Opinion
Civil Action No: 01-1210, Section "R" (3)
December 7, 2001
ORDER AND REASONS
Former Chapter 7 bankruptcy trustee Cynthia Lee Traina appeals an order of the United States Bankruptcy Court for the Eastern District of Louisiana which denied her request for fees under section 326(a) of the Bankruptcy Code. She additionally seeks review of the bankruptcy court's order denying her Rule 59 motion for reconsideration. For the following reasons, the Court affirms the bankruptcy court's decisions.
I. BACKGROUND
On March 31, 1998, debtors Joseph and Ann Marie Celano filed a voluntary Chapter 7 bankruptcy petition. They owed more than $500,000 to their creditors. (Rec. Doc. 199, Ex. B, Schedule F.) Cynthia Lee-Traina was appointed as the Chapter 7 trustee of the Celanos' estate. On June 7, 1999, the Celanos converted the case into a Chapter 11 proceeding. (Rec. Doc. 88 and Rec. Doc 95.) Traina tried to be appointed as the Chapter 11 trustee, but the debtors moved to dismiss the Chapter 11. The Celanos settled with their creditors, and they and the former trustee entered into an Agreed Order, under which the Celanos agreed to distribute over $500,000 to creditors and parties in interest. (Rec. Doc. 172.) Based on the Agreed Order, the bankruptcy court allowed the debtors to dismiss the Chapter 11 case voluntarily, but retained jurisdiction to decide whether the trustee was entitled to compensation for her services as Chapter 7 trustee. ( Id.)
On November 30, 2000, Traina filed her First and Final Fee Application and requested $8,000 in fees. After a hearing on March 13, 2001, the bankruptcy court denied Traina's request for compensation. The court found that 11 U.S.C. § 326 (a), which caps a Chapter 7 trustee's compensation based upon a percentage of moneys disbursed, barred Traina from receiving compensation because she did not disburse any funds as trustee. (Rec. Doc. 201, at 6.) The Court alternatively held that Traina did not prove the efforts that entitled her to compensation. On March 23, 2001, Traina filed a post-judgment motion asking the bankruptcy court for a new trial or in the alternative, to alter or amend the judgment. (Rec. Doc. 203.) On March 30, 2001, the bankruptcy court denied that motion. (Rec. Doc. 204.)
Before the Court is Traina's appeal of the bankruptcy court's orders denying her fees and denying her motion for reconsideration. First, she contends that she is entitled to compensation based on $7,500 in annuities she obtained as a Chapter 7 trustee. Second, she argues that a constructive disbursement theory permits the Court to base her section 326(a) fees on the $500,000 disbursed via the Agreed Order, even though she did not actually make any of those disbursements. She argues that her actions alone made the payments to the creditors under the Agreed Order possible.
II. DISCUSSION
A. Jurisdiction
This Court has jurisdiction over this case pursuant to 28 U.S.C. § 158 (a) and Federal Rule of Bankruptcy Procedure 8001. See 28 U.S.C. § 158 (a); FED. R. BANKR. P. 8001.
B. Standard of Review
A district reviews a bankruptcy court's decision under the same standard of review that a Court of Appeals applies to a district court judgment. See 28 U.S.C. § 158 (c)(2). Accordingly, the Court reviews the bankruptcy court's conclusions of law de novo, findings of fact for clear error, and mixed questions of law and fact de novo. See In re Nat'l Gypsum Co., 208 F.3d 498, 504 (5th Cir. 2000). The bankruptcy court's construction of Section 326(a) is a matter of statutory interpretation which is a question of law that is reviewed de novo. See In re Lambert, 179 F.3d 281, 284 (5th Cir. 1999). The bankruptcy court's denial of a motion to reconsider is reviewable under an abuse of discretion standard. See In re Stangel, 68 F.3d 857, 859 (1995) ( per curiam); In re Colley, 814 F.2d 1008, 1010 (5th Cir. 1987).
C. Analysis
Sections 330 and 326 of the Bankruptcy code govern trustee compensation determinations. Section 330 establishes the bankruptcy court's authority to compensate a trustee:
(a)(1) After notice to any parties in interest and to the United States trustee and a hearing, and subject to sections 326, 328, and 329 of this title, the court may award to a trustee .
(A) reasonable compensation for actual, necessary services rendered by the trustee .
