Satterfield v. Malloy

• Decision Date: 28 November 2012
• Docket Number: No. 11–5144.,11–5144.
• Parties: William SATTERFIELD, Plaintiff–Appellant, v. Patrick J. MALLOY, III, Defendant–Appellee, and John Doe; Richard Roe, Defendants.
• Court: U.S. Court of Appeals — Tenth Circuit

700 F.3d 1231

William SATTERFIELD, Plaintiff–Appellant,

v.Patrick J. MALLOY, III, Defendant–Appellee,andJohn Doe; Richard Roe, Defendants.

No. 11–5144.

United States Court of Appeals,Tenth Circuit.

Nov. 28, 2012.

Submitted on the briefs: ^*

Carl Hughes, Hughes & Hughes, Edmond, OK, for the Plaintiff–Appellant.

Joseph R. Farris (Paula J. Quillin with him on the briefs), Feldman, Franden, Woodard & Farris, Tulsa, OK, for the Defendant–Appellee.

Before LUCERO, O'BRIEN, and MATHESON, Circuit Judges.

LUCERO, Circuit Judge.

William Satterfield brought suit against Patrick J. Malloy III, the court-appointed trustee of Satterfield's Chapter 7 bankruptcy estate. The district court concluded that the suit was barred by Barton v. Barbour, 104 U.S. 126, 26 L.Ed. 672 (1881), because Satterfield's claims are based on actions Malloy took as trustee and Satterfield did not first obtain permission from the bankruptcy court. Satterfield contends that Barton does not apply because Malloy's actions were ultra vires. We reject this contention; because Malloy's allegedly wrongful actions were conducted as part of Malloy's duties as trustee, Barton bars suit absent permission from the appointing court. We further conclude that Satterfield's action is not authorized by 28 U.S.C. § 959 because Malloy was not carrying on the business of the estate, but simply administering its liquidation. Exercising jurisdiction under 28 U.S.C. § 1291, we affirm.

I

We draw the following facts from Satterfield's complaint. In June 2004, Satterfield pled guilty to certain federal criminal charges and was ordered to pay up to $1.7 million in restitution. Satterfield consulted various attorneys, including Malloy, to determine whether a declaration of bankruptcy would be appropriate. Malloy declined to represent Satterfield in bankruptcy proceedings, but obtained substantial information regarding Satterfield's finances as part of the consultation process.

In August 2004, Satterfield voluntarily filed for Chapter 11 bankruptcy. The Office of the United States Trustee appointed Malloy as trustee of Satterfield's estate. Although Satterfield did not object to the appointment, he contends that he was not fully advised of potential areas of conflict that might arise as a result of Malloy acting as trustee.

Over Satterfield's objections, the bankruptcy court converted his Chapter 11 proceeding to Chapter 7 in February 2006. Malloy continued to serve as trustee of the estate following conversion. In March 2006, Malloy, acting in his capacity as trustee, filed an application to be appointed attorney of the estate. Satterfield moved to disqualify Malloy as trustee and attorney for his estate, arguing that Malloy had violated provisions of the Bankruptcy Code and raising by implication questions of Malloy's compliance with professional ethical duties.

Satterfield alleges that as a result of this motion, “Malloy engaged in a continuous course of conduct between 2006 and 2008 designed to retaliate against [Satterfield] for having raised an objection to [Malloy's] status as trustee and attorney for the [estate].” Specifically, Satterfield contends that Malloy: (1) deliberately acted to dissipate the value of the estate; (2) refused to report rents received as income, causing Satterfield to be assessed penalties and interest by the Internal Revenue Service; (3) allowed foreclosure on certain properties rather than making a good faith effort to sell them; (4) failed to provide for the adequate upkeep of estate property; (5) failed to preserve the value of property subject to foreclosure; (6) failed to preserve and/or prosecute a claim of reverse condemnation against the City of Tulsa; and (7) failed to exercise reasonable care in renting certain property to an individual who engaged in illegal activity on the property.

In January 2010, Satterfield filed suit against Malloy in his individual capacity in federal district court. The district court dismissed the action pursuant to Malloy's Fed.R.Civ.P. 12(b)(6) motion, concluding that the Barton doctrine barred Satterfield's claims. Satterfield timely appealed.

II

As an initial matter, we note that the Barton doctrine is jurisdictional in nature. See Barton, 104 U.S. at 131 (without leave of the appointing court, another court has “no jurisdiction to entertain a suit” against a receiver). Accordingly, dismissal under Barton should be made pursuant to Fed.R.Civ.P. 12(b)(1) rather than 12(b)(6). Nevertheless, the standard of review is de novo under either subsection. See Colo. Envtl. Coal. v. Wenker, 353 F.3d 1221, 1227 (10th Cir.2004). We will treat the dismissal as one having occurred under Rule 12(b)(1). See id. (considering appeal under Rule 12(b)(1) standards because grounds relied upon by district court were jurisdictional).

