A recent Law 360 story by Justin Wise, “Lack of Jurisdiction Dooms Billing Suit Against K&L Gates,” reports that a federal judge has dismissed a health center's lawsuit alleging K&L Gates LLP and one other firm engaged in deceptive billing practices during a South Carolina bankruptcy action, ruling the lawsuit is not sufficiently related to a bankruptcy matter to justify federal jurisdiction.
In a three-page order handed down, U.S. District Judge Jill N. Parrish rejected arguments from Chicora Life Center, a Utah-based subsidiary of Chicora Garden Holdings, that the court could hear the dispute since it arose and was related to Chicora Life's prior bankruptcy. Federal courts only have jurisdiction over such cases when it can affect the administration of an estate, Judge Parrish wrote, something that's impossible in this matter since the bankruptcy proceeding was terminated in 2017.
"The outcome of this action cannot 'conceivably have any effect on the estate being administered in bankruptcy' because the bankruptcy proceedings terminated over two years before this action was filed," Judge Parrish wrote. "In short, this court lacks jurisdiction because this lawsuit cannot have any impact 'on the handling and administration of the bankruptcy estate,' nor can it affect 'the estate of the debtor' in a closed bankruptcy case."
Douglas Durbano, a Utah lawyer and developer who manages Chicora Life and also served as counsel for Chicora Life in the current case, told Law360 that he'd seek to move forward with the claims in a different venue. "The matter will be refiled in a court that does have jurisdiction," he said, adding that he's "studying" possible new venues based on the ruling and previous court admissions from the firms.
Chicora Life Center sued K&L Gates and South Carolina law firm McCarthy Reynolds & Penn LLC in August, alleging that its attorneys engaged in, among other things, fraudulent billing practices and malpractice during its representation in a South Carolina bankruptcy proceeding. According to the lawsuit, K&L Gates used several tactics to increase its billing in the Chapter 11 proceeding against Charleston County over a lease termination dispute. The billing practices resulted in about $1.6 million in fees between May and October 2016.
The health center also alleged that actions from K&L Gates and McCarthy Reynolds attorneys caused the bankruptcy court to approve a "cramdown" plan against its own interests. The "cramdown" plan called for the county to purchase a Chicora Life property to satisfy its obligations to creditors, a scheme that it claimed led to a $3 million tax liability, according to Friday's ruling.
In a court filing this year, K&L Gates said it secured an "extremely favorable" settlement for Chicora Life where Charleston County agreed to purchase the property in question for $30 million. It also said a fee examiner appointed by the bankruptcy court determined the firm was entitled to all of its requested fees.