Newsflash: Creditors Committees’ Members May Not Be Sued Absent Bankruptcy Court’s Permission

December 02, 2016

The Barton doctrine (named after the U.S. Supreme Court case Barton v. Barbour, 104 US 126 (1881)), generally prohibits suits against receivers and bankruptcy trustees in forums other than the appointing courts, absent appointing court's permission. It applies to suits that involve actions done in the officers' official capacity and within their authority as officers of the court. 

Some courts extended the doctrine beyond receivers and bankruptcy trustees. The Sixth Circuit extended it to trustee’s counsel and the Eleventh Circuit extended it to persons approved to conduct estate’s asset sales. No court of appeals, until now, extended it to members of unsecured creditors’ committees.

In Yellowstone Mountain Club, the Ninth Circuit has. Counsel for the Club’s founder, Timothy Blixseth, became the chairman of the creditors’ committee after the Club’s bankruptcy filing. Suspecting that his former lawyer used confidential information against him, Mr. Blixseth sued his former lawyer in the district court. The Court of Appeals held that the suit could not have been brought without bankruptcy court’s permission, extending the Barton doctrine to creditors’ committees’ members. 

The court found that creditors committees’ interests are aligned with the trustee’s – maximizing the value of the estates. In addition, since committees are tasked with statutory duties related to estate’s administration (i.e., investigating the debtors’ affairs and participating in plan formulation), suits against their members may interfere with the proceedings, and that even a fear of such suits in non-bankruptcy forums may cause their members to be timid in discharging their duties. As a result, the Ninth Circuit held that such suits may be brought only in the bankruptcy court, or in other courts, but only with the express permission of the bankruptcy court. 

Read the opinion »

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