FILED JUL 19 2023 NOT FOR PUBLICATION SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
OF THE NINTH CIRCUIT
In re: BAP No. CC-23-1034-FLS EAST COAST FOODS, INC., Debtor. Bk. No. 2:16-bk-13852-BB
EAST COAST FOODS, INC., Appellant, v. MEMORANDUM* DEVELOPMENT SPECIALISTS, INC.; BRADLEY D. SHARP, Chapter 11 Trustee, Appellees.
Appeal from the United States Bankruptcy Court for the Central District of California Sheri Bluebond, Bankruptcy Judge, Presiding
Before: FARIS, LAFFERTY, and SPRAKER, Bankruptcy Judges.
INTRODUCTION
East Coast Foods, Inc. (“ECF”) sought leave from the bankruptcy
court to sue its former chapter 111 trustee in another forum. The
bankruptcy court denied leave, stating (among other things) that it had
* This disposition is not appropriate for publication. Although it may be cited for whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. Unless specified otherwise, all chapter and section references are to the 1
Bankruptcy Code, 11 U.S.C. §§ 101-1532. exclusive jurisdiction of ECF’s claims against the trustee.
ECF appeals, arguing that the bankruptcy court erred in its exclusive
jurisdiction ruling and that 28 U.S.C. § 959(a) allows it to pursue its claims
against the former trustee without leave of the bankruptcy court. We
discern no reversible error and AFFIRM.
FACTS 2
A. Bankruptcy events
ECF operated four restaurants in Los Angeles, California. Herbert
Hudson is ECF’s owner and president.
In March 2016, ECF filed a chapter 11 petition. The court directed the
appointment of an examiner who was critical of ECF’s financial accounting
practices and internal controls. In response, the bankruptcy court approved
Bradley D. Sharp’s appointment as chapter 11 trustee (“Trustee”). The
Trustee is a senior managing director at his firm, Development Specialists,
Inc. (“DSI”).
Shortly thereafter, the Trustee sought to employ The Next Idea
(International), LLC (“TNI”) “to perform restaurant management services.”
Robert Ancill is the chief executive officer and managing partner of TNI.
Mr. Ancill asserted in the statement of disinterestedness attached to the
employment application that TNI did not hold any interest materially
2 We exercise our discretion to take judicial notice of documents electronically filed in the underlying bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 2 adverse to the estate. The bankruptcy court approved TNI’s employment.
A few months later, the Trustee filed a supplemental application to
expand the scope of TNI’s employment to include marketing services.
Mr. Ancill again certified that TNI did not have any connection with ECF’s
creditors and did not hold interests materially adverse to the interests of
ECF’s estate. The bankruptcy court granted the supplemental application.
Between November 2017 and October 2018, the Trustee filed three
applications for payment of fees and expenses to TNI. The applications
sought tens of thousands of dollars in fees but did not report any
reimbursable expenses. The court approved the first two applications.
In the meantime, the Committee of Creditors Holding Unsecured
Claims and Mr. Hudson proposed a second amended joint plan of
reorganization (“Plan”). Pursuant to the Plan, Brian Weiss (“Plan Trustee”)
was appointed trustee of the post-confirmation plan trust.
The Plan provided that only the Plan Trustee may pursue “Estate
Claims.” 3 It stated that, “[o]n or after the Effective Date, the Plan Trustee
shall have sole authority and responsibility for investigating, analyzing,
commencing, prosecuting, litigating, compromising, collecting, and
otherwise administering . . . Estate Claims . . . .” Additionally, “[o]n the
Effective Date, all Estate Claims of the Debtor . . . shall be transferred to
3 The Plan defines “Estate Claims” as “any and all claims and causes of action that constitute property of the Estate including, but not limited to . . . any causes of action or claims for recovery of any amounts owing to the Debtor or the Estate . . . .”
3 and vest in the Plan Trust . . . .”
The bankruptcy court confirmed the Plan, and it became effective on
September 14, 2018. As of the effective date, the Trustee was discharged of
his duties and responsibilities.
