain that the end of privity, in however a limited way, will engender some
interesting dilemmas for the courts and executors.