The 'Barton' Doctrine Is Alive And Well
The Barton doctrine, established by the U.S. Supreme Court over a century ago, provides that "before a lawsuit is brought against a receiver[,] leave of the court by which he was appointed must be obtained." Barton v. Barbour, 104 U.S. 126, 128 (1881). At least six federal circuits have recognized and ruled that the Barton doctrine is still valid in holding that leave of the bankruptcy court is required before instituting an action against a bankruptcy trustee in the trustee's official capacity. The Third Circuit so ruled in In re VistaCare Group, 678 F.3d 218 (3d Cir. 2012). Likewise, in a series of recent holdings, other federal courts have decided that the Barton doctrine has continued validity.
Villegas v. Schmidt
In Villegas, et al. v. Schmidt, 788 F.3d 156 (5th Cir. 2015), cert. denied, No. 15-407, (U.S. Dec. 7, 2015), BFG Investments, through its president John Villegas, filed for bankruptcy and Schmidt was appointed as the trustee to liquidate BFG's estate. The case was later closed and Schmidt's fees were approved. Four years later, Villegas and BFG sued Schmidt under 28 U.S.C. §1334(c), which allows district courts to hear proceedings arising under Title 11. Villegas and BFG alleged that Schmidt committed gross negligence and breached his fiduciary duty while acting as BFG's trustee. The district court dismissed the case, and the plaintiffs appealed.
The Fifth Circuit affirmed the district court's dismissal based on the Barton doctrine. It rejected the plaintiffs' argument that the U.S. Supreme Court's recent decision in Stern v. Marshall limited the Barton doctrine by implication. Nor did the Fifth Circuit accept the plaintiffs' argument that the Barton doctrine does not apply when a party sues in a court exercising supervisory authority over the bankruptcy court that appointed the trustee. Every other circuit addressing the issue has held that the debtor must obtain leave of the bankruptcy court before initiating an action in the district court against a trustee. The U.S. Supreme Court denied the plaintiffs' Petition for Writ of Certiorari,Villegas v. Schmidt, 2015 U.S. LEXIS 7787; 84 U.S.L.W. 3320 (2015).
Carroll v. Abide
In Carroll v. Abide, 788 F.3d 502 (5th Cir. 2015), the Fifth Circuit had an opportunity to clarify its holding in Villegas as it pertains to Barton. In Carroll v. Abide, a married couple filed for personal bankruptcy, as well as filing a bankruptcy case for their closely held corporation. The bankruptcy...
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