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In re SBMC HealthCare, LLC

United States District Court, S.D. Texas, Houston Division

May 11, 2017

IN RE SBMC HEALTHCARE, LLC, Debtor.
v.
MILLARD A. JOHNSON, Individually, and JOHNSON, DeLUCA KURISKY & GOULD, P.C., Defendants. MARTY McVEY, Individually, and McVEY & CO. INVESTMENTS, LLC, Plaintiffs, MILLARD A. JOHNSON, Individually, and JOHNSON, DeLUCA KURISKY & GOULD, P.C., Appellants,
v.
MARTY McVEY, Individually, and McVEY & CO. INVESTMENTS, LLC, Appellees. Bankruptcy No. 12-33299-H4-11 Adversary No. 14-03126

          MEMORANDUM OPINION AND ORDER

          SIM LAKE, UNITED STATES DISTRICT JUDGE

         Appellants, Millard A. Johnson ("Johnson"), individually, and Johnson DeLuca Kurisky & Gould, P.C. ("JDKG") ("Appellants" or "Defendants" in the Bankruptcy Court proceedings), appeal three orders and one set of findings of facts and conclusions of law entered by the Bankruptcy Court in Adversary No. 14-03126:

the September 18, 2014, Order: (1) Granting in Part and Denying in Part the Defendants' Motion to Dismiss; (2) Denying the Trust's Motion to Intervene in Its Entirety; (3) Granting in Part and Denying in Part the Plaintiffs' Motion for Remand ("Order of Partial Dismissal and Remand, " Adversary Docket Entry No. 46).[1]
the October 30, 2014, Order: (1) Granting in Part and Carrying in Part Defendants' Motion to Amend or for Clarification of Judgment of Partial Dismissal and Remand Pursuant to Bankr. R. Pro. 9023; (2) Reopening the Record to Allow the Parties to Introduce Exhibits and Adduce Testimony; and (3) Setting a Hearing for 9:30 A.M. on December 12, 2014 ("Order of Partial Reopening of Adversary, " Docket Entry No. 55);[2]
the September 21, 2016, Order Denying in Its Entirety the Defendants' Motion to Amend or for Clarification of Judgment of Partial Dismissal and Remand Order Pursuant to Bankr. R. Pro. 9023 ("Order Denying Motion to Amend or Clarify, " Adversary Docket Entry No. 121);[3] and the September 26, 2016, Amended Findings of Fact and Conclusions of Law Regarding the Defendants' Motion to Amend or for Clarification of Judgment of Partial Dismissal and Remand Order Pursuant to Bankruptcy Rule 9023 ("Amended Findings of Fact and Conclusions of Law"), Adversary Docket Entry No. 124).[4]

         Two designations of record have been filed: Appellants' Bankruptcy Record on Appeal (Docket Entry No. 2; "Appellants' BROA"); and Appellees' Bankruptcy Record on Appeal (Docket Entry No. 3; "Appellees' BROA").[5] Pending before the court are Appellants' Opening Brief (Docket Entry No. 8), Appellees' Brief (Docket Entry No. 13), and Appellants' Reply Brief (Docket Entry No. 14).[6] For the reasons explained below, all of the Bankruptcy Court's orders and findings of fact and conclusions of law will be affirmed.

         I. Factual and Procedural Background

         This case arises out of the Chapter 11 bankruptcy of SBMC Healthcare LLC ("SBMC" or "Debtor") d/b/a Spring Branch Medical Center styled In re SBMC Healthcare, LLC, Cause Number 12-33299-H4-11. SBMCs bankrutpcy case was initiated on April 30, 2012, when Appellants filed a Chapter 11 petition as attorneys for SBMC.[7] On May 1, 2012, SBMC filed a request with the Bankruptcy Court that Appellants be employed as general bankruptcy counsel.[8] On May 25, 2012, SBMC filed an amended request with the Bankruptcy Court that Appellants be employed as special bankruptcy counsel along with Marilee A. Madan, P.C., as bankrutpcy co-counsel.[9] SBMCs request and amended request to employ Appellants as bankruptcy counsel rested in part, on assertions that Appellants had previously agreed to represent SBMC in a number of matters including:

