Roberts Broadcasting Company et al v. Danna McKitrick, PC et al

Filing 14

MEMORANDUM AND ORDER...IT IS HEREBY ORDERED that Plaintiffs motion to remand this case to state court due to lack of subject matter jurisdiction is DENIED. (Doc. No. 10 .) IT IS FURTHER ORDERED that pursuant to Local Rule 9.01(B)(1), this action is referred to the United States Bankruptcy Court for the Eastern District of Missouri for all further proceedings. Signed by District Judge Audrey G. Fleissig on 8/30/2016. (NEB)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MISSOURI
EASTERN DIVISION
ROBERTS BROADCASTING COMPANY
et al.,
Plaintiffs,
v.
DANNA MCKITRICK, PC., and
A. THOMAS DEWOSKIN,
Defendants.

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No. 4:16-CV-00574-AGF

MEMORANDUM AND ORDER
This legal malpractice action is before the Court on Plaintiffs’ motion (Doc. No.
10) to remand the case to state court. The case was filed in Missouri state court on March
28, 2016, and removed by Defendants to this Court on April 25, 2016, on the basis of
federal subject matter jurisdiction pursuant to 28 U.S.C. § 1334(b). This section grants
the district courts, except under certain circumstances not relevant here, “original but not
exclusive jurisdiction of all civil proceedings arising under title 11 [the Bankruptcy
Code], or arising in or related to cases under title 11.” It is undisputed that there is no
diversity between the parties. For the reasons set forth below, this action shall be referred
to the bankruptcy court for this District.
BACKGROUND
The record establishes the following. Sometime in August 2011, Plaintiffs
retained Defendant A. Thomas DeWoskin and his employer, Defendant Danna

McKitrick, P.C., to represent them in a jointly administered Chapter 11 bankruptcy case.1
Plaintiffs filed for Chapter 11 bankruptcy on October 7, 2011, in the United States
Bankruptcy Court for the Eastern District of Missouri. The bankruptcy case closed on
June 30, 2014. On March 28, 2016, Plaintiffs filed the present suit in state court alleging
that Defendants were negligent in their legal representation of Plaintiffs during the
bankruptcy case and that Plaintiffs suffered damages as a result. The alleged misconduct
includes failing to prepare and file a reorganization plan with the court, and failing to
dismiss a valueless entity from the Chapter 11 proceedings. (Doc. No. 7 at 3.)
Defendants’ notice of removal asserts that all of Plaintiffs’ state law claims “arise
in” a case under title 11, and thus this Court has original jurisdiction pursuant to 28
U.S.C. § 1334(b). Defendants also assert that federal courts “routinely” hold that
professional malpractice claims concerning representation in bankruptcy proceedings
“arise in” a case under title 11 for purposes of federal subject matter jurisdiction because
the claims would have no practical existence but for the bankruptcy.
ARGUMENTS OF THE PARTIES
Plaintiffs move to remand this case to state court arguing that the legal malpractice
claim does not meet the jurisdictional bases described in § 1334(b), and that the Court has
no other basis for subject matter jurisdiction.2 Plaintiffs contend that their malpractice

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In re Roberts Broadcasting Co., Case No. 4:11-BK-50744-399 (Bankr. E.D. Mo.

2014).
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Plaintiffs make additional arguments regarding the other jurisdictional bases
described in § 1334(b). However, because Defendants did not assert any of these other
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claim does not “arise in” a case under title 11 because only administrative matters that
would have no existence outside of bankruptcy “arise in” a case under title 11, and legal
malpractice is not such an administrative matter. Plaintiffs alternatively argue that even
if the Court were to find it has subject matter jurisdiction under §1334(b), it should
abstain, under § 1334(c),3 from exercising jurisdiction, because the malpractice claim has
only a limited connection with the bankruptcy case, state law issues dominate, and
nothing in the record suggests that the matter could not be timely litigated in state court.
In response to Plaintiffs’ motion to remand, Defendants reiterate their contention
that a malpractice claim against legal counsel for work done on a bankruptcy case “arises
in” a case under title 11 because the claim would have no practical existence but for the
bankruptcy case. Defendants also contest Plaintiffs’ argument that the Court should
abstain. They note that the mandatory abstention described in 28 U.S.C. § 1334(c)(2)

bases in their removal notice, nor in opposition to the motion to remand, the Court will
not address Plaintiffs’ other arguments.
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    Section 1334(c) provides:
(1) Except with respect to a case under chapter 15 of title 11, nothing in this
section prevents a district court in the interest of justice, or in the interest of
comity with State courts or respect for State law, from abstaining from
hearing a particular proceeding arising under title 11 or arising in or related
to a case under title 11.
(2) Upon timely motion of a party in a proceeding based upon a State law claim or
State law cause of action, related to a case under title 11 but not arising under title
11 or arising in a case under title 11, with respect to which an action could not
have been commenced in a court of the United States absent jurisdiction under this
section, the district court shall abstain from hearing such proceeding if an action is
commenced, and can be timely adjudicated, in a State forum of appropriate
jurisdiction.  

