Waleski v. Montgomery, Mccracken, Walker & Rhoads, LLP (In re Tronox)

603 B.R. 712
CourtUnited States Bankruptcy Court, S.D. New York
DecidedJuly 18, 2019
DocketCase No. 09-10156 (MEW); Adv. Pro. No. 19-1087 (MEW)
StatusPublished
Cited by16 cases

This text of 603 B.R. 712 (Waleski v. Montgomery, Mccracken, Walker & Rhoads, LLP (In re Tronox)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, S.D. New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Waleski v. Montgomery, Mccracken, Walker & Rhoads, LLP (In re Tronox), 603 B.R. 712 (N.Y. 2019).

Opinion

MICHAEL E. WILES, UNITED STATES BANKRUPTCY JUDGE

Before the Court is the motion (the "Remand Motion ") of the plaintiff Stanley Waleski to remand this legal malpractice proceeding to the Court of Common Pleas in Luzerne County, Pennsylvania, which is where the action originally was filed. Waleski asks, in the alternative, that this Court abstain from hearing his claims. The Remand Motion is opposed by defendants Montgomery, McCracken, Walker & Rhoades, LLP (the "Montgomery Firm "), Leonard A. Busby (a current partner of the Montgomery Firm), and Natalie D. Ramsey (a former partner of the Montgomery Firm).

Mr. Waleski alleges that during the bankruptcy cases of Tronox Incorporated and its affiliates the defendants committed legal malpractice in their representation of Mr. Waleski and a class of other persons who had been exposed to chemicals (primarily creosote) emitted from a plant located in Avoca, Pennsylvania (the "Avoca Plaintiffs "). Most of the claims are based on allegations that the defendants should have ensured that the Avoca Plaintiffs' recoveries in the bankruptcy case were not diluted by the allowance of claims filed on behalf of persons who alleged injuries based on creosote emissions from a different Tronox-related plant located in Mississippi. Mr. Waleski also alleges that the defendants should have objected to the settlement of a fraudulent transfer claim, the proceeds of which were used to fund payments to tort victims.

*715The action filed by Mr. Waleski was removed to federal court and was later transferred to this Court. Mr. Waleski now contends that this Court lacks subject matter jurisdiction over this proceeding. I disagree. The alleged wrongs committed by the defendants involved the performance of bankruptcy-specific tasks and the assertion of bankruptcy-specific objections and rights, and the dispute between the parties did not exist - and could not have existed - outside of the context of the Tronox bankruptcy cases. The dispute also implicates the integrity of the bankruptcy process and in certain respects requires the interpretation of prior orders and rulings of this Court. I therefore find that I have subject matter jurisdiction. I also decline to abstain from hearing Mr. Waleski's claims.

Background

On April 11, 2018, Waleski filed his complaint in the Court of Common Pleas of Luzerne County, Pennsylvania. The following facts are taken from the complaint and are assumed true only for purposes of the motion that is before the Court.

A. The Avoca Plaintiffs' Claims and the Montgomery Firm's Services

The plaintiff, Stanley Waleski, is a resident of Pennsylvania who resides in Luzerne County. He filed this action on behalf of himself and a class of Avoca Plaintiffs that is alleged to have approximately 4,300 members. The Montgomery Firm is a Pennsylvania limited liability partnership, and the individual defendants are citizens of Pennsylvania.

In January 2005, the Avoca Plaintiffs began initiating lawsuits in the Court of Common Pleas in Luzerne County, through attorneys they hired for the state-court litigation. In January 2009, however - before the claims in the Pennsylvania actions were adjudicated - Tronox and various affiliated companies filed voluntary chapter 11 petitions. The Pennsylvania cases were automatically stayed by the bankruptcy filings.

The Avoca Plaintiffs' state-court attorneys retained the Montgomery Firm in January 2009 to represent the interests of the Avoca Plaintiffs in the Tronox bankruptcy case. The terms of the retention were memorialized in a contingent fee agreement. The agreement provided that the Montgomery Firm would "represent the interests of the [Avoca Plaintiffs] in the bankruptcy proceedings of Tronox, Incorporated, and all related entities, now pending in the United States Bankruptcy Court for the Southern District of New York, Case No. 09-10156." See Compl. ¶ 27. According to the plaintiff, one of the particular tasks entrusted to the Montgomery Firm was "to take steps to protect against any intrusion" from "potential claims from property owners in Mississippi who were represented by an aggressive lawyer from that state." See id . ¶ 41.

Sometime later, the Montgomery Firm also undertook to represent Michael E. Carroll, one of the Avoca Plaintiffs who served as a member of the official creditors' committee. The complaint alleges that in the course of that representation, while "[a]cting in [their] official capacity as bankruptcy court-approved counsel for [ ] Carroll," the defendants "took responsibility for drafting trust documents." See id. ¶ 53. The purpose of the trust was to compensate victims of exposure to various contaminants and to satisfy various environmental liabilities. The trust documents established separate sub-funds for various types of claims and contemplated that the assets in each sub-fund would be distributed pro rata to the claimants who held the designated types of claims. More particularly:

*716• Fund A was established for the benefit of Allowed Asbestos Claims, Allowed Future Tort Claims, and Allowed Unaccounted-for Tort Claims;
• Fund B was established for the benefit of Allowed Indirect Environmental Claims;
• Fund C was established for the benefit of Allowed Property Damage Claims; and
• Fund D was established for the benefit of Allowed Non-Asbestos Toxic Exposure Claims.

The Avoca Plaintiffs, as victims of creosote exposure, held claims that fell into category D.

The trust documents also included Trust Distribution Procedures that outlined the process by which claims could be made against the trust and the ways in which allowed claim amounts would be calculated. See generally Ex. D, Form of the Tort Claims Trust Distribution Procedures, Plan Supplement [Dkt. 2343] at 63. The trust documents, including the Trust Distribution Procedures, were incorporated into the confirmed plan of reorganization (the "Plan ") in the Tronox cases and were approved by Judge Gropper of this Court in November 2011. See Confirmation Order [Dkt. No. 2567] ¶ 85. Both the Plan and the Confirmation Order provided that this Court retained jurisdiction over all matters arising out of the Tronox bankruptcy case, including the jurisdiction to "hear and determine disputes arising in connection with the interpretation, implementation or enforcement of the Plan or the Confirmation Order, including disputes arising under agreements, documents or instruments executed in connection with the Plan." Plan, Article XI; see also Confirmation Order ¶ 159.

The complaint alleges that the defendants sought to charge the Tronox estate for the services they provided in connection with the drafting of the trust documents and the Trust Distribution Procedures. See Compl. ¶ 54. The confirmed Plan explicitly acknowledged the role of both Carroll and the Defendants in the case and approved an award of compensation in the amount of $200,000. Subparagraph E of Article XII of the Plan noted the following:

Tronox recognizes that Creditors' Committee member Michael E.

Free access — add to your briefcase to read the full text and ask questions with AI

Related

Cite This Page — Counsel Stack

Bluebook (online)
603 B.R. 712, Counsel Stack Legal Research, https://law.counselstack.com/opinion/waleski-v-montgomery-mccracken-walker-rhoads-llp-in-re-tronox-nysb-2019.