The Barton Doctrine: Gatekeeper for Actions Against Trustee and Counsel
by Steven R. Skirvin
Dion-Kindem & Crockett; Woodland Hills, Calif.
For trustees, and those of us who represent trustees, the Barton Doctrine is an especially helpful rule that provides a measure of protection from lawsuits while in the performance of our duties. The Barton Doctrine was a creation from common law by the U.S. Supreme Court in Barton v. Barbour, 104 U.S. 126, 129, 26 L.Ed. 672 (1881). In Barton, the Supreme Court held that in order to sue a court-appointed receiver, the petitioning party must first seek leave of the court that issued the receiver’s appointment. The Supreme Court’s holding was based in part on the reasoning that the appointing court has in rem jurisdiction over the receivership property. Thus, without leave of the appointing court, the forum in which the receiver was sued lacked subject-matter jurisdiction over the action. Of course, subject-matter jurisdiction, or lack thereof, can be raised at any time. Although a rather risky proposition, it can even be raised for the first time on appeal. Torrez v. Edwards, 107 P.3d 1110 (Colo. App. 2004) (Barton Doctrine raised for first time on appeal).
Over the years, the Barton Doctrine was expanded beyond receiverships to include bankruptcy trustees, as they are the statutory successors to the equity receiver. It is well recognized that bankruptcy trustees are officers of the appointing court and are entitled to quasi-judicial immunity. The lengthy subject of immunity is beyond the scope of this article. However, a good discussion can be found at In re Castillo, 297 F.3d 940 (9th Cir. 2002).
The Sixth Circuit extended the protections of the Barton Doctrine to counsel for the trustee, where they are acting under the direction of the trustee, and for the purpose of administering the estate or protecting its assets. In re DeLorean Motor Co., 991 F.2d 1236 (6th Cir. 1993). The Barton Doctrine is appropriately applied to trustee’s counsel because they function as court-appointed officers, appointed by court order to assist the trustee in carrying out his/her duties.
Congress created one exception to this doctrine, codified in 28 U.S.C. §959(a), which permits lawsuits against a trustee where he/she is carrying on business connected with property of the estate. The “carrying on” of business has been interpreted to mean operating the debtor’s business in the ordinary sense of the word — running the business as an “operating enterprise.” Muratore v. Darr, 375 F.3d 140 (1st Cir. 2004).
The typical fact scenario of existing case law is that of an aggrieved party filing a lawsuit against a trustee in a court other than the bankruptcy court. The aggrieved party either was apparently unaware of the Barton Doctrine, chose to ignore it or tried to carve out an exception. Nevertheless, courts are uniform in holding that they lack subject-matter jurisdiction without the prior consent of the appointing court. It is fairly common, and will become more common under BAPCA, for trustees to avail themselves of the jurisdiction of other courts to recover property of the estate and pursue preference actions. The question then arises; can a nonappointing court impose sanctions against the trustee or trustee’s counsel without leave of the appointing court, particularly when the trustee has initiated the action? This question has been answered in favor of the trustee. In In re Solar Financial Services, Inc., 255 B.R. 801 (Bankr. S.D. Fla. 2000) (Solar Financial), in a state court action filed by a chapter 7 trustee, the defendant sought sanctions for discovery abuses by the trustee. The state court held that the defendant was entitled to seek sanctions without leave of the bankruptcy court. However, according to the appointing bankruptcy court, the Barton Doctrine required that leave of the appointing court must be granted before the defendant could request sanctions, and that the trustee was entitled to immunity in any event. The appointing court affirmed that absent its consent, the state court lacked subject-matter jurisdiction over a request for sanctions. Nonappointing courts will be understandably reticent over the notion that they cannot impose sanctions for conduct in their court without the prior permission of another court. However, sound public policy dictates this result. This rule permits the bankruptcy court to supervise the conduct of its appointed officers, and provides trustees a measure of protection while they administer the estate. In re Crown Vantage, Inc., 421 F.3d 963 (9th Cir. 2005) (Crown Vantage).
The Ninth Circuit recently considered the applicability of the Barton Doctrine to liquidating trustees. In Crown Vantage, the issue was whether, and to what extent, a liquidating trustee appointed pursuant to an approved chapter 11 plan could be sued in a foreign jurisdiction without the consent of the appointing court. The Ninth Circuit held that leave of the appointing court must first be obtained before an action may be initiated in another forum “against a bankruptcy trustee or other officer appointed by the bankruptcy court for acts done in the officer’s official capacity.” The distinction between a chapter 7 or chapter 13 trustee and a liquidating trustee was “of no moment” to the Ninth Circuit, which relied on DeLorean to hold that “court-appointed officers who represent the estate are the functional equivalent of a trustee…” 28 U.S.C. §959(a) was raised as a defense, but was distinguished on the basis that liquidating estate assets is not the equivalent of operating a debtor’s business.
In sum, the Barton Doctrine allows the appointing court to function as a gatekeeper of claims against bankruptcy trustees, their counsel and other officers appointed by the bankruptcy court. This ensures more efficient administration of the estate, and a measure of comfort while in the performance of one’s court-appointed duties. However, in the unlikely event of misconduct, this rule will not act as a shield. In addition to adverse consequences in the nonappointing court, the offending party may find it difficult to obtain bankruptcy court approval for fees incurred or future appointments.