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Williamson v. Peters

United States District Court, D. Kansas

February 8, 2018

DARCY D. WILLIAMSON, Plaintiff,
v.
TYLER PETERS, et al., Defendants.

          MEMORANDUM AND ORDER

          CARLOS MURGUIA UNITED STATES DISTRICT JUDGE

         Plaintiff Darcy D. Williamson, Trustee for the Bankruptcy Estate of McCorkendale Construction, Inc. (“McCorkendale”) filed an Adversary Complaint for Professional Negligence in the United States Bankruptcy Court for the District of Kansas. United States Bankruptcy Judge Dale L. Sommers recommended the professional negligence matter be transferred to this court and this court adopted that recommendation on June 20, 2017. (Doc. 3.) The matter is now before this court on defendants Tyler Peters and Payne & Jones, Chartered's Motion to Dismiss for Lack of Subject Matter Jurisdiction (Doc. 8). For the reasons set forth below, the court finds it lacks subject matter jurisdiction over the adversary complaint and grants defendants' motion.

         I. Background

         According to the adversary complaint filed April 21, 2017, McCorkendale retained defendants to represent them in an action in Johnson County, Kansas District Court against Duggan Homes, Inc., in which McCorkendale obtained a judgment in the amount of $438, 197.36. According to the journal entry of judgment dated April 28, 2010, this judgment could only be a judgment lien on the real property that was specifically identified in Exhibit A, which was attached to the journal entry of judgment. Defendants assisted McCorkendale in obtaining an amended judgment against Duggan Homes, Inc., in which the restrictions set out in the first journal entry were removed.

         On March 10, 2011, defendants registered this judgment as a foreign judgment in Clay County, Missouri Circuit Court. Defendants, however, mistakenly registered the first journal entry of judgment. This first journal entry did not create a judgment lien on a 12-acre parcel of land owned by Duggan Homes, Inc. in Clay County because this parcel was not expressly listed in the Exhibit A attached to the first journal entry.

         On March 14, 2014, North American Savings Bank, F.S.B. (“NASB”) filed an action against McCorkendale to quiet title to the 12-acre parcel of land in Clay County. NASB argued that McCorkendale's foreign judgment did not create a valid lien on the 12-acre parcel because the wrong Kansas judgment was registered. On January 20, 2015 the Clay County Circuit Court held a bench trial and found in favor of McCorkendale. NASB appealed the decision to the Missouri Court of Appeals.

         McCorkendale filed a Chapter 7 bankruptcy petition in the United States Bankruptcy Court for the District of Kansas on March 20, 2015. McCorkendale did not disclose any potential lawsuits in its petition.

         On March 8, 2016, the Missouri Court of Appeals reversed the decision of the Clay County Circuit Court and entered judgment in favor of NASB to quiet title to the 12-acre parcel. The Missouri Court of Appeals found that because the first journal entry, and not the second, was registered as a foreign judgment, McCorkendale did not have a lien on the disputed property. In her Adversary Complaint for Professional Negligence, filed April 21, 2017, plaintiff alleges that as a result of defendants' negligence in registering the wrong journal entry of judgment, McCorkendale sustained damages in excess of $75, 000. Plaintiff claims this action arose prior to the Chapter 7 bankruptcy petition and therefore constitutes property of the bankruptcy estate pursuant to 11 U.S.C. § 541.

         II. Legal Standards

         Dismissal pursuant to Federal Rule of Civil Procedure 12(b)(1) is appropriate when the court lacks subject matter jurisdiction over a claim. Plaintiff claims that subject matter jurisdiction exists and has the burden of establishing it. Port City Props. v. Union Pac. R.R. Co., 518 F.3d 1186, 1189 (10th Cir. 2008). Because federal courts are courts of limited jurisdiction, there is a strong presumption against federal jurisdiction. Sobel v. United States, 571 F.Supp.2d 1222, 1226 (D. Kan. 2008).

         III. Analysis

         Plaintiff claims that she discovered the existence of a professional negligence claim following the filing of McCorkendale's Chapter 7 bankruptcy petition, but that the action arose prior to the filing of the petition. Plaintiff therefore considers this claim property of the bankruptcy estate and maintains this court has jurisdiction over the matter under 28 U.S.C. § 1334(a), 28 U.S.C. § 157, and 11 U.S.C. § 542(b). Plaintiff has not alleged federal question jurisdiction under 28 U.S.C. § 1331 or diversity jurisdiction under 28 U.S.C. § 1332; therefore, if the court finds this action is not the property of the bankruptcy estate, it no longer has subject matter jurisdiction over the case. See In re Gardner, 913 F.2d 1515, 1518 (10th Cir. 1990) (“When property leaves the bankruptcy estate, however, the bankruptcy court's jurisdiction typically lapses . . . .”).

         In their motion to dismiss, defendants argue the court lacks subject matter jurisdiction because McCorkendale's professional negligence claim is not property of the bankruptcy estate. Defendants allege that the legal malpractice cause of action did not accrue until after the bankruptcy petition was filed.

         The property included in an estate created by the filing of a bankruptcy petition is broadly defined in 11 U.S.C. § 541(a)(1) to include “all legal or equitable interests of the debtor in property as of the commencement of the case.” State law defines what assets are considered property of the bankruptcy estate. Butner v. United States, 440 U.S. 48, 55 (1979) (“Property interests are created and defined by state law.”). Contingent interests that exist upon filing but do not fully materialize until after filing have been considered property of the estate. See Segal v. Rochelle, 382 U.S. 375, 380 (1966) (finding a debtor's tax return that was received postpetition was property of the bankruptcy estate because it was for business losses suffered prepetition and was “sufficiently rooted in the pre-bankruptcy past.”). Whether a debtor's cause of action is property of the estate, however, depends on if the cause of action accrued prior to the commencement of the bankruptcy case. See In re Smith, 293 B.R. 786, 788 (Bankr. D. Kan. 2003). Because state law defines property rights, courts must look ...


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