By Ryan C. Wood
Yes, you can sue your chapter 7 bankruptcy trustee, but it is extremely rare and difficult. It is possible though. Chapter 7 bankruptcy trustees are human and sometimes make mistakes when administering bankruptcy estates and do intend the negative consequences. Suing them could be the only way to get justice. The road is long and at no point will seeking damages against a Chapter 7 bankruptcy trustee or their attorney going to be easy. Here is why.
The Barton Doctrine
To sue a Chapter 7 bankruptcy trustee you must first obtain leave from the court. Yes, this is one of those situations that require you to get court permission to sue someone before you can sue the person. Yes, it is like suing the government. You must get the government’s permission first. The system has to agree with you first that you have been wronged and should be able to then sue the system. It is how the system protects itself and continues to do what it does without change. So yes, you could be denied the right to sue and never get your day in court no matter what happened if you cannot get permission to sue. The Supreme Court established in Barton that before another court may obtain subject-matter jurisdiction over a suit filed against a receiver for acts committed in his official capacity, the plaintiff must obtain leave of the court that appointed the receiver. See Muratore v. Darr, 375 F.3d 140,143 (1st Cir. 2004). This principle has been extended to suits against bankruptcy trustees, see id.; Beck v. Fort James Corp. (In re Crown Vantage, Inc.), 421 F.3d 963, 971 (9th Cir. 2005), and to suits against trustees’ attorneys, see Lowen-braun v. Canary (In re Lowenbraun), 453 F.3d 314, 321 (6thCir. 2006).
There are all kinds of similar immunities for police offices and judges for example. The theory is for them to do their job they have to be immune from the damages caused by their legal decisions in carry out their job. A police officers’ immunity is easier to understand. A police office cannot be sued each and every time they arrested someone and use physical force on the person to effectuate the arrest. A certain amount of physical force is required and legal in the carry out of the police officers’ duties or scope of employment. There are situations where a police officer uses excessive force though and the question of whether judicial immunity should apply arises. The Barton doctrine is no different. The court first evaluates whether the Chapter 7 bankruptcy trustee’s alleged wrongful act falls within the scope of their duties and whether the conduct exceeded what is necessary…….
Before leave can be granted the plaintiff must establish a prima facie case against the Chapter 7 bankruptcy trustee or their bankruptcy attorney. That means present adequate grounds upon which to proceed against the trustee in another forum. If the court determines the Chapter 7 bankruptcy trustee was acting within their official capacity when the alleged wrong took place you could be out of luck. The point is to give the Chapter 7 bankruptcy trustee the ability to administer an estate freely and limit the personal liability for choices in administering the estate. It is a tough job and could be made nearly impossible if Chapter 7 bankruptcy trustees are personally liable for every act or decision they make. The administration of an asset chapter 7 bankruptcy cases would be forever burdensome and less funds would go for the benefit of creditors. All of the assets would go to the professionals administering the estate.
Does The Barton Doctrine Even Apply
Before filing a motion for leave to sue a Chapter 7 bankruptcy trustee you must first determine if the Barton doctrine even applies to the situation or alleged wrong. What a process. First you have to spend thousands of dollars determine if the Barton doctrine applies then thousands of dollars to try and prove the wrong and damages. To determine whether a complained-of act falls under the Barton doctrine, bankruptcy attorneys and courts consider the nature of the function that the trustee or his counsel was performing during commission of the actions for which liability is sought. See Heavrin v. Schilling (In re Triple S Rests., Inc.), 519 F.3d 575, 578 (6th Cir. 2008).
When trustees act “within the context” of their role of “recovering assets for the estate,” leave must be obtained. Acts are presumed to be part of the duties of the trustee or his counsel “unless Plaintiff initially alleges at the outset facts demonstrating otherwise.” In re Lowenbraun , 453 F.3d at 322 (internal quotation marks omitted). The Barton doctrine serves the principle that a bankruptcy trustee “is an officer of the court that appoints him,” and therefore that court “has a strong interest in protecting him from unjustified personal liability for acts taken within the scope of his official duties.” Lebovits v. Scheffel (In re Lehal Realty Assocs.), 101 F.3d 272, 276 (2d Cir. 1996).
Proving The Actual Wrong
A Chapter 7 bankruptcy trustee can be sued for their misconduct in the discharge of their duties as trustee. If you are successful in obtaining arguing the Barton doctrine does not apply you then must show a prima facie case against the Chapter 7 bankruptcy trustee. If the bankruptcy court initially finds there is no merit to the claims against the Chapter 7 bankruptcy trustee then leave to sue may not be granted either. You will have to appeal the order denying leave to sue.
This is surely an expensive process and all pro’s and con’s should be evaluated before deciding to go after a Chapter 7 bankruptcy trustee for their administration of a bankruptcy estate. Rarely have I come across a situation that even raised the question of suing a Chapter 7 bankruptcy trustee. Generally trustee’s stay within their lane and do not take foolhardy risks that may raise doubts to their administration. It is just not worth it.