Opinion
Case No. 02-74320.
August 1, 2006
David M. Cantor, Esq., John J. Mueller, Esq., Debtor.
MEMORANDUM OPINION AND ORDER
1. Introduction and procedural history
This matter is before the court on a Motion for Contempt filed on March 21, 2006 by Howard Keith Hall, Michael Lucas and Lucas Hall (collectively "LH") in regard to violation by the Debtor and his attorney, John Mueller ("Mueller") of this court's Order of Sale entered on September 8, 2005. The Debtor and Mueller filed a Response on April 11, 2006. A Show Cause Order was entered on April 25, 2006, requiring the Debtor and Mueller to appear and show cause why they should not be held in contempt for continuing to prosecute the state court attorney malpractice litigation against LH which was the subject of the Order of Sale. The Debtor and Mueller then filed a Response and "Objections" to the Show Cause Order on May 10, 2006 ("the second Response"). The matter was heard on June 1, 2006 and is ripe for decision. For the reasons set out below, the court will impose sanctions on Attorney Mueller.
LH's Motion for Contempt briefly recites the history of this matter. The above-referenced malpractice claims were determined to be an asset of the bankruptcy estate. The case trustee then moved for approval of the sale of the claims to Lawyers Mutual Insurance Company, malpractice insurer for LH, on their behalf. On September 8, 2004, the court approved that sale for the sum of $10,200.00. The sale has been fully consummated, the claims have been settled and resolved, and there is nothing left to prosecute. The Debtor and Mueller have continued to prosecute the case, however, contending that the Debtor's state court attorney malpractice claims remain viable. That position was so stated in a January 11, 2006 letter from Mueller to Michael Schmitt, attorney for LH: "I dispute that by purchasing the lawyer-malpractice claims the subject of this civil action, Lawyers Mutual Insurance Company . . . ha[s] `effectively extinguished' Mr. Parker's lawyer-malpractice claims."
2. Discussion
The bankruptcy court may hold parties and/or their attorneys in contempt pursuant to Bankruptcy Code section 105 which provides: "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title." Further, in Yoppolo v. Freeman (In re Freeman), 293 B.R. 413 (Bankr. N.D. Ohio 2002), the court stated:
For purposes of federal law, a person will be found in civil contempt when all of the following three elements are met by clear and convincing evidence:
(1) the alleged contemnor had knowledge of the order which he is said to have violated;
(2) the alleged contemnor did in fact violate the order; and
(3) the order violated must have been specific and definite.
Id. at 416 (internal citations omitted). LH maintain that all these elements have been satisfied, and this court agrees. The court further notes that at the June 1, 2006 hearing, Mueller stated on the record that the decision to go forward with state court attorney malpractice claims was his, and that to the extent the Debtor agreed with this decision, such agreement was solely attributable to Mueller's advice and recommendation and that, if any sanction was to be imposed, it should be imposed solely on the attorney, not the client. The court accepts Mueller's representations in this regard and any sanctions will therefore be assessed against Mueller alone.
In the Response, Mueller argues that the Order of Sale
contains no express and unequivocal command to perform a particular act, or to refrain from performing a particular act, concerning the lawyer-malpractice action styled Robert E. Parker and Peggy R. Parker vs. Howard Keith Hall, Michael Lucas, and Lucas Hall, Civil Action No. 05-CI-00435, Pike Circuit Court, Division No. I, Pike County, Kentucky. Because neither Parker nor Mueller, has violated a definite, specific order of this Court that contains an express, unequivocal command to perform, or to refrain from performing, a particular act or acts, neither Parker nor Mueller, has acted contumaciously toward this Court.
Mueller continues to maintain that the Order of Sale only disposed of "any interest the bankruptcy estate possessed" in the attorney malpractice claims. In the second Response he states:
If the bankruptcy estate possessed no interest in the lawyer-malpractice claims, then Parker and Mueller have done nothing to violate the order. In that case, any steps Parker and Mueller took to prosecute, or to continue, Civil Action No. 05-CI-00435 represented steps concerning only claims that Parker owned in his own right, as opposed to any claim Trustee Brock sold to Lawyers Mutual. Here, Parker contends that the claims he prosecutes in Civil Action No. 05-CI-00435, represent claims that accrued, under Kentucky law, after he filed for bankruptcy protection, and that failed to exist at the time the bankruptcy estate came into existence.
As LH point out, Mueller is aware that a claim for bankruptcy legal malpractice is an asset of the estate and not of the individual debtor. See Winick Rich, P.C. v. Strada Design Assocs., Inc. (In re Strada Design Assocs., Inc.), 326 B.R. 229 (Bankr. S.D.N.Y. 2005); In re O'Dowd, 233 F.3d 197 (3rd Cir. 2000); Johnson, Blakely, et al. v. Alvarez (In re Alvarez), 224 F.3d 1273(11th Cir. 2000).
This court cited these cases in a related adversary proceeding in this case, Thomas W. Goodman, Jr. v. Robert E. Parker, Adv. No. 05-7161 (Bankr. E.D. Ky. February 23, 2006), in which Mueller made the same arguments on behalf of the same client in regard to a state court attorney malpractice claim against Goodman. The court permanently enjoined the Debtor and Mueller from prosecuting the action against Goodman on the grounds that bankruptcy legal malpractice actions are part of the bankruptcy estate and are no longer property of the debtor. This decision was appealed to the United States District Court for the Eastern District of Kentucky on February 24, 2006. The District Court entered its Opinion and Order on June 15, 2006, affirming this court's decision and stating, inter alia, that "Parker's alleged claims against Goodman for negligence or legal malpractice were property of the bankruptcy estate and were properly sold — lock, stock, and barrel — to Lawyers Mutual and purchased on behalf of Goodman by authority of the bankruptcy judge's September 8, 2005, Sale Order." (Memo. Opin., p. 9).
The parties here did not have the benefit of the District Court's decision when this matter was briefed and heard. The court makes reference to it, however, to emphasize that Mueller was a participant in, and therefore fully aware of, the court's previous decision in Adv. No. 05-7161, which has now been upheld on appeal. Mueller therefore has absolutely no basis for the arguments he makes in the matter now before the court, and the continued employment of these arguments is disingenuous in the extreme and simply represents Mueller's attempt to squeeze blood from the malpractice turnip.
Mueller knows that his contention that the Debtor retains personal attorney malpractice claims that he may continue to prosecute in state court is groundless. Further, the court believes that Mueller has willfully chosen to violate the Order of Sale, his word games in regard to the lack of an "express and unequivocal command to perform a particular act, or to refrain from performing a particular act, . . ." notwithstanding.
This court therefore holds that Mueller is in contempt for his willful violation of the Order of Sale, and that for his contempt, sanctions are imposed on him in the amount of Two Thousand Dollars ($2,000.00) to be paid to the Clerk of Court within 10 days from the date hereof. It is hereby so ordered.