(3)(A) In determining the amount of reasonable compensation to be awarded, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors . . .11 U.S.C. § 330 (West 2001) (emphasis added). Notwithstanding the reasonable value of a trustee's services, section 326(a) sets a statutory cap on a trustee's compensation from the estate, and provides in-pertinent part:
In a case under chapter 7 or 11, the court may allow reasonable compensation under section 330 of this title of the trustee for the trustee's services, payable after the trustee renders such services [based on certain listed percentages] upon all moneys disbursed or turned over by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.11 U.S.C. § 326 (a) (West 2001) (emphasis added). Subject to the statutory maximum in Section 326(a), the bankruptcy court is accorded wide discretion to review the trustee's services under the reasonableness and fee-setting criteria set forth in Section 330. See In re Prudhomne, 43 F.3d 1000, 1003 (5th Cir. 1995)
Here, the bankruptcy judge made a finding of fact that Traina "herself made no disbursements to any parties in interest." (Rec. Doc. 201.) Traina disputes this finding, and argues that she obtained a favorable ruling denying the debtors' claimed exemption of certain annuities during the Chapter 7 proceeding. She obtained $7,500, which she never disbursed to any creditor. After she received the funds, this Court vacated its decision affirming the nonexempt status of the annuities based on a retroactive clarification of the law by the Louisiana legislature and remanded the issue to the bankruptcy court. Since Traina did not disburse these funds to any party in interest, and she can point to no other transfer of money from her to creditors, this Court affirms the Bankruptcy Court's determination that the trustee never disbursed or turned over funds to parties in interest.
Even though she did not disburse any funds, Traina nevertheless argues that she is entitled to compensation under a constructive disbursement theory; she asserts that funds distributed as part of the converted Chapter 11 case should be imputed to her. The bankruptcy court rejected that argument, finding that the Fifth Circuit's opinion in In re England foreclosed the possibility of "constructive disbursements." Although the Court finds that In re England is not precisely on point, it agrees with the bankruptcy court that Fifth Circuit authority requires the court to apply the plain language of section 326(a). Further, the Court finds that the plain meaning of section 326(a) does not allow a Chapter 7 trustee to be compensated based on moneys distributed after the case is converted to a Chapter 11 and the trustee has been removed.
The Court is aware that various bankruptcy courts have held that section 326(a) should apply only in fully administered cases. In non-fully administered cases, bankruptcy courts have used equitable factors in calculating trustee compensation. See In re Hages, 252 B.R. 789, 795 (N.D. Cal. 2000); Matter of Stabler, 75 B.R. 135, 136 (Bkrtcy. M.D. Fla. 1987); In re Woodworth, 70 B.R. 361, 362 (Bkrtcy. N.D.N.Y. 1987); Matter of Paramedwaran, 64 B.R. 341, 343 (Bkrtcy. S.D.N.Y. 1986); Matter of Pray, 37 B.R. 27, 30 (Bkrtcy. M.D. Fla. 1983). But see In re Fischer, 210 B.R. 467, 469 (Bkrtcy. D. Mn. 1997) (finding that Chapter 7 trustees take the risk that debtor will convert or obtain dismissal of the case short of final administration). In those cases, courts found that section 326(a) did not bar Chapter 7 trustees from receiving compensation even though they did not make any monetary distributions before the debtor converted the case or voluntarily dismissed it. These courts reasoned that to hold otherwise would lead to in an inequitable result. They point out that, in a converted case, a Chapter 7 trustee could receive little or nothing while the subsequent trustee is paid in full, even if the Chapter 7 trustee generated all the estate's assets and the new trustee simply distributed the assets. It is undisputed that this case was not a fully administered case, since the debtors converted the matter into a Chapter 11 proceeding and then voluntarily dismissed the petition.
Although the Court is mindful that unfairness could occasionally result by applying a literal reading of section 326(a) to cases that were not fully administered by the trustee, the problem needs to be remedied by Congress, rather than this Court. See In re England, 153 F.3d 232, (5th Cir. 1998) ("Congress's decision to set a maximum limit on trustee compensation based only upon moneys disbursed may arguable lead to a trustee receiving inadequate compensation in a particular case, but that is a problem for Congress to remedy.") Traina has pointed to no Fifth Circuit authority or statutory language that authorizes this Court to ignore the plain language of section 326(a). Traina's citation of Turner v. Young (In re Martin), No. 96-4163 (E.D. La. May 12, 1999) (Berrigan, J.), in support of her position is unpersuasive. In Turner, the district court overruled the bankruptcy court's narrow interpretation of "parties in interest" under section 326(a), and found that Congress meant "parties in interest" to incorporate a broader class of interests. Unlike "parties in interest," which is a vague phrase, "disbursed by the trustee" is a straightforward one, which does not encompass constructive disbursements.
