In Blixseth v. Brown, et al. (In re Yellowstone Mount Club, LLC), No. 14-35363 (9th Cir. November 28, 2016), the Ninth Circuit Court of Appeals held that the Barton doctrine applies to members of an Unsecured Creditors’ Committee and, therefore, a plaintiff must obtain authorization from the bankruptcy court before initiating an action against a member. Prior to this ruling, the Barton doctrine traditionally applied to actions against receivers and bankruptcy trustees. The plaintiff argued that the doctrine should not extend to members of a UCC because such members owe no duty to the bankruptcy estate; they represent creditors seeking payment from the estate. The Court of Appeals disagreed, finding that this interpretation of the UCC’s duties is too narrow. “The UCC can only maximize recovery for the creditors by increasing the size of the estate. . . . Because creditors have interests that are closely aligned with those of a bankruptcy trustee, there’s good reason to treat the two the same for purposes of the Barton doctrine.” The Court further noted that UCC members are statutorily obliged to perform tasks related to the estate’s administration, and that a lawsuit could interfere with these duties. In extending the Barton doctrine to UCC members, the Court adopted the recommendation of the Commission to Study the Reform of Chapter 11. The Ninth Circuit’s decision will likely have an impact in other courts across the country.
