Carter v. Rodgers

• Decision Date: 02 August 2000
• Docket Number: No. 99-13703,99-13703
• Citation: 220 F.3d 1249
• Parties: (11th Cir. 2000) Clyde Thomas CARTER, Plaintiff-Appellant, v. Bob RODGERS, Individually and, in his capacity as Trustee in the Clyde Thomas Carter Bankruptcy, Clements Antiques of Tennessee, Inc., et al., Defendants- Appellees.
• Court: U.S. Court of Appeals — Eleventh Circuit

Page 1249

220 F.3d 1249 (11th Cir. 2000)

Clyde Thomas CARTER, Plaintiff-Appellant, v. Bob RODGERS, Individually and, in his capacity as Trustee in the Clyde Thomas Carter Bankruptcy, Clements Antiques of Tennessee, Inc., et al., Defendants- Appellees.

No. 99-13703.

United States Court of Appeals Eleventh Circuit.

Aug. 2, 2000.

[Copyrighted Material Omitted] Appeal from the United States District Court for the Northern District of Alabama. (No. 97-03063-CV-S-NE), C. Lynwood Smith, Jr., Judge.

Before TJOFLAT and HULL, Circuit Judges, and PROPST^*, District Judge.

HULL, Circuit Judge:

Plaintiff-Debtor Clyde Thomas Carter appeals the district court's dismissal of his civil action based on his failure to seek leave first from the bankruptcy court to file this action. We affirm.

I. BACKGROUND

Plaintiff Clyde Thomas Carter was a debtor in a Chapter 7 bankruptcy proceeding. Defendant Bob Rodgers was the initial Bankruptcy Trustee ("Trustee") in Carter's bankruptcy proceeding. As Trustee, Rodgers appointed Defendant Clements Antiques of Tennessee, Inc. ("Clements Antiques"), and its principals, Defendants Charles W. Clements, Sr. and Charles W. Clements, Jr. ("the Clements") to conduct a sale of Carter's personal property. The bankruptcy court approved these appointments.

Clements Antiques conducted the sale by way of auction on August 5, 1995. Trustee Rodgers and his wife attended the auction, and Rodgers's wife successfully bid on an item.¹ Likewise, Clements Antiques, Clements Sr., and Clements Jr. (or family members on their behalf) purchased items at the auction. Upon learning of these purchases, the bankruptcy administrator for the Northern District of Alabama complained that the purchases rendered all Defendants non-disinterested parties in contravention of the Bankruptcy Code. See 11 U.S.C. § 701(a)(1) ("[T]he United States trustee shall appoint one disinterested person ... to serve as ... trustee."); 11 U.S.C. § 327(a) ("[T]he trustee ... may employ ... auctioneers ... that do not hold or represent an interest adverse to the estate."). As a result, Rodgers resigned as Trustee, and Clements Antiques returned all commissions and buyer's premiums received in connection with the auction.²

Carter filed this civil action in district court seeking compensatory and punitive damages from Trustee Rodgers, Clements, and Clements Antiques based on alleged breaches of fiduciary duties and duties of reasonable care with respect to Carter's bankruptcy estate. The district court found that Carter failed to obtain leave of the bankruptcy court before filing this lawsuit and dismissed Carter's lawsuit pursuant to Federal Rule of Civil Procedure 12(b)(1) for lack of subject matter jurisdiction.³ Carter timely appealed.

II. DISCUSSION

A. The Barton Doctrine

This case presents an issue of first impression in this circuit regarding whether a debtor first must obtain leave from the bankruptcy court before it can initiate an action in the district court when that action is against the trustee or other bankruptcy-court-appointed officer, for acts done in the actor's official capacity. Joining the other circuits that have considered this issue, we hold that a debtor must obtain leave of the bankruptcy court before initiating an action in district court when that action is against the trustee or other bankruptcy-court-appointed officer,⁴ for acts done in the actor's official capacity. See Springer v. Infinity Group Co., No. 98-5182, 189 F.3d 478 (10th Cir. Aug.26, 1999) (unpublished table decision), cert. denied, --- U.S. ---- , 120 S.Ct. 1422, 146 L.Ed.2d 314 (2000); Gordon v. Nick, No. 96-1858, 162 F.3d 1155 (4th Cir. Sept.2, 1998) (unpublished table decision); In re Linton, 136 F.3d 544, 546 (7th Cir.1998); Lebovits v. Scheffel (In re Lehal Realty Assocs.), 101 F.3d 272 (2d Cir.1996); Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir.1993); Vass v. Conron Bros. Co., 59 F.2d 969, 970 (2d Cir.1932); Kashani v. Fulton (In re Kashani ), 190 B.R. 875, 885 (9th Cir.BAP 1995).