• Cause No. 2011-26442; Greater Houston Emergency Physicians, PLLC v. SBMC Healthcare, LLC d/b/a Spring Branch Medical Center, pending in the 127th Judicial District Court, Harris County, Texas ["GHEP Action"];
• Cause No. 2012-20333; Harborcove Financial, LLC v. SBMC Healthcare, LLC, et al., pending in the 8 0th Judicial District Court of Harris County, Texas ["Harborcove Action"].[10]

         Both SBMC's original and amended requests to employ Appellants as bankruptcy counsel also stated:

         Except as set forth above and in the attached affidavit, the Firm has no other connection with the Debtor, its creditors, any other parties in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee and are "disinterested persons" within the definition of Section 101(14) of the Bankruptcy Code on the matters for which it is to be engaged as special counsel. A copy of the Affidavit is attached and incorporated herein as Exhibit l.[11]

         The affidavits of proposed counsel attached to both SBMC's original and amended requests to employ Appellants similarly stated:

. . . the Firm has represented the Debtor prior to this bankruptcy case. The Firm has represented the Debtor in the following matters:
• Cause No. 2011-26442; Greater Houston Emergency Physicians, PLLC v. SBMC Healthcare, LLC d/b/a Spring Branch Medical Center, pending in the 127th Judicial District Court, Harris County, Texas ["GHEP Action"];
• Cause No. 2012-20333; Harborcove Financial, LLC v. SBMC Healthcare, LLC, et al., pending in the 80th District Court of Harris County, Texas ["Harborcove Action"]; . . .

         The Firm does not believe that the above disclosure presents any conflict that would preclude its unbiased representation of the Movant and the estate in this case in its proposed role as bankruptcy counsel.[12] On June 18, 2012, the Bankruptcy Court approved SBMC s amended request that Appellants serve as special bankruptcy counsel.[13]

         On March 25, 2013, the First Amended Plan of Liquidation by the Official Committee of Unsecured Creditors and Joint Plan of Liquidation of the Committee and SBMC Healthcare, LLC ("the Plan") was filed in SBMC s bankrutpcy.[14] The Plan created a liquidating trust ("SBMC Liquidating Trust" or the "Trust") to liquidate the Debtor's assets, [15] and contained a section titled, "Releases and Limitation of Liability of Exculpated Persons" ("Release of Exculpated Persons").[16] On April 4, 2013, the Bankruptcy Court confirmed the Amended Plan of Liquidation.[17]

         Appellee Marty McVey ("McVey") was SBMCs president and 100% equity owner. McVey personally guaranteed some of SBMCs financial obligations. Appellee McVey & Company Investments ("M&C") is a company controlled by McVey that performed management services for SBMC.[18] McVey and M&C are referred to herein as "Appellees" and "Plaintiffs" in reference to the Bankruptcy Court proceedings. McVey was named as a defendant along with SBMC in both the GHEP and Harborcove actions, and M&C was named as an additional defendant in the GHEP Action. Appellants filed prepetition answers in the GHEP Action for SBMC, McVey, and M&C on February 13, 2012, and filed prepetition answers in the Harborcove Action for SBMC and McVey on April 27, 2012.[19] On April 27, 2012, Appellants also drafted a written agreement to forestall foreclosure in the Harborcove Action ("the Rule 11 Agreement") pursuant to which Harborcove agreed to forego the foreclosure sale posted for May 1, 2012, and not to post any SBMC property for foreclosure for a period of 120 days if a payment of $1, 525, 000.00 was made on SBMCs outstanding debt by April 30, 2012 ("Rule 11 Payment").[20] When on April 30, 2012, the Rule 11 Payment was not made, McVey and SBMC forestalled foreclosure by having Appellants file SBMC's Chapter 11 petition.[21] Appellants continued to represent both SBMC and McVey in the Harborcove Action until August of 2013 when Appellants moved to withdraw, [22] and the state court granted their motion to withdraw on August 9, 2013.[23]

