SAN FRANCISCO (LN) — The en banc Ninth Circuit on Wednesday reversed a ruling that had shielded a bankruptcy trustee from personal liability for allegedly failing to preserve estate real property, holding that property-management functions do not qualify for quasi-judicial immunity.
The ruling revives an adversary proceeding brought by attorney Tammy R. Phillips, who alleged that trustee Amy Goldman allowed two Los Angeles properties — a Van Nuys residence and a Northridge commercial building — to physically deteriorate over more than a decade. According to the complaint, debtor Kevan Harry Gilman deferred maintenance on the properties, collected rent, and paid neither real estate taxes nor homeowners association dues, while Goldman allegedly took no steps to intervene. Phillips asserts that the alleged neglect caused the properties to appreciate more slowly than the broader market, resulting in a loss of between $0.20 million and $0.30 million in value.
Writing for the court, Circuit Judge Jacqueline H. Nguyen drew a sharp line between the two immunity doctrines that lower courts had been conflating. Quasi-judicial immunity, she explained, attaches only to functions analogous to the authoritative adjudication of private rights to the bankruptcy estate — such as scheduling hearings or resolving creditor disputes. Derived immunity, by contrast, protects a trustee who seeks court approval for a proposed action after candid disclosure and notice to interested parties, even when the action is non-adjudicative.
The complaint's allegations implicated a different category of trustee function: gathering estate property, investigating the debtor's finances, and operating the debtor's business on a short-term basis. As the court explained, these functions are not analogous to or intertwined with the authoritative adjudication of private rights to the bankruptcy estate, quoting the court's 2002 decision in In re Castillo. Rather, these functions call upon the trustee to act as a property manager.
The court also rejected Goldman's claim to derived immunity on the current record. Phillips alleged that Goldman made no attempt to obtain any orders to preserve the bankruptcy estate or recover moneys taken from it, and the court discerned no orders in the bankruptcy docket authorizing Goldman's inaction.
The opinion directly repudiated Continental Coin, a Central District of California bankruptcy court decision that had become a go-to authority for trustees. That ruling had treated quasi-judicial and derived immunity interchangeably and applied a standard under which immunity turned on the trustee's degree of fault — shielding ordinary negligence but not gross negligence. The Ninth Circuit rejected that framework on both counts: quasi-judicial immunity, where it applies, is absolute — shielding even intentional misconduct — while derived immunity similarly does not turn on the trustee's degree of fault.
The court acknowledged the National Association of Bankruptcy Trustees' concern, raised as amicus, that negligence liability could deter qualified candidates from serving. It was unpersuaded. Trustees retain the business judgment rule as a defense, can file regular estate-management reports to shift the burden of objection to creditors, and may seek Rule 9011 sanctions against creditors who bring baseless claims.
The en banc court also resolved a threshold jurisdictional question: the district court had remanded to the bankruptcy court for a futility determination, which would ordinarily make the order interlocutory. But Phillips's counsel represented at argument that Phillips was standing on the complaint rather than seeking leave to amend — leaving nothing for the bankruptcy court to do but enter another dismissal with prejudice. That representation, the court concluded, rendered the district court's order effectively final under 28 U.S.C. § 158(d)(1).
The case returns to the bankruptcy court, where Goldman may still press her remaining dismissal arguments, including the business judgment rule, speculative damages, and failure to mitigate — defenses the lower courts never reached. Gilman died in May 2021, and the underlying bankruptcy case remains pending.