Once again exercising “hypothetical [statutory] jurisdiction” when constitutional jurisdiction was clearly established, the Second Circuit explained how a plaintiff should draft a complaint to invoke the longer statute of limitations for contract claims and avoid the shorter statute for legal malpractice tort claims.
The plaintiff was the purported class representative for an alleged class lodging claims against a large company in chapter 11. Evidently, the results in bankruptcy were not good, because the lead plaintiff sued its lawyer for malpractice. The plaintiff conceded that the complaint was filed more than two years after the malpractice claim accrued.
Bankruptcy Judge Michael E. Wiles of New York denied the plaintiff’s motion to remand to state court and dismissed the complaint as time-barred under Pennsylvania’s two-year statute for tort claims. The district court affirmed, and so did the Second Circuit in a nonprecedential, summary opinion on November 8.
Hypothetical Jurisdiction
The plaintiff assigned error by arguing that the bankruptcy court lacked jurisdiction because the claim did not “arise in” the chapter 11 case.
In terms of bankruptcy jurisdiction, the Second Circuit noted that the bankruptcy had been terminated; the attorney-defendants were not court-appointed, and the plaintiffs were seeking damages from the lawyers and not from the bankrupt estate.
Previously, the Second Circuit had said that the Supreme Court has given “scant guidance” about “arising in” jurisdiction, which is “typically a fact-specific inquiry.” Consequently, the panel said that “this jurisdictional question turns out to be a rather difficult one.”
To avoid the necessity of answering a question of first impression in the Second Circuit, the appeals court latched on to the notion of “hypothetical jurisdiction.” The concept, the court said, comes into play when there is Article III jurisdiction, and the appeal can be decided on “more obvious grounds.”
In the case on appeal, the circuit court was “satisfied” that there was Article III or constitutional jurisdiction arising from the existence of a case or controversy. Because the statutory jurisdictional question was both novel and “arguably complex,” the appeals court invoked hypothetical jurisdiction to address the merits: Was the claim time-barred?
The Merits
The plaintiff argued on appeal that the complaint was timely because the claim was governed by Pennsylvania’s four-year statute of limitations for contract claims, not the two-year statute for tort claims. In Pennsylvania, a malpractice claim can arise either in tort or contract.
To differentiate between the two, Pennsylvania state courts employ a “gist-of-the-action” test. In other words, if the facts show that the breached duty arose from a contract, then the four-year statute applies. More specifically, the defendant must have breached a “promise to do something that a party would not ordinarily have been obligated to do but for the existence of the contract.”
On the other hand, the shorter two-year statute for torts applies if the facts show that the defendant violated “a broader social duty,” even if there was a contract between the parties. As the Second Circuit said, “Where a claim alleges negligence in the performance of a duty created by a contract — rather than a failure to perform the contractual duty altogether — then the claim sounds in tort.”
Applying the Pennsylvania standard to the case on appeal, the appeals court said that the plaintiff did not rely on any specific language in the contingency fee agreement. Indeed, the plaintiff could not point to any provision in the fee agreement “that imposes a specific duty that [the lawyers] breached.”
The circuit court thus concluded that the acts and omissions alleged by the plaintiff “constitute negligence in the performance of the [lawyers’] duties.” Finding that the complaint sounded in tort, the Second Circuit held that Judge Wiles had properly dismissed the complaint under Pennsylvania’s two-year statute for tort claims.
Once again exercising “hypothetical [statutory] jurisdiction” when constitutional jurisdiction was clearly established, the Second Circuit explained how a plaintiff should draft a complaint to invoke the longer statute of limitations for contract claims and avoid the shorter statute for legal malpractice tort claims.
The plaintiff was the purported class representative for an alleged class lodging claims against a large company in chapter 11. Evidently, the results in bankruptcy were not good, because the lead plaintiff sued its lawyer for malpractice. The plaintiff conceded that the complaint was filed more than two years after the malpractice claim accrued.
Bankruptcy Judge Michael E. Wiles of New York denied the plaintiff’s motion to remand to state court and dismissed the complaint as time-barred under Pennsylvania’s two-year statute for tort claims. The district court affirmed, and so did the Second Circuit in a nonprecedential, summary opinion on November 8.