Schultze V. Chandler

In bankruptcy proceedings, a committee's retained counsel represents only the bankruptcy estate as a whole and the counsel has no fiduciary duty to individual members.

The Plaintiffs, investors in a Mushroom corporation, Colusa Mushroom, Inc. (“Colusa”), filed a voluntary Chapter 11 bankruptcy petition. The bankruptcy court established an unsecured creditors’ committee (“Committee”) to oversee the proceedings, with David Chandler (“Chandler”) as counsel. The committee chose to reorganize Colusa and sell its assets to a third party, Premier Mushroom, LP (“Premier”). The Colusa investors learned that Chandler had not filed certain financing statements to perfect the logistics of the transaction, resulting in less net recovery from Premier. The Colusa investors commenced this action against Chandler for legal malpractice, which Chandler removed to bankruptcy court. The Colusa investors then appealed to the district court arguing that the bankruptcy court had no jurisdiction for a malpractice action and that the bankruptcy court erred in holding for Chandler. The district court held the bankruptcy court did have jurisdiction and that “the bankruptcy court did not err in dismissing the complaint because Chandler did not owe an individual duty of care. On appeal, the panel affirmed the district courts conclusion that the bankruptcy court had proper jurisdiction over the legal malpractice action as it was a core proceeding. The panel also held that Chandler did not owe an individual duty of care because his contract did not pertain to the individual members of the committee, but rather to the administration of the bankruptcy estate in general. AFFIRMED