F OR P UBLICATION



### UNIT E D ST AT E S CO URT O F APPE AL S FO R T H E NINT H CIRCUIT

R I C H A R D K. S C H U L T Z E ; L O R E N Z O V. Z U N I N O ; R O B E R

T B E C C H E T T I ; R I C H A R D Q U E S T O N I , Appellants
,

v

.

D A V I D N. C H A

N D L E R , S R .; D A

V I D N

. C H A N D L E R , P.C., A

ppellees

. N o. 12-15186

D.C. No. 3:11-cv-04940- W HA

ORDER AND AMENDED OPI NI ON

A ppeal from the United States District Court for the Northern District of California W illiam Alsup, District J udg e, Presiding

Arg ued and Submitted December 4, 2013—San F r ancisco, California

F iled J uly 18, 2014 Amended Aug

u st 1, 2014

B efore: Stephen S. Trott, Sidney R. Thomas, and Mary H. Murg u ia, Circuit J udg es.

Order; Opinion by

J udg e ThomasS C H U L T Z E V

. C H A N D L E R 2

SUMMARY *

Bankruptcy

The p anel filed (1) a

n order amending i t s opinion filed J uly 18, 2014, and ( 2) an a mended opinion af f i r m i n g the district court’s affirmance o f the bankruptcy court’s d ismissal of a malpractice action ag ainst an attorney f o r a n unsecured creditors’ committee.

The panel held that the bankruptcy cour t properly

e x ercised jurisdiction over the leg a l malpractice action after its removal from state court because the action was a core proceeding

. Ag reeing with other circuits, the panel held that

a post-petition claim b roug h t ag ainst a c ourt-appointed prof e s s i onal is a core p roceeding

. The panel held that this lawsuit fell easi l y wi t h in the definition of a core proceeding b e c a use the attorney ’s e mploy ment b y the c ommittee a nd

c o mpensation were a

pproved by the bankruptcy court, hi s duties pertained solely to the administration of the bankruptcy estate, a n d the claim asserted by committee members was based solely on acts that o ccurred in the administration of the estate.

The panel stated that it need not decide w h et h e r the bankruptcy court’s entry o f final judg ment was invalid under Stern v. Ma r

s h a l l
, 131 S. Ct. 2594 (2011), because the bankruptcy

court dismissed the complaint for f ailure to state

a claim, and the district court rev i e we d this dismissal de

* T h is su m m ary co n stitu

tes n o part o f th e o p in io n o f th e co u rt. It h as b een p rep ared b y

co u rt staf

f f o r th e co n v en i en ce o f

th e read er.S C H U L T Z E V

. C H A N D L E R 3

novo. As such, plaintiffs received all t h e review Article I I I requires.

The p anel he l d t h at the b ankruptcy court correctly dismissed the action on the basis that the attorney represented

o n l y t he c ommittee and did not owe an individual d uty of care to the committee members.

COUNSEL

Paul A

. F rassetto (arg

ued), F rassetto L aw Offices, San F rancisco, California, for Appellants.

J ames A. Murphy (arg

ued) a n d A r thur J

. Harris, Murphy
, Pearson, B radley & F eeney , San F rancisco, California, for Appellees.

ORDER

The opinion filed J uly 18, 2014, is amended as follows: F ootnote 1 is d eleted i n i t s e ntirety and the following lang uag e inserted in lieu thereof:

W e need n o t decide whether the bankruptcy court’s e n t ry of final judg ment was invalid under Stern v. M

arshall
, 131 S. Ct. 2594 ( 2 011), because in this case, the bankruptcy court dismissed Chandler’s c omplaint for failure to state a claim, a

nd the dist r i c t c ourt reviewed this dismissal de novo. See Schultze

v. Chandler
, N o. C 11-4940 W HA, 2011 W L 6778823, at *2–3 (N.D. Cal. Dec. 27, 2 0 1 1 ).S C H U L T Z E V

. C H A N D L E R 4

As such, Pla i ntiffs received all the r eview Article I I I r equires. Exec. B enefit s Ins. Agency v

. Arkison (

In re Be l l ingham Ins. Agency, Inc.) , 134 S. Ct. 2165, 2175 (2014).

