2000 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-28-2000

O'Dowd v. Trueger

Precedential or Non-Precedential:

Docket 99-5479

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Recommended Citation

"O'Dowd v. Trueger" (2000). 2000 Decisions. Paper 236.

http://digitalcommons.law.villanova.edu/thirdcircuit_2000/236
Filed November 28, 2000 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 99-5479 

IN RE: ANNE L. O'DOWD 

ANNE L. O'DOWD 

 Appellant 

v. 

HOWARD C. TRUEGER; 

DAVID B. BIUNNO; 

VINCENT D. COMMISA; 

MARISA A. TAORMINA; 

BIUNNO, COMMISA AND TAORMINA, P.C. 

ON APPEAL FROM THE ORDER OF THE 

UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF NEW JERSEY 

(D.C. Civ. No. 98-4886) 

District Court Judge: The Honorable Mary L. Cooper 

Argued: July 20, 2000 

Before: SLOVITER, NYGAARD, and FUENTES, 

Circuit Judges 

(Opinion Filed: November 28, 2000) 
 Magdalena Schardt 

 Fox, Rothschild, O'Brien & Frankel, 

 LLP 

 Princeton Pike Corporate Center 

 997 Lenox Drive 

 Building 3 

 Lawrenceville, NJ 08648-2311 

 ATTORNEYS FOR APPELLANT 

 John Badagliacca 

 Garrity, Graham, Favetta & Flinn 

 One Lackawanna Plaza 

 Box 4205 

 Montclair, NJ 07042 

 ATTORNEYS FOR APPELLEE 

 HOWARD C. TRUEGER 

 Meredith Kaplan Stoma 

 Morgan, Melhuish, Monaghan, 

 Arvidson, Abrutyn & Lisowski 

 651 West Mt. Pleasant Avenue 

 Suite 200 

 Livingston, NJ 07039-1673 

 ATTORNEYS FOR APPELLEES 

 DAVID B. BIUNNO, VINCENT D. 

 COMMISA, MARISA A. TOARMINA, 

 AND BIUNNO, COMMISA AND 

 TAORMINA, P.C. 

OPINION OF THE COURT 

FUENTES, Circuit Judge: 

This appeal involves two separate legal malpractice

actions filed after the commencement of the bankruptcy 

case. The parties do not dispute that the first of the two 

actions constitutes property of the bankruptcy estate. The 

principal issue presented by this appeal is whether the 

second, successive malpractice action is also pr operty of 

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the estate. The appellant, Anne L. O'Dowd, claims that 

since the second malpractice action did not accrue until 

four years after the bankruptcy filing, it is personal 

property and does not belong to the bankruptcy estate. The 

District Court disagreed. 

Because O'Dowd's second malpractice action is based on 

alleged pleading errors committed in the first malpractice 

action, and it is the bankruptcy estate that was har med by 

the alleged malpractice that is the subject of the second 

action, we conclude that it constitutes an inter est in 

property acquired by the bankruptcy estate pursuant to 11 

U.S.C. S 541(a)(7). Accordingly, we will affirm the order of 

the District Court. 

I. Factual and Procedural Backgr ound 

A. 

In 1990, Anne L. O'Dowd purchased an apartment 

building for approximately $1 million. Milton Sevack, a 

local attorney, represented her in the transaction. O'Dowd 

contends that, after the closing, she learned that the 

building contained structural flaws and that the seller had 

exaggerated the rental income. She claims that the 

investment "placed her in [a] direfinancial situation," 

ultimately leading to her filing a Chapter 11 bankruptcy 

petition on March 27, 1992 in the United States 

Bankruptcy Court for the District of New Jersey. 

Thereafter, O'Dowd hired Howar d C. Trueger to represent 

her in the bankruptcy proceedings. She also r etained 

Trueger to commence a lawsuit against Sevack to recover 

damages arising from his mishandling of several matters 

including the purchase of the apartment building. In 1993, 

Trueger commenced a legal malpractice action against 

Sevack in state court, asserting claims solely with respect 

to the apartment building purchase (the "Sevack Action").1 

According to O'Dowd, Trueger omitted various other claims 

_________________________________________________________________ 

1. Trueger also asserted malpractice claims against individuals other 

than Sevack. For simplicity, we will refer to the entire group of 

defendants collectively as "Sevack." 

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she had against Sevack. There is no dispute that when the 

Sevack Action was filed, it became property of her 

bankruptcy estate. 

