Opinion
Case No. 13-31948 Adv. No. 15-3100
02-17-2016
In re: NICOLE NEWMAN, Debtor NICOLE NEWMAN, ET AL. Plaintiffs v. MARK BAMBERGER, ET AL. Defendants
cc: Ted L Wills Attorney at Law 414 Walnut Street Suite 707 Cincinnati, OH 45202 Email: TedLWills@aol.com Jared Jay Lefevre Eastman & Smith Ltd. One SeaGate, 24th Floor Toledo, OH 43604 Email: jjlefevre@eastmansmith.com
Chapter 7
DECISION GRANTING DEFENDANTS' MOTION TO DISMISS COUNT THREE OF THE COMPLAINT [Adv. Doc. 5]
This matter is before the court on the Motion to Dismiss Count Three of the Adversary Complaint for Lack of Subject Matter Jurisdiction and Memorandum in Support Thereof filed by Defendants Mark Bamberger and The Mark Bamberger Co., LLC [Adv. Doc. 5]; Nicole Newman's Memorandum in Opposition to Motion to Dismiss Count Three filed by the Plaintiff [Adv. Doc. 7]; and the Defendants' Reply Memorandum in Support of Motion to Dismiss [Adv. Doc. 9].
In their motion to dismiss, Defendants Mark Bamberger and The Mark Bamberger Co., LLC (collectively "Defendants") assert that the court lacks subject matter jurisdiction to decide the third count in Plaintiff-Debtor Nicole Newman's complaint for Ohio common law negligence in the form of legal malpractice. After careful review, the court agrees. Although the Defendants' allegedly negligent representation occurred during the Chapter 7 bankruptcy case, the Plaintiff's individual state law claim for negligence is not part of the bankruptcy estate and does not fall within the bankruptcy court's "related to" jurisdiction. As such, the court dismisses count three of the Plaintiff's complaint.
FACTUAL AND PROCEDURAL BACKGROUND
On October 16, 2015, Plaintiff-Debtor Nicole Newman ("Plaintiff") filed an adversary complaint against Defendants asserting the following claims: 1) an individual claim for negligence in the attorney-client relationship pursuant to Ohio common law [Adv. Doc. 1, ¶¶ 101-02]; and 2) claims for willful violation of the automatic stay pursuant to 11 U.S.C. § 362(k) on behalf of herself and others similarly situated [Id., ¶¶ 97-100]. In the motion to dismiss, the Defendants challenge the court's subject matter jurisdiction to entertain the Plaintiff's individual state law claim.
The following facts alleged in the complaint are relevant to the Plaintiff's individual state law claim for negligence but are provided solely as background for purposes of this decision. On or about May 8, 2013, Plaintiff and Defendant Mark Bamberger ("Defendant Bamberger") entered into an attorney-client relationship [Id., ¶ 81]. Defendant Bamberger was hired to represent the Plaintiff in a Chapter 7 bankruptcy filing [Id.]. Defendant Bamberger filed Plaintiff's Chapter 7 petition noting her secured debt related to her Jeep and her intent to reaffirm the debt [Id., ¶ 84].
On August 28, 2013, Defendant Bamberger filed a proposed reaffirmation agreement between Capital One and the Plaintiff with respect to the secured debt owed on the Jeep [Id., ¶ 85]. According to the complaint's allegations, the court "resisted" the terms of the reaffirmation agreement on the grounds of the Plaintiff's insufficient income to make the monthly payments, leading Defendant Bamberger to file a second reaffirmation agreement [Id., ¶¶ 86-87]. The second reaffirmation agreement included the handwritten note: "Debtor is getting consistent financial assistance from her mate to make this payment each an[d] every month." [Id., ¶ 87]. Mr. Bamberger allegedly "signed off" on the second reaffirmation agreement and filed it without having Mrs. Newman sign the document [Id.]. On September 30, 2013, the Court approved the reaffirmation agreement [Id., ¶ 88].
Contrary to the terms of the reaffirmation agreement, Mr. Bamberger allegedly advised the Plaintiff not to make her monthly payments to Capital One [Id., ¶ 89]. The Plaintiff received her Chapter 7 discharge on October 2, 2013 [Id., ¶ 90]. However, on January 13, 2014, after Plaintiff followed Defendant Bamberger's instructions not to make payments to Capital One, the creditor repossessed the Plaintiff's Jeep [Id., ¶ 91]. The Plaintiff alleges damages caused by Defendant Bamberger's conduct including the loss of her Jeep and the lowering of her credit rating caused by the repossession [Id., ¶¶ 94-95].
