Filing a petition in bankruptcy falls into three well-settled paths, Chapters 7,11 and 13.  The rules and the effects of such a filing vary strongly between them.  In a legal malpractice case, the debtor loses its capacity to sue and damages which might go to the litigant now go to the trustee.  As Nicke v Schwartzapfel Partners, P.C.  2017 NY Slip Op 02437  Decided on March 29, 2017   Appellate Division, Second Department shows us, Chapter 13 is different.

“In contrast to Chapter 7 proceedings, the object of a Chapter 13 proceeding is the [*3]rehabilitation of the debtor under a plan that adjusts debts owed to creditors by the debtor’s regular periodic payments derived principally from income. Thus, in a Chapter 13 proceeding, a debtor generally retains his property, if he so proposes, and seeks court confirmation of a plan to repay his debts over a three- to five-year period (see 11 USC §§ 1306[b]; 1322, 1327[b]). Payments under a Chapter 13 plan are usually made from a debtor’s “future earnings or other future income” (11 USC § 1322[a][1]). “Accordingly, the Chapter 13 estate from which creditors may be paid includes both the debtor’s property at the time of his bankruptcy petition, and any wages and property acquired after filing” (Harris v Viegelahn, __US __, __, 135 S Ct 1829, 1835; see 11 USC § 1306[a]). Assets acquired after a Chapter 13 plan is confirmed by the court are not included as property of the estate, unless they are necessary to maintain the plan (see 11 USC §§ 1306[a]; 1326), or the trustee seeks a modification of the plan to remedy a substantial change in the debtor’s income or expenses that was not anticipated at the time of the confirmation hearing (see 11 USC § 1329[a]; In re Solis, 172 BR 530, 532 [Bankr SD NY]). Unlike Chapter 7 proceedings, there is no separation of the estate property from the debtor under a Chapter 13 proceeding, except to the extent that the plan, as confirmed by order of the court, places control over an asset in the hands of the trustee (see Harris v Viegelahn, __ US at __, 135 S Ct at 1835). This is the basis for the conclusion that, while Chapters 7 and 11 debtors lose capacity to maintain civil suits, Chapter 13 debtors do not (see Giovinco v Goldman, 276 AD2d 469; Olick v Parker & Parsley Petroleum Co., 145 F3d at 515-516). Thus, a Chapter 13 debtor keeps all, or at the very least some, of the income and property he or she acquires during the administration of the repayment plan. Accordingly, in this action, it was never the bankruptcy estate, or its creditors, that was damaged by a decrease in the amount awarded in the underlying personal injury action due to the alleged conduct of the defendants. Only the plaintiffs had an interest in the recovery of damages in the personal injury action (see Olick v Parker & Parsley Petroleum Co., 145 F3d at 516). Moreover, it was the plaintiffs and the defendants who were engaged in a face-to-face relationship in the underlying personal injury action and to the extent the defendants allegedly breached a duty in that action the foreseeable harm was to the plaintiffs, not the trustee or the bankruptcy estate. Thus, under the circumstances presented here, the relationship of the plaintiffs to the personal injury action is unique and demands an exception to the general rule regarding privity (see Baer v Broder, 86 AD2d 881).

Accordingly, the Supreme Court erred in granting those branches of the defendants’ separate motions which were pursuant to CPLR 3211(a)(3) to dismiss the complaint insofar as asserted against each of them for lack of capacity and/or standing to sue.”

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Andrew Lavoott Bluestone

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened…

Andrew Lavoott Bluestone has been an attorney for 40 years, with a career that spans criminal prosecution, civil litigation and appellate litigation. Mr. Bluestone became an Assistant District Attorney in Kings County in 1978, entered private practice in 1984 and in 1989 opened his private law office and took his first legal malpractice case.

Since 1989, Bluestone has become a leader in the New York Plaintiff’s Legal Malpractice bar, handling a wide array of plaintiff’s legal malpractice cases arising from catastrophic personal injury, contracts, patents, commercial litigation, securities, matrimonial and custody issues, medical malpractice, insurance, product liability, real estate, landlord-tenant, foreclosures and has defended attorneys in a limited number of legal malpractice cases.

Bluestone also took an academic role in field, publishing the New York Attorney Malpractice Report from 2002-2004.  He started the “New York Attorney Malpractice Blog” in 2004, where he has published more than 4500 entries.

Mr. Bluestone has written 38 scholarly peer-reviewed articles concerning legal malpractice, many in the Outside Counsel column of the New York Law Journal. He has appeared as an Expert witness in multiple legal malpractice litigations.

Mr. Bluestone is an adjunct professor of law at St. John’s University College of Law, teaching Legal Malpractice.  Mr. Bluestone has argued legal malpractice cases in the Second Circuit, in the New York State Court of Appeals, each of the four New York Appellate Divisions, in all four of  the U.S. District Courts of New York and in Supreme Courts all over the state.  He has also been admitted pro haec vice in the states of Connecticut, New Jersey and Florida and was formally admitted to the US District Court of Connecticut and to its Bankruptcy Court all for legal malpractice matters. He has been retained by U.S. Trustees in legal malpractice cases from Bankruptcy Courts, and has represented municipalities, insurance companies, hedge funds, communications companies and international manufacturing firms. Mr. Bluestone regularly lectures in CLEs on legal malpractice.

Based upon his professional experience Bluestone was named a Diplomate and was Board Certified by the American Board of Professional Liability Attorneys in 2008 in Legal Malpractice. He remains Board Certified.  He was admitted to The Best Lawyers in America from 2012-2019.  He has been featured in Who’s Who in Law since 1993.

In the last years, Mr. Bluestone has been featured for two particularly noteworthy legal malpractice cases.  The first was a settlement of an $11.9 million dollar default legal malpractice case of Yeo v. Kasowitz, Benson, Torres & Friedman which was reported in the NYLJ on August 15, 2016. Most recently, Mr. Bluestone obtained a rare plaintiff’s verdict in a legal malpractice case on behalf of the City of White Plains v. Joseph Maria, reported in the NYLJ on February 14, 2017. It was the sole legal malpractice jury verdict in the State of New York for 2017.

Bluestone has been at the forefront of the development of legal malpractice principles and has contributed case law decisions, writing and lecturing which have been recognized by his peers.  He is regularly mentioned in academic writing, and his past cases are often cited in current legal malpractice decisions. He is recognized for his ample writings on Judiciary Law § 487, a 850 year old statute deriving from England which relates to attorney deceit.