In re: Mailman Steam Carpet Cleaning Corp.

• Decision Date: 13 September 1999
• Docket Number: No. 99-1170,99-1170
• Citation: 196 F.3d 1
• Parties: (1st Cir. 1999) IN RE MAILMAN STEAM CARPET CLEANING CORP., Debtor. GARY R. LEBLANC, Appellant, v. RICHARD P. SALEM, TRUSTEE, ETC., Appellee. Heard
• Court: U.S. Court of Appeals — First Circuit

Page 1

196 F.3d 1 (1st Cir. 1999)

IN RE MAILMAN STEAM CARPET CLEANING CORP., Debtor.

GARY R. LEBLANC, Appellant, v. RICHARD P. SALEM, TRUSTEE, ETC., Appellee.

No. 99-1170

United States Court of Appeals for the First Circuit

Heard September 13, 1999

Decided November 2, 1999

Gary L. LeBlanc, pro se ipso, for appellant.

Jon C. Cowen, with whom George A. Berman and Posternak, Blankstein & Lund, L.L.P. were on brief, for appellee.

Before Selya, Circuit Judge, Bownes, Senior Circuit Judge, and Lipez, Circuit Judge.

SELYA, Circuit Judge.

Acting in his capacity as a bankruptcy trustee, Richard P. Salem sought and received court approval to abandon certain property of the bankruptcy estate. A disgruntled creditor, Attorney Gary R. LeBlanc, filed an adversary proceeding against Salem, alleging negligence and breach of fiduciary duty. The bankruptcy court converted Salem's ensuing motion to dismiss into a motion for summary judgment and granted it on the ground that Salem could not be held personally liable because he had acted pursuant to a court order. On appeal, the district court endorsed this ruling. LeBlanc presses forward. We reject Salem's suggestion that the lower courts lacked jurisdiction to entertain LeBlanc's quest, but we agree that Salem's actions are entitled to protection under the doctrine of derived judicial immunity. Consequently, we affirm.

I. BACKGROUND

Following conventional practice, we assay the facts in the light most favorable to the party opposing brevis disposition (here, LeBlanc) and draw all reasonable inferences in his favor. See Desmond v. Varrasso (In re Varrasso), 37 F.3d 760, 762-63 (1st Cir. 1994) (holding that Fed. R. Bankr. P. 7056, which makes Fed. R. Civ. P. 56 applicable to bankruptcy proceedings, requires the application of traditional summary judgment principles in bankruptcy proceedings). We do not give credence to empty rhetoric, however, but credit only those assertions that are supported by materials of evidentiary quality. See Medina-Munoz v. R.J. Reynolds Tobacco Co., 896 F.2d 5, 8 (1st Cir. 1990) (warning that a party opposing summary judgment cannot rely on "conclusory allegations, improbable inferences, and unsupported speculation"). Here, the record on appeal lacks crucial documents, so in many instances we simply present the parties' contradictory positions. For the same reason, we use round numbers throughout, conscious that they are approximations.

In October 1990, Mailman Steam Carpet Cleaning Corp. (Mailman), represented by LeBlanc, won a judgment in excess of $450,000 against Alfred C. Lizotte and, to secure it, attached a parcel of commercial real estate owned by Lizotte. At the time, a corporation controlled by Lizotte (the Corporation) operated a service station on the premises as a franchisee of Gulf Oil, Inc. (Gulf). LeBlanc had represented Mailman on a contingent fee basis in the original litigation, and both the judgment and the fee remained uncollected when, on March 15, 1993, Mailman filed a voluntary bankruptcy petition under Chapter 7, 11 U.S.C. §§ 701-766 (1994). Salem was appointed trustee and he embarked upon the administration of the estate.

On September 18, 1995, Salem filed a notice of intention to settle the claim against Lizotte for $100,000 and sought court approval of the plan. LeBlanc, qua creditor, filed an objection in his own right. The court held a hearing on October 19, during which Salem introduced an appraisal that estimated the fair market value of the real estate, including the fixtures and equipment associated with the Corporation's business, at $390,000. In an apparent effort to segregate the value of the property attached, the appraiser carved out $175,000 of this total and assigned it to the "[l]and, buildings and installations" owned personally by Lizotte. Even this reduced amount was not free and clear, for the real estate was encumbered by a prior first mortgage that secured $100,000 in debt.

These figures proved controversial. LeBlanc maintained that the real estate was worth much more (say, $500,000), but he offered no concrete evidentiary support for this claim. No other creditor objected to the proposed settlement, and the bankruptcy court eventually approved it, subject to the following proviso:

If the gas station is sold within two years from [Oct. 19, 1995], the trustee may move for revocation of this approval. Depending on the facts of the sale, the court will then either confirm or revoke its approval.

