Court Opinion

ID: 3062123
Source: CourtListenerOpinion
Date Created: 2015-10-14 08:27:00.819156+00
Date Added: 2024-06-11T07:38:18.197270
License: Public Domain

FILED
                                                                   United States Court of Appeals
                                                                           Tenth Circuit
                                       PUBLISH
                                                                       November 28, 2012
                     UNITED STATES COURT OF APPEALS
                                                                       Elisabeth A. Shumaker
                                                                           Clerk of Court
                                  TENTH CIRCUIT

 WILLIAM SATTERFIELD,

       Plaintiff–Appellant,

 v.

 PATRICK J. MALLOY, III,
                                                            No. 11-5144
       Defendant–Appellee,

 and

 JOHN DOE; RICHARD ROE,
      Defendants.

                    Appeal from the United States District Court
                      for the Northern District of Oklahoma
                      (D.C. No. 4:10-CV-00003-TCK-FHM)

Submitted on the briefs:*

Carl Hughes, Hughes & Hughes, Edmond, Oklahoma, for the Plaintiff-Appellant.

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

    *At the parties’ request, the case is unanimously ordered submitted without oral
argument pursuant to Fed. R. App. P. 34(f) and 10th Cir. R. 34.1(G).
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 (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

                                            -2-
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)
                                             -3-
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
                                             -4-
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
                                              -5-
       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
                                              -6-
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 F.

App’x 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 claimed that the trustee threatened to refer criminal charges unless he signed a

settlement agreement transferring certain funds to the estate. 519 F.3d at 578. The Sixth
                                               -7-
Circuit concluded that the ultra vires exception did not apply because “the negotiations

were within the context of recovering assets for the estate.” Id. Similarly, in Lawrence v.

Goldberg, 573 F.3d 1265 (11th Cir. 2009), the court held that a suit by the debtor was

barred because the “essence of [plaintiff’s] complaint is that the Trustee and other

defendants colluded to enforce . . . an order of the bankruptcy court, and otherwise

unlawfully attempted to bring assets into the bankruptcy estate” and thus the claims were

“related to” the bankruptcy proceeding. Id. at 1271; see also Carter, 220 F.3d at 1253

(suit by debtor against trustees for breach of fiduciary duties barred because claims were

based on actions “stemming from [trustees’] official bankruptcy duties”). The Sixth

Circuit has adopted a presumption that “acts were a part of the trustee’s duties unless

Plaintiff initially alleges at the outset facts demonstrating otherwise.” Lowenbraun v.

Canary (In re Lowenbraun), 453 F.3d 314, 322 (6th Cir. 2006). That court has further

held a bare allegation that a trustee’s “actions were prompted by improper motives is

insufficient to” overcome that presumption. Id.

       We agree with the foregoing authorities. In suits brought by a debtor against the

trustee, claims based on acts that are related to the official duties of the trustee are barred

by the Barton doctrine even if the debtor alleges such acts were taken with improper

motives. Under that standard, Satterfield’s claims must fail.

       Satterfield does not allege that Malloy wrongfully seized assets of another.

Rather, he claims that Malloy acted to undermine the value of the estate and otherwise

mismanaged the estate by: deliberately dissipating the estate’s value; incurring IRS
                                              -8-
penalties; allowing estate properties to be foreclosed upon; failing to provide for upkeep

of the estate; refusing to continue a claim of reverse condemnation; and failing to

exercise reasonable care in selecting renters. All of this alleged retaliatory misconduct

stemmed from Malloy’s duties as trustee and was clearly related to his administration of

the bankruptcy estate. Regardless of whether Malloy acted with improper motives, we

agree with the district court that these actions do not fall under the ultra vires exception to

the Barton doctrine.

       Satterfield argues that even under a narrow reading of the ultra vires exception,

two factors require reversal. First, he contends that the “critical inquiry is whether the

claim is against the bankruptcy estate or the trustee in his official capacity.” And because

Satterfield sued Malloy in his individual capacity for “his individual tort actions,”

Satterfield contends that the Barton doctrine does not apply. We disagree. Like other

appeals courts, we refuse to recognize a “generalized tort exception to the Barton

doctrine.” Muratore, 375 F.3d at 147. Satterfield’s assertion would allow essentially any

tort claim to proceed by labeling it as against the trustee in his individual capacity.

Regardless of the manner in which a plaintiff denominates his claim, courts applying the

Barton doctrine must look to the substantive allegation to determine whether a claim is

related to the trustee’s bankruptcy duties.

