Miller v. Foley & Lardner LLPMiller v. Foley & Lardner LLP
Debtor KDC Agribusiness was an agricultural infrastructure company. Its business was focused on taking grocery products that would otherwise go to waste and recycling them into animal feed.1 The law firm Foley & Lardner was the debtors’ long-term outside counsel.2 A dispute over the debtors’ right to use intellectual property that was at the core of its business ultimately led to KDC‘s bankruptcy, and
The trustee thereafter brought a legal malpractice action against Foley & Lardner, which had represented KDC both before and during its chapter 11 case, in the Delaware Superior Court. Foley & Lardner removed that action to this Court.4 The trustee argues that this claim is subject to mandatory abstention under
For the reasons set forth below, the Court concludes that the case is not subject to mandatory abstention under § 1334(c). In short, under the rationale of Katchen v. Landy and Billing v. Ravin, Greenberg & Zackin, the trustee‘s objection to Foley & Lardner‘s fees, an objection that raises the same malpractice claim asserted here,
Factual and Procedural Background
The facts that bear on this motion to abstain and remand are not particularly disputed, even if many of the underlying facts are hotly contested between the parties. The debtors’ business, founded by Harold Kamine, involved recycling food waste products into animal feed.7 KDC originally licensed the intellectual property used in the recycling business from California Safe Soil under a 2015 license agreement.8 In 2019, however, KDC sought to sever its license agreement with California Safe Soil and develop its own processes. In June 2021, California Safe Soil sued KDC and several of its members, including Harold Kamine and his sons, Matthew and Justin Kamine, in the Delaware Court of Chancery.9 The lawsuit alleged misappropriation of California Safe Soil‘s trade secrets.10
During the pendency of that action, KDC filed a chapter 11 bankruptcy petition in this Court, along with a lawsuit that sought a declaration that KDC (and now its
In the face of that ruling, the debtors converted the cases to ones under chapter 7. Thereafter, the Court of Chancery ruled in favor of California Safe Soil on its claim of misappropriation of trade secrets brought against the individual defendants. The Court of Chancery also entered a default against the debtors, who did not defend against the action after the conversion to chapter 7.
In early 2025, the trustee filed a complaint in this Court against Foley & Lardner, seeking to avoid and recover certain prepetition transfers.13 Later that year, the parties entered into stipulations staying that adversary proceeding.14 The stipulations also stayed proceedings on Foley & Lardner‘s fee application for the work it had performed for the debtors during the chapter 11 cases.15
In January 2026, the trustee filed a legal malpractice action against Foley & Lardner in the Delaware Superior Court. The allegations in that complaint are that
Before the trustee filed that action, Harold, Matthew, and Justin Kamine filed a malpractice action against Foley & Lardner in the Delaware Superior Court.16 That lawsuit originally included allegations related to Foley & Lardner‘s representation of the debtors.17 The trustee responded to that action by bringing an adversary proceeding in this Court contending that the Kamines’ Superior Court lawsuit asserted a cause of action that actually belonged to the bankruptcy estate.18 That adversary proceeding, however, was dismissed when the Kamines’ amended the complaint in their Superior Court lawsuit to delete references to Foley & Lardner‘s representation of the debtors.
Foley & Lardner removed the trustee‘s malpractice action against it to the district court, which referred it to this Court in accordance with
After reviewing the briefing but before argument on the motion, the Court issued “preliminary observations” raising the question whether the reasoning of Longview Power suggested that mandatory abstention was inapplicable on the
The trustee responded by letter to the Court‘s preliminary observations in advance of the argument.22 That letter pointed out that the court‘s decision in Longview Power, suggesting that the state court case must be “pending” as of the filing of the bankruptcy, was largely walked back in General Wireless Operations.23
The Court held argument on the motion on June 3, 2026. During the argument, counsel for Foley & Lardner stated that it was not asserting that mandatory abstention was inapplicable based on the rationale of Longview Power.24
Jurisdiction
Because the trustee‘s action against Foley & Lardner could have a conceivable effect on the bankruptcy estate, the lawsuit falls within the Court‘s “related to”
Analysis
I. Under the reasoning of Katchen v. Landy, the malpractice action is a core matter and therefore not subject to mandatory abstention.
