Berleth DO NOT DOCKET. CASE HAS BEEN REMANDED TO BANKRUPTCY COURT, ADVERSARY NO. 22-03040.
Filing
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MEMORANDUM OPINION AND ORDER. The Court ORDERS that the Bankruptcy Courts Amended Memorandum Opinion, is VACATED, and the suit is REMANDED with instructions to DISMISS the case without prejudice. Case terminated on 3/31/2024.(Signed by Judge Drew B Tipton) Parties notified. (glc4)
United States District Court
Southern District of Texas
ENTERED
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
HOUSTON DIVISION
April 01, 2024
Nathan Ochsner, Clerk
IN RE:
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PREFERRED READY-MIX, LLC,
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§
Debtor.
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______________________________________________________________________________
ROBERT BERLETH,
Appellant,
v.
PREFERRED READY-MIX, LLC,
Appellee.
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§
§
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Civil Action No. 4:22-CV-03982
MEMORANDUM OPINION AND ORDER
This is a bankruptcy appeal. At issue are the actions of Appellant Robert Berleth
in his capacity as a court-appointed receiver. Specifically, in 2021, a state court in Fort
Bend County, Texas appointed Berleth as a receiver and ordered him to seize and
maintain the assets of Appellee Preferred Ready-Mix, LLC (“Ready-Mix”). Berleth
followed instructions. However, several months after Berleth seized the property, ReadyMix filed for Chapter 11 bankruptcy and demanded its property be released. Berleth
agreed to do so, but only in exchange for an administrative fee. Ready-Mix paid the fee,
and the property was released ten days later. Ready-Mix then brought this adversary
action, asserting four claims against Berleth. The court found in favor of Ready-Mix on
three claims and ordered Berleth to pay $45,000. Upon review, the Court determines that
the Bankruptcy Court erred in reaching the merits of a case over which it lacked
jurisdiction.
I.
BACKGROUND
A.
UNDERLYING FACTS
In 2019, Robert Foran and Nolan Star Trucking, LLC were sued by a plaintiff for
breach of contract in the 400th Judicial District Court of Fort Bend County, Texas. See
Roesle v. Foran and Nolan Star Trucking, LCC, Case No. 19-DCV-267154. After Foran and
Nolan Star Trucking declined to participate in the suit, the state district court entered
default judgment in the amount of $173,120.68 against them. (Dkt. No. 2-7 at 3). The
court appointed a receiver—Robert Berleth—to collect the judgment. (Dkt. No. 2-10 at
30–54).
In September 2021, Berleth obtained an Ex Parte Order Supplementing
Receivership (the “Order”) from the appointing state court. (Id. at 55–56). The Order
directed Berleth to collect and maintain various Ready-Mix assets. (Id.).
The Receiver is to immediately seize the physical assets of
Preferred Ready-Mix, LLC, including intellectual property
and specifically to seize the concrete mixers wherever they
may be found, and hold such property in safe keeping until
such time the Debtor and Preferred Ready-Mix, LLC can be
heard by the Court.
(Id. at 56). On October 1, 2021, just one day after the Order was issued, Berleth did as
he was told. Berleth seized from Ready-Mix six Peterbilt mixer trucks, a 2003 Ford F250, a compressor, office supplies, business records, and various tools from within the
trucks. (Dkt. No. 2-15 at 18).
2
Two weeks after the property was seized, Ready-Mix filed for Chapter 11
bankruptcy. (Id. at 17). Berleth received notice of Ready-Mix’s filing on October 21,
2021.1 (Id.). Counsel for Ready-Mix made demand for return of the seized property on
November 10, 2021. (Dkt. No. 2-10 at 1). Berleth responded the next day via email,
explaining that he would “absolutely release the vehicles to the proper party, without
hesitation.” (Id. at 5–6). However, Berleth did not release Ready-Mix’s property without
hesitation.
