Standifer, Le, & Krell v. SEC (Barton Doctrine)

A series of opinions have recently been issued in the 11th Circuit reaffirming the Barton Doctrine which is the “general rule that before suit is brought against a receiver leave of the court by which he was appointed must be obtained.” Barton v. Barbour, 104 U.S. 126 (1881).

Standifer v. SEC, 2008 WL 513352 (N.D.GA.2008), Le v. SEC, 2008 WL 513354 (N.D.GA.2008), and Krell v. SEC, 2008 WL 513375 (N.D.GA.2008) are a line of cases brought by pro se investors against a court-appointed receiver for failing to return the funds they had previously loaned to the companies in receivership. The Receiver filed motions to dismiss each action on the basis that the Plaintiffs failed to seek the approval of the appointing court before filing the actions. Standifer 2008 WL 513352, at *2. The Court noted that the order appointing the Receiver included specific language barring any litigation by creditors or others seeking money damages from bringing an action against the receivership estate without prior court approval. Id. at *1. However, the Court’s reasoning for granting the Receiver’s motions to dismiss was based on the Barton doctrine. Furthermore, the Court went on to note that:

“[t]he carrying on business” exception under 28 U.S.C. § 959(a) is “narrow and intended only to permit actions, without prior approval,over torts committed in furtherance of the business. Section 959(a) does not apply to suits against receivers for administering or liquidating a receivership estate.” Emphasis added.

Id at *2, citing Carter v. Rodgers, 220 F.3d 1249 (11th Cir.2000) (cert. denied 531 U.S. 1077 (2001)), Muratore v. Darr, 375 F.3d 140 (1st Cir.2004).

The issue is clear when the order appointing the receiver specifically bars third party actions, and most orders appointing receivers, particularly those entered in Federal District Court, will include such language. However, the courts have held that specific bar language is unnecessary, since the Barton doctrine prevents litigation against a receiver without prior permission of the appointing court. In Seaman Paper Co. of Massachusetts, Inc. v. Polsky, 537 F.Supp.2d 233 (D.MA.2007), the Defendant, a Receiver appointed in a Wisconsin state court action, moved to dismiss an action brought against him in Federal District Court by a trade creditor of the receivership company. The Defendant argued that the District Court lacked subject matter jurisdiction because the Plaintiff never sought the permission of the Wisconsin state court prior to filing the federal court action. Seaman, 537 F.Supp.2d at 235. The District Court agreed citing the 125 year-old Barton doctrine in which the Supreme Court stated: “It has, therefore, been found necessary, and has become a common practice for a court of equity, in its decree appointing a receiver of a railroad property, to provide that [a receiver] shall not be liable to suit unless leave is first obtained of the court by which he was appointed.” Id. at 235-236 citing Barton, 104 U.S. 126. The Court noted that the Barton doctrine is based on the rationale that the appointing court has in rem subject matter jurisdiction over the assets of the receivership such that any unauthorized lawsuit would usurp the powers of the appointing court. Id. What is significant about the Seaman decision is that the state court order appointing the Receiver did not include any specific language barring claims without permission of the court and, instead, the order simply stated that the Receiver should have all of the usual powers under the state statute. Id. at 235. The Court also held that the Barton doctrine is applicable regardless of whether the Receiver has taken actual possession of the receivership property. Id. at 237. Notably, the Court’s decision did not address the “carrying on business” exception to the Barton doctrine in which a receiver may be sued under 28 U.S.C. §959(a) for the receiver’s own acts in conducting the business of the receivership.

– Phillip S. Stenger