Because the number of unsatisfied clients who find themselves in bankruptcy are filing malpractice lawsuits against their pre-bankruptcy counsel is on the rise so, too, is the number of attorneys who find themselves on the defending end of such claims. Debtors and Trustees pursuing such claims, as well as attorneys defending against a bankruptcy debtor’s malpractice lawsuit, should consider the pros and cons of adjudicating these claims through an adversary proceeding in the bankruptcy court or via a state court action outside the bankruptcy realm.

The U.S. Eleventh Circuit Court of Appeals, applying Florida law, recently held that a professional services exclusion, which excluded coverage for any loss arising out of any insured’s performance of professional services, barred coverage for claims arising from an alleged Ponzi scheme. Stettin v. Nat’l Union Fire Ins. Co. of Pittsburgh, Pa., 2017 WL 2858768 (11th Cir. July 5, 2017).

On June 15, 2017, Curtis R. Smith, as Liquidating Trustee of the Hastings Creditors’ Liquidating Trust, filed approximately 69 complaints seeking the avoidance and recovery of allegedly preferential and/or fraudulent transfers under Sections 547, 548 and 550 of the Bankruptcy Code. The Liquidating Trustee also seeks to disallow claims of such defendants under Sections 502(d) and (j) of the Bankruptcy Code.

Predictions that retailers would increasingly find themselves filing bankruptcy, whether for the first or second time, are proving true mid-year. See January 2017 Alix Partners Survey at p. 2.

On June 13, 2017, The Original Soupman, Inc. and its affiliates (collectively “Debtors” or “Original Soupman”) commenced voluntary bankruptcy proceedings under Chapter 11 of the Bankruptcy Code. According to its petition, Original Soupman estimates that its assets are between $1 million and $10 million, and its liabilities are between $10 million and $50 million.

In an important decision for secured creditors, the Ninth Circuit recently held that the proper “cramdown” valuation of a secured creditor’s collateral is its replacement value, regardless of whether the foreclosure value would generate a higher valuation of the collateral. The appellate court’s decision has the potential to significantly impact lenders that include certain types of restrictions on the use of the collateral (such as low income housing requirements) in their financing documents.

The U.S. Court of Appeals for the Sixth Circuit recently concluded that Michigan’s assignment of rents statute sufficiently deprived the assignor of the ownership of the rents such that the rents could not be included in the assignor’s bankruptcy estate.

Part 1 of this blog series examined a bankruptcy court’s subject matter jurisdiction over a debtor’s legal malpractice claims. See, Part 1. Recognizing that bankruptcy courts typically retain related to jurisdiction over legal malpractice claims against a debtor’s pre-petition counsel, this blog now turns to abstention considerations for a legal malpractice strategy.

A recent decision by the United States Court of Appeals for the First Circuit provides additional guidance with respect to jurisdictional disputes that bankruptcy professionals often see in practice. In particular, the Gupta v. Quincy Med. Ctr., 2017 U.S. App. LEXIS 9814 (1st Cir. June 2, 2017) case analyzed whether a bankruptcy court had jurisdiction to adjudicate a post-sale dispute among a purchaser of estate assets and former employees of the debtors.

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