Beck v. Fort James Corp. (In Re Crown Vantage, Inc.) , 421 F.3d 963 ( 2005 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: CROWN VANTAGE, INC., 
Debtor,
JEFFREY H. BECK, No. 04-16443
Plaintiff-Appellant,
v.  D.C. Nos.
CV-04-01041-MMC
FORT JAMES CORPORATION; FORT 03-4240-AN
JAMES FIBER CO.; FORT JAMES
INTERNATIONAL HOLDINGS LTD.;
MCGUIRE WOODS,
Defendants-Appellees.

JEFFREY H. BECK, 
Plaintiff-Appellee,
v.
FORT JAMES CORPORATION; FORT No. 04-16547
JAMES FIBER CO.; FORT JAMES D.C. No.
INTERNATIONAL HOLDINGS LTD.;  CV-04-01041-MMC
MCGUIRE WOODS, 03-4240AN
Defendants-Appellants, OPINION
and
CROWN VANTAGE, INC.,
Debtor.

Appeal from the United States District Court
for the Northern District of California
Maxine M. Chesney, District Judge, Presiding
11751
11752 IN RE: CROWN VANTAGE
Argued and Submitted
March 17, 2005—San Francisco, California
Filed August 30, 2005
Before: Sidney R. Thomas and Raymond C. Fisher,
Circuit Judges, and James L. Robart,* District Judge.
Opinion by Judge Thomas
*The Honorable James L. Robart, United States District Judge for the
District of Western Washington, sitting by designation.
11756 IN RE: CROWN VANTAGE
COUNSEL
Malcolm Loeb, Leo R. Beus and Richard R. Thomas, Beus
Gilbert PLLC, Scottsdale, Arizona; Allen Steyer and Edward
Egan Smith, Steyer Lowenthal Boodrookas Alvarez & Smith
LLP, San Francisco, California, for the plaintiff-appellant.
Kristin Linsley Myles and Susan Traub Boyd, Munger, Tolles
& Olson LLP, San Francisco, California; Joseph F. Coyne, Jr.
and Michelle Sherman, Sheppard, Mullin, Richter & Hampton
LLP, Los Angeles, California, for appellees and cross-
appellants Fort James.
James C. Krieg and Stan G. Roman, Krieg, Keller, Sloan,
Reilley & Roman LLP, San Francisco, California, for appel-
lee and cross-appellant McGuire Woods.
OPINION
THOMAS, Circuit Judge:
The parties in this case appeal and cross-appeal the order
of the district court vacating an injunction issued by the bank-
ruptcy court. We affirm in part and reverse in part.
I
The success of an industry often depends on generating
demand for its goods, so it is perhaps not surprising that liti-
gation in the paper manufacturing industry would require a
prodigious quantity of its product. This appeal concerns a
small, but nonetheless important, cogwheel in the legal
machinery of the Crown Vantage, Inc. bankruptcy, which
itself was a byproduct of various corporate organizational fab-
rications and deconstructions.
IN RE: CROWN VANTAGE 11757
Through a series of mergers and acquisitions, the James
River Corporation (“James River”), a publicly-held corpora-
tion, ultimately became the successor in interest to such busi-
ness entities as the Crown-Zellerbach Corporation and the
Northern Paper Mills Company. James River, in turn, merged
with the Fort Howard Paper Company to form the Fort James
Corporation (“Fort James”). Fort James was eventually
acquired by the Georgia-Pacific Corporation, but this devel-
opment would not occur until years after the events that form
the basis of our story.
In 1995, James River decided to spin off certain assets
related to its communications papers and packaging business
(“Crown Assets”). To that end, it formed Crown Vantage, Inc.
(“Crown Vantage”), as a wholly-owned subsidiary holding
company, and Crown Paper, Inc. (“Crown Paper”), an operat-
ing entity wholly owned by Crown Vantage.1 James River
transferred all of the Crown Assets to the Crown Entities, and
then spun off all its shares of stock in Crown Vantage as a
tax-free dividend to James River shareholders, and Crown
Vantage became a publicly-traded, stand-alone corporation. A
large portion of this transaction was accomplished through
various means, including an agreement (“Contribution Agree-
ment”) between James River and the Crown Entities.2 By late
1997, a number of disputes concerning the Contribution
Agreement had arisen between the Crown Entities and James
River, which had now through merger become Fort James. In
1998, the Crown Entities and Fort James entered into an
agreement to resolve these issues (“Settlement Agreement”).
