Bankruptcy court can hear legal malpractice suit

A bankruptcy court had jurisdiction to decide claims of legal malpractice relating to a debtor’s Chapter 11 case, the U.S. Court of Appeals for the Second Circuit has ruled in affirming judgment.

The attorney represented the debtor in a Chapter 11 proceeding.

The debtor filed a legal malpractice lawsuit in state court, alleging that the attorney misrepresented certain aspects of his bankruptcy estate, provided bad advice regarding the refinancing of certain loans and mishandled the auction of several commercial properties.

The attorney removed the case from state court, contending that the debtor’s legal malpractice claims fell within the bankruptcy court’s “arising under” jurisdiction as set out in §1334(b) of the Bankruptcy Code.

The Second Circuit agreed, concluding the substance of the debtor’s claims related to the representation he received in his bankruptcy case.

“The adjudication of [the debtor’s] malpractice and other claims was an ‘essential part of administering the estate’ and therefore implicated the bankruptcy court’s ‘core jurisdiction,’” the court said.

It noted similar decisions from the Third, Fourth, Fifth and Ninth circuits.

The case is Baker v. Simpson, No. 09-3848-bk, July 30.