TERRY L. MYERS, Bankruptcy Judge.
Plaintiff, Allen L. Wisdom ("Wisdom"), filed a petition for relief under chapter 7 on April 19, 2011, and he received his discharge on August 5, 2011.
Wisdom filed the complaint commencing this adversary proceeding on December 3, 2013. His "First Amended Complaint," Adv. Doc. No. 78 ("FAC"), was filed in October 2014. The FAC as against defendant New York Life Insurance Co., ("NY Life") was dismissed for lack of subject matter jurisdiction. Wisdom v. Gugino (In re Wisdom), 2015 WL 2128830 (Bankr. D. Idaho May 5, 2015) ("Wisdom III").
Material here, Wisdom's FAC asserts a host of claims against his former attorneys, Francis R. Stern ("Stern") and Anthony M. Pantera IV ("Pantera") (collectively "Counsel"). They include breach of contract, breach of fiduciary duty, negligence, constructive fraud, legal malpractice, intentional infliction of emotional distress, negligent infliction of emotional distress, and civil conspiracy. Wisdom cites three particular incidents as the factual root of his several claims against Counsel: first, Trustee's liquidation of Wisdom's insurance policies
Counsel filed a motion for summary judgment on September 3, 2015. Adv. Doc. No. 120. It is primarily based on the argument that all Wisdom's claims are barred by the relevant Idaho statute of limitations, Idaho Code § 5-219(4). It is also premised on Wisdom's failure to produce expert evidence of negligence and causation of damages when faced with the summary judgment motion on a legal malpractice claim. See Samuel v. Hepworth, Nungester & Lezamiz, Inc., 996 P.2d 303, 307-08 (Idaho 2000). Counsel also raised additional legal issues regarding specific causes of action.
Counsel's motion for summary judgment was heard on January 13, 2016, and taken under advisement.
Wisdom's myriad allegations against Counsel assert contract, tort and legal malpractice theories, all of which are state law causes of action. They are all predicated on and revolve around Counsel's representation of Wisdom in and during the chapter 7 case.
The FAC alleges that the Court has subject matter jurisdiction, that all such matters are "core proceedings" under 28 U.S.C. § 157(b), and that all of the defendants, including Stern and Pantera, have "consented" to this Court's exercise of jurisdiction. Counsel's amended answer, Adv. Doc. No. 80, admits those allegations, and that Counsel has so consented.
As this Court noted in Wisdom III, the bankruptcy court has both the power and the obligation to determine whether it has jurisdiction to proceed with adjudication, and it must dismiss a case if there is a lack of subject matter jurisdiction even should the parties fail to raise that issue. 2015 WL 2128830 at *7. In Wisdom III, the Court found that Wisdom's claims against NY Life were neither core (i.e., arising under the Code or arising in the case), nor "related to" non-core matters since the outcome of his claims against and recovery from that defendant would have no impact on the administration of the bankruptcy case, or on property of the estate, or on distribution to creditors. Id. at *8-11. Wisdom's claims against NY Life were therefore found to be outside the Court's jurisdiction and the action against it was dismissed.
The types of claims Wisdom asserts against Counsel inure solely to him and to his benefit, not to his creditors or the estate.
"A proceeding `arises in' a case under the Bankruptcy Code if it is an administrative matter unique to the bankruptcy process that has no independent existence outside of bankruptcy and could not be brought in another forum, but whose cause of action is not expressly rooted in the Bankruptcy Code." Ray, 624 F.3d at 1131. The claims here are not unique to the bankruptcy process. They exist outside of bankruptcy. And they could be brought in another forum, i.e., Idaho state district court.
The Ninth Circuit Court of Appeals in Shultze v. Chandler, 765 F.3d 945 (9th Cir. 2014), held that a legal malpractice claim against court-appointed counsel for a chapter 11 creditors' committee, based on its failure to properly secure payments to unsecured creditors under a confirmed plan, was a core proceeding. Id. at 948-49. However, it was material to this holding that the malpractice claims were brought against bankruptcy court-appointed professionals. See id. at 948-49 (citing Walsh v. Nw. Nat'l Ins. Co. of Milwaukee, Wis. (In re Ferrante), 51 F.3d 1473, 1476 (9th Cir. 1995); Maitland v. Mitchell (In re Harris Pine Mills), 44 F.3d 1431, 1435 (9th Cir. 1995)).
Id. at 949 (quoting Southmark Corp. v. Coopers & Lybrand (In re Southmark Corp.), 163 F.3d 925, 931 (5th Cir. 1999)). In contrast, Stern and Pantera were private counsel for a chapter 7 debtor, and they were neither court-appointed nor court-approved. This action does not fall within the parameters set by Schultze.
Therefore, Wisdom's claims do not "arise in" the case within the reach of the jurisdictional structure. It is not enough that Wisdom's state law claims against Counsel were based on events occurring during a bankruptcy case. That is merely circumstantial. The "`arising in' limitation on bankruptcy jurisdiction has substantive, rather than merely temporal, content." Goldstein v. Marine Midland Bank, N.A. (In re Goldstein), 201 B.R. 1, 5 n.3 (Bankr. D. Me. 1996). "Arising in" means more than simply "arising during."
Wisdom III noted this language of the Ninth Circuit:
Id. at *8 (quoting Eastport Assocs. v. City of Los Angeles (In re Eastport Assocs.), 935 F.2d 1071, 1076 (9th Cir. 1991) (quoting Wood v. Wood (In re Wood), 825 F.2d 90, 96 (5th Cir. 1987)). Here, there is no substantive right created by the Code, and thus no "arising under" jurisdiction. The claims are matters of state law and are not claims which "by their nature" would have no existence outside of bankruptcy, and thus they do not fall within "arising in" jurisdiction. And, they are not non-core "related to" claims because their success or failure in prosecution will not impact the estate.
As with the action against NY Life in Wisdom III, this proceeding against Counsel must be dismissed for lack of subject matter jurisdiction, and the Court, acting sua sponte and under 28 U.S.C. § 157(b)(3) and Fed. R. Civ. P. 12(h)(3) incorporated by Fed. R. Bankr. P. 7012(b), will enter an appropriate order.