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In re Meadows

United States Bankruptcy Court, W.D. Virginia, Roanoke Division
Jan 6, 2003
Case No. 7-97-02526 (Bankr. W.D. Va. Jan. 6, 2003)

Summary

finding that Section 326 does not authorize compensation where the trustee makes distributions only to himself and to the debtor

Summary of this case from In re Silvus

Opinion

Case No. 7-97-02526

January 6, 2003


DECISION AND ORDER


On September 17, 2002, the Chapter 7 trustee in the above-captioned case, George A. McLean, came before this court on his Motion for Order to Disburse Funds. At that time the U.S. Trustee objected to his motion. Mr. McLean and the U.S. Trustee were granted time to file written briefs in support of their respective positions. Both parties submitted their briefs, and having carefully considered them, together with other authorities, and for the reasons that follow, the court will deny Mr. McLean's motion for disbursement of the allowed Trustee's commission.

BACKGROUND

The debtor filed for bankruptcy under Chapter 7 of the Bankruptcy Code in 1997, and the debtor's case was closed as a no-asset case in October of the same year. Mr. McLean subsequently located assets and moved the court to reopen the case in October of 1999. After the case was reopened. Mr. McLean liquidated $7,105.76 in assets, and based upon this amount, applied for fees of $1,460.58, and expenses of $16.83, for a total of $1,477.41. The court granted him this amount on April 4, 2000. However, the order was not based on 11 U.S.C. § 331, and no disbursement was authorized at that time.

Section 331, styled "Interim compensation," reads:

A trustee, an examiner, a debtor's attorney, or any professional person employed under section 327 or 1103 of this title may apply to the court not more than once every 120 days after an order for relief in a case under this title, or more often if the court permits, for such compensation for services rendered before the date of such an application or reimbursement for expenses incurred before such date as is provided under section 330 of this title. After notice and a hearing, the court may allow and disburse to such applicant compensation or reimbursement.

In August of 2001, the court ordered Mr. McLean to give notice to all creditors that assets had been located in the case and that proofs of claim were to be submitted. Mr. McLean gave notice to creditors that they had 20 days to submit proofs of claim. No proofs of claim were submitted in that time period, nor were any late proofs of claim submitted. As there were no outstanding claims, on August 23, 2002, Mr. McLean made a motion first to disburse his approved compensation, and then to remit the remainder to the debtor. On September 17, 2002, Mr. McLean appeared before this court on his motion. At this point, because of the wording of 11 U.S.C. § 326(a), the U.S. Trustee, for the first time, objected to the motion to the extent that any order authorizing disbursement would result in the receipt of a Trustee's commission by Mr. McLean.

DISCUSSION

The U.S. Trustee does not object to the amount of compensation that the Chapter 7 trustee requests. The objection of the U.S. Trustee rests upon two sections of the Bankruptcy Code, §§ 330(a)(1) and 326(a). Under § 330(a)(1), "subject to sections 326, 328 and 329, the court may award to the trustee . . . a reasonable compensation for actual, necessary services rendered by the trustee. . . ." Section 326 limits the amount of compensation a court may allow under § 330. It does so through a simple formula. The basis of the U.S. Trustee's objection is that this formula is calculated ". . . upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims." Thus, on a straightforward reading of the Code, no compensation could be allowed to a trustee who disburses all of the assets of the bankruptcy estate back to the debtor, and nothing to any creditors or other parties. See In re Murphy, 272 B.R. 483 (Bankr. Cob. 2002); In re Fischer, 210 B.R. 467 (Bankr. Minn. 1997); In re Celano, 2001 U.S. Dist. LEXIS 21218 (E.D.La. 2001).

In support of its objection, the U.S. Trustee cited several cases that read the Code that way. Because these cases are factually distinguishable, the court declines to apply them as controlling authority in this case. However, the Celano case contains the legal basis for the court's determination that Mr. McLean may not receive a trustee's commission in this case. Celano notes the importance of applying the literal reading of § 326(a) and leaving it to Congress to remedy the unfairness inherent in the unusual circumstances that arise in cases such as this one. Celano, LEXIS at 8-9. This court believes that it must follow the plain meaning rule set forth in U.S. v. Ron Pair Enterprises, Inc., 489 U.S. 235, 241-242, 103 L.Ed. 290, 109 S.Ct. 1026 (1989):

The Murphy case is factually dissimilar to the case at bar in that it involved a conversion from Chapter 7 to Chapter 13, prior to liquidation by the Chapter 7 trustee of any property of the estate. Also, the Chapter 7 trustee was seeking fees and expenses as an administrative expense under 11 U.S.C. § 503(b) and 11 U.S.C. § 330(a) was used as a statutory basis for payment, not compensation under 11 U.S.C. § 326(a) as is the case here. Fisher, which Murphy cites, is also a Chapter 7 to Chapter 13 conversion where the Chapter 7 trustee wanted to use the formula set forth in § 326(a) but have the court ignore the 326(a) limitation that the "percentage be applied only to monies disbursed or turned over in the case." Fisher at 469. Celano was a Chapter 7 bankruptcy converted to Chapter 11, and then dismissed as a result of a settlement between the debtors and their creditors.

The task of resolving a dispute over the meaning of section 506(b) begins where all inquiries must begin: with the language of the statute itself. . . . In this case, it is also where the inquiry should end, for where, as here, the statute's meaning is plain, `the sole function of the courts is to enforce it according to its terms' (citations omitted).

