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Court of Appeals Allows Estate to Sue Attorney for Estate Planning Malpractice
Nicholas J. Damadeo, Esq. represented the estate before the Court of Appeals

Huntington, NY -- July 21, 2010 - New York State’s highest court ruled on June 17 that an Estate may sue an attorney for malpractice for bad estate planning advice given to a client before death. Prior to the decision, under New York’s centuries old “privity” law, if an estate planning attorney gave bad estate planning advice to his client, and the client died, the client’s Estate was forbidden to sue the attorney.

“Average consumers probably never knew that their estate planning attorneys were virtually free from liability for their mistakes once the client died,” said Nicholas Damadeo of Huntington, New York, the Estate’s attorney who argued and won the case of Estate of Schneider v. Finmann before the Court of Appeals in Albany. “Now that has changed, and in certain situations, the Estate may have a claim for damages.” For New York Law Journal article, click here.

Nicholas J. Damadeo is a preeminent appellate attorney who has successfully represented clients in civil appeals encompassing a variety of legal issues. He has argued before every appellate court in New York, including several before the New York Court of Appeals. He may be contacted at 631-271-7400 or via e-mail at nick@damadeolaw.com.

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The decision as written by the court. This opinion is uncorrected and subject to revision before publication in the New York Reports.
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No. 104
Estate of Saul Schneider,
Appellant,
v.
Victor M. Finmann, et al.,
Respondents,
et al.,
Defendant.
Nicholas J. Damadeo, for appellant.
Peter J. Mastaglio, for respondents.

JONES, J.:
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 claim for such pecuniary losses to the estate.

The complaint alleges the following 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 (60 AD3d 892), holding that, in the absence of privity, an estate may not maintain an action for legal malpractice. We now reverse and reinstate plaintiff's claim.

Strict privity, as applied in the context of estate planning malpractice actions, is a minority rule in the United States.1 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" (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)2, 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.

Accordingly, the order of the Appellate Division should be reversed, with costs, and defendants' motion to dismiss the complaint denied.
* * * * * * * * * * * * * * * * *
Order reversed, with costs, and defendants' motion to dismiss the
complaint denied. Opinion by Judge Jones. Chief Judge Lippman
and Judges Ciparick, Graffeo, Read, Smith and Pigott concur.
Decided June 17, 2010


1. Now only a handful of jurisdictions apply strict privity to malpractice actions commenced by beneficiaries against estate planning attorneys (see Robinson v Benton, 842 So2d 631, 637 [Ala 2002]; Nevin v Union Trust Co., 726 A2d 694, 701 [Me 1999];Noble v Bruce, 709 A2d 1264, 1275 [Md 1998]; Simon v Zipperstein, 512 NE2d 636 [Ohio 1987]; Lilyhorn v Dier, 335 NW2d 554 [Neb 1983]). Numerous jurisdictions have either relaxed the principle of privity or have granted standing to beneficiaries or estates (see The Stanley L and Carolyn M. Watkins Trust, 321 Mont 432, 438 [2004] [an estate has standing to bring a legal malpractice action]; Blair v Ing, 21 P3d 452, 464 [Hawai'i 2001] [non-client may bring a legal malpractice suit]; Simpson v Calivas, 650 A2d 318, 321 [NH 1994] [named beneficiaries have standing to bring claims in negligence against an estate planning attorney]; Espinosa v Sparber, Shevin, Rosen and Heilbronner, 612 So2d 1378, 1380 [Fla 1993] [estate stands in the shoes of the testator and satisfies the privity requirement]; Schreinder v Scoville, 410 NW2d 679, 681 [Iowa 1987] [intended beneficiaries may maintain a malpractice action against the decedent's attorney despite the absence of privity]). The Schreinder court cited to numerous jurisdictions that had a similar rule in place (see id. at 681- 682). Texas treats the malpractice claims brought by beneficiaries and personal representatives of decedent's estates differently (see Barcelo v Elliott, 923 SW2d 575, 580 [Tex 1996] [non-client beneficiaries cannot maintain malpractice suits against estate planning attorneys because they lack privity]; cf. Belt v Oppenheimer, Blend, Harrison & Tate, Inc., 192 SW3d 780, 784-786 [Tex 2006] [departed from the Barcelo rule in suits brought by the personal representative of the decedent's estate and held that privity existed between the parties]).

2. "No cause of action for injury to person or property is lost because of the death of the person in whose favor the cause of action existed. For any injury an action may be brought or continued by the personal representative of the decedent" (EPTL § 11-3.2 [b]).



Attorney, Nicholas J. Damadeo, Noted Petroleum Law Advocate,
Moves Offices from Smithtown to Huntington.

Huntington, NY -- July 18, 2006 - Attorney, Nicholas J. Damadeo has announced the relocation to Huntington, NY of the law firm that bears his name. This law firm has been a resource for businesses, organizations and individuals in Nassau and Suffolk Counties and New York City for more than twenty-seven years. During that time, Mr. Damadeo has developed a reputation for being “a lawyer’s lawyer” when it comes to filing appeals, by achieving an above average success rate.

In addition to his appellate practice, Mr. Damadeo has practiced and lectured in the field of Navigation Law and petroleum related matters for twenty-five years.  He is general counsel to downstate New York’s two retail petroleum trade associations and was the attorney of record in two recent landmark cases involving innocent landowner liability and statute of limitations in petroleum spill cases.  
Others among his notable successes are the defense of commercial waterfront landowners to dredge a public harbor; the defense of corporations from the imposition of sales taxes on the sale of customer lists; and protection of the rights of franchise owners.