On August 3, 1994, the Bankruptcy Court converted 

O'Dowd's Chapter 11 reorganization pr oceeding into a 

Chapter 7 liquidation proceeding, and a trustee was named 

for the estate (the "Trustee"). The Bankruptcy Court then 

discharged O'Dowd on December 23, 1994. Soon thereafter, 

because of impending ethics charges unr elated to the 

instant case, Trueger withdrew as O'Dowd's counsel. To 

replace Trueger, O'Dowd retained the law firm of Biunno, 

Commisa & Taormina, P.C.2 

In May 1995, the Trustee proposed to settle the Sevack 

Action for $10,000. O'Dowd formally objected to what she 

believed was a low settlement figure. In an order dated July 

24, 1995, the Bankruptcy Court denied the Trustee's

proposed settlement and allowed O'Dowd to pr oceed with 

the Sevack Action in state court. In retur n, the Trustee was 

to be entitled to the first $10,000 of any net pr oceeds. The 

order also provided that "the balance[of any recovery] may 

be retained by the debtor, as having been abandoned" by 

the Trustee.3 After the Bankruptcy Court's decision, 

O'Dowd dismissed Biunno and retained Hilton L. Stein to 

represent her in the Sevack Action. In 1996, Stein settled 

the suit for an undisclosed amount. 

Shortly after the settlement, O'Dowd allegedly discovered 

that Trueger had left out a number of her claims in the 

_________________________________________________________________ 

2. The law firm of Biunno, Commisa & Taormina, P.C. includes attorneys 

David B. Biunno, Vincent D. Commisa, and Marisa A. Taormina. We will 

refer collectively to the firm and these individuals as "Biunno." 

3. We reject O'Dowd's contention that the malpractice lawsuit against 

Trueger and Biunno constitutes personal pr operty because all claims in 

excess of $10,000 were abandoned by the T rustee. Abandonment is an 

intentional act and nothing in the recor d supports a finding that the 

Trustee intended to abandon the omitted claims. See Hanover Ins. Co. v. 

Tyco Indus. Inc., 500 F.2d 654, 657 (3d Cir. 1974); see also Fed. R. 

Bankr. P. 6007 (providing for abandonment of property by way of 

motion). Moreover, at the time of the bankruptcy order, neither the 

Trustee, nor the court, appeared to have had any idea that the 

unasserted claims existed. 

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Sevack Action, but that the claims were now time-barred 

under the applicable New Jersey statute of limitations. 

Thus, in November 1996, O'Dowd brought a second legal 

malpractice action against both Trueger and Biunno in the 

New Jersey Superior Court (the "Trueger/Biunno Action"). 

In her complaint, O'Dowd alleged that Trueger had failed to 

plead all of her potential claims against Sevack. She also 

contended that if Biunno had properly infor med her of 

Trueger's pleading mistake, she could have"purchased" the 

omitted claims from the Trustee along with the apartment 

building claims.4 O'Dowd further asserted that she settled 

the Sevack Action for substantially less than what she 

could have recovered had Trueger and Biunno properly 

raised and pled all of the claims against Sevack. 

Biunno filed a motion in state court to dismiss O'Dowd's 

complaint on the ground that the Trueger/Biunno Action 

constituted property of the bankruptcy estate and therefore 

O'Dowd lacked standing to prosecute the matter . The state 

court ordered O'Dowd to seek a deter mination in the 

Bankruptcy Court as to whether that malpractice action 

constituted estate property. In December 1997, O'Dowd 

applied to the Bankruptcy Court for a ruling on that issue. 

B. 

On July 21, 1998, the Bankruptcy Court issued a written 

opinion concluding that the Trueger/Biunno Action 

constituted property of the bankruptcy estate. Relying on 

the Supreme Court's decision in Segal v. Rochelle, 382 U.S. 

375 (1966), the Bankruptcy Court held that the malpractice 

claims were sufficiently rooted in O'Dowd's past to be 

_________________________________________________________________ 

4. We take O'Dowd to mean that, had she known of the pleading failure, 

she would have sought to include the omitted claims under the same 

terms ordered by the Bankruptcy Court in denying the Trustee's 

settlement proposal. As this would not have involved an acquisition of 

property for valuable consideration, O'Dowd would not have technically 

"purchased" these omitted claims fr om the Trustee. A true purchase of 

the omitted claims would have been void under the New Jersey common 

law prohibition against assigning prejudgment tort claims. See generally 

Integrated Solutions v. Service Support Specialties, Inc., 124 F.3d 487 

(3d 

Cir. 1997). 

