The Barton Doctrine After Dismissal: Protection Denied

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By Woods Drinkwater, James Pitman

The United States Court of Appeals for the Eleventh Circuit recently issued an opinion that calls into question the long-held Barton doctrine following the dismissal of a bankruptcy case and thus the jurisdiction of that court. In Tufts v. Hay, No. 19-11496 — F.3d —-, 2020 WL 6144563 (11th Cir. Oct. 20, 2020), the court considered where a litigant may bring suit against counsel appointed by a bankruptcy court after the bankruptcy case was dismissed.

The Barton doctrine dates back to an 1818 Supreme Court case, Barton v. Barbour, where the Court found that “before a lawsuit is brought against a receiver, leave of the court by which he was appointed must be obtained.” 104 U.S. 126, 128 (1881). The doctrine exists to protect a fiduciary of the estate, which would include one acting with authority granted by a bankruptcy court, and enables a bankruptcy court to maintain better control over the administration of an estate. See In re DeLorean Motor Co., 991 F.2d 1236, 1240-41 (6th Cir. 1993); In re Crown Vantage, Inc., 421 F.3d 963, 973-75 (9th Cir. 2005). The Tufts ruling considers whether the Barton doctrine is founded in subject matter jurisdiction.

In Tufts, a North Carolina law firm (“Hay”) represented a corporate debtor in a chapter 11 case. Prior to bankruptcy, the debtor was represented by Florida counsel (“Tufts”) in various corporate matters. During the bankruptcy proceedings, Hay repeatedly informed Tufts that its continued representation of the debtor had been approved by the bankruptcy court via “bench order.” At the same time, Hay’s counsel misrepresented to the bankruptcy court that Tufts was authorized to appear as special counsel. In reliance on those representations, Tufts performed extensive legal work on behalf of the debtor. There was no bench order and no agreement in place authorizing Tufts’ representation of the debtor.

Eventually, the misrepresentations came to light and the bankruptcy court ordered Tufts to return all the legal fees earned. Litigation within the bankruptcy case ensued until the bankruptcy case was dismissed by consent order in December 2017. In April 2018, Tufts sued Hays in U.S. District Court in Florida for damages related to the misrepresentations.

Invoking the Barton doctrine, the district court dismissed Tufts’ complaint, finding that it lacked subject matter jurisdiction because Tufts was required to “obtain leave of the bankruptcy court before initiating an action in district court when that action is against the trustee or other bankruptcy-court-appointed officer, for acts done in the actor’s official capacity.” Tufts, at *2 (quoting Carter v. Rodgers, 220 F.3d 1249, 1252 (11th Cir. 2000)). Tufts appealed the district court’s decision.

The Eleventh Circuit previously held that court-approved counsel function as the equivalent of court-appointed officers, making the Barton doctrine an appropriate consideration in this matter. Id. (citing Lawrence v. Goldberg, 573 F.3d 1265, 1269-70 (11th Cir. 2009)). In this case, however, because the bankruptcy case was dismissed, the Court found that the bankruptcy court no longer had subject matter jurisdiction to consider claims in Tufts v. Hays. In effect, “the Barton doctrine has no application when jurisdiction over a matter no longer exists in the bankruptcy court.” Id. at *3.

The Barton doctrine is based on a “bankruptcy court’s exclusive in rem jurisdiction over the estate and [its] oversight and supervisory responsibilities,” id. (quoting In re WRT Energy Corp., 402 B.R. 717, 722 (Bankr. W.D. La. 2007)), as well as the fact that a plaintiff’s claims may be related to a bankruptcy proceeding, giving that court jurisdiction. Id. (citing Lawrence, 573 F.3d at 1270-71). But here, both parties conceded that the underlying bankruptcy case had been dismissed. This suit, therefore, could not “conceivably have an effect on [the underlying] bankruptcy estate,” a primary consideration of the Court. Id.

The Court is notably silent on the effect that any damages awarded in Tufts v. Hays may have on the bankruptcy estate. It is certainly conceivable that a bankruptcy court could sanction Hays for its misrepresentations and require it to return fees to the estate. In any event, it is important to note that the Eleventh Circuit limited its ruling to this case; it is not a categorical abrogation of Barton. In fact, the Court noted that there are policy reasons for applying the Barton doctrine after a bankruptcy matter ends but finds that those policy considerations do not conflict with this decision.

Moving forward, this case presents an interesting dichotomy. Subject matter jurisdiction is absolute — a court has it or it does not. With this decision however, it appears that the Eleventh Circuit may be granting district courts the discretion to apply Barton. Had the parties acknowledged that potential damages awarded here may have a substantive effect on the bankruptcy case, we may have been left with a different result.

Woods Drinkwater, Associate

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