In re Aston Baker, No. 09-3848 (2d Cir. 2010)

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09-3848-bk In re Aston Baker 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 UNITED STATES COURT OF APPEALS F OR THE S ECOND C IRCUIT August Term, 2009 (Submitted: June 22, 2010 Decided: July 30, 2010) Docket No. 09-3848-bk ASTON BAKER, Creditor-Appellant, v. CHARLES SIMPSON, WINDELS MARX LANE & MITTENDORF, LLP, STANLEY GALLANT, GALSTER CAPITAL LLC, GALSTER MANAGEMENT CORP., ALLSTATE INSURANCE COMPANY, JPMORGAN CHASE BANK, N.A., Trustees-Appellees. Before: WINTER, CABRANES, WESLEY, Circuit Judges. Appeal from a judgment of the United States District Court for the Eastern District of New York (Irizarry, J.), entered on August 25, 2009, affirming the March 6, 2008 decision of the United States Bankruptcy Court for the Eastern District of New York, and dismissing the appeal. The district court properly held that appellant s claims are civil proceedings arising in a case under Title 11 and that the bankruptcy court had jurisdiction over appellant s claims. We hold that claims of professional malpractice, based on services rendered pursuant to a Title 11 petition, arise in a bankruptcy case because they implicate the integrity of the bankruptcy process and are inseparable from 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 that proceeding. We further hold that we lack jurisdiction to consider whether the bankruptcy court s decision with respect to permissive abstention was proper. AFFIRMED. ASTON BAKER, pro se, Brooklyn, New York; VIVIAN M. WILLIAMS, Vivian Williams & Associates, P.C., New York, New York, for appellant. CHARLES E. SIMPSON, Windels, Marx Lane & Mittendorf, LLP, New York, New York, for appellees Charles E. Simpson and Windels Marx Lane & Mittendorf, LLP. RICHARD A. KLASS, Brooklyn, New York, for appellees Stanley Gallant, Galster Capital LLC, Galster Management Corp. BRUCE W. FARQUHARSON, Feldman, Rudy, Kirby & Farquharson, P.C., Westbury, New York, for appellee Allstate Insurance Company. JACQUELINE M. DELLA CHIESA (Debra Lynne Wabnik, on the brief), Stagg, Terenzi, Confusione & Wabnik LLP, Garden City, New York, for appellee JPMorgan Chase Bank, N.A. PER CURIAM: 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. 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 See id. We 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. 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 By order of the 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. 4 circumstances that Baker maintains gave rise to these claims 5 are summarized in the district court s opinion below. 6 v. Simpson, 413 B.R. 38, 40-41 (E.D.N.Y. 2009) (Irizarry, 7 J.). 8 counsel, he refinanced through appellee Galster Capital LLC, 9 which he contends misrepresented itself as a lender and In brief, Baker contends that: The facts and Baker (1) On the advice of 10 failed to fund his mortgage loans as agreed. 1 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. 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. (2) Galster (4) Simpson arranged an improperly (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. 5 413 B.R. at 40-41. See Baker, 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. 9 appellees motion to remove and Baker promptly moved, in the The state court granted 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. 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. 19 bankruptcy court denied appellant s motion to remand and 20 dismissed the case in its entirety. 21 concluded that removal in this case . . . from the Supreme 22 Court in New York County to [the bankruptcy court was] . . . -5- Simpson further maintained The The bankruptcy court 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. 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 However, he did not challenge the merits of the 10 was improper. 11 address the merits of Baker s substantive claims, Baker, 413 12 at 42 n.3; nor will we. 13 Accordingly, the district court did not 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. 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. Id. at 44. The district court also -6- The 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. 5 43. 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. 10 Id. at Finally, the district court found no error in the Baker, 413 B.R. at 45-46. 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 Discussion 4 5 6 In facing a question similar to the one now before us, the Fifth Circuit Court of Appeals stated: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 That the bankruptcy court has some kind of jurisdiction over this malpractice action against court-appointed professionals is not in doubt. But what the court can do with its jurisdiction depends first on whether the malpractice case is a core bankruptcy matter or one that is related to [a bankruptcy proceeding]. If the suit . . . is merely related to bankruptcy, the bankruptcy court was required to abstain from hearing it. 28 U.S.C. § 1334(c)(2). If, however, the controversy lies at the core of the federal bankruptcy power, the bankruptcy law permits but does not require abstention. In re Southmark Corp., 163 F.3d 925, 928-29 (5th Cir. 1999) 24 (some internal quotation marks and citations omitted). 