Alfred Witko v. Frank Effman Weinberg

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS

FOR THE ELEVENTH CIRCUIT FILED
________________________
U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
No. 03-16188 June 25, 2004
________________________ THOMAS K. KAHN
D. C. Docket No. 03-80717-CV-DTKH CLERK
BKCY No. 02-03168-BKC-SH

In re:

ALFRED J. WITKO,
Debtor.
__________________________________

ALFRED J. WITKO,

Defendant-Appellant,

versus

DEBORAH C. MENOTTE, Trustee,

Plaintiff-Appellee.

________________________

Appeal from the United States District Court
for the Southern District of Florida
_________________________

(June 25, 2004)
Before BLACK and MARCUS, Circuit Judges, and SMITH*, District Judge.

SMITH, District Judge:

Alfred J. Witko (Witko) appeals the district court’s award of his legal

malpractice claim to his bankruptcy estate. On appeal, Witko argues that he filed his

bankruptcy petition before his legal malpractice cause of action accrued and that the

legal malpractice, upon which he bases his claim, did not damage the bankruptcy

estate. We conclude that Witko’s cause of action is not property of his estate and,

accordingly, we reverse.

I. BACKGROUND

On September 8, 1999, Witko filed a petition for voluntary bankruptcy. On

January 13, 2000, in a separate proceeding regarding Witko’s marital dissolution, a

state trial court denied his request for alimony, which a state appellate court affirmed

on December 15, 2000. Witko, thereafter, sued his divorce counsel for malpractice.

The trustee of Witko’s bankruptcy estate, Deborah C. Menotte, intervened, seeking

a determination that Witko’s malpractice claim was estate property. The bankruptcy

court held that Witko’s cause of action was property of the estate because “the better

rule is that where pre-petition acts form part of a chain of events that lead to a

*
Honorable Fern M. Smith, United States District Judge for the Northern District of
California, sitting by designation.

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post-petition ‘redressable harm,’ the cause of action is ‘sufficiently rooted in the

debtor’s pre-petition past. . . .’” The district court affirmed and Witko now appeals

to this Court.

II. JURISDICTION

Witko’s appeal is timely and this Court has jurisdiction. 28 U.S.C. § 158(d).

III. STANDARD OF REVIEW

This Court reviews de novo the question of law whether a debtor’s interest is

property of the bankruptcy estate. Bell-Tel Fed. Credit Union v. Kalter (In re Kalter),

292 F.3d 1350, 1352 (11th Cir. 2002).

IV. ANALYSIS

Pre-petition causes of action are part of the bankruptcy estate and post-petition

causes of action are not. Specifically, the debtor’s filing of a petition with the

bankruptcy court commences a voluntary bankruptcy case. 11 U.S.C. § 301. The

commencement of a voluntary bankruptcy case creates an estate generally consisting

of the “legal or equitable interests of the debtor in property as of the commencement

of the case.” 11 U.S.C. § 541(a)(1). Although the estate is construed broadly, United

States v. Whiting Pools, Inc., 462 U.S. 198, 205, 103 S. Ct. 2309, 2313, 76 L. Ed. 2d

515 (1983), Congress expressly cautioned that the Bankruptcy Code “is not intended

to expand the debtor’s rights against others more than they exist at the

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commencement of the case. . . . [The trustee] could take no greater rights than the

debtor himself had.” S. Rep. No. 95-989, at 82 (1978), reprinted in 1978

U.S.C.C.A.N. 5787, 5868; H.R. Rep. No. 95-595, at 367-68 (1977), reprinted in 1978

U.S.C.C.A.N. 5963, 6323.

In Segal v. Rochelle, 382 U.S. 375, 86 S. Ct. 511, 15 L. Ed. 2d 428 (1966), for

example, the Supreme Court concluded that the debtor’s loss-carryback tax refund

claims were property of the estate because they were “sufficiently rooted in the

pre-bankruptcy past.” Id. at 380, 86 S. Ct. at 515. Although the Segal debtor could

not claim the refunds until the tax year closed, which was post-petition, the predicates

for receiving the refunds (payment of taxes in prior years and a net operating loss)

occurred pre-petition. Id. The debtor had more than a mere hope that his losses

might generate revenue in the future; he “possessed an existing interest at the time of

filing,” even though his enjoyment of that interest was postponed. Drewes v. Vote (In

re Vote), 276 F.3d 1024, 1026 (8th Cir. 2002); see Sliney v. Battley (In re Schmitz),

270 F.3d 1254, 1258 (9th Cir. 2001). The Supreme Court did not allow the Segal

trustee to assert more rights than the debtor had at the commencement of the case; it

merely allowed the trustee to seek the interests existing, though still undetermined in

quantity, at the time the debtor filed his petition.

