The opinion of the court was delivered by: Hall, Circuit Judge:
Statek Corp. v Development Specialists, Inc. (In re Coudert Bros. LLP)
Before: NEWMAN, CALABRESI, HALL, Circuit Judges.
Appellant Statek Corporation ("Statek") appeals from an order of the United States District Court for the Southern District of New York (Hellerstein, J.), affirming the order of the United States Bankruptcy Court for the Southern District of New York (Drain, J.) disallowing its claim against the bankruptcy estate of Coudert Brothers LLP ("Coudert") and affirming the denial of Statek's motion to reconsider the bankruptcy court's order. The bankruptcy court should have applied the choice of law rules of the State of Connecticut, where Statek's pre- bankruptcy action against Coudert had been commenced, and not the choice of law rules of New York State, where the bankruptcy court is located.
Appellant Statek Corporation appeals from an order of the United States District Court for the Southern District of New York (Hellerstein, J.), affirming the order of the United States Bankruptcy Court for the Southern District of New York (Drain, J.) disallowing its claim against the estate of Coudert in In re Coudert Brothers LLP, Case No. 06-12226 (Bankr. S.D.N.Y.) and affirming the denial of Statek's motion to reconsider the bankruptcy court's order.
The bankruptcy court should not have applied the choice of law rules of New York, the state in which it sits, but instead the choice of law rules of Connecticut, where Statek filed its pre-bankruptcy action seeking damages that later constituted its claim against the bankruptcy estate. Although the case was not technically transferred under 28 U.S.C. § 1404(a), the practical effect of filing a proof of claim in the bankruptcy court was to transfer the case from Connecticut federal court to New York federal court. Extending the well-established rule of Van Dusen v. Barrack, 376 U.S. 612 (1964), and Ferens v. John Deere Co., 494 U.S. 516 (1990), we hold that in a case such as this one, where: (1) the claim before the bankruptcy court is wholly derived from another legal 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, bankruptcy courts should apply the choice of law rules of the state where the underlying prepetition claim was filed.
We therefore VACATE the district court's order and REMAND the case to the district court with instructions to remand the case to the bankruptcy court and, in so doing, instructing the bankruptcy court to apply the choice of law rules of Connecticut to decide Statek's motion for reconsideration.
Coudert, the debtor in this case, was for over a century one of the world's leading international law firms. The claimant is one of Coudert's former clients, Statek Corporation.*fn1 Statek's claim is based on an asserted tort, legal malpractice, committed by Coudert against Statek during the course of their attorney-client relationship. Statek's allegations are roughly as follows.
From 1984 until 1996, Statek was controlled by Hans Frederick Johnston. Johnston, who had obtained control of the company by fraud, devoted most of his tenure with Statek to looting the corporate treasury and traveling lavishly at the company's expense. In furtherance of his schemes, Johnston caused Statek to retain Coudert in 1990. Although Coudert's fees were paid by Statek, the firm counseled Johnston personally, helping him to hide and launder various assets stolen from Statek. Among other things, lawyers in Coudert's London office created secret shell corporations, established offshore asset protection trusts, procured safe deposit boxes in the name of those trusts, assisted with West Indian real estate purchases, and coordinated the removal from the United States of a multi-million dollar art and stamp collection. Eventually, Johnston's crimes were discovered. He was removed from power and was sued by Statek for fraud and waste. While the fraud and waste lawsuit was ongoing, Statek strove to locate company funds that Johnston and his associate Sandra Spillane misappropriated. The search only intensified after Statek obtained a judgment against Johnston and Spillane for over $30 million. Progress was slow because Johnston had spread his ill-gotten gains widely, moving money into and out of shell corporations, offshore trusts, art and collectibles, and a variety of other laundering devices. Many of the assets were believed to be in the hands of third parties.
