Capitol Hill Group v. Pillsbury, Winthrop, Shaw

• Decision Date: 26 June 2009
• Docket Number: No. 08-7109.,08-7109.
• Citation: 569 F.3d 485
• Parties: CAPITOL HILL GROUP, A California Corporation, Appellant v. PILLSBURY, WINTHROP, SHAW, PITTMAN, LLC, A Delaware Limited Liability Partnership, et al., Appellees.
• Court: U.S. Court of Appeals — District of Columbia Circuit

569 F.3d 485

CAPITOL HILL GROUP, A California Corporation, Appellant v. PILLSBURY, WINTHROP, SHAW, PITTMAN, LLC, A Delaware Limited Liability Partnership, et al., Appellees.

No. 08-7109.

United States Court of Appeals, District of Columbia Circuit.

Argued May 11, 2009.

Decided June 26, 2009.

Appeal from the United States District Court for the District of Columbia (No. 1:07-cv-01936).

Emil Hirsch argued the cause and filed the briefs for appellant.

Jack McKay argued the cause and filed the brief for appellees.

Before HENDERSON, BROWN and KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Circuit Judge BROWN.

BROWN, Circuit Judge:

Appellant Capitol Hill Group (CHG) filed suit in the Superior Court of the District of Columbia against its former counsel, Shaw Pittman (now Pillsbury Winthrop Shaw Pittman LLP) and various associated attorneys, for claims stemming from alleged legal malpractice. Appellees removed the case to federal court, asserting federal jurisdiction under 28 U.S.C. § 1334(b); so-called "arising in" bankruptcy jurisdiction. The district court denied appellant's motion to remand for lack of jurisdiction, and later granted summary judgment for appellees because CHG's claims are barred by res judicata. Finding no error, we affirm.

I.

To make a long and already well-documented story short—well, somewhat shorter—we summarize the relevant facts. CHG filed for bankruptcy in February 2002. CHG's primary asset, commercial property in the District of Columbia, was embroiled in a zoning dispute with the District's Department of Consumer and Regulatory Affairs regarding the amount of off-street parking required. The controversy continued during the bankruptcy proceedings and Shaw Pittman, CHG's court-approved bankruptcy counsel, represented CHG in the zoning process.

Initially CHG was told it would have to provide 225 parking spaces, but in March 2003 the Zoning Administrator decided 85 spaces would suffice. In January 2004, after a neighborhood association appealed, the Board of Zoning Adjustment (BZA) affirmed, but then decided to reconsider its ruling. On February 24, 2004, the BZA finally settled on a total of 177 spaces, an announcement it made orally. The ruling was not issued in written form until September 9, 2004, at which time it was transmitted by the BZA to Shaw Pittman, but not to CHG itself. According to CHG, such an expansive parking requirement "effectively precludes CHG from either utilizing a substantial portion of the Property itself, or leasing it to others[.]"

In the interim the bankruptcy court granted Shaw Pittman's request to terminate its court-approved representation of CHG. Shaw Pittman returned its BZA-related files to CHG but did not tell the BZA it had stopped representing CHG. As a courtesy, Shaw Pittman informed CHG of the BZA's decision to reconsider its favorable January ruling at a hearing to take place on February 24—information a Shaw Pittman attorney gleaned while present at the BZA on other business.

CHG and Shaw Pittman's post-representation relations were rocky. CHG first complained that Shaw Pittman's fees were unreasonable. After contested hearings, the bankruptcy judge granted summary judgment to Shaw Pittman and "awarded the firm fees based primarily on its conclusion that CHG had agreed not to contest the amount of the fees. The bankruptcy judge also made oral findings that Shaw Pittman's services were professional and that Shaw Pittman deserved to be compensated for those services." Capitol Hill Group v. Pillsbury Winthrop Shaw Pittman, LLP, 574 F.Supp.2d 143, 146 (D.D.C. 2008). The district court affirmed the bankruptcy court's decision. In re Capitol Hill Group, 313 B.R. 344, 358 (D.D.C. 2004).

Shaw Pittman then filed an application for fees and costs incurred during the first fee dispute. After a trial on October 21 and 22, the bankruptcy judge orally ruled that CHG was responsible for paying all fees and expenses that were reasonably foreseeable as a result of engaging in the fee litigation with Shaw Pittman. Nevertheless, the cycle of acrimony continued. After a one-day trial on a third fee application on August 1, 2005, the bankruptcy court approved the application. The court later entered a fourth and a fifth fee judgment with the consent of CHG. On April 12, 2006, the parties made one final appearance before the bankruptcy court, after Shaw Pittman filed a motion to compel because it feared CHG was withholding further claims. The bankruptcy court specifically asked CHG whether it had any other claims against the firm. CHG's counsel stated "[t]here are concerns that CHG has about the representation that Shaw Pittman provided during its representation of Capitol Hill Group that began in 1999 or whatever. But nothing's been filed." CHG also represented it "had no outstanding claims against Shaw Pittman arising out of the bankruptcy proceedings." Capitol Hill Group, 574 F.Supp.2d at 147. In addition, "[t]he bankruptcy court noted that CHG could have pursued malpractice claims against Shaw Pittman regarding the adequacy of its representation," in addition to claims CHG had made about excessive fees and related professional misconduct, "but that it had failed to do so and would therefore be barred from later asserting such claims by the doctrine of res judicata." Id.

