A $619 million legal malpractice case against Montgomery McCracken Walker & Rhoads may be transferred out of the state despite opposition from the plaintiffs, a group of residents from a northeastern Pennsylvania town.

U.S. Magistrate Judge Martin Carlson of the Middle District of Pennsylvania filed a report and recommendation Monday finding the case should be transferred from his district to the U.S. District Court for the Southern District of New York. The federal court in Manhattan is “the 'home court'” where a bankruptcy case central to the plaintiffs' claims was litigated, Carlson wrote.

“There is a certain measure of jurisdictional irony in his case,” Carlson wrote, noting that the complaint was filed in the Luzerne County Court of Common Pleas and ended up before him in the Middle District, despite the fact that the underlying bankruptcy case took place in New York. “However, the one thing all parties seem to agree upon is that this case should not remain with this court.”

Carlson's recommendation is in line with Montgomery McCracken's request that the case be transferred to the Southern District of New York. The plaintiffs had argued that it should be remanded to Luzerne County.

Montgomery McCracken was bankruptcy counsel to residents of Avoca, Pennsylvania, seeking to recover damages against the Kerr-McGee Corp. for injuries allegedly caused by proximity to the company's wood treatment plant located in Avoca. The plaintiffs had been arbitrating the claims but ultimately had to pursue the damages from Kerr-McGee, which was renamed Tronox, in bankruptcy.

In their April 2018 complaint in the Luzerne County Court of Common Pleas, the Avoca plaintiffs, a proposed class of 4,300 residents, said they should have recovered $949 million and accused Montgomery McCracken of mishandling the case and engaging in a conflict of interest by representing the head of the creditors' committee in the Kerr-McGee bankruptcy.

In a motion to dismiss, Montgomery McCracken said lead plaintiff Stanley Waleski and the other class members achieved a “manifestly positive outcome” in winning $329 million in damages, funded by a $5.15 billion settlement.

The Avoca residents alleged that Montgomery McCracken failed to object to an omnibus claim filed by another group of creditors from Mississippi, which ultimately reduced the amount of recovery available to the Avoca group. Additionally, the plaintiffs alleged that Montgomery McCracken chose to create a conflict of interest by representing Michael Carroll, a member of the creditors' committee.

But Montgomery McCracken has argued that there is no legal argument to back up the Avoca plaintiffs' claim that their interests were superior to the Mississippi group's. As for the alleged conflict, Montgomery McCracken said it is not improper for a firm to represent Carroll as a member of the creditors' committee while also representing the Avoca group.

Carlson said the plaintiffs' motion to remand Montgomery McCracken's motion to dismiss should be considered by the Southern District of New York, because that court is most familiar with and interested in the underlying dispute.

“The firm is very pleased that Magistrate Judge Carlson accepted its argument that this matter should be transferred to the Southern District of New York so that the bankruptcy court, which has the greatest interest in and familiarity with the issues, oversees the proceedings,” Daniel Brier of Myers Brier & Kelly, who is representing Montgomery McCracken in the case, said in a statement Thursday.

Pittsburgh lawyer Scott Hare, who is representing the Avoca plaintiffs, did not respond to a request for comment.

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