JOSEPH M. MEIER, CHIEF U. S. BANKRUPTCY JUDGE.
Debtors filed this Chapter 13 case on March 7, 2019, and a plan was filed on the same date, but no plan was ever confirmed. Dkt. No. 34. During the pendency of this case, Trustee received a total of $11,600 in payments from the Debtors, but no payments were disbursed to creditors. Dkt. No. 35. The Debtors filed a voluntary motion to dismiss on September 18, 2019. Dkt. No. 26. The Trustee filed a final report and account on October 30, 2019. Dkt. No. 34. The Trustee disbursed $1,081.80 for trustee expenses and compensation and returned the balance to the Debtors. Dkt. No. 38. The Debtors objected to the final report and account and sought an order requiring the Trustee to disgorge her fees and return the $1,081.80 to the Debtors. Id. The acting United States Trustee for Region 18 ("U.S. Trustee") filed a response to Debtors' objection in support of the Trustee, Dkt. No. 34, as did the Trustee. Dkt. No. 35.
The Court heard oral argument on the objection on December 10, 2019, and permitted the parties to file supplemental briefings. Dkt. No. 37. Trustee argues that she is entitled to the trustee expenses pursuant to § 586(e) whether or not a plan is confirmed. Dkt. No. 39. Debtors argue that Trustee must disgorge all fees collected pursuant to § 1326(a)(2) because the case was dismissed prior to plan confirmation. Dkt. No. 38.
For the reasons set forth below, this Court finds that § 586(e)(2) directs the trustee to collect and hold the payments pending plan confirmation, while § 1326(a)(2) tells the trustee when and how to disburse payments before or after confirmation.
"Determining whether a standing Chapter 13 trustee is entitled to a statutory fee in a case dismissed before confirmation of a debtor's Chapter 13 plan requires construction of two statutes, specifically, 11 U.S.C. § 1326 and 28 U.S.C. § 586(e)." In re Lundy, No. 15-32271, 2017 WL 4404271, at *4 (Bankr. N.D. Ohio Sept. 29, 2017). The issue presented is, in a case dismissed prior to confirmation, whether § 1326(a)(2) requires a chapter 13 trustee to disgorge all fees collected, or whether § 586(e) entitles the trustee to retain her compensation. The controlling statutes do
Section 586, entitled "Duties," provides the following:
§ 586(e)(2).
Section 1326, entitled "Payments," provides the following:
§ 1326(a).
The statutes quoted above appear to conflict. The language in § 586(e) directs the trustee to collect the trustee percentage fee from all payments received while § 1326(a)(2) requires, in a case dismissed prior to confirmation, the trustee to return any payments not yet due and owing to creditors back to the debtor.
This Court has reviewed several decisions that have wrestled with the interpretation of the statutes, as well as the legislative history. For the reasons set forth below, the statutes, especially when construed together, are ambiguous. It is not clear from the statutory language whether Congress intended to allow a trustee to collect her fee on all payments received
When interpreting a statute, the court's "task is to construe what Congress has enacted." Duncan v. Walker, 533 U.S. 167, 172, 121 S.Ct. 2120, 2124, 150 L. Ed. 2d 251 (2001). Courts will "look first to the plain language of the statute, construing the provisions of the entire law, including its object and policy, to ascertain the intent of Congress." Nw. Forest Res. Council v. Glickman, 82 F.3d 825, 830 (9th Cir. 1996) (internal quotation marks and citation omitted). "A primary canon of statutory interpretation is that the plain language of a statute should be enforced according to its terms, in light of its context." ASARCO, LLC v. Celanese Chem. Co., 792 F.3d 1203, 1210 (9th Cir. 2015) (citing Robinson v. Shell Oil Co., 519 U.S. 337, 340, 117 S.Ct. 843, 846, 136 L. Ed. 2d 808 (1997); Wilshire Westwood Assocs. v. Atl. Richfield Corp., 881 F.2d 801, 803 (9th Cir. 1989)). "If the terms are ambiguous, [the Court] may look to other sources to determine congressional intent, such as the canons of construction or the statute's legislative history." United States v. Nader, 542 F.3d 713, 717 (9th Cir. 2008) (citing Jonah R. v. Carmona, 446 F.3d 1000, 1005 (9th Cir. 2006)). However, courts will resort to legislative history, even where the plain language is unambiguous, "where the legislative history clearly indicates that Congress meant something other than what it said." Perlman v. Catapult Entm't, Inc. (In re Catapult Entm't, Inc.), 165 F.3d 747, 753 (9th Cir. 1999).
