In Re Christensen, Bankruptcy Number: 15-29773, Bankruptcy Number: 15-29783

• Decision Date: 27 February 2019
• Docket Number: Bankruptcy Number: 15-29773, Bankruptcy Number: 15-29783
• Citation: 598 B.R. 658
• Parties: IN RE: Brent David CHRISTENSEN and Jo-Ann Hall Christensen, Debtors. In re: John Thomas Bird, Debtor.
• Court: U.S. Bankruptcy Court — District of Utah

598 B.R. 658

IN RE: Brent David CHRISTENSEN and Jo-Ann Hall Christensen, Debtors.

In re: John Thomas Bird, Debtor.

Bankruptcy Number: 15-29773, Bankruptcy Number: 15-29783

United States Bankruptcy Court, D. Utah.

Signed February 27, 2019

Leslie W. Slaugh, Howard, Lewis & Petersen, P.C., Provo, UT, Paul James Toscano, The Law Office of Paul Toscano, P.C., Murray, UT, for Debtors.

Lon Jenkins tr, Salt Lake City, UT, for Trustee.

MEMORANDUM DECISION

R. KIMBALL MOSIER, U.S. Bankruptcy Judge

Brent and Jo-Ann Christensen and John Bird (collectively, the Debtors) believe that Gary Jubber, the former chapter 7 trustee in these cases, and Fabian VanCott, the law firm employed as his general counsel (collectively with Jubber, the Trustee), acted improperly in attempting to sell their homes while their cases were in chapter 7. They now seek leave to sue the Trustee outside this Court on grounds of breach of fiduciary duty, negligence, and civil conspiracy, which the Trustee has opposed. The parties fully briefed the matter, and the Court conducted a hearing on the Debtors' motions. After considering the parties' memoranda and oral arguments, and after conducting an independent review of applicable law, the Court issues the following Memorandum Decision denying the Debtors' motions for leave to sue.

I. JURISDICTION

The Court's jurisdiction over this contested matter is properly invoked under 28 U.S.C. § 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(A), and the Court may enter a final order. Venue is proper under the provisions of 28 U.S.C. §§ 1408 and 1409.

II. FACTUAL BACKGROUND

The facts of these cases are laid out in the Court's prior decision regarding the Trustee's applications for compensation, and the Court incorporates those facts herein by reference.¹ While they do not bear repeating in toto, the salient facts can be summarized briefly. The Debtors originally filed for relief under chapter 7. Among their assets were homes against which the IRS had filed substantial liens, which left the homes over-encumbered as of the petition date. The Trustee moved to sell the homes and, in conjunction with those sales, reached an agreement with the IRS whereby it would provide a $ 10,000 carve-out to each estate while the Trustee would receive payment of their fees from the IRS's lien under 11 U.S.C. § 724(b).² The Debtors objected to the sales in part because the Trustee did not propose to pay them anything on account of their claimed homestead exemptions, meaning they would lose their homes without receiving proceeds they could use to rent or purchase a new residence.³

Before the Court could rule on the sale motions, the Debtors converted their cases to ones under chapter 13. The Trustee subsequently filed applications for compensation for work done while the cases were in chapter 7, which the Court denied in their entirety. The Court held that the Trustee's efforts to sell the Debtors' homes were not necessary to the administration of the cases nor reasonably likely to benefit the Debtors' estates.⁴ Approximately ten months after the Bankruptcy Appellate Panel for the Tenth Circuit affirmed this Court's decision on the Trustee's applications for compensation, the Debtors filed the present motions.

III. DISCUSSION

The Debtors initially proposed filing complaints against the Trustee in this Court,⁵ but their current requests are broader, seeking leave to sue the Trustee in "an appropriate forum."⁶ By the Debtors' own admission, "an appropriate forum" includes state and federal district court.⁷ As a result, the Debtors' requests entail consideration of the Barton doctrine.⁸

