Published on:

Legal Malpractice Claim Against Bankruptcy Counsel Can Proceed

One common issue that can trip up a litigant is the failure to disclose a civil lawsuit in a bankruptcy petition. The lawsuit is an asset of the bankruptcy estate. Failing to disclose the existence of the lawsuit can lead to the dismissal of the civil lawsuit. In Horvath v. Budin, Reisman, Kupferberg & Bernstein, LLP, 2021 N.Y. 30105 (U), the trial court (referred to in New York as the Supreme Court) denied the law firm’s motion to dismiss in just such a case.

After his civil lawsuit was dismissed for failure to include it as an asset of the bankruptcy estate, Horvath sued the law firm for negligence.  The summary of the facts indicates that the civil lawsuit was not disclosed until after Horvath’s Chapter 13 plan was confirmed.

In 2009, plaintiff filed a Chapter 13 Petition in the United States Bankruptcy Court for the District of New Jersey (“the Bankruptcy Court”) under Case No. 09-38537-KCF. Doc. 22. Plaintiff was represented in the bankruptcy proceeding by Jules Rossi, Esq. Doc. 22. On September 15, 2010, plaintiff was allegedly injured while he was a passenger in an elevator in a building in Manhattan. Doc. 21 at par. 4. Plaintiff thereafter retained the Law Offices of Michael Lamonsoff (“Lamonsoff”) to commence a personal injury action on his behalf against Gumley Haft Kleier Inc. (“GHK”) and Eltech Industries (“Eltech”). The action against GHK and Eltech was commenced in the Supreme Court, Bronx County in 2010 under Index Number 310013/10 (“the Bronx County action”). Doc. 17 at par. 16. Lamonsoff also represented plaintiff in an unrelated personal injury action commenced in New York County in 2010 under Index Number 115395/10 (“the New York County action”). Doc. 17 at par. 17.

The Bankruptcy Court confirmed the Chapter 13 plan on December 28, 2011. Doc. 23.

In March 2012, plaintiff retained the defendant firm to represent him in the Bronx County action in place of Lamonsoff. Doc. 24. Defendant’s retainer agreement allowed it “the exclusive right to take all legal steps to enforce” plaintiff’s claim against GHK and Eltech. Doc. 24.

In June 2012, this Court stayed the New York County action due to plaintiff’s bankruptcy. Doc. 17 at par. 20. On October 29, 2013, an Amended Schedule of Assets was filed in the bankruptcy matter to include plaintiff’s New York County action as an asset. Doc. 17 at par. 21. The stay of the New York County action was then lifted pursuant to an order of this Court. Doc. 17 at par. 22.

In February 2014, plaintiff’s bankruptcy attorney filed an Amended Schedule of Assets in the bankruptcy court to include the Bronx County action. Doc. 17 at par. 25. Plaintiff represented in the Amended Schedule of Assets that his “post-petition personal injury claim resulting from an elevator falling out of control” [the Bronx County action] was “not property of the estate because it [was] a post-petition claim.” Doc. 25. Plaintiff also represented that the current value of the Bronx County action was “unknown” or $0.00. Doc. 25.

In 2014, Eltech moved to dismiss the complaint in the Bronx County action based on the pending bankruptcy matter. Doc. 17 at par. 26. By order dated December 2, 2014, the Supreme Court, Bronx County denied the motion to dismiss. Doc. 26. By order dated March 7, 2017, the Appellate Division, First Department reversed and dismissed the complaint in the Bronx County action, stating, inter alia, that:

Plaintiff’s prolonged failure to disclose this lawsuit to the Bankruptcy Court renders him judicially estopped from pursuing it … Plaintiff took an inconsistent position in the bankruptcy proceedings — that he did not have other legal claims than those listed on his schedule of assets and liabilities — and that position was adopted by the Bankruptcy Court when it confirmed the plan.Doc. 27 (citations omitted).

The court held that, under the facts as alleged in the complaint, Horvath’s complaint stated a claim against the bankruptcy law firm.

Note: I am merely reporting on the allegations in a complaint. Those allegations have not been proved.

Should you have a question on a legal malpractice claim, do not hesitate to contact us at (312) 357-1515.

Ed Clinton, Jr.

Contact Information