Villegas; BFG Invest., L.L.C.; BFG Dev., Inc. v. Schmidt
- Summarized by Paul Stewart , Stewart Robbins Brown & Altazan, LLC
- 9 years 7 months ago
- Citation:
- Fifth Circuit Court of Appeals docket number 14-40423
- Tag(s):
-
- Ruling:
- The Barton doctrine - that before suit may be brought against a trustee leave of the court by which she was appointed must be obtained - continues in effect in the Fifth Circuit notwithstanding Stern and irrespective of whether the action against the trustee was brought in the district court as opposed to bankruptcy court.
- Procedural context:
- The district court dismissed the case on the trustee’s motion because the plaintiffs failed to obtain leave from the bankruptcy court that appointed Schmidt as the bankruptcy trustee before filing suit against him. The plaintiffs appealed.
- Facts:
- In 2005, Michael Schmidt was appointed bankruptcy trustee of BFG Investments. After BFG's liquidation, the case was closed Schmidt’s fees were approved. There was no appeal from the bankruptcy court’s final approval of Schmidt’s fees. Four years later, in October 2013, related companies filed suit against Schmidt alleging that he committed gross negligence and breached his fiduciary duty while acting as trustee by failing to pursue an action against Nationwide Insurance. They asserted that Nationwide had issued an insurance policy worth $10 million to Debtor, which would have covered many of the creditors’ claims against it; Nationwide denied that it had issued such a policy. According to the plaintiffs, Schmidt’s failure to pursue BFG’s claim against Nationwide for coverage under that policy depleted the estate and deprived the plaintiffs of property. Plaintiffs filed an action in the federal district court without seeking leave to sue the trustee from the bankruptcy court that appointed him.
- Judge(s):
- Before Stewart, Chief Judge, and Southwick and Costa, Circuit Judges.
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