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their bankruptcy setting."58 The bankruptcy court further found the matter to be a core proceeding.59 And because the court found the matter to have arisen in the bankruptcy case, mandatory abstention was inapplicable and discretionary abstention was unwarranted.
The debtor, nevertheless, argued that because the bankruptcy court had declined to treat the malpractice claim as a counterclaim during the hearing over the defendant's fee award, the "law of the case" doctrine required the bankruptcy court, once again, to decline from hearing the merits of the malpractice claims. The court disagreed. The court's comments in the fee award, said the court, could not be the "law of the case." Those comments were the court's response to the debtor's request to treat the malpractice claims as counterclaims to the defendant's fee award. During the fee hearing, the debtor lodged an objection60 rather than pleading its malpractice claims in an adversary proceeding. Because the debtor preferred to assert the malpractice claims in a separate state court action, the matter was not before the bankruptcy court, and the court, therefore, declined to rule or to otherwise comment on the debtor's ability to do so. That refusal to rule or to comment, said the court, was not the "law of the case" and could not preclude the court from ruling on the matter in the present case. In this adversary proceeding, the bankruptcy court seemingly concluded that the debtor could now assert malpractice claims against the defendant, despite its ability (and failure) to do so during the fee hearings.61
* Peabody Landscape Construction, Inc. v. Schottenstein, 371 B.R. 276
(S.D. Ohio July 2007) (Frost, J.)
Confused about bankruptcy jurisdiction? No worries, some judges are confused as well.
This judge found that subsequent events divested the court of "related to" jurisdiction. During the pendency of the chapter 11 debtor's case, the debtor commenced two adversary proceedings.62 Before the disposition on the merits of those actions, a plan was proposed, confirmed, and fully consummated. The bankruptcy court entered a final decree order, and the
58
For this proposition, the court relied heavily on In re Southmark Corp., 163 F.3d 925, 930-31 (5th Cir. 1999).
59 Or, as the bankruptcy court put it, "it is a suit by the Debtor, against an estate professional retained by order of this Court, pertaining to work performed for, and compensated from, the bankruptcy estate."
60 The debtor asked the court to rule on the fees without prejudice to the debtor's potential malpractice claims against the defendant, or, in the alternative, treat the malpractice claims (which the debtor preferred to filed as a separate action in state court) as counterclaims. Because the debtor did not plead the malpractice claims as counterclaims in the fee hearing, and because the debtor asserted that it would file the claims in a separate action, the court declined to comment on the malpractice claims during the fee hearing.
61
Cf. Osherow v. Ernst & Young, LLP (In re Intelogic Trace, Inc.), 200 F.3d 382, 390-91 (5th Cir. 2000) (concluding that the debtor, who had sufficient information to assert a counterclaim against the professional at the time of the fee hearing, was barred by res judicata from asserting a separate malpractice action).
62
The debtor complained of several state law causes of action, and reference of both matters was eventually withdrawn by the district court. However, no discovery was done while the bankruptcy case was being administered.