In October 2018, the Plan Trustee began reviewing ECF’s vendors. He
became concerned with excessive sums of money paid to Hospitality
Merchandise (“Hospitality”) and Restaurant Extensions (“Extensions”).
Both companies were apparently formed postpetition and owned or
controlled by TNI’s president, Mr. Ancill.
The Plan Trustee found that TNI grossly overordered merchandise
from Hospitality, leading to excess inventory and overcharges amounting
to tens of thousands of dollars. The Plan Trustee also determined that
Extensions may have overcharged ECF by tens of thousands of dollars.
Additionally, the Plan Trustee determined that TNI had been paid
approximately $292,950 for restaurant management services and $83,600
for marketing, most of which was not disclosed on the fee applications.
Based on some of these concerns, the Plan Trustee objected to TNI’s
third and final fee application. Following a hearing, on November 19, 2018,
the bankruptcy court denied TNI’s third fee application, disallowed TNI’s
compensation, and ordered TNI to disgorge the sum of $376,550 in fees
previously paid for restaurant management services and marketing
services. However, it did not order Hospitality or Extensions to disgorge
any payments.
4 Also on November 19, 2018, the bankruptcy court issued its omnibus
order on fees, which, among other things, granted the Trustee’s final fee
application and approved a final fee amount totaling $1,155,844.71 and
costs in the amount of $5,107.32.
ECF claims that, in December 2019, it first learned that the Trustee
knew or should have known about TNI’s wrongdoing.4
B. The state court complaint
On November 23, 2022, about four years after the bankruptcy court
ordered the disgorgement of TNI’s fees, ECF filed a complaint against the
Trustee and DSI in the Los Angeles County superior court (“State Court
Complaint”). It alleged that TNI overcharged ECF and overordered
merchandise and services and that the Trustee knew of the wrongdoing
and failed to disclose TNI’s wrongdoing to the bankruptcy court. It also
alleged that the Trustee’s statements on the fee applications were
knowingly false. It further claimed that the Trustee “was grossly negligent
in his management of the operations of Plaintiff ECF during the
bankruptcy proceeding.” It stated that the Trustee failed to review ECF’s
4 ECF claims that, on that date, it became aware of two e-mails that, according to ECF, implicated the Trustee’s knowledge of TNI’s activities. First, an e-mail dated December 6, 2018 was apparently in response to spam e-mail that the Trustee received concerning the point-of-sale system; Mr. Ancill apologized and told the Trustee that “they have me set up as some reseller[.]” Second, an e-mail dated November 2, 2017 was not provided to the court but was described by Mr. Ancill in a declaration. He said the Trustee directed him not to use TNI to purchase products directly for ECF. These emails are not the “smoking guns” that ECF wants them to be. 5 financial performance and report the results to the bankruptcy court, failed
to monitor ECF’s operations, allowed excessive expense and labor charges,
and did not exercise appropriate care when managing ECF.
The State Court Complaint raised five causes of action: (1) fraud -
intentional misrepresentation, (2) fraud - negligent misrepresentation,
(3) breach of fiduciary duty, (4) aiding and abetting breach of fiduciary
duty (against DSI), and (5) aiding and abetting fraud – intentional
misrepresentation (against DSI). 5
C. The motion for leave to sue the Trustee
About a month later, ECF filed in the bankruptcy court a motion for
leave to sue the Trustee and DSI6 (the “Motion”). The Motion essentially
repeated the facts and arguments from the State Court Complaint.
The Motion argued that, pursuant to the “Barton doctrine,” Barton v.
Barbour, 104 U.S. 126 (1881), the bankruptcy court should grant ECF leave
to sue the Trustee outside of the bankruptcy court for “fraudulent and
negligent breaches of [his] fiduciary duties, that resulted in significant
financial damages to ECF’s estate.”
