Court Opinion

ID: 151882
Source: CourtListenerOpinion
Date Created: 2010-07-30 14:11:19+00
Date Added: 2024-06-11T12:29:38.511729
License: Public Domain

09-3848-bk
     In re Aston Baker

 1                        UNITED STATES COURT OF APPEALS
 2
 3                              F OR THE S ECOND C IRCUIT
 4
 5
 6                              August Term, 2009
 7
 8   (Submitted: June 22, 2010                        Decided: July 30, 2010)
 9
10                            Docket No. 09-3848-bk
11
12
13                                  ASTON BAKER,
14
15                                                          Creditor-Appellant,
16
17                                       –v.–
18
19                       CHARLES SIMPSON, WINDELS MARX
20                       LANE & MITTENDORF, LLP, STANLEY
21                       GALLANT, GALSTER CAPITAL LLC,
22                       GALSTER    MANAGEMENT      CORP.,
23                       ALLSTATE    INSURANCE   COMPANY,
24                       JPMORGAN CHASE BANK, N.A.,
25
26                                                          Trustees-Appellees.
27
28
29   Before:     WINTER, CABRANES, WESLEY, Circuit Judges.
30
31        Appeal from a judgment of the United States District
32   Court for the Eastern District of New York (Irizarry, J.),
33   entered on August 25, 2009, affirming the March 6, 2008
34   decision of the United States Bankruptcy Court for the
35   Eastern District of New York, and dismissing the appeal.
36   The district court properly held that appellant’s claims are
37   civil proceedings “arising in” a case under Title 11 and
38   that the bankruptcy court had jurisdiction over appellant’s
39   claims. We hold that claims of professional malpractice,
40   based on services rendered pursuant to a Title 11 petition,
41   “arise in” a bankruptcy case because they implicate the
42   integrity of the bankruptcy process and are inseparable from
 1   that proceeding. We further hold that we lack jurisdiction
 2   to consider whether the bankruptcy court’s decision with
 3   respect to permissive abstention was proper.
 4
 5       AFFIRMED.
 6
 7
 8            ASTON BAKER, pro se, Brooklyn, New York; VIVIAN M.
 9                 WILLIAMS, Vivian Williams & Associates, P.C.,
10                 New York, New York, for appellant.
11
12            CHARLES E. SIMPSON, Windels, Marx Lane &
13                 Mittendorf, LLP, New York, New York, for
14                 appellees Charles E. Simpson and Windels Marx
15                 Lane & Mittendorf, LLP.
16
17            RICHARD A. KLASS, Brooklyn, New York, for
18                 appellees Stanley Gallant, Galster Capital
19                 LLC, Galster Management Corp.
20
21            BRUCE W. FARQUHARSON, Feldman, Rudy, Kirby &
22                 Farquharson, P.C., Westbury, New York, for
23                 appellee Allstate Insurance Company.
24
25            JACQUELINE M. DELLA CHIESA (Debra Lynne Wabnik, on
26                 the brief), Stagg, Terenzi, Confusione &
27                 Wabnik LLP, Garden City, New York, for
28                 appellee JPMorgan Chase Bank, N.A.
29
30
31   PER CURIAM:

32       This Court has not previously determined whether claims

33   of professional malpractice based on services rendered

34   pursuant to a Title 11 bankruptcy petition, see 11

35   U.S.C. § 101 et seq., fall within the bankruptcy court’s

36   “original but not exclusive jurisdiction.” 28 U.S.C.

                                 -2-
 1   § 1334(b).     We now join several of our sister circuits in

 2   holding that appellant’s claim that he was afforded

 3   substandard legal representation in his Title 11, and

 4   related bankruptcy proceedings, are subject to the

 5   bankruptcy court’s “arising in” jurisdiction.     See id.    We

 6   further hold that we lack jurisdiction to review the

 7   propriety of the bankruptcy court’s decision not to abstain

 8   pursuant to 28 U.S.C. § 1334(c)(1).

 9                               Background

10       On November 15, 2001, appellant Aston Baker filed a

11   petition for relief in the United States Bankruptcy Court

12   for the Eastern District of New York pursuant to Chapter 7

13   of Title 11 of the United States Code.     By order of the

14   bankruptcy court, Baker’s Chapter 7 case was converted into

15   a “reorganization” under Chapter 11 of the Bankruptcy Code.

16   The bankruptcy court appointed appellee Charles E. Simpson,

17   and the law firm to which he belongs, Windels Marx Lane &

18   Mittendorf, LLP (“Windels Marx”), as counsel to Baker and

19   two entities for which he was the sole controlling

20   shareholder.