         On March 10, 2014, Appellees filed suit against Appellants in the 270th Judicial District Court of Harris County, Texas ("State Court Action"), asserting claims for negligence/legal malpractice, breach of fiduciary duty, and violations of the Texas Deceptive Trade Practices Act (DTPA).[24] Appellees describe their petition as having alleged that

Appellants were negligent in drafting the Rule 11 Agreement, which was designed to forestall the foreclosure proceedings, in that it permitted Harborcove to sell its note to a third party who could then foreclose on the collateral. Appellees allege that Appellants failed to file an action to prevent the foreclosure and, instead, coerced McVey into forcing SBMC into bankrutpcy. Appellees allege that once in bankruptcy, SBMC s assets were liquidated for pennies on the dollar and various creditors, including the IRS, were not paid. As a result, these creditors and the IRS sued (or filed liens against) McVey and M&C in their personal capacity for their personal obligations. Appellees allege that but for Appellants' erroneous advice and breach of fiduciary duties, McVey would have been able to consummate a deal to pay SBMC s creditors without bankruptcy, would not have incurred the personal obligations, judgments and attorney's fees but, as owner of SBMC, would have obtained equity from the sale of SBMC.[25]

         On April 21, 2014, Appellants initiated Adversary No. 14-03126 by removing Appellees' State Court Action to Bankruptcy Court pursuant to 28 U.S.C. § 1452, Federal Rule of Bankruptcy Procedure 9027, and Bankruptcy Local Rule 9027-1.[26]

         On April 25, 2014, Appellants filed a Motion to Dismiss Adversary No. 14-03126 arguing that (1) Appellees lacked standing because their claims belonged to the Debtor, SBMC, and any damages Appellees suffered were derivative of damages suffered by SBMC; and (2) Appellees' claims were barred by the Release of Exculpated Persons contained in SBMC s confirmed Plan.[27] On May 16, 2014, Appellees responded that the claims at issue were not derivative of the Debtor's claims because Appellants had individual attorney-client relationships with Appellees, Appellants breached duties owed to Appellees because of those attorney/client relationships, and Appellants' breaches proximately caused Appellees to suffer injuries and damages separate and distinct from injuries and damages suffered by SBMC.[28]

         On April 29, 2014, the SBMC Liquidating Trust filed a Motion to Intervene arguing that it, as owner, successor-in-interest, and holder of all causes of action of the Debtor, and former debtor-in-possession, owned the causes of action that Appellees asserted in the State Court Action.[29]

         On May 8, 2014, Appellees filed a Motion to Remand, arguing that the Bankruptcy Court lacked subject matter jurisdiction over the claims asserted in the State Court Action or, alternatively, that the Bankruptcy Court should mandatorily or permissively abstain from hearing the dispute.[30]

         On June 4, 2014, and June 12, 2014, the Bankruptcy Court held hearings on Appellants' motion to dismiss, the SBMC Liquidating Trust's motion to intervene, and Appellees' motion to remand.[31]

         On September 18, 2014, the Bankrutpcy Court granted in part and denied in part Appellants' motion to dismiss and Appellees' motion to remand, and denied the SBMC Liquidating Trust's motion to intervene.[32] The Bankruptcy Court granted Appellants' motion to dismiss "all causes of action brought by the [Appellees] alleging injury due to the devaluation of SBMC stock, "[33] dismissed those claims with prejudice, and denied Appellees' motion to remand those claims.[34] The Bankruptcy Court denied Appellants' motion to dismiss "all causes of action brought by the [Appellees] alleging direct injury to them due to negligence, breach of fiduciary duty and violation of the Texas [DTPA], "[35] and remanded those claims to state court.[36] The Bankruptcy Court explained the reasons for these rulings in a Memorandum Opinion issued on the same day, In re SBMC Healthcare, LLC, 519 B.R. 172 (Bankr.S.D.Tex. 2014).[37] In pertinent part the Bankruptcy Court stated as follows:

Defendants plead that, even if all facts are taken as true, Plaintiffs lack standing to assert the causes of action in the Complaint and therefore dismissal is appropriate. . . Defendants argue that McVey suffered only indirect harm on account of his status as shareholder of the Debtor, and thus these causes of action are derivative of SBMC. . . Defendants further assert that all Plaintiffs' causes of action could have been brought by SBMC as of the Petition Date, making them property of the Debtor's estate, or more precisely the Trust, pursuant to § 541(a) (1) of the Code. . . This argument fails to take into account that the complaint alleges that Plaintiffs suffered personal injury when creditors of SBMC sued McVey and M&C in their individual capacities as guarantors of SBMCs debts.
Moreover, even if the Debtor (or, as of now, the Trust) has derivative claims, it does not preclude a third-party's direct causes of action based on the same underlying transaction or occurrence. As Plaintiffs point out, "it is entirely possible for a bankruptcy estate and a creditor to own separate claims against a third party arising out of the same general series of events and broad coarse of conduct." In re Seven Seas Petroleum, Inc., 522 F.3d 575, 585 (5th Cir. 2008). . . Accordingly, as set forth below, this Court will dismiss the derivative claims asserted in the Complaint, but will not dismiss those claims in the Complaint that are the direct claims of the Plaintiffs.

         b. Direct Causes of Action

Plaintiffs assert personal injuries in the Complaint and therefore have direct causes of action. The Complaint alleges that Plaintiffs had a personal attorney-client relationship with Defendants during which Defendants breached their fiduciary duty to Plaintiffs by negligently advising McVey to file a Chapter 11 bankrutpcy on behalf of SBMC. As a result of Defendants' alleged negligence, Plaintiffs contend that they suffered losses when unpaid SBMC creditors sued Plaintiffs, in their individual capacities as guarantors, to recover obligations owed by SBMC. . . In connection with these lawsuits, Plaintiffs incurred defense costs and had judgments entered against them personally after SBMC failed to pay the debts through its bankruptcy. . . The harm that Plaintiffs allegedly sustained in connection with lawsuits filed against them in their individual capacities is personal and entirely distinct from any harm suffered by SBMC. Therefore, Plaintiffs' causes of action against Defendants for negligence, breach of fiduciary duty, and violation of the DTPA that are based on suits filed against them by SBMC creditors are Plaintiffs' direct causes of action that should not be dismissed. In re Skyport Communications Inc., 2011 WL 111427 (Bankr.S.D.Tex. Jan. 13, 2011) (holding that dismissal is proper for a derivative cause of action, but not for a direct cause of action).

         c. Derivative Causes of Action

The Complaint also asserts injury based on loss of value to SBMC stock, a derivative cause of action belonging to SBMC - the corporation - or, more precisely, SBMC's estate. Specifically, Plaintiffs allege that the total debt owed by SBMC was approximately $8 million and that McVey was negotiating a letter of intent to sell SBMC's real property for $15 million. . . The Complaint asserts that, as a result of SBMC's bankruptcy filing: (1) McVey lost the opportunity to sell SBMC's real property and assets to recover their fair market value; (2) SBMC's assets were liquiDated: bottom dollar; and (3) no other creditors but Harborcove - and certainly not McVey, the 100% shareholder of SBMC - received any proceeds from the liquidation. . .
Inasmuch as the Complaint quantifies the harm suffered by McVey as the loss of value to his SBMC shares, it is not distinct from harm suffered by SBMC, the corporation. A claim of loss for devaluation of stock is a derivative cause of action that belongs exclusively to SBMC, the corporation, or, in this case, SBMC's estate (i.e. the Trust). Thus, McVey, as "individual stockholder[, ] ha[s] no separate and independent right of action for injuries suffered by the corporation which merely result in the depreciation of [his] stock." Wingate[ v. Hajdik], 795 S.W.2d [717], 719 [(Tex. 1990), superseded by statute on other grounds as stated in Sneed v. Webre, 465 S.W.3d 169 (Tex. 2015)] . . . Because the causes of action based on devaluation of SBMC stock are derivative, they belong exclusively to SBMC s estate and should be dismissed for lack of standing.

