In an unpublished decision, the 9th Circuit BAP remanded a case back with instructions to dismiss the adversary proceeding for lack of subject matter jurisdiction.
In 2009, the Debtors retained an attorney to file a Chapter 11 case. The case floundered and it was converted to a Chapter 11. The Debtors filed suit against counsel for malpractice. Once the Trustee became aware, the Trustee claimed ownership of the claim. The Trustee agreed to sell such interest back to the Debtor but the attorney made a counter-offer. A court auction took place and the attorney was the successful bidder (the sale was without warranty as to whether the claims are property of the estate).
Counsel filed an adversary case for declaratory relief that such claims were property of the estate. The Debtors moved to dismiss based upon lack of subject matter jurisdiction because the estate no longer had an interest. The Court denied the dismissal motion and found that the property was property of the estate.
The Court cited to several Circuit court decisions for the proposition that jurisdiction over an asset terminates once the estate relinquishes all rights and interest. Here, the Estate sold any and all rights without warranty. Accordingly, the Court reversed the Bankruptcy Court and remanded the case with instructions that the adversary case be dismissed.
In re Stokes - 9th Cir BAP - 9-23-13
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