Opinion ID: 3011240
Heading Depth: 1
Heading Rank: 1

Heading: Factual and Procedural Backgr ound

Text: 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. 3 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. 4 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 havepurchased 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.
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.