Instead, he conditioned the release on Ready-Mix paying various
administrative costs, attaching an invoice to his response “which [would] need to be
paid by certified funds prior to any release of the vehicles.” (Id. at 6). And in a later
email discussing release of the property, Berleth states:
I really need my tow fee ($5,565), and I think I can get the tow
guy to take his invoice as an administrative expense. Can
your guy do that, and we’ll get these trucks released this
weekend?
(Id. at 3). Berleth also informed Ready-Mix through these emails that he would be leaving
town for a week-long vacation the very next day. (Id. at 6).
On November 20, 2021, after Berleth had returned from his vacation, a Ready-Mix
representative went to where Berleth stored the trucks and demanded possession. (Trial
Transcript (November 28, 2022) at 135:21–136:17).
The Ready-Mix representative
removed the trucks and left a check for $2,500. (Id. at 94:11–95:4).
1
These dates are significant because Section 543(b)(1) of the Bankruptcy Code required
Berleth to “deliver . . . any property of the debtor held by or transferred to such custodian, or
proceeds, product, offspring, rents, or profits of such property, that is in such custodian’s
possession, custody, or control on the date that such custodian acquires knowledge of the
commencement of the [bankruptcy filing.]” 11 U.S.C. § 543(b). More on this later.
3
Then, on November 29, 2021, Ready-Mix contacted Berleth, alleging that $50,000
worth of tools, a computer, and various business records were missing from the released
property. (Dkt. No. 2-10 at 13). While Berleth quickly denied the allegation that he
withheld the tools or computers, he acknowledged that he still possessed some ReadyMix business records. (Id. at 17). Berleth returned the records via mail shortly after, on
December 6, 2021. (Trial Transcript (November 28, 2022) at 157:4–157:12).
B.
PROCEDURAL HISTORY
Ready-Mix filed this adversary action on March 7, 2022. (Dkt. No. 2-2 at 8). ReadyMix brought four claims against Berleth: (1) turnover, (2) stay violation, (3) conversion,
and (4) disallowance of claim. (Dkt. No. 2-14 at 164–69). The Bankruptcy Court heard
argument during a bench trial on November 8, 2022. (Dkt. No. 2-15 at 16). After trial, the
Bankruptcy Court entered its Amended Memorandum Opinion2 in which it found for
Ready-Mix on its turnover, violation of stay, and disallowance of administrative expense
claims—that is, every claim except its conversion claim. (Dkt. No. 2-15 at 19–24). Finding
that Berleth had “effectively held the major assets of the debtor hostage[,]” the court
ordered Berleth to pay $45,000. (Id. at 19, 23). This appeal ensued.
II.
STANDARD OF REVIEW
Federal district courts have jurisdiction to hear appeals from the final judgments
of bankruptcy judges. 28 U.S.C. § 158(a)(3). An appeal to a district court from the
bankruptcy court “shall be taken in the same manner as appeals in civil proceedings
2
The Bankruptcy Court issued an Amended Memorandum Opinion “for the purposes of
correcting dates.” (Dkt. No. 2-15 at 16 n.1).
4
generally are taken to the courts of appeals from the district courts[.]” Id. § 158(c)(2). The
Court reviews the Bankruptcy Court’s legal conclusions de novo but may only disregard
a fact finding made by the Bankruptcy Court if that finding is clearly erroneous. In re
Perry, 345 F.3d 303, 309 (5th Cir. 2003). “A factual finding is not clearly erroneous if it is
plausible in the light of the record read as a whole.” In re Ramba, Inc., 416 F.3d 394, 402
(5th Cir. 2005). The Fifth Circuit has emphasized that under the “clearly erroneous”
standard, this Court “may [not] weigh the evidence anew” and may only set aside the
bankruptcy court’s fact findings if it is “left with the definite and firm conviction that a
mistake has been committed.” In re Perry, 345 F.3d at 309 (quotation marks omitted).
In reviewing the Bankruptcy Court’s findings of fact, the Court defers to the
Bankruptcy Court’s determinations of witness credibility. Saenz v. Gomez, 899 F.3d 384,
392 (5th Cir. 2018). Mixed questions of law and fact within a bankruptcy case, however,
are reviewed de novo. See, e.g., In re San Patricio Cnty. Cmty. Action Agency, 575 F.3d 553,
557 (5th Cir. 2009). Ultimately, a reviewing district court may affirm on any ground
supported by the record, including one not reached by the bankruptcy court.
