A trustee who constructively evicts a tenant to preserve estate property is protected by qualified and quasi-judicial immunity, according to the majority and concurring opinions from a Third Circuit panel.
Considering the litigation expense and exposure that the trustee nonetheless faced, the opinions counsel a trustee to obtain court authority before taking unilateral action that interferes with a creditor’s rights.
The chapter 7 debtor owned real estate leased to a restaurant that halted operations before bankruptcy. The trustee had obtained an order rejecting the lease, but the tenant remained in possession because the restaurant operator held the keys and owned equipment remaining on the premises after rejection.
Facing a cold snap in early January and knowing that insurance had lapsed, the trustee convened a meeting with the debtor’s owner and the restaurant operator. A contractor also at the meeting recommended that the restaurant operator keep the heat above 60 degrees to avoid broken pipes. At the meeting, the restaurant operator gave the trustee a key to the property.
Pipes broke, causing a flood, because the restaurant operator did not maintain heat. Using the key, the trustee was unable to enter the premises to inspect the damage because the restaurant operator had not given her a second key to an interior door. At that juncture, the debtor’s owner changed the locks and gave a set of the new keys to the trustee but not to the restaurant operator.
The trustee notified the tenant that she had taken control of the property to preserve the assets. The same day, the trustee filed a motion asking the bankruptcy court to give her possession of the property and its contents. About two weeks later, the bankruptcy court entered an order prohibiting the tenant from entering the property without the trustee’s permission. The bankruptcy court had also denied the restaurant operator’s motion to regain possession of the premises.
The restaurant operator sued the trustee, claiming constructive eviction and violation of constitutional rights. Even though the lease had been rejected, the tenant argued that the restaurant could not be evicted under state law without a judgment of eviction. The bankruptcy court dismissed the suit based on the trustee’s immunity, not on the effect of lease rejection or the lack of constitutional rights. The district court upheld dismissal.
Writing for himself and Circuit Judge Jane R. Roth on Sept. 28, Circuit Judge Thomas M. Hardiman upheld dismissal under the doctrine of qualified immunity.
After the bankruptcy court’s order giving her possession, Judge Hardiman said the trustee had absolute immunity when she was carrying out a court order. Most of his opinion, though, was devoted to the issue of qualified immunity for the time period before the order of possession, when the trustee was acting without benefit of a court order.
Citing Harlow v. Fitzgerald, 457 U.S. 800, 818 (1982), Judge Hardiman held that bankruptcy trustees are entitled to qualified immunity from “claims by third parties when they act in their official capacity in a manner that is not contrary to clearly established law.” To qualify as “established law,” the precedent must be “factually similar,” Judge Hardiman said, quoting Third Circuit authority.
Quoting the bankruptcy court, Judge Hardiman said there was a “dearth of authority” on the right of a trustee to take control when there is an “imminent risk of destruction or damage, especially in the face of the lack of cooperation by a third party.” He agreed with the lower courts that the trustee “‘took appropriate action to administer and preserve the Estate Property.’”
Circuit Judge D. Michael Fisher concurred in the judgment. He argued that the majority should not have ruled on qualified immunity because it was raised for the first time on appeal. He contended that qualified immunity was not the basis for the decisions in either the bankruptcy court or the district court.
Instead, Judge Fisher said he would have upheld dismissal “based on the historical tradition of according quasi-judicial immunity to bankruptcy trustees sued by third parties for actions taken within the scope of their official duties.” He said there is “broad consensus” that judicial immunity is extended to trustees “for actions taken within the scope of their duties that are necessary to the bankruptcy court’s adjudication of the debtor’s estate.”
Judge Fisher said that giving the trustee quasi-judicial immunity “is not a close call.” He said the trustee performed “discretionary actions” to secure the property “within the scope of her authority.”
The opinion is Phoenician Mediterranean Villa LLC v. Swope (In re J&S Properties LLC), 16-3366 (3d Cir. Sept. 28, 2017).