 5 
considered property of the estate pursuant to 11 U.S.C. 

S 541(a)(1). 

Under an alternative analysis, the court also held that 

the claims constituted property of the estate pursuant to 11 

U.S.C. S 541(a)(7), which includes "[a]ny interest in property 

that the estate acquires after the commencement of the 

case." Finally, the court held that O'Dowd was barred 

under 11 U.S.C. S 108 from bringing the T rueger/Biunno 

Action in the first instance because she had failed to 

request that the Trustee assert the malpractice claims on 

her behalf. 

O'Dowd appealed the Bankruptcy Court's decision to the 

United States District Court for the District of New Jersey. 

By order entered May 19, 1999, the District Court rejected 

the Bankruptcy Court's S 541(a)(1) analysis, but upheld the 

inclusion of the Trueger/Biunno Action in the estate under 

S 541(a)(7).5 On appeal from this order, O'Dowd argues that 

the District Court incorrectly determined that the 

Trueger/Biunno Action constituted property of the estate 

under S 541(a)(7). In response, Appellees Trueger and 

Biunno argue that the lower court's deter mination should 

be upheld under both S 541(a)(1) and S 541(a)(7).6 

_________________________________________________________________ 

5. In a footnote, the District Court declined to address the merits of the 

Bankruptcy Court's ruling that the Trueger/Biunno Action was barred 

under S 108, finding that it constituted only dictum. O'Dowd challenges 

this conclusion on appeal. However, like the District Court, our 

determination that the Trueger/Biunno Action constitutes property of 

the estate pursuant to S 541(a)(7) obviates our need to address this 

issue. See Pennsylvania Dep't of Pub. Welfare v. Markiewicz, 930 F.2d 

262, 266 (3d Cir. 1991); accord In re Cassidy, 892 F.2d 637, 640 (7th 

Cir. 1990). 

6. Appellees may advance this argument even though they did not file a 

cross-appeal. See E.F. Operating Corp. v. American Bldgs., 993 F.2d 

1046, 1048 (3d Cir. 1993). However, because we conclude that the 

Trueger/Biunno Action constitutes property of the estate pursuant to 

S 541(a)(7), we find it unnecessary to addr ess Appellee's alternative 

basis 

for affirming the District Court. Accor dingly, we do not express any 

opinion as to the merits of the District Court'sS 541(a)(1) ruling, except 

to note that the Trueger/Biunno Action seeks r eimbursement for the 

mishandling of the first malpractice action, which clearly had roots in 

O'Dowd's pre-bankruptcy past. Ordinarily, the degree of the nexus 

between a suit based on pre-petition conduct and a derivative postpetition malpractice action will determine whether the latter constitutes 

property of the estate under S 541(a)(1). 

 6 
The Bankruptcy Court exercised jurisdiction over this 

proceeding pursuant to 28 U.S.C. S 157. The District Court 

exercised jurisdiction to hear the appeal under 28 U.S.C. 

S 158. We have jurisdiction to hear this appeal pursuant to 

28 U.S.C. S 1291 and 28 U.S.C. S 158(d). Our review of the 

District Court's decision to affirm the Bankruptcy Court's 

order is plenary. 

II. Discussion 

A. 

Under Title 11 of the United States Code (the 

"Bankruptcy Code"), the filing of a voluntary petition in 

bankruptcy court commences a bankruptcy proceeding and 

creates an estate. 11 U.S.C. S 541(a). The estate: 

 is comprised of all the following property, wherever 

 located and by whomever held: 

 (1) Except as provided in subsections (b) and (c)(2) of 

 this section, all legal or equitable interests of the 

 debtor in property as of the commencement of the 

 case. 

 . . . . 

 (7) Any interest in property that the estate acquires 

 after the commencement of the case. 

Accordingly, with limited exceptions (none of which apply 

here), the estate encompasses everything that the debtor 

owns upon filing a petition, as well as any derivative rights, 

such as property interests the estate acquires after the case 

commences. See, e.g., United States v. Whiting Pools, Inc., 

462 U.S. 198, 203-05 (1983) (term "estate" refers to the 

grouping of the debtor's assets which ar e subject to the 

claims of creditors). 

We have previously emphasized Congr ess' intent to 

delineate in broad terms what constitutes property of the 

estate. See Integrated Solutions, Inc. v. Service Support 

Specialities, Inc., 124 F.3d 487, 490-91 (3d Cir. 1997). As 

the legislative history for S 541 states,"[i]t includes all 

kinds of property, including tangible or intangible property, 

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causes of action . . . and all other forms of property 

currently specified in section 70a of the Bankruptcy Act." 

