QUESTION: I have been a receiver for quite some time and know how the system works. I have a case without much money currently in it. Instead of hiring counsel, can I file pleadings in the bankruptcy court or the district court, on behalf of the receivership estate, or do I need to employ counsel to do so?

ANSWER: A new appellate decision calls into question the ability of a receiver, and, in fact a bankruptcy trustee, to file pleadings and represent the estate (receivership or bankruptcy) in federal court. The case holds that only attorneys can appear and sign pleadings on behalf of the estate, which as most attorneys know is the requirement for corporations or partnerships. The case, In re Shattuck, 411 B. R. 378 (10th Cir. BAP 2009), decided by the 10th Circuit Bankruptcy Appellate Panel, arose out of a state court receiver for an LLC filing a motion in the bankruptcy court to dismiss the debtors’ chapter 13 case on the ground that the debtors did not meet the eligibility limits under Section 109(e) of the Bankruptcy Code due to the fact that the debtors owed the receivership estate in excess of $800,000.00. The receiver filed the motion to dismiss on his own, without the assistance of counsel. The receiver was not an attorney.

The debtors moved to strike the receiver’s motion on the ground that because the receiver was not a licensed attorney he had no authority to file pleadings on behalf of the LLC, citing a District Court of Colorado local rule which is similar, but not exactly the same as, local rules for the district courts in California. The rule provided that: “Only pro se individual parties and members of this court’s bar may appear or sign pleadings, motions or other papers”. The receiver asserted that he was appointed receiver for the LLC by the state court and was appointed to be receiver as an individual and, as an individual, he was appearing pro se.

The bankruptcy court overruled the motion to strike the receiver’s objection on the basis that it felt it had discretion to allow non-lawyers to file pleadings and appear in court on behalf of an entity. The court determined that the debtors’ liabilities exceeded the limits of Section 109(e) and ordered their bankruptcy case dismissed.

On appeal the BAP reversed, citing 28 U.S.C. § 1654, which provides: “In all courts of the United States the parties may plead and conduct their own cases personally or by counsel as, by the rules of such courts, respectively, are permitted to manage and conduct causes therein.” It held it is “well settled” that a lay person, while allowed to represent himself or herself, may not represent the interests or rights of anyone else. The court held that the statue does not permit artificial entities, such as corporations, partnerships, associations, LLC’s, trusts or estates to prosecute or defend in federal court except through an attorney, admitted to practice in that particular court. The BAP cited a number of authorities in support of its ruling including Rowland v. Cal. Men’s Colony, 506 U.S. 194, 201-202 (1993), where the Supreme Court stated: “It has been the law for the better part of two centuries … that a corporation may appear in the federal courts only through licensed counsel. As the courts have recognized, the rationale for that rule applies equally to all artificial entities … the lower courts have uniformly held that 28 U.S.C. § 1654, providing that ‘parties may plead and conduct their own cases personally or by counsel,’ does not allow corporations, partnerships or associations to appear in federal court otherwise than through a licensed attorney”.

As to the receiver’s contention that he was appearing as an individual, the court dismissed that argument because, “as an individual”, the receiver had no personal claim against the debtors. The receiver was not advocating his personal rights, but was acting in a representative capacity on behalf of the receivership estate of the LLC. Because the LLC could not appear in federal court, except through counsel, neither could the receiver. The receiver argued, in addition, that his position as receiver was analogous to that of a trustee of an estate. The BAP held, however, that if a trustee is not a licensed attorney he too lacks the legal capacity to appear and represent an estate in federal court, citing a number of authorities including 9th Circuit and California district court opinions to that affect. These cases state a party may only represent themselves “where they are representing themselves alone, asserting their own personal rights or interests exclusively. If an individual purporting to appear pro se is not the actual ‘beneficial owner of the claims being asserted,’ they are not viewed as a party conducting their ‘own case personally’ within the meaning of the statute, Alpha Land Company v. Little, 238 F.R.D. 497 (E.D. Cal. 2006).

Import of the Decision

While this decision comes from the Tenth Circuit its reasoning appears sound. It has long been the rule in the district and bankruptcy court that only individuals can represent themselves without an attorney. The decision merely applies this long standing rule to a receivership estate, and arguably a bankruptcy estate, both artificial entities. Whether the district courts and bankruptcy courts in California will follow the decision, and possibly apply it to bankruptcy trustees, remains to be seen.

The BAP seemed to feel that if the receiver had been an attorney himself, he would have been permitted to appear and file pleadings on behalf of the receivership estate. While the BAP may have allowed this, the fact that a receiver or a bankruptcy trustee is also an attorney should not empower them to appear on behalf of an estate in federal court unless they have been employed, by either the receivership or the bankruptcy court, to act as an attorney in the case. Generally, receivers and bankruptcy trustees, while they may be attorneys, are not acting in that capacity, and they are not compensated as attorneys.

Both state court rules and bankruptcy rules allow receivers or trustees to be employed as counsel for the estate, although bankruptcy courts are often reluctant to allow a trustee to act as counsel in the case. It appears, therefore, the best course of action for receivers and bankruptcy trustees, when filing pleadings or appearing in district or bankruptcy court (which is merely a division of the district court) is to employ counsel for such purposes. Failure to do so may not only result in the pleading or complaint being stricken, but could subject the receiver to criminal liability for the unauthorized practice of law. Business and Professions Code Section 6125 provides: “No person shall practice law in California unless the person is an active member of the State Bar”. Section 6126(a) provides that any person practicing law who is not an active member of the State Bar is guilty of a misdemeanor, and can be liable for civil penalties and possibly contempt of court.