In Estate of Spirtos v. Estate of Spirtos, No. 03-56405 (9th Cir. April 12, 2006), the Ninth Circuit joins the 2nd, 4th, 5th, 6th, 8th, and 11th circuits by holding that 11 U.S.C. § 323 vests the bankruptcy trustee with the exclusive right to assert legal claims on behalf of the bankruptcy case. In Spirtos, family member creditors of the deceased debtor filed RICO claims against nearly everyone in the bankruptcy, including the chapter 7 and U.S. trustees, alleging a joint conspiracy to conceal assets belonging to the bankruptcy estate. The district court dismissed the creditors’ action for lack of standing.
On appeal, the Ninth Circuit noted that Bankruptcy Code section 323 gives the trustee the capacity to sue on behalf of the estate. The Court further acknowledged that, under some circumstances, a trustee may authorize others to bring suit on the estate’s behalf. However, the Ninth Circuit held that the right to bring suit belongs to the trustee in the first instance, not creditors. The creditors argued that such a rule is not logical, particularly when a creditor also sues the trustee. The Court reasoned that a creditor may either seek abandonment of the claim as property of the estate or seek removal of the trustee for malfeasance under Bankruptcy Code section 324(a). In sum, because the creditors had not received authorization to sue from the trustee, the Ninth Circuit affirmed the dismissal of the RICO claims for lack of standing to sue on behalf of the estate.