Does Chapter 7 Trustee Have Immunity From Suit For Negligence? (Phillips v. Goldman, Part 2)

By: Donald L Swanson

Does a Chapter 7 trustee, while performing official functions and duties, have immunity from suit for negligence?

A Ninth Circuit’s en banc opinion on the subject is Phillips v. Goldman (In re Gilman), 176 F.4th 1152 (9th Cir., May 7, 2026). What follows is a summary of this opinion

Facts

Debtor files a voluntary Chapter 7 petition, and Trustee is appointed.

Debtor and spouse own two Los Angeles properties: (i) their homestead, and (ii) a commercial property.

After the § 341 meeting, Trustee files a no distribution report and requests to be discharged from service as trustee. No action is taken by the Court thereon.

Suing Trustee, Ruling & Appeals

Later, Creditor sues Trustee in Bankruptcy Court, alleging negligence and breach of fiduciary duties in allowing waste and failing to collect rent.

Specifically, Judgment Creditor alleges that Trustee:

• knew about and failed to safeguard against physical deterioration of the two properties from Debtor’s neglect, resulting in a loss of value totaling $200,000 to $300,000; and
• allowed Debtor and spouse to collect rent from the properties, without paying real estate taxes or homeowners association dues, and made no attempt to obtain turnover of rent payments to use in maintaining the properties.

Trustee moves to dismiss the Complaint on several grounds, and the Bankruptcy Court grants the motion, with prejudice, on two grounds: (i) quasi-judicial immunity, and (ii) the four-years statute of limitations.

Judgment Creditor appeals to the District Court, which:

• affirms that Trustee is entitled to quasi-judicial immunity based on the current pleading; and
• remands to determine whether an amendment to the Complaint would be futile.

Ninth Circuit Ruling & Analysis

Judgment Creditor appeals to the Ninth Circuit, where the case is heard en banc.

The Ninth Circuit reverses on immunity issues and remands for further proceedings on other grounds for dismissal. What follows is a summary of its analysis.

–Appellate Jurisdiction

The jurisdiction of a circuit court of appeals is normally limited to “final” decisions of the district court and bankruptcy appellate panel (28 U.S.C. § 158(d)(1)).

Here, the District Court remands for a decision on whether an amendment to the Complaint would be futile. This remand would, ordinarily, make the entire ruling interlocutory and not subject to review by the Ninth Circuit.

But a special circumstance exists: Creditor’s counsel represents that Creditor will not amend the Complaint—that Creditor will stand on its existing Complaint.

Such a representation means that nothing is left to be done, back in the Bankruptcy Court, except to enter another judgment dismissing the same complaint with prejudice.

So, the Ninth Circuit concludes that the District Court’s order is effectively final and that the Ninth Circuit has appellate jurisdiction under § 158(d)(1).

–Trustee Immunity?

An aggrieved party can sue a bankruptcy trustee in an official or personal capacity:

• in official capacity suits, where the trustee is sued as representative of the bankruptcy estate, any award will be paid from the bankruptcy estate; but
• when sued in a personal capacity, absent a basis for immunity, the trustee is personally liable for intentional and negligent torts.

Subjecting a bankruptcy trustee to the risk of personal liability promotes honesty and efficiency in the administration of a bankruptcy estate. At the same time, to ensure that would-be trustees are not discouraged from serving in this publicly beneficial role, courts provide ways by which a trustee may effectively protect against personal liability.

Under Ninth Circuit case law, bankruptcy trustees may be entitled to immunity if they are acting like judges or for judges, under two separate theories:

1. “quasi-judicial immunity” provides trustees absolute immunity from liability for exercising discretionary judgment that is essential to adjudication of private rights to the bankruptcy estate—it shields a trustee who acts without court authorization when performing judge-like actions; and
2. “derived judicial immunity” or simply “derived immunity” provides protection when (1) trustee’s acts are within the scope of authority; (2) debtor, creditors, and other interested parties have notice of proposed acts; (3) trustee candidly discloses the proposed acts to the bankruptcy court; and (4) bankruptcy court approves the acts. It protects a trustee who performs court-sanctioned acts even when the acts are non-adjudicative in nature.

Although the two doctrines overlap, each offers unique protections. Each is discussed in turn.

–Quasi-Judicial Immunity

A bankruptcy trustee may be entitled to quasi-judicial immunity for discretionary acts, even if such acts are not expressly approved by the bankruptcy court, when the trustee is performing an integral part of the judicial process.

Judges receive absolute judicial immunity, because the independent and impartial exercise of judgment vital to the judiciary might be impaired by exposure to potential damages liability.

So, when judicial immunity is extended to officials other than judges, it is because their judgments are comparable to those of judges—i.e., because they, too, exercise a discretionary judgment as a part of their function.

