Source: http://de.findacase.com/research/wfrmDocViewer.aspx/xq/fac.20180307_0000129.DDE.htm/qx
Timestamp: 2019-04-20 16:27:15+00:00

Document:
IN RE UNITED TAX GROUP, LLC, Debtors.
Pending before the Court is an appeal (D.I. 1) by appellants SWZ Financial II, LLC (“SWZ”) and Tax Help MD, Inc. (“Tax Help”) (“Appellants”) from the Bankruptcy Court's December 28, 2017 bench ruling and subsequent order (B.D.I. 162, 172) (“Order”) denying Appellants' motion for leave to commence state court proceedings (B.D.I. 118, 119) (“Barton Motion”) against George L. Miller, as Chapter 7 Trustee (“Trustee”) for the estate of United Tax Group, LLC (“Debtor”), and his counsel. On January 16, 2018, Appellants filed an emergency motion seeking expedited consideration of the appeal (D.I. 4) (“Emergency Motion”) on the basis that the statute of limitations to bring the action under Florida law will expire on March 13, 2018. On January 25, 2018, the Court granted the Emergency Motion and set an expedited briefing schedule. (D.I. 8) The merits of the appeal are fully briefed. (D.I. 9, 10, 11) The Court did not hear oral argument because the facts and legal arguments are adequately presented in the briefs and record, and the decisional process would not be significantly aided by oral argument. For the reasons that follow, the Court will affirm the Order.
On May 26, 2017, Appellants filed the Barton Motion, seeking permission to sue the Trustee and his bankruptcy counsel, Ciardi Ciardi & Astin (“Ciardi”), including for claims of conversion and tortious interference with business relationships against the Trustee. (D.I. 10 at 3) The Barton doctrine is traced to the Supreme Court's decision Barton v. Barbour, 104 U.S. 126, 128-29 (1881), and it “requires a party-in-interest to seek stay relief from the bankruptcy court in order to sue a bankruptcy trustee in another forum.” In re Day, 2014 WL 636797, *22 (Bankr. D.N.J. Feb. 7, 2014). “It is for the appointing court, in its discretion, to decide whether it will determine for itself all claims of or against the receiver, or will allow them to be litigated elsewhere.” In re VistaCare Group, LLC, 678 F.3d 218, 225 (3d Cir. 2012) (internal quotations and citation omitted). “Because a judgment against the trustee, whether ultimately satisfied out of the assets of the estate or out of the trustee's pockets, may affect the administration of the estate, the requirement of uniform application of bankruptcy law dictates that all legal proceedings that affect the administration of the bankruptcy estate be either brought in the bankruptcy court or with the permission of the bankruptcy court.” Id. at 228 (internal quotations and citation omitted).
Certain courts have recognized two exceptions to the Barton doctrine - that is, situations in which leave of the appointing court is not necessary - the “business exception” and the “ultra vires exception.” The “business exception” is codified in 28 U.S.C. § 959(a) and provides, in relevant part, that “Trustees, receivers or managers of any property, including debtors in possession, may be sued, without leave of the court appointing them, with respect to any of their acts or transactions in carrying on business connected with such property.” As the Trustee has never operated the Debtor's business, the parties agree that the business exception is not at issue. (See D.I. 9 at 2; D.I. 10 at 7) At issue in this case is the ultra vires exception. A classic example of the ultra vires exception is an action against a receiver who seizes or otherwise attempts to administer property that is not receivership property, but that actually belongs to a third party. See In re DMW Marine, LLC, 509 B.R. 497, 506 (Bankr. E.D. Pa. 2014) (citations omitted).
The Bankruptcy Court issued a bench ruling on December 28, 2017. (See B.D.I. 162) At the outset of the ruling, the Bankruptcy Court reviewed a recent Third Circuit case, VistaCare, which applied the Barton doctrine to trustees in bankruptcy (id. at 3:25-5:18); the Barton decision itself (id. at 5:19-8:11); and leading cases construing the ultra vires exception (id. at 8:12-14:10). The Bankruptcy Court then carefully reviewed its findings of fact, based on witness testimony, regarding the events that led to the Trustee's possession of the Debtor's mail. (See Id. at 15:14-20:25) The Bankruptcy Court held that: (i) the Third Circuit has not expressly recognized the ultra vires exception to the Barton doctrine (id. at 5:8-18); (ii) to the extent the Third Circuit would recognize such an exception, it would be limited to “seizures of property from a third party, and by that I mean taking by force” (id. at 14:12-15); and (iii) none of the three ways in which the Trustee came into possession of the Debtor's mail (by redirection via the post office, by picking up same at SWZ's invitation, or by SWZ voluntarily sending the Trustee the mail) constituted a seizure of the mail by force that would fall within the ultra vires exception to the Barton doctrine (id. at 19:9-20:25).
This Court has jurisdiction to hear appeals “with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.” 28 U.S.C. § 158(a)(3). Appellants contend that the Order is a final order because denial of the Barton motion conclusively and finally resolved the dispute before the Bankruptcy Court with respect to such motion and no complaint or further actions raised in the Barton motion are currently before the Bankruptcy Court. The Court agrees the Order is final. The Court reviews the Bankruptcy Court's findings of fact for clear error and exercises plenary review over questions of law. See Am. Flint Glass Workers Union v. Anchor Resolution Corp., 197 F.3d 76, 80 (3d Cir. 1999). The Court must “break down mixed questions of law and fact, applying the appropriate standard to each component.” Meridian Bank v. Alten, 958 F.2d 1226, 1229 (3d Cir. 1992). “A finding is ‘clearly erroneous' when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948).
In VistaCare, a chapter 7 trustee was appointed to oversee the liquidation of an estate which consisted of a 12.2-acre parcel of land consisting of 45 lots, 44 of which were subdivided and zoned for mobile homes. VistaCare, 678 F.3d at 222. Lot 45 contained a retirement and assisted living facility. See Id. The lots were subject to several restrictions, including restriction on the sale of the 44 lots to the residents of the mobile homes. See Id. The trustee sold lot 45. See Id. Thereafter, and notwithstanding the restrictions, the trustee sold some of the 44 lots to residents of the mobile homes. See Id. Although the trustee obtained relief from the township to do so, the trustee did not notice the purchaser of lot 45. See Id. at 222-23. The purchaser of lot 45 asserted that the sale of the 44 lots in derogation of the restriction was unlawful and damaged the value of his property, and therefore sought leave to sue the trustee in Pennsylvania state court. Id. at 223. The bankruptcy court expressed doubt as to whether leave was needed, opining that Barton was “antiquated and probably not controlling in the Third Circuit.” Id. Nonetheless, the bankruptcy court performed a Barton analysis and granted the purchaser's motion to sue in state court. Id.

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