H.R. Rep. No. 95-595, at 367 (1977), reprinted in 1978 

U.S.C.C.A.N. 5963, 6323. The legislative purpose of this 

section was to move away from the "complicated melange of 

references to State law" and to "determine[ ] what is 

property of the estate by a simple refer ence to what 

interests in property that debtor has at the time of the 

commencement of the case." Id. at 175, 1978 U.S.C.C.A.N. 

at 6136 (footnotes omitted). 

While federal law defines what types of pr operty comprise 

the estate, state law generally determines what interest, if 

any, a debtor has in property. Congr ess Talcott Corp. v. 

Gruber, 993 F.2d 315, 319 (3d Cir . 1993) (citing Aquilino v. 

United States, 363 U.S. 509, 513 (1960)); In re Roach, 824 

F.2d 1370, 1374 (3d Cir. 1987) (quoting Butner v. United 

States, 440 U.S. 48, 54 (1979)). As the Supr eme Court has 

instructed: 

 [p]roperty interests are cr eated and defined by state 

 law. Unless some federal interest requir es a different 

 result, there is no reason why such interests should be 

 analyzed differently simply because an interested party 

 is involved in a bankruptcy proceeding. Unifor m 

 treatment of property interests by both state and 

 federal courts within a State serves to reduce 

 uncertainty, to discourage forum shopping, and to 

 prevent a party from receiving "a windfall merely by 

 reason of the happenstance of bankruptcy." 

Butner v. United States, 440 U.S. 48, 55 (1979) (quoting 

Lewis v. Manufacturers Nat'l Bank of Detr oit, 364 U.S. 603, 

609 (1961)). 

O'Dowd argues that the Trueger/Biunno Action does not 

constitute property subject to inclusion in the estate. She 

maintains that her malpractice claims did not accrue until 

1996, while the estate came into existence four years earlier 

in 1992 when she filed her petition. It was only in 1996, 

she contends, that she became aware of her for mer 

attorneys' negligence and that the omitted claims were 

time-barred under state law. Thus, accor ding to O'Dowd, all 

the legally relevant events that comprise the malpractice 

 8 
action occurred well after the commencement of her 

bankruptcy case. Since the claim was not legally cognizable 

"as of the commencement of the case," she contends that it 

cannot constitute "property" subject to inclusion in a 

federal bankruptcy estate. She also asserts that a legal 

malpractice claim, by its very nature, can only belong to the 

debtor, and thus can be acquired only by the debtor. 

Against this background, we turn to New Jersey law to 

determine when the Trueger/Biunno Action accrued. We 

then address O'Dowd's argument, which implicates 11

U.S.C. S 541(a)(7), that a legal malpractice claim can never 

become the property of a bankruptcy estate because it 

necessarily inures only to the debtor. 

B. 

We agree with O'Dowd that, under New Jersey law, the 

Trueger/Biunno Action did not accrue until 1996. In New 

Jersey, "a legal-malpractice action accrues when an

attorney's breach of professional duty proximately causes a 

plaintiff 's damages." Grunwald v. Bronkesh, 621 A.2d 459, 

463 (N.J. 1993); accord Olds v. Donnelly , 696 A.2d 633, 641 

(N.J. 1997). In special cases, such as malpractice actions, 

New Jersey courts have adopted the discovery rule"to 

postpone the accrual of a cause of action" when a plaintiff 

is unaware of the facts underlying a claim. Bronkesh, 621 

A.2d at 463. 

Accordingly, the Trueger/Biunno Action did not accrue 

until O'Dowd first learned of the omitted claims in the 

Sevack Action. Thus, any property inter est that O'Dowd 

had in the Trueger/Biunno Action did not come into 

existence until 1996, four years after she filed her 

bankruptcy petition. 

O'Dowd's primary contention is that, since the 

Trueger/Biunno Action is a post-petition tort claim, it can 

belong only to the debtor. She relies on caselaw in which 

courts have found that a debtor's post-petition cause of 

action did not constitute property of the estate. See, e.g., 

Bobroff v. Continental Bank, 43 B.R. 746, 750-51 (E.D. Pa. 

1984) (debtor's tort claims were not pr operty of estate 

where events giving rise to claims occurr ed following filing 

 9 
of debtor's Chapter 7 petition), aff 'd, 766 F.2d 797 (3d Cir. 

