ROBERT J. FARIS, Bankruptcy Judge.
This case is at the boundary between maritime law and bankruptcy law. The Ninth Circuit has ruled that I erroneously decided where that boundary lies. Before me are five motions filed in the aftermath of that decision. Prompt decision of the five motions is necessary because the district court has set an expedited trial in a related maritime lien enforcement case.
Chad Barnes was injured while working aboard the M/V Tehani ("Tehani"),
On November 12, 2014, SHR commenced this bankruptcy proceeding under chapter 7. Shortly before that, Mr. Henry filed a personal bankruptcy proceeding under chapter 13.
On September 11, 2015, Mr. Barnes filed a motion for relief from the automatic stay in this case so he could prosecute the maritime case.
On November 25, 2015, this court disallowed Mr. Barnes' unsecured claim in its entirety because Mr. Barnes did not file a proof of claim.
On December 22, 2015, the district court dismissed all claims against the Tehani on the ground that the court lacked in rem jurisdiction over the Tehani.
On March 17, 2016, this court entered an order authorizing the trustee to lease the Tehani and its trailer to Aloha Ocean Excursions, LLC ("AOE") for $500 per month.
On May 9, 2016, this court entered an order authorizing the sale of the Tehani and its trailer to AOE for $35,000.
On March 28, 2018, the Ninth Circuit reversed the district court's decision,
The district court has set a June 12, 2018, trial on the amount of Mr. Barnes' maintenance claim. The court has directed Mr. Barnes to move this court for a determination whether the bankruptcy case or any orders of this court inhibit the prosecution of the maritime case and to report to the district court by May 23, 2018.
On April 20, 2018, Mr. Barnes filed an "Omnibus Motion" in the maritime case which includes forty-five prayers for relief.
On April 12, 2018, the trustee filed a notice of proposed abandonment of any residual interest in the Tehani (but not the proceeds of sale and leasing).
Section 554(a) of the Bankruptcy Code states that "after notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the state."
The statutory requirements for abandonment are met (and Mr. Barnes does not contend otherwise). The Tehani has become burdensome to the estate because whoever owns it will be drawn into the maritime litigation. Because the Ninth Circuit has fixed a minimum amount of Mr. Barnes' lien that exceeds the value of the Tehani, there is no scenario in which the bankruptcy estate could derive any value or benefit from the vessel.
Mr. Barnes objects to abandonment on two grounds.
First, he contends that, if the Tehani is abandoned, it should be abandoned to him. "Abandonment" is simply the formal relinquishment of property from the bankruptcy estate.
Therefore, the Tehani should not be abandoned to Mr. Barnes. But abandonment has no effect on liens and other interests in the abandoned property.
Second, Mr. Barnes argues that the court should not permit abandonment, but rather should require the trustee to recover the Tehani and return it to the control of the district court in the maritime case. Mr. Barnes offers no authority or cogent legal argument in support of this proposition. The whole point of abandonment is to free the estate of property that will not benefit creditors or may result in a net diminution of the estate.
Therefore, I will approve the proposed abandonment.
On April 13, 2018, Mr. Barnes filed a motion asking the bankruptcy court to transfer either the entire bankruptcy case, or the proceeds of the Tehani currently held by the trustee, to the district court in the maritime case.
The bankruptcy court lacks the authority to transfer bankruptcy cases to the district court. Congress granted bankruptcy jurisdiction to the district courts
In other words, the district court can give work to the bankruptcy court and can take that work away, but the bankruptcy court cannot decline to do work referred by the district court. Mr. Barnes will have to await the district court's decision on his request (included in his Omnibus Motion) to withdraw the reference of this case.
Alternatively, Mr. Barnes asks this court to transfer the proceeds of the Tehani to the district court. This relief is unnecessary. The trustee currently holds the proceeds and may distribute them only upon court order. The trustee can hold the sales proceeds until the district court directs him to disburse some or all of the proceeds in payment of Mr. Barnes' maritime lien
Accordingly, I will deny this motion.
Mr. Barnes has filed two motions seeking leave to pursue all of his claims in the maritime case pending in the district court. On April 30, 2018, Mr. Barnes filed a motion for leave to proceed against the trustee and his counsel and the property of the estate in Mr. Barnes' maritime lien enforcement action in the district court.
Resolution of these motions requires me to analyze separately the different types of claims asserted in the maritime case.
Mr. Barnes has asserted in rem maritime lien claims against the Tehani. The Ninth Circuit has decided that the automatic stay does not bar the prosecution of these claims and that only the district court can adjudicate and enforce them. This implies that only the district court can decide what property is subject to Mr. Barnes' maritime lien. Therefore, only the district court can decide whether the maritime lien attaches to some or all of the equipment used with the Tehani, any related governmental permits, the trailer and truck used to tow the Tehani while ashore, or the proceeds of the sale or rental of the Tehani to AOE.
Second, Mr. Barnes has asserted in personam claims against SHR's bankruptcy estate, such as claims under the Jones Act. These claims are not secured by a maritime lien
The Ninth Circuit held that maritime lien claims are subject to special treatment and are (essentially) immune from the bankruptcy process. But the Ninth Circuit did not hold or suggest that claims of an injured seaman that are not secured by maritime liens are entitled to better or different treatment than other unsecured claims.
I have previously disallowed all of Mr. Barnes' unsecured claims against SHR's bankruptcy estate because he did not file a proof of claim as all unsecured creditors are required to do.