21       On October 23, 2007, Baker filed a claim against

                                    -3-
 1   appellees in New York State Supreme Court for Kings County.

 2   Baker alleged legal malpractice, conversion, negligence,

 3   fraud, and intentional misrepresentation.        The facts and

 4   circumstances that Baker maintains gave rise to these claims

 5   are summarized in the district court’s opinion below.         Baker

 6   v. Simpson, 413 B.R. 38, 40-41 (E.D.N.Y. 2009) (Irizarry,

 7   J.).       In brief, Baker contends that:   (1) On the advice of

 8   counsel, he refinanced through appellee Galster Capital LLC,

 9   which he contends misrepresented itself as a lender and

10   failed to fund his mortgage loans as agreed. 1      (2) Galster

11   Capital caused him to incur legal fees, forgo offers from

12   other prospective lenders, and accrue interest on his debt.

13   (3) During a status conference before the bankruptcy court,

14   attorney Simpson made a misrepresentation concerning the

15   bankruptcy estate.       (4) Simpson arranged an improperly

16   “fixed” auction sale of two of his commercial properties

17   without notice to Baker, and after a prospective buyer moved

18   to reopen the sale, the bankruptcy court issued an order

19   vacating the original sale and scheduling a new sale on

20   notice.       (5) Allstate Insurance Company acted negligently

            1
           The bankruptcy court issued three orders authorizing
     and approving these mortgage loans.

                                      -4-
 1   when, at Simpson’s direction, it deposited insurance

 2   proceeds into a JPMorgan Chase bank account in Baker’s name.

 3   (6) And, Simpson improperly converted the funds deposited

 4   into the JPMorgan account for his personal use.       See Baker,

 5   413 B.R. at 40-41.

 6       Simpson and Windels Marx then filed a motion to remove

 7   the matter to bankruptcy court based on appellant’s ongoing

 8   reorganization under Title 11.       The state court granted

 9   appellees’ motion to remove and Baker promptly moved, in the

10   bankruptcy court, to remand.     At a hearing before the

11   bankruptcy court, Simpson argued that while Baker’s action

12   in the state court was “ostensibly” based on state law

13   issues, what Baker was in fact “objecting to [was] counsel,

14   the bank, and the insurance company’s compliance with valid

15   orders” of the bankruptcy court.       Simpson further maintained

16   that “[a]ll of the orders complained of, all of the hearings

17   complained of, [and] all of the sales complained of arise

18   out of” the proceedings in the bankruptcy court.       The

19   bankruptcy court denied appellant’s motion to remand and

20   dismissed the case in its entirety.       The bankruptcy court

21   concluded that “removal in this case . . . from the Supreme

22   Court in New York County to [the bankruptcy court was] . . .

                                    -5-
 1   eminently appropriate and warranted” and that Baker had “not

 2   set forth . . . a cause of action that [could] survive

 3   against any of these defendants.”

 4       Baker appealed the order of the bankruptcy court to the

 5   United States District Court for the Eastern District of New

 6   York.   However, he did not challenge the merits of the

 7   bankruptcy court’s dismissal before the district court.

 8   Rather, his appeal was limited to the contention that the

 9   bankruptcy court’s exercise of jurisdiction over his claims

10   was improper.   Accordingly, the district court did not

11   address the merits of Baker’s substantive claims, Baker, 413

12   at 42 n.3; nor will we.

13       In ruling on Baker’s jurisdictional contentions, the

14   district court concluded that “the gravamen in each claim is

15   that Simpson and Windels Marx provided substandard legal

16   services in the course of representing appellant in his

17   Title 11 and related legal proceedings.”    Id. at 44.     The

18   court held that “[t]he alleged malpractice . . . implicates

19   the integrity of the entire bankruptcy process” and, “[a]s

20   such, appellant’s claims ‘arise in’ the Title 11 case, and

21   Section 1334(b) clearly gives the bankruptcy court

22   jurisdiction over them.”   Id.   The district court also

                                  -6-
 1   rejected Baker’s contention that the “bankruptcy court’s

 2   jurisdiction over his claims was circumscribed by the

 3   disposal of his estate,” finding that the disposal of the

 4   estate was “immaterial to the jurisdictional issue.”      Id. at

 5   43.   Finally, the district court found no error in the

 6   bankruptcy court’s decision not to exercise its authority

 7   under the permissive abstention doctrine, see 28

 8   U.S.C. § 1334(c)(1), to refrain from adjudicating Baker’s

 9   claims.   Baker, 413 B.R. at 45-46.