         d. Conclusion

Assuming, as this Court must, that all allegations in the Complaint are true, the Motion to Dismiss will be denied as to the direct causes of action and granted as to the derivative causes of action. Plaintiffs have direct causes of action for malpractice, breach of fiduciary duty, and violation of the DTPA based on allegations of personal injury suffered in connection with lawsuits filed against them individually. These claims will not be dismissed. In contrast, Plaintiffs' causes of action for malpractice, breach of fiduciary duty, and violation of the DTPA based on devaluation of SBMC stock are derivative of the Debtor's estate. These claims will be dismissed with prejudice as to the Plaintiffs for lack of standing.[38]

Id. at 182-85. The Bankruptcy Court denied the Trust's motion to intervene for failure to plead a cause of action.[39] Id. at 185. The Bankruptcy Court denied the Appellees' motion to remand the derivative claims that the court dismissed, and granted the Appellees' motion to remand their direct claims upon concluding that it lacked subject matter jurisdiction over the direct claims, and alternatively, that even if it had subject matter jurisdiction, remand was appropriate because the state court had concurrent jurisdiction and permissive abstention was appropriate with respect to the direct claims.[40] Id. at 185-93.

         On September 24, 2014, Appellants moved the Bankruptcy Court to reconsider its September 18, 2014, Order of Partial Dismissal and Remand and to clarify

(1) that any claim by [Appellees] that they have become or will become liable to creditors by virtue of SBMC Healthcare LLC s inability to pay or have incurred cost in defending such claims is a derivative claim which is dismissed; and (2) that the [Appellants' ] decision to advise [Appellees] to commence a bankruptcy filing for SBMC Healthcare LLC is released by the Plan of Reorganization.[41]

         Appellants acknowledged that "[o]ther narrower claims implied by the pleading are presumed to be true for now and appear to still require remand."[42] Appellees responded that if the Plan's Release was broad enough to cover pre-petition advice, the Release is invalid because Appellants negotiated it while they had attorney-client relationships with Appellees without making disclosures required by the Texas Disciplinary Rules of Professional Conduct.[43]On October 30, 2014, the Bankruptcy Court entered the Order of Partial Reopening of Adversary granting in part and carrying in part Appellants' motion for reconsideration, stating:

Defendants ask this Court to reconsider: (1) its classification of certain of Plaintiffs' claims as direct, as opposed to derivative; and (2) its interpretation of a provision that limits the liability of the Defendants (the Exculpatory Provision) in the Plan.[44]

         Regarding the nature of the Appellees' state court claims, the Bankruptcy Court stated:

Defendants ask this Court to reconsider its demarcation between Plaintiffs' direct claims (those based on suits filed against them by SBMC creditors) and Plaintiffs' derivative claims (those based on loss of value to SBMC stock). After considering the Motion to Amend, the Response, and the Reply, this Court concludes that the Memorandum Opinion properly analyzes this issue and reaches the correct result.[45]

         As to the Exculpatory Provision, the Bankruptcy Court reopened the record to develop "extrinsic evidence on the [exculpatory] provision's meaning, "[46] and held hearings on December 12 and 15, 2014, and January 27 and 28, 2015.[47] At the initial hearing held on December 12, 2014, Appellees' counsel argued that the Bankruptcy Court had no jurisdiction to amend its Order of Partial Dismissal and Remand because Appellees' direct claims had already been remanded.[48] On April 22, 2015, the Bankruptcy Court issued its Order Denying Defendants' Motion to Amend or Clarify, and vacated its October 30, 2014, Order upon concluding that it had no jurisdiction to reconsider its earlier remand order.[49] That decision was appealed to this court; and the court reversed and remanded the case to the Bankruptcy Court.[50]

         On September 26, 2016, without holding additional hearings, the Bankrutpcy Court entered the Order Denying in Its Entirety the Defendants' Motion to Amend or for Clarification of Judgment of Partial Dismissal and Remand Order Pursuant to Bankruptcy Rule of Civil Procedure 923.[51] On September 26, 2016, the Bankruptcy Court entered Amended Findings of Fact and Conclusions of Law Regarding the Defendants' Motion to Amend or for Clarification of Judgment of Partial Dismissal and Remand Order Pursuant to Bankruptcy Rule 9023.[52] In pertinent part the Amended Findings of Fact and Conclusions of Law state:

The October 30[, 2014], Order addressed the Defendants' request for this Court to reconsider its initial ruling regarding which of the Plaintiffs' claims are derivative claims, and this Court expressly set forth that "after considering the issue in light of the instant pleadings, this Court concludes that the Memorandum Opinion correctly analyzes and sufficiently explains its original holding on this issue." . . . The Court stands by this decision today.[53]

         The Bankruptcy Court then analyzed two issues with respect to the meaning of the Exculpatory Provision in SBMC's Plan:

(1) whether the Exculpatory Provision is broad enough to encompass Johnson advising McVey to file a Chapter 11 petition on behalf of SBMC (i.e., the Malpractice Claim for Filing); and (2) even if the Exculpatory Provision is broad enough to encompass the advice to file, whether the Exculpatory Provision is fair and reasonable to the Plaintiffs such that they should be barred from prosecuting the Malpractice Claim for Filing that they allege in the State Court Lawsuit.[54]

         In pertinent part the Bankruptcy Court concluded that the Exculpatory Provision does not encompass the pre-petition communications between McVey and Johnson, including Johnson's advice to McVey to file a Chapter 11 petition on behalf of SBMC; and therefore the Malpractice Claim for Filing should not be dismissed. Alternatively, even if the Exculpatory Provision does encompass the pre-petition communications between McVey and Johnson about the latter's advice to McVey to file SBMC s petition, this Court finds that the Exculpatory Provision is not fair and reasonable to the Plaintiffs and therefore is unenforceable against them; stated differently, the Exculpatory Provision does not release the Defendants from malpractice claims, including the Malpractice Claim for Filing. These findings, as well as this Court's conclusion that the Plaintiffs' so-called "creditors sued me" claims are personal (and not derivative) claims, means that the Motion to Amend should be denied in its entirety. Stated otherwise, the Court finds that the Malpractice Claim for Filing should not be dismissed but rather was correctly remanded, together with the other malpractice claims asserted by the Plaintiffs, to the Harris County District Court, as set forth in the Partial Dismissal and Remand Order.[55]

         II. Issues on Appeal and Standard of Review

         Appellants raise three issues on appeal:

(1) Did the Bankruptcy Court err when it failed to dismiss all of Appellees' claims as derivative, including those that were based on the personal effect of SBMC's lost equity in bankruptcy?
(2) Did the Bankruptcy Court err in applying, or in its application of, state law considerations to create artificial barriers to the application of the release language of the Confirmed Plan as written?
(3) Did the Bankruptcy Court err when it failed to dismiss Appellees' claims as barred under the release language of the Confirmed Plan?[56]

         The Appellants' motion to dismiss was filed pursuant to Federal Rule of Civil Procedure 12(b)(1) and (6) (incorporated by Federal Rules of Bankruptcy Procedure 7012(b)(1) and (6)).[57] When a Rule 12(b) (1) motion is filed together with other Rule 12 motions, the court should address the jurisdictional attack before addressing any attack on the merits. Ramming v. United States, 281 F.3d 158, 161 (5th Cir. 2001), cert, denied sub nom. Cloud v. United States, 122 S.Ct. 2665 (2002) (citing Hitt v. City of Pasadena, 561 F.2d 606, 608 (5th Cir. 1977) (per curiam)). "This requirement prevents a court without jurisdiction from prematurely dismissing a case with prejudice." Id. The court's dismissal of a case for lack of subject matter jurisdiction is not a determination of the merits and does not prevent the plaintiff from pursuing a claim in a court that has proper jurisdiction. Id. In examining a Rule 12(b) (1) motion, courts are empowered to consider matters of fact which may be in dispute. "Lack of subject matter jurisdiction may be found in any one of three instances: (1) the complaint alone; (2) the complaint supplemented by undisputed facts evidenced in the record; or (3) the complaint supplemented by undisputed facts plus the court's resolution of disputed facts." Id. (citing Barrera-Montenegro v. United States, 74 F.3d 657, 659 (5th Cir. 1996)). "The burden of proof for a Rule 12(b) (1) motion to dismiss is on the party asserting jurisdiction." Id.

