Fifth Circuit: Barton Doctrine Precluded Litigation By Chapter 7 Debtor Against Bankruptcy Trustee And Counsel

• Published date: 13 June 2023
• Subject Matter: Litigation, Mediation & Arbitration, Insolvency/Bankruptcy/Re-structuring, Financial Restructuring, Trials & Appeals & Compensation
• Law Firm: Jones Day
• Author: Nick Buchta, T. Daniel Reynolds and Mark Douglas

To shield bankruptcy trustees and certain other entities from litigation arising from actions taken in their official capacity, the "Barton doctrine"'now more than a century old'provides that such litigation may be commenced only with the authority of the appointing court. The doctrine has certain exceptions, one of which'the "ultra vires exception"'was recently examined by the U.S. Court of Appeals for the Fifth Circuit as an apparent matter of first impression.

In Matter of Foster, 2023 WL 20872 (5th Cir. Jan. 3, 2023), the Fifth Circuit, in a nonprecedential opinion, affirmed lower court rulings dismissing litigation brought by an individual debtor after her chapter 7 case was closed against her chapter 7 trustee and her lawyers without the bankruptcy court's permission. According to the Fifth Circuit (and the lower courts), all of the actions about which the debtor complained were performed in furtherance of the defendants' statutory or court-approved duties. In so ruling, the Fifth Circuit distanced itself from certain other courts that have concluded that the Barton doctrine's qualified immunity from suit expires when a bankruptcy case has been closed.

The Barton Doctrine

Named for the decision in Barton v. Barbour, 104 U.S. 126 (1881), the Barton doctrine requires that "leave of the appointing forum must be obtained by any party wishing to institute an action in a non-appointing forum against a trustee for the acts done in the trustee's official capacity and within the trustee's authority as an officer of the court." ACE Insurance Co., Ltd. v. Smith (In re BCE West, L.P.), 2006 WL 8422206, *2 (D. Ariz. Sept. 20, 2006) (quoting In re DeLorean Motor Co., 991 F.2d 1236, 1240 (6th Cir. 1993)).

Although originally applicable to litigation against receivers, the doctrine has long been applied to bankruptcy trustees as well. See Lebovits v. Scheffel (In re Lehal Realty Assocs.), 101 F.3d 272, 276 (2d Cir. 1996)) (describing the "well-recognized line of cases" extending the Barton doctrine to bankruptcy trustees, and its application in the post-receivership context); accord In re VistaCare Grp., LLC, 678 F.3d 218, 224 (3d Cir. 2012) (citing cases).

"In addition to protecting a court-appointed receiver from personal liability, the Barton doctrine is intended to protect the receivership court's 'overriding interest in [the] administration of the estate.'" McIntire v. China MediaExpress Holdings, Inc., 113 F.Supp.3d 769, 773 (S.D.N.Y. 2015) (citation omitted); see also In re Qimonda AG, 482 B.R. 879, 896 (Bankr. E.D. Va. 2012) ("[T]he Court serves as a gatekeeper under the Barton doctrine, protecting its appointed professionals from frivolous lawsuits that would interfere with the administration of the estate."). The doctrine can also serve to "centralize bankruptcy litigation" and "keep a watchful eye" on court-appointed officers. In re Yellowstone Mountain Club, LLC, 841 F.3d 1090, 1094 (9th Cir. 2016) (citation omitted).

The Barton doctrine has been applied to bar litigation against not only receivers and bankruptcy trustees but also lawsuits against other persons or entities acting as the "functional equivalent," including members of an official unsecured creditor's committee, trustee's counsel, officers appointed by a trustee and approved by the...