Hammervold v. Blank, 3 F.4th 803, 813 (5th Cir. 2021).
III.
DISCUSSION
Berleth raises four issues on appeal:
1. Whether Plaintiff’s claims for monetary relief were barred by derived
judicial immunity and/or failure to comply with the Barton Doctrine?
2. Whether the Bankruptcy Court erred in awarding monetary damages
on a claim for turnover?
3. Whether the Bankruptcy Court’s factual findings on damages were
substantially erroneous?
5
See
4. Whether the Bankruptcy Court erred in awarding punitive damages for
violation of the automatic stay?
(Dkt. No. 5 at 6–7). At the outset, Berleth argues that Ready-Mix’s claims for monetary
relief are barred by derived judicial immunity and therefore should not have been heard
by the Bankruptcy Court. (Id. at 11–12). Berleth also claims protection under the Barton
doctrine. (Id. at 13). Because “the Barton doctrine is jurisdictional in nature[,]” the Court
must first determine whether the Bankruptcy Court had jurisdiction to reach the merits
of this case. Satterfield v. Malloy, 700 F.3d 1231, 1234 (10th Cir. 2012).
A.
BARTON DOCTRINE
Berleth argues that Ready-Mix’s suit is barred by the Barton doctrine.3 (Dkt. No. 5
at 13). The Barton doctrine generally requires 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, 127, 26 L.Ed. 672 (1881). And in this case, it is undisputed that
Ready-Mix did not seek leave from Berleth’s appointing court before filing this action.
(Dkt. No. 5 at 13); (Dkt. No. 10 at 15–16).
However, two exceptions exist to the Barton doctrine. First, and inapplicable to
this case, is the business exception—which is statutory in nature and generally applies
when a receiver or trustee is operating a business from which a stranger to the
bankruptcy process is harmed. See 28 U.S.C. § 959(a). And second, is the “ultra vires”
3
Although Berleth made this argument throughout this case, the Bankruptcy Court did
not mention the Barton doctrine or judicial immunity, in its Opinion. (See Dkt. No. 2-15 at 16-24).
Yet, the Court must not ignore the issue because “federal courts are duty-bound to examine the
basis of subject matter jurisdiction sua sponte, even on appeal.” Union Planters Bank Nat’l. Ass’n
v. Salih, 369 F.3d 457, 460 (5th Cir. 2004) (citing Steel Co. v. Citizens for a Better Env’t, 523 U.S. 83,
94–95, 118 S. Ct. 1003, 1012, 140 L.Ed.2d 210 (1998)).
6
exception. The ultra vires exception generally excludes actions “if they are ‘outside the
scope of [the person’s official] duties.’” In re Foster, No. 22-10310, 2023 WL 20872, at *5
(5th Cir. Jan. 3, 2023) (quoting Matter of Ondova Ltd. Co., 914 F.3d 990, 993 (5th Cir. 2019),
cert. denied sub nom. Foster v. Aurzada, 144 S.Ct. 332, 217 L.Ed.2d 173 (2023)).
Ready-Mix makes two arguments as to why the ultra vires exception fits this case.
First, Ready-Mix argues that Berleth acted ultra vires by refusing to return estate property
to Ready-Mix even after receiving notice of the bankruptcy filing. (Dkt. No. 10 at 15–16).
And second, Ready-Mix also argues that “the property seized by Berleth did not belong
to Foran, but rather to Ready-Mix, a limited liability company that was not wholly owned
by Foran as Berleth falsely testified.” (Id. at 15). The Court is unpersuaded.
1.