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does not apply to a matter that “arises in” a case under title 11. Defendants acknowledge
that the Court may abstain under § 1334(c)(1), however, they argue, a number of factors
weigh against abstention. In particular, Defendants argue that there are no strong
interests of comity, and furthermore that Plaintiffs are likely forum shopping. In
addition, Defendants argue that Plaintiffs had an opportunity to fully and fairly litigate
the standard of care they received from their attorney during the fee approval stage of the
bankruptcy case. Defendants posit that allowing Plaintiffs to revisit the issue now would
undermine orders already issued by the bankruptcy court and create res judicata or
collateral estoppel problems.
In reply, Plaintiffs reiterate that Defendants offer no controlling Eighth Circuit
authority to support the argument that legal malpractice claims like the present one “arise
in” a case under title 11 for the purposes of subject matter jurisdiction. Plaintiffs also
reiterate that even if this Court were to find it has subject matter jurisdiction, abstention is
appropriate. Plaintiffs point out that res judicata and collateral estoppel are affirmative
defenses, and argue that such defenses are not relevant to jurisdictional issues. Plaintiffs
challenge Defendants’ argument that the malpractice claim could have been addressed
during the bankruptcy case. They argue that because Defendants were counsel of record
during the bankruptcy proceedings, a complaint at that time would have created a conflict
of interest by placing the attorney and client in an adversarial position.
DISCUSSION
An action originally filed in state court may be removed to federal court where the
federal district court has original jurisdiction over the case. 28 U.S.C. § 1441(a). If it
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appears that the case was not properly removed because it was not within the original
subject matter jurisdiction of the court, the district court must remand the case to the state
court from which it was removed. 28 U.S.C. § 1447(c). As the party seeking removal
and opposing remand, Defendants have the burden of establishing federal subject matter
jurisdiction. See In re Bus. Men’s Assurance Co. of Am., 992 F.2d 181, 183 (8th Cir.
1993) (per curiam).
Defendants support their argument that Plaintiffs’ legal malpractice claim “arises
in” a case under title 11 with several cases, particularly Grausz v. Englander, 321 F.3d
467, 471 (4th Cir. 2003). In Grausz, the Fourth Circuit considered whether the district
court had subject matter jurisdiction under § 1334(b) over a removed professional
malpractice action filed by a Chapter 11 debtor against the law firm that represented him
in his bankruptcy case. The malpractice action was filed almost four months after the
bankruptcy court entered its order denying the debtor a discharge. The Fourth Circuit
found that a “broad interpretation of ‘arising in’ jurisdiction surely means that jurisdiction
exists over a malpractice claim against a lawyer for providing negligent advice to a
debtor in a bankruptcy case.” Id. The Fourth Circuit held that because the malpractice
claim “would have no practical existence but for the bankruptcy” case, the district court
had subject matter jurisdiction under § 1334(b). Id.
This conclusion is in accord that of other courts. See Capitol Hill Grp. v.
Pillsbury, Winthrop, Shaw, Pittman, LLC, 569 F.3d 485, 489 (D.C. Cir. 2009) (holding
that malpractice claim, removed to federal court, stemming from services provided in a
bankruptcy case that had closed months earlier, was inseparable from the bankruptcy
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context and constituted claims arising in the bankruptcy, under § 1334(b); thus, denying
the defendant’s motion to remand); Mercer v. Allen, No. 7:13-CV-148 HL, 2014 WL
185252, at *3 (M.D. Ga. Jan. 15, 2014) (holding that the district court had subject matter
jurisdiction over a legal malpractice claim brought against the debtor’s former counsel
more than a year after the bankruptcy was discharged); cf. Susman, Schermer, Rimmel &
Shifrin, L.L.C. v. Gannon P’ship 19, L.P., No. 406-CV-1222 CAS, 2007 WL 1879793, at
*2 (E.D. Mo. June 25, 2007) (holding that the district court had “arising in” jurisdiction
over a breach of contract action to enforce the payment of attorney’s fees awarded by the
bankruptcy court in the context of a chapter 11 case, even though the chapter 11 case had
been closed when the breach of contract action was filed).
In support of their argument that the present malpractice claim does not “arise in”
a case under title 11, Plaintiffs cite a case from the Eighth Circuit involving pre-petition
professional malpractice, National City Bank v. Coopers & Lybrand, 802 F.2d 990, 991
(8th Cir. 1986). However, the facts of National City Bank are distinguishable from the
facts here. In National City Bank, the alleged accounting malpractice occurred prior to
the bankruptcy petition and did not involve any post-petition advice or representation. In
contrast, the present claim stems from post-petition advice given by court-approved
counsel. Moreover, unlike National City Bank, the nature of Defendants’ services as
counsel was a matter before the bankruptcy court during compensation approval
proceedings. See 11 U.S.C.A. § 330(a) (“In determining the amount of reasonable
compensation to be awarded to [a] . . . professional person, the court shall consider the
nature, the extent, and the value of such services . . . .”).
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In sum, the Court will follow the above cited-cases holding that a legal
malpractice action against bankruptcy counsel based on services rendered in the context
of the bankruptcy case is an action “arising in” a case under title 11.
This Court’s Local Rule 9.01(B)(1) states that “[a]ll cases under Title 11 of the
United States Code, and all proceedings arising under Title 11 or arising in or related to a
case under Title 11, are referred to the bankruptcy judges for this district. . . .” Because
the Court finds that this action “arises in” a case under title 11,4 it shall refrain from
ruling on the abstention question and instead refer the case to the bankruptcy court
pursuant to the Local Rule 9.01(B)(1). See Gannon P’ship 19, L.P., 2007 WL 1879793,
at *3.
CONCLUSION
Accordingly,
IT IS HEREBY ORDERED that Plaintiff’s motion to remand this case to state
court due to lack of subject matter jurisdiction is DENIED. (Doc. No. 10.)

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The Bankruptcy Court will also be in the best position to determine issues such as
whether the case may have an impact on the prior bankruptcy proceedings and whether
the trustee in bankruptcy should be involved.
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IT IS FURTHER ORDERED that pursuant to Local Rule 9.01(B)(1), this action
is referred to the United States Bankruptcy Court for the Eastern District of Missouri for
all further proceedings.

AUDREY G. FLEISSIG
UNITED STATES DISTRICT JUDGE

Dated this 30th day of August, 2016.

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