LEGAL ANALYSIS
Defendants move for dismissal of Plaintiff's third count, a state law negligence claim, pursuant to Fed. R. Bankr. P. 7012(b) and Fed. R. Civ. P. 12(b)(1) for lack of subject matter jurisdiction, an issue that may be raised at any point in a proceeding. Rhiel v. Central Mortg. Co. (In re Kebe), 444 B.R. 871, 875 (Bankr. S.D. Ohio 2011). When jurisdictional facts are challenged, it is the party claiming jurisdiction that bears the burden of demonstrating that the court has jurisdiction over the subject matter. Ohio Nat'l Life Ins. Co. v. United States, 922 F.2d 320, 324 (6th Cir. 1990); Kebe, 444 B.R. at 875. Consequently, it is the Plaintiff who bears the burden of demonstrating that her state law claim against Defendants falls within the subject matter jurisdiction of this court.
Under 28 U.S.C. § 1334(b), the district court has jurisdiction over all civil proceedings "arising under title 11, or arising in or related to cases under title 11." 28 U.S.C. § 1334(b). The Sixth Circuit has explained that it does not explicitly distinguish among the three categories because they "operate together to define the scope of bankruptcy jurisdiction." Stewart v. Henry (In re Stewart), 62 Fed. Appx. 610, 613 (6th Cir. Apr. 7, 2003) (citing Michigan Emp't Sec. Comm'n v. Wolverine Radio Co., Inc. (In re Wolverine Radio Co.), 930 F.2d 1132, 1141 (6th Cir. 1991)). Accordingly, to determine whether a matter is within § 1334(b) jurisdiction, the Sixth Circuit only requires a determination that the matter is at least "related to" the bankruptcy. Id.
Pursuant to 28 U.S.C. § 157(a), the United States District Court for the Southern District of Ohio elected to refer all bankruptcy proceedings to the bankruptcy judges for this district.
Articulated by the Third Circuit in Pacor, the Court of Appeals for the Sixth Circuit utilizes the following test for determining "related to" jurisdiction:
The 'usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy'. . . . An action is 'related to bankruptcy if the outcome could alter the debtor's rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankrupt estate.'Stewart, 62 Fed. Appx. at 613 (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3rd Cir. 1984)); Wolverine Radio Co., 930 F.2d at 1142. Consequently, the question to be asked is whether the Plaintiff's state law claim impacts her rights, liabilities, options or freedom of action as a debtor or the handling of her estate. See Stewart, 62 Fed. Appx. at 613. If it does not, then the claim is not "related to" her bankruptcy proceeding. Id.
In Stewart, the Sixth Circuit was similarly faced with evaluating whether joint Chapter 7 debtors' state law malpractice claim against an attorney was "related to" the debtors' bankruptcy case and consequently within the jurisdiction of the bankruptcy court. Id. at 611-14. The Sixth Circuit noted that the malpractice claim based on actions that occurred after the bankruptcy petition filing date was not part of the bankruptcy estate pursuant to 11 U.S.C. § 541(a)(1). Id. at 614. Consequently, any award granted would benefit the debtors personally but would not augment the estate. Id. The Sixth Circuit concluded that the malpractice action was not "related to" the bankruptcy because "the action cannot conceivably impact any property of the estate, or any right, liability, option or freedom of action of the Stewarts as the debtors in the Chapter 7 proceeding, or the handling and administration of the bankruptcy estate." Id. Thus, the bankruptcy court lacked subject matter jurisdiction to entertain the action. Id.
Other courts in the Sixth Circuit have likewise concluded that a bankruptcy court lacks subject matter jurisdiction over a debtor's state law malpractice claim against bankruptcy counsel for actions that occurred after the bankruptcy petition filing. See Hart v. Logan (In re Hart), 326 B.R. 901, 2005 WL 1529581, at *4 (B.A.P. 6th Cir. June 24, 2005) (noting that "[a] legal malpractice action does not 'arise under' the Bankruptcy Code, and it is not 'related to' a bankruptcy case merely because the attorney represented debtors in connection with a bankruptcy case"); Terlecky v. Baruch (In re Baruch), 446 B.R. 844, 848 (Bankr. S.D. Ohio 2011) (bankruptcy court lacked subject matter jurisdiction over debtor's claim of attorney malpractice in connection with a reaffirmation agreement); Sicherman v. Crosby (In re Rivera), 379 B.R. 728, 731 (Bankr. N.D. Ohio 2007) (bankruptcy court lacked subject matter jurisdiction over debtor's personal malpractice claim against bankruptcy counsel based on advice given to debtor post-petition).