Berleth Did Not Act Ultra Vires by Failing to Immediately Return
Ready-Mix’s Property
The ultra vires exception has been interpreted narrowly. In fact, while the Fifth
Circuit has not yet fully “addressed the breadth of the ultra vires exception to the Barton
doctrine,” it recently acknowledged that “other circuits have applied the exception
narrowly and only ‘to the actual wrongful seizure of property by a trustee.’”4 In re Foster,
2023 WL 20872, at *5 (quoting In re McKenzie, 716 F.3d 404, 415 (6th Cir. 2013)). For
example, in the Tenth Circuit, “claims based on acts that are related to the official duties
4
Federal courts have applied the Barton doctrine to both receivers and trustees. See, e.g.,
In re Lehal Realty Assocs., 101 F.3d 272, 276 (2d Cir. 1996) (describing the “well-recognized line of
cases” extending the Barton doctrine to bankruptcy trustees, and its application in the postreceivership context); Carter v. Rodgers, 220 F.3d 1249, 1252 (11th Cir. 2000) (same). Therefore,
while this case only involves a court-appointed receiver, authority cited within this opinion may
sometimes refer to a trustee. This is a distinction without a difference.
7
of the trustee are barred by the Barton doctrine even if the debtor alleges such acts were
taken with improper motives.” Satterfield, 700 F.3d at 1236 (emphasis added). Consistent
with that logic, other courts have remarked that the ultra vires exception aims to exclude
a very specific scenario—i.e., a third party complaining that a receiver took property it
had no authority to take. See Teton Millwork Sales v. Schlossberg, 311 F. App’x. 145, 148
(10th Cir. 2009); see also Leonard v. Vrooman, 383 F.2d 556, 560 (9th Cir. 1967) (“[A] trustee
wrongfully possessing property which is not an asset of the estate may be sued for damages
arising out of his illegal occupation in a state court without leave of his appointing
court.”) (emphasis added).
After an exhaustive search on the issue, the Court is aware of just two cases in
which a receiver or trustee’s actions rose to the level of ultra vires—Vrooman, 383 F.2d 556,
and Teton Millwork Sales, 311 F.App’x 145. See In re Cruz, 562 B.R. 812, 817 (Bankr. M.D.
Fla. 2016) (noting the lack of cases in which the ultra vires exception has applied, allowing
a plaintiff to sue a bankruptcy trustee or receiver without first obtaining leave from the
appointing court). A review of the two cases illustrates why Berleth’s actions do not
warrant excusing the Barton doctrine’s leave requirement.
In Vrooman,5 a bankruptcy court appointed a receiver-trustee—Vrooman—and
tasked him with gathering and liquidating the assets of a bankruptcy estate. 383 F.2d at
5
The Ninth Circuit does not explicitly mention the Barton Doctrine in Vrooman. However,
the case addresses Barton’s central issue—whether plaintiffs need leave from an appointing court
before filing suit against a receiver or trustee that allegedly left the scope of his authority.
Vrooman, 383 F.2d at 560. For this reason, courts frequently cite Vrooman when asked to consider
the ultra vires exception to the Barton Doctrine. See, e.g., In re Cruz, 562 B.R. at 817; In re Ondova
Ltd. Co., No. 3:09-BK-34784, 2017 WL 477776, at *16–17 (Bankr. N.D. Tex. Feb. 1, 2017), report and
(continue)
8
557–58. After Vrooman seized and held onto property which the estate no longer owned,
a third party filed suit against Vrooman alleging “violation of his duties as receiver and
trustee[.]” Id. at 558–560. On appeal, the Ninth Circuit articulated “two mistakes” which
rendered Vrooman’s actions ultra vires. Id. at 560. First, was Vrooman’s seizing of real
property belonging to a third party, which was not listed as an asset of the debtor’s
bankruptcy estate. Id. And second, was Leonard’s failure to relinquish possession of the
property upon discovering that “title was claimed by and recorded in the name of [the
third party].” Id. Central to the Ninth Circuit’s holding was the principle that “a trustee
wrongfully possessing property which is not an asset of the estate may be sued for damages
arising out of his illegal occupation in a state court without leave of his appointing court.”
Id. (emphasis added).
