Recent Ruling Extends Protections of the Barton Doctrine to Bankruptcy Trustee’s Counsel

In Lankford v. Wagner, 853 F.3d 1119 (10^th Cir. 2017), the Tenth Circuit joined a number of other circuits in holding that the protections of the Barton doctrine extend to the bankruptcy trustee’s counsel, where counsel acts under the direction of, or as the functional equivalent of, the trustee.  For bankruptcy attorneys researching protections for bankruptcy trustees and their counsel under the Barton doctrine, Lankford provides a succinct discussion of the doctrine.

In Satterfield v. Malloy, 700 F.3d 1231 (10^th Cir. 2012), the Tenth Circuit held for the first time that the Barton doctrine (Barton v. Barbour, 104 U.S. 126 (1881)) precluded suit against a bankruptcy trustee for a claim or claims based on alleged misconduct in the discharge of a trustee’s official duties absent approval from the appointing bankruptcy court. (700 F.3d at 1234–1235).

The Lankfords were investors in a Ponzi scheme operated by Vaughan Company Realtors (VCR). After the Ponzi scheme collapsed, VCR filed for bankruptcy under Chapter 11. The court appointed trustee of bankruptcy estate brought an adversary proceeding against the Lankfords. Through this and related "clawback" proceedings, the trustee sought to avoid, or undo, pre-bankruptcy fraudulent transfers and recoup fictitious profits from investors with net gains for the benefit of all of VCR's creditors. The Lankfords agreed they owed some amount to the estate but claimed an overstatement by the trustee of about $4,000. The Lankfords accused the trustee of extortion, incompetence, and fraud. The bankruptcy court twice denied formal requests under Barton to file counterclaims on these grounds. The bankruptcy court entered summary judgment against the Lankfords in the amount requested by the trustee. The Lankfords moved to vacate the summary judgment but the bankruptcy court denied their motion. The Lankfords appealed the order denying the motion to vacate, but not the order entering summary judgment or the two denials of their requests to file Barton counterclaims. After the appeal was denied, the Lankfords filed a separate lawsuit against the trustee and her counsel. The magistrate judge concluded the Barton doctrine precluded the claims and recommended dismissal under F.R.C.P. 12(b)(1) for lack of subject matter jurisdiction. The district court adopted the recommendation and dismissed the case. Not to be defeated, and proceeding pro se, the Lankfords appealed. The Lankfords raised ten issues relating to the applicability of the Barton doctrine, but the 10^th Circuit focused on whether the Barton doctrine precluded the Lankfords from filing their lawsuit against the trustee and her attorneys, given the Lankfords' failure to seek and receive permission to sue from the bankruptcy court.

First confirming that Satterfield precluded the claims against the trustee, the 10^th Circuit went on to state:

[W]e now join our sibling circuits in holding that the protections of the Barton doctrine also extend to the trustee's counsel, where counsel acts under the direction of, or as the functional equivalent of, the trustee. See, e.g., McDaniel v. Blust, 668 F.3d 153, 156-57 (4th Cir. 2012); Lawrence v. Goldberg, 573 F.3d 1265, 1269-70 (11th Cir. 2009); Allard v. Weitzman (In re DeLorean Motor Co.), 991 F.2d 1236, 1241 (6th Cir. 1993).

After distinguishing the “ultra vires exception” that allows suits by individuals whose property is wrongfully seized by a trustee, the Tenth Circuit focused on the fact the Lankfords filed suit without receiving permission from any court to sue the trustee or her counsel. The Lankfords therefore failed to comply with the Barton doctrine, which is “jurisdictional in nature.”

Lankford v. Wagner is very clear that in the Tenth Circuit, absent prior approval from the appointing bankruptcy court, the Barton doctrine precludes suing both the trustee and the trustee’s counsel for claims based on alleged misconduct in the discharge of the trustee’s official duties.

Andrew M. Toft is an attorney in Denver, Colorado.

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