In this suit, CHG alleges Shaw Pittman committed malpractice in two respects: by failing to notify CHG when BZA issued the September 2004 order, and by failing to make a particular legal argument to the BZA. Shaw Pittman removed the case to federal court. The district court concluded it had jurisdiction, and granted summary judgment for appellees because CHG's claims are barred by res judicata.

We have jurisdiction under 28 U.S.C. § 1291 from the final order of the district court granting summary judgment for defendants. After such a final order, the district court's earlier denial of the motion to remand for lack of subject matter jurisdiction also is reviewable. See Geruschat v. Ernst Young LLP (In re Seven Fields Dev. Corp.), 505 F.3d 237, 244-45 (3d Cir.2007); see also 14C CHARLES ALAN WRIGHT, ARTHUR R. MILLER & EDWARD H. COOPER, FEDERAL PRACTICE AND PROCEDURE § 3740 & n. 66 (3d ed.1998). We review the district court's legal conclusions regarding subject matter jurisdiction, including a denial of a motion to remand, de novo. E.g., Vill. of DePue v. Exxon Mobil Corp., 537 F.3d 775, 782 (7th Cir. 2008). And, of course, we review the district court's grant of summary judgment de novo as well. E.g., Woodruff v. Peters, 482 F.3d 521, 526 (D.C.Cir.2007).

II.

CHG insists the district court erred in exercising jurisdiction over this case under 28 U.S.C. § 1334(b), which provides "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11." "[P]roceedings or claims arising in Title 11 are those that are not based on any right expressly created by Title 11, but nevertheless, would have no existence outside of the bankruptcy." Grausz v. Englander, 321 F.3d 467, 471 (4th Cir.2003) (internal quotations omitted).

In concluding it had "arising in" jurisdiction, the district court principally relied on two cases: Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925 (5th Cir.1999) and Geruschat, 505 F.3d 237. Each holds there is federal bankruptcy jurisdiction over malpractice claims brought by debtors against court-appointed professionals arising while the professionals assisted the debtor and the court during the bankruptcy process. Southmark Corp., 163 F.3d at 932; Geruschat, 505 F.3d at 260-62. As the Fifth Circuit observed, "[a] sine qua non in restructuring the debtor-creditor relationship is the court's ability to police the fiduciaries, ... [including] court-appointed professionals, who are responsible for managing the debtor's estate in the best interest of creditors." Southmark Corp., 163 F.3d at 931. After all, "[t]he bankruptcy court must be able to assure itself and the creditors who rely on the process that court-approved managers of the debtor's estate are performing their work, conscientiously and cost-effectively." Id. Moreover, "[e]xcessive professional fees or fees charged for mediocre or, worse, phantom work also cause the estate and the creditors to suffer." Id.

Appellant argues that claims arising post-petition and post-plan-confirmation are outside the "arising in" jurisdiction of the court, citing Valley Historic Limited Partnership v. Bank of New York, 486 F.3d 831 (4th Cir.2007), and Community Bank of Homestead v. Boone (In re Boone), 52 F.3d 958 (11th Cir.1995). Rejecting a similar argument, the Fifth Circuit in Southmark Corporation specifically distinguished cases not implicating a "malpractice claim involving court-appointed professionals" but rather involving claims that "could stand alone from the bankruptcy case." 163 F.3d at 931. The two cases appellant cites are distinguishable for the same reason. The claim at issue in Community Bank of Homestead was not a malpractice claim against professionals involved in the bankruptcy proceeding but rather was against a bank that allegedly had tortiously interfered with the sale of the debtors' house. 52 F.3d at 959-60. In Valley Historic Limited Partnership, similarly, the claims at issue were not against bankruptcy professionals, but rather were tort claims against the bank that held the mortgage on the corporate debtor's real estate assets. 486 F.3d at 834.

In sum, we agree with our sister circuits that malpractice claims against court-appointed professionals stemming from services provided in the bankruptcy proceeding are "inseparable from the bankruptcy context," Southmark Corp., 163 F.3d at 931, and "constitute ... a proceeding `arising in' the bankruptcy," Geruschat, 505 F.3d at 263. Such claims therefore fall within the bankruptcy jurisdiction of the federal courts.

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