And in Teton Millwork Sales, the Tenth Circuit reviewed the actions of a courtappointed receiver tasked with collecting assets from a judgment debtor in a divorce
proceeding. Teton Millwork Sales, 311 F. App’x. at 146–47. There, the receiver seized the
assets of a third-party corporation, TMS, in which the judgment debtor was a twenty-five
percent shareholder. Id. at 147. TMS filed suit against the receiver, but the district court
dismissed the case at the Rule 12 stage on Barton doctrine grounds because TMS failed to
first obtain leave from the appointing court. Id. The Tenth Circuit disagreed and reversed
the district court. Id. at 148. The Circuit’s rationale was simple—Rule 12 dismissal on
recommendation adopted, No. 3:16-CV-00947, 2018 WL 580151 (N.D. Tex. Jan. 26, 2018), aff'd sub
nom. In re Ondova Ltd. Co., 914 F.3d 990 (5th Cir. 2019).
9
Barton grounds was improper because “TMS alleges that the receiver wrongfully took
possession of property belonging to another.” Id. (emphasis added).
In both Vrooman and Teton Mills Work, the ultra vires conduct consisted of seizing
the wrong person’s property.6 See also In re Weisser Eyecare, Inc., 245 B.R. 844, 851 (Bankr.
N.D. Ill. 2000) (“Courts which have held trustees personally liable for actions taken
outside the scope of their authority, have mainly done so in matters involving a trustee's
mistaken seizure of property not property of the estate, or other similar actions.”). Here,
however, Ready-Mix argues that Berleth acted ultra vires by failing to immediately
turnover the property that the appointing court expressly instructed him to seize and
maintain. If the Court were to agree with Ready-Mix, such a ruling would stretch the
ultra vires exception to a place where it has not gone before. The Court declines to do so.
This case is less like Vrooman and Teton Mills Work, and more like other cases in
which a receiver acts, albeit improperly, within the scope of his authority. An instructive
example is Benta v. Christie’s, Inc., No. 1:13-CV-00080, 2021 WL 2546453 (D.V.I. June 21,
2021), where a pair of plaintiffs filed suit against two court-appointed trustees appointed
to seize and liquidate a bankrupt estate. Id. at *1–2. The plaintiffs brought six claims
including a conspiracy to interfere with civil rights claim under 42 U.S.C. § 1985(1) as well
as two different RICO violations under 18 U.S.C. §§ 1962(c) and 1962(d). Id. at *4.
However, the plaintiffs did not file their suit in the bankruptcy court that appointed the
6
Because the Tenth Circuit in Teton Millwork Sales was reviewing a district court’s Rule 12
dismissal of the case, it did not find that the receiver affirmatively seized the wrong person’s
property, but instead opined on certain allegations, which should have allowed the case to
proceed past the Rule 12 stage. Teton Millwork Sales, 311 F. App’x at 148.
10
trustee defendants, nor did they obtain leave to sue from the appointing court. Id. at *6.
Thus, the Barton doctrine squarely applied, and the plaintiffs were forced to argue that
the trustees’ acts were ultra vires. Id. The court disagreed and dismissed the case for lack
of jurisdiction. Id. at *11.
Specifically, the Benta court rejected the plaintiff’s “sophistic argument—that
merely alleging that the trustee’s conduct was intentional, unlawful or criminal renders
the alleged conduct ultra vires.” Id. at *8. As the court noted, this argument has been
rejected by many courts. Id. (collecting cases).
In sum, the ultra vires exception to the Barton doctrine is exceptionally narrow.
“[R]egardless of the motives ascribed to, or claimed illegality of, the conduct of the courtappointed officials, as long as their conduct is attributable” to the functions they were
appointed to perform, the Barton doctrine applies. Benta, 2021 WL 2546453 at *8; see also
Quintana v. Lowe, No. 5:22-CV-00706, 2023 WL 3077879, at *3 (W.D. Tex. Feb. 17, 2023)
(finding the ultra vires exception inapplicable where actions giving rise to “relate[d] to”
trustee’s official capacity”), report and recommendation adopted, No. 5:22-CV-00706, 2023
WL 3077876 (W.D. Tex. Mar. 13, 2023).
