Tuesday, August 15, 2017

Bankruptcy Does Not Bar Legal Malpractice Claim

The Massachusetts Supreme Judicial Court reversed the dismissal of a legal malpractice claim

In September 2009, the plaintiff retained the defendants as personal injury counsel to represent her with respect to serious injuries she sustained when she slipped and fell on ice the year before. Approximately one month later, acting pro se, she filed for bankruptcy protection, and received a bankruptcy discharge in early 2010. Thereafter, in 2011, the defendants allowed the statute of limitations on the personal injury claim to expire without filing suit. This legal malpractice suit followed. The question on appeal is whether
the plaintiff's malpractice claims were properly dismissed on summary judgment on the ground that the bankruptcy action (or the position the plaintiff took in it) foreclosed them. We reverse.

Plaintiff did not disclose the claim on her pro se bankruptcy petition but referred to it in response to trustee questions at a meeting of creditors

The defendants argue that the plaintiff's malpractice claim is barred by the earlier bankruptcy and her failure to disclose the underlying personal injury suit.

The malpractice claim was never part of the bankruptcy estate but

There remains, however, the question whether the malpractice claim had any value or, put another way, whether the plaintiff would be able to show causation or harm, given her
failure to disclose the personal injury claim in the bankruptcy. We turn to that question now...

As soon as the plaintiff filed her bankruptcy petition, her personal injury claim became an asset of the bankruptcy estate, and the trustee was responsible for pursuing it for the benefit of the estate and its creditors...That interest did not terminate on the bankruptcy discharge; indeed, had the defendants filed suit on the plaintiff's behalf after the bankruptcy discharge, but before the statute of limitations had elapsed, the "usual remedy [would be] to substitute as the real party in interest the trustee of the bankruptcy estate in the place and stead of the former debtor."

...because the value of the malpractice claim (which was never an asset of the bankruptcy) is tied to the value of the underlying personal injury suit (which was), the trustee may have an interest in any recovery on the malpractice claim -- at least to the extent of the value of the claims discharged in bankruptcy. On remand, the judge and the parties should accordingly ensure that the trustee is notified of the existence of a potential interest in any recovery.

Nor did judicial estoppel prevent the malpractice suit. (Mike Frisch)


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