Barton Doctrine Applied To Protect A Bankruptcy Trustee and Counsel (In re Prehired LLC)

Providing protection? (Photo by Marilyn Swanson)

Every now and then you see something and say, “How in the heck could this happen?!”

Here is one of those times: In re Prehired LLC, Case No. 22-11007, Delaware Bankruptcy Court (decided May 30, 2025; Doc. 247).

Facts

Debtor LLC files a voluntary Subchapter V bankruptcy. Then, Debtor voluntarily converts the case to Chapter 7, a Chapter 7 Trustee (“Trustee”) is appointed, and Trustee retains Court-approved counsel (“Trustee’s Attorney”).

–CEO’s Admissions

Meanwhile, Debtor’s CEO admits logging into Debtor’s bank account during the bankruptcy, withdrawing $74,000 (the “Funds”) from the account, and transferring the Funds to another entity (“Transferee”), who then spends the Funds. The Funds are gone.

–Letters Back & Forth

So, correspondence ensues between Trustee and CEO.

First, Trustee’s Attorney sends a letter to CEO, on Trustee’s behalf:

demanding return of the Funds;
characterizing the withdrawal was “improper and unlawful” and a knowing violation of the automatic bankruptcy stay;
reserving “all rights and remedies”; and
suggesting the possibility of sanctions for “this blatant, knowing and intentional disregard of the automatic stay and conversion (if not theft) of estate property.”

CEO responds by letter:

providing details on the transfer of the Funds and a timeline of events; and
proposing a settlement that does not include returning the Funds.

Trustee responds with another letter demanding return of the Funds and adding:

“This is, by any measure, a serious matter. As the Trustee believes your (and [Transferee’s]) actions may give rise to potential criminal liability (apart from the civil liability referenced herein), you may wish to consult with appropriate counsel. All rights are reserved.”

CEO’s District Court Lawsuit

So, CEO sues Trustee and Trustee’s Attorney in Federal District Court, seeking tens of millions of dollars and declaratory relief (in a 101 page pro se Complaint, exclusive of exhibits), on the following counts:

“Gross Negligence and Breach of Statutory Duties;”
“Abuse of Process;”
“Intentional Infliction of Emotional Distress;”
“Civil Conspiracy;”
“Tortious Interference with Business Relations”;
“Negligent Infliction of Emotional Distress;”
a “Free Exercise Clause Violation;”
“Violation of 42 U.S.C. § 1985(2) (Conspiracy to Obstruct Justice/Intimidate Party)”;
“Violation of 42 U.S.C. § 1986 (Neglect to Prevent Conspiracy);”
“Fraudulent Misrepresentation;”
“Negligent Misrepresentation;” and
“Declaratory Judgment – Institutional Misconduct.”

CEO’s Complaint alleges that the Trustee’s letters, “Demonstrated an intent to coerce compliance through threats rather than proper legal process.”

CEO’s Motion in Bankruptcy Court

Apparently recognizing an issue with the District Court lawsuit under the Barton Doctrine, CEO moves in the Bankruptcy Court for permission to proceed with the District Court lawsuit.

The Bankruptcy Court explains that the Barton Doctrine protects a bankruptcy trustee from being sued in another court until the plaintiff first receives permission from the Bankruptcy Court that presided over the bankruptcy case. The purpose behind the doctrine is to:

prevent harassment of and distraction to a bankruptcy trustee for simply doing the job of a trustee; and
serve a gatekeeping function by centralizing control over a bankruptcy case in the court where that case is pending.

CEO’s Motion Denied

The Bankruptcy Court denies CEO’s Motion for permission to proceed with the District Court lawsuit. Here is the Bankruptcy Court’s rationale.

–Barton Doctrine Background

Almost a century and a half ago, the Supreme Court held in Barton v. Barbour, 104 U.S. 126 (1881), that a lawsuit against a receiver cannot proceed in another court without permission of the court administering the trust property. That protection was then extended to bankruptcy trustees.

When faced with a request for permission to proceed against a bankruptcy trustee in another court, the bankruptcy court must undertake a screening of the pleadings to determine if the plaintiff should proceed in its own or a different court. Such screening requirement is jurisdictional—without permission of the bankruptcy court, no other court has jurisdiction to hear the suit.

Therefore, the bankruptcy court has exclusive jurisdiction to determine whether a suit against a Chapter 7 trustee may proceed—and a complaint filed in violation of the Barton Doctrine is void ab initio.

A trustee’s retained professionals are provided the same protection.

–Barton Doctrine Applied

In this case, CEO’s motion for permission to proceed is denied because:

the Funds were property of the Chapter 7 bankruptcy estate;
the Trustee and Trustee’s Attorney were acting in their official capacities;
the Trustee and Trustee’s Attorney did not threaten the CEO, saying instead that legal processes would be used to carry out the Trustee’s duties;
CEO’s own admissions are prima facie evidence of the CEO’s intentional violation of the automatic bankruptcy stay—a serious matter;
pursuing a return of funds that are property of the bankruptcy estate is at the heart of a trustee’s duties;
the advice for CEO to seek legal counsel because of potential criminal liability is not wrongful and is not offered outside the scope of official duties; and
such advice is expressly permitted and warranted by Rule 4.3 of the Delaware Lawyers’ Rules of Professional Conduct, which says, “The lawyer shall not give legal advice to an unrepresented person, other than the advice to secure counsel.”

The Bankruptcy Court clarifies that, because CEO is proceeding pro se, CEO’s court filings are construed liberally and viewed in a light most favorable to the Plaintiff.

Nevertheless, based on allegations in CEO’s District Court Complaint, the Bankruptcy Court finds:

Trustee and Trustee’s Attorney acted in their official capacities to address an intentional wrong that CEO committed against the bankruptcy estate and creditors; and
CEOs’ actions are paradigmatic examples of conduct protected by the Barton Doctrine.

Conclusion

Wow! Glad to see the Bankruptcy Court protecting Trustee and Trustee’s Attorney in this case.

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