Jun. 25, 2021

An Alert to Attorneys, Receivers and Trustees: Immunity From Suit May be Terminated Once the Case Has Closed

One hundred forty years ago, the U.S. Supreme Court held in Barton v. Barbour, 104 U.S. 126, 128 (1881), that before suit is brought against a receiver, leave of court by which he was appointed must be obtained. The so-called Barton doctrine has since been expanded to also include bankruptcy trustees and other fiduciaries, but a recent ruling by the Eleventh Circuit Court of Appeals has dramatically curtailed its lifespan. On June 15, the Eleventh Circuit issued its opinion in Chua v. Ekonomou, No. 20-12576, holding that once a receivership or bankruptcy proceeding is concluded, a litigant no longer needs to obtain permission from the receivership or bankruptcy court before initiating suit against the court-appointed receiver or trustee. By doing so, the Eleventh Circuit has also created a split among the circuits, creating possible jeopardy for receivers and trustees and paving the way for a possible return of the Barton doctrine to the U.S. Supreme Court. 

The underlying facts are reminiscent of a Dateline special: Noel Chua was a physician who had his own solo medical practice in St. Mary’s, Georgia. In September 2005, a pre-med student at a local college, began working at Chua’s medical practice, and then, a short time later, moved into Chua’s home. While the student was living at his home, Chua began prescribing the student with hydrocodone and other increasingly stronger medications for headaches and abdominal pains that the student was experiencing. On Dec. 15 of that same year, Chua came home to find the student deceased and lying on the bathroom floor from an apparent drug overdose. The district attorney obtained an indictment against Chua for felony murder and violations of Georgia’s Controlled Substances Act, and then initiated a civil-forfeiture action over Chua’s assets, at which time the presiding judge issued a temporary restraining order freezing Chua’s assets and appointed a receiver. Chua was ultimately found guilty of felony murder and the controlled substance violations, and was sentenced to life imprisonment. As to the forfeiture action, the receiver and his counsel depleted almost all of Chua’s assets to the tune of approximately $2 million. Following the conclusion of the forfeiture action, the receiver’s appointment was terminated in 2015.

For his part, Chua maintained that the district attorney, the judge, the receiver, and the receiver’s counsel were all part of a larger conspiracy (which Chua dubbed the “Making a Murdered Enterprise”) to first blame him for the student’s death, and then to deplete his assets so that he would not have the resources to mount his criminal defense. He also claimed that a county commissioner joined in the conspiracy by writing a memo to the district attorney’s office cautioning about the racial makeup of the potential jury, a memo which Chua discovered only after his trial. Chua attempted to obtain a copy of the memo through Georgia’s Open Records Act, which suit ultimately led to Chua and the receiver’s counsel, who was by that time in the district attorney’s office, striking a deal that Chua’s convictions would be vacated, he would plead guilty to lesser charges, and would accept a sentence of time served. Separately, Chua also agreed to forfeit his claim to the assets seized by the state, except for approximately $14,000.

In 2019, approximately two years after his settlement agreement and release, Chua filed suit against the receiver, the receiver’s counsel, the law firm, and the commissioner, alleging a conspiracy to deprive him of civil rights, and violations of federal and state RICO statutes. As to the receiver, his counsel, and the law firm, the district court dismissed Chua’s claims reasoning that it lacked subject matter jurisdiction under the Barton doctrine because Chua did not first obtain permission to sue the receiver from the court that appointed the receiver. Chua appealed, posing the question of whether the Barton doctrine deprived the district court of subject-matter jurisdiction over Chua’s claims against the receiver, the receiver’s counsel, the law firm for actions taken within the scope of receivership, even though the receivership had already ended and Chua had forfeited his claim to his seized assets.  

The Eleventh Circuit held that the Barton doctrine did not divest the district court of jurisdiction over Chua’s claims because the Barton doctrine is based upon the principle of in rem jurisdiction—i.e., that the court that first exercises jurisdiction over certain property may exclude others from exercising jurisdiction over it—and that once the receivership ended, there was no longer any disputed property over which a jurisdictional conflict could exist. The Eleventh Circuit noted that several of its sister circuits, including the First, Seventh, Ninth, and Tenth Circuits, have held that the Barton doctrine extends past the conclusions of the proceeding, which circuits did so based upon public policy concerns of not finding “competent people to appoint as trustees” and higher malpractice premiums if the doctrine was not extended. The Eleventh Circuit recognized that while legitimate public policy concerns may exist, they should not be a reason to extend the Barton doctrine because the doctrine is “grounded in the exclusive nature of in rem jurisdiction.” Instead, the Eleventh Circuit pointed out that court-appointed trustees and receivers enjoy judicial immunity for acts taken within the scope of their authority, and thus are protected by that immunity without the need for resorting to the Barton doctrine. As a result, the Eleventh Circuit held that the district court erred in determining it lacked subject-matter jurisdiction, but that the claims nonetheless still failed because of judicial immunity. 

With this opinion, the Eleventh Circuit has opened the door to a potential new spate of suits against court-appointed receivers and trustees. Litigants may be tempted to wait until their receivership or bankruptcy cases conclude before initiating suit as a way of forum shopping so that their claims can be heard outside of the receivership and bankruptcy proceedings. More significantly, trustees and receivers will now need to devote time and resources to defend against potentially frivolous claims, when the Barton doctrine used to act as a gatekeeper to prevent many of those claims from being brought in the first place. This may also create an issue with the cost of professional liability coverage for those that act as court fiduciaries, and it may be especially burdensome if the receiver’s or trustee’s professional liability policy of insurance does not provide for a defense of these types of claims, especially since, until now, the Barton doctrine prevented most of them altogether.

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