Statek v. Development Specialists, Inc. (In re Coudert Brothers LLP)

Summarized by Joel Levitin , Cahill Gordon & Reindel LLP
14 years 6 days ago

Citation:

Docket No. 10-2723-bk (2nd Cir. February 28, 2012)

Tag(s):

Ruling:

The Bankruptcy Court should not have applied the choice of law rules of New York, where Coudert Brothers LLP filed for Chapter 11 protection, but instead the choice of law rules of Connecticut, where Statek Corporation’s pre-petition legal malpractice case (the basis for Statek’s claim in the bankruptcy case) was commenced against Coudert. The Court of Appeals reasoned that “it would be fundamentally unfair to allow Coudert’s bankruptcy, coming as it did in the midst of the Connecticut action, to deprive Statek of the state-law advantages adhering to the exercise of its venue privilege” and explained that “it would lead to the ironic result that New York’s anti-forum shopping borrowing statute would be applied to defeat the claim of a party that did not shop for New York as a forum. Finally, the Court of Appeals explained that the application of the choice of law rules of the state where the underlying pre-petition complaint was filed is appropriate when (1) the claim before the bankruptcy court is wholly derived from another claim already pending in a parallel, out-of-state, non-bankruptcy proceeding; and (2) the pending original, or “source,” claim was filed in a court prior to the commencement of the bankruptcy case.

Procedural context:

Appeal from an order of the United States District Court for the Southern District of New York, affirming the order of the United States Bankruptcy Court for the Southern District of New York disallowing Statek’s claim against debtor Coudert and affirming the Bankruptcy Court’s denial of Statek’s motion to reconsider the Bankruptcy Court’s order.

Facts:

In October 2005, Statek filed a malpractice lawsuit against its former law firm, Coudert, in state court in Connecticut. In September 2006, Coudert filed for Chapter 11 relief in the Bankruptcy Court. In March 2007, Coudert removed the Connecticut litigation to the United States District Court for the District of Connecticut. Statek filed a proof of claim related to the Connecticut litigation in Coudert’s bankruptcy case. The Plan Administrator under Coudert’s plan filed a motion to disallow Statek’s claim. The Bankruptcy Court applied New York choice of law rules to Statek’s claim and held it was untimely under the New York statute of limitations and disallowed it. Statek’s motion to reconsider was denied, and the District Court affirmed both of the Bankruptcy Court’s orders.

Judge(s):

Jon. O Newman, Guido Calabresi, and Peter W. Hall

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