"Where Congress includes particular language in one section of a statute but omits it in another section of the same Act, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion." Russello v. United States, 464 U.S. 16, 23, 104 S.Ct. 296, 300, 78 L. Ed. 2d 17 (1983). The statute is construed in context to avoid superfluities. Hibbs v. Winn, 542 U.S. 88, 101, 124 S.Ct. 2276, 2286, 159 L. Ed. 2d 172 (2004). If possible, a court will "construe a statute to give every word some operative effect." Cooper Indus., Inc. v. Aviall Servs., Inc., 543 U.S. 157, 158, 125 S.Ct. 577, 579, 160 L. Ed. 2d 548 (2004) (citing United States v. Nordic Vill., Inc., 503 U.S. 30, 35-36, 112 S.Ct. 1011, 1015, 117 L. Ed. 2d 181 (1992)).
In order to construe the meaning of the statutes, it is important to consider the parallel provision in chapter 12.
Section 1226(a), provides:
11 U.S.C. § 1226(a) (emphasis added). A leading bankruptcy treatise states "the authority granted to the standing chapter 12 trustee to deduct a percentage fee is unique to chapter 12. When a chapter 13 plan is denied confirmation, a standing chapter 13 trustee is authorized to pay unpaid administrative claims but is not authorized to deduct the standing trustee's
The court in In re Lundy discussed the difference between chapters 12 and 13:
In re Lundy, 2017 WL 4404271, at *8. (internal citations omitted).
If the Trustee's argument is correct, a standing trustee in a chapter 12 case could use the § 1226(a)(2) provision without § 586(e) in order to retain trustee fees in a chapter 12 case that has been dismissed prior to plan confirmation. Yet, a standing trustee in a chapter 13 case would need to use § 586(e) in order to retain trustee fees in a case that has been dismissed prior to plan confirmation. Furthermore, in either a chapter 12 case or a chapter 13 case, a trustee could simply point to § 586(e) to retain fees without regard to the chapter 12 or chapter 13 provisions entirely. This would render at least § 1226(a)(2) superfluous and give it no operative effect.
The Trustee argues that the context of § 1326(b) is acknowledgement that trustee fees should be paid regardless of plan confirmation by stating:
Dkt. No. 35.
In addressing this argument, it is important to consider the context of both § 1326 and § 1226. Section 1326(b)(2) provides the following:
§ 1326(b)(2).
Section 1226(b) contains a similar provision:
§ 1226(b)(2). Yet, although both chapters contain the similar provision to which the trustee refers, § 1226(a)(2) expressly allows for a trustee to deduct the percentage fee in unconfirmed cases. § 1226(a)(2). If § 1326(b)(2), is, as Trustee argues, "further acknowledgement that trustee's fees
Trustee opines that the difference between the statutes is attributable to the fact that chapter 12 debtors do not always make payments before confirmation, whereas chapter 13 debtors must make payments under § 1326(a)(1). Thus, if there is a payment made under a chapter 12 case, the difference in the statutes entitles the trustee to retain the fees. This argument is not persuasive for the reasons discussed below.
In Miranda, a chapter 13 trustee appealed an order from a bankruptcy court denying allowance of the trustee fee on payments received from the debtors in cases dismissed or converted prior to confirmation. 285 B.R. 344 (10th Cir. BAP 2001) (unpub. dispo). The court addressed the distinction between a chapter 12 and chapter 13 case:
Id. (internal citations omitted).
This Court agrees. Section 1326(a)(1) requires debtors to commence making payments within 30 days of filing the plan. This obligation is accompanied by a subsequent provision that requires the trustee to disgorge all payments received pursuant to that plan if the plan is not confirmed and the case is dismissed. The provisions of chapter 12 do not require a debtor to make payments pre-confirmation. Yet, § 1226(b)(2) allows the trustee to deduct a fee on payments made pre-confirmation even if a case is dismissed.
