Bona Fide Error Defense Inapplicable to Fair Debt Collection Practices Act
In a ruling that could result in an increase in legal malpractice claims filed against lawyers who collect debts, the United States Supreme Court recently found that debt collectors could not escape liability for violations of the Fair Debt Collection Practices Act by proving a “bona fide error” in interpreting the legal requirements of the Act. Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 130 S.Ct. 1605, 78 USLW 4301 (2010). Justice Sotomayor, writing for the majority, stated:
Today’s decision does not place unmanageable burdens on debt-collecting lawyers. The FDCPA contains several provisions expressly guarding against abusive lawsuits, and gives courts discretion in calculating additional damages and attorney’s fees. Lawyers have recourse to the bona fide error defense in § 1692k(c) when a violation results from a qualifying factual error.
Justice Kennedy and Justice Alito dissented, noting:
[The court’s] decision aligns the judicial system with those who would use litigation to enrich themselves at the expense of attorneys who strictly follow and adhere to professional and ethical standards.
… the Court, by failing to adopt a reasonable interpretation to counter these excesses, risks compromising its own institutional responsibility to ensure a workable and just litigation system.
Lawyers who collect debts as part of their law practice need to be familiar with this new case and its impact on their legal liability for errors committed during the collection of debts. Careful review of the case and its impact on your firm is highly recommended. Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA, 130 S.Ct. 1605, 78 USLW 4301 (2010).
New York High Court Holds that a Personal Representative of an Estate May Sue Lawyers for Malpractice
On June 17, 2010, the New York Court of Appeals reversed a ruling that dismissed a case alleging attorney malpractice brought by an estate representative for the benefit of the estate. The lawsuit alleged that the attorney had failed to counsel the decedent on the tax repercussions of naming the estate as beneficiary to a $1 million life insurance policy. In defense, the attorney argued that the estate was not his client, and had no privity with respect to the attorney/client relationship. The lower court agreed, relying on the long held rule that “a third party, without privity, cannot maintain a claim against an attorney in professional negligence, absent fraud, collusion, malicious acts or other special circumstances.” Estate of Schneider v. Finmann, --- N.E.2d ----, 2010 WL 2399564 (Slip op. 05281, June 17, 2010, N.Y), subject to revision.
In reversing the lower court, the Court found:
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 … 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.
. . . .
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.
Id..
In making this ruling, the New York Court of Appeals adopted the majority rule that while beneficiaries are not proper parties to suits against the decedent’s estate planning attorney, the estate’s personal representative steps in the shoes of the decedent and has sufficient privity to bring such a claim. The case clearly assures that the trend of estate representatives pursuing such claims - almost certainly at the behest of beneficiaries who cannot bring such claims themselves - will continue. As a result, the successful use of the privity defense to block legal malpractice suits in probate matters is likely seeing its demise. In fact, it is likely that the estate representative has a fiduciary duty to bring such claims, where viable, resulting in the claims becoming far more common.