         Final judgments, orders, and decrees of a bankruptcy court may be appealed to a federal district court. 28 U.S.C. § 158(a). Because this court functions as an appellate court, it applies the same standard of review that federal appellate courts use when reviewing district court decisions. Accordingly, this court reviews the Bankruptcy Court's findings of fact for clear error and conclusions on questions of law or mixed questions of law and fact de novo. See Garner v. Knoll, Inc. (In re TUSA-ESPO Holdings, Inc.), 811 F.3d 786, 791 (5th Cir. 2016). A bankrutpcy court's dismissal under Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction is generally reviewed de novo. RLB Contracting, ■ Inc. v. Butler (In re The Complaint of RLB Contracting, Inc.) . 773 F.3d 596, 601 (5th Cir. 2014). However, "purely factual findings" by the bankruptcy court in ruling on a Rule 12(b)(1) motion are reviewed for clear error. Id.

         Ill. Analysis

         A. The Bankrutpcy Court Did Not Err When It Failed to Dismiss All of Appellees' Claims as Derivative

         Appellants argue that the Bankruptcy Court erred when it failed to dismiss all of the claims that the Appellees asserted in their state court petition as derivative of claims that SBMC - not Appellees - had standing to prosecute.[58] Appellants characterize Appellees' causes of action for legal malpractice, breach of fiduciary duty, and violation of the DTPA as claims for

(1) advising SBMC to file for Chapter 11 bankruptcy, rather than enforce SBMCs Rule 11 Agreement with Harborcove through an injunction, which allegedly was due to drafting errors in SBMCs Rule 11 Agreement; (2) for persuading McVey, as the president of SBMC, to permit Appellants to act as litigation counsel in the bankruptcy, which stripped Appellees of their ability to use Appellants as bankrutpcy counsel; and (3) failing to advise McVey and [M&C] about an arbitration provision in the retention agreement with JDKG.[59]

         Appellants argue that the claim for failing to advise McVey and M&C about an arbitration provision in the retention agreement with JDKG

is the only claim that is even arguably personal to McVey and M&C. For this reason, this claim is the only one that still requires remand to the state court so that Appellants can address it there. . . Other than this single claim, however, all others should have been dismissed. For this briefing, when Appellants request that 'all claims be dismissed, ' [Appellants] mean[] all claims other than this one narrow cause of action.[60]

         Accordingly, Appellants ask this court to

reverse the Bankruptcy Court's determination that Appellees had standing to bring clams based on the alleged diminution of value to SBMC or that required a showing of harm to SBMC. Furthermore, Appellants request that this court reverse the Bankruptcy Court's determination that the Release does not bar Appellees['] claims related to the advice for SBMC to file for bankruptcy as well as the claims related to Appellants[' ] request to become special counsel to SBMC after the filing of bankruptcy. Appellants request that the Bankruptcy Court's remand order be modified to only remand those claims related to Appellees' allegation that the Appellants did not fully disclose the existence of the arbitration provision in the GHEP and Harborcove retention agreements and dismiss all others.[61]

         Appellants' argument shows that there is no dispute that the Bankruptcy Court correctly remanded Appellees' direct causes of action for lack of subject matter jurisdiction. At issue is whether the Bankruptcy Court correctly concluded that Appellees have standing to assert direct causes of action for negligence/malpractice, breach of fiduciary duty, and violation of the DTPA based on allegations that Appellants owed duties to Appellees individually, Appellants breached duties owed to Appellees individually, and as a result of those breaches Appellees suffered personal injury and damages in the form of tax liens, judgments, and attorneys fees incurred defending lawsuits filed against them individually by the IRS and other SBMC creditors.

         1. Applicable Law

         A party's standing to sue is implicit in the concept of subject-matter jurisdiction and is not presumed; it must be proved. See Texas Association of Business v. Texas Air Control Board, 852 S.W.2d 440, 445-46 (Tex. 1993). See also Luian v. Defenders ofWildlife, 112 S.Ct. 2130, 2136 (1992) (to establish standing a party must show an ...


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