Rohi v. Brewer & Prichard, P.C. (In re ABC Dentistry, P.A.)

IN RE: ABC DENTISTRY, P.A., et al, Debtors.

SAEED ROHI, Plaintiff, v. BREWER & PRICHARD, P.C., et al, Defendants.

CASE NO: 16-34221

ADVERSARY NO. 18-3205

UNITED STATES BANKRUPTCY COURT FOR THE SOUTHERN DISTRICT OF TEXAS HOUSTON DIVISION

March 12, 2021

CHAPTER 11

MEMORANDUM OPINION

In November 2017, this Court approved a settlement against debtor ABC Dentistry, P.A. The Court also allocated the settlement proceeds. Dr. Saeed Rohi later filed suit in state court against his attorneys, alleging they made material misrepresentations to him for the purpose of securing his approval of the settlement and allocation. His former attorneys removed the case to this Court. Dr. Rohi has filed an amended complaint, which clarifies his allegation that his attorneys made material misrepresentations before obtaining Court approval of the settlement, and then breached their fiduciary duties after this Court entered the settlement. Dr. Rohi now moves to remand this proceeding to state court. Because the alleged unethical or fraudulent conduct directly pertains to whether this Court's order was procured by fraud, this Court has subject matter jurisdiction and the motion to remand is denied.

BACKGROUND

In 2016, ABC Dentistry, P.A. was a debtor before this Court. During that case, Dr. Rohi settled a Texas False Claims Act suit against ABC Dentistry. In re ABC Dentistry, P.A., 978 F.3d 323, 324 (5th Cir. 2020). Under the Texas False Claims Act, the proceeds of a settlement must be allocated between the whistleblower (Dr. Rohi) and the State of Texas. The Court approved a $4,000,000.00 settlement on November 7, 2017, and allocated $1,599,000.00 of the settlement to the State of Texas, $720,000.00 to Dr. Rohi, and $1,681,000.00 to Dr. Rohi's attorneys. Id.

The disproportionate allocation to the attorneys was based on the Court's determination that attorneys' fees and expense reimbursements should be based on the entire settlement, and not just on the allocation to Dr. Rohi.

During a brief recess, the Court allowed the parties to consult with counsel regarding the proposed allocation. According to Dr. Rohi, "his attorneys made 'material representations . . . about how the gross recovery (including any attorney fee award) would be split to induce [his] consent to the settlement.'" Id. He alleges that these misrepresentations included an agreement that he would share in 60% of any attorneys' fee recovery. If there was an agreement as alleged by Dr. Rohi, the Court was not made aware of the secondary agreement. Following the recess, the Court approved the settlement, including the allocation. Id. No party appealed. Id.

The law firm of Brewer & Pritchard, along with attorney Charles Long, represented Dr. Rohi. Id. at 325. Under the representation agreement, Brewer & Pritchard was entitled to 40 percent of the "Gross Recovery," defined as "money 'received from any party' as a result of the representation." Id. Dr. Rohi argues that "Gross Recovery" includes both the $720,000.00 allocated to himself, as well as the $1,681,000.00 allocated to his attorneys. "In his view, Brewer & Pritchard is entitled to only 40 percent of the sum of those two amounts—and 40 percent of that sum ($2,401,000) equals $960,400, which is considerably less than the $1,681,000 awarded to the attorneys under the November 2017 order." Id.

Contrary to the alleged modified representation agreement, Dr. Rohi alleges that Brewer & Pritchard claimed all of its $1,681,000.00 allocation. Dr. Rohi alleges that Brewer & Pritchard"wrongfully retained the entire $1,681,000 attorney fee award and claimed it was not part of the gross recovery." (ECF No. 63 at 9). Dr. Rohi further alleges that Brewer & Pritchard billed him for additional fees and expenses in violation of the alleged modified representation agreement. (See ECF No. 63 at 9).

Dr. Rohi filed suit against Brewer & Pritchard in Harris County District Court, alleging breach of fiduciary duty, breach of contract, violation of the Deceptive Trade Practices Act ("DTPA"), misapplication of fiduciary property, and violations of the Theft Liability Act. (ECF No. 1-3 at 5-8). Brewer & Pritchard removed the case to this Court, moved to reopen the ABC Dentistry bankruptcy case, and moved to dismiss. (ECF No. 1). The Court granted Brewer & Pritchard's motion to dismiss, holding that res judicata precluded Dr. Rohi from challenging the Court's November 2017 settlement order. In re ABC Dentistry, 978 F.3d at 325. The Court denied Dr. Rohi's request to amend his complaint. Id.

After the district court affirmed, the Fifth Circuit reversed the dismissal of Dr. Rohi's complaint. The Fifth Circuit noted that Dr. Rohi's proposed amendments included "allegations that Brewer & Pritchard assured him during the recess that they would treat the bankruptcy court's proposed fees as part of Rohi's 'Gross Recovery' under his written agreement with Brewer & Pritchard." Id. at 326. Because Brewer & Pritchard made the representations during the recess, Dr. Rohi could not have known that the representations were allegedly false until after the Court approved the settlement. Id. The Fifth Circuit held that res judicata did not bar Dr. Rohi's suit because relevant breaches occurred after the Court entered the settlement. Id. The Fifth Circuit directed this Court to allow amendment of the complaint. Id.

