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Baker v. Simpson

August 18, 2009


The opinion of the court was delivered by: Dora L. Irizarry, District Judge


On October 23, 2007, appellant Aston Baker filed a claim in the Supreme Court of New York, Kings County ("state court") against appellees, alleging legal malpractice, conversion, negligence, fraud, and intentional misrepresentation. Appellees Charles E. Simpson, Esq. ("Simpson") and Windels Marx Lane & Mittendorf, LLP ("Windels Marx"), removed the matter to the United States Bankruptcy Court for the Eastern District of New York ("bankruptcy court") based on appellant's ongoing reorganization under Title 11 of the United States Bankruptcy Code, 11 U.S.C. § 101, et. seq. ("Bankruptcy Code"). Appellant then moved to remand the case to state court, which motion was denied by the bankruptcy court on March 6, 2008. That denial is the basis for this appeal. For the reasons set forth below, the March 6, 2008 decision of the bankruptcy court is affirmed.

I. Background

The following facts are taken from appellant's brief or are undisputed, except where otherwise noted. On November 15, 2001, appellant filed a petition with the bankruptcy court under Title 7 of the Bankruptcy Code, which was converted by court order to a Title 11 reorganization proceeding on January 25, 2002. (See Order Granting Mot. to Convert Case from Title 7 to Title 11, Dkt # 11.

On February 8, 2002, Simpson and Windels Marx, the law firm to which Simpson belonged, were appointed by the bankruptcy court as counsel for appellant and two additional entities for which appellant was the sole or controlling shareholder, in their jointly administered Title 11 cases. (See Order Authorizing Retention of Windels Marx Lane & Mittendorf as Attorney for Debtor-in-Possession, Dkt. # 20.) Appellant brings claims related to legal malpractice, conversion, negligence, fraud and intentional misrepresentation, based primarily on four incidents that occurred during the course of Simpson's engagement as counsel in connection with appellant's bankruptcy petition.

First, appellant independently found a broker that allegedly would refinance all his properties and net him enough money to pay off his creditors. On the advice of Simpson, appellant did not retain such broker, and, instead, refinanced through appellee Galster Capital LLC ("Galster"), whose services were procured by Simpson. The bankruptcy court issued three orders, dated April 17, 2003 (Dkt. # 142), June 4, 2004 (Dkt. # 207), and July 2, 2004 (Dkt. # 214), authorizing and approving mortgage loans from Galster to appellant. Appellant now claims that Galster misrepresented itself as a lender, and, after two years, failed to fund the loan as agreed, causing appellant to forgo offers from other prospective lenders, incur legal fees, and accrue interest on his debt.

Second, at the inception of the Title 11 case, during a status conference before the bankruptcy court, Simpson allegedly misrepresented that appellant was holding security deposits for the tenants at one of the buildings that formed part of appellant's bankruptcy estate. Simpson then allegedly produced a document bearing appellant's forged signature to substantiate said misrepresentation. As a result, all tenants were erroneously added to appellant's list of creditors pursuant to Rule 1007-1 of the Eastern District of New York's Local Bankruptcy Rules.

Third, Simpson allegedly arranged an auction sale of two of appellant's commercial properties that resulted in winning bids by Simpson's friends or affiliates. Although appellant alleges that Simpson arranged these sales without communicating to appellant his intent to proceed, the record shows that at least one of these sales was approved by the bankruptcy court. (See Order Granting Mot. to Sell Free and Clear of Liens Real Property located at 1801 Pitkin Avenue, Brooklyn, NY on April 23, 2002, Dkt. # 37.) After a prospective buyer moved to reopen the sale, the bankruptcy court issued an order on May 3, 2002 vacating the original sale and scheduling a new sale on notice. (See Decision and Order Granting Mot. to Vacate the Oral Decision of the Court on April 23, 2002, Approving the Sales of Pitkin Avenue Property & Forest Avenue Property, Dkt. # 52.)*fn1 The winning bids were for significantly higher amounts than those offered in the initial, allegedly fixed auction arranged by Simpson.*fn2

Fourth, after his primary residence was destroyed in a fire, appellant submitted a claim to appellee Allstate Insurance Company. Allstate Insurance Company is alleged to have acted negligently when, at Simpson's direction, it deposited the insurance proceeds into a JP Morgan Chase account under appellant's name. Appellee JP Morgan Chase allegedly breached its duty to appellant by allowing Simpson to open that account under appellant's name without appellant's knowledge or consent, and designate himself the only signatory on the account. Simpson allegedly converted the Allstate Insurance Company proceeds in the JP Morgan Chase account for his personal use.

Appellant filed his cause of action in state court on October 23, 2007. On November 21, 2007, appellees filed a motion to remove the matter to federal bankruptcy court, arguing that it was within the bankruptcy court's jurisdiction based on appellant's ongoing reorganization under Title 11. After the state court removed the matter from its calendar on January 11, 2008, appellant moved to remand the case to state court or to another federal district court. On March 6, 2008, the bankruptcy court heard oral argument and ruled from the bench, denying appellant's motion.*fn3 (Transcript of Hearing before Hon. Dennis E. Milton, dated March 6, 2008 ("Tr."), at 17:20-18:5.) Appellant filed a timely Notice of Appeal from the bankruptcy court's March 6, 2008 order.

II. Discussion

Appellant's Title 11 petition was referred to bankruptcy court pursuant to 28 U.S.C. § 157(a) (2006), which allows bankruptcy judges to hear "any or all cases under [T]itle 11 and any or all proceedings arising under [T]itle 11 or arising in or related to a case under [T]itle 11." A district court reviews a bankruptcy court's findings of fact for clear error, its conclusions of law de novo, and its decision to award costs, attorneys' fees, and damages for abuse of discretion. In re Bayshore Wire Prods. Corp., 209 F.3d 100, 103 (2d Cir. 2000).

Appellant contends that the bankruptcy court's assertion of jurisdiction over the state court matter should be reversed because the bankruptcy court erred in finding that it had continuing jurisdiction of appellant's pending Title 11 case under 28 U.S.C. § 1334(a). Sections 1334(a) and (b) establish the jurisdiction of the federal district courts over Title 11 matters. See 28 U.S.C. §§ 1334(a)-(b) (2006). Section 1334 provides in relevant part:

(a) Except as provided in subsection (b) of this section, the district courts shall have original and exclusive ...

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