The Plan Trustee filed a limited response to the Motion. He stated
that the Motion misrepresented the Plan Trustee’s findings and fabricated
5 ECF represents that it filed complaints in both the state court and the federal district court. However, only the state court complaint is included in the excerpts of record and specifically cited by the parties. 6 We will sometimes refer to both the Trustee and DSI as “Trustee.” 6 portions of quotations of the Plan Trustee’s findings. The Plan Trustee
stated that he “simply did not investigate and did not conclude whether or
not the Chapter 11 Trustee approved the orders at issue.”
ECF responded that neither ECF, Mr. Hudson, nor its current
bankruptcy counsel had reviewed the Motion before it was filed by former
counsel and that it did not condone the misrepresentations and phony
quotations. Nevertheless, ECF maintained that the bankruptcy court
should grant the Motion.
The Trustee opposed the Motion. He argued that ECF did not have
standing to sue him, because the actions complained of occurred pre-
confirmation. All claims were owned by the bankruptcy estate, and,
pursuant to the Plan, only the Plan Trustee could pursue those claims. The
Trustee also argued that ECF violated the Barton doctrine when it filed the
State Court Complaint without first seeking bankruptcy court approval,
that the three-year statute of limitations barred the State Court Complaint,
and that the Motion lacked factual foundation.
In its reply brief, ECF responded to the Trustee’s arguments and, for
the first time, cited 28 U.S.C. § 959(a).
The bankruptcy court issued a tentative ruling and indicated that it
was inclined to deny the Motion. The court stated that ECF lacked standing
to sue the Trustee and that its claims against the Trustee were collateral
attacks on the bankruptcy court’s fee order. ECF did not raise any objection
to the Trustee’s fee application or otherwise assert that the Trustee had any
7 knowledge of or participation in TNI’s wrongful conduct. The court
explained that it had “exclusive jurisdiction over the amount of
compensation to be paid to the trustee in this case or whether the trustee
engaged in misconduct during the course of his administration.”
The bankruptcy court also indicated that the State Court Complaint
was barred by the statute of limitations and that the Trustee’s e-mails did
not establish wrongdoing or toll the statute of limitations. It said that, after
ECF withdrew the quotations that it falsely attributed to the Plan Trustee, it
did not offer any other basis for liability, so the court had “no basis to
conclude that there is even a prima facie case of any kind against the
trustee.”
At the hearing on the Motion, the bankruptcy court read its tentative
ruling into the record and made additional comments. It said that it had
exclusive jurisdiction over the Trustee’s compensation and his alleged
misconduct during his administration of ECF’s estate.
During a colloquy with the court, counsel for ECF referenced 28
U.S.C. § 959 for the only time in the hearing, asking “why isn’t this a[n] . . .
action in 28 U.S.C. [§] 959, damages caused by . . . the former trustee in the
conduct of the operations of the business?” The court responded by
explaining that that section did not apply because the allegations “go[] to
the very heart of what compensation the Trustee ought to be paid. So
you’ve got to come here.”
The bankruptcy court denied the Motion. Its order did not explicitly
8 mention or incorporate the tentative ruling. Rather, the court stated that it
had “read its legal conclusions and factual findings . . . on the record” and
held that it “has the exclusive jurisdiction to hear all claims and actions
asserted against [the Trustee] and DSI, arising out of acts or omissions that
are alleged to have occurred during the course of the performance of his
duties as chapter 11 trustee in the Case.”
ECF withdrew the State Court Complaint pursuant to the bankruptcy
court’s order. It timely filed its notice of appeal.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUE
Whether the bankruptcy court erred in denying ECF leave to sue the
Trustee in a non-bankruptcy forum.