The Settlement Agreement contained extensive mutual
releases and provided that the sole forum and venue for any
1
For convenience of reference, we shall refer to “Crown Vantage” and
“Crown Paper” collectively as the “Crown Entities.”
2
Because it is not critical to our discussion, this transaction will be
described only in very general terms.
11758 IN RE: CROWN VANTAGE
action arising out of the Settlement Agreement would be the
federal or state courts of Delaware.3
In 2000, the Crown Entities filed a voluntary petition in
bankruptcy under Chapter 11 of the Bankruptcy Code in the
United States Bankruptcy Court for the Northern District of
California. As part of the bankruptcy proceedings, the Unse-
cured Creditors Committee filed motions seeking authority to
investigate the 1995 James River spin-off transaction to deter-
mine whether an adversary proceeding should be commenced
against Fort James. Approximately a year later, Fort James
filed an adversary proceeding seeking a declaration, inter alia,
that the spin-off transactions did not constitute a fraudulent
conveyance and that, in any event, the Settlement Agreement
had released Fort James from any liability in connection with
the Contribution Agreement and related spin-off transactions.
Subsequently, the Crown Entities, as debtor-in-possession,
filed an adversary proceeding against Fort James, alleging the
Settlement Agreement release constituted a fraudulent trans-
fer. The Crown Entities also alleged claims for conversion,
negligence, breach of fiduciary duty, unjust enrichment, and
unlawful distribution. Pursuant to stipulation of the parties,
the bankruptcy court consolidated all of the claims between
the parties into one action (“the Crown-Fort James Bank-
ruptcy Action”).
Eventually, efforts to reorganize the company failed, and
the Crown Entities proposed a liquidating plan of reorganiza-
tion. Under the plan, a liquidating trust (“Crown Liquidating
Trust”) would be established and a trustee (“Liquidating
3
The relevant provision in the Settlement Agreement stated: “Each of
the parties agrees and submits to the personal jurisdiction of the courts of
the State of Delaware, both state and federal, and further agrees that the
sole forum and venue for any action or proceeding under, in connection
with or relating to this Agreement shall be in the state or federal courts in
Delaware.”
IN RE: CROWN VANTAGE 11759
Trustee”) appointed to liquidate the assets of the Crown Enti-
ties and distribute the proceeds to creditors in accordance with
an agreement (“Liquidating Trust Agreement”) that was
approved by the bankruptcy court. According to the plan, all
assets of the Crown Entities were to be transferred to the
Crown Liquidating Trust, and the Liquidating Trustee was
substituted as successor to the debtor as to all actions pending
or thereafter commenced relating to the bankruptcy estate.
The plan named Jeffrey H. Beck as the Liquidating Trustee.
The plan acknowledged that the Liquidating Trustee would
bring authorized causes of action for fraudulent conveyance,
among other claims, against Fort James. The plan also
acknowledged that the Trustee would be asserting claims
against certain directors and officers of Fort James, Crown
Vantage and Crown Paper, underwriters, auditors, and other
professionals. The plan expressly noted that potential recov-
eries from a fraudulent conveyance action against Fort James
“could provide a substantial recovery” to creditors of the
estate.
After notice and a hearing, on November 22, 2001, the
bankruptcy court entered findings of fact and conclusions of
law pursuant to 11 U.S.C. § 1129(a) and confirmed the pro-
posed plan. In the confirmation order, the court retained “ex-
clusive jurisdiction over all matters arising out of, and related
to, the Chapter 11 cases and the Plan to the fullest extent per-
mitted by law, including but not limited to, the matters set
forth in Article XII of the Plan.” Article XII provided, in rele-
vant part, that:
[N]otwithstanding the entry of the Confirmation
Order or the occurrence of the effective date, the
Bankruptcy Court shall retain exclusive jurisdiction,
as legally permissible, over all matters arising out of
or relating to the Chapter 11 cases, including without
limitation, jurisdiction to:
* * *
11760 IN RE: CROWN VANTAGE
(g) decide or resolve any dispute or other matter
that may arise in connection with or related to the
Recovery Proceeds, Available Cash or Distributable
Cash, including Distributions thereof
* * *
(k) hear and determine all applications, motions,
adversary proceedings, including those in respect of
the Avoidance Actions, contested matters, and other
liquidated matters that may be pending in the Bank-
ruptcy Court on or initiated after the Confirmation
Date, arising out of, under or related to the Chapter
11 cases . . . ;
* * *
(x) [recover] all Assets of the Debtors and property
of the Estates, wherever located, including any
Causes of Action. . . .
