Was this merely bad luck or worse. In either event. plaintiffs lack standing to bring this action. In Schoolman v McAuliffe 2020 NY Slip Op 34228(U) December 21, 2020 Supreme Court, Suffolk County Docket Number: 4311/2019 Judge: Sanford Neil Berland we see:
“This action arises out of three petitions initially brought under Chapter 11 of the United States Bankruptcy Code by. respectively. by 1 lampton Transportation Ventures. Inc. (HTV). Schoolman Transportation System, Inc. (STS) and 1600 Locust Avenue Associates, LLC ( 1600) (collectively, the debtor (Companies). which subsequently were converted to a consolidated Chapter 7 Bankruptcy proceeding and led to the liquidation of the three companies. Plaintiff was the founder. president and CEO of the debtor companies, and defendant, an attorney. represented the debtor corporations in the bankruptcy proceedings. Plaintiff commenced this action by filing a summons with notice on August 16, 2019, and served the complaint on defendant upon demand on October 6, 2019. Plaintiff seeks to allege claims against the defendant for breach of fiduciary duty, legal malpractice. fraud and honest services fraud arising
from his representation of the debtor companies in the bankruptcy proceedings. ”
“ln substance. the complaint alleges as follows: The debtor companies started suffering financial reversals in 2008. In 2014. they were forced by a hedge fund that had purchased the companies’ debt to hire a consultant. The consultant forced the companies into hard money
loans to the companies’ detriment, while enriching the consultant. Defendant learned of this from an SBA Joan underwriter who was working with plaintiff and whose office was in the same building as defendant’s office. Defendant told the underwriter that the plaintiff was the victim or “lender liability” and that he could help plaintiff with that and with Chapter 11. Plaintiff met with defendant and another lawyer who was introduced to him as an associate of defendant, and
it was represented to plaintiff that defendant and the associate would file a lender liability lawsuit while the debtors were in Chapter 11. They further represented that they were well versed in bankruptcy proceedings and would go “all-out” for their clients. Defendant never
brought the lender liability lawsuit. did not prepare a reorganization plan or take the steps to facilitate a possible purchase of the debtor companies’ assets pursuant to Section 363 of the Bankruptcy Code (a “363 sale”) or follow up on interest expressed by other bus companies in purchasing plaintiffs companies. Defendant filed only a tepid response to the motion for the appointment of a Chapter I I trustee. who he alleges. was corrupt. The Trustee imposed a purportedly unnecessary 10% non-refundable deposit on a $5.5 million 363 offer, which proved prohibitive to the prospective 363 purchasers. The 363 sale never came to fruition, and the debtor companies were, consequently. forced to liquidate. Plaintiff alleges that the defendant
deliberately timed the bringing of an order to show cause, aimed at preventing the debtor companies from being shut down, so that the bankruptcy judge would not be able to see the papers until two days after the debtor companies were, in fact, shut down. Further, according to plaintiff. in the order to show cause, defendant stated that he was only making the motion because his client asked him to. Defendant failed to bring to the court’s attention various infractions by the trustee. Although defendant’s associate was supposed to represent the debtor companies, he was not approved to do so under bankruptcy court’s rules, so his involvement had to remain secret. Defendant basically did nothing, plaintiff alleges. to advocate zealously on behalf of the debtor companies. ”
“‘Upon the filing of a voluntary bankruptcy petition. all property which a debtor owns, including a cause of action, vests in the bankruptcy estate,”‘(Burbacki v. Abrams, Fensterman, Fensterman, Eisman, Formato, Ferrara & Wolf, LLP, 172 AD3d 1300, l 300. 99 NYS3d 671
[2d Dept 2019), t/UOting Keegan v. Moriarty-Morris, 153 AD3d 683, 684 (2d Dept 2017), citing
11 USC § 541 [a][IJ; In re Oshome, 2013 WL 113177662, *2, 2013 US Dist LEXIS 190402,
*5-6 {SDNY 2013)). Therefore, a plaintiff may not maintain a legal malpractice cause of action
in his or her individual capacity relating to a bankruptcy. The right to sue is only exercisable by
the trustee in bankruptcy. whether the claim asserted in the complaint accrued prior to the filing of the bankruptcy petition. or post-petition (see 11 USC § 541 [a][ I): Burbacki v. Abrams,
Fensterman, Eiseman, Formato, Ferrara & Wolf, LLP, supra 172 AD3d at 1300.
citing Williams v. Stein, 6 AD3d 197, 775 I Jn re Alvarez, 224 F3d 1273. 1275-1278
[ 11th Cir 2000)). Therefore, to the extent that plaintiff asserts claims for legal malpractice in
connection with defendant’s representation of the three companies, plaintiff lacks the capacity to sue as a matter of bankruptcy law.”