STANDARDS OF REVIEW
We review for an abuse of discretion the bankruptcy court’s order
denying leave to file suit against the case trustee and others in another
forum. Blixseth v. Brown (In re Yellowstone Mountain Club, LLC), 841 F.3d
1090, 1094 (9th Cir. 2016) (“We review the bankruptcy court’s order
denying leave to sue for abuse of discretion.”); Kashani v. Fulton (In re
Kashani), 190 B.R. 875, 881 (9th Cir. BAP 1995) (“The granting of leave for a
party to sue the trustee is within the sound discretion of the appointing
court.”). To determine whether the bankruptcy court has abused its
9 discretion, we conduct a two-step inquiry: (1) we review de novo whether
the bankruptcy court “identified the correct legal rule to apply to the relief
requested[,]” and (2) if it did, we consider whether the bankruptcy court’s
application of the legal standard was illogical, implausible, or without
support in inferences that may be drawn from the facts in the record.
United States v. Hinkson, 585 F.3d 1247, 1263 (9th Cir. 2009) (en banc).
We review de novo the bankruptcy court’s conclusions of law,
including its statutory interpretations of 28 U.S.C. § 959. See Parks v.
Drummond (In re Parks), 475 B.R. 703, 706 (9th Cir. BAP 2012); see also
Phoenician Mediterranean Villa, LLC v. Swope, 554 B.R. 747, 756 (W.D. Pa.
2016) (“conduct[ing] a de novo review of the law” and concluding that 28
U.S.C. § 959 was inapplicable), aff’d sub nom. In re J & S Props., LLC, 872 F.3d
138 (3d Cir. 2017); In re Kashani, 190 B.R. at 881 (“The existence of subject
matter jurisdiction is a question of law and is reviewed de novo.”). “De
novo review requires that we consider a matter anew, as if no decision had
been made previously.” Francis v. Wallace (In re Francis), 505 B.R. 914, 917
(9th Cir. BAP 2014).
We may affirm on any basis supported by the record. Black v. Bonnie
Springs Family Ltd. P’ship (In re Black), 487 B.R. 202, 211 (9th Cir. BAP 2013).
DISCUSSION
A. The Panel is not limited to the rationale given by the bankruptcy court.
As an initial matter, the parties dispute the scope of the bankruptcy
10 court’s ruling. ECF argues that the bankruptcy court ruled only that it had
exclusive jurisdiction over the State Court Complaint. Conversely, the
Trustee argues that the court adopted its tentative ruling in full and denied
the Motion for the many reasons discussed therein.
We need not pinpoint the exact reasons on which the bankruptcy
court relied. We may affirm on any basis fairly supported by the record,
whether or not the bankruptcy court considered or relied upon that basis.
Hall v. N. Am. Van Lines, Inc., 476 F.3d 683, 686 (9th Cir. 2007). For the
reasons discussed below, we agree that the bankruptcy court had sufficient
reasons to deny the Motion.
B. The bankruptcy court did not abuse its discretion in denying ECF leave to sue the Trustee in another court.
The bankruptcy court denied the Motion because it thought that it
had exclusive jurisdiction over matters concerning the Trustee’s
compensation and whether the Trustee engaged in misconduct. ECF does
not squarely challenge the court’s jurisdictional analysis, but the question is
not free from doubt.
“The bankruptcy court has original and exclusive jurisdiction over all
cases under title 11, 28 U.S.C. § 1334(a), and original but not exclusive
jurisdiction over all civil proceedings arising under title 11, or arising in or
related to cases under title 11, 28 U.S.C. § 1334(b).” Krasnoff v. Marshack (In
re Gen. Carriers Corp.), 258 B.R. 181, 189 (9th Cir. BAP 2001). In addition, the
bankruptcy court has “exclusive jurisdiction . . . over all claims or causes of
11 action that involve construction of section 327 of title 11, United States
Code, or rules relating to disclosure requirements under section 327.” 28
U.S.C. § 1334(e)(2); see also In re Sundance Self Storage-El Dorado LP, 482 B.R.
613, 624 (Bankr. E.D. Cal. 2012) (The bankruptcy court “has original and
exclusive jurisdiction over the employment of counsel, their compensation,
and their disclosure obligations, pursuant to 28 U.S.C. § 1334(e)(2), and has
the authority to hear and determine this matter pursuant to 28 U.S.C.
§ 157(b)(1).”).
