Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—5th Cir.: Bankruptcy court lacked authority to enter judgment on debtor’s unfair trade practices claim, (Nov 14, 2013)

By Linda O’Brien, J.D., LL.M.

A bankruptcy court lacked authority to enter a final judgment on a debtor’s counterclaim against attorneys who represented him in a separate state action for unfair trade practices, as it was not necessary for the court to resolve the claim in ruling on the attorneys’ fee applications, the U.S. Court of Appeals in New Orleans has ruled (Frazin v. Haynes & Boone, L.L.P., November 13, 2013, Prado, E.).

Timothy Frazin filed Chapter 13 bankruptcy petition. While the bankruptcy proceedings were pending, Frazin filed suit in state court against a company for breach of contract, promissory estoppel, and quantum meruit. The bankruptcy court authorized Frazin to employ two law firms, Griffith & Nixon and Haynes & Boone (collectively, “attorneys”), to represent him in the state action and the subsequent appeal of the case. The state action was ultimately settled and the attorneys filed applications with the bankruptcy court for approval of their fees. In response to the fee applications, Frazin filed counterclaims against the attorneys for negligence, breach of fiduciary duty, and violations of the Texas Deceptive Trade Practices Act (DTPA). The bankruptcy court ruled against Frazin on his counterclaims and awarded the attorneys the amounts requested in the fee applications. The district court affirmed the judgment of the bankruptcy court and Frazin timely appealed.

Frazin contended that his counterclaims against the attorneys were core proceedings under Bankruptcy Code Section 157(b)(2)(C) and the bankruptcy court lacked authority to enter a final judgment on the counterclaims that were not resolved in its ruling on the fee applications.

The court applied the test from Stern v. Marshall, 131 S. Ct. 2594 (2011), to determine whether any of the counterclaims would necessarily have been resolved in the bankruptcy court’s fee application ruling. With respect to Frazin’s claim for violations of the DTPA, the court noted that there were three elements to a DTPA claim: (1) the plaintiff is a consumer; (2) the defendant engaged in false, misleading, or deceptive acts; and (3) the acts constituted a producing cause of the consumer’s damages. Although the bankruptcy court had to resolve the factual allegations of the DTPA claim, it was not required to resolve the legal effect flowing from the factual allegations in the context of the DTPA claim. Since it was not necessary to decide the DTPA claim, the bankruptcy lacked authority to enter a final judgment on the fee applications as to that claim.

However, regarding Frazin’s claim for negligent prosecution of his state action and appeal, his state-law claim arose from alleged negligence in the same services that the bankruptcy court considered when it awarded fees. The court concluded that the negligence claim was necessarily decided by the bankruptcy court in the process of ruling on the attorneys’ fee applications and was within the bankruptcy court’s jurisdiction. Similarly, since the sole purpose of Frazin’s breach of fiduciary duty claim for fee forfeiture was to defeat the Attorneys’ fee applications, the bankruptcy necessarily had to resolve the claim to rule on the fee applications.

The case is No.11-10403.

Attorneys: Gary N. Schepps (Schepps Law Offices) for Timothy Michael Frazin. Heather Bailey New (Bell, Nunnally & Martin, L.L.P.) and Scott William Everett (Haynes & Boone, L.L.P.) for Haynes & Boone, L.L.P. Anthony Patrick Jach (Griffith Davison & Shurtleff, P.C.) for Griffith & Nixon, P.C.

Companies: Haynes & Boone, L.L.P.; Griffith & Nixon, P.C.

Cases: StateUnfairTradePractices LouisianaNews MississippiNews TexasNews