       Second, Satterfield argues that the Barton doctrine is inapplicable because his

bankruptcy proceedings have concluded. Consistent with the holdings of other circuits,

we reject this proposition. See Muratore, 375 F.3d at 147 (Barton doctrine continues to
                                              -9-
apply after a bankruptcy estate has been closed); Crown Vantage, Inc., 421 F.3d at 972

(same). As the Seventh Circuit noted, the Barton doctrine continues to serve important

purposes even after a bankruptcy is complete:

       Without the requirement [of obtaining leave from the appointing court],
       trusteeship will become a more irksome duty, and so it will be harder for
       courts to find competent people to appoint as trustees. Trustees will have to
       pay higher malpractice premiums, and this will make the administration of
       the bankruptcy laws more expensive (and the expense of bankruptcy is
       already a source of considerable concern). Furthermore, requiring that
       leave to sue be sought enables bankruptcy judges to monitor the work of
       the trustees more effectively. It does this by compelling suits growing out
       of that work to be as it were prefiled before the bankruptcy judge that made
       the appointment; this helps the judge decide whether to approve this trustee
       in a subsequent case.

In re Linton, 136 F.3d 544, at 545.

       The Barton doctrine exists to ensure other courts do not intervene in the

bankruptcy court’s administration of an estate without permission. A holding that Malloy

acted ultra vires simply because he allegedly discharged his duties as trustee with

improper motives would severely undermine this important judicial goal. We conclude

that Malloy’s actions fell within the scope of his court-appointed authority as trustee

because each of the alleged actions was related to his trusteeship duties. Accordingly,

Satterfield was required to obtain leave of the bankruptcy court before filing suit in the

district court.

                                              B

       In the alternative, Satterfield claims that he is permitted to bring suit against

Malloy under 28 U.S.C. § 959, which provides: “Trustees, receivers or managers of any
                                             -10-
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.” 28 U.S.C. § 959(a). This narrow statutory exception to

the Barton doctrine applies only to actions taken while “carrying on business.” Id. The

Eleventh Circuit has explained that § 959(a) was intended to “permit actions redressing

torts committed in furtherance of the debtor’s business, such as the common situation of a

negligence claim in a slip and fall case where a bankruptcy trustee, for example,

conducted a retail store.” Carter, 220 F.3d at 1254 (quotation omitted).

       In the sole relevant—but unpublished—opinion of this court, we noted that a

trustee’s letter to investors informing them of plaintiff’s fraud did not fall within the

exception provided by § 959(a) because it was not performed while carrying on business.

See Springer v. The Infinity Group Co., 1999 U.S. App. LEXIS 20253, at *3-5 (10th Cir.

Aug. 26, 1999) (unpublished). Other courts considering this provision have interpreted it

in a manner that avoids having the exception swallow the rule. “Merely collecting,

taking steps to preserve, and/or holding assets, as well as other aspects of administering

and liquidating the estate, do not constitute ‘carrying on business’ as that term has been

judicially interpreted.” Carter, 220 F.3d at 1254 (quotation omitted); Allard v. Weitzman

(In re DeLorean Motor Co.), 991 F.2d 1236, 1241 (6th Cir. 1993) (same); see also Crown

Vantage, Inc., 421 F.3d at 971-72 (section 959(a) “applies only if the trustee or other

officer is actually operating the business, and only to acts or transactions in conducting

                                             -11-
the debtor’s business in the ordinary sense of the words or in pursuing that business as an

operating enterprise” (quotation omitted)).

       These courts have distinguished between a trustee who continues operating a

debtor’s business and those who are simply winding up the estate’s affairs. See Med.

Dev. Int’l v. Cal. Dep’t of Corr. & Rehab., 585 F.3d 1211, 1218 (9th Cir. 2009) (noting

differences between a “[r]eceiver’s conduct in operating [a] business in an ongoing or

usual manner,” and “actions taken in winding up an enterprise or supervising a

bankruptcy reorganization” (quotation omitted)); Muratore, 375 F.3d at 144 (“Actions

taken in the mere continuous administration of property under order of the court do not

constitute an ‘act’ or ‘transaction’ in carrying on business connected with the estate.”);

Carter, 220 F.3d at 1254 (“Section 959(a) does not apply to suits against trustees for

administering or liquidating the bankruptcy estate.”). We agree that § 959(a) is limited to

circumstances in which a trustee is operating a business in an ongoing manner rather than

simply taking administrative steps to liquidate the estate.

       Satterfield’s claims relate to actions Malloy took during a two-year period after

Satterfield’s bankruptcy was converted to a Chapter 7 proceeding. The acts alleged—

accounting for, renting, and selling property—were among Malloy’s statutory

responsibilities and powers as a Chapter 7 trustee liquidating Satterfield’s estate.

Satterfield’s allegations are very similar to those in Muratore, a case in which § 959(a)

was held inapplicable. See 375 F.3d at 142, 146 (trustee’s alleged failure to properly

manage rental properties did not constitute “carrying on business” under § 959(a)). And
                                              -12-
like that court, we conclude that Satterfield’s complaint is based “on the trustee’s alleged

misconduct in liquidating and administering the estate’s property, and not on tortious acts

committed in the furtherance of [plaintiff’s] leasing or mortgage and real estate business”

and thus “section 959(a) does not apply.” Id.

                                            III

       For the foregoing reasons, we AFFIRM.

                                            -13-