Frederick Weinberg v. Scott E Kaplan LLC, 699 F. App'x 118

Background

Plaintiffs Dr. Weinberg and his wife retained bankruptcy counsel Kaplan in Nov. 2012 and filed Chapter 11; they later sued Kaplan for legal malpractice relating to his representation in that Chapter 11 case.
Plaintiffs contend Kaplan provided deficient opposition to a creditor’s Jan. 2013 motion for relief from the automatic stay and delayed/failed to seek timely reconsideration; Bankruptcy Court later acknowledged a factual error and granted reconsideration.
Kaplan filed a fee application in June 2013 seeking compensation for work (including opposing the stay motion); the Bankruptcy Court allowed fees but reduced the amount in a July 2013 order. Plaintiffs did not object at the hearing.
Plaintiffs also allege Kaplan failed to file required monthly operating reports in mid-2013, leading to conversion to Chapter 7 (later reversed on reconsideration after plaintiffs replaced counsel).
The confirmed Chapter 11 plan (2015) listed Kaplan’s allowed administrative claim and provided for payment; Kaplan pursued motions to compel payment post-confirmation and was ultimately granted relief based on the unobjected fee order.
Plaintiffs filed the malpractice complaint in state court in 2016; removal followed and the District Court dismissed under res judicata. The Third Circuit affirmed, holding plaintiffs unreasonably failed to raise the malpractice claims in the bankruptcy proceedings.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether malpractice action is barred by res judicata/claim preclusion arising from bankruptcy proceedings	Weinberg argued malpractice claims were separate and could be brought post-bankruptcy; damages not yet known earlier	Kaplan argued the fee application and plan confirmation proceedings put malpractice issues before the Bankruptcy Court and barred later suit	Court held claims precluded: fee application and plan/fee-collection proceedings sufficiently presented same cause of action; unreasonable not to litigate in bankruptcy
Whether the June 2013 fee application adjudicated the quality of Kaplan’s services such that plaintiffs’ malpractice claim was or could have been raised then	Plaintiffs said they lacked knowledge of full damages and thus could not raise malpractice claim earlier	Kaplan and the Court said §330 fee proceedings required inquiry into nature/quality of services and plaintiffs had procedural routes to object or seek discovery	Held that allowing fees under §330 implied Bankruptcy Court found services acceptable; plaintiffs unreasonably failed to object/use bankruptcy mechanisms
Whether the plan confirmation / motions to compel payment were additional opportunities to litigate malpractice	Plaintiffs argued plan confirmation did not bar later suit and they did not knowingly conceal claim	Kaplan argued listing and paying an allowed claim and failing to object precluded later suit; estate-owned claim should have been prosecuted in bankruptcy	Held plaintiffs had multiple clear opportunities (plan, disclosure, motions) and their inaction supports preclusion; malpractice claim accrued pre-confirmation and was estate property
Whether the malpractice claim was estate property and impact on creditors/estate	Plaintiffs asserted their right to sue individually post-bankruptcy	Kaplan argued claim accrued during case and was property of estate, so bankruptcy forum was proper and necessary to protect estate/creditors	Held malpractice claim accrued during the case and was property of the estate; litigating it post-confirmation deprived estate/creditors and was inefficient

Key Cases Cited

E. Minerals & Chems. Co. v. Mahan, 225 F.3d 330 (3d Cir. 2000) (bankruptcy context requires a tailored same-cause-of-action/claim-preclusion analysis focusing on related contested matters)
CoreStates Bank, N.A. v. Huls Am., Inc., 176 F.3d 187 (3d Cir. 1999) (if prior final judgment involves same parties and cause of action, claims that were or could have been raised are precluded)
Gans v. Mundy, 762 F.2d 338 (3d Cir. 1985) (malpractice claims turn on proof that defendant’s conduct failed to meet applicable standard of care)
McGrogan v. Till, 771 A.2d 1187 (N.J. 2001) (New Jersey standard for legal malpractice and duty of care in attorney-client relationship)
In re Cantu, 784 F.3d 253 (5th Cir. 2015) (malpractice claims arising during bankruptcy may constitute property of the estate)