"An unbroken line of cases ... has imposed [this] requirement as a matter of federal common law." Linton, 136 F.3d at 545. In so holding, these circuit courts have applied the rule referred to as the "Barton doctrine." See id. The Supreme Court in Barton v. Barbour, 104 U.S. 126, 127, 26 L.Ed. 672 (1881), stated that "[i]t is a general rule that before suit is brought against a receiver[,] leave of the court by which he was appointed must be obtained." Barton involved a receiver in state court, but the circuit courts have extended the Barton doctrine to lawsuits against a bankruptcy trustee. In Linton, the Seventh Circuit explained the reasons behind its application of the Barton doctrine to a bankruptcy trustee, as follows: "The trustee in bankruptcy is a statutory successor to the equity receiver, and ... [j]ust like an equity receiver, a trustee in bankruptcy is working in effect for the court that appointed or approved him, administering property that has come under the court's control by virtue of the Bankruptcy Code." 136 F.3d at 545.

In addition, the policy behind this leave of court requirement was well-stated by the Seventh Circuit:

If [the trustee] is burdened with having to defend against suits by litigants disappointed by his actions on the court's behalf, his work for the court will be impeded.... Without the requirement [of leave], trusteeship will become a more irksome duty, and so it will be harder for courts to find competent people to appoint as trustees. Trustees will have to pay higher malpractice premiums, and this will make the administration of the bankruptcy laws more expensive.... Furthermore, requiring that leave to sue be sought enables bankruptcy judges to monitor the work of the trustees more effectively.

Linton, 136 F.3d at 545.

Plaintiff's suit is a run-of-the mill Barton case. Carter sued Defendants in district court for breaches of fiduciary duties stemming from their official bankruptcy duties. He needed leave of the bankruptcy court, and absent that leave, the district court correctly found that it did not have subject matter jurisdiction over his cause of action.

B. Federal vs. State Causes of Action

Carter argues that the Barton doctrine requires parties to obtain leave of the bankruptcy court only when they wish to pursue a state court remedy. We disagree, and hold that when leave is required, it is required before pursuing remedies in either state or other federal courts. We find no reason to distinguish between instances where the trustee is sued in state court and those in which the trustee is sued in federal court. See Kashani v. Fulton (In re Kashani ), 190 B.R. 875, 885 (9th Cir.BAP 1995) ("[L]eave to sue the trustee is required to sue in those federal courts other than the bankruptcy court which actually approves the trustee's appointment."); In re Krikava, 217 B.R. 275, 279 (Bankr.D.Neb.1998) ("Consent of the appointing bankruptcy court is required even when the plaintiff seeks to sue in another federal court.").

C. Related-To Bankruptcy Requirement

There also is no merit to Carter's assertion that his tort claims-breach of fiduciary duty and reasonable care-are "unrelated to" and "outside the scope" of the bankruptcy proceeding because they do not arise directly from substantive provisions of the Bankruptcy Code. Carter posits the theory that because his claims are unrelated to the bankruptcy proceeding, the bankruptcy court lacks jurisdiction over his lawsuit and, therefore, he was not required to obtain leave of the bankruptcy court before bringing his suit in district court.

We disagree. The bankruptcy court has jurisdiction over Carter's claims because his breach of fiduciary duty and reasonable care claims are "related to" and "within the scope" of the bankruptcy proceeding. Because Carter's claims are related to the bankruptcy proceeding, we need not determine whether leave of the bankruptcy court is required when a debtor sues a trustee for a tort completely "unrelated to" and "outside the scope" of the bankruptcy proceeding.

A proceeding is within the bankruptcy jurisdiction, defined by 28 U.S.C. § 1334(b), if it "arises under" the Bankruptcy Code or "arises in" or is "related to" a case under the Code. " 'Arising under' proceedings are matters invoking a substantive right created by the Bankruptcy Code. The 'arising in a case under' category is generally thought to involve administrative-type matters, or as the ... court put it, 'matters that could arise only in bankruptcy.' " In re Toledo, 170 F.3d 1340, 1345 (11th Cir.1999) (citations omitted). We have stated, "[t]he usual articulation of the test for determining whether a civil proceeding is related to bankruptcy is whether the outcome of the proceeding could conceivably have an effect on the estate being administered in bankruptcy." Miller v. Kemira, Inc. (In re Lemco Gypsum, Inc.), 910 F.2d 784, 788 (11th Cir.1990).

While Carter's action against Defendants arose after the date of the bankruptcy petition, his suit turns solely on allegations of wrongdoing in the sale of property belonging to the bankruptcy estate.⁵ Any recovery would reduce the administrative expenses of the sale of the estate property and would perforce increase the amount of estate property available to satisfy creditors' claims. See 11 U.S.C. § 541(a)(7); see, e.g., McGuirl v. White, 86 F.3d 1232 (D.C.Cir.1996). Thus, the outcome of this case will impact Carter's bankruptcy estate.

Further, Carter sued the trustee and other court approved officers of his bankruptcy estate for alleged breaches of their bankruptcy-related duties. The Bankruptcy Code establishes the office of trustee and defines the trustees' duties. Moreover, an action against a bankruptcy trustee for breach of bankruptcy-related fiduciary duty can only arise in a bankruptcy case. Thus, Carter's "fiduciary claims against [the fiduciaries] are within the bankruptcy...