A. Core matters are not subject to mandatory abstention.
The text of § 1334(c)(2) provides that mandatory abstention applies to cases that are “related to a case under title 11 but not arising under title 11 or arising in a case under title 11.”25 When a matter is “related to” a case under title 11, that is essentially synonymous with saying that the matter is a “non-core” matter under
B. Under the rationale of Katchen and Billing, the malpractice action is a core matter.
At first blush, the malpractice action would appear to be a paradigmatic example of a non-core matter that is within the “related to” jurisdiction of § 1334(b).
Absent the consent of the parties, the role of the bankruptcy judge in a non-core matter is essentially no different from that of a magistrate judge – the court may make proposed findings and conclusions, all of which are subject to de novo review in the district court.29 Under this principle, the trustee‘s legal malpractice action would ordinarily be a non-core matter and thus subject to mandatory abstention under § 1334(b)(2).
There is, however, a longstanding exception to the principle that such state law disputes must be treated as non-core in bankruptcy. That exception is best
The first category was “summary proceedings.” Those were “controversies relating to property over which [the bankruptcy courts] have actual or constructive possession” as well as “matters of an administrative character, including questions between the bankrupt and his creditors, which are presented in the ordinary course of administration of the bankrupt‘s estate.”30 As the name implies, the bankruptcy courts “proceed in summary fashion” to deal with such disputes, with processes that are more expedited and informal than is typical in regular civil litigation.
The second category was “plenary proceedings.” Those proceedings involved a “slower and more expensive process[].”31 In this regard, a plenary proceeding was conducted more like ordinary civil litigation in a district court. Indeed, absent the consent of the parties, plenary proceedings would typically proceed in the district court, as the bankruptcy “referee” (the predecessor of the “bankruptcy courts“) lacked jurisdiction over plenary matters.32 In this regard, the distinction between core and non-core matters reflected in current bankruptcy law is drawn, at least in substantial
The specific question before the Court in Katchen was whether the bankruptcy court could proceed on a “summary” basis in a suit to recover a preference against a creditor who had filed a proof of claim in the bankruptcy court. In the absence of the creditor‘s filing a proof of claim, such an action would be a plenary matter as to which the defendant would be entitled to a jury trial.34
The key to the Court‘s analysis of this question was § 57g of the prior Bankruptcy Act, the predecessor to the provision now codified in § 502(d) of the Bankruptcy Code. That provision operated to “forbid[] the allowance of a claim when the creditor has received [a preference] void or voidable under [the Bankruptcy Act] absent a surrender of any preference.”35
The process of claims allowance, of course, was a summary proceeding. Indeed, the Court in Katchen explained that the Bankruptcy Act provided that claims objections “shall be heard and determined as soon as the convenience of the court and the best interests of the estates and the claimants will permit,” and added that the
So what happens when a trustee asserts an objection to a proof of claim under § 57g, based on the creditor‘s alleged receipt of a preferential payment before the bankruptcy? In that circumstance, the Supreme Court explained, “[u]navoidably and by the very terms of the Act,” the result is that “the claim can neither be allowed nor disallowed until the preference matter is adjudicated.”37 And that means that the preference action becomes, “like other objections, part and parcel of the allowance process and is subject to summary adjudication by a bankruptcy court.”38
Significantly, the Supreme Court‘s decision in Stern v. Marshall held that actions that would have historically been subject to plenary proceedings generally cannot, under Article III, be subject to final adjudication in the bankruptcy court. At the same time, however, the Stern Court expressly carved out and preserved the exception recognized in Katchen. “Although the creditor in Katchen objected that the preference issue should be resolved through a ‘plenary suit’ in an Article III court, this Court concluded that summary adjudication in bankruptcy was appropriate, because it was not possible for the referee to rule on the creditor‘s proof of claim without first resolving the voidable preference issue.”39
The Third Circuit in Billing applied this same analysis to the circumstance presented here – a legal malpractice action, when that very malpractice has been put in front of the bankruptcy court as a basis to disallow the professional‘s fee application, which is itself a core matter. There, as here, a law firm that represented a debtor in possession was named as a defendant in a lawsuit alleging that the firm committed legal malpractice during the chapter 11 case. Billing involved an action brought by the debtor-in-possession. The action here is filed by the chapter 7 trustee. In both cases, however, the party who was the plaintiff in the malpractice action had also filed an objection in the bankruptcy court to the allowance of the law firm‘s fees, pointing to the alleged malpractice as a reason why the fees should be disallowed.