In deciding whether to apply judicial immunity, inquiry is required into the immunity historically accorded to bankruptcy trustees at common law and the interests behind it.

When the Ninth Circuit previously addressed quasi judicial immunity for bankruptcy trustees, it:

• considered the historical roles of bankruptcy officers and characterized today’s trustee as a hybrid official with many functions that can loosely be categorized as either “adjudicatory” or “administrative”; and
• determined that quasi-judicial immunity attaches only to functions that are analogous to the authoritative adjudication of private rights to the bankruptcy estate.

In another case, the actions at issue were the scheduling and giving of notice of hearings, both of which are part of the judicial function of managing the bankruptcy court’s docket in the resolution of disputes and could not be disentangled from it. Because such a function is unquestionably discretionary, the Ninth Circuit found the trustee entitled to quasi-judicial immunity.

In still another case, the Ninth Circuit held that the function at issue was not adjudicative. Debtor sued a creditor’s attorney for violating the automatic stay. Debtor had deposited funds from a personal injury settlement with the bankruptcy trustee, and the creditor’s attorney pressured the debtor to interplead the funds in a parallel state court proceeding. The Ninth Circuit held that creditor’s attorney was not entitled to quasi-judicial immunity because the functions performed—private advocacy or attempted debt collection—were distinct from the judicial function.

–Derived Immunity

Derived immunity arises out of the well-established practice of a trustee seeking instructions from the court, with notice to creditors and interested parties, as to matters involving difficult questions of judgment.

Derived immunity protects a trustee who acts under the authority of the bankruptcy judge. To hold otherwise would damage the orderly administration of justice by allowing an improper collateral appeal of the bankruptcy court’s order.

Further, a bankruptcy trustee has a duty to preserve the assets of an estate and must exercise that measure of care and diligence that an ordinarily prudent person would exercise under similar circumstances.

While a trustee may be liable for even negligent violations of duty, certain standards will provide immunity. A trustee claiming derived immunity must meet four requirements:

1. Scope. The act must be within the trustee’s official powers and duties—which are extensive under the Bankruptcy Code—and must not exceed the authority granted. In one case an overly zealous trustee broke into and seized real property belonging to a third party, mistakenly believing it belonged to the debtor, and refused to relinquish the property after discovering that the third party had acquired and recorded title prior to the bankruptcy. The trustee should have obtained a turnover order. 
2. Notice. A trustee must give notice of a proposed action to debtor, creditors, and other interested parties to protect their due process rights. In one case the Ninth Circuit found the bankruptcy trustee personally responsible for unreasonably using creditors’ funds that never became property of the estate to pay for estate administration, despite reliance on ex parte court orders—because creditors had no notice of the proposed action.
3. Candid Disclosures. The trustee’s disclosure to the court must be truthful and complete. In one case, the trustee hired two employees to assist with the debtors’ reorganization—the trustee had discussed these hirings with the Court but did not disclose that they would be permitted to trade in securities of debtors’ subsidiaries. So, trustee was personally liable for losses from conflicts of interest.
4. Court Approval. The idea behind derived immunity is that the trustee shares the judge’s absolute immunity, which avoids the unfairness of sparing the judge who gives an order while punishing the trustee who obeys it. Without court approval, there is no unfairness in allowing a trustee to face liability for wrongful actions.

–Practicalities

As to concerns that exposing trustees to liability for negligence could discourage suitable persons from serving as bankruptcy trustees, there are two responses:

• as a legal matter, the Supreme Court has suggested that negligent conduct is enough to impose liability on a trustee, and the Ninth Circuit has squarely so held; and
• immunity does apply in some instances but a trustee can still invoke the business judgment rule as a defense to liability—a trustee’s business management decisions are accorded deference, and a trustee can file reports that place the burden on creditors of raising their objection.

–Allegations & Result

Here, the allegations in Creditor’s Complaint about perceived failings are that Trustee:

• allowed the two real properties to deteriorate from Debtor’s neglect; and
• failed to safeguard estate property by not demanding that the tenants pay rent or that Debtor turn over the rental income already collected.

Further, the allegations relate to a bankruptcy trustee’s functions of gathering estate property, investigating debtor’s finances, and operating debtor’s business on a short-term basis. Such functions are not analogous to or intertwined with the authoritative adjudication of private rights.

The Ninth Circuit concludes:

• the Complaint allegations relate to Trustee’s role as a property manager, which does not entitle Trustee to quasi judicial immunity;
• on the current record, Trustee is not entitled to derived immunity, but Trustee is free on remand to raise derived immunity as a defense if that showing can be made;
• the District Court’s decision upholding immunity is reversed; and
• the case is remanded for the Bankruptcy Court to consider Trustee’s remaining arguments for dismissal.

Conclusion

It will be interesting to see how this case plays out.

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