Therefore, Mr. Barnes may not assert in the district court any claims against the SHR bankruptcy estate that are not covered by a maritime lien.
Mr. Barnes has asserted in personam, unsecured claims against SHR. As noted above, the Ninth Circuit held that the automatic stay does not apply to maritime lien claims, but the court's language and logic does not extend to claims that are not secured by a maritime lien.
The automatic stay bars the prosecution of these claims.
Therefore, I will grant relief from the automatic stay to permit Mr. Barnes to proceed against SHR (but not against SHR's bankruptcy estate) on all claims.
Mr. Barnes wishes to prosecute in personam, unsecured claims against Mr. Henry and his bankruptcy estate. I will deny this request for several reasons.
First, Mr. Barnes has committed a procedural error: he did not file his motion in Mr. Henry's bankruptcy case or give any notice to Mr. Henry's chapter 13 trustee or other creditors.
Second, further litigation in the district court involving Mr. Henry's bankruptcy estate would serve no useful purpose. Mr. Barnes has filed a proof of claim in Mr. Henry's bankruptcy case, and no one has objected to it. Therefore, the claim is allowed as a matter of bankruptcy law and Mr. Barnes does not need to do anything in the maritime case to establish it.
Third, unlike SHR, Mr. Henry will be entitled to a discharge when he completes his chapter 13 plan payments (or if he proves his entitlement to a "hardship discharge").
Therefore, I will not grant leave to assert in personam, unsecured claims against Mr. Henry or his bankruptcy estate.
Finally, Mr. Barnes wishes to assert claims against the trustee and his counsel. This request runs afoul of two crucial principles.
First, quasi-judicial immunity protects the trustee against Mr. Barnes' claims. When a trustee negotiates a transaction and then carries it out with bankruptcy court approval, the trustee enjoys the same immunity as the bankruptcy judge. "[Q]uasi-judicial immunity attaches to only those functions [of the trustee] essential to the authoritative adjudication of private rights to the bankruptcy estate."
Second, the Barton doctrine applies. That doctrine provides that a plaintiff must obtain authorization from the bankruptcy court before bringing an action in another forum against a trustee for actions the trustee has taken in his official capacity.
Nothing in the Ninth Circuit's decision states or implies that the Barton doctrine is inapplicable here. The court of appeals made clear that only the district court can adjudicate Mr. Barnes' maritime claims. But there is no reason to think that bankruptcy trustees are stripped of the usual protections against litigation and personal liability simply because there are maritime claims against the estate.
Mr. Barnes did not seek approval from this court before filing his motion in the district court asserting claims against the trustee and his counsel. Mr. Barnes' actions violate the Barton doctrine.
After the trustee filed a motion for sanctions (which I will discuss below), Ms. Barnes filed a motion requesting this court's permission to proceed in district court. For the following reasons, I will deny that request.
A bankruptcy court must consider the following factors to decide whether to allow a party to sue a trustee in another forum despite the Barton doctrine:
The bankruptcy court may retain jurisdiction even if only one of these factors is satisfied.
All of these factors weigh against granting relief from the Barton doctrine. First, the acts Mr. Barnes complains of relate to the carrying on of the business connected with the property of the estate. Second, all of Mr Barnes' claims concern the actions of the trustee while administering the bankruptcy estate. Third, as I explain above, the trustee is entitled to quasi-judicial immunity. Fourth, Mr. Barnes seeks a personal judgment against the trustee.
The bankruptcy court can grant relief from the automatic stay for "cause."
Therefore, I will not grant Mr. Barnes leave to assert claims against the trustee or his counsel in district court. (Of course, the district court has exclusive jurisdiction to adjudicate Mr. Barnes' maritime liens and, if the court decides that the lien attaches to some or all of the money in the trustee's hands, to direct the trustee to disburse the money accordingly.)
On April 27, 2018, trustee filed a second motion for sanctions against Mr. Friedheim and Mr. Barnes.
The trustee argues that Mr. Barnes' "Omnibus Motion" in the maritime case violated the automatic stay and the Barton doctrine. Mr. Barnes and his counsel have effectively admitted that the trustee is right about the violations because, after the trustee filed his motion for sanctions, they filed motions for relief from the automatic stay and from the Barton doctrine.
The bankruptcy court has the power to impose monetary sanctions for "willful" violations of the automatic stay
A stay violation "is willful if the creditor knew of the bankruptcy case and acted intentionally in such a way that the stay was violated."
Mr. Barnes and his counsel clearly knew that SHR and Mr. Henry had filed bankruptcy petitions and invoked the automatic stay, and Mr. Barnes did not file the Omnibus Motion by mistake. His counsel now claims ignorance of the law. But this is not a defense to an automatic stay or Barton violation. Nor is it plausible; Mr. Friedheim has associated with two experienced bankruptcy attorneys during the long course of this case, and he could have learned the law simply by asking either of them (or by doing his own research before, rather than after, he filed the Omnibus Motion).
The trustee's motion does not seek any particular remedy for these violations. I am reluctant to impose a specific sanction now for fear that doing so would simply provoke more litigation and fruitless expense and delay. Therefore, I will hold that Mr. Barnes and Mr. Friedheim willfully violated the automatic stay and the Barton doctrine and direct the trustee to file a separate motion if he wishes me to consider imposing sanctions.
The rental proceeds present the further question whether a maritime lien attaches to such proceeds. I have found no authority on this question.
The district court sitting in admiralty has exclusive jurisdiction to undertake the unenviable task of sorting out these issues.
