Richman v. Graza

UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
In Re: EDWARD RICHMAN; In Re:
ILENE RICHMAN,
Debtors.
ILENE RICHMAN,
Plaintiff-Appellant, No. 96-2156
v.
JOHN R. GARZA; LAWRENCE F.
REGAN, JR.; GARZA, REGAN & ROSE,
P.C.,
Defendants-Appellees.
Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Alexander Williams, Jr., District Judge.
(CA-96-1509-AW,
BK-92-13241-DK,
AP-95-1389)
Argued: May 8, 1997
Decided: July 1, 1997
Before NIEMEYER and MOTZ, Circuit Judges, and FABER,
United States District Judge for the Southern District of West
Virginia, sitting by designation.
_________________________________________________________________
Affirmed by unpublished per curiam opinion.
_________________________________________________________________
COUNSEL
ARGUED: David Hart Nelson, Charlottesville, Virginia, for Appel-
lant. Lawrence Francis Regan, Jr., GARZA, PAPERMASTER,
REGAN & ROSE, P.C., Rockville, Maryland, for Appellees. ON
BRIEF: John R. Garza, GARZA, PAPERMASTER, REGAN &
ROSE, P.C., Rockville, Maryland, for Appellees.
_________________________________________________________________
Unpublished opinions are not binding precedent in this circuit. See
Local Rule 36(c).
_________________________________________________________________
OPINION
PER CURIAM:
Ilene Richman appeals from the district court's order affirming the
bankruptcy court's findings that Mrs. Richman could not personally
maintain a legal malpractice claim against her attorneys arising
from
their advice and handling of Mrs. Richman's bankruptcy action. Mrs.
Richman and her husband, Edward, filed a bankruptcy petition under
Chapter 11 of the Bankruptcy Code on May 29, 1992. The appellees
initially served as counsel to the Richmans as
debtors-in-possession.
The Richmans eventually sought new counsel, and the appellees were
replaced effective April, 1994. The case was converted to Chapter
7
effective August, 1994.
On May 26, 1995, the Richmans filed a complaint against the
appellees in the Circuit Court for Montgomery County, Maryland.
Their complaint alleged that the appellees negligently represented
them both before and after they filed their bankruptcy petition.
The
appellees removed the case to the bankruptcy court and moved to
dis-
miss. By order entered April 2, 1996, the bankruptcy court
dismissed
the Richmans' complaint, determining that they had no standing to
pursue the cause of action, which is the property of the Richmans'
Chapter 7 bankruptcy estate. Ilene Richman appealed the decision of
the bankruptcy court, but her husband did not. By order entered on
2
July 18, 1996, the district court affirmed the findings of the
bank-
ruptcy court.
The act of filing a petition for relief under an applicable chapter
of
the Bankruptcy Code commences a bankruptcy case and creates an
estate consisting of "all legal or equitable interests of the
debtor in
property as of the commencement of the case." Upon the filing of a
petition, the debtor's interests in property vest in the bankruptcy
estate, and the debtor surrenders the right to dispose of or
otherwise
control the estate property. In re Osborn, 176 B.R. 217, 219
(Bankr.
E.D. Okla. 1994). The bankruptcy trustee, as representative of the
bankruptcy estate, has exclusive authority to use, sell or lease
prop-
erty of the estate. 11 U.S.C. §§ 323(a), 363(b)(1).
11 U.S.C. § 541 provides in part that the bankruptcy estate is com-
prised, with exceptions not applicable here, of "all . . .
property, wher-
ever located and by whomever held . . ., [including] all legal or
equitable interests of the debtor in property as of the
commencement
of the case." The estate also includes "proceeds, products,
offspring,
rent or profits of or from property of the estate, except such as
are
earnings from services performed by an individual debtor after the
commencement of the case." The statute further provides that the
estate includes "any interest in property that the estate acquires
after
the commencement of the case." A legal cause of action is an
interest
of the debtor in property within the meaning of section 541. Sierra
Switchboard Co. v. Westinghouse Elec. Corp., 789 F.2d 705, 707 (9th
Cir. 1986); Tignor v. Parkinson, 729 F.2d 977, 980-81 (4th Cir.
1984).
Any legal malpractice claim arising from the appellees' advisement
and handling of the Richmans' bankruptcy proceeding is properly
characterized as property of the estate. The nature and existence
of the
Richmans' interest in property as of the commencement of their
Chapter 11 case is governed by applicable non-bankruptcy law; in
this
case, Maryland law. Under Maryland law, a plaintiff must establish
three elements to sustain a cause of action for legal malpractice:
(1)
the employment of the attorney by the plaintiff; (2) that the
attorney
breached a reasonable duty of care owed to the plaintiff; and (3)
that
the attorney's breach of that duty was the proximate cause of
injuries
sustained by the plaintiff. Kendall v. Rogers, 31 A.2d 312, 315
(Md.
3
1943). As properly determined by the courts below, such a cause of
action accrues when all of the elements of the action are present.
The Richmans' complaint alleges causes of action based on the
appellees' representation of them both before and after the
petition
date. With respect to Mrs. Richman's claim of pre-petition malprac-
tice, we agree with the bankruptcy court that the Richmans suffered
an injury, if any, at the moment the petition was filed, and it was
at
that point that all the elements of a cause of action for
malpractice,
under Maryland law, came into existence. The bankruptcy court was
also correct in finding that, to the extent the cause of action
arose
post-petition, the professional negligence lawsuit is property of
the
estate.
Mrs. Richman's major contention is that, at least with regard to
the
appellees' initial advice to file for Chapter 11 relief, she did
not suffer
an injury until after the Chapter 11 petition was filed. She
contends
that she suffered no recognizable injury until the bankruptcy
proceed-
ing exceeded the appellees' prediction of a quick and simple
experi-
ence. Thus, Mrs. Richman argues that at least a portion of her
malpractice claim did not accrue at a time which would place it
within
the bankruptcy estate. Mrs. Richman relies primarily upon In re
Swift,
198 B.R. 927 (W.D. Tex. 1996).
Swift, however, appears to go against the weight of authority on
this issue, and this court is not persuaded by its rationale. As
the
bankruptcy court found, with regard to the initial advice to file
the
petition, Mrs. Richman suffered an injury "at the moment the
petition
was filed." Conceding the possibility that the bankruptcy
proceeding
could have proceeded smoothly, which Mrs. Richman does by con-
tending that any injury arose post-petition, it is difficult to
find that
a malpractice claim could be sustained under this scenario.
Neverthe-
less, assuming that Mrs. Richman's allegations give rise to a
possible
malpractice claim, and further assuming the injury did occur post-
petition, such a cause of action is still characterized as property
of the
estate under section 541(a)(7) (estate includes "any interest in
prop-
erty that the estate acquires after the commencement of the case").
As
previously discussed, the applicable non-bankruptcy law, Maryland
law, provides that a legal malpractice claim does not accrue until
all
the elements are present. Under Mrs. Richman's scenario, all the
ele-
4
ments did not coexist until post-petition and, thus, would be
property
of the estate under section 541(a)(7).
Finally, although we affirm the lower courts' dismissal of the
Rich-
mans' cause of action, this decision in no way precludes the
Trustee
of the estate from filing a new action on behalf of the bankruptcy
estate. We have only determined that Mrs. Richman's claims are
properly characterized as property of the estate. There has been no
finding regarding the merits of the malpractice claims raised by
the
Richmans.
Accordingly, the district court's decision is
AFFIRMED.
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