Moncho v Miller 2021 NY Slip Op 06960 Decided on December 14, 2021 Appellate Division, First Department illustrates a number of bedrock principles in legal malpractice. Who has standing to sue an attorney when a bankruptcy is involved is the first, which we will discuss today.
Plaintiffs filed a bankruptcy claim using attorneys who worked both pre-and post-petition. The complaint was dismissed in its entirety. The A.D. reversed in part.
“The motion court erred in dismissing Realty’s claims for lack of capacity to bring those claims. The Bankruptcy Code provides that “[t]he commencement of a case . . . creates an estate, which] is comprised of . . . (1) . . . all legal or equitable interests of the debtor in property as of the commencement of the case” (11 USC § 541[a]). Neither plaintiffs nor defendants dispute that any claims which arose prior to the filing of the bankruptcy petition belong to the estate. Rather, the parties dispute whether Realty, as debtor, or the estate owns the claims asserted against Pasternak and DelBello, which arose after the filing of the bankruptcy petition.
This Court has previously held that a claim which arose after the filing of a bankruptcy petition was the property of the estate (see Barranco v Cabrini Med. Ctr., 50 AD3d 281, 282 [1st Dept 2008]; Williams v Stein, 6 AD3d 197, 198 [1st Dept 2004]). When those cases were decided, there was a split among the federal courts which had addressed the issue. However, there is now uniformity among the Federal Courts of Appeals, which have held that pursuant to section 541(a) of the Bankruptcy Code, a claim which arose after the filing of a bankruptcy petition belongs to the debtor and not the estate (Davidkin v Rizzuto, 55 Misc 3d 528 [Sup Ct, Kings County 2017]; see Cadle Co. v Schlichtmann, 267 F3d 14 [1st Cir 2001], cert denied 535 US 1018 ; In re Jackson, 593 F3d 171 [2d Cir 2010]; In re Majestic Star Casino, LLC, 716 F3d 736 [3d Cir 2013]; In re Avis, 178 F3d 718 [4th Cir 1999]; In re Burgess, 438 F3d 493 [*2][5th Cir 2006]; In re Shelbyville Rd. Shoppes, LLC, 775 F3d 789 [6th Cir 2015]; In re Stinnett, 465 F3d 309 [7th Cir 2006]; In re Vote, 276 F3d 1024 [8th Cir 2002]; In re Mwangi, 764 F3d 1168 [9th Cir 2014]; Patrick A. Casey, P.A. v Hochman, 963 F2d 1347 [10th Cir 1992]; In re Witko, 374 F3d 1040 [11th Cir 2004]). As this Court is bound by federal law when making a determination on this issue (see Lane v Marshall, 89 AD2d 579, 580 [2d Dept 1982], appeal dismissed 57 NY2d 955 ), we follow the aforementioned federal holdings and find that because the claims at issue arose after the filing of the bankruptcy petition, the claims belong to Realty. Thus, Realty has the capacity to sue Pasternak and DelBello.”