Following remand, Dr. Rohi filed his amended complaint. (ECF No. 63). The amended complaint clarifies that Dr. Rohi's "claims do not seek to challenge the November 2017 order atall. To the contrary, state-law claims are based entirely on the 'new commitment that induced [Dr. Rohi] to not contest or appeal the November 2017 order.'" (ECF No. 63 at 3 (emphasis in original)). The amended complaint adds allegations of fraud, conspiracy, conversion, and aiding and abetting to the original causes of action. The amended complaint removed Dr. Rohi's breach of contract and Theft Liability Act claims.

DISCUSSION

The amended complaint brings state law claims related to the misrepresentations Brewer & Pritchard made to Dr. Rohi during the November 2017 hearing. The Court has subject matter jurisdiction over Dr. Rohi's claims. "Bankruptcy subject matter exists (but, of course, is not exclusive) with regard to civil proceedings that are 'arising under' the Bankruptcy Code, or 'arising in' bankruptcy cases, or are 'related to' bankruptcy cases." In re Brooks Mays Music Co., 363 B.R. 801, 807 (Bankr. N.D. Tex. 2007) (quoting 28 U.S.C. § 1334(b)). Subject matter jurisdiction may be challenged at any time. E.g., Soaring Wind Energy, LLC v. Catic USA, Inc., 946 F.3d 742, 750 (5th Cir. 2020) (quoting Randall & Blake, Inc. v. Evans (In re Canion), 196 F.3d 579, 585 (5th Cir. 1999)). "If at any time before final judgment it appears that the district court lacks subject-matter jurisdiction, the case shall be remanded." 28 U.S.C. § 1447(c).

Dr. Rohi argues that the well-pleaded complaint rule applies and demonstrates that this Court lacks subject matter jurisdiction. (ECF No. 64 at 4). When determining the presence of federal question jurisdiction, courts generally follow the well-pleaded complaint rule. Terrebonne Homecare, Inc. v. SMA Health Plan, Inc., 271 F.3d 186, 188 (5th Cir. 2001). Under the well-pleaded complaint rule, "federal jurisdiction exists only when a federal question is presented on the face of plaintiff's properly pleaded complaint." Caterpillar, Inc. v. Williams, 482 U.S. 386 (1987). Removal of an action to federal court is improper if a complaint, on its face, raises no issue of federal law. Hart v. Bayer Corp., 199 F.3d 239, 244 (5th Cir. 2000). Some courts haveapplied the well-pleaded complaint rule "to cases involving bankruptcy jurisdiction under 28 U.S.C. § 1334." See Malesovas v. Sanders, 2005 WL 1155073, at *2 (S.D. Tex. May 16, 2005) (citing Studebaker-Worthington Leasing Corp. v. Michael Rachlin & Co., LLC, 357 F. Supp. 2d 529, 535 (E.D.N.Y. 2004)). Dr. Rohi argues that his amended complaint alleges exclusively state law claims, so federal subject-matter jurisdiction is not apparent on the face of his well-pleaded complaint.

However, this Court is not persuaded that the well-pleaded complaint rule provides the appropriate test for bankruptcy jurisdiction. As the Bankruptcy Court for the Middle District of Alabama stated in McIntyre Land Co. v. McIntyre Building Co. (In re McIntyre Building Co.), 2011 WL 1434691, at *7 (Bankr. M.D. Ala. Apr. 14, 2011), in bankruptcy "the well-pleaded complaint rule is either rejected outright, or accepted only in instances w[h]ere jurisdiction is predicated on one prong of 28 U.S.C. § 1334(b), which deals with claims 'arising under Title 11.'"

McIntyre Building explains that the well-pleaded complaint rule is a court created method for determining federal question jurisdiction. Id. at *8 (citing Rivet v. Regions Bank of La., 522 U.S. 470 (1998)). However, "the Supreme Court held that the well-pleaded complaint rule applies only to 'arising under' jurisdiction pursuant to 28 U.S.C. § 1331." Id. (quoting Am. Nat'l Red Cross v. S.G. and A.E., 505 U.S. 247, 257 (1992) ("Respondents erroneously invoke that rule outside the realm of statutory 'arising under' jurisdiction, i.e., jurisdiction based on 28 U.S.C. § 1331.")). Bankruptcy courts do not derive their jurisdiction from 28 U.S.C. § 1331. Thus, application of the rule to § 1334 jurisdiction is inappropriate.

Further, "[t]o rely on the well-pleaded complaint rule alone in interpreting [§] 1334 reads the 'arising in' and 'related to' provisions out of [§] 1334." In re Brooks May Music, 363 B.R. at 815. "It is simply improper to permit the application of a mere rule of interpretation to limit an actof Congress." In re McIntyre Bldg., 2011 WL 1434691, at *9. The well-pleaded complaint rule seemingly prohibits bankruptcy courts from analyzing the effect an action might have on a bankruptcy estate. Id. ("If one limits oneself to reading within the four corners of the...