Quasi-judicial Immunity of Bankruptcy Trustees
Quasi-judicial Immunity of Bankruptcy Trustees: A bankruptcy court in Eastern District of Tennessee has held that a chapter 7 trustee and his auctioneer enjoy quasi-judicial immunity against allegations of theft, embezzlement, conversion and fraud when selling property pursuant to a court order. Lunan v. Jones (In re Lunan), In re Lunan, 2012 WL 77491912 (Bankr. E.D. Tenn. Mar. 22, 2013).
Factual Background and Procedural History
The chapter 7 trustee ("Trustee") moved to sell the debtor’s million dollar home, luxury vehicles and artwork. Insisting that the sale price was too low, the debtor opposed the sale motion. After losing in the bankruptcy court, the debtor appealed to the district court and to the Sixth Circuit. Her appeals were eventually dismissed. In tandem with the debtor’s efforts, her non-debtor husband ("Plaintiff") sued the Trustee and the court appointed auctioneer in state court to stop the sale. Plaintiff alleged that the trustee was attempting to sell non-estate property for personal gain and alleged state and federal civil rights violations, conversion, theft, embezzlement and fraud. Among other allegations, Plaintiff asserted that some of the property subject to the Trustee’s sale belonged solely to Plaintiff and to his son. Plaintiff also contended that certain of the property at issue was jointly-held by Plaintiff and the debtor.
The Trustee removed the state court litigation to the bankruptcy court and moved to dismiss Plaintiff’s claims because (i) Plaintiff did not obtain court permission as required by the Barton doctrine, and (ii) the Trustee and his auctioneer were protected by quasi-judicial immunity. Plaintiff opposed dismissal, asserting that neither the Barton doctrine nor immunity applied because the Trustee’s and auctioneer’s actions were outside the scope of their authority.
Holding and Analysis
In evaluating the Barton doctrine contentions, the bankruptcy court looked to the Sixth Circuit’s definition of the doctrine. The Barton doctrine requires a party to obtain the permission of the bankruptcy court before commencing an action in a state forum against a trustee, for acts committed in the trustee’s official capacity and within the trustee’s authority as an officer of the court. Barton also applies to those who are the "functional equivalent" of trustees, such as court appointed auctioneers.[1] While the court agreed with Plaintiff’s legal position that Barton does not apply to acts outside of a trustee’s official duties, Plaintiff’s husband failed to provide any evidence that the Trustee and the auctioneer were acting outside of the court’s order authorizing them to sell the property. Mere allegations of improper conduct, the court concluded, do not take Plaintiff’s claims outside the Barton doctrine. Nonetheless, the court declined to dismiss the case for a violation of the Barton doctrine, since removal of state court litigation to the bankruptcy court cures any Barton violations.
Turning to the immunity issue, the court held that, similar to the Barton doctrine, trustees and court-appointed auctioneers are entitled to special protections when they are acting within the scope of their official duties and pursuant to court orders. A trustee’s conduct is not immune if a trustee acts outside his authority – such as seizing non-estate property. But, according to the court, the property allegedly converted was taken pursuant to court order. As a result, the Trustee’s and the auctioneer’s acts were protected. Further, their acts were immune even from allegations of bad faith, malice or gross error. The court further determined that the Trustee’s and auctioneer’s statements and speech were protected by immunity, in addition to their conduct. Granting the Trustee’s motion, the bankruptcy court dismissed the litigation.
Commentary
The Lunan opinion, issued by a bankruptcy court in the Sixth Circuit, appears consistent with Ninth Circuit precedent.
In Harris v. Wittman (In re Harris), 590 F.3d 730, 742-44 (9th Cir. 2009), the U.S. Court of Appeals for the Ninth Circuit affirmed the district court’s and bankruptcy court’s orders granting quasi-judicial immunity to the chapter 7 trustee and "functional equivalents" of the chapter 7 trustee – the trustee’s counsel, and an unsecured creditor assigned the right to pursue avoidance litigation – against a debtor’s breach of contract claims. Parties who would seek judgment against a bankruptcy trustee for alleged malfeasance arising from acts taken by the trustee in his or her official capacity should note that such suits are unlikely to succeed in the Sixth and Ninth Circuits.
This case write up was prepared by The Insolvency Law Committee of the Business Law Section of the California State Bar.