The confirmed plan itself further provided that the “Bank-
ruptcy Court shall retain jurisdiction over this Agreement and
the Liquidating Trust established hereby, including without
limitation the interpretation and enforcement of its provisions,
for the purpose of determining all amendments, applications,
claims or disputes with respect to this Agreement and the Liq-
uidating Trust.”
A few days prior to the confirmation of the plan, Fort
James filed a motion to dismiss the Crown-Fort James Bank-
ruptcy Action. In April, after briefing and oral argument, the
bankruptcy court denied Fort James’s motion to dismiss. Ulti-
mately, the reference was withdrawn with respect to this
action, and it was transferred to the United States District
Court in and for the Northern District of California.
In March 2002, the Crown Liquidating Trust filed an action
in California state court against McGuire Woods LLP
IN RE: CROWN VANTAGE 11761
(“McGuire Woods”), the law firm that had represented James
River in connection with the corporate spin-off of the Crown
Entities and other entities. The defendants removed this action
(“the Removed Action”) to the United States District Court in
and for the Northern District of California. The Crown Liqui-
dating Trust moved to remand the case, but the district court
declined to do so because of the “substantial overlap of fact
patterns” between the Removed Action and the Crown-Fort
James Bankruptcy Action. The court then consolidated the
cases (which will now be collectively referenced as the “Cali-
fornia Actions”).
In October 2002, Fort James and McGuire Woods (the
“Fort James Entities”) filed a lawsuit (“the Delaware Action”)
in the Chancery Court of Delaware seeking, inter alia, a dec-
laration that the California Actions were barred by the Settle-
ment Agreement. In the Delaware Action, the Fort James
Entities contend that the Liquidating Trustee breached the
Settlement Agreement in proceeding with the California
Actions. The Delaware Action seeks to compel the Liquidat-
ing Trustee to dismiss all pending actions against the Fort
James Entities. The Delaware Action also seeks damages
from the Liquidating Trustee, along with costs and attorneys
fees.
The Liquidating Trustee removed the Delaware Action to
the United States District Court for the District of Delaware
in November 2002. The Liquidating Trustee then filed a
motion to dismiss or, in the alternative, to transfer. The Fort
James Entities filed a motion to remand. In February 2002,
the district court granted the Fort James Entities’ motion to
remand the Delaware Action to Delaware Chancery Court,
and denied the Liquidating Trustee’s motion to dismiss or
transfer as moot. After remand, the Liquidating Trustee filed
a motion to dismiss or, in the alternative, to stay proceedings
pending resolution of the California Actions.
11762 IN RE: CROWN VANTAGE
The Fort James Entities then filed a motion in the District
Court of California seeking an order that the Delaware Action
did not violate the automatic stay or the Barton doctrine.4 In
August 2003, the District Court held that the Bankruptcy
Court should determine those questions in the first instance.
Thereafter, the Liquidating Trustee filed an adversary com-
plaint in bankruptcy court and moved for an order enjoining
the Fort James Entities from prosecuting the Delaware action.
The Fort James Entities argued in response that the Barton
doctrine was not applicable; that the Delaware Action was
against the Liquidating Trustee, not in his personal capacity,
but as the legal representative of the Crown Entities; and that
there was a presumptively valid forum selection clause in the
Settlement Agreement. The Delaware Chancery Court then
issued an order staying a ruling on the Liquidating Trustee’s
motion to dismiss pending resolution of the adversary pro-
ceeding.
After notice and a hearing in the adversary proceeding, the
bankruptcy court enjoined the Fort James Entities from pursu-
ing the Delaware Action. The bankruptcy court held that the
Delaware Action violated Barton and that the Settlement
Agreement’s forum selection clause did not control.
The Fort James Entities appealed the bankruptcy court’s
grant of a preliminary injunction to the district court. The dis-
trict court affirmed the bankruptcy court in part and reversed
in part. The district court held that the bankruptcy court cor-
rectly found that the Liquidating Trustee was likely to prevail
on his claim that the Fort James Entities violated the Barton
doctrine by initiating the Delaware Action without permis-
4
The Barton doctrine takes its name from Barton v. Barbour, 104 U.S.
126 (1881), in which the Supreme Court ruled that the common law barred
suits against receivers in courts other than the court charged with the
administration of the estate. Id. at 127. The Supreme Court held in Barton
that, before suit is brought against such a receiver, leave of the court by
which the trustee was appointed must be obtained.
IN RE: CROWN VANTAGE 11763
sion. However, the district court held that the bankruptcy
court erred in granting the preliminary injunction because the
Liquidating Trustee had failed to establish irreparable harm.
