A Chapter 7 Trustee’s Qualified Right of Immunity May Be No Shield for Intentional, Negligent, or Grossly Negligent Conduct: Analyzing and Applying the Three-Way Circuit Split
Quasi-judicial immunity is best understood as a blessing and a curse. A bankruptcy trustee is appointed to act as trustee through an order of the bankruptcy court. In Antoine v. Byers & Anderson, the Supreme Court provided a two-part test to analyze how far judicial immunity extends to persons who perform quasi-judicial functions in connection with their appointment. This test explains whether a judicial appointee is absolutely immune from personal liability to the estate or others. Under the test, a court (1) must decide whether the functions of the individual were historically adjudicative in nature, and (2) must then evaluate whether the actions which are the basis for suit are discretionary adjudicative functions that are fundamentally the equivalent of those that would have been made or undertaken by the judge. If both prongs are met, the officer is immune from personal liability for their discretionary actions.
Presently, the Bankruptcy Code fails to provide any guidance on the immunity or personal liability of a trustee. Guidance from the courts regarding the liability of a trustee remains inconsistent. Currently, there are three viewpoints on this issue imposing liability for (1) intentional breach of a trustee’s fiduciary duties, (2) negligent breach of a trustee’s fiduciary duties, and (3) grossly negligent breach of a trustee’s fiduciary duties. Accordingly, this Article will explain the doctrine of quasi-judicial immunity and will analyze a Chapter 7 trustee’s potential personal liability to suit, by application of the various standards used by the federal appellate courts to permit such liability.
Part I of this Article will briefly discuss the roles and responsibilities of the bankruptcy trustee. These roles provide the guidelines of the expectation of a trustee and will help examine a trustee’s immunity or personal liability. Part II of this Article will address the doctrine of quasi-judicial immunity as a defense to a personal liability claim. Part III will analyze the three different standards bankruptcy courts now use to decide whether to permit personal liability on trustees.