IT IS SO ORDERED.

OP INION

THOMAS, Circuit J udg e :

I n this appeal, we consider whether the bankruptcy court properly ex ercised jurisdiction over a malpractic e action

a g ainst an attorney f

or the u nsecured c reditors’ committe e and correctly

dismissed the claim. W e affirm.

I

Plaintiffs Ri chard Schultz e, L orenz o Z unino, Robert B ecchet t i, a

nd Richard Questoni were investors in Colusa Mushroom, I nc. (“Colusa”), a California company that g rew mushrooms for commercial sale. T he business d id not flourish, and the company filed a v o luntary petition in bankrup t c y under Chapter 11. The bankruptcy court appointed an unsecured creditors’ c o mmittee (“Committee”) pursuant to 1 1 U.S.C. § 1102, c o n s i sting of Plaintiffs, two other individuals, and one b u s i ness e ntity

. Pursuant to 11 U.S.C. § 1103(a), the Committee f i l ed an application for permission to employ David Chandler as c o u n sel for the Committee, and the court issued an or d e r authoriz ing his employ ment.S C H U L T Z E V

. C H A N D L E R 5

Eventua l l y , the court approved a plan of reorg aniz ation

u n d e r w h ich Colusa would sell its business and a ssets to a third party , Premie r M ushroom, L P (“Premier”). All unsecured creditors, including Plaintiffs, were to r e ceive pro rata shares of the sale proceeds. Under the terms of the sale, Premier paid a down pay ment a n d ex ecuted a p r omissory note for pay

ment of the remainder of the sales price. Premier

was to make three annual pa y m en t s of $100,000 and a final balloon pay

ment of $1,022,453.

The note w as to be secured by a dee d o f t r u st on real property and a secured interest on personal property , junior to three other liens. Attorney s fo r C o l usa and Premier, not Chandler, conducted the closing

. F ollowing t h e closing o f the sale, the court entered a final decree and administratively closed the bankruptcy

.
Premier paid the initial installment s as provided by the terms of the note but defaulted four y ears later. Plaintiffs then learned that Colusa’s counsel had f a iled to file the financing statements necessary to perfec t the estate’s junior security interest in the p ersonal property

. B e c a use the security interest w as n ot perfected, Premier was able to take out additional loans o n and o ver-e n c umber Colusa’s assets. Thus, the net r ecovery f

rom the assets a s a result of Premier’s default w as sig nificantly less than it would have been had the security interest been perfected.

Subsequen t l y , Plaintiffs commenced this action ag ainst Chandler and his law firm in state court for leg al malpractice, alleg ing that Chandler was n e gl ig ent in the performance o f his d u t i e s as counsel to the Committee because h e failed to ensure that Colusa’s attorney properly perfected the security interest.S C H U L T Z E V

. C H A N D L E R 6

The Colusa bankruptcy was reopened on March 31, 2011, and converted to Chapter 7, w hich dissolved the Committee. Chandler then rem o v e d the malpractice action to federal bankruptcy court. Plaintiff s moved to remand the action to state court, but the bankruptcy court found that it had federal jurisdiction for the malpractice action and denied the motion. Chandler filed a 12(b)(6) motion to dismiss on the basis that, inter alia
, he owed no duty to Plaintiffs individually because he represente d t h e c ommittee as a whole, not its individual members. The bankruptcy court g ranted Chandler’s motion, concluding that Chandler did n o t o we a duty to Plaintiffs individually

. The bankruptcy court issued an order approving

a settlement on Premier’s oblig ations and neg ating a ny future pay ments on Plaintiffs’ claims.

Plaintiffs appealed the bankruptcy court’s dismissal to the district c ourt. The district court affirmed. This timely appeal followed.