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 The issue here is whether Witko’s legal malpractice claim is property of his

bankruptcy estate. This Court must determine whether the courts below correctly

classified Witko’s cause of action as a pre-petition interest. As reflected by the

parties’ briefing and oral arguments, recent cases arguably have clouded previous

choice of law authority. See Johnson v. Alvarez (In re Alvarez), 224 F.3d 1273, 1276

(11th Cir. 2000) (“We note that the parties disagree about whether this question is

governed by state law or federal bankruptcy law. We decline to decide the question

of which law governs this determination, because in either event, we conclude that

this legal malpractice claim is property of Alvarez’s bankruptcy estate.”) (footnotes

omitted). We now reiterate that federal law determines whether an interest is property

of the bankruptcy estate, Segal, 382 U.S. at 379, 86 S. Ct. at 515, and “[p]roperty

interests are created and defined by state law. Unless some federal interest requires

a different result, there is no reason why such interests should be analyzed differently

simply because an interested party is involved in a bankruptcy proceeding.” Butner

v. United States, 440 U.S. 48, 55, 99 S. Ct. 914, 918, 59 L. Ed. 2d 136 (1979); see

also Barnhill v. Johnson, 503 U.S. 393, 398, 112 S. Ct. 1386, 1389, 118 L. Ed. 2d 39

(1992) (“In the absence of any controlling federal law, ‘property’ and ‘interests in

property’ are creatures of state law.”); Charles R. Hall Motors, Inc. v. Lewis (In re

Lewis), 137 F.3d 1280, 1283 (11th Cir. 1998) (quoting Southtrust Bank of Ala. v.

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Thomas (In re Thomas), 883 F.2d 991, 995 (11th Cir. 1989)) (“[T]he nature and

existence of the debtor’s right to property is determined by looking at state law.”)

(brackets omitted). State law thus controls Witko’s legal malpractice cause of action

and determines whether that claim existed at the time Witko filed his bankruptcy

petition.

Applying the appropriate state law, Witko’s legal malpractice cause of action

did not exist until his alimony action concluded with an adverse outcome that was

proximately caused by his attorney’s negligence. “Under Florida law, a cause of

action for legal malpractice has three elements: (1) the attorney’s employment; (2) the

attorney’s neglect of a reasonable duty; and (3) the attorney’s negligence was the

proximate cause of loss to the client.” In re Alvarez, 224 F.3d at 1276 (citing Steele

v. Kehoe, 747 So. 2d 931, 933 (Fla. 1999)). Discussing the third element, the Florida

Supreme Court unambiguously held that until the underlying action is concluded with

an outcome adverse to the client (i.e., harm), “a malpractice claim is hypothetical and

damages are speculative.” Silvestrone v. Edell, 721 So. 2d 1173, 1175 (Fla. 1998);

see Blumberg v. USAA Cas. Ins. Co., 790 So. 2d 1061, 1065 (Fla. 2001) (“[I]n the

circumstances presented here, a negligence/malpractice cause of action accrues when

the client incurs damages at the conclusion of the related or underlying judicial

proceedings. . . .”); see also Fla. Stat. § 95.031(1) (“A cause of action accrues when

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the last element constituting the cause of action occurs.”). The machinations of legal

malpractice, especially the element requiring the conclusion of judicial proceedings,

distinguish legal malpractice actions from virtually all other tort claims. Although

proximate harm usually occurs in close temporal proximity to tortious conduct, legal

malpractice harm often arises well after the attorney’s failures. Otherwise stated, it

is unlikely that a car accident victim could file her bankruptcy petition between the

causal act and her resulting harm.

Witko did not suffer any harm from the alleged legal malpractice prior to or

contemporaneous with filing his bankruptcy petition. Witko filed his bankruptcy

petition on September 8, 1999. The judicial proceedings underlying his malpractice

claim did not conclude until months later on January 13, 2000 -- at the earliest (the

state appellate court did not affirm the trial court’s decision until December 15,

2000). These facts distinguish the instant matter from In re Alvarez, where a legal

malpractice cause of action was found to be sufficiently rooted in the pre-bankruptcy

past. In re Alvarez, 224 F.3d at 1279. There, the harm occurred at the same time

Alvarez’s attorneys filed his bankruptcy petition. Id. (“Simultaneous with the filing,

Alvarez suffered significant harm from the firm’s alleged negligence, i.e. the loss of

control of assets.”). When Witko filed his bankruptcy petition he had not yet suffered

any harm. Witko’s malpractice cause of action was unknown, not even rising to a

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hope; the most pessimistic curmudgeon could not anticipate that, months later, Witko

would lose his alimony claim due to his attorney’s malpractice. Witko’s legal

malpractice cause of action did not exist at the time he filed his bankruptcy petition

and, consequently, is not property of his bankruptcy estate.

V. CONCLUSION

For the reasons set forth above, we hold that Witko’s malpractice cause of

action is not property of his bankruptcy estate. Accordingly, we reverse.

REVERSED.

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