3 The 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. 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. ). 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. Id. at 930; see also 28 U.S.C. § 157(b)(3) Rather, the 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. 14 32; cf. N. Pipeline Constr. Co. v. Marathon Pipe Line Co., 15 458 U.S. 50, 70-72 (1982). 16 the matter now before us. In re Southmark Corp., 163 F.3d at 931- We find that the same is true in 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. 21 929-30. 22 provisions implicate the question whether the bankruptcy See In re Southmark Corp., 163 F.3d at As we have previously explained, the abstention -9- 1 court should exercise jurisdiction, not whether the court 2 has jurisdiction in the first instance. 3 Phillips Constructors, Inc., 45 F.3d 702, 708 (2d Cir. 4 1995). 5 In re S.G. 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. 9 § 1334(c)(2). 28 U.S.C. 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. 13 properly find any argument that the mandatory abstention 14 provision governs this appeal waived. 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 Therefore, this Court may See United States v. 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)). 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. 9 90, 97 (5th Cir. 1987). As the Fifth In re Wood, 825 F.2d 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. 14 (2d Cir. 1990); see also In re Ferrante, 51 F.3d 1473, 1476 15 (9th Cir. 1995). 16 have no existence outside of the bankruptcy. 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). In re Ben Cooper, Inc., 896 F.2d 1394, 1400 Baker s claims against appellees would -11- In re Wood, 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. 7 In re Southmark Corp., 163 F.3d at 931. 8 court must be able to assure itself and . . . [those] who 9 rely on the process that court-approved See The bankruptcy 10 [professionals] . . . are performing their work[] 11 conscientiously and cost-effectively. 12 Southmark case, the claims here inevitably involve[] the 13 nature of the services performed for the bankruptcy estate 14 and cannot stand alone. 15 Confectionery Prods., 973 F.2d at 483 n.4. 16 Id. As in the Id.; see also Sanders The appellant s relationship with all appellees arose 17 only in connection with his Title 11 proceeding. 18 413 B.R. at 44. 19 see id., that Baker s claims against the appellees 20 implicate[] the integrity of the entire bankruptcy 21 process. Baker, We therefore agree with the district court, 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. 8 471-72 (4th Cir. 2003). 9 Fifth, and Ninth Circuit Courts of Appeal all agree. Grausz v. Englander, 321 F.3d 467, 469, As already discussed, the Third, 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. 21 Co., 529 F.3d 432, 460-61 (2d Cir. 2008). -13- See In re CBI Holding To that end, we 1 have given core proceedings a broad interpretation that 2 is close to or congruent with constitutional limits. 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. 6 abstention barred the district court from disposing of 7 Baker s claims would undermine the efficient administration 8 of bankruptcy proceedings. 9 at 460. 10 In re To hold that mandatory In re CBI Holding Co., 529 F.3d The district court properly rejected Baker s claim 11 that the disposal of his estate limited the bankruptcy 12 court s jurisdiction. 13 bankruptcy court retains post-confirmation jurisdiction to 14 interpret and enforce its own orders. 15 43 (quoting In re Millenium Seacarriers, Inc., 419 F.3d 83, 16 96 (2d Cir. 2005)). 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)). 20 proceedings, the bankruptcy court has comprehensive power 21 and may enter appropriate orders and judgments. As the district court recognized, a Baker, 413 B.R. at And, the Title 11 case ends only when -14- Indeed, [i]n core In re 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. 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 9 28 U.S.C. § 1334(d), [a]ny decision to abstain or not to To the extent Baker argues that the district Pursuant 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. 17 Id. 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. 2 jurisdiction to decide whether the district court s decision 3 on permissive abstention was correct. 4 338 F.3d 89, 97 (2d Cir. 2003); accord Mt. McKinley Ins. 5 Co., 399 F.3d at 445. 6 7 We therefore lack See In re Cody, Inc., Conclusion 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-

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