10         Baker filed a notice of appeal on September 9, 2009. 2

           2
           Baker was pro se in the proceeding before the
     district court. Baker also filed his briefs before this
     Court as a pro se litigant. On February 19, 2010, a notice
     of appearance from Michael Freeman, of Greenberg Freeman
     LLP, on behalf of Baker, was docketed before this Court. On
     June 16, 2010, Greenberg Freeman submitted a motion to
     withdraw as counsel of record for the appellant. The
     affidavit accompanying the motion stated that the law firm
     was retained by Baker, pursuant to a retainer agreement, for
     the limited purpose of arguing the appeal. According to the
     sworn affidavit, the agreement expressly provided that
     counsel had no obligation to make written submissions on
     behalf of appellant. Notice was sent to the parties that
     this Court intended to decide this matter without oral
     argument. See Fed. R. App. P. 34(a)(2). Thus, Greenberg
     Freeman’s motion to withdraw as counsel is hereby granted.
     A notice of appearance by Vivian Williams, on behalf of
     Baker, was docketed before this Court on June 17, 2010. On
     June 18, 2010, this Court granted appellant’s new counsel an
     extension of time to file a reply brief. We have considered
     the reply brief submitted by counsel, as well as the rest of
     the record on appeal, in rendering our decision.

                                   -7-
 1   We find that the bankruptcy court’s exercise of its “arising

 2   in” jurisdiction, as set forth in 28 U.S.C. § 1334(b), was

 3   proper and affirm. 3

 4                            Discussion

 5       In facing a question similar to the one now before us,

 6   the Fifth Circuit Court of Appeals stated:

 7            That the bankruptcy court has some kind of
 8            jurisdiction over this malpractice action
 9            against court-appointed professionals is
10            not in doubt.    But what the court can do
11            with its jurisdiction depends first on
12            whether the malpractice case is a “core”
13            bankruptcy matter or one that is “related
14            to” [a bankruptcy proceeding].      If the
15            suit . . . is merely related to bankruptcy,
16            the bankruptcy court was required to
17            abstain from hearing it.         28 U.S.C.
18            § 1334(c)(2). If, however, the controversy
19            lies at the core of the federal bankruptcy
20            power, the bankruptcy law permits but does
21            not require abstention.
22
23   In re Southmark Corp., 163 F.3d 925, 928-29 (5th Cir. 1999)

24   (some internal quotation marks and citations omitted).   The

         3
           With respect to whether the bankruptcy court’s
     exercise of jurisdiction under 28 U.S.C. § 1334(b) was
     proper, “[o]ur review of the district court’s decision
     affirming the bankruptcy court order[] is plenary.” In re
     NextWave Personal Commc’ns, Inc., 200 F.3d 43, 50 (2d Cir.
     1999). Therefore, “[l]ike the [d]istrict [c]ourt, we review
     the [b]ankruptcy [c]ourt’s . . . conclusions of law de
     novo.” In re Bayshore Wire Prods. Corp., 209 F.3d 100, 103
     (2d Cir. 2000).

                                 -8-
 1   Southmark court properly noted that the fact that the

 2   “origin” of the claims was found in state law, was “not

 3   dispositive.”   Id. at 930; see also 28 U.S.C. § 157(b)(3)

 4   (“A determination that a proceeding is not a core proceeding

 5   shall not be made solely on the basis that its resolution

 6   may be affected by [s]tate law.”).    Rather, the

 7   determinative issue is whether claims that appear to be

 8   based in state law are really an extension of the

 9   proceedings already before the bankruptcy court.    The Fifth

10   Circuit concluded that “the professional malpractice claims

11   alleged” were “inseparable from the bankruptcy context” and

12   that the doctrine of permissive rather than mandatory

13   abstention applied.    In re Southmark Corp., 163 F.3d at 931-

14   32; cf. N. Pipeline Constr. Co. v. Marathon Pipe Line Co.,

15   458 U.S. 50, 70-72 (1982).    We find that the same is true in

16   the matter now before us.

17       Having determined that the bankruptcy court had

18   jurisdiction over this matter, we look to the abstention

19   doctrine to provide guidance as to the proper exercise of

20   that jurisdiction.    See In re Southmark Corp., 163 F.3d at

21   929-30.   As we have previously explained, “the abstention

22   provisions implicate the question whether the bankruptcy

                                   -9-
 1   court should exercise jurisdiction, not whether the court

 2   has jurisdiction in the first instance.”   In re S.G.

 3   Phillips Constructors, Inc., 45 F.3d 702, 708 (2d Cir.

 4   1995).

