Orantes v. Akhlaghpour (In re Akhlaghpour)

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In re: MEHRI AKHLAGHPOUR, Debtor.

GIOVANNI ORANTES; LUIS SOLORZANO; ORANTES LAW FIRM, Appellants, v. MEHRI AKHLAGHPOUR, Appellee.

No. CC-23-1059-LSG

Bk. No. 1:17-bk-12739-VK

United States Bankruptcy Appellate Panel of the Ninth Circuit

February 28, 2024

NOT FOR PUBLICATION

Appeal from the United States Bankruptcy Court for the Central District of California Victoria S. Kaufman, Bankruptcy Judge Presiding

Before: LAFFERTY, SPRAKER, and GAN, Bankruptcy Judges.

MEMORANDUM ^[*]

Lafferty Judge.

INTRODUCTION

After the California Court of Appeal affirmed the dismissal of most of her malpractice claims against her former bankruptcy counsel for failing to obtain prior approval from the bankruptcy court to bring the claims, debtor Mehri Akhlaghpour reopened her bankruptcy case to seek approval under the Barton doctrine to continue the state court litigation. The bankruptcy court granted the motion in part. Akhlaghpour's former counsel appellants Giovanni Orantes, his law corporation, and his associate attorney Louis Solorzano (jointly "Orantes"), argue on appeal that the bankruptcy court lacked subject matter jurisdiction to hear the Barton motion. Because the very purpose of the Barton doctrine is to ensure that bankruptcy courts consider requests to sue professionals of the bankruptcy estate, it clearly had subject matter jurisdiction. It could not, however, alter the state court judgment dismissing Akhlaghpour's malpractice claims. Akhlaghpour sought to correct her error in not obtaining approval from the bankruptcy court before litigating her claims against her bankruptcy counsel in state court. At her request, the bankruptcy court authorized the continued litigation of claims that had previously been dismissed. Under the Rooker-Feldman doctrine, the bankruptcy court could not alter the dismissal of litigated malpractice claims. We, therefore, VACATE and REMAND with instructions to the bankruptcy court to dismiss the Barton motion.

FACTS^[1]

A. The chapter 11 case

Akhlaghpour, anticipating entry of a large state court judgment against her, met with Orantes on or about October 4, 2017 to discuss the possibility of filing a bankruptcy petition. According to Akhlaghpour, Orantes recommended filing a chapter 11 case to which she agreed. The petition was filed on October 11, 2017. Orantes was approved as bankruptcy counsel for the estate effective as of the petition date. The bankruptcy court subsequently appointed a chapter 11 trustee who began liquidating Akhlaghpour's properties.

Orantes subsequently filed an application for payment of his fees which attached Akhlaghpour's declaration stating simply that she reviewed the application and had no objections to it. The application was approved by the court in the amount requested of approximately $50,000.

On December 4, 2018, the bankruptcy court dismissed the chapter 11 case pursuant to a joint motion by the trustee and Akhlaghpour based on a global settlement between Akhlaghpour and her creditors.

B. The malpractice action^[2]

Akhlaghpour, without seeking permission of the bankruptcy court first as required by Barton, filed a complaint against Orantes in Los Angeles Superior Court on December 27, 2019, Case. No. 19STCV46403. A later pled first amended complaint alleged multiple causes of action, including professional negligence, fraud, and breach of contract (the "Malpractice Action"). In her first amended complaint, Akhlaghpour alleged that she had claims against Orantes because of his ill-considered advice resulting in the precipitous decision to file the bankruptcy case (the "Prepetition Claims"). This advice, among other things, caused her allegedly to make mistakes in her schedules and arguably those failures led directly to the loss of confidence in her candor and ability to manage the estate, which resulted in the appointment of a chapter 11 trustee. In Akhlaghpour's view, the appointment of a trustee led to the indiscriminate liquidation of all, or most, of her properties which she argues was not necessary; had she remained in control, she might have been required to sell only a portion of her assets.

Orantes demurred on the grounds that the Barton doctrine, and res judicata based on approval of the fee application, barred Akhlaghpour's claims, and that she lacked standing because, as he argued, claims arising before and during the bankruptcy case belong to the bankruptcy estate unless scheduled and abandoned by the trustee.

The Superior Court sustained the demurrer without leave to amend on September 17, 2020. Akhlaghpour appealed the dismissal to the California Court of Appeals ("COA") which, in a published opinion, reversed the decision in part and affirmed in part. Akhlaghpour v. Orantes, 86 Cal.App. 5th 232 (2022).