Turner also dealt with "constructive disbursements," but in a different factual and procedural context. It addresses the question of whether monetary payments made directly by a third party to the debtor's creditors can be factored into the trustee's compensation. The court found that these payments could be imputed to the trustee because: 1) the third party owed money to the debtor, 2) the money used by the third party to pay creditors therefore belonged to the debtor's estate, 3) the payments were made as part of a settlement negotiated directly by the trustee. The facts here are different in that Traina was not the trustee at the time the funds were distributed and that corporate funds, which were not property of the estate, were used to pay creditors.
Although bankruptcy courts are courts of equity, their equitable powers are nonetheless circumscribed by limitations contained in the Bankruptcy Code. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206, 108 S.Ct. 963 (1988); see e.g., United States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986) (finding bankruptcy courts do not have power "to create substantive rights that are otherwise unavailable under applicable law, or constitute a roving commission to do equity."). Indeed, the Bankruptcy Act does not give bankruptcy courts the authority to grant compensation not expressly allowed by a statutory provision. See, e.g., Sutton, 786 F.2d at 1308 (citations omitted).
Section 326(a) establishes the maximum statutory authorization for trustee compensation. See In re Martin, 1995 WL 241867 (E.D. La. 1995) (Berrigan, J.) (specifically reaffirming that section 326(a) sets the absolute maximum compensation allowable to trustees). The Fifth Circuit recently read section 326(a) literally in holding that Congress did not intend "moneys" disbursed or turned over to include anything but cash, or possibly case equivalents. See In re England, 153 F.3d 232, 235-37 (5th Cir. 1998) ("moneys" did not include unliquidated property transferred to unsecured creditors). Although In re England interpreted different words in Section 326(a) from those at issue here, this Court finds that it establishes. the principle that the language of section 326(a) should be interpreted in accordance with its plain meaning. See also United States V. Ron Pair Enters., 489 U.S. 235, 241, 109 S.Ct. 1026 (1989). "Courts properly assume, absent sufficient indication to the contrary, that Congress intends the .words in its enactments to carry "their ordinary, contemporary, common meaning.'" Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. Partnership, 507 U.S. 380, 388, 133 S.Ct. 1489 (1979).
Because the Bankruptcy Code does not define "disbursed or turned over by the trustee" as used in section 326(a), we must rely on the phrase's common everyday meaning. See WEBSTER'S COLLEGE DICTIONARY (Random House ed., 1991) (defining "disburse" as "to pay out," "to distribute"); BLACK' s LAW DICTIONARY (defining disbursement as "to pay out, commonly out of a fund") (6th ed. 1991). The plain language of section 326(a) indicates that only money the trustee distributes can be included in calculating her compensation base. Traina points to no statutory language authorizing-the Court to impute to her any monetary disbursements that occurred after she was no longer trustee. In addition, the statute does not contain language limiting it to fully administered cases. See In re Fishcher, 210 B.R. 467, 469 (Bankr. D. Mn. 1997) (relying on plain language of statute to hold that section 326(a) applies to non-fully administered cases).
Since Traina can point to no Fifth Circuit authority or statutory language either limiting the plain language of section 326(a) to fully adjudicated cases or allowing imputed disbursements to be factored into the calculation of her compensation base, the Court agrees with the bankruptcy court's judgment denying Traina's request for compensation.
Even if this Court were wrong in its interpretation of Section 326(a), and Traina was not barred from receiving compensation, the bankruptcy court still has great discretion to review a trustee's services under section 330 and to award fees accordingly. See In re Prudhomne, 43 F.3d 1000, 1003 (5th Cir. 1995.) Here, the Bankruptcy Court alternatively found that Traina did not prove the efforts she claimed entitled her to fees. (Rec. Doc. 201, at 6.) This Court finds that the record supports the bankruptcy court's factual finding. Traina offered no evidence to support the claim that she was responsible for the turn of events resulting in the Agreed Order. Traina's claim that she "found" the Celano's 100% stock interest in INTRX is belied by the record.