In other words, the bankruptcy court’s exclusive jurisdiction extends
only to the bankruptcy case itself and to claims related to § 327. In all other
respects, the court’s jurisdiction is nonexclusive.
Counsel for ECF conceded that many of the claims in ECF’s
complaint alleged violations of § 327 and that the fraud and
misrepresentation claims are premised on that section. The bankruptcy
court correctly ruled that it has exclusive jurisdiction over those claims.
As for the remainder of ECF’s claims, such as the claims for breach of
fiduciary duty, one could plausibly argue that those claims are integral to
the bankruptcy case and are therefore within the bankruptcy court’s
exclusive jurisdiction. The trustee is a central player in a bankruptcy case
and the trustee’s administration of the estate is an essential feature of the
case.
On the other hand, one could also plausibly argue that the
bankruptcy court’s jurisdiction over the remainder of ECF’s claims was
12 nonexclusive. All of those claims “arose in” ECF’s bankruptcy case.
We have no doubt, however, that the Barton doctrine justified the
court’s decision.7 Under that doctrine, “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.” Beck v. Fort James Corp. (In re
Crown Vantage, Inc.), 421 F.3d 963, 970 (9th Cir. 2005); see also In re Kashani,
190 B.R. at 884. As a starting point, “the prospective plaintiffs must set
forth a prima facie case against the trustee.” In re Kashani, 190 B.R. at 885.
7 Courts have frequently said that the Barton doctrine limits the court’s subject matter jurisdiction. Carter v. Rodgers, 220 F.3d 1249, 1255 (11th Cir. 2000) (holding that, because the plaintiff failed to obtain the bankruptcy court’s leave to sue the trustee in another forum, “the district court lacked subject matter jurisdiction and properly dismissed this civil action against these Defendants”); see also Harris v. Wittman (In re Harris), 590 F.3d 730, 742 (9th Cir. 2009) (“[A]bsent leave of the appointing court, the Barton doctrine denies subject matter jurisdiction to all forums except the appointing court.”); In re Crown Vantage, Inc., 421 F.3d at 971 (“The Court held that if leave of court were not obtained, then the other forum lacked subject matter jurisdiction over the suit. . . . As the Supreme Court explained, allowing the unauthorized suit to proceed ‘would have been a usurpation of the powers and duties which belonged exclusively to another court.’”). In other contexts, the Supreme Court has recently questioned whether various rules and doctrines are truly “jurisdictional.” See Mission Product Holdings, Inc. v. Tempnology, LLC, 139 S. Ct. 1652, 1661 (2019) (holding that a case was not moot, even where there were no assets available for recovery); see also MOAC Mall Holdings LLC v. Transform Holdco LLC, 143 S. Ct. 927, 936 (2023) (“In view of these consequences and our past sometimes-loose use of the word ‘jurisdiction,’ we have endeavored to bring some discipline to this area. We have clarified that jurisdictional rules pertain to the power of the court rather than to the rights or obligations of the parties. And we only treat a provision as jurisdictional if Congress clearly states as much.” (cleaned up)). We are confident that the Court would continue to approve of the Barton doctrine even if it decided that the doctrine did not limit courts’ jurisdiction. 13 Even then, the bankruptcy court’s discretion is broad: “the bankruptcy
court may conclude, even after the party seeking leave has met the
requirements of presenting a prima facie case against the trustee, that the
suit should more properly be maintained in the bankruptcy court.” Id. at
886 (citation omitted).
We laid out a five-part test to “determine whether the issues affect
solely the administration of the bankruptcy estate and should be heard by
the bankruptcy court.” Id. at 887. The court should consider:
1. Whether the acts or transactions relate to the carrying on of the business connected with the property of the bankruptcy estate. If the proceeding is under 28 U.S.C. § 959(a), then no court approval is necessary. . . .
2. If approval from the appointing court appears necessary, do the claims pertain to actions of the trustee while administering the estate? By asking this question, the court may determine whether the proceeding is a core proceeding or a proceeding which is related to a case or proceeding under Title 11, United States Code.
