RAF Financial Corp. v. Resurgens Communications Group, Inc.

127 B.R. 458, 1991 U.S. Dist. LEXIS 7331, 1991 WL 91013
CourtDistrict Court, D. Colorado
DecidedApril 26, 1991
DocketCiv. A. 89-A-1878
StatusPublished
Cited by1 cases

This text of 127 B.R. 458 (RAF Financial Corp. v. Resurgens Communications Group, Inc.) is published on Counsel Stack Legal Research, covering District Court, D. Colorado primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
RAF Financial Corp. v. Resurgens Communications Group, Inc., 127 B.R. 458, 1991 U.S. Dist. LEXIS 7331, 1991 WL 91013 (D. Colo. 1991).

Opinion

MEMORANDUM OPINION AND ORDER

ARRAJ, Senior District Judge.

This matter is before the court on the motion of third-party defendant Kirkpatrick & Lockhart (“K & L”) to dismiss the third-party complaint. A hearing was held on February 21, 1991. The court had considered the briefs, papers, and oral arguments submitted by counsel and finds and rules as follows.

BACKGROUND

On October 27, 1989, RAF Financial Corporation, et al. (“RAF”) brought suit against Resurgens Communications Group, Inc. (“Resurgens”) under the terms of a previous settlement agreement between the two parties. RAF claimed that Resur-geris did not effectuate the registration of certain warrants and underlying shares with the Securities Exchange Commission as required by the settlement, and hence plaintiffs suffered losses in excess of one million dollars. Resurgens claims that the settlement agreement is null and void and that any claim of the plaintiffs was discharged in the bankruptcy proceedings of Central Corporation (now Resurgens) commenced in November, 1988. Resurgens moved for summary judgment which was denied by this court on September 27, 1990.

The third-party defendant, Kirkpatrick & Lockhart (“K & L”), is a law firm which maintains offices in Pittsburgh, Harrisburg, Washington D.C., Boston and Miami. The legal services which are the basis for the third-party complaint were performed primarily in the Miami office in connection with Central Corporation’s bankruptcy proceeding pending in the Southern District of Florida. K & L has no partners who are residents of Colorado and no partnership assets in Colorado.

The K & L firm represented Central in its bankruptcy action under chapter 11 which remains pending in the Southern District of Florida. Resurgens’ third-party complaint alleges legal malpractice in the handling of the bankruptcy case, breach of express and implied contract to provide legal u services and obtain a discharge of RAF’s claims, and negligent misrepresentation. The third-party complaint was based upon diversity jurisdiction under 28 U.S.C. § 1332 and federal question, 28 U.S.C. § 1334(b).

DISCUSSION

K & L argues that this court does not have in personam jurisdiction over it because K & L does not have the minimum contacts required under Colorado’s long arm statute. Resurgens argues that K & L is subject to nationwide service of process under the provisions of Bankruptcy Rule 7004(d), and in the alternative that K & L is'subject to Colorado’s long-arm statute.

I. Does Bankruptcy Rule 7004(d) Apply in This Action?

Rule 7004(d) provides that the summons and complaint and all other process except a subpoena may be served anywhere in the United States. 11 U.S.C.A. § 7004(d). In Diamond Mortgage Corp. of Illinois v. Sugar, 913 F.2d 1233 (7th Cir.1990), cert. denied, — U.S. -, 111 S.Ct. 968, 112 L.Ed.2d 1054 (1991), the Seventh Circuit addressed - the issue of whether Rule 7004(d) applies to “non-core” bankruptcy actions. The defendants in Diamond were attorneys who resided and practiced in Michigan. The plaintiffs, chapter 11 debtors, brought an action against them in Illinois alleging legal malpractice and breach of fiduciary duties. Id. at 1236. The defendants filed a motion to dismiss for lack of personal jurisdiction claiming that they *461 were neither citizens nor residents of Illinois, and that the legal services they rendered had been performed in Michigan. Id. The plaintiffs maintained that the defendants were amenable to service under 7004(d).

The Seventh Circuit undertook an extensive review of the history of the Bankruptcy Act. The defendants in Diamond “argued vigorously” that non-core claimants that advance state law claims should not be allowed to rely upon the broad reach of the Bankruptcy Rules to establish in person-am jurisdiction. The court stated that “... nothing in Rules 1001, 7001, or 7004(d)— even remotely suggests that they are to be applied differently in core and non-core proceedings.” Id. at 1243; see also Teitelbaum v. Choquette & Co., Inc. (In re Outlet Dep’t Stores, Inc.), 82 B.R. 694, 698 (Bankr.S.D.N.Y.1988) (Rule 7004 does not make distinctions among the classifications of adversary proceedings); Sonnyco Coal, Inc. v. Bartley (In re Sonnyco Coal, Inc.), 89 B.R. 658, 663-65, 669-70 (Bankr.S.D.Ohio 1988) (upholding nationwide service of process in non-core proceedings). The Diamond court stated that “... whether there exist[s] sufficient minimum contacts between the attorneys and the State of Illinois has no bearing upon whether the United States may exercise its power over the attorneys pursuant to its federal question jurisdiction.” Diamond Mortgage v. Sugar, 913 F.2d at 1244. In conclusion, the Diamond court held “that courts may apply bankruptcy rule 7004(d) — allowing nationwide service of process — in non-core, related proceedings.” Id. at 1243-44.

Section 1334(b) of Title 28, provides that “the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” The court found that while the malpractice action was not a “core” proceeding in bankruptcy, the action was related to the bankruptcy proceeding in that its resolution “... may have a direct and substantial impact on the asset pool available for the distribution to estates.” Id. at 1239. Consequently, "... the district court could have exercised its bankruptcy subject matter jurisdiction over the claim.” Id. at 1239.

K & L argues that Diamond Mortgage is distinguishable because the third-party complaint in the case at bar is not “related to bankruptcy” under Section 1334(b). 1 K & L maintains that since the assets have already been distributed and the bankruptcy reorganization plan has been confirmed, the third party case cannot have a “direct and substantial impact on the asset pool available for distribution.” See Id. K & L points out that the Diamond court cited to Elscint, Inc. v. First Wisconsin Financial Corporation (In re Xonics, Inc.), 813 F.2d 127, 131 (7th Cir.1987) for its definition of “related to.” The Xonics court stated that “related to” means “... it affects the amount of property available for distribution or the allocation of property among creditors.” Id. The Tenth Circuit has defined “related to” as:

“The test for determining whether a civil proceeding is related in bankruptcy is whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.” Pacor, Inc. v.

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Bluebook (online)
127 B.R. 458, 1991 U.S. Dist. LEXIS 7331, 1991 WL 91013, Counsel Stack Legal Research, https://law.counselstack.com/opinion/raf-financial-corp-v-resurgens-communications-group-inc-cod-1991.