Indeed, the Celanos filed for bankruptcy relief because of their relationship with INTRX. The record reflects that most of the debt listed by the Celanos was INTRX debt, which the Celanos had personally guaranteed. (Rec. Doc. 199, Ex. B, Schedule F; Rec. Doc. 172, Agreed Order, attachments.) Additionally, the debtors disclosed their interest in INTRX in a Statement of Financial Affairs, although they did not disclose the stock on their Schedule B-12. (Rec. Doc. 199, Ex. D.) At the time the Celanos filed bankruptcy, INTRX was suffering from cash flow problems and was involved in administrative proceedings to establish its entitlement to collect on receivables due from Medicare. Both the United States Trustee and the debtors represented to the bankruptcy court that the INTRX stock was virtually worthless, until an administrative decision adverse to INTRX was overturned and became final. This event led the debtors to convert the proceeding to a Chapter 11. (Rec. Doc. 199.) Traina's assertion that she "discovered" the INTRX stock is a stretch.
Further, there is no evidence that she assisted INTRX to make good on its claims to receivables or that she was instrumental in reaching the settlement in the Agreed Order. The record reveals that INTRX's counsel viewed Traina as a hindrance. (Rec. Doc. 199, Ex. C.)
Traina nonetheless claims that "proofs of claim filed by the creditors of the Chapter 7 estate have been paid or satisfied pursuant to the December 9, 1999 Agreed Order only as a result of Traina's actions" because she conditioned her agreement not to oppose the dismissal of the Chapter 11 on the debtors' paying their debts pursuant to the debtors' agreements with creditors. (Rec. Doc. 3, at 4.) (emphasis in original.) The Agreed Order dismissing the Chapter 11 proceeding reads in pertinent part:
Considering the statements of counsel, agreement of the parties, evidence, applicable law, the lack of opposition of the former trustee to dismissal of the proceeding conditioned only upon the Court's receipt of evidence from counsel for the debtors that debtors have paid all amounts required under their agreements with Crescent Bank Trust, the U.S. Small Business Administration, Hibernia National Bank and Adams Reese, L.L.P., and the deposit by the debtors of the sum of $500.00 into the registry of the Court for the purpose of paying any and all sums which may be awarded Cynthia Lee Traina as compensation as Chapter 7 trustee.
(Rec. Doc. 172.) The language of the Agreement does not support Traina's assertion that her contributions were essential to the Agreed Order. The Agreed Order simply reflects that Traina conditioned her lack of opposition to the motion to dismiss on the Debtors' agreement to pay their debts and to place $500.00 into a fund-from which her fees could be paid. Agreeing not to oppose dismissal is a far cry from putting together the ingredients necessary for the settlement with creditors. The Agreed Order also did not guarantee her compensation; instead, it specifically noted that the issue of Traina's compensation was an open question. ( Id.) ("It is further ordered that this Court shall retain jurisdiction to consider an rule on the application of Cynthia Traina for compensation for services. . .).
Additionally, Traina appeals the bankruptcy court's denial of her Rule 59 motion for new trial and/or in the alternative, to alter or amend the judgment. (Rec. Doc. 204.) The standard of review is abuse of discretion.
Rule 9023 of the Federal Rules of Bankruptcy Procedures incorporate by reference Rule 59 of the Federal Rules of Civil Procedure.
A moving party must satisfy at least one of the following criteria to prevail on a Rule 59(e) motion: (1) the motion is necessary to correct a manifest error of fact or law; (2) the movant presents newly discovered or previously unavailable evidence; (3) the motion is necessary in order to prevent manifest injustice; and (4) the motion is justified by an intervening change in the controlling law. See Fidelity Deposit Co. v. Omni Bank, 1999 WL 970526, *3 (E.D. La. Oct. 21, 1999); Jupiter v. BellSouth Telecomms., Inc., 1999 WL 796218, *1 (E.D. La. Oct. 5, 1999); Burma Navigation Corp. V. Seahorse, 1998 WL 781587, *1 (E.D. La. Nov. 3, 1998); Fields, 1998 WL 43217., *2.
Having reviewed her motion to reconsider, the Court finds that Traina's motion fails to raise any of Rule 59(e)'s grounds for relief from the bankruptcy court's judgment. Instead, she merely repeats the arguments made in her original motion for fees. (Rec. Doc. 203.) Denial of a Rule 59(a) motion that does not raise any of the grounds for relief cognizable under that rule, but which essentially repeats the arguments of the original motion, is generally not an abuse of discretion. See e.g. In re Stangel, 68 F.3d 857, 859 (5th Cir. 1995) (per curiam) (reaching the same conclusion in the context of a Rule 60 motion to reconsider.) The Court therefore finds that the bankruptcy court did not err in denying Traina's motion for reconsideration.
III Conclusion
For the foregoing reasons, this Court affirms the opinion of the bankruptcy court below.