Section 1326(b) requires the trustee to pay the trustee's percentage fee before or at the time of each payment to creditors under the plan. § 1326(b). Section 1326(a)(2) only allows the trustee to pay creditors after a plan is confirmed. § 1326(a)(2). If the trustee cannot pay creditors until a plan is confirmed pursuant to § 1326(a)(2), then § 1326(b) is not operative until a plan is in effect. See In re Rivera, 268 B.R. 292, 294 (Bankr. D.N.M. 2001) ("11 U.S.C. § 1326(b) seems to assume a prior confirmation."). Section 1326(a)(2) is operative until a plan is in effect.
Because § 1226(b)(2) and § 1326(b)(2) contain almost identical language, but § 1226(a)(2) expressly allows a trustee to deduct a percentage fee in unconfirmed cases, and § 1326(b)(2) is inoperative until a plan is in effect, the Court does not find § 1326(b)(2) permits trustee fees to be paid regardless of whether a plan is confirmed. This Court's interpretation gives operative effect to each statute: § 586(e)(2) directs the trustee to collect and hold the payments pending plan confirmation, while § 1326(a)(2) tells the trustee when and how to disburse payments before or after confirmation,
The U.S. Trustee argues that the word "plans" in § 586(e) refers to both confirmed and unconfirmed plans. Dkt. No. 34. This interpretation is consistent with the holding of In re Dickens, 513 B.R. at 911. In Dickens, the court discussed the meaning of the word "plans" in § 586(e):
513 B.R. 906, 911 (Bankr. E.D. Ark. 2014). The Court agrees that the interpretation of the word "plans" in § 586(e) includes both confirmed and unconfirmed plans.
Next, the U.S. Trustee argues that the word "collect" in § 586(e) means to "obtain payment." Dkt. No. 34.
This argument is similar to that put forth by the trustee and the United States Trustee in In re Dickens. In that case, the trustee and U.S. Trustee argued that once a standing trustee obtains payment of a percentage fee, the fee cannot be returned to the debtors. In re Dickens, 513 B.R. at 911. The court disagreed, finding that nothing in the definition relied on by the United States Trustee "mandates a view that collection of a percentage fee is irrevocable and forever vests in the standing trustee." Id.
Courts will resort to legislative history, even where the plain language is unambiguous, "where the legislative history clearly indicates that Congress meant something other than what it said." Perlman, 165 F.3d at 753.
As originally enacted in 1978, § 1326 read as follows:
8 COLLIER ON BANKRUPTCY ¶ 1326.LH[1] (Richard Levin & Henry J. Sommer eds., 16th ed.).
When the Bankruptcy Code was enacted in 1978, the legislative history stated, "If a private standing trustee serves [in a chapter 13 case], his fee is fixed by the Attorney General under proposed 28 U.S.C. § 586(e), and it will be payable under proposed 11 U.S.C. 1326(a)(2)." H.R. REP. No. 95-595, 1978 U.S.C.C.A.N. 5963, 6284 (emphasis added).
However, when the Bankruptcy Code was amended in 1984, Congress "added a new subsection (a) to section 1326 and redesignated the previous subsections (a) and (b) as subsections (b) and (c)." 8 COLLIER ON BANKRUPTCY ¶ 1326.LH[2] (Richard Levin & Henry J. Sommer eds., 16th ed.). "The new subsection (a) required plan payments to begin within 30 days of the filing of the plan." Id. Because Congress added a subparagraph in § 1326 in 1978, the legislative history that stated the fee was payable under proposed § 1326(a)(2) is actually referring to the modern § 1326(b)(2). Accordingly, if a private standing trustee serves in a chapter 13 case, his fee is fixed by the Attorney General under proposed § 586(e), and it will be payable under proposed § 1326(b)(2). As stated previously, § 1326(b) is not operative until a plan is in effect; § 1326(a)(2) controls pre-confirmation.
When the Bankruptcy Code was subsequently amended in 1986, the legislative history stated the following:
H.R. REP. No. 99-764, 29, 1986 U.S.C.C.A.N. 5227, 5241.
The legislative history from 1978 specifically states that the pay is fixed by § 586(e), whereas the legislative history in 1984 refers to § 586 as a whole. Thus, the legislative history is ambiguous and does not aid the Court in its interpretation.
Trustee and Debtor both urge this Court to adopt their own interpretation of the Handbook for Chapter 13 Standing Trustees, published by the Executive