John Villegas v. Michael Schmidt
788 F.3d 156
5th Cir.2015Background
- BFG Investments (through president John Villegas) filed bankruptcy in 2005; Michael Schmidt was appointed trustee and administered the estate.
- The bankruptcy case was closed in November 2009 and Schmidt’s trustee fees were finally approved; no appeal was taken from that approval.
- In October 2013, Villegas and BFG sued Schmidt in district court alleging gross negligence and breach of fiduciary duty for failing to pursue a potential $10 million insurance claim against Nationwide, which plaintiffs say depleted the estate.
- District court dismissed the suit because plaintiffs did not first obtain leave from the bankruptcy court that appointed Schmidt before suing the trustee.
- Plaintiffs appealed, arguing (1) Stern v. Marshall created an exception to the Barton doctrine for claims over which bankruptcy courts lack final adjudicative authority, and (2) Barton does not apply when suit is filed in the district court that supervises the appointing bankruptcy court.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Stern v. Marshall creates an exception to the Barton leave requirement | Stern limits bankruptcy courts’ authority; thus “Stern claims” need not get appointing-court leave to sue a trustee | Barton remains controlling; Stern does not implicitly overrule Barton and does not excuse obtaining appointing-court leave | Barton still applies; parties must obtain leave from the appointing bankruptcy court before suing a trustee, even for Stern-type claims |
| Whether filing in the district court with supervisory authority satisfies Barton | Filing in the supervising district court should suffice so leave from the bankruptcy court is unnecessary | Barton requires leave from the appointing bankruptcy court specifically; district supervision is not a substitute | Rejected; district court with supervisory authority does not replace the appointing bankruptcy court for Barton leave |
Key Cases Cited
- Barton v. Barbour, 104 U.S. 126 (1881) (establishes rule that leave of appointing court is required before suing a receiver)
- Anderson v. United States, 520 F.2d 1027 (5th Cir. 1975) (applies Barton rule to bankruptcy trustees)
- McDaniel v. Blust, 668 F.3d 153 (4th Cir. 2012) (collects cases applying Barton to trustees)
- Stern v. Marshall, 131 S. Ct. 2594 (2011) (limits bankruptcy courts’ constitutional authority to enter final judgment on certain state-law claims)
- Executive Benefits Ins. Agency v. Arkison, 134 S. Ct. 2165 (2014) (notes Stern did not prescribe procedures for handling Stern claims)
- In re Harris, 590 F.3d 730 (9th Cir. 2009) (holds Barton inapplicable when a case against trustee is removed to the appointing bankruptcy court)
- Carter v. Rodgers, 220 F.3d 1249 (11th Cir. 2000) (collects authority requiring bankruptcy-court leave before initiating actions against trustees)