 5       Mandatory abstention applies when “a proceeding based

 6   upon a [s]tate law claim or [s]tate law cause of action” is

 7   “related to a case under [T]itle 11" but does not arise

 8   under or arise in a case under Title 11.   28 U.S.C.

 9   § 1334(c)(2).   In the proceeding before the district court,

10   Baker conceded that the mandatory abstention provision set

11   out in section 1334(c)(2) is inapplicable to this case.

12   Baker, 413 B.R. at 42 n.4.   Therefore, this Court may

13   properly find any argument that the mandatory abstention

14   provision governs this appeal waived.   See United States v.

15   Brown, 352 F.3d 654, 663 (2d Cir. 2003); Billing v. Ravin,

16   Greenberg & Zackin, P.A., 22 F.3d 1242, 1245 n.1 (3d Cir.

17   1994).

18       In any event, any argument that — in the absence of a

19   waiver — mandatory abstention would apply, is without merit.

20   A bankruptcy court has “plenary jurisdiction over ‘all cases

21   under [T]itle 11 and all core proceedings arising under

                                  -10-
 1   [T]itle 11, or arising in a case under Title 11’”     Mt.

 2   McKinley Ins. Co. v. Corning Inc., 399 F.3d 436, 447-48 (2d

 3   Cir. 2005) (quoting 28 U.S.C. § 157(b)(1)).     As the Fifth

 4   Circuit has explained, although the definition of a

 5   proceeding “arising in” Title 11 is not entirely clear, it

 6   covers claims that “are not based on any right expressly

 7   created by [T]itle 11, but nevertheless, would have no

 8   existence outside of the bankruptcy.”     In re Wood, 825 F.2d

 9   90, 97 (5th Cir. 1987).

10       The adjudication of Baker’s malpractice and other

11   claims was an “essential part of administering the estate”

12   and therefore implicated the bankruptcy court’s “core

13   jurisdiction.”     In re Ben Cooper, Inc., 896 F.2d 1394, 1400

14   (2d Cir. 1990); see also In re Ferrante, 51 F.3d 1473, 1476

15   (9th Cir. 1995).     Baker’s claims against appellees “would

16   have no existence outside of the bankruptcy.”     In re Wood,

17   825 F.2d at 97; see also Sanders Confectionery Prods., Inc.

18   v. Heller Fin., Inc., 973 F.2d 474, 483 (6th Cir. 1992);

19   D.A. Elia Constr. Corp. v. Damon & Morey, LLP, 389 B.R. 314,

20   317 (W.D.N.Y. 2008); In re SPI Commc’ns & Mktg., Inc., 114

21   B.R. 14, 18 (N.D.N.Y. 1990).

                                    -11-
 1       While the meaning of the statutory language “arising

 2   in” may not be entirely clear, In re Wood, 825 F.2d at 97,

 3   it is clear to us that the bankruptcy court has the ability

 4   to review the conduct of attorneys, such as appellee

 5   Simpson, who are appointed by the court to aid a person in

 6   need of counsel in a proceeding pursuant to Title 11.       See

 7   In re Southmark Corp., 163 F.3d at 931.    The “bankruptcy

 8   court must be able to assure itself and . . . [those] who

 9   rely on the process that court-approved

10   [professionals] . . . are performing their work[]

11   conscientiously and cost-effectively.”    Id.   As in the

12   Southmark case, the claims here “inevitably involve[] the

13   nature of the services performed for” the bankruptcy estate

14   and “cannot stand alone.”   Id.; see also Sanders

15   Confectionery Prods., 973 F.2d at 483 n.4.

16       The “appellant’s relationship with all appellees arose

17   only in connection with his Title 11 proceeding.”     Baker,

18   413 B.R. at 44.   We therefore agree with the district court,

19   see id., that Baker’s claims against the appellees

20   “implicate[] the integrity of the entire bankruptcy

21   process.”   In re Seven Fields Dev. Corp., 505 F.3d 237, 260

                                  -12-
 1   (3d Cir. 2007) (internal quotation marks omitted).     This

 2   conclusion is in accord with the conclusion reached by other

 3   circuit courts of appeal that have addressed this question.

