499 F.3d 616 (6th Cir. 2007), 06-5940, In re Parker

Docket Nº:06-5940.
Citation:499 F.3d 616
Party Name:In re: Robert E. PARKER, Debtor. Robert E. Parker, Defendant-Appellant, v. Thomas W. Goodman, Plaintiff-Appellee.
Case Date:August 28, 2007
Court:United States Courts of Appeals, Court of Appeals for the Sixth Circuit

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499 F.3d 616 (6th Cir. 2007)

In re: Robert E. PARKER, Debtor.

Robert E. Parker, Defendant-Appellant,


Thomas W. Goodman, Plaintiff-Appellee.

No. 06-5940.

United States Court of Appeals, Sixth Circuit

Aug. 28, 2007

Argued: June 5, 2007.

Appeal from the United States District Court for the Eastern District of Kentucky at Pikeville. No. 06-00059-Gregory F. Van Tatenhove, District Judge.

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[Copyrighted Material Omitted]

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John J. Mueller, John J. Mueller, LLC, Cincinnati, Ohio, for Appellant.

Cynthia L. Effinger, Seiller Waterman, Louisville, Kentucky, for Appellee.


John J. Mueller, John J. Mueller, LLC, Cincinnati, Ohio, for Appellant.

Cynthia L. Effinger, David M. Cantor, Seiller Waterman, Louisville, Kentucky, for Appellee.

Before: MARTIN, BATCHELDER, and CLAY, Circuit Judges.


CLAY, Circuit Judge.

The instant appeal arises from adversary proceedings brought in U.S. Bankruptcy Court. Defendant, Robert E. Parker, the debtor below, appeals the district court's order affirming the bankruptcy court's order permanently enjoining Defendant from prosecuting a state legal malpractice claim against Plaintiff, Thomas W. Goodman, his former counsel. For the reasons that follow, we AFFIRM.


In July 2002, Defendant hired Plaintiff, a Kentucky lawyer, to act as his counsel in Chapter 7 bankruptcy proceedings brought to discharge Defendant's debts. Defendant did so on the advice of counsel after a Kentucky state court entered judgment against him in an estate dispute brought by his siblings, finding Defendant liable in the amount of $165,000. On November 1, 2002, Plaintiff filed a Chapter 7 bankruptcy petition on Defendant's behalf. The bankruptcy court appointed Robin Browning Brock ("Brock") to serve as trustee of Defendant's bankruptcy estate. Defendant discharged Plaintiff as counsel on August 5, 2004.

Nearly one year later, on July 15, 2005, Defendant brought suit against Plaintiff in Kentucky state court asserting three claims for relief--two for legal malpractice, and a third for breach of fiduciary duty. 1 Both Defendant and Trustee Brock, as trustee of Defendant's bankruptcy estate, were named plaintiffs in that case. Defendant's complaint in Kentucky state court (hereinafter collectively "legal malpractice claim" or "legal malpractice suit") alleged that Plaintiff acted as his counsel "concerning the possibility [Defendant] could obtain relief of some kind" by filing a petition in bankruptcy until August 5, 2004, at which time Defendant terminated the attorney-client relationship. (J.A. at 26) The complaint asserts that Plaintiff prepared and filed Defendant's Chapter 7 petition, and "represented [Defendant] in all matters involved in and all matters related to" the bankruptcy proceeding. (Id. at 27)

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In support of the two legal malpractice claims for relief, Defendant alleged that Plaintiff "negligently represented" Defendant, "breached one or more legal duties he owed" Defendant, and "deviated adversely from the standard of care that applied to him." (J.A. at 30) He additionally asserted that Plaintiff "failed to advise [Defendant] concerning certain matters about which [Plaintiff] had a legal duty to advise" him. 2 (Id. at 32) The third claim, for breach of fiduciary duty, purportedly followed Plaintiff's refusal to turn over Defendant's original case file upon request. (Id. at 34) Apparently, Plaintiff initially told Defendant that a copy of the approximately 800-page file would be available for purchase at a rate of 50 cents per page or for the cost of copying at a commercial print shop. (Id. at 28-29) On the matter of damages, Defendant asserted that each instance of legal malpractice left him in a worse financial position, damaging both his reputation and credit record "with consequent future damages." (Id. at 31, 33) For the breach of fiduciary duty claim, based solely on Plaintiff's actions concerning the original case file, Defendant alleged financial damages only. Defendant alleged that he retained counsel to assist him in obtaining the original file without paying Plaintiff's quoted fee, and although ultimately successful in doing so, that Plaintiff should be liable for his attorney's fees. All relief requested in the state law claim was sought "in favor of [Defendant] and Trustee Brock." (Id. at 35-37)

