Republic Bank of Chicago v. Lighthouse Management Group (Subject Matter Jurisdiction, Barton Doctrine/Princess Lida Doctrine/Colorado River Doctrine)

In Republic Bank of Chicago v. Lighthouse Management Group, 829 F.Supp.2d 766 (D.Minn 2010), the court addressed issues of subject matter jurisdiction in an action against property of a receivership, analyzing the Barton Doctrine, Princess Lida Doctrine, and Colorado River Doctrine, and dismissed the non-receivership action.

The Barton Doctrine, a long-established common law rule created by the Supreme Court, provides protection for a receiver from lawsuits in the course of his duties, by requiring that any potential plaintiff obtain leave from the court which appointed the receiver prior to filing suit. Barton v. Barbour, 104 U.S. 126 (1881). There is a narrow exception to the Barton Doctrine, created by statute in 28 USC § 959(a), that allows suit against receivers to the extent that they are “carrying on business.” However, as the district court notes in Republic Bank, §959(a) applies only to receivers appointed by federal courts, and there is not an equivalent exception for receivers appointed by state courts. Although not discussed by the court in Republic Bank, this exception has previously been interpreted very narrowly, as “carrying on business” has not been determined to include any actions related to administering and liquidating the receivership estate. See DeLorean Motor Company v. Weitzman, 991 F.2d 1236 (6th Cir. 1993). The court in Republic Bank also addressed the ultra vires exception to Barton, which provides that if the receiver takes possession of property belonging to another it may be liable for suit because it would be acting outside the scope of its authority as a receiver. Although the exception does exist, the court noted that it clearly does not apply when the authority granted to the receiver explicitly encompasses the property in question.

The Princess Lida Doctrine, next addressed by the court in Republic Bank, may provide further protection to a receiver from suit. Princess Lida provides that the first court to assume in rem or quasi in rem jurisdiction over property in a controversy has exclusive jurisdiction over the res. Princess Lida of Thurn and Taxis v. Thompson, 305 U.S. 456, 466 (1939). As the district court in Republic Bank noted, this doctrine does not only pertain to cases where property has been actually seized, but it also applies in other cases in which the court must control the property in question in order to grant the relief sought, including suits brought to marshal or liquidate assets, administer trusts, and other similar cases. As such, in receiverships, the first court to exercise jurisdiction over the assets in the estate has exclusive jurisdiction over those assets, and another court may not exercise jurisdiction to assign another party rights to those assets.

Despite the clear indication from Princess Lida and the Barton Doctrine that jurisdiction should be declined in the federal court in light of the pending state court litigation in which the receiver was appointed, the court in Republic Bank still had to address the Colorado River Doctrine before dismissing the action. Under this doctrine, a federal court has a strong obligation to exercise jurisdiction, as a suit may be dismissed only when parallel state and federal actions exist and exceptional circumstances warrant dismissal. The district court in Republic Bank, however, noted that in this case there was a substantial likelihood that the state proceeding which appointed the receiver would fully dispose of the claims presented in federal court, and as such the state and federal proceedings were parallel. The court disagreed that further parallelism was necessary under Colorado River. To determine whether exceptional circumstances existed, the Court used the six factors from Moses H. Cone Mem. Hosp. v. Mercury Constr. Corp., 460 U.S. 1 (1983). The factors are: (1) whether there is a res over which one court has established jurisdiction, (2) the inconvenience of the federal forum, (3) whether maintaining separate actions may result in piecemeal litigation, (4) which case has priority, (5) whether state or federal law controls, and (6) the adequacy of the state forum to protect the plaintiff’s rights. In determining that exceptional circumstances did exist, the court especially noted the overlap in the issues of the two suits and the difficulty of severing the plaintiff’s claims from the receivership action. Further, the court pointed out that there are several parties in the receivership proceeding not party to the present action, and an adjudication of the plaintiff’s rights would thus significantly disrupt the receivership proceeding.