Latching onto what amounts to the third exception to the so-called Barton doctrine, Bankruptcy Judge Elizabeth E. Brown of Denver allowed a bankruptcy trustee to pursue a preference suit against a special master appointed by a state court.
The case involved a classic preference or constructive fraudulent transfer. The debtor was in divorce proceedings with his wife. The warring spouses agreed to have the divorce court appoint a special master whose fees were to be paid by the husband’s company.
In the year before it went bust, the husband’s company paid the special master almost $18,000. After bankruptcy, the company’s trustee sued the special master for a preference or a constructive fraudulent transfer.
The special master filed a motion to dismiss, contending that the Barton doctrine deprived the bankruptcy court of jurisdiction.
In her March 13 opinion, Judge Brown comprehensively laid out the history, evolution, and policy behind Barton v. Barbour, 104 U.S. 126 (1881). The doctrine originally meant that receivers cannot be sued without permission from the appointing court.
Judge Brown explained how the doctrine was expanded to cover bankruptcy trustees after adoption of the Bankruptcy Act of 1898. Later, Barton was broadened to protect court-appointed officials and fiduciaries, such as trustees’ and debtors’ counsel, real estate brokers, accountants, and counsel for creditors’ committees.
Although the doctrine is most often invoked in suits against those appointed by bankruptcy courts, Judge Brown cited cases where Barton has been applied in state receiverships. She cited a Nevada case invoking the doctrine to protect a special master.
Judge Brown explained the two primary exceptions to the Barton doctrine. First, it does not apply to suits under 28 U.S.C. § 959(a), the statute allowing suits against court-appointed officials “with respect to any of their acts or transactions in carrying on business . . . .” For example, Section 959(a) allows a trustee to be sued for a slip-and-fall in a retail store run by a bankruptcy trustee.
Section 959(a) did not apply to the case at hand, Judge Brown said, because the suit was not based on the operation of the company’s business.
Ultra vires is the second exception, but it too did not apply because the suit did not allege that the special master acted beyond the scope of its duties.
So, if neither exception applied, why didn’t Judge Brown dismiss the suit?
Judge Brown quoted the Tenth Circuit for saying that the doctrine applies to “‘claims based on alleged misconduct in the discharge of a [court-appointed official’s] official duties.’” Satterfield v. Molloy, 700 F.3d 1231, 1234-35 (10th Cir. 2012). She therefore concluded that Barton “does not apply to the types of claims asserted by the Trustee.”
Judge Brown said that the preference/fraudulent transfer suit had nothing to do with the special master’s “actions or inactions in performing its duties.” She found no case where Barton had been applied “to a suit unrelated to the court-appointed official’s performance of its duties.”
Furthermore, Judge Brown said that allowing the suit to proceed would not jeopardize any of the purposes underlying Barton. Even if the suit is a success, the special master, she said, will have had no more exposure than anyone who receives payment from an insolvent entity that did not receive the goods or services.
Latching onto what amounts to the third exception to the so-called Barton doctrine, Bankruptcy Judge Elizabeth E. Brown of Denver allowed a bankruptcy trustee to pursue a preference suit against a special master appointed by a state court.
The case involved a classic preference or constructive fraudulent transfer. The debtor was in divorce proceedings with his wife. The warring spouses agreed to have the divorce court appoint a special master whose fees were to be paid by the husband’s company.
In the year before it went bust, the husband’s company paid the special master almost $18,000. After bankruptcy, the company’s trustee sued the special master for a preference or a constructive fraudulent transfer.
The special master filed a motion to dismiss, contending that the Barton doctrine deprived the bankruptcy court of jurisdiction.
In her March 13 opinion, Judge Brown comprehensively laid out the history, evolution, and policy behind Barton v. Barbour, 104 U.S. 126 (1881). The doctrine originally meant that receivers cannot be sued without permission from the appointing court.
Judge Brown explained how the doctrine was expanded to cover bankruptcy trustees after adoption of the Bankruptcy Act of 1898. Later, Barton was broadened to protect court-appointed officials and fiduciaries, such as trustees’ and debtors’ counsel, real estate brokers, accountants, and counsel for creditors’ committees.