Moran Enters., Inc. v Hurst  2018 NY Slip Op 02321  Decided on April 4, 2018  Appellate Division, Second Department illustrates why secondary issues may lead to dismissal.  Here, the failure to list a claim on a bankruptcy schedule along with the failure to pay franchise taxes doomed a variety of legal malpractice claims.

“The plaintiff retained attorney Margaret Hurst to represent it in certain matters, including filing a second Chapter 11 petition for bankruptcy on its behalf. A few months later, Hurst left active practice and transferred her clients to another attorney. The bankruptcy proceeding was subsequently dismissed. The plaintiff thereafter retained new attorneys, who filed a third Chapter 11 bankruptcy petition on its behalf. The asset schedules filed with the plaintiff’s third bankruptcy petition stated that the plaintiff’s only asset was certain real property, and failed to list any causes of action against Hurst. After the mortgagee of the real property sought to vacate the bankruptcy stay, the bankruptcy court dismissed the plaintiff’s third bankruptcy petition based upon the lack of equity in the property or other assets with which to pay the creditors.”

“The doctrine of judicial estoppel precludes a party from taking a position in one legal proceeding which is contrary to that which it took in a prior proceeding, simply because its interests have changed (see Davis v Citibank, N.A., 116 AD3d 819, 820; Festinger v Edrich, 32 AD3d 412, 413). “The twin purposes of the doctrine are to protect the integrity of the judicial process and to protect judicial integrity by avoiding the risk of inconsistent results in two proceedings'” (Davis v Citibank, N.A., 116 AD3d at 821, quoting Bates v Long Is. R.R. Co., 997 F2d 1028, 1038 [2d Cir] [citation omitted]). “[T]he integrity of the bankruptcy system depends on full and honest disclosure by debtors of all of their assets” (Rosenshein v Kleban, 918 F Supp 98, 104 [SD NY]). By failing to list causes of action on bankruptcy schedules of assets, the debtor represents that it has no such claims (see Crawford v Franklin Credit Mgt. Corp., 758 F3d 473, 486 [2d Cir]). Thus, the doctrine of judicial estoppel may bar a party from pursuing claims which were not listed in a previous bankruptcy proceeding (see B.N. Realty Assoc. v Lichtenstein, 21 AD3d 793, 798; McIntosh Bldrs. v Ball, 264 AD2d 869, 870; Cafferty v Thompson, 223 AD2d 99, 102).

For the doctrine to apply, there must be “a final determination in the bankruptcy proceeding endorsing the party’s inconsistent position concerning his or her assets” (Koch v National Basketball Assn., 245 AD2d 230, 231). However, a discharge from bankruptcy is not required for the application of the doctrine. “The bankruptcy court may accept’ the debtor’s assertions by relying on the debtor’s nondisclosure of potential claims in many other ways” (Hamilton v State Farm Fire & Cas. Co., 270 F3d 778, 784 [9th Cir]; see In re Coastal Plains, Inc., 179 F3d 197, 210 [5th Cir]).”

“The plaintiff further contends that leave to amend the answer should have been denied because Hurst’s delay in asserting the defense would prejudice it due to the expiration of the statute of limitations for a legal malpractice cause of action against its subsequent bankruptcy attorneys who failed to list the claims against Hurst in the bankruptcy schedules. However, the plaintiff asserted a timely legal malpractice cause of action against the subsequent bankruptcy attorneys, which was dismissed because the plaintiff was dissolved by the Secretary of State for failure to pay franchise taxes, and the plaintiff lacked the capacity to enforce obligations arising out of the representation until it secured retroactive de jure status by payment of delinquent franchise taxes (see Moran Enters., Inc. v Hurst, 66 AD3d at 976). Thus, the plaintiff’s loss of any claims against those attorneys was due to its own failure to pay the delinquent franchise taxes and to timely recommence the action against those attorneys (see CPLR 205[a]), and was not the result of Hurst’s delay in asserting the defense (see generally CPLR 203[f]; Pendleton v City of New York, 44 AD3d 733, 736; [*3]cf. Daughtry v Rosegarten, 180 Misc 2d 102, 103-104 [App Term 2d Dept]).”

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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.