McDaniel v. Blust

Summarized by Sarah Smegal , Bartlett Hackett Feinberg PC
14 years 3 weeks ago

Citation:

McDaniel v. Blust, --- F.3d ----, 2012 WL 401591 (4th Cir. Feb. 9, 2012)

Tag(s):

Ruling:

The Fourth Circuit Court of Appeals (the “Circuit Court”) ruled that the claims of Plaintiffs-Appellants James Mark McDaniel, Jr. and Dr. C. Richard Epes (collectively, “Appellants”) against Defendants-Appellees John M. Blust, Edwin Ray Gatton, Dirk W. Siegmund, and their law firm, Ivey, McClellan, Gatton and Talcott, LLP (“IMGT”), (collectively “Appellees”) were rightfully dismissed for lack of subject matter jurisdiction in accordance with rule established in Barton v. Barbour, 104 U.S. 126 (1881). The Barton doctrine requires that “before another court may obtain subject-matter jurisdiction over a suit filed against a receiver for acts committed in his official capacity, the plaintiff must obtain leave of the court that appointed the receiver.” The doctrine has been “extended to suits against bankruptcy trustees…and to suits against trustees’ attorneys.” Appellees acted as counsel to the bankruptcy trustee in an adversary proceeding brought against Appellants in the United States Bankruptcy Court for the Middle District of North Carolina (the “Bankruptcy Court”). The Circuit Court noted that Appellees’ actions about which Appellants complained were “presumed to be part of the duties of the trustee or his counsel ‘unless Plaintiff initially alleges at the outset fact demonstrating otherwise.’” The Circuit Court noted it knew “of no reason why the trustee must have directed counsel to take the specific actions that are the subject of the suit” in order for the Barton doctrine to apply to Appellees and found that Appellants’ allegations of intentional misconduct and of wrongful conduct that exceeded the scope of Appellees’ authority did not preclude application of the Barton doctrine, contrary to Appellants’ assertions. As Appellants did not seek leave of the Bankruptcy Court prior to filing suit against Appellees, the United States District Court for the Middle District of North Carolina (the “District Court”) lacked jurisdiction over their claims.

Procedural context:

Appellants brought suit in Guilford County Superior Court (the “State Court”) against Appellees and another defendant (William Stanaland, III) alleging various claims. Appellees removed the case to the District Court. The District Court, adopting the recommendation of a United States magistrate judge, dismissed Appellants’ suit against Appellees for lack of subject matter jurisdiction based upon the Barton doctrine and remanded Appellants’ suit against Stanaland to the State Court. Fed. R. Civ. P. 12(b)(1); Barton v. Barbour, 104 U.S. 126 (1881). On appeal, Appellants argued the Barton doctrine did not apply to their claims against Appellees; the Circuit Court disagreed and affirmed the decision of the District Court.

Facts:

Appellants are the former officers of EBW Laser, Inc., which filed for bankruptcy protection in 2005 under Chapter 11 of the United States Bankruptcy Code. Following conversion of the case to one under Chapter 7, the bankruptcy trustee retained his law firm (Appellee IMGT) as counsel and filed an adversary proceeding against Appellants alleging preferential transfers, fraudulent conveyances, breaches of fiduciary duty, and unfair and deceptive trade practices. In connection with discovery conducted during the adversary proceeding, Appellants brought suit in the State Court against Appellees and Stanaland alleging civil obstruction of justice, conversion, invasion of privacy, breach of fiduciary duty, and civil conspiracy.

Judge(s):

Traxler, Gregory, Wynn

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