Grochocinski v. Mayer Brown Rowe & Maw LLP et al

Filing 195

MEMORANDUM OF LAW IN SUPPORT OF DAVID GROCHOCINSKI'S MOTION TO DISMISS DEFENDANT'S MOTION FOR SANCTIONS (Morgans, David)

Firm No. 37409

12629.A2A6

SRM/DEM/mrs

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION
DAVID GROCHOCINSKI, not
individually, but solely in his capacity as
the Chapter 7 Trustee for the bankruptcy
estate of CMGT, INC.,
Plaintiff,
v
MAYER BROWN ROWE & MAW LLP and
RONALD B. GIVEN,
Defendants.

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No.

06 C 5486

Judge Virginia M. Kendall

MEMORANDUM OF LAW IN SUPPORT OF DAVID GROCHOCINSKI’S MOTION TO
DISMISS DEFENDANTS’ MOTION FOR SANCTIONS
Defendants have filed a petition for sanctions against David Grochocinski, for
actions taken by him in his capacity as the Chapter 7 Trustee for the bankruptcy estate of
CMGT, Inc. But in doing so, defendants have omitted an important step, a step whose
omission deprives this court of subject matter jurisdiction to hear the sanctions claim: they
have failed to obtain leave of the bankruptcy court to file their pleading against him.
It is widely recognized that bankruptcy court approval is required before a party may
proceed against a trustee to recover a loss caused by actions undertaken in his role as
trustee. In re Linton, 136 F.3d 544, 545 (7th Cir. 1998):
An unbroken line of cases, including Judge Hand’s Vass
decision [Vass v. Conron Bros. Co., 59 F.2d 969 (2d Cir.
1932)], has imposed the requirement as a matter of federal
common law....The trustee in bankruptcy is a statutory
successor to the equity receiver, and it had long been
established that a receiver could not be sued without leave of
the court that appointed him. Barton v. Barbour, 104 U.S. 126,
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128-29, 26 L.Ed. 672 (1881); Chicago Title & Trust Co. v. Fox
Theatres Corp., 69 F.2d 60, 62 (2d Cir. 1934).
136 F.3d at 545.
This rule, known as the Barton doctrine, encompasses actions that seek to hold a trustee
personally liable and liable for sanctions. In re Weitzman, 381 B.R. 874, 878 (N.D.Ill. 2008).
Consequently, this court lacks subject matter jurisdiction over the motion for sanctions
against Mr. Grochocinski and it should be dismissed.
The requirement of bankruptcy court approval is grounded in recognition of the fact
that “a trustee in bankruptcy is working in effect for the court that appointed or approved
him, administering property that has come under the court’s control by virtue of the
Bankruptcy Code.” Linton, 136 F.3d at 545. The rationale for the requirement is well stated
in Linton:
Without the requirement, trusteeship will become a more
irksome duty, and so it will be harder for courts to find
competent people to appoint as trustees. Trustees will have to
pay higher malpractice premiums, and this will make the
administration of the bankruptcy laws more expensive (and the
expense of bankruptcy is already a source of considerable
concern). Furthermore, requiring that leave to sue be sought
enables bankruptcy judges to monitor the work of the trustees
more effectively. It does this by compelling suits growing out
of that work to be as it were prefiled before the bankruptcy
judge that made the appointment; this helps the judge decide
whether to approve this trustee in a subsequent case. Id.
In the present case, Mr. Grochoncinski has a lively interest in “seeking to enforce a
requirement of bankruptcy law intended for his protection and for the protection of the
integrity of the bankruptcy system.” 136 F.3d at 546. Adherence to the Barton doctrine
means that defendant’s petition should be dismissed, as they have neither sought not
received bankruptcy court approval to file it.

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The litigation of Grochocinski v. Mayer Brown
considerations.

is imbued with bankruptcy

Plaintiff Grochocinski was appointed as Chapter 7 Trustee by the

bankruptcy court on September 21, 2004. ¶ 5 of complaint, which is exhibit C of
defendants’ notice of removal, document # 1 in the court file. Later, he was granted leave
of court to retain special counsel to investigate and litigate claims that the bankruptcy
estate might have. Id. When the lawsuit against Mayer Brown was filed, defendants
removed the suit from state court to this court solely on the basis that the suit was related
to a bankruptcy case under 28 U.S.C. § 1334. ¶ 7, notice of removal, document # 1.
Spehar Capital, LLC, the bete noire of the story in the court’s memorandum opinion and
order of March 31, 2010, has long been fighting with Trustee Grochocinski before Judge
Squires in the pending bankruptcy proceedings (In re CMGT, Inc., No. 04 B 31669) through
the adversary proceeding he brought against Spehar, Grochocinski v. Spehar Capital, LLC,
No. 07 A 00838. Mayer Brown is a creditor of the CMGT bankruptcy estate.
When a trustee’s work is questioned and challenged by an attempt to obtain
sanctions against him personally, the bankruptcy court should be the first to know.
Otherwise, its function of monitoring the work of trustees will be impaired. The smooth
functioning of the bankruptcy system depends on bankruptcy court oversight, and that
includes the pre-approval of litigation that might be brought against a trustee.
Because of the trustee’s unique and crucial role in the administration of the
bankruptcy laws, he is entitled under the Barton doctrine to require a claimant to seek
bankruptcy court approval of planned litigation against him. Particularly when personal
liability is sought–the prospect of which can only make the role of trustee highly irksome–

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bankruptcy court approval is essential. Since no approval was obtained in this case, the
motion for sanctions against Mr. Grochocinski should be dismissed for lack of subject
matter jurisdiction.
Respectfully submitted,
MYERS & MILLER LLC
By:

/s/David E. Morgans
David E. Morgans

David E. Morgans (1959743)
MYERS & MILLER LLC
Thirty North LaSalle Street
Suite 2200
Chicago, Illinois 60602
Ph: 312/345-7250
Fx:
312/345-7251

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