Thus, a survey of legislative history to ascertain the Congressional intent underlying section 326(a) is unnecessary. Id. Celano also addresses the proper usage of 11 U.S.C. § 105 and citesUnited States v. Sutton, 786 F.2d 1305, 1308 (5th Cir. 1986) (finding that bankruptcy courts do not have the power "to create substantive rights that are otherwise unavailable under applicable law, or constitute a roving commission to do equity."). The court considered the use of § 105 in the case at bar however, based upon the Sutton decision and the decision in Mort v. Tennessee Student Assistance Corporation, 272 B.R. 181, 184 (W.D.Va. 2002) (citing Sutton and holding that the court's power under § 105 is subject to any express statutory requirements otherwise applicable). the court declines to use § 105.

The first sentence of § 105(a) reads: "The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title."

The court feels it necessary to note that many courts have eschewed a strict application of §§ 330 and 326. See Celano, at 7-8. These cases involve conversions from Chapter 7 to Chapter 13. The decisions have looked to equitable considerations in finding either that § 326(a) does not apply to cases that are not fully administered (§ 326 contemplates a "completed case") or that a form of "constructive disbursement" can be used to impute Chapter 13 plan disbursements to the former Chapter 7 trustee for purposes of paying the Chapter 7 trustee a § 326(a) commission. Other arguments can also be advanced for compensating a Chapter 7 trustee in the absence of any disbursements to parties other than the debtor. For example, In re Hages, 252 B.R. 789, 794 (N.D.Cal. 2000) notes that the purpose of § 326(a) is to see that the trustee is compensated in proportion to the results that are ultimately achieved, partly due to his efforts.

There is language in Ron Pair which indicates that in "rare" cases plain language can be overridden.

The plain meaning of legislation should be conclusive, except in `rare' cases [in which] the literal application of the statute will produce a result demonstrably at odds with the intentions of the drafters. (Internal citation omitted).

Ron Pair, at p. 42.
An argument can be made that the articulated purpose of § 326 creates such a "rare case." However, adhering to the plain language in this case does not produce a result "demonstrably" at odds with Congressional intent. The purpose of the statute is to provide compensation, based upon a sliding percentage, to trustees, but not necessarily in every case.

All of these decisions, which craft ways to avoid the plain meaning of the statute, spring from the sense that when a Chapter 7 trustee works diligently to generate dividends from property of the estate for distribution to creditors, there should be fair compensation for that service even when some event intervenes which prevents disbursement.

In the case at bar, the provisions of the Bankruptcy Code would be best served by granting compensation. Under 11 U.S.C. § 704, Mr. McLean (as are all Chapter 7 trustees) was charged with certain duties (e.g. liquidating the estate's non-exempt property, investigating the financial affairs of the debtor, etc). He administered those duties faithfully, and increased the value of this estate as he would one upon which creditors have made claims. The fact that he will write a check to the debtor instead of to creditors does not make his work any less difficult or meaningful. See In re Tweeten Funeral Home, 78 B.R. 998 (Bankr. N.D. 1987); In re Parameswaran, 64 B.R. 341 (S.D.N.Y. 1986); In re Moore, 235 B.R. 414 (Bankr. W.D.Ky. 1999).

Another compelling reason to pay compensation in cases such as this one is preserving the quality of the panel of Chapter 7 trustees. This court can put it no better than Judge Deitz in In re Rennison, 13 B.R. 951 (Bankr. W.D.Ky. 1981):

"[I]t is the duty of this Court to administer not only justice, but the administrative caseload . . . a task we cannot perform without the ongoing assistance of a panel of competent and compensated trustees. We have long since put behind us the notion of indentured servitude. No man will work for nothing. If he does, he will not perform to the full extent of his abilities."

Id. at 952.

The Western District of Virginia is privileged to be served by an able group of Chapter 7 trustees, and the purpose of the Bankruptcy Code is best served by keeping it that way, through adequate compensation of trustees for their services. This court understands that an argument can be made that, by working a large and diverse case load, a trustee can spread losses and "make up" for some cases in which there is no compensation. However, that is not the only concern. It is important that an estate upon which no claims are filed receive just as much attention and effort as an estate upon which many claims are filed. Adequate compensation in each case would promote the goal of ensuring diligent attention to all cases.

CONCLUSION

The end result in this case is that the trustee performed his duties well, the creditors were apathetic, the debtor gets a windfall and the trustee an empty pocket. Notwithstanding this court's conviction that neither equity nor the best interests of the administration of the Bankruptcy Code are served by denying Mr. McLean compensation under § 326(a), the decision of Congress, as reflected in its statutory language, must be applied. Therefore, for the reasons stated above, the court holds that Mr. McLean is not entitled to receive statutory compensation under 11 U.S.C. § 326(a) of the Bankruptcy Code. Accordingly, it is

ORDERED:

That the objection of the Office of the U.S. Trustee is sustained and the Motion to Disburse Funds to George A. McLean, Jr., trustee, is DENIED.


Summaries of

In re Meadows

United States Bankruptcy Court, W.D. Virginia, Roanoke Division
Jan 6, 2003
Case No. 7-97-02526 (Bankr. W.D. Va. Jan. 6, 2003)

finding that Section 326 does not authorize compensation where the trustee makes distributions only to himself and to the debtor

Summary of this case from In re Silvus
Case details for

In re Meadows

Case Details

Full title:In Re: SANDRA MEADOWS, Chapter 7, Debtor

Court:United States Bankruptcy Court, W.D. Virginia, Roanoke Division

Date published: Jan 6, 2003

Citations

Case No. 7-97-02526 (Bankr. W.D. Va. Jan. 6, 2003)

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