1985); Brunswick Bank & Trust Co. v. Atanasov (In re 

Atanasov), 221 B.R. 113, 116-17 (Bankr. D.N.J. 1998) 

(debtor's malicious prosecution claim was not property of 

estate as it arose post-petition when indictment was 

dismissed); In re Doemling, 127 B.R. 954, 955-57 (Bankr. 

W.D. Pa. 1991) (debtors' tort claim arising from automobile 

accident five months after filing of bankruptcy petition was 

not property of estate); Mathews v. United States (In re 

Mathews), 184 B.R. 594, 601 (Bankr. S.D. Ala. 1995)

(Chapter 7 debtors' compensatory damages awar d against 

IRS was awarded to debtors personally, and not as estate 

property, where award was premised on IRS actions that 

primarily took place post-discharge). 

However, none of these cases involved claims that could 

be traced directly to pre-petition conduct in the way that 

the Trueger/Biunno Action can be traced to the Sevack 

Action. The injury alleged in the Trueger/Biunno Action is 

that O'Dowd suffered a diminished r ecovery in the Sevack 

Action as result of her former attor neys' negligence. Put 

differently, the misconduct of O'Dowd's former bankruptcy 

attorneys reduced the value of her malpractice lawsuit 

against Sevack. While we acknowledge that the conduct 

giving rise to the malpractice claim occurred post-petition, 

we find it conceptually impossible to sever the 

Trueger/Biunno Action from the underlying Sevack Action. 

Moreover, even though O'Dowd did not r etain Trueger and 

Biunno until after she had filed her Chapter 11 petition, 

the malpractice claims are traceable dir ectly to O'Dowd's 

pre-bankruptcy dealings with Sevack. 

Moreover, in the cases cited by O'Dowd, the alleged

wrongful conduct damaged the debtor personally and had 

no effect on the estate. Indeed, the courts in these cases 

emphasized that the inquiry often depends on whether the 

estate or the debtor suffers the harm. Accordingly, only in 

the post-petition situation where the debtor is personally 

injured by the alleged malpractice, while the estate is 

concomitantly not affected, is it appr opriate to assign the 

malpractice to the debtor. See, e.g., Osborn v. Durant Bank 

& Trust Co. of Durant, Okla. (In re Osborn), No. 95-7118, 

95-7124, 95-7121, 83 F.3d 433, 1996 WL 196695, at *4-5 

 10 
(10th Cir. Apr. 24, 1996) (table) (legal malpractice claim was 

property of debtors because it sought r ecovery for injury to 

debtors personally and not to estate). 

Here, any alleged malpractice resulting fr om the omission 

of claims in the Sevack Action would affect only the estate, 

not O'Dowd, because it would have reduced the value of the 

Sevack Action, which was property of the estate. In other 

words, because the Sevack Action belonged to the estate, 

including the claims that could have been but wer e not 

asserted, a malpractice suit in connection with those 

omitted claims likewise belongs to the estate and the 

estate's creditors. 

Finally, O'Dowd argues that the District Court should 

have performed a balancing test to deter mine whether 

O'Dowd or the estate suffered the gr eatest harm. While we 

decline to address the propriety of r esorting to such a 

balancing test, we note that since the omitted claims 

constitute estate property, O'Dowd cannot demonstrate that 

she suffered any harm as a r esult of the malpractice alleged 

in the Trueger/Biunno Action. Thus, she personally was 

not affected by any diminishment in their value, and 

consequently any balancing would weigh overwhelmingly in 

favor of the estate. 

O'Dowd's bankruptcy estate is the true injur ed party. It 

owned the omitted claims in the Sevack Action and, if the 

allegations in the Trueger/Biunno Action ar e true, it is the 

estate that deserves to be made whole. We therefore

conclude that since the estate acquired the T rueger/Biunno 

Action after the commencement of the case, the lawsuit 

constitutes estate property under S 541(a)(7) of the 

Bankruptcy Code, which provides that pr operty of the 

estate includes "[a]ny interest in pr operty that the estate 

acquires after the commencement of the case." 

III. Conclusion 

For all the foregoing reasons, we hold that the 

Trueger/Biunno Action constitutes property of O'Dowd's 

bankruptcy estate under 11 U.S.C.S 541(a)(7), and therefore 

 11 
we will affirm the District Court. 

A True Copy: 

Teste: 

 Clerk of the United States Court of Appeals 

 for the Third Circuit 

 12