The COA ruled first that the Barton doctrine did not require Akhlaghpour to obtain leave to file the complaint for "claims arising out of bankruptcy counsel's representation after the bankruptcy court appointed a Chapter 11 trustee and Akhlaghpour was no longer a debtor in possession." Id. at 239. It commented that "Orantes enjoys no judicial immunity for malpractice while representing Akhlaghpour as debtor out of possession[.]" Id. at 247. Neither party disputes this finding.

Second, the COA observed that case law provides that the Barton doctrine applies to the Prepetition Claims, i.e., "Orantes's pre-petition, and pre-approval conduct, if that conduct 'crossed the divide of the Petition Date' as interconnected actions 'taken by [Orantes] in the bankruptcy case and/or in the course of administering the bankruptcy estate.'" Id. at 245. (citations omitted). The COA stated that these "alleged acts . . . 'cross the divide' of the petition." Id. at 245-46 (citing Cox v. Mariposa Co., Case No. 19-CV-01105-AWI-BAM, 2020 WL 1689706, at *7 (E.D. Cal., Apr. 7, 2020) (wrongdoing "prior to commencement of the Receivership is inextricably intertwined with wrongdoing that took place after the Receivership took effect[.]")). The COA explained, "[i]t would be impractical, if not impossible, to separate claims directed to the few days of advising about and preparing the petition from claims relating to the petition itself. Akhlaghpour herself makes no such distinction. Thus 'the [Prepetition Claims] fall squarely within the Barton Doctrine.'" Id. at 246.

As to the effect of the approval of Orantes' fee application, the COA stated "[c]laim preclusion would apply here to any services covered by the bankruptcy court fee order." Id. at 251. It observed that "Section 330 of the [Bankruptcy] Code specifically obligated the Bankruptcy Court to inquire into the nature and quality of these services, including whether '[Orantes] . . . demonstrated skill and experience in the bankruptcy field'" Id. at 252 (citing Weinberg v. Kaplan, LLC, 699 F. App'x. 118, 121 (3d Cir. 2017)); see also 11 U.S.C. § 330(a)(3)(E).

The COA concluded by noting that Akhlaghpour "may proceed only with claims arising from conduct after [the trustee was appointed]." Id. at 256. The COA ordered the Superior Court to permit Akhlaghpour to amend her complaint "to state any claims based solely on Orantes's conduct during the period she was a debtor out of possession and, if she can, to allege facts sufficient to establish standing for such claims." Id.

The COA affirmed the remainder of the Superior Court ruling. Though Akhlaghpour now otherwise argues, the COA did not invite Akhlaghpour to seek a Barton ruling from the bankruptcy court. The COA ruling was not further appealed by either party.

C. The Barton motion

In response to the COA's decision, Akhlaghpour reopened her long-closed bankruptcy case and filed a motion with the bankruptcy court seeking "a court order under the Barton doctrine authorizing her to continue her prosecution of the [Malpractice Action][.]" [Emphasis added]. The motion sought permission to proceed in state court as to the Prepetition Claims as well as her claims based on post-filing conduct. In addition, she argued that the Malpractice Action is not property of the estate and is therefore properly adjudicated in the state court. Finally she argued that the Malpractice Action was not barred by res judicata based on the Orantes fee application.

Orantes opposed the motion arguing that 1) relief under the Barton doctrine may not be obtained retroactively; 2) Akhlaghpour had not made a prima facie case for malpractice; 3) the Orantes fee application approval precluded the malpractice action; and 4) the malpractice claim was property of the bankruptcy estate. Orantes requested that the bankruptcy court "dismiss the state court action." Akhlaghpour replied generally disputing Orantes' arguments.

Neither party discussed whether (or how) the bankruptcy court could make a ruling, in effect, modifying a final order of a state court.

D. The bankruptcy court ruling

At the hearing on the Barton motion, the bankruptcy court made clear its view that Akhlaghpour had stated a prima facie case for malpractice for the Prepetition Claims. It agreed that the "Barton doctrine does not apply and res judicata does not apply" to the period after the trustee took possession of the estate. It disagreed, without providing any reasoning, that it was not permitted to authorize a debtor to proceed in state court in a matter already commenced. Finally, it disagreed that the Superior Court did not have subject matter jurisdiction over the Malpractice Action in the first instance although again with little discussion.^[3]

The bankruptcy court took a pragmatic view that it made no sense to refuse to permit Akhlaghpour to proceed in the existing case. It opined that if it gave authority, but only to file a new case, Akhlaghpour would do so and the parties would start...