Michael H. Kaliner, Tr. of the Estate of DMW Marine, LLC v. Antonoplos (In re DMW Marine, LLC)

• Decision Date: 22 April 2014
• Docket Number: Bankruptcy No. 11–13953 ELF.,Adversary No. 13–0290.
• Citation: 509 B.R. 497
• Parties: In re DMW MARINE, LLC, Debtor. Michael H. Kaliner, Trustee of the Estate of DMW Marine, LLC, Plaintiff, v. Michael Antonoplos, Defendant.
• Court: U.S. Bankruptcy Court — Eastern District of Pennsylvania

509 B.R. 497

In re DMW MARINE, LLC, Debtor.Michael H. Kaliner, Trustee of the Estate of DMW Marine, LLC, Plaintiff,

v.Michael Antonoplos, Defendant.

Bankruptcy No. 11–13953 ELF.

Adversary No. 13–0290.

United States Bankruptcy Court, E.D. Pennsylvania.

Signed April 22, 2014.

Linda Alle–Murphy, Paul Brinton Maschmeyer, Maschmeyer Karalis P.C., Philadelphia, PA, for Plaintiff.

Law Office of Mark S. Pearlstein, Wayne, PA, for Defendant.

OPINION

ERIC L. FRANK, Chief Judge.

I. INTRODUCTION

For sixteen (16) months prior to its May 17, 2010 bankruptcy filing, DMW Marine, LLC (“the Debtor”) operated under the auspices of a federal receiver, Michael Antonoplos (“the Receiver”). The Receiver was appointed by the U.S. District Court for the Eastern District of Pennsylvania (“the District Court”), in connection with the action, Klein v. Weidner, No. 08–cv3798.

Almost two (2) years after the bankruptcy filing, on May 16, 2013, the chapter 7 trustee, Michael Kaliner (“the Trustee”) initiated this adversary proceeding against the Receiver, asserting claims for:

• negligence;

• breach of fiduciary duty;

• avoidance and recovery of a preferential transfer pursuant to 11 U.S.C. §§ 547, 550;

• avoidance of a fraudulent transfer pursuant to 11 U.S.C. §§ 548(a)(1)(A), 548(a)(1)(B), 544(b) and 550.

The Receiver has filed a motion to dismiss this adversary proceeding (“the Motion”) for lack of subject matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1) (incorporated by reference by Fed. R. Bankr.P. 7012).¹

In the Motion, the Receiver does not suggest that conventional “bankruptcy jurisdiction” under 28 U.S.C. § 1334 is lacking. Rather, he argues that the statutory authority for the exercise of this court's jurisdiction is ousted pursuant to the “Barton doctrine.” See Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881). The Barton doctrine generally provides that a party seeking to sue a court-appointed receiver must first obtain leave of the appointing court and that, absent leave of the appointing court, no other court has jurisdiction to hear a suit against the receiver. E.g., In re VistaCare Group, LLC, 678 F.3d 218, 224–25 (3d Cir.2012).

The Trustee did not obtain leave of the District Court (the receivership court) before commencing this adversary proceeding. Nonetheless, he contends that an exception to the Barton doctrine applies and therefore, this court may exercise jurisdiction over this adversary proceeding. Alternatively, he argues that the Receiver has waived the right to raise the Barton doctrine issue.

For the reasons explained below, I find that the Receiver has properly invoked the Barton doctrine and that no exception to the doctrine applies. However, due to the unusual circumstances presented, I will not dismiss this adversary proceeding for lack of jurisdiction. Rather, I will defer in favor of the District Court, allowing the District Court to make the ultimate decision regarding the proper disposition of this matter. To accomplish this, I will submit a Report and Recommendation to the District Court requesting that it determine whether:

(1) the reference of this adversary proceeding should be withdrawn from the bankruptcy court so that the adversary proceeding may be litigated in the District Court; or

(2) the Trustee should be authorized to prosecute his claims in the bankruptcy court; or

(3) the bankruptcy court should be directed to grant the Motion and dismiss this adversary proceeding.

Pending receipt of instructions from the District Court, I will place the adversary proceeding in suspense.

II. BACKGROUND

A.

The Trustee's action against the Receiver emanates from a long, contentious dispute between the Debtor's principal, Douglas Weidner (“Weidner”), and his former spouse, Deborah Klein (“Klein”).

Weidner and Klein were divorced in California in 1999. The divorce decree imposed certain child and spousal support obligations on Weidner, which he failed to pay. On June 2, 2008, after protracted litigation between the parties, a California state court entered judgment in Klein's favor in the amount of $548,797.07. Klein transferred the judgment to the Court of Common Pleas, Chester County, Pennsylvania on August 25, 2008.

On August 11, 2008, Klein commenced an action in the District Court against Weidner to avoid and recover certain alleged fraudulent property transfers. The District Court ruled in Klein's favor, finding that Weidner's transfers of his residence and his ownership interest in the Debtor to himself and his current spouse as tenants by the entireties were fraudulent and that Klein was entitled to punitive damages, among other relief.²

Most relevant for present purposes, the District Court also granted Klein two (2) other forms of relief. First, the District Court “reverse-pierced” the Debtor's corporate veil. This remedy permitted Klein to treat the Debtor's assets as Weidner's personal assets for purposes of Klein's collection of her judgment against Weidner. See Klein v. Weidner, 2010 WL 571800, at *7–8.