Trustee Brock filed a notice of intent to abandon the bankruptcy estate's interest in Defendant's legal malpractice suit against Plaintiff, and no interested parties objected. Nevertheless, on May 9, 2005, the bankruptcy judge entered an order voiding Trustee Brock's notice of intent to abandon the estate's interest in the lawsuit. Subsequently, Trustee Brock sold the legal malpractice claim against Plaintiff at public auction to Lawyers Mutual Insurance Company ("Lawyers Mutual"), Plaintiff's malpractice insurer, for the sum of $10,000. On September 8, 2005, the bankruptcy judge entered an order approving the sale (hereinafter "Order of Sale"). Defendant failed to appeal the Order of Sale, and did not obtain a stay. Lawyers Mutual consummated the sale by paying in full the $10,000 purchase price to the bankruptcy estate. Notwithstanding the consummated sale, Defendant continued to prosecute the legal malpractice suit in Kentucky state court.3

As a result, Plaintiff initiated an adversary proceeding in U.S. Bankruptcy Court seeking injunctive relief. Specifically, Plaintiff asked the bankruptcy court to enjoin Defendant from prosecuting the legal malpractice suit against Plaintiff on the basis that (1) it had been sold to Lawyers Mutual, and (2) in the alternative, Defendant lacked standing to prosecute the suit,

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which constituted property of the bankruptcy estate. On December 27, 2005, the bankruptcy judge issued a preliminary injunction prohibiting Defendant from continuing to prosecute the state legal malpractice suit. On February 23, 2006, 2006 WL 3883329, the bankruptcy judge ordered that the preliminary injunction become permanent. Defendant timely appealed the injunction to the U.S. District Court. The district court affirmed the bankruptcy court's permanent injunction on June 15, 2006. Defendant then timely appealed to this Court.


A. Standard of Review

We directly review the bankruptcy court's decision, and not the district court's decision below. In re Trident Assocs. Ltd. P 'ship, 52 F.3d 127, 130 (6th Cir. 1995). A de novo standard of review applies to the bankruptcy court's legal conclusions, while factual findings will only be disturbed if clearly erroneous. In re M.J. Waterman & Assocs., Inc., 227 F.3d 604, 607 (6th Cir. 2000).

B. The Injunction Properly Issued

On appeal, Defendant contends that the bankruptcy court erred when it enjoined Defendant from prosecuting the legal malpractice suit in Kentucky state court. In support of his challenge, Defendant advances various arguments, but the crux appears to be that the bankruptcy court's Order of Sale was not valid. First, Defendant claims that Kentucky public policy prohibits the sale of legal malpractice claims. Second, Defendant argues that the bankruptcy court lacked jurisdiction to enter the Order of Sale. The bankruptcy court lacked jurisdiction, Defendant says, because the legal malpractice suit--or at the very least, one claim for relief--accrued after his bankruptcy petition was filed and, accordingly, was not "property of the estate." We affirm the bankruptcy court's injunction.

1. Statutory Mootness (11 U.S.C. § 363(m))

Defendant's myriad formulations of his challenge to the bankruptcy court's injunction all sound in a thinly veiled attempt to collaterally attack the bankruptcy court's now final Order of Sale. Plaintiff contends that 11 U.S.C. § 363(m) renders attacks on the Order of Sale moot inasmuch as Defendant failed to obtain a stay of the sale. Indeed, Defendant freely admits he took no appeal from the Order of Sale, and that the sale has been fully consummated. We agree with Plaintiff. Thus, we begin by dispelling any notion that we sit in review of the bankruptcy court's Order of Sale. Defendant's attempts to assail the validity of the bankruptcy court's Order of Sale, however indirectly, are statutorily moot.

Title 11 U.S.C. § 363(b) permits a bankruptcy trustee to "sell ... property of the estate" after notice and hearing. Once the bankruptcy court authorizes the sale of property under § 363, that same section limits appellate review:

The reversal or modification on appeal of an authorization under subsection (b) or (c) of this section of a sale or lease of property does not affect the validity of a sale or lease under such authorization to an entity that purchased or leased such property in good faith, whether or not such entity knew of the pendency of the appeal, unless such authorization and such sale or lease were stayed pending appeal.

11 U.S.C. § 363(m). By its terms then, "[b]ankruptcy's mootness rule applies when an appellant has failed to obtain a stay from an order that permits a sale of a

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debtor's assets." In re 255 Park Plaza Assocs. Ltd. P'ship, 100 F.3d 1214, 1216 (6th Cir.1996) (internal quotation marks and citation omitted). What is more, it "limits appellate review of a consummated sale ... regardless of the merits of legal arguments raised against it." In re Made in Detroit, Inc., 414 F.3d 576, 581 (6th Cir.2005) (emphasis added). A majority of our sister circuits construe § 363(m) as creating a per se rule automatically mooting appeals for failure to obtain a stay of the sale at issue. See In the Matter of The Ginther Trusts, 238 F.3d 686, 689 (5th Cir.2001); United States v. Salerno, 932 F.2d 117...

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