Here is an interesting article from Marian C. Rice, Esq., a source we’ve quoted before [11/15/05]. It discusses a recent NYS Court of Appeals case on privity: the right of a non-client to sue counsel in Legal Malpractice based upon the acts of the non-retained attorney.

N.Y. Firm Held Subject to Third-Party Suit

By Marian C. Rice, L’Abbate, Balkan, Colavita & Contini, L.L.P.

A.G. Capital Funding Partners, L.P. v. State Street Bank and Trust Company, et al.
New York State Court of Appeals, November 17, 2005

Based upon “industry custom and practice” evidence that a borrower’s counsel
assumed a duty to the representative of a secured party, to deliver
instruments intended to secure debt totaling $750,000,000, the New York State Court of
Appeals has reinstated a third-party action against the borrower’s counsel
based upon theories of negligence and contribution.

In the late 1990s, Loewen Group International [“Loewen”], represented by
Thelen Reid [“Thelen”], sought to raise capital by issuing debt securities secured
by a single pool of collateral. The agreement, covering a series of secured
debt transactions, two of which were at issue in the case, provided that
Bankers Trust would act as the Collateral Trustee on the assets securing the debt.
For the investors to acquire secured creditor status, the agreement provided
that a document called an Additional Secured Indebtedness Registration Statement
[“ASIRS”] had to be delivered to Bankers Trust. The agreement expressly
obligated State Street, the secured party representative in the pertinent
transactions, to deliver the ASIRSs to Bankers Trust, thereby perfecting the investors’
security interests.

In both transactions, the ASIRSs were not delivered to Bankers Trust and the
secured interest remained unperfected.

In September 1999, Loewen filed for bankruptcy. During the course of the
bankruptcy proceeding, the investors settled their claim against Loewen for an
amount allegedly discounted because of uncertainty over whether the debt was
secured. As a result, the investors commenced suit against State Street, which
served a third-party complaint against the underwriters and Loewen’s counsel,
Thelen. In the third-party complaint and supplemental expert affidavits, State
Street asserted that if it had the duty to deliver the ASIRSs to Bankers Trust,
the underwriters and Thelen assumed that duty based upon both the custom and
practice in the industry and the conduct of Loewen’s counsel in two prior
transactions controlled by the same agreement.

The trial court dismissed all claims except for contribution and negligence.
The Appellate Division dismissed the remaining negligence and contribution
claims holding that since State Street assumed the obligation to deliver the
ASIRS in its contract with Bankers Trust, State Street could not controvert the
plain meaning of the agreement with contradictory evidence of custom or industry

The Court of Appeals affirmed the dismissal of the legal malpractice and
negligence misrepresentation claims against Thelen holding that the absence of
privity or a relationship so close as to approach privity precluded the negligent
misrepresentation claim, while the attorney malpractice claim could not be
stated by a non-client in the absence of privity unless State Street set forth a
claim of fraud, collusion, malicious acts or other special circumstances.

However, the Court held that State Street stated a claim for negligence
against Thelen, as well as the underwriters: “The industry custom as set forth in
the supplemental evidentiary materials coupled with the parties’ conduct,
supports a claim that the third-party defendants together or in part assumed that
duty. The pleadings allege that the third-party defendants did not act
reasonably in relation to such duty.” Citing cases not involving professional
defendants, the Court adopted State Street’s argument that “evidence of industry
practice and standards is admissible to establish a duty of care” and that “a
course of conduct that induces reliance, as alleged here, may implicate a duty of

The Court of Appeals similarly upheld the contribution claim against Thelen
rationalizing that since the negligence claim survived the motion to dismiss,
the contribution claim “predicated on a breach of duty to plaintiff or
defendant/third-party plaintiff” remains viable.

The dissent agreed that while State Street may have relied upon the
underwriters to deliver the ASIRS to the proper destination, there was nothing in the
record to support the allegation that Thelen, as Loewen’s counsel, assumed a
duty to deliver the ASIRSs.

The courts in New York have long held that the existence of direct privity or
a “relationship so close as to approach that of privity” 2 was a prerequisite
to the assertion of a claim against an attorney for either legal malpractice
or negligent misrepresentation and that a non-client may not sue for
professional negligence “absent fraud, collusion, malicious acts or other special
circumstances.” 3 In the A.G. Capital decision, the Court of Appeals acknowledges
the propriety of both these principles of law and yet apparently carves out an
exception enabling a non-client to articulate a claim against an adversary’s
counsel by alleging that counsel “assumed the duty” that the non-client may
have owed and that counsel “did not act reasonably in relation to such duty.”
While it may not have been the Court of Appeals’ intent in reinstating the
third-party action against the Thelen law firm, the A.G. Capital decision
potentially exposes attorneys to claims by non-clients in many different factual

1) 10 A.D.3d 291, 781 N.Y.S.2d 88 (1st Dep’t 2004). 2) Prudential Ins. Co. v.
Dewey, Ballantine, Bushby, Palmer & Wood, 80 N.Y.2d 377, 382, 590 N.Y.S.2d
831, 833 (1992). 3) Chinello v. Nixon Hargrave Devans & Doyle, 15 A.D.3d 894,
788 N.Y.S.2d 750 (4th Dep’t 2005); Rovello v. Klein, 304 A.D.2d 638, 638, 757
N.Y.S.2d 496 (2nd Dep’t 2003), lv. denied 100 N.Y.2d 509, 766 N.Y.S.2d 163, 798
N.E.2d 347

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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.