3. Do the claims involve the individual acting within the scope of his or her authority under the statute or orders of the bankruptcy court, so that the trustee is entitled to quasi-judicial or derived judicial immunity?
4. Are the movants or proposed plaintiffs seeking to surcharge the trustee; that is, seeking a judgment against the trustee personally?
5. Do the claims involve the trustee’s breaching her fiduciary duty either through negligent or willful misconduct?
14 Id. at 886-87 (citation omitted). We stated that “one or more of these factors
may be a basis for the bankruptcy court to retain jurisdiction over the
claims.” Id. at 887.
Under this test, denial of the Motion was warranted. The bankruptcy
court was unconvinced that ECF had laid out a prima facie case against the
Trustee (although it reserved final ruling on the matter). Kashani’s five-
prong analysis further confirms that the issues should be heard by the
bankruptcy court. ECF’s claims “pertain to actions of the trustee while
administering the estate . . . .” As we explain in the next section, 28 U.S.C.
§ 959 does not apply. The claims are “core proceedings” because they arise
out of estate administration. See Schultze v. Chandler, 765 F.3d 945, 948 (9th
Cir. 2014), as amended (Aug. 1, 2014) (“Where a post-petition claim was
brought against a court-appointed professional, we have held the suit to be
a core proceeding.”). Although the matter has not been briefed, the Trustee
might enjoy quasi-judicial immunity against some or all of the claims
because the Trustee was “acting within the scope of his or her authority
under the statute or orders of the bankruptcy court . . . .” ECF is “seeking a
judgment against the trustee personally[,]” which implicates his fee award,
and the claims involve the Trustee’s alleged breach of his fiduciary duties
imposed under the Bankruptcy Code. The bankruptcy court was within its
discretion to deny the Motion.
C. 28 U.S.C. § 959(a) is inapplicable.
ECF argues at length that 28 U.S.C. § 959(a) is an exception to the
15 Barton doctrine and allows it to sue the Trustee without leave of the
bankruptcy court, because its claims do not concern the administration of
the bankruptcy estate. We disagree.
The Trustee argues that ECF waived this argument, because it did not
raise it until it made a passing reference to the statute in its reply brief in
support of the Motion. Conversely, ECF contends that its references to 28
U.S.C. § 959(a) in its reply brief and at the hearing are sufficient.
As a general rule, “[a] litigant may waive an issue by failing to raise it
in a bankruptcy court.” Mano-Y & M, Ltd. v. Field (In re Mortg. Store, Inc.),
773 F.3d 990, 998 (9th Cir. 2014). “There is no bright-line rule to determine
whether a matter has been properly raised. A workable standard, however,
is that the argument must be raised sufficiently for the trial court to rule on
it.” O’Rourke v. Seaboard Sur. Co. (In re E.R. Fegert, Inc.), 887 F.2d 955, 957
(9th Cir. 1989) (citations omitted).
We agree that ECF did not waive its argument, but only barely. ECF
did indeed mention 28 U.S.C. § 959(a) in the bankruptcy court, even if at
the last minute and only in passing, so we think that ECF did just enough
to preserve its 28 U.S.C. § 959(a) argument on appeal.
Regardless, we are not persuaded that 28 U.S.C. § 959(a) supports
ECF’s position. That section provides that “[t]rustees, 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.”
16 This statute is inapplicable to the facts of this case. It is broadly
accepted that 28 U.S.C. § 959(a) does not apply to alleged wrongdoing
during the normal course of a trustee’s administration of the bankruptcy
estate. The Ninth Circuit has explained:
this limited exception applies only if the trustee or other officer is actually operating the business, and only to acts or transactions in conducting the debtor’s business in the ordinary sense of the words or in pursuing that business as an operating enterprise. Section 959(a) does not apply to suits against trustees for administering or liquidating the bankruptcy estate. 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. The few examples of suits that have been allowed under [28 U.S.C.] § 959(a) include a wrongful death action filed against an operating railroad trustee and suits for wrongful use of another’s property.