The district court therefore vacated the preliminary injunction
issued by the bankruptcy court. This appeal and cross-appeal
followed. The Liquidating Trustee appealed the district
court’s order vacating the injunction; Fort James cross-
appealed the district court’s conclusions concerning applica-
tion of the Barton doctrine.
II
[1] The first question presented by this case is whether, and
to what extent, a bankruptcy court-appointed trustee of a liq-
uidating trust may be sued in a foreign jurisdiction without
permission of the court appointing the trustee.
A
[2] We join our sister circuits in holding that a party must
first obtain leave of the bankruptcy court before it initiates an
action in another forum against a bankruptcy trustee or other
officer appointed by the bankruptcy court for acts done in the
officer’s official capacity. See Muratore v. Darr, 375 F.3d
140, 147 (1st Cir. 2004); Carter v. Rodgers, 220 F.3d 1249,
1252 (11th Cir. 2000); In re Linton, 136 F.3d 544, 546 (7th
Cir. 1998); Lebovits v. Scheffel (In re Lehal Realty Assocs.),
101 F.3d 272, 276 (2d Cir. 1996); Allard v. Weitzman (In re
DeLorean Motor Co.), 991 F.2d 1236, 1240 (6th Cir. 1993).
In our circuit, the doctrine was recognized by our Bankruptcy
Appellate Panel in Kashani v. Fulton (In re Kashani), 190
B.R. 875, 883-85 (9th Cir. BAP 1995).
[3] This holding is firmly grounded in the Barton doctrine,
established by the Supreme Court over a century ago, which
provides that, before suit can be brought against a court-
appointed receiver, “leave of the court by which he was
appointed must be obtained.” 104 U.S. at 127; see also Davis
11764 IN RE: CROWN VANTAGE
v. Gray, 83 U.S. 203, 218 (1872) (holding that the court
appointing a receiver “will not allow him to be sued touching
the property in his charge, nor for any malfeasance as to the
parties, or others, without [the court’s] consent”). The Court
held that if leave of court were not obtained, then the other
forum lacked subject matter jurisdiction over the suit. Barton,
104 U.S. at 127. Part of the rationale underlying Barton is that
the court appointing the receiver has in rem subject matter
jurisdiction over the receivership property. Id. at 136. As the
Supreme Court explained, allowing the unauthorized suit to
proceed “would have been a usurpation of the powers and
duties which belonged exclusively to another court.” Id.5
[4] The Barton doctrine applies in bankruptcy, because
“[t]he trustee in bankruptcy is a statutory successor to the
equity receiver,” and “[j]ust like the equity receiver, 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.
[5] Indeed, the policies underlying the Barton doctrine
apply with greater force to bankruptcy proceedings than to
other proceedings involving receivers. The filing of a bank-
ruptcy petition creates a bankruptcy estate, consisting of all of
the debtor’s legal or equitable interests in property “wherever
located and by whomever held.” 11 U.S.C. § 541(a). Thus,
“[t]he district court in which the bankruptcy case is com-
menced obtains exclusive in rem jurisdiction over all of the
property in the estate.” Hong Kong and Shanghai Banking
Corp., Ltd. v. Simon (In re Simon), 153 F.3d 991, 996 (9th
Cir. 1998). The court’s exercise of in rem bankruptcy jurisdic-
tion “essentially creates a fiction that the property—regardless
5
The Fort James Entities argue that the Liquidating Trustee has waived
any Barton protection by litigating the Delaware Action for four months
before raising a Barton defense. However, because Barton implicates the
subject matter jurisdiction of the court, it may be raised at any time.
IN RE: CROWN VANTAGE 11765
of actual location—is legally located within the jurisdictional
boundaries of the district in which the court sits.” Id. (cita-
tions omitted). Thus, the jurisdiction of the bankruptcy court
exceeds that of any other court-appointed receiver. The
requirement of uniform application of bankruptcy law dictates
that all legal proceedings that affect the administration of the
bankruptcy estate be brought either in bankruptcy court or
with leave of the bankruptcy court.
B
[6] The Fort James Entities argue that the Barton doctrine
has been superseded by statute. It is true that a limited statu-
tory exception to the Barton doctrine is codified at 28 U.S.C.
§ 959(a). However, that exception is not applicable here. Sec-
tion 959(a) provides that:
Trustees, receivers or managers of any property,
including debtors-in-possession, may be sued, with-
out leave of the court appointing them, with respect
to any of their acts or transactions in carrying on
business connected with such property. Such actions
shall be subject to the general equity power of such
court so far as the same may be necessary to the ends
of justice, but this shall not deprive a litigant of his
right to trial by jury.