In Billing, the malpractice action was filed in federal district court, unlike the malpractice action here, which was filed in state court. The law firm in Billing
The Third Circuit‘s decision states that it is addressing only the question whether the debtor was entitled to a jury trial – not whether the case was a core proceeding (because the parties agreed that it was).44 But as Katchen explained, in this context those issues are two sides of the same coin. While the defendant in Katchen would have otherwise been entitled to a jury trial on the preference action, the defendant lost that right because the filing of its proof of claim converted the preference action into “part and parcel” of the claims allowance process, which was a summary proceeding decided by the referee in bankruptcy without a jury. Otherwise put, the filing of the proof of claim made the preference action a core matter. So too, here. Bankruptcy courts may enter final judgments in core matters without a jury. That is why asking whether a defendant is entitled to a jury trial, at least in this context, poses the same question as asking whether the claim is core or non-core.45
Accordingly, Billing held that “an allegation of legal malpractice raised as a defense to post-petition fees for bankruptcy counsel … falls within the process of the allowance and disallowance of claims.” For that reason, the debtors “have no Seventh Amendment right to trial by jury,” since the assertion of malpractice as a defense to the claimed fees “convert[s] [the malpractice claim] from a legal one into an equitable dispute over a share of the estate.”48 Otherwise put, the assertion of malpractice as a defense to fees converts the malpractice action into what Katchen would have described as a summary proceeding and what current law calls a core matter.
II. Applying the Gorse factors, the Court will deny the motion for equitable remand.
The trustee alternatively argues that even if the case is not subject to mandatory abstention under § 1334(c)(2), the Court should nevertheless remand it on equitable grounds under
The district court‘s opinion in Gorse v. Long Neck identifies seven factors that courts should consider in deciding whether equitable remand is appropriate:
- the court‘s duty to decide matters properly before it;
- plaintiff‘s choice of forum as between state and federal courts;
- nature of the claim or claims, that is, whether purely state law matters which could be better addressed by the state court are involved;
- prejudice to involuntarily removed parties;
- comity considerations;
economical and/or duplicative use of judicial resources; and - effect a remand decision would have on the efficient and economic administration of the estate.51
Several of those considerations favor the trustee, at least to some degree. The malpractice claim arises under Delaware law, and the trustee chose to file in the Delaware Superior Court. The trustee also notes that a related malpractice action by the Kamines remains pending there and argues that coordinating discovery or motion practice in a single state forum could reduce duplication.
Those considerations, however, are outweighed here by the factors counseling against remand. This Court has already become familiar with the factual and procedural background of the disputes through its administration of the bankruptcy case.
Principles of comity do not alter that conclusion. To be sure, legal malpractice is a state-law claim and state courts are the usual fora for such disputes. But this is not a case involving a novel or unsettled question of Delaware law. Accordingly, the Court does not believe that principles of comity require equitable remand.
The trustee also argues that remand would avoid potential inconsistency with the Kamine malpractice action and notes that this Court may not ultimately be able to enter final judgment on every aspect of the trustee‘s complaint. But the Kamine action no longer includes claims belonging to the estate. For that reason, the Court does not view the risk of inconsistent judgments as a significant consideration. And the argument about the Court‘s ability to enter final judgment and the trustee‘s right
In these circumstances, the Court is satisfied that the Gorse factors, taken as a whole, counsel against equitable remand.
Conclusion
For the foregoing reasons, the Court will deny the trustee‘s motion to abstain and remand. A separate order will issue. The parties are directed to meet and confer regarding a scheduling order for the adversary proceeding. If an agreed order cannot be submitted under certification, the parties are directed to contact chambers to set a date for a scheduling conference.
Dated: July 9, 2026
CRAIG T. GOLDBLATT
UNITED STATES BANKRUPTCY JUDGE