When the Barton doctrine did not apply, the Eleventh Circuit achieved the same result by employing judicial immunity to insulate a bankruptcy trustee who made a mistake by seizing property belonging to a nondebtor.

The debtor was an individual in trouble with the Federal Trade Commission. Eventually, the FTC won a $25 million judgment against him for deceptive and unfair trade practices in the sale of weight-loss products.

Soon, the man was in chapter 7. Three years into the bankruptcy case, the trustee obtained an order from the bankruptcy court that the Eleventh Circuit characterized as a “break order.” The trustee obtained the order because the debtor allegedly had not turned over assets and financial information.

The break order authorized the trustee to utilize U.S. Marshalls to seize business records, electronic devices, property of the bankruptcy estate and “[a]ny additional items Trustee, in his sole discretion, reasonably believes to be part of the bankruptcy estate.”

The debtor’s wife filed a lawsuit in federal district court against the chapter 7 trustee and his counsel. The complaint alleged that the trustee had seized and removed family medical records and other property that did not belong to the debtor. The complaint asserted claims for violation of the wife’s Fourth Amendment rights, the right to privacy under the state constitution and common law conversion.

Evidently, the trustee returned items sometime later that were not part of the bankruptcy estate.

The trustee filed a motion to dismiss. The district court granted the motion, believing that the court lacked jurisdiction under the Barton doctrine and that the lawsuit was a collateral attack on the break order.

The wife appealed.

Barton Applies

In a per curiam opinion on November 5, the Eleventh Circuit decided that the wife was allowed to file the lawsuit in view of the ultra vires exception to the Barton doctrine. Nonetheless, the panel affirmed the judgment of dismissal because the trustee and counsel were entitled to judicial immunity.

The appeals court began analysis of the merits by discussing the applicability of the Barton doctrine, which emanated from Barton v. Barbour, 104 U.S. 126 (1881). The Supreme Court said 143 years ago that “leave of the court by which he was appointed must be obtained” before “suit is brought against a receiver.” Id. at 128.

After adoption of the Bankruptcy Act of 1898, the doctrine was extended to cover bankruptcy trustees and was subsequently broadened by many circuits to protect court-appointed officials and fiduciaries, such as trustees’ and debtors’ counsel, real estate brokers, accountants, and counsel for creditors’ committees.

The appeals court saw “little dispute here that the Barton doctrine presumptively applies to” the trustee and counsel, because they were “court-appointed or court-approved officers.” The panel went on to say that the wife’s complaint fell within the doctrine because the trustee and counsel were acting in their official capacities, even if they had “‘abused’ their official capacities.”

Furthermore, the panel said that the wife’s complaint was within the bankruptcy court’s “related to” jurisdiction. Finding that the doctrine “applies,” the appeals court said that the wife “presumptively . . . may file suit in the district court only with the bankruptcy court’s leave,” which, of course, had not been given.

Ultra Vires

With the doctrine applicable, the wife was barred from suing unless there were an exception to Barton. The wife pointed to the ultra vires exception.

Quoting Barton itself, the appeals court said that the “ultra vires exception applies ‘if, by mistake or wrongfully, the receiver takes possession of property belonging to another.’” Id. at 134. The “classic application” occurs, the panel said, when a trustee seizes or administers property belonging to a nondebtor third party.

The trustee argued that ultra vires did not apply because he was acting within the scope of authority. Citing Barton itself, the appeals court disagreed, saying that “the ultra vires exception depends on only whether the bankruptcy trustee seized non-debtor property.”

Seemingly deciding that the wife was entitled to sue without leave of the bankruptcy court, the circuit court said that “the Barton doctrine does not apply to [the wife’s] present suit” because the “Defendants seized many personal items unrelated to [the debtor’s] estate.”

Judicial Immunity

The appeals court saved the trustee’s bacon by using a different theory: judicial immunity.

Citing Eleventh Circuit precedent, the appeals court said that the trustee and counsel were entitled to judicial immunity for acts within the scope of their authority. Again citing the circuit’s own precedent, the panel added that “immunity applies even if a bankruptcy trustee acts in error, maliciously, or in excess of the appointing court’s jurisdiction.”

The appeals court decided that the trustee and counsel were acting within the scope of their authority because they had been authorized “to seize any items he reasonably believed to be part of the Debtor’s estate.” Since the documents found in the home were voluminous and disorganized, the panel said that “some accidental seizure of non-debtor property is understandable — and protected.”

The bankruptcy court had found that the trustee was not only acting within “his realm” but was doing “exactly what the [Bankruptcy Code] requires him to do.” Because the wife presented no evidence to contradict the lower court’s finding, the panel held that the trustee and counsel were acting within the scope of their official duties and were entitled to judicial immunity.

The appeals court affirmed the judgment of dismissal.