[7] By its terms, this limited exception applies only if the
trustee or other officer is actually operating the business, and
only to “acts or transactions in conducting the debtor’s busi-
ness in the ordinary sense of the words or in pursuing that
business as an operating enterprise.” Muratore, 375 F.3d at
144. “Section 959(a) does not apply to suits against trustees
for administering or liquidating the bankruptcy estate.” Car-
ter, 200 F.3d at 1254. “[A]ctions taken in the mere continuous
administration of property under order of the court do not
constitute an ‘act’ or ‘transaction’ in carrying on business
connected with the estate.” Muratore, 375 F.3d at 144 (citing
11766 IN RE: CROWN VANTAGE
Field v. Kansas City Refining Co., 9 F.3d 213, 216 (8th Cir.
1925)). The few examples of suits that have been allowed
under § 959(a) include a wrongful death action filed against
an operating railroad trustee and suits for wrongful use of
another’s property. Id. (citing Thompson v. Texas Mexican Ry.
Co., 328 U.S. 134, 138 (1946) and Valdes v. Feliciano, 267
F.2d 91, 94-95 (1st Cir. 1959)).
[8] Here, the Liquidating Trustee was not operating the
business previously conducted by the debtor; he was liquidat-
ing the assets of the estate. This is precisely the type of activ-
ity that the Barton doctrine was designed to protect. Thus, the
limited exception to the Barton doctrine contained in § 959(a)
does not apply.
C
[9] The Fort James Entities also contend that the Barton
doctrine does not apply because the bankruptcy court had
confirmed a plan, and therefore the Crown Liquidating Trust
was operating separately from the bankruptcy itself. Similar
arguments, involving lawsuits operating separately from their
related bankruptcy cases, were firmly rejected by the First
Circuit in Muratore, 375 F.3d at 147 (applying Barton to a
lawsuit filed after the bankruptcy case was “closed and the
estate assets no longer ‘in the receiver’s hands’ ”), and by the
Seventh Circuit in Linton, 136 F.3d at 544-45 (applying Bar-
ton to a state court lawsuit filed eleven months after the bank-
ruptcy case was closed), and we agree with the analysis of our
sister circuits that “the doctrine serves additional purposes
even after the bankruptcy case has been closed and the assets
are no longer in the trustee’s hands.” Muratore, 375 F.3d at
147 (citing Barton, 104 U.S. at 128). Both Muratore and Lin-
ton involved closed estates; here the rationale for continuing
jurisdiction and supervision is stronger because the estate is
still open, with a liquidating trust operating pursuant to the
confirmed plan, and subject to continuing bankruptcy jurisdic-
tion.
IN RE: CROWN VANTAGE 11767
In addition, “[a] confirmed reorganization plan operates as
a final judgment with res judicata effect.” Unsecured Credi-
tors Comm. v. Southmark (In re Robert L. Helms Construction
& Development Co., Inc.), 139 F.3d 702, 704 (9th Cir. 1998);
see also Stoll v. Gottlieb, 305 U.S. 165, 170 (1938) (same).
Here, the confirmed plan provided for the continuation of the
Crown-Fort James Bankruptcy Action by the Liquidating
Trustee. If the Fort James Entities had any objections to this,
those objections should have been registered before plan con-
firmation. “[I]f a creditor fails to timely object to a plan or
appeal a confirmation order, ‘it cannot later complain about
a certain provision contained in a confirmed plan, even if such
a provision is inconsistent with the Code.’ ” Enewally v.
Wash. Mut. Bank (In re Enewally), 368 F.3d 1165, 1172 (9th
Cir. 2004) (quoting Great Lakes Higher Educ. Corp. v.
Pardee (In re Pardee), 193 F.3d 1083, 1086 (9th Cir. 1999)
(quoting Andersen v. UNIPACNEBHELP (In re Andersen),
179 F.3d 1253, 1258 (10th Cir. 1999))). If a court preserves
issues for later adjudication by adversary proceeding, then the
merits of those actions are preserved for later adjudication. Id.
However, the confirmed plan distributed the cause of action
to the Liquidating Trust. To raise the identical issues in a dif-
ferent forum in contravention of the liquidating procedure
approved in the confirmed plan is an impermissible collateral
attack on the confirmed plan. See Billmeyer v. Del Mar News
Agency (In re Universal Display & Sign Co.), 541 F.2d 142,
146 (3d Cir. 1976) (citing Chicot County Drainage Dist. v.
