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Keywords

jurisdictionlitigationtrialfiduciarymalpracticetrustbankruptcychapter 7 bankruptcylegal malpracticefiduciary dutybreach of fiduciary duty
jurisdictionlitigationtrialmalpracticetrustbankruptcychapter 7 bankruptcylegal malpractice

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Abrams v. DLA Piper US LLP, Not Reported in N.E.2d, 2013 IL App (1st) 113051-U, 2013 WL 3212171

Facts

Heartland Memorial Hospital, LLC, a subsidiary of iHealthcare, Inc., faced financial difficulties leading to an involuntary Chapter 7 bankruptcy petition filed by creditors in 2007. Heartland converted to a Chapter 11 proceeding, and a liquidating trustee, David Abrams, was appointed. Abrams filed a complaint against DLA Piper and McGuire Woods, alleging legal malpractice and breach of fiduciary duty related to transactions that contributed to Heartland's financial troubles. The trial court dismissed the complaint, stating it lacked jurisdiction as the bankruptcy court retained exclusive jurisdiction over such claims.

Heartland Memorial Hospital, LLC, a subsidiary of iHealthcare, Inc., faced financial difficulties leading to an involuntary Chapter 7 bankruptcy petition filed by creditors in 2007.

Issue

Whether the state court had jurisdiction to hear the legal malpractice claims brought by the liquidating trustee after the bankruptcy court retained exclusive jurisdiction over all litigation related to the Chapter 11 plan.

Whether the state court had jurisdiction to hear the legal malpractice claims brought by the liquidating trustee after the bankruptcy court retained exclusive jurisdiction over all litigation related to the Chapter 11 plan.

Rule

A bankruptcy court retains exclusive jurisdiction over all litigation in a Chapter 11 plan of reorganization, and a state court does not have jurisdiction to hear the case without the bankruptcy court's approval.

A bankruptcy court retains exclusive jurisdiction over all litigation in a Chapter 11 plan of reorganization, and a state court does not have jurisdiction to hear the case without the bankruptcy court's approval.

Analysis

The court analyzed the provisions of the Chapter 11 plan, which clearly stated that the bankruptcy court retained exclusive jurisdiction over all litigation related to Heartland. The court found that the liquidating trustee was not authorized to bring the claims in state court, as the plan required that such actions be initiated by the debtor, Heartland, and not by the trustee. The court concluded that the claims were directly related to the bankruptcy proceedings and thus fell under the exclusive jurisdiction of the bankruptcy court.

The court analyzed the provisions of the Chapter 11 plan, which clearly stated that the bankruptcy court retained exclusive jurisdiction over all litigation related to Heartland.

Conclusion

The appellate court affirmed the trial court's dismissal of the complaint, holding that the bankruptcy court retained exclusive jurisdiction over the legal malpractice claims and that the liquidating trustee lacked the authority to bring the action in state court.

The appellate court affirmed the trial court's dismissal of the complaint, holding that the bankruptcy court retained exclusive jurisdiction over the legal malpractice claims and that the liquidating trustee lacked the authority to bring the action in state court.

Who won?

DLA Piper and McGuire Woods prevailed in the case because the court upheld the trial court's ruling that it lacked jurisdiction to hear the claims, which were under the exclusive jurisdiction of the bankruptcy court.

DLA Piper and McGuire Woods prevailed in the case because the court upheld the trial court's ruling that it lacked jurisdiction to hear the claims, which were under the exclusive jurisdiction of the bankruptcy court.

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