Because of his extensive business law background, Mr. Damadeo also helps clients form new businesses, buy and sell real estate, and buy, sell or merge companies.
Mr. Damadeo also advises clients in the area of estate planning, contracts, and civil litigation.

For more information contact Nicholas J. Damadeo, PC, 27 West Neck Road, Huntington, NY 11743; TEL: 631 271-7400; FAX: 631 271-7411; or email nick@damadeolaw.com.



Environmental and Petroleum Topics

Tank Leaks and the Statute of Limitations:
When Does the Clock Start Ticking?

A gasoline tank leak was discovered at your service station several years ago, and the State’s contractor is still cleaning up, visiting the site monthly, and checking monitoring wells.  You wonder when it is going to end.  So far, you have not received an invoice for all this work.  But you know you will someday, and then it comes, ten years later.  “Isn’t there a Statute of Limitations?”, you ask.  When does the clock start ticking on New York State’s right to be reimbursed for cleanup costs for a petroleum discharge?

Although New York’s Oil Spill Compensation Fund has existed for more than twenty-five years, the answer to this question is only now being developed in the courts.  And two Long Island service stations have led the battle for finality on this issue.

The Case of State v. Speonk Fuel, Inc.
In January, 1986, Speonk Fuel, Inc., signed a contract to buy an existing gasoline service station from The Local Wrench Service Station, Inc.  The sale included the underground storage tanks and pump system.  At the same time, Speonk Fuel’s principal shareholder Tom signed a separate contract personally to buy the real estate on which the service station was located.

Two weeks after the contracts were signed, Tom was driving by the station and saw one of the tanks being removed.  He then learned that the tank had failed a tightness test the previous October and that the Department of Environmental Conservation had ordered the tank to be removed.  When Local Wrench would not pay for the cleanup itself, the State appointed a contractor.

After being told that the cleanup would cost about $100,000, Speonk and Tom received some concessions from The Local Wrench and closed on the two sales in March, 1986.  The State continued the cleanup operation for ten years.

In September, 1996, the State sued The Local Wrench and Speonk Fuel for reimbursement under Article 12 of the Navigation Law, which prohibits discharges of petroleum and authorizes the State to cleanup and to recover cleanup costs from responsible parties.  By that time, the actual costs exceeded $500,000.

The Local Wrench, having gone out of business years earlier, did not appear in the action.  Speonk Fuel defended on two grounds: (1) It did not discharge petroleum because the leaking tank had been removed before Speonk Fuel bought the station; and (2) The Statute of Limitations had expired.

The Case of State v. Ackley
In September, 1986, the same year that Speonk Fuel bought its service station, Robert Ackley arrived at work early one morning to discover that the underground gasoline storage tank at his Valley Stream service station had leaked.  The Department of Environmental Conservation was notified, and the tank was removed.  A State appointed contractor began cleanup, which continued for more than a decade. 

In 1994, the State sued Ackley for more than $400,000 in cleanup costs.  Ackley defended on the ground that the Statute of Limitations had expired.

The Appellate Courts Wrestle with the Issue
The State’s cases for reimbursement under the Navigation Law usually are brought in Albany County because the Oil Spill Compensation Fund is located there.  Different Supreme Court judges were assigned to the Speonk and Ackley cases.  Both decided that the State’s lawsuits were timely, holding that the Statute of Limitations is six years and that it begins to run from the date the State issued its last check for cleanup costs.

Speonk Fuel appealed first, contending that the Statute of Limitations begins to run from the date the State issued its first check for cleanup costs.  In 2000, the Appellate Division in Albany upheld the Supreme Court decision.  Speonk would be liable for all of the cleanup costs.  The Supreme Court had not yet decided on the amount.

Then it was Ackley’s turn.  In 2001, the same Appellate Division in Albany changed its decision in the Speonk case.  The Court decided in Ackley that the Statute of Limitations does not begin to run from the date of the last check, nor the first check.  Rather, the court held, each check has its own separate Statute of Limitations.  Robert Ackley would not be liable for cleanup costs paid for more than six years prior to commencement of the State’s lawsuit.

In 2002, Speonk was back in the Supreme Court for a determination of damages.  The Supreme Court held that Speonk would not be liable for cleanup costs paid for more than six years prior to commencement of the State’s lawsuit, relying on the decision of the more recent Ackley case.  The State appealed.

In 2003, the Appellate Division clarified its earlier decisions and ruled in the second Speonk appeal that the Statute of Limitations on New York State’s right to be reimbursed for cleanup costs for a petroleum discharge is six years from the date of each individual payment.

The Court of Appeals: The Final Word
In December, 2003, New York’s highest court, the Court of Appeals, decided that this issue was important enough to warrant review and granted both Speonk and the State permission to appeal.  The Court of Appeals agreed with the Appellate Division and held that the Statute of Limitations on New York State’s right to be reimbursed for cleanup costs for a petroleum discharge is six years from the date of each payment made by the State.  The State can now be expected to commence reimbursement actions under the Navigation Law within six years after cleanup begins, regardless of whether it is finished by that time.  Tank owners whose property is currently being cleaned up by State contractors should have the facts of their case reviewed by an attorney familiar with the Navigation Law to determine whether they can benefit from the Speonk decision.

About the Author: Nicholas J. Damadeo is the founder and senior member of the law firm of Nicholas J. Damadeo, P.C., He has practiced and lectured in the field of Navigation Law and petroleum related matters for thirty years.  Mr. Damadeo is the attorney of record for both Speonk Fuel, Inc. and the estate of Robert Ackley and represented them in all the appeals discussed in this article.  Mr. Damadeo may be contacted at 631 271-7400 and at nick@damadeolaw.com.

 

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