In this case, Berleth’s conditioning of Ready-Mix’s property was not far enough
removed from his receivership authority to be considered ultra vires. Berleth was ordered
by his appointing state court to:
immediately seize the physical assets of Preferred Ready-Mix,
LLC, including intellectual property and specifically to seize
the concrete mixers wherever they may be found, and hold
such property in safe keeping until such time the Debtor and
Preferred Ready-Mix, LLC can be heard by the Court.
11
(Dkt. No. 2-10 at 56). Berleth followed those instructions. The day after the state court
issued its Order, Berleth went to Ready-Mix and seized the property described in the
Order. (Dkt. No. 2-15 at 17). While the property was in Berleth’s possession, Ready-Mix
filed for Chapter 11 bankruptcy and made demand on Berleth that the property be
released. (Id.). According to the Bankruptcy Court, Berleth acted unlawfully by failing
to immediately release the property and instead conditioning release on Ready-Mix
paying some of Berleth’s administrative fees. (Id. at 19). All of Berleth’s conduct, whether
or not improper, took place while Berleth was carrying out the role he was appointed to
perform—i.e., to seize and hold onto Ready-Mix’s property. Thus, Ready-Mix’s first ultra
vires argument fails.
2.
Berleth Did Not Act Ultra Vires by Seizing Ready-Mix’s Property
Ready-Mix alternatively argues that “the property seized by Berleth did not
belong to Foran, but rather to Ready-Mix, a limited liability company that was not wholly
owned by Foran as Berleth falsely testified.” (Dkt. No. 10 at 15). Even if true, this
argument does not implicate the ultra vires exception.
As Ready-Mix correctly notes, the prime example of an ultra vires act consists of a
receiver or trustee “wrongfully or mistakenly ‘tak[ing] possession of property belonging
to another.’” In Re Foster, 2023 WL 20872, at *5 (quoting Barton, 104 U.S. at 134). However,
the reason these acts are considered ultra vires is because taking the wrong person’s
property would, in most cases, clearly run afoul of the receiver’s authority as granted by
the appointing court and thus be “outside the scope of [the person’s official] duties.” Id.
This case is different. Here, in the appointing court’s order, Berleth was expressly
12
ordered to “immediately seize the physical assets of Preferred Ready-Mix, LLC[.]” (Dkt.
No. 2-10 at 56) (emphasis added). Thus, in seizing the physical assets of Ready-Mix,
Berleth did exactly as instructed, acting squarely within the scope of his official duties.
Whether or not the appointing court made the right decision by directing Berleth to seize
Ready-Mix’s assets is a separate question for the state courts and has no bearing on
whether Berleth was acting within the scope of his official duties.7
IV.
CONCLUSION
In sum, it is undisputed that the Barton doctrine applies to this case, and that
Ready-Mix failed to request leave to sue Berleth from the appointing court. Further, the
Court is unpersuaded by either of Ready-Mix’s arguments as to why the ultra vires
exception applies. With no applicable exception to the Barton doctrine, Ready-Mix
should have first gone to the appointing state court and sought leave to sue. Because it
did not, the Bankruptcy Court had no jurisdiction to hear the suit.
Thus, the Court ORDERS that the Bankruptcy Court’s Amended Memorandum
Opinion, (Dkt. No. 2-15 at 16), is VACATED, and the suit is REMANDED with
instructions to DISMISS the case without prejudice.
7
Generally, federal courts do not interfere with a state court’s application of state law. See
Smith v. McCotter, 786 F.2d 697, 700 (5th Cir. 1986). This Court holds no supervisory power over
state judicial proceedings and may intervene only to correct errors of constitutional dimensions.
Smith v. Phillips, 455 U.S. 209, 221, 102 S.Ct. 940, 948, 71 L.Ed.2d 78 (1982).
13
Signed on March 31, 2024.
___________________________________
DREW B. TIPTON
UNITED STATES DISTRICT JUDGE
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