Applying the Barton Doctrine, the Fifth Circuit Deepends Its Schism with the Eleventh
In a recent per curium opinion, the Fifth Circuit recommitted to its practice of dismissing claims against court-appointed fiduciaries when plaintiffs fail to obtain permission before bringing suit. The court rested its decision on the Barton doctrine, which other courts, including the Eleventh Circuit, have found inapplicable in similar circumstances.
We have discussed the Barton doctrine in previous posts. The doctrine is a common law principle that bars suits against court-appointed trustees and other fiduciaries absent court permission. The doctrine stems from a U.S. Supreme Court decision in the 19th Century, Barton v. Barbour, 104 U.S. 126 (1881). The Court said leave to sue a fiduciary must be received from “the court by which [the fiduciary] was appointed.” Id. at 128.
In Matter of Foster, No. 22-10310, 2023 WL 20872 (5th Cir. Jan. 3, 2023), after the close of her bankruptcy case, a former chapter 7 debtor (the “Debtor”) brought suit in state court against, among others, the bankruptcy trustee and counsel for the trustee (together, the “Defendants”). The Debtor alleged that the Defendants had improperly intervened in her divorce proceedings and sold certain properties (the “Properties”). In doing so, the Debtor alleged, the Defendants had acted ultra vires, i.e,, beyond their legal authority.
The Defendants moved the bankruptcy court to reopen the Debtor’s proceedings, then removed the action and moved to dismiss pursuant to FRCP 12(b)(6). The Debtor moved to remand for untimeliness and lack of subject matter jurisdiction.
The bankruptcy court rejected the Debtor’s motion to remand. First, the court found that the Defendants removed the case within the statutory time limit because they had removed within 30 days of receiving the pleadings, even though the Debtor mailed the pleadings more than 30 days before removal. Further, the bankruptcy court found it had subject matter jurisdiction over the action because the Debtor’s case “related to” the bankruptcy and “could not arise outside of the context of the underlying bankruptcy case.” The Fifth Circuit affirmed each of those rulings. Id. at *2-3.
Next, the Fifth Circuit turned to the bankruptcy court’s decision to grant the Defendants’ motion to dismiss, relying on the Barton doctrine. As the Fifth Circuit explained, “[u]nder that doctrine, before a plaintiff can sue a bankruptcy trustee, or a court-approved professional employed by a bankruptcy trustee . . . , in a forum other than the appointing court, leave of the appointing court must be obtained.” Id. at *5. The doctrine does have limitations, including that it does not apply to ultra vires acts.
While the Debtor argued the Defendants’ sale of the Properties was ultra vires, and that such sale was unnecessary due to the funds available to pay outstanding debts, both the bankruptcy court and the Fifth Circuit rejected that argument. The Fifth Circuit pointed out that (1) the Debtor admitted that funds from the Properties’ sale were used to pay the Defendants' court-approved compensation; (2) the Debtor’s amended schedules included the Properties within the bankruptcy estate; (3) the bankruptcy judge proceeded “under the belief that these assets were part of the bankruptcy estate and that the [Defendants] pursued the assets, in part, on behalf of [the Debtor]” and (4) the complaint “illustrates that [the Debtor’s] claims arise from actions that the [Defendants] took in accordance with orders from the bankruptcy court.” For these reasons, the Fifth Circuit concluded that the Defendants “did not plausibly act outside the scope of their duties,” or ultra vires. Accordingly, the Debtor’s claims were barred by the Barton doctrine. Id. at *5-6.
While the Fifth Circuit’s decision appeared to be a straightforward application of the Barton doctrine, the outcome may have been different in another circuit. For example, the Eleventh Circuit has held that the Barton doctrine does not apply “when jurisdiction over a matter no longer exists in the bankruptcy court.” Although the Eleventh Circuit “created no categorical rule that the Barton doctrine can never apply once a bankruptcy case ends, [it] concluded that where any decision by a district court would have no conceivable effect on a bankruptcy estate, the Barton doctrine does not deprive the district court of subject-matter jurisdiction.” Chua v. Ekonomou, 1 F.4th 948, 953 (11th Cir. 2021). The Fifth, Seventh, Ninth, and Tenth Circuits, to the contrary, apply the Barton doctrine “even after a bankruptcy trusteeship has ended because it protects the court-appointed trustee from suit.” Id. (listing cases).
Given the circuit split, the issue is ripe for Supreme Court review, which has not addressed the Barton doctrine since 1989.