Legal Malpractice

Bankruptcy and Malpractice: Piling On?

By (Andrew Lavoott Bluestone)

Client suffers injury, client suffers (same or different) financial stresses and filed a petition in bankruptcy.  Effect is that client loses claim of injury to the bankruptcy estate, and may no longer bring the action.  Eventually, client is discharged in bankruptcy and sues the professional.  The case will be dismissed, for lack of standing.  So it is in, Valerie Sotille,  v. James D. Mullin, D.D.S.,  019694/06; Supreme Court, Nassau County.
 

"On May 11, 2004 plaintiff as debtor filed a voluntary petition seeking relief from her creditors pursuant to Chapter 7 of the Bankruptcy Code. On June 25, 2004 the bankruptcy trustee filed his report of no distribution, the matter was discharged on September 3, 2004 and terminated on October 25, 2004 (Bankruptcy Court, E.D.N.Y. Case No. 804-83123).

Upon learning of the action at bar, the trustee sought to re-open plaintiff/debtor's case to allow the pursuit of this malpractice action for the benefit of the estate (see 11 U.S.C. 350 (b) and 101 et seq.). Such an application would include all claims and causes of action which the debtor knew or should have known about and which have accrued as of the date of the debtor's bankruptcy filing.

Subsequently, the Hon. Dorothy T. Eisenberg re-opened the bankruptcy petition permitting the trustee to administer an undisclosed asset.

The action at bar was marked in stay status pending the Bankruptcy Court's above determination. Now that the trustee by special counsel (who was plaintiff's original attorney) is authorized to act on behalf of the bankruptcy estate in this Court, the action has been restored to active status, including defendant's instant application.

The question before the Court at this juncture is whether plaintiff in her individual capacity had standing to commence the malpractice lawsuit in the first instance. If she was not due to the bankruptcy filing, the complaint must be dismissed with no possibility of the bankruptcy trustee pursuing the action as an asset since the statute of limitations has expired (CPLR 214-a and 205 (a); see Reynolds v. Blue Cross, 210 AD2d 619).

Plaintiff's bankruptcy estate opposes defendant's motion to dismiss, arguing that defendant's dental treatment was rendered both before and even after the Chapter 7 petition was filed on May 11, 2004. Thus the issue of plaintiff's so-called failure to disclose this claim to the trustee is not fatal because treatment had not ceased before the bankruptcy application was discharged on September 3, 2004.

This argument is unpersuasive."

Full post as published by New York Attorney Malpractice Blog on January 17, 2011 (boomark / email).