Warren Norred sounds reluctant when he talks about the professional-malpractice case he recently filed in a Tarrant County district court. That’s because Norred is a bankruptcy lawyer, and his clients are suing two bankruptcy lawyers and their former firm, alleging professional malpractice — a cause of action that’s rare in his practice area, he says.
“One of the reasons you don’t see a lot of malpractice [litigation]in bankruptcy is: It’s a very guild-oriented practice. Whenever you’re suing somebody that’s inside the guild, it’s not pleasant,” says Norred, an Arlington solo. “That may not bother a lot of litigators, but it bothers us a lot who practice together and help each other.”
Defense counsel for both defendant-lawyers deny the allegations.
The background to the case, according to the Nov. 5 original petition in Joseph & Debra Domino v. Allmand & Lee, Chris Lee and Weldon R. Allmand, is as follows.
The plaintiffs, Joseph and Debra Domino, had tax struggles concerning debts to the Internal Revenue Service and the Texas State Comptroller associated with two Subway restaurants they owned. The couple filed a pro se Chapter 13 bankruptcy petition in the Northern District of Texas on Oct. 21, 2009. Their case was dismissed a week later because the Dominos could not certify that they had received credit counseling as required by 11 USC §109(h), according to the petition.
The Dominos later contacted the firm Allmand & Lee, which the petition calls A&L, to represent them in a second bankruptcy case. On Nov. 6, 2009, Christopher Lee signed a new Chapter 13 petition on the plaintiffs’ behalf, according to the petition.
A&L filed bankruptcy schedules for the Dominos that included non-contingent, liquidated unsecured debt of $232,797.31, well below the $336,900 permissible limit of the unsecured debt limit given in 11 USC §109(e). The Dominos never reviewed or signed their bankruptcy petition or schedules, which did not list their liability for more than $500,000 in unpaid sales taxes, the petition alleges.
Jesse Garcia, then of A&L who was licensed to practice law in 2008, represented the Dominos during their meeting of creditors on Dec. 17, 2009. On Jan. 5, 2010, the Texas comptroller filed a motion to dismiss the debtors’ second petition because their unsecured debt exceeded the legal limit of $336,900 in 11 USC §109(e). The comptroller pointed out in her motion that the debtors owed $529,549 for unpaid sales taxes to the state of Texas. The standing Chapter 13 trustee filed a similar motion on Jan. 20, 2010, the petition alleges.
A&L “did not respond to the motion to dismiss, convert the case to Chapter 11, or attempt to answer the motion in any way,” the petition alleges. The court granted the motion to dismiss the second case on Feb. 24, 2010, the petition alleges.
Besides Lee and Garcia, Sharmila Bharwani, then of A&L who was also licensed to practice law in 2008, also handled issues in the case for the Dominos, the petition alleges.
“In an examination of the documents filed in the case, it appears that the two attorneys who handled the bulk of this fairly complex case had been practicing law in Texas about a year,” the petition alleges.
After A&L employees found that the Dominos’ financial conditions merited a filing under Chapter 11, rather than Chapter 13, they told the Dominos they would not file the Chapter 11 and they should find other representation, the petition alleges.
The Dominos found another attorney not affiliated with A&L to represent them in a Chapter 11 reorganization, but the bankruptcy court determined that “errors in the previous filings prevented the court from protecting the debtors with a stay.”
“The plaintiffs were required to convert their Chapter 11 reorganization to a Chapter 7 liquidation, losing their two fully functioning Subway stores, a value of approximately one million dollars,” the petition alleges.
The petition alleges professional malpractice against the defendants: Allmand & Lee, Chris Lee and Weldon R. Allmand. The petition also notes that A&L dissolved on April 12, 2011, and that Lee and Allmand started separate firms.
“No prudent attorney would have handled plaintiffs’ bankruptcy case as defendants did. Neither Allmand, nor Lee, ensured that A&L employees were competent to see potential challenges in the case, or even fight to save the case,” the petition alleges.
The petition also notes that A&L was “arguably the market leader for consumer bankruptcy in the Northern District of Texas” and had filed several hundred bankruptcy petitions in November 2009.
“I know both of the principals at Allmand & Lee, and they are highly competent,” Norred says. “The problem is that, in this case, they were moving too fast, and the very highly competent people that they are — you don’t see in this case in the filing. To be fair to them, this was a fairly complex [case]. It was clearly complex to begin with, and our theory is they should have foreseen the problems that would occur.”
Matt Davis, a partner in Dallas’ Jones Davis & Jackson who represents Weldon “Reed” Allmand in the case, says his client denies the allegations in the petition.
“From Reed’s perspective, he views it as a frivolous lawsuit and looks forward to defending himself in court,” Davis says. Davis also alleges that the two-year statute of limitations has expired on the professional-malpractice claim.
“We were in communication with Mr. Norred about the lawsuit, and we told him he had a limitations problem. And we’re shocked that he filed,” Davis says.
Allmand declines comment, and Lee did not return a call seeking comment.
“Chris is a good lawyer. He cares about his clients, and he does a good job for his clients. And just because a young lawyer is working on [the] file doesn’t mean that he doesn’t supervise them,” says Melissa Kingston, a partner in Dallas’ Friedman & Feiger who represents Lee. “Obviously we’re just now getting involved in the case. From what I’ve seen, I look forward to defending Chris and his handling of this at the courthouse. And I think we’re going to prevail.”
Davis and Kingston say no decision has been made yet about who will defend Allmand & Lee in the case.
Neither Garcia, who now is a partner in Fort Worth’s Bryeans & Garcia, nor Bharwani, who is now in-house counsel for Homeward Residential, are defendants in the case. Both decline comment.
Norred adds that he considered filing the professional-malpractice claim in a bankruptcy court instead of state court. He notes that the U.S. Supreme Court’s ruling in Stern v. Marshall (2011), which held that a bankruptcy court lacked the constitutional authority to enter a final judgment on a state law counterclaim, has confused the issue on whether a plaintiff can bring a state law malpractice claim against a bankruptcy lawyer in federal bankruptcy court.
“The bankruptcy court is familiar with the issues. And this malpractice claim couldn’t exist without a bankruptcy court,” Norred says. “At the end of the day I went to the state court because it’s easier to remove it to bankruptcy court if the defendants want to do that.”
Further adding to the jurisdictional question, on Oct. 5, the U.S. Supreme Court granted a petition for writ of certiorari in Minton v. Gunn, a Texas case that could determine whether federal courts have exclusive jurisdiction to hear legal malpractice suits involving patent law.
“Right now it appears to be a simple state court negligence case,” Davis says.
“I think we have very good defenses in this case, and we look to prevailing in court and wherever that may be,” Kingston says.