Baxter State Bank, 308 U.S. 371, 378 (1940)).
Further, the fact that the officer involved is not a bank-
ruptcy trustee, but rather a liquidating trustee, is of no
moment. As the Sixth Circuit has observed, under the Barton
doctrine, “court appointed officers who represent the estate
are the functional equivalent of a trustee. . . .” Delorean, 991
F.2d at 1241. Here, as part of a liquidating Chapter 11 reorga-
nization proceeding, the bankruptcy court chose the mecha-
nism of a liquidating trust to liquidate and distribute the assets
of the estate. The bankruptcy court retained jurisdiction over
11768 IN RE: CROWN VANTAGE
the case. In this context, the Liquidating Trustee is the “func-
tional equivalent” of the bankruptcy trustee and is entitled to
Barton protection. Id.
[10] Thus, the fact that the bankruptcy assets are now being
liquidated through the vehicle of a liquidating trust with an
appointed liquidating trustee does not prevent the application
of the Barton doctrine.
D
[11] The Fort James Entities also argue that Morris v.
Jones, 329 U.S. 545 (1947), either overruled or substantially
limited Barton, and permits the Delaware Action to continue.
Morris was a full faith and credit case concerning a judgment
obtained against the debtor; it did not involve the question of
whether an entity suing the trustee or receiver required leave
of the appointing court before commencing such an action in
a foreign jurisdiction. Id. at 547. There is no conflict between
Morris and Barton. See, e.g., SEC v. United Financial Group,
Inc., 576 F.2d 217, 221 n.9 (9th Cir. 1978) (distinguishing
Barton from actions involving full faith and credit).6
[12] Absent a final judgment, the Full Faith and Credit
Clause has no application. Lynde v. Lynde, 181 U.S. 183, 187
(1901). The Fort James Entities do not have judgment upon
which they seek recognition; they simply wish to race to
obtain one. Barton precludes them from doing so without
leave of court.7
6
The Fort James Entities also cite Morris for the proposition that the
claims at issue in this case do not affect the administration of the estate
and that therefore, as a matter of law, consent is not required. However,
as we shall discuss in section III, the question of whether a foreign action
affects the bankruptcy estate is an issue committed to the discretion of the
bankruptcy court, guided by consideration of the factors identified in
Kashani.
7
Moreover, Morris did not involve a case in which there was a prior
pending action. Because all of the matters contained in the Delaware
IN RE: CROWN VANTAGE 11769
Nor did Morris limit the Barton doctrine to suits not
involving proofs of claims. Long after Morris was decided,
we held without limitation that a trustee “is not subject to suit
without leave of the appointing court for acts done in his offi-
cial capacity and within his authority as an officer of the
Court.” Leonard v. Vrooman, 383 F.2d 556, 560 (9th Cir.
1967). As we have noted, the BAP declined to draw such a
distinction in Kashani. More recently, we stated the Barton
doctrine without any “proof of claim” qualifications, holding
that:
without leave of the bankruptcy court, no suit may
be maintained against a trustee for actions taken in
the administration of the estate. A court other than
the appointing court has no jurisdiction to entertain
an action against the trustee for acts within the trust-
ee’s authority as an officer of the court without leave
of the appointing court.
Curry v. Castillo (In re Castillo), 297 F.3d 940, 945 (9th Cir.
2002).
There are good policy reasons for rejecting the limitation
urged by the Fort James Entities. If the Barton doctrine is lim-
ited, Barton will not protect trustees from suit unless the suit
has the potential to affect the ratio of distribution. See, e.g.,
Muratore v. Darr, 375 F.3d 140 (1st Cir. 2004) (noting other
potential costs in such suits). As Judge Posner noted in Lin-
ton:
Action arose “out of the transaction or occurrence that is the subject matter
of the opposing party’s claim and do[ ] not require for [their] adjudication
the presence of third parties of whom the court cannot acquire jurisdic-
tion,” the causes of action were compulsory counterclaims in the Califor-
nia Actions. Fed. R. Civ. P. 13(a). Federal courts will not permit an action
to be maintained where the claims asserted should have been brought as
a compulsory counterclaim in an earlier action. Cheiker v. Prudential
Insurance Co., 820 F.2d 334 (9th Cir. 1987); Springs v. First National
Bank, 835 F.2d 1293 (9th Cir. 1988).