The court denied LeBlanc's subsequent motion to alter or amend and ordered Salem to deliver an executed discharge of the lien, to be held in escrow pending payment of $100,000 to the estate.

In May 1996 (roughly seven months after the court's conditional approval of the settlement), Lizotte and the Corporation sold the property for some $560,000. The substance of the transaction is in dispute, and the record on appeal is devoid of any satisfactory evidence of its terms. We do know, however, that $100,000 went to the bankruptcy estate to complete the settlement and that a like amount went to the first mortgagee to discharge the prior lien. Salem asserts that the balance represented business assets of the Corporation and was paid out accordingly. LeBlanc contends that this allocation was a sham and that Lizotte fraudulently diverted $360,000 that should have been available to his creditors (including Mailman and, derivatively, LeBlanc himself).

Shortly after the sale, LeBlanc moved to revoke the approval order and to compel Salem to seek its revocation. While these motions were pending, the bankruptcy court granted LeBlanc permission under Fed. R. Bankr. P. 2004 to examine Lizotte, Gulf, and the Corporation, limited, however, to information concerning the terms of the sale and to whom the proceeds went. The court later rebuffed LeBlanc's attempt to examine the buyer, Peterborough Oil Co. The permitted discovery was not completed until the winter of 1997-1998.

In March 1998, Salem notified Mailman's creditors that he intended to abandon the reserved right to seek revocation of the Lizotte settlement. LeBlanc -- and LeBlanc alone -- opposed abandonment. At a hearing held on April 15, 1998, LeBlanc again accused Lizotte of chicanery and described the results of his investigation. He made three main points: (1) at the Rule 2004 examination, Lizotte could recall no specific business assets that were exchanged for the $560,000 purchase price; (2) neither the purchase-and-sale agreement nor the recorded deed mentioned any assets other than the improved real estate; and (3) the deed listed the sale price of the real estate at $300,000. LeBlanc failed to persuade, and the bankruptcy court overruled his objection and authorized Salem to abandon the right to seek revocation.¹

That same day, LeBlanc filed an adversary proceeding against Salem, alleging negligence and breach of fiduciary duty stemming from Salem's failure to seek revocation of the settlement. Salem moved to dismiss the complaint on the ground that it failed to state an actionable claim. The bankruptcy court treated the motion as one for summary judgment and granted it on the ground that the complaint constituted an unfair attempt to hold Salem personally liable for taking an action that the court had sanctioned. The district court upheld the ruling and this appeal followed.

II. THE JURISDICTIONAL ISSUE

Salem questions the bankruptcy court's subject matter jurisdiction over this adversary proceeding. Because it would be inappropriate for this court to address the merits in the absence of a genuine case or controversy, see Steel Co. v. Citizens For a Better Env't, 523 U.S. 83, 93-94 (1998), we cannot ignore this challenge.

LeBlanc's complaint premises his right to sue on 28 U.S.C. § 959(a), which provides in relevant part:

Trustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property.

Salem correctly observes that the abandonment at issue here did not arise in the course of "carrying on business" by the trustee and thus suggests that LeBlanc's failure to obtain leave from the bankruptcy court before instituting his adversary proceeding renders that proceeding a nullity. This approach relies on two faulty premises, namely, (1) that section 959(a) is the exclusive source of jurisdiction for such a proceeding, and (2) that, in all events, LeBlanc's misplaced reliance on section 959(a) forecloses consideration of any other jurisdictional source.

A

The first premise rests on the view that by allowing a certain category of suits to proceed without prior leave from the appointing court, section 959(a) negatively implies that leave is required in all other cases. But this view throws out the baby with the bath water. Over a century ago, the Supreme Court as a matter of federal common law barred suits against receivers in courts other than the court charged with administration of the estate, explaining that leaving litigants free to sue receivers in other courts would effectively "take the property of the trust from [the receiver's] hands and apply it to the payment of the plaintiff's claim, without regard to the rights of other creditors or the orders of the court which is administering the trust property." Barton v. Barbour, 104 U.S. 126, 129 (1881); see also Vass v. Conron Bros. Co., 59 F.2d 969, 970 (2d Cir. 1932) (L. Hand, J.) (holding Barton applicable to bankruptcy trustees). Congress responded by passing the predecessor of the present section 959(a) to suspend the approval requirement for suits arising in the course of carrying out business connected with trust property. Subject to this exception, a long line of cases has required leave from the bankruptcy court before allowing an action against the trustee to proceed in another tribunal. See, e.g., In re Linton...