As applied in the bankruptcy context, the Barton doctrine "precludes suit against a bankruptcy trustee for claims based on alleged misconduct in the discharge of a trustee's official duties absent approval from the appointing bankruptcy court."⁹ The Tenth Circuit later extended the protections of the Barton doctrine to a bankruptcy trustee's counsel, "where counsel acts under the direction of, or as the functional equivalent of, the trustee."¹⁰ But it is critical to untangle Barton from the various immunity doctrines with which it can become conflated. The confusion is understandable; since the Barton doctrine "operates as an obstacle for parties wishing to sue a bankruptcy trustee, it may be mistaken for a kind of trustee immunity."¹¹ In addition, some courts have considered—either as a part of, or in addition to, the Barton analysis—whether a trustee is entitled to some form of immunity against suits for actions taken during his administration of the case.¹² But neither Barton 's role-as-obstacle nor the examination of immunity in the Barton context should lead one to conflate the doctrine with the substantive immunities conferred on trustees. Instead, the protections it offers are entirely procedural.¹³ Stated another way, Barton "does not shield trustees from lawsuits. Rather, the doctrine requires the bankruptcy court to determine where the suit may be brought, not whether the trustee may be sued."¹⁴ In sum, Barton is strictly a "jurisdictional gatekeeping doctrine,"¹⁵ and it strips all courts—except the bankruptcy court that appointed the trustee—of subject-matter jurisdiction to hear a lawsuit against the trustee unless the appointing court gives its permission to sue the trustee elsewhere.¹⁶ Only if the Debtors' proposed complaints pass through Barton 's jurisdictional gate will the Debtors be able to file suit against the Trustee outside of this Court.

At the outset, the Court must determine whether Barton applies to the Trustee's acts or whether those acts fall within one of two exceptions to the doctrine,¹⁷ which permit a plaintiff to sue a trustee in another forum without leave of the appointing court. The first exception, codified at 28 U.S.C. § 959(a), applies if the acts complained of involve a trustee's operation of a debtor's business.¹⁸ That provision is "intended to permit actions redressing torts committed in furtherance of the debtor's business, such as the common situation of a negligence claim in a slip and fall case where a bankruptcy trustee, for example, conducted a retail store."¹⁹ It "does not apply to suits against trustees for administering or liquidating the bankruptcy estate."²⁰ The Trustee did not operate a business in the administration of these cases, so the statutory exception to the Barton doctrine is inapplicable.²¹

The second is the ultra vires exception, which applies when a trustee's actions exceed the bounds of his official duties. While this may seem at first glance like a potentially broad exception, to date the only situation found to fall consistently within it is "when a trustee wrongfully seizes possession of a third party's assets."²² In Satterfield , the Tenth Circuit addressed the scope of the ultra vires exception in the context of suits brought, as in this case, by a debtor against a trustee. The Tenth Circuit held that in such cases the ultra vires exception does not apply if the plaintiff's "claims [are] based on acts that are related to the official duties of the trustee ... even if the debtor alleges such acts were taken with improper motives."²³ Moreover, there is a presumption that "acts were a part of the trustee's duties unless Plaintiff initially alleges at the outset facts demonstrating otherwise."²⁴

The Debtors have not overcome that presumption. They have not alleged wrongful seizure of third-party assets, nor have they expressly argued that the Trustee's actions were ultra vires . The closest the Debtors come to making that argument is in their reply memoranda, where they assert that the Trustee's actions were not taken pursuant to statutory authority,²⁵ and in support they provide the following quote from the Court's earlier decision on the Trustee's applications for compensation: "The Trustee's efforts to sell the Homes were unsupported by any provision of the [Bankruptcy] Code."²⁶ But that statement was not a conclusion that the Trustee had acted ultra vires . When placed in context, the Court was simply stating that the Code did not permit the Trustee to accomplish the overall transaction that was proposed—i.e., selling the Debtors' homes, accepting the $ 10,000 carve-outs as proceeds of the sales, and distributing those proceeds without paying the Debtors' homestead exemptions. The Court certainly did not conclude that the Trustee lacked authority to sell property under § 363 or that the Trustee's actions were outside of the statutory duties under § 704. In fact, the acts the Debtors now complain of—that the Trustee objected to their homestead exemptions and sought to sell their homes—are well within a chapter 7 trustee's official duties.²⁷ The Debtors' allegation that the Trustee took those actions primarily for self-enrichment is simply an assertion that the Trustee acted with an improper motive. But the ultra vires exception focuses on "whether the acts were within the scope of the trustee's official duties—not whether they were meritless, without foundation, or brought for ulterior purposes."²⁸ An allegation of improper motive is insufficient to demonstrate that the complained-of acts were not related to the Trustee's official duties. Because the Trustee's actions taken to sell the Debtors' homes are related to the official duty to liquidate property of the estate, they do not fall within the ultra vires exception. Since neither it nor the statutory exception pertains, the Barton doctrine applies to the Debtors' requests and the Debtors must obtain this Court's leave before suing the Trustee in another forum.²⁹

The question of whether to grant leave involves a two-step analysis. First, the Court must determine if the Debtors have made "a prima facie case showing that [their claims are] not without foundation."³⁰ Failure to establish a prima facie case results in denial of leave to sue.³¹ In that instance, the Court may forgo the second step of the analysis:...