A

In Barton, the Supreme Court held that “before suit is brought against a receiver leave of the court by which he was appointed must be obtained.” 104 U.S. at 128. A plaintiff who brings such a suit, the Court explained, attempts to “obtain some advantage over the other claimants upon the assets in the receiver's hands.” Id. If allowed to proceed, “the court which appointed the receiver and was administering the trust assets would be impotent to restrain” such a plaintiff, complicating the proper administration of the estate. Id.

Our sibling circuits have frequently applied this doctrine in suits against a bankruptcy trustee, holding that Barton applies to claims arising from “acts done in the trustee's official capacity and within the trustee's authority as an officer of the court.” Heavrin v. Schilling (In re Triple S Rests., Inc.), 519 F.3d 575, 578 (6th Cir.2008) (quotation omitted); see also Beck v. Fort James Corp. (In re Crown Vantage), 421 F.3d 963, 970 (9th Cir.2005) ( “[A] party must first obtain leave of the bankruptcy court before it initiates an action in another forum against a bankruptcy trustee or other officer appointed by the bankruptcy court for acts done in the officer's official capacity.”); Muratore v. Darr, 375 F.3d 140, 145 (1st Cir.2004) (applying the doctrine to claims that allege “misconduct in discharging [the] trustee's administrative responsibilities”); Carter v. Rodgers, 220 F.3d 1249, 1252 (11th Cir.2000) (noting the doctrine is triggered by claims for “breaches of fiduciary duties stemming from [trustees'] official bankruptcy duties”).

As the Seventh Circuit has held, the Barton doctrine extends to bankruptcy trustees because “[t]he trustee in bankruptcy is a statutory successor to the equity receiver” and

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. If he 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.

In re Linton, 136 F.3d 544, 545 (7th Cir.1998). Although our court has not yet applied Barton in a case against a bankruptcy trustee, we conclude that the reasoning of our sibling circuits is persuasive. We now hold that Barton 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.

Although the Barton doctrine applies to many claims against a bankruptcy trustee, there are exceptions. The doctrine does not apply “if, by mistake or wrongfully, the receiver takes possession of property belonging to another.” Barton, 104 U.S. at 134. An individual whose property is wrongfully seized may bring suit against a receiver “personally as a matter of right; for in such case the receiver would be acting ultra vires.” Id. The question before us is whether Malloy's allegedly retaliatory actions fall within his scope of authority as trustee or fit within the ultra vires exception.

Although this Circuit has not specified the scope of the ultra vires exception to the Barton doctrine, other courts have most commonly relied upon the exception when a trustee wrongfully seizes possession of a third party's assets. See, e.g., Leonard v. Vrooman, 383 F.2d 556, 560 (9th Cir.1967) ( “[A] trustee wrongfully possessing property which is not an asset of the estate may be sued for damages arising out of his illegal occupation in a state court without leave of his appointing court.”); In re Weisser Eyecare, Inc., 245 B.R. 844, 851 (Bankr.N.D.Ill.2000) (“Courts which have held trustees personally liable for actions taken outside the scope of their authority, have mainly done so in matters involving a trustee's mistaken seizure of property not property of the estate, or other similar actions.”).

Our recent order and judgment in Teton Millwork Sales v. Schlossberg, 311 Fed.Appx. 145 (10th Cir.2009) (unpublished), charted a similar course. In that case, Teton Millwork Sales, a corporation in which the husband in an underlying divorce proceeding was a twenty-five percent shareholder, claimed that a court-appointed receiver wrongfully seized its assets. We concluded that such claims fell “squarely within th[e] ultra vires exception to the Barton doctrine.” Id. at 148. However, the dissent argued that the seizure occurred within the scope of authority granted to the receiver because the appointing court “adjudged and ordered” the receiver to “seize any assets that [the husband] has an ownership interest therein.” Id. at 153 (Ebel, J., dissenting). The majority distinguished the cases cited by the dissent on the ground that “none of them involved an outside party who claimed that their assets had wrongfully been seized.” Id. at 148.

Other courts have adopted a relatively broad interpretation of the Barton doctrine when considering claims by plaintiffs who are involved in the underlying bankruptcy proceeding. In Triple S Restaurants, the plaintiff was general counsel for the bankrupt entity and...