598 B.R. 658
Bankr. D. Utah2019Background
- Debtors (Christensen and Bird) filed chapter 7; their homes were over-encumbered by IRS liens. Trustee (Jubber) sought to sell the homes and negotiated $10,000 carve-outs with the IRS while proposing trustee fees paid from lien proceeds.
- Debtors objected because proposed sales would leave them without proceeds for homestead exemptions; before sale rulings, they converted their cases to chapter 13.
- Trustee sought compensation for chapter 7 work; the bankruptcy court denied compensation, finding the sale efforts unnecessary and not reasonably likely to benefit the estates; BAP affirmed.
- Months later Debtors sought the court’s leave to sue the Trustee and his counsel outside the bankruptcy court for breach of fiduciary duty, negligence, and civil conspiracy; Trustee opposed.
- The court analyzed the Barton doctrine (requiring appointing bankruptcy-court approval to sue trustee elsewhere), its exceptions (§959(a) business-operations and ultra vires), the prima facie "not without foundation" threshold, and the Kashani factors for discretionary denial.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Barton bars suit in non-bankruptcy forum | Debtors seek leave to sue Trustee in state or district court for misconduct during administration | Trustee contends Barton applies and Debtors must obtain appointing-court leave | Barton applies; Debtors must obtain leave to sue elsewhere |
| Whether §959(a) or ultra vires exception permits suit without leave | Debtors argue Trustee acted outside authority / unlawfully (implying exception) | Trustee says he was performing estate-administration duties (no business operation; not ultra vires) | §959(a) inapplicable (no business operation); ultra vires exception not met because acts related to trustee duties and no wrongful seizure alleged |
| Whether Debtors made a prima facie showing that claims are not without foundation | Debtors proffer draft complaints alleging breach of fiduciary duty, negligence, and conspiracy tied to sale efforts and carve-outs | Trustee argues complaints fail to plausibly plead essential elements (no fiduciary duty to debtors, no unlawful act) | Debtors failed prima facie showing for all claims; complaints do not plausibly allege fiduciary relationship, duty breaches, or unlawful overt acts |
| Even if prima facie met, whether Kashani factors counsel permitting suit elsewhere | Debtors seek damages and personal liability for alleged fiduciary breaches | Trustee notes claims arise from estate administration, potential immunity, and seek surcharge / personal liability | Several Kashani factors favor denial (claims relate to administration; immunity protects against negligence/conspiracy; Debtors seek personal liability); court denies leave |
Key Cases Cited
- Satterfield v. Malloy, 700 F.3d 1231 (10th Cir.) (Barton doctrine and limits of ultra vires exception in debtor suits against trustees)
- Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007) (plausibility standard for pleading)
- Ashcroft v. Iqbal, 556 U.S. 662 (2009) (pleading standards; conclusory allegations insufficient)
- Wisdom v. Gugino, [citation="649 F. App'x 583"] (9th Cir.) (trustee’s fiduciary duty to debtor limited to preserving debtor’s exempt or surplus interests)
- Kashani v. Fulton (In re Kashani), 190 B.R. 875 (9th Cir. BAP) (framework for leave-to-sue analysis and Kashani factors)
- In re Christensen, 561 B.R. 195 (Bankr. D. Utah) (prior related decision addressing trustee compensation and sale efforts)