In Phillips v. Goldman (In re Gilman), No. 24-2249 (9th Cir. 2026), the Ninth Circuit Court of Appeals, sitting en banc, held that a Chapter 7 trustee’s property management functions are administrative rather than adjudicative in nature and therefore, do not qualify for quasi-judicial immunity and that a trustee is not entitled to derived immunity when there is a lack of court approval for inaction in preserving estate assets or recovering rental income. Importantly, the court further clarified that trustee immunity is determined by the nature of the functions performed by the trustee as opposed to whether the trustee’s conduct constitutes ordinary versus gross negligence.
This case emerged from continuous efforts by plaintiff, Tammy R. Phillips and her law firm to collect pre-petition judgments against debtor Kevan Harry Gilman (“Debtor”). In February 2011, Debtor filed for Chapter 7 bankruptcy, and the U.S. Trustee appointed Amy Goldman as the Chapter 7 trustee (“Trustee”) to oversee his estate, which included two Los Angeles real properties: a residential property in Van Nuys and a commercial property in Northridge (collectively, “Properties”). In June 2011, Trustee filed a no-asset report claiming that there was “no property available for distribution from the estate over and above that exempted by law.” The report was withdrawn after Phillips raised objections asserting that the properties were valued beyond the amount of Debtor’s secured debt. After Debtor’s death, Trustee filed a notice of intent to abandon the Properties, because she had determined that they had inconsequential value and would be burdensome to the bankruptcy estate. Trustee filed a second no-asset report and again requested to be discharged from her duties as trustee. Phillips raised objections again, and Trustee withdrew the report and successfully demanded the turnover of funds from Debtor’s ex-wife.
In February 2022, Phillips claimed that Trustee was grossly negligent in managing the Properties and in breach of her fiduciary duties to the creditors by allowing waste and failing to collect rent. Phillips alleged that Trustee knew that Debtor was deferring maintenance on the Properties, which physically deteriorated the Properties and that she failed to safeguard them. Phillips further asserted that the lack of maintenance caused the Properties to lose $200,000 to $300,000 in property value throughout the 11 years they had been in the bankruptcy estate. In response, Trustee moved to dismiss the complaint on several grounds, and the bankruptcy court granted the motion, with prejudice, based on quasi-judicial immunity and the statute of limitations. The bankruptcy court reasoned that Trustee had immunity if her discretionary decisions to act or refrain from acting, which only amounted to negligence as opposed to gross negligence. The district court affirmed the bankruptcy court’s ruling.
The Ninth Circuit clarifies the legal standard for trustee immunity by separating two doctrines: quasi-judicial immunity & derived immunity. The Ninth Circuit emphasized that quasi-judicial immunity provides trustees absolute immunity only for discretionary functions that are essential to the adjudication of private rights to the bankruptcy estate. Therefore, immunity depends on the particular function at issue, not on whether the trustee’s conduct constitutes ordinary or gross negligence. Additionally, derived immunity protects trustees (1) who act within the scope of their authority, (2) provide notice to interested parties, (3) candidly disclose proposed actions to the bankruptcy court, and (4) obtain court approval for those actions. In this case, the Ninth Circuit found that Trustee’s actions of managing the estate property and investigating finances were administrative and called upon her to act as a “property manager” rather than perform adjudicative functions, and she was thus not entitled to quasi-judicial immunity. Trustee also was not entitled to derived immunity, as there was no court authorization for her alleged inaction in preserving estate assets or recovering rental income. Therefore, the Ninth Circuit reversed the district court’s decision upholding immunity and remanded the case back to the bankruptcy court to consider Trustee’s remaining arguments for dismissal.
Ultimately, Phillips v. Goldman serves as a significant reminder that bankruptcy trustees are not shielded from personal liability because their conduct falls short of gross negligence. Instead, courts will look to the nature of the function performed, and that the function was essential to further the adjudication of private rights to the bankruptcy estate.