I I

The d istrict court properly c o ncluded that the bankruptcy court had jurisdiction over the removed le gal malpractice action b ecause it was a core proceeding

. 1 A bankruptcy court has jurisdiction over “all civil proceeding s arising under title

1 W e n eed n o t d ecid e w

h eth er th e b an k

ru p tcy co u rt’ s en try o f f

in al j u d g m en t w as i n v alid u n de r S tern v. Ma rsh a l l
, 1 3 1 S. Ct. 2 5 9 4 (2 0 1 1 ), b ecau se in th is case, th e b an k ru p t cy co u rt d ism issed Ch an d ler’ s co m p lain t f o r f ailu re to s tate a claim
, an d th e d istrict co u rt rev i ew ed th i s d ism issal d e n o v o

. S

ee S ch u ltze v. Ch a nd l er , No

. C 1 1

- 4 9 4 0 W HA
, 2 0 1 1 W L 6 7 7 8 8 2 3
, at * 2

– 3 (N.D. Cal. Dec. 2 7
, 2 0 11 ). A s su ch
, P lain tif f s receiv ed all th e rev i ew

A rticle III req u ires. Exec. Ben efits In s. Ag en cy v. Arkiso n ( In re Bellin gh a m In s. Ag en cy, In c.) , 1 3 4 S. Ct. 2 1 6 5 , 2 1 75 (2 0 1 4 ).S C H U L T Z E V

. C H A N D L E R 7

11, or a rising in or related to cases under title 11.” 28 U .S.C. § 1334(b); see also id. at § 157(b)(1).

“[ C] laims that arise under or in Title 11 are deemed to be ‘core’ proceeding s, while clai m s that are related to Title 11

a r e ‘ n oncore’ proceeding s.” Maitland v. Mitchell ( In re H arris P ine Mills)
, 44 F .3d 1431, 1435 (9th Cir. 1 9 9 5 )

. A

nonex h austive list of core p roceeding s is set out in 28 U .S.C. § 157, which includes “matters concerning the administration of the e state.” Id. at § 157(b)(2)(A). The li s t also includes “other proceeding s a ffecting the liquidation of the a ssets o f the estate or the adjustment of the debtor-cre d i tor or the equity security holder relationship, ex cept personal injury tort or wrong ful death claims.” I d. at § 157(b)(2)(O).

Core proceeding s a

rising in title 11 are m a t t e r s “that a re not based on any rig h t ex pressly cre a t e d b y title 11, but

n evertheless, would have no ex istence outside of the bankruptcy .” Harris P ine Mills
, 44 F

. 3 d at 1 435 (quoting W ood v. W ood ( In re W ood)
, 825 F

. 2d 9 0, 97 (5th Cir. 1987)). I n Harris Pine Mills
, we held that a p o st-petition state-law claim a g ainst a bankruptcy truste e a r i s i ng out of the sale o f estate p roperty was a core proceeding

. Id. at 1438. Similarly
, in W a lsh v. Northwestern National Insurance Co. of Milwaukee, W

isconsin ( In re Ferrante)
, 51 F

. 3 d 1 473, 1476 (9th Cir. 1995), w e he l d t h at a post-petition breach o f fiduciary claim ag ainst a trustee was a core proceeding

.

I n contrast, w here the post-petition p roceeding involves rig hts unconnected to the ba n k ruptcy , we have declared the proceeding noncore. S

ee, e.g. , Eastport Assocs. v. City of L.A. ( In re Eastport A ssocs. ), 935 F

. 2d 10 7 1
, 1 076 (9th Cir. 1991) (noncore proceeding where developer debtor broug ht post-pe t i t ion claim for declaratory relief ag ainst cityS C H U L T Z E V

. C H A N D L E R 8

concerning the ef

fect of state law on subdivision proposal); Christensen v. Tucson Estates, Inc. ( In re Tucson Estate s, Inc. ), 912 F .2d 116 2
, 1 1 68 (9th Cir. 1990) (noncore proceeding where mobile h ome park residents broug h t prepetition class action suit ag ainst debtor).