For assistance, Statek turned to its old law firm, Coudert. As the fraud and waste lawsuit got underway in 1996, Statek sent a request to Coudert for any information and all files relating to its representation of Statek during the Johnston years. Coudert responded with six files pertaining mostly to the creation of a Statek subsidiary. After Statek secured a large money judgment against Johnston, it and two other judgment creditors forced Johnston into involuntary bankruptcy in the United Kingdom. At that point, a trustee was appointed for Johnston's estate and charged with collecting its assets. In 2002, the trustee approached Coudert for information about its representation of Statek and learned about Courdert's work for Johnston moving art to Europe. More inquires led to more revelations. By 2004, the trustee had learned of Coudert's role in setting up Johnston's offshore asset protection trusts, obtaining secret safe deposit boxes, and facilitating the West Indian property deal.
Statek believes that Coudert's delay turning over files and information, to which as a former client it was entitled, allowed Johnston to irretrievably dispose of millions of dollars. Statek also asserts that if Coudert had been forthcoming about its representation during Johnston's reign, Statek would have saved the time and money it was forced to expend recovering assets hidden around the world. All told, Statek claims that Coudert's inaction has cost it in the neighborhood of $85 million.
In October 2005, Statek filed a malpractice lawsuit against Coudert in state court in Connecticut where Johnston had allegedly lived, run Statek, and received many of Coudert's services.*fn2 Several months later, Coudert--which was already in dissolution--filed a motion to dismiss Statek's action on the basis of lack of personal jurisdiction and forum non conveniens. On September 22, 2006, while that motion was pending, Coudert filed a petition for Chapter 11 bankruptcy in the Southern District of New York. This filing triggered an automatic stay of Statek's Connecticut action pursuant to 11 U.S.C. § 362. In the bankruptcy court, Statek thereafter filed a proof a claim based on its pending malpractice action, and it attached to its claim as an exhibit the complaint it had filed in state court almost a year earlier. In March 2007, Coudert removed the Connecticut action to the United States District Court for the District of Connecticut pursuant to 28 U.S.C. § 1452, which allows for removal of any state court action over which there is bankruptcy jurisdiction.*fn3 Once the Connecticut action was removed, Statek moved the bankruptcy court in New York for relief from the automatic stay so that it could proceed with the malpractice action in federal district court in the District of Connecticut. Coudert objected, and the two sides ultimately compromised: the stay was lifted only as to conducting discovery on and resolving Coudert's motion to dismiss in the Connecticut action. In February 2008, the district court in Connecticut (Underhill, J.) conditionally dismissed Statek's complaint on forum non conveniens grounds, but Coudert would not consent to the conditions.*fn4 The case thus remained pending in Connecticut and the stay was automatically reimposed. In June 2008, Statek again moved the bankruptcy court for relief from the stay, and the parties again settled on less than a full relief from the stay. In August 2008, the stay was partially lifted so that Statek could file an amended complaint in the District of Connecticut, which was also incorporated into its proof of claim pending in the bankruptcy court. Additionally, the bankruptcy court granted relief from the stay to allow for mediation between the parties and Coudert's malpractice insurer with the hopes of liquidating the claim. As might be inferred, the mediation failed and, in March 2009, the Plan Administrator (Coudert's Chapter 11 Plan for Liquidation having been confirmed) filed a motion in bankruptcy court to disallow the claim. Although motions to disallow claims are "core proceedings" for the purposes of 28 U.S.C. § 157, the validity of Statek's claim turned on a finding of tort liability against Coudert. Under these circumstances, the bankruptcy court--with the consent of the parties--applied the procedural rules of an "adversary proceeding" to the dispute, treating the Plan Administrator's motion to disallow as a Fed. R. Civ. P. 12(b)(6) motion to dismiss.
In July 2009, the bankruptcy court, relying on our decision in Bianco v. Erkins (In re Gaston & Snow), 243 F.3d 599, 601-02 (2d Cir. 2001), applied New York choice of law rules to Statek's claim. Under New York's anti-forum shopping "borrowing statute," N.Y. C.P.L.R. § 202, the bankruptcy court determined that because Statek was a non-resident, its claim must be judged by the shorter of either New York's statute of limitations or the statute of limitations of the jurisdiction where the claim accrued (presumably Connecticut or the United Kingdom). As Statek had already conceded that its claim was untimely under the New York ...