CA1: false start on law of bankruptcy intervention in professional malpractice cases

Costa v. Notinger, No. 07-1898 (unpublished).  This is a great bankruptcy procedure case that seems to be buried.  This case began as a Chapter 11 bankruptcy case.  The debtors hired Marotta Gund Budd & Dzera, LLC (a “crisis management firm”). Then the case was converted to a Chapter 7 petition.  The crisis management firm submitted a fee application.  Costa wasn’t happy about this, and he claimed that the crisis management firm had malpracticed upon him.  But, since he was a creditor, he couldn’t really prosecute the malpractice action (only the trustee could).  The best he could do was argue for denial or disgorgement of their fees. The bankruptcy court figured that because the disposition of the fee application would “bar a future malpractice action on res judicata grounds” the Bankruptcy Judge converted the matter into an adversary proceeding, and designed the trustee as the plaintiff.

Costa (the debtor) wasn’t happy.  Although he had a “limited” right of participation, he claimed that since he started the malpractice action, he should get to follow through on it.  He tried to intervene.  That motion was denied, and the denial was affirmed by the District Court.

Just as this case was getting interesting, we find out that Costa filed a pro se brief that incorporated by reference the arguments made by counsel below.  So, rather than find out about this kind of intervention, the First says that they are forfeit.  The First sort of lays out the law on intervention, and conducts a forfeiture analysis and concluded that because the trustee and the debtor are essentially aligned in interest, the Bankruptcy Court probably made the right decision as there is a rebuttable presumption that existing parties will represent the interests of an intervenor under In re Thompson, 965 F.2d 1136, 1142 (1st Cir. 1992).