Like the malpractice claims at issue in Stewart, Hart and these other cases, the Plaintiff's claim is based on allegations of negligent advice she received from her attorney after the commencement of the bankruptcy case and, consequently, the claim is not property of the bankruptcy estate. In other words, Plaintiff pursues a recovery on her own behalf and the recovery would not augment the bankruptcy estate or impact the administration of the estate. Nor, for that matter, has the Plaintiff suggested that the claim would otherwise impact her debtor rights and liabilities in her bankruptcy case. Consequently, the claim is not "related to" her bankruptcy.
Nonetheless, Plaintiff argues that the determinations in Stewart and Hart are distinguishable because those malpractice claims were originally filed in state court and the question of bankruptcy court jurisdiction arose when the actions were removed to federal court. However, this distinction is irrelevant. "Subject matter jurisdiction is the court's authority to entertain an action between the parties before it" and Plaintiff fails to explain how the manner in which the malpractice action is brought before the court would bear on the court's jurisdictional authority to hear the action. Hart, 2005 WL 1529581, at *3.
Next, Plaintiff notes a split in authority and that other circuits have concluded that malpractice claims against debtor counsel for negligent acts during the bankruptcy case are within their broad interpretation of "arising in" jurisdiction. See, e.g., Baker v. Simpson, 613 F.3d 346, 351 (2nd Cir. 2010); Garusz v. Englander, 321 F.3d 467, 471-72 (4th Cir. 2003); Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925, 928-29 (5th Cir. 1999). The court is not persuaded to follow these other circuits that faced the issue in the context of a Chapter 11 reorganization rather than a Chapter 7 liquidation case and deviated from the Sixth Circuit's test for subject matter jurisdiction in that context.
The Plaintiff also cites a bankruptcy court case from the Northern District of Ohio that appears to follow these other circuits and their conclusion that a professional malpractice claim against a debtor's attorney arising during the bankruptcy case is within a bankruptcy court's "core" jurisdiction. Parker v. Pettigrew (In re Osterwalder), 2008 WL 6191087, at *1 (Bankr. N.D. Ohio Dec. 30, 2008). However, in Osterwalder, the trustee was pursuing the claim, presumably on behalf of the estate. Id. Also, the bankruptcy court's reasoning is limited and lacks explanation as to why it failed to apply the Pacor test to determine subject matter jurisdiction over malpractice claims as the Sixth Circuit did in the Stewart case. Id. This court finds Osterwalder unpersuasive. --------
Similarly, the court is not persuaded by Plaintiff's request that the court utilize the "close nexus" test applied by the Sixth Circuit Bankruptcy Appellate Panel in the context of a Chapter 11 reorganization case to matters affecting the interpretation, enforcement and administration of a confirmed Chapter 11 plan. See Thickstun Bros. Equip. Co. v. Encompass Serv's Corp. (In re Thickstun Bros. Equip. Co.), 344 B.R. 515, 521 (B.A.P. 6th Cir. 2006). There are significant differences between a bankruptcy court's limited jurisdiction over a Chapter 7 estate and its continuing jurisdiction over a confirmed Chapter 11 plan. The Plaintiff has failed to show that this test has been applied outside this post-confirmation Chapter 11 context. As such, it does not provide this court with a basis for deviating from the Sixth Circuit's application of the Pacor test to determine the court's subject matter jurisdiction over a Chapter 7 debtor's attorney malpractice claim. Stewart, 62 Fed. Appx. at 613-14.
Finally, Plaintiff raises judicial economy noting that she will have to litigate in two courts if forced to bring her malpractice claim to state court while the § 362(k) violation of stay claims are litigated in bankruptcy court. While the court sympathizes, "[j]udicial economy itself does not justify federal jurisdiction." Kebe, 444 B.R. at 876-78 (noting that overlapping facts are not sufficient to confer jurisdiction even when judicial economy is promoted). Without more, the court lacks subject matter jurisdiction over the Plaintiff's state law claim for negligence in the form of attorney malpractice.
CONCLUSION
Because the court lacks subject matter jurisdiction over the Plaintiff's third count for negligence, Defendants' motion to dismiss [Adv. Doc. 5] is GRANTED and count three of the complaint is DISMISSED.
SO ORDERED.
This document has been electronically entered in the records of the United States Bankruptcy Court for the Southern District of Ohio.
IT IS SO ORDERED.
/s/ _________
Lawrence S. Walter
United States Bankruptcy Judge Dated: February 17, 2016 cc:
Ted L Wills
Attorney at Law
414 Walnut Street
Suite 707
Cincinnati, OH 45202
Email: TedLWills@aol.com Jared Jay Lefevre
Eastman & Smith Ltd.
One SeaGate, 24th Floor
Toledo, OH 43604
Email: jjlefevre@eastmansmith.com