W h ere a post-petition c laim was broug ht ag ainst a courtappointed professional, we have held the suit to b e a core proceeding

. Ferrante
, 51 F .3d at 1476 (core p r o c eeding where succes s o r trustee broug ht breach of fiduciary duty claim ag a inst predecessor trustee); Harris Pine Mills
, 44 F .3d
at 1438 ( core proceeding where state-law claim was broug ht ag ainst trustee). A l l of our sister c ircuits are in accord. Baker v. Simpson
, 613 F

. 3d 3 46, 350 (2d Cir. 2010) (core proceeding where debtor broug ht ma lpractice claim ag ainst bankruptcy counsel); Grausz v. Englander
, 321 F

. 3 d 467, 471 (4th Cir. 2003) (same); Southmark Corp. v. Coopers & Lybrand ( In re Southmark Corp.)
, 1 63 F .3d 925, 932 ( 5th Cir. 1999) (core proceeding where debtor broug ht state-law claim ag ainst court-appointed accountant for its ex aminer); Billing

v. R avin, Greenberg & Zackin, P.A.
, 22 F .3d 1242, 1244 (3d Cir. 1994) (core proceeding wher e d e b t o r b r o ug ht malpractice claim ag ainst bankruptcy counsel); Sanders Confecti onery Prods., Inc. v. Hel l e r F

i n

. , Inc.
, 973 F .2d 474, 4 8 3 n.4 (6th Cir. 1992) (where d ebtor broug ht c l aim ag ainst trustee a nd lender, core proceeding ag ainst trustee but not ag ainst lender).

Southmark Corp. ex p lained the rationale:

A sine qua non in restructuring the debtor-creditor r elationship is the court’s ability to p olice the fiduciaries, whether trustees or debtors-in-possession and other

c o u rt

- a p p o i n t e d professionals, w h o a r eS C H U L T Z E V

. C H A N D L E R 9

responsible for managing the debtor’s estate in the b est interest o f creditors

. The bankruptcy court must be able to assure itself and the creditors who rely on the process that court-approved manag ers o f t he debtor’s

e s t a t e a r e p e r f

o r m i n g t h e i r w o r k
, c o n s c i e n t i o u s l y a n d c o s t

- e f f e c t i v e l y

. B a nkruptcy Code provisions describe the basis for compensation, appointment a nd removal of court-appointed professionals, their confli ct-of-interest standards, and the duties they must perform. See generally 11 U.S.C. §§ 321, 322, 324, 326–331.

163 F .3d at 931.

I n t h i s case, the employ ment of Chandler by the Committee was approved by the bankruptcy court a nd g overned by 11 U.S.C. § 1103. Chandler’s compensation was also approved b y the c o u rt a n d g overned b y 1 1 U .S.C. §§ 328, 330, 331. His duties pertained solely to the administration of the bankruptcy es t ate. The claim asserted by Plaintiffs was b ased solely o n acts that occurred in the administration of the estat e. Therefore, the lawsuit f alls easily within the definition of a core proceeding

.
Plaintiffs arg ue that the i r a c t ion cannot be a core proceeding beca u se it is predicated on state law. However, the g overning statute c learly states that “[ a ] d e t ermination that a proceeding is n ot a core proceeding shall not b e made solely on the b asis that its resolution may be affected by State law.” 28 U.S.C. § 157(b)(3).S C H U L T Z E V

. C H A N D L E R 10

Plaintiffs also a

rg ue that their claim does not invoke any rig ht created by federal bankruptcy law and it does not affect,

or e ven involve, t h e administration of Colusa’s estate. Ho w e v e r, “arising in” jurisdiction does not require that the matter be “ based on any rig ht e x p r e s sly created by title 11.” Marshall v. Stern (

In re Marshall)
, 600 F .3d 1037, 1 055 (9th Cir. 2010) (internal quotation marks omitted). I n stead, the matter must “have no ex iste n ce o utside of the bankruptcy”

case. Id. ( internal quotation marks omitted). That is the case he re

. The basis for the claim occurred within the administration of the estat e

. Any alleg e d duties arose from oblig ations created under b ankruptcy law. The c l ai m s have effectively called into question the administ r a tion of the estate. Thus, this particular le g al malpractice c laim is inseparable from the bankruptcy case.