In re Crown Vantage, Inc., 421 F.3d at 971-72 (cleaned up).
We considered a similar situation in Kashani. In that case, the chapter
11 trustee was appointed to manage the assets of the debtors’ bankruptcy
estate. The debtors sought leave to sue the trustee for breach of fiduciary
duty and negligence. 190 B.R. at 879. They enumerated some of the claims
they intended to assert against the trustee: failing to sell estate property
timely; engaging in a speculative real estate venture; concealing
information from the bankruptcy court; and failing to disclose to the
bankruptcy court that her attorney had previously represented a purchaser
of estate property. Id. The bankruptcy court held that the allegations 17 related only to the trustee’s administration of the estate and denied the
motion without prejudice. Id. at 879-80.
On appeal, we affirmed in relevant part. We considered 28 U.S.C.
§ 959(a) and held that the complaint implicated the trustee’s fiduciary
duties in carrying out the administration of the estate, but
[t]he breach of a fiduciary duty in the administration of the estate does not fall within the exception provided by 28 U.S.C. § 959(a). Since the alleged breaches attributed to the Trustee are not premised on an act or transaction of the fiduciary in carrying on the Debtors’ business operation, . . . Section 959(a) is not applicable to the issues before this Panel.
Id. at 884 (citations omitted). We concluded that “the Debtors must obtain
leave of the bankruptcy court in order to sue the Trustee in a forum other
than the appointing court.” Id. at 884-85. Other circuits have reached the
same conclusion. See Muratore v. Darr, 375 F.3d 140, 146 (1st Cir. 2004)
(holding that, because “[debtor] bases his complaint on the trustee’s
alleged misconduct in liquidating and administering the estate’s property,
and not on tortious acts committed in the furtherance of [debtor’s] leasing
or mortgage and real estate business, section 959(a) does not apply”).
Similarly, the claims raised in the State Court Complaint concern the
Trustee’s acts while administering ECF’s estate and his statutory duties
owed to the bankruptcy estate, not torts committed in the course of
running ECF’s business. Specifically, ECF alleged that the Trustee failed to
disclose information to the bankruptcy court; made false statements on fee
18 applications; failed to monitor ECF’s operations and allowed excessive
expense charges; approved and paid excess labor charges; and did not
exercise care in managing ECF’s business. The causes of action for
misrepresentation and breach of fiduciary duty assert wrongdoing during
the Trustee’s administration of ECF’s estate; they do not seek relief for
independent torts committed while operating ECF’s business.
ECF is not akin to a bystander to the bankruptcy case who was (for
example) run over by a railroad locomotive operated under a bankruptcy
trustee’s auspices, cf. Valdes v. Feliciano, 267 F.2d 91, 94-95 (1st Cir. 1959), or
injured by dangerous conditions on the rental property managed and
operated by the chapter 7 trustee, cf. Dell v. Chain (In re Chain), 614 B.R. 512,
519 (W.D. Pa. 2020). Rather, ECF was a participant in the bankruptcy case
who is disappointed with its recovery in the case. Cf. Muratore, 375 F.3d at
142-43. As such, 28 U.S.C. § 959(a)’s exception to the Barton doctrine is
inapplicable.
D. ECF lacked standing to sue the Trustee.
The bankruptcy court discussed other possible bases for its denial of
the Motion, but ECF does not address them on appeal.
In its tentative ruling, the bankruptcy court stated that ECF lacks
standing to sue the Trustee, because the Plan vested all estate claims in the
plan trust, and only the Plan Trustee could pursue those claims. We agree;
the Plan clearly provided that “Estate Claims,” including “any causes of
action or claims for recovery of any amounts owing to the Debtor or the 19 Estate,” were property of the estate, did not revest in ECF, and were under
the Plan Trustee’s exclusive control. This is an independently sufficient
reason to affirm the court’s decision.
CONCLUSION
The bankruptcy court did not err in denying the Motion. We
AFFIRM.