 4   For example, the Fourth Circuit held that a professional

 5   malpractice claim, filed by a Chapter 11 debtor against the

 6   firm that represented him in that proceeding, “arose in the

 7   bankruptcy case.”   Grausz v. Englander, 321 F.3d 467, 469,

 8   471-72 (4th Cir. 2003).   As already discussed, the Third,

 9   Fifth, and Ninth Circuit Courts of Appeal all agree.     See In

10   re Seven Fields Dev. Corp., 505 F.3d at 60; In re Southmark

11   Corp., 163 F.3d at 931-32; In re Ferrante, 51 F.3d at 1476.

12   In accord with this precedent from our sister circuits, we

13   conclude that Baker’s claims, which “would have no practical

14   existence but for the bankruptcy,” Grausz, 321 F.3d at 471,

15   “arise in” a bankruptcy proceeding and do not require

16   mandatory abstention on the part of the bankruptcy court.

17       Our conclusion that mandatory abstention is

18   inapplicable to Baker’s claims is bolstered by this Court’s

19   understanding of congressional intent to define “core”

20   bankruptcy proceedings expansively.   See In re CBI Holding

21   Co., 529 F.3d 432, 460-61 (2d Cir. 2008).   To that end, we

                                  -13-
 1   have given “core” proceedings a “broad interpretation that

 2   is close to or congruent with constitutional limits.”         In re

 3   U.S. Lines, Inc., 197 F.3d 631, 637 (2d Cir. 1999) (internal

 4   quotation marks omitted); see also In re S.G. Phillips

 5   Constructors, 45 F.3d at 705.     To hold that mandatory

 6   abstention barred the district court from disposing of

 7   Baker’s claims would undermine “the efficient administration

 8   of bankruptcy proceedings.”     In re CBI Holding Co., 529 F.3d

 9   at 460.

10        The district court properly rejected Baker’s claim

11   that the disposal of his estate limited the bankruptcy

12   court’s jurisdiction.     As the district court recognized, “a

13   bankruptcy court retains post-confirmation jurisdiction to

14   interpret and enforce its own orders.”      Baker, 413 B.R. at

15   43 (quoting In re Millenium Seacarriers, Inc., 419 F.3d 83,

16   96 (2d Cir. 2005)).     And, “the Title 11 case ends only when

17   it is closed under [s]ection 350(a) of Title 11, and not, as

18   appellant argue[d], with the disposition of the estate.”

19   Id. (citing 11 U.S.C. § 350(a)).      Indeed, “[i]n core

20   proceedings, the bankruptcy court has comprehensive power

21   and may enter appropriate orders and judgments.”      In re

                                    -14-
 1   Petrie Retail, Inc., 304 F.3d 223, 228 (2d Cir. 2002).

 2       Because we agree with the district court that Baker’s

 3   claims “arise in” his bankruptcy proceedings, we hold that

 4   mandatory abstention pursuant to 28 U.S.C. § 1334(c)(2) was

 5   not required.    To the extent Baker argues that the district

 6   court erred in declining to abstain pursuant to

 7   28 U.S.C. § 1334(c)(1), we lack jurisdiction to review that

 8   aspect of the district court’s decision. 4   Pursuant to

 9   28 U.S.C. § 1334(d), “[a]ny decision to abstain or not to

10   abstain made under subsection (c) (other than a decision not

11   to abstain in a proceeding described in subsection (c)(2)

12   [i.e., a decision on mandatory abstention]) is not

13   reviewable by appeal or otherwise by the court of appeals

14   under section[s] 158(d), 1291, or 1292 of this title or by

15   the Supreme Court of the United States under section 1254 of

16   this title.”    Id.

17       Unlike decisions concerning mandatory abstention,

18   decisions on permissive abstention, which lie within the

19   discretion of the bankruptcy court, are not subject to

         4
           Although this jurisdictional issue was not raised by
     the parties, we have an independent obligation to confirm
     our own jurisdiction. E.g., Local 377, RWDSU, UFCW v. 1864
     Tenants Ass’n, 533 F.3d 98, 99 (2d Cir. 2008).

                                   -15-
 1   review by the court of appeals.     We therefore lack

 2   jurisdiction to decide whether the district court’s decision

 3   on permissive abstention was correct.     See In re Cody, Inc.,

 4   338 F.3d 89, 97 (2d Cir. 2003); accord Mt. McKinley Ins.

 5   Co., 399 F.3d at 445.

 6                             Conclusion

 7       We have considered all of appellant’s arguments raised

 8   before this Court, and find them to be without merit.

 9   Appellant’s claims, which derive from services rendered in

10   connection with his Title 11 proceeding in the bankruptcy

11   court, fall within the scope of that court’s “arising in”

12   jurisdiction as set out in 28 U.S.C. § 1334(b).

13   Accordingly, the district court’s judgment of August 25,

14   2009, affirming the March 6, 2008 decision of the bankruptcy

15   court and dismissing the appeal, is hereby A FFIRMED.

                                  -16-