Plaintiffs arg ue that the claim w ill not affect estate administration. B ut the key inquiry is not whether the claim will affect the administration o f the bankruptcy
, but i n s t e a d whether the claim arose in a case under t i t l e 1 1

. Baker
, 613 F

. 3d at 350. A d d itionally
, courts have been less concerned w ith the identity of th e party bring ing the claim

a nd more concerned with the identity and function o f t h e party ag ainst whom the claim is broug ht. Southmark Corp.
, 163 F .3d at 931.

F or these reasons, we c onclude that the district court correctly determined t h a t the bankruptcy court h ad jurisdiction o ver the lawsuit as a core p roceeding and that the bankruptcy

court did not err in deny

ing the remand motion. 2

2 Plain t if f s arg u e in th e altern ativ e th at t h e b an k ru p tcy co u rt sh o u l d h av e ab stain ed f

ro m h ear in g th e case u n d er th e p erm issiv e ab sten tio n s tatu te, 2 8 U.S.C. § 1 3 3 4(c)(1 ). Ho w ev er, w e lack j u ri s d ictio n to rev i ew th atS C H U L T Z E V

. C H A N D L E R 11

I I I

The district court correctly c o ncluded that the bankruptcy court did not err in dism i s s i n g the complaint because Chandler did not owe an individual duty of care.

I n bankruptcy , “[ a] professional retained by a committee repres e nts the committee and only the committee, and the professional’s fiduciary duty runs so l e l y to the committee.” 7 Collier o n Bankruptcy 11 03.03[ 7 ] (16th ed.). Here, Chandler was a

ppointed by the bankruptcy court to represent the Committee, the written ag reement was between Chandler and the Committee, and he w as paid for his ro l e as counsel for the Committee. I n s h ort, Chandler was not acting a s attorney for Plaintiffs. Moreover
, t he Committee was not involved in the neg otiated sale. I n his capacity as counsel for the Committee, Chandler w as not c h a r g e d with the duty o f

r e c o r ding the f

inancing statement, nor was it his rig ht to do so; that duty

fell to Colusa’s attorney

.

I t is true that in California, p rivity o f c o n t r act is not required to maintain a leg al malp r a ctice action. Donald v

. Garry
, 9 7 Cal. Rptr. 1 91
, 1 9 2 ( Ct. App. 1971). The determination of liabi l i t y involves the balancing of v arious factors. Biakanja v. Irving
, 320 P.2d 1 6
, 19 ( Cal. 1958). The bankruptcy court balanced those factors, and we find n o error in the bankruptcy

court’s analy sis.

d ecisio n

. Id

. at § 1 3 3 4 (d ) (“ A n y d ecisio n t o ab stain o r n o t t o ab stain m ad e

u n d er su b sectio n (c) (o th er th an a d ecisio n n o t t o ab stain in a pro ceed in g d escrib ed in su

b sectio n (c)(2 )) is n ot rev iew ab l e b y ap p eal o r o th erw ise b y th e co u rt of ap p eals u n d er sectio n 1 5 8 (d ), 1 2 9 1
, o r 1 2 9 2 of th is title . . . .”); Ba ker , 6 1 3 F.3 d at 3 5 2

.S C H U L T Z E V

. C H A N D L E R 12

I V

The d istrict court properly concluded that the bankruptcy

c ourt properly ex ercised jurisdiction over the malprac t i c e claim and correctly

dismissed the case on the merits.

AF F IRMED.