The End of Privity – Some Thoughts

The End of Privity – Some Thoughts

On 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 [2010]).  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 County]).

It is certain that the end of privity, in however a limited way, will engender some interesting dilemmas for the courts and executors.