Second, on January 19, 2010, the District Court entered an order placing the Debtor in receivership and appointing the Receiver. A modified order entered on February 17, 2010 (“the Receivership Order”) replaced the initial order.

The Receivership Order authorized the Receiver to, inter alia:

• “manage, operate and preserve” the Debtor's property, (¶ 1);

• “take ... possession” of the Debtor and its rents, income, and profits, (¶ 2);

• “continue the operations of, development and maintenance” of the Debtor, (¶ 6); • “conduct ... the business [of the Debtor], namely, the operation of [the Debtor],” (¶ 7);

• “collect and receive all payments, revenues, rents, income and profits” of the Debtor, (¶ 10)

• pay “all current and actual operating expenses,” taxes and insurance premiums, (¶ 11) (emphasis added);

• “turn over to [Klein] any funds remaining ... at the end of each month in excess of the amount necessary to pay the ... costs of operation and maintenance,” (¶ 13) (emphasis added);

• receive compensation for his services, “to be negotiated between the Receiver and [Klein],” (¶ 15).

On the liability side, the Receivership Order provided:

If the Receiver shall have acted in accordance with the terms and conditions of this Order, the Receiver shall have no liability as to any claim, actions or causes of action of any third parties who have or would have claims against the owner of [the Debtor] or any officer, director or partner thereof, including, without limitation, any claims under any federal or state environmental laws, provided however, the Receiver shall be liable for: breach of any contract entered into by Receiver; the Receiver's own negligence, intentional or willful misconduct; or actions taken by the Receiver that are not authorized by the terms of this Order; or actions of the Receiver that occur after the date of this Order.

(¶ 19) (emphasis added).

B.

In the Trustee's Complaint in this adversary proceeding, he alleges that, in or around June 2010, the Receiver entered into an agreement (“the Agreement”) with Klein that resulted in the Debtor paying her $625,000.00. The Trustee asserts that the Agreement was “in violation of” the Receivership Order and “against the interests” of the Debtor and its bankruptcy estate. (Complaint ¶ 16).

More specifically, the Trustee contends that under Paragraph 13 of the Receivership Order, the Receiver could make payments to Klein, on account of the Debtor's reverse veil-piercing liability on Klein's $548,797.07 judgment against Weidner, only from monthly profits remaining after the payment of ongoing operational expenses. The Trustee complains that the Receiver failed to comply with this alleged restriction by paying Klein from: (a) customer deposits, and (b) cash on hand that the Debtor needed as operating capital. ( Id. ¶¶ 18, 40).

The Trustee further alleges that the Receiver received “excessive compensation for essentially no work, totaling $206,872.50” from February 2010 through May 2011. ( Id. ¶ 24). The Trustee contends that the Receiver's faulty conduct caused the Debtor's business problems and eventual bankruptcy filing. ( Id. at ¶ 23).

According to the Trustee, the Receiver's alleged inadequate performance amounted to negligence and a breach of his fiduciary duty to the Debtor. ( Id. ¶¶ 42–42, 48). In addition, the Trustee alleges that $152,947.50 of the asserted excessive compensation constitutes an avoidable preference under 11 U.S.C. § 547. ( Id. ¶ 53–58). Finally, the Trustee claims that the Receiver's compensation was paid with an intent to hinder, delay, or defraud creditors or was paid for less than reasonably equivalent value in exchange, rendering the payments avoidable as fraudulent transfers under 11 U.S.C. §§ 548(a)(1)(A), (B) and 544(b). ( Id. ¶¶ 60–76).

III. THE BARTON DOCTRINE

A.

The two (2) reported opinions in this jurisdiction that provide the most fulsome explanation and discussion of the Barton Doctrine are the Court of Appeals' decision, VistaCare Group and the bankruptcy court's decision, In re CitX Corp., 302 B.R. 144 (Bankr.E.D.Pa.2003).³ The VistaCare Group and CitX courts both thoroughly analyzed the historical roots and theoretical underpinnings of the Barton Doctrine, so I will not repeat that discussion here. I observe that VistaCare Group is a precedential opinion that this court is obliged to follow. See, e.g., A.A. ex rel. E.A. v. Exeter Twp. Sch. Dist., 485 F.Supp.2d 587, 591 (E.D.Pa.2007).

The core principles regarding the Barton Doctrine that may be distilled from VistaCare Group and CitX (and many other reported decisions) are:

• Although it is a common law doctrine, it has not been abrogated by the Bankruptcy Code.⁴

• In the bankruptcy context, it applies to actions that a third party brings against a bankruptcy trustee,⁵ as well as actions that a bankruptcy trustee brings against receivers appointed by federal and state courts. ⁶

• The doctrine mandates that a plaintiff who wishes to...