Stokes v. Duncan (In re John Patrick Stokes)
- Citation:
- BAP No. MT 13-1097TaPaJu (not for publication)
- Tag(s):
-
- Ruling:
- The Appellate Panel reversed a bankruptcy court's decision to deny dismissal of a declaratory relief adversary action in bankruptcy. The declaratory relief sought a determination that the estate had an interest in a malpractice action that was commenced by the debtor postpetition in state court and thereafter sold by the bankruptcy estate without warranty as to the estate's title in the action. The BAP found that the court lacked subject matter jurisdiction in the malpractice action once sold.
- Procedural context:
- This appeal came after the Debtor unsuccessfully sought dismissal of an adversary action that sought a determination that the malpractice action purchased by the plaintiff under sec. 363 was property of the estate.
- Facts:
- Debtor commenced a malpractice claim against it former bankruptcy counsel after its chapter 11 petition was converted to chapter 7. The chapter 7 trustee claimed the malpractice action property of the estate and sought to recover under the malpractice claims for the estate's benefit. Trustee therefter offered to sell the estate's interest in the lawsuit to the debtor. The defendant, Debtor's former bankruptcy counsel, became the successful bidder after the Trustee decided to auction off the estate's interest. The sale, however, was "as is, where is" with no warranty as to title. The sale order was not appealed.
Thereafter, the successful bidder, filed an adversary action seeking declaratory relief that the malpractice suit was an asset of the estate. Debtor sought to dismiss the action stating that the sale decided the issue and, notwithstanding, the property was no longer property of the estate once the property was sold.
In reversing the bankruptcy court, the BAP found that in rem jurisdction over an asset of the estate terminates upon the estate's relinquishment of all rights and interests in the asset. Accordingly, once sold, the court's jurisdiction lapses and the court lacks the power to adjudicate ownership disputes involving former porperty of the estate. Because the declaratory relief action solely sought a determination of pre-sale ownership and property rights in the malpractice claim, the bankruptcy court lacked the requisite jurisdiction under 28 U.S.C. sec. 1334(e) to adjudicate the ownership issue. The property was sold and transfered. Furthermore, the sale order sold the estate's interest without warranty as to title. Thus, the BAP found the estate insulated itself from the consequences of a subsequent determination that all it sold was a valueless claim. Lastly, the panel held that the court lacked jurisdction under 28 U.S.C. sec. 1334(b) and under 28 U.S.C. sec. 157.
- Judge(s):
- Hon. Jim Pappas
Hon. Meredith Jury
Hon. Laura Taylor
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