11770 IN RE: CROWN VANTAGE
Just like an equity receiver, 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. If he is burdened with having to defend
against suits by litigants disappointed by his actions
on the court’s behalf, his work for the court will be
impeded. This concern is most acute when suit is
brought against the trustee while the bankruptcy pro-
ceeding is still going on. The threat of his being dis-
tracted or intimidated is then very great . . . .
136 F.3d at 545.
This concern does not dissipate with the conclusion of the
bankruptcy, as Judge Posner also underscored:
Without the [Barton] 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 consid-
erable 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.; see also Carter, 220 F.3d at 1252.
[13] More importantly in this context, Morris and its prog-
eny have no application to bankruptcy proceedings. As the
Supreme Court has stated, “[t]he broad purpose of the Bank-
ruptcy Act is to bring about an equitable distribution of the
IN RE: CROWN VANTAGE 11771
bankrupt’s estate.” United States v. Embassy Restaurant, 359
U.S. 29, 31 (1959) (quoting Kothe v. R. C. Taylor Trust, 280
U.S. 224, 227 (1930)). As Justice Douglas noted, “[t]he power
of the bankruptcy court to subordinate claims or adjudicate
equities arising out of the relationship between the several
creditors is complete.” Sampsell v. Imperial Paper & Color
Corp., 313 U.S. 215, 219 (1941). Under the Bankruptcy Code,
a bankruptcy court has jurisdiction over “all civil proceedings
arising under title 11, or arising in or related to cases under
title 11.” 28 U.S.C. § 1334(b). Thus, whatever limited appli-
cation Morris may have on Barton in a non-bankruptcy con-
text, Morris does not affect the jurisdiction and power of the
bankruptcy court to adjudicate claims directly or to provide a
mechanism for the adjudication of claims through a confirmed
Chapter 11 plan of reorganization.8
E
[14] In sum, the bankruptcy court correctly held that prose-
cuting the Delaware Action without obtaining leave of the
bankruptcy court violated the Barton doctrine. Neither 28
U.S.C. § 959(a), nor Morris, nor the fact that the bankruptcy
court used the vehicle of a liquidating trust provides an excep-
tion in this case. Simply put, the Fort James Entities are
attempting to circumvent the processes established by the
bankruptcy court in the confirmed plan by filing an action in
a foreign jurisdiction without seeking leave of court. Thus,
this is simply a “run of the mill Barton case.” Carter, 220
F.3d at 1252. Before filing the Delaware Action, the Fort
James Entities were required to first obtain consent of the
bankruptcy court and absent that leave, the Delaware courts
lacked subject matter jurisdiction over the suit. Id.
8
In addition, as we have noted, “final judgments in state courts are not
necessarily preclusive in United States bankruptcy courts.” Gruntz v.
County of Los Angeles, 202 F.3d 1074, 1079 (9th Cir. 1999) (en banc).
Therefore, even if the Fort James Entities had acquired a post-petition
judgment in state court, a different analysis under the Full Faith and Credit
Clause would apply. Id. at 1082 n.6.
11772 IN RE: CROWN VANTAGE
III
[15] Although the district court agreed with the bankruptcy
court that the Liquidating Trustee was likely to prevail on his
claim that the Fort James Entities had violated the Barton
doctrine, it erroneously vacated the preliminary injunction
granted by the bankruptcy court. The district court incorrectly
held that the Liquidating Trustee was required to establish
irreparable harm as a requirement for obtaining preliminary
injunctive relief. In the usual federal civil case, “[t]he stan-
dard for granting a preliminary injunction balances the plain-
tiff’s likelihood of success against the relative hardship to the
parties.” Clear Channel Outdoor, Inc. v. City of Los Angeles,
340 F.3d 810, 813 (9th Cir. 2003). However, our usual pre-
liminary injunction standard does not apply to injunctions
issued by the bankruptcy court pursuant to 11 U.S.C. § 105.
That section specifically provides:
The court may issue any order, process, or judgment
that is necessary or appropriate to carry out the pro-
visions of this title. No provision of this title provid-
ing for the raising of an issue by a party in interest
shall be construed to preclude the court from, sua
sponte, taking any action or making any determina-
tion necessary or appropriate to enforce or imple-
ment court orders or rules, or to prevent an abuse of
process.
11 U.S.C. § 105(a) (emphasis added).
[16] The only requirement for the issuance of an injunction
under §105 is that the remedy conform to the objectives of the
Bankruptcy Code. Thus, as the Seventh Circuit has observed:
a bankruptcy court can enjoin proceedings in other
courts when it is satisfied that such proceedings
would defeat or impair its jurisdiction over the case
before it. In other words, the court does not need to
IN RE: CROWN VANTAGE 11773
demonstrate an inadequate remedy at law or irrepa-
rable harm.
In re L & S Industries, Inc., 989 F.2d 929, 932 (7th Cir.
1993). As the Sixth Circuit further noted, “Section 105(a)
contemplates injunctive relief in precisely those circum-
stances where the parties are ‘pursuing actions in other courts
that threaten the integrity of a bankrupt’s estate.’ ” Delorean,
991 F.2d at 1242 (quoting In re Baptist Medical Center, 80
B.R. 637, 641 (Bankr. E. D. N.Y. 1987) (quoting Manville
Corp. v. Equity Security Holders Comm. (In re Johns-
Manville Corp.), 801 F.2d 60, 63 (2d Cir. 1986))).
It would thwart the purpose of the Barton doctrine to add
an additional requirement that the party show irreparable
harm before being able to obtain relief. The essence of the
Barton doctrine is that parties may not commence or maintain
unauthorized litigation. The only appropriate remedy, there-
fore, is to order cessation of the improper action. There is no
requirement in Barton or any of its progeny that the aggrieved
party bear the additional burden of showing irreparable harm,
nor does such a requirement make any sense in the Barton
context. Indeed, even in the non-bankruptcy context, we have
held that courts appointing a receiver are invested with broad
power to issue orders barring actions which would interfere
with its administration of that estate. Diners Club, Inc. v.
Bumb, 421 F.2d 396, 398 (9th Cir. 1970).
The BAP has identified a series of factors for the bank-
ruptcy court to consider in exercising its discretion to decide
whether or not to enjoin litigation in another jurisdiction pur-
suant to the Barton doctrine, namely:
1. Whether the acts or transactions relate to the
carrying on of the business connected with the prop-
erty of the bankruptcy estate. If the proceeding is
under 28 U.S.C. § 959(a), then no court approval is
necessary. However, the moving party may request
11774 IN RE: CROWN VANTAGE
this initial review by the bankruptcy court in the
motion for leave to sue the trustee, or perhaps in the
form of a complaint, seeking a declaratory judgment
from the bankruptcy court.
2. If approval from the appointing court appears
necessary, do the claims pertain to actions of the
trustee while administering the estate? By asking this
question, the court may determine whether the pro-
ceeding is a core proceeding or a proceeding which
is related to a case or proceeding under Title 11,
United States Code.
3. Do the claims involve the individual acting
within the scope of his or her authority under the
statute or orders of the bankruptcy court, so that the
trustee is entitled to quasi-judicial or derived judicial
immunity?
4. Are the movants or proposed plaintiffs seeking
to surcharge the trustee; that is, seeking a judgment
against the trustee personally?
5. Do the claims involve the trustee’s breaching
her fiduciary duty either through negligent or willful
misconduct?
Kashani, 190 B.R. at 886-87 (internal citation omitted).
The existence of “one or more of these factors may be a
basis for the bankruptcy court to retain jurisdiction over the
claims.” Id. at 887. As the BAP explained, analysis of these
factors will “determine whether the issues affect solely the
administration of the bankruptcy estate and should be heard
by the bankruptcy court,” and “which claims should be tried
in another forum.” Id.
[17] The district court erred in imposing an irreparable
harm requirement. The appropriate analysis should have been
IN RE: CROWN VANTAGE 11775
guided by Kashani. In this case, the bankruptcy court care-
fully applied the Kashani factors and concluded that allowing
the Delaware Action to proceed would impair its jurisdiction
because the Delaware court would be entertaining a suit
against an officer of the court by a party that failed to obtain
leave to file the action. We find no abuse of discretion in the
Bankruptcy Court’s Kashani analysis. Indeed, the Fort James
Entities candidly admit that they seek a race to the courthouse
to obtain potentially conflicting judgments. This is exactly
that type of multiple litigation and resulting conflict that the
bankruptcy process is designed to avoid. The bankruptcy
court was entirely justified in issuing a § 105(a) injunction.
IV
In sum, we conclude that the bankruptcy court and the dis-
trict court correctly determined that the Fort James Entities
had violated the Barton doctrine by suing the Liquidating
Trustee in a foreign jurisdiction without leave of the bank-
ruptcy court. We further conclude that the district court incor-
rectly required the Crown Entities to establish irreparable
harm in order to obtain a preliminary injunction. Rather, the
effect of the Barton violation must be assessed under Barton,
§ 105, and Kashani. Under these standards, the bankruptcy
court’s injunction must stand.
AFFIRMED IN PART; REVERSED IN PART