Newman v. Crane, Heyman, Simon, Welch & Clar

590 B.R. 457
CourtDistrict Court, E.D. Illinois
DecidedSeptember 26, 2018
DocketNo. 17-cv-6978
StatusPublished
Cited by1 cases

This text of 590 B.R. 457 (Newman v. Crane, Heyman, Simon, Welch & Clar) is published on Counsel Stack Legal Research, covering District Court, E.D. Illinois primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Newman v. Crane, Heyman, Simon, Welch & Clar, 590 B.R. 457 (illinoised 2018).

Opinion

Honorable Thomas M. Durkin, United States District Judge *460Norman V. Newman, as the liquidating trustee of the World Marketing Liquidating Trust ("Trustee") brought this action against law firm Crane, Heyman, Simon, Welch & Clar ("Crane Heyman"), alleging Crane Heyman committed malpractice during the bankruptcy of World Marketing.1 Before the Court is Crane Heyman's motion to dismiss. For the following reasons, Crane Heyman's motion is denied.

BACKGROUND

In the summer of 2015, World Marketing ran into financial trouble. It began working with its lender to implement a turnaround plan to improve its finances. The plan did not work. On September 15, 2016, World Marketing contacted Crane Heyman to provide it guidance if a bankruptcy filing became necessary. R. 1 ¶¶ 13-14. By September 25, 2015, World Marketing anticipated filing for bankruptcy and signed an engagement letter with Crane Heyman for Crane Heyman's "representation of [World Marketing] in a Chapter 11 bankruptcy proceeding." Id. ¶ 15. World Marketing filed for bankruptcy on September 28, 2015 in the Northern District of Illinois. Id. ¶ 22.

The Trustee alleges that during Crane Heyman's representation of World Marketing, Crane Heyman failed to advise World Marketing that it was subject to the Worker Adjustment and Retraining Notification Act, 29 U.S.C. § 2101 ("WARN Act"). As a result, World Marketing terminated over 300 employees without giving them sufficient notice. Id. ¶ 17. On October 21, 2015, World Marketing's former employees filed a class action alleging that their terminations violated the WARN Act. Id. ¶ 24. The class action eventually became a disputed proof of claim in World Marketing's bankruptcy case (the "WARN Claim"). Following confirmation of the bankruptcy plan, the Trustee objected to and litigated the WARN Claim, which sought roughly $4 million in damages. Id. ¶ 25. In February 2017, the bankruptcy court overruled the Trustee's objection, subjecting the trust to $4 million in liability. Id. ¶ 26. In doing so, the bankruptcy court held that an exception that would not require notice to the employees-the liquidating fiduciary exception-did not apply. See In re World Marketing Chicago, LLC , 564 B.R. 587, 600-603 (Bankr. N.D. Ill. 2017) (explaining that the issue was one of first impression in this circuit). The Trustee alleges that had Crane Heyman satisfied its professional standard of care and advised World Marketing to issue proper notices, the Trustee would have prevailed. R. 1 ¶ 26.

Crane Heyman moves to dismiss on two bases. First, it argues this Court lacks subject matter jurisdiction over the Trustee's claim because of the Barton doctrine. Second, Crane Heyman argues the Trustee's case is barred by the principles of res *461judicata and collateral estoppel. The Court will address each argument in turn.

DISCUSSION

I. The Barton Doctrine

The so-called " Barton Doctrine" takes its name from the decision rendered in Barton v. Barbour , 104 U.S. 126, 26 L.Ed. 672 (1881). There, Barbour had been appointed equity receiver in Virginia state court to operate a railroad company. Afterwards, a railroad passenger, Barton, was injured and brought a tort action against the receiver in the District of Columbia. The Supreme Court held that, as a matter of federal common law, "before suit is brought against a receiver leave of the court by which he was appointed must be obtained." Id. at 128. Without such leave of court, the other forum "had no jurisdiction to entertain [the] suit." Id. at 131.

The majority opinion in Barton explained that the doctrine was necessary to avoid plaintiffs obtaining an "advantage over the other claimants" as to the distribution of "the assets in the receiver's hands." Id. at 128. The Court also explained that the requirement served to prevent the "usurpation of the powers and duties which belonged exclusively to another court" and protect "the duty of that court to distribute the trust assets to creditors equitably and according to their respective priorities." Id. at 136.

In a comparatively more recent case, the Seventh Circuit further explained the policy reasons for not allowing appointed receivers such as trustees to be sued without approval of the appointing courts:

This concern is most acute when suit is brought against the trustee while the bankruptcy proceeding is still going on. The threat of his being distracted or intimidated is then very great ... [w]ithout the requirement, 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).

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Bluebook (online)
590 B.R. 457, Counsel Stack Legal Research, https://law.counselstack.com/opinion/newman-v-crane-heyman-simon-welch-clar-illinoised-2018.