The issue of whether a bankruptcy judge can sua sponte remove a trustee has rarely been addressed; however, two courts have recently considered the issue. The Bankruptcy Appellate Panel in Morgan v. Goldman (In re Morgan), 375 B.R. 838 (B.A.P. 8th Cir. 2007) and the U.S. Court of Appeals for the Eleventh Circuit in Walden v. Walker (In re Walker), 515 F.3d 1204 (11th Cir. 2008) both concluded that a bankruptcy judge has the ability to remove a trustee “for cause,” sua sponte, after “notice and a hearing.”
Morgan was the first case to ever deal with the issue of sua sponte removal of a trustee. In Morgan, the lower court determined without any prior motion by a party that “cause” existed to remove the trustee due to her conflict of interest. See Morgan v. Goldman (In re Morgan), 375 B.R. 838, 848 (B.A.P. 8th Cir. 2007). The majority opinion of the appellate panel upheld the lower court judge’s action, briefly stating that a bankruptcy judge has the power to remove a trustee sua sponte. The concurring in part and dissenting in part opinions in the Morgan case shed more light on the reasons for and against allowing sua sponte removal.
Walker was only the second, as well as the most recent court to deal with the issue of sua sponte removal of a trustee. In Walker, the lower court dealt with the issue of whether the debtor had standing because the debtor made a motion himself to have the trustee removed. Although Walker had a different procedural background than Morgan, the circuit court in Walker ultimately concluded that a trustee could potentially be removed sua sponte as well. Since Walker held that the court could remove the trustee sua sponte, the standing issue became moot.
There are several implications that come from the holdings of Morgan and Walker. First, the courts within the Eighth and Eleventh Circuits are now empowered to remove a trustee whenever “notice and a hearing” are given and “cause” exists. Second, since courts can remove a trustee sua sponte, the issue of standing is no longer relevant within a trustee removal motion within the Morgan and Walker jurisdictions. Additionally, since Morgan and Walker are the only two courts that have dealt with the sua sponte issue, they will likely provide strong persuasive authority in other jurisdictions.
This paper regarding sua sponte removal of a trustee will be divided into four sections. First, the statute governing the removal of a trustee will be described. Second, the Morgan case will be discussed by initially looking at the facts of the case, then turning to the holding of the court, and finally looking at the dissent of the court. Third, the Walker case will be discussed by initially looking at the facts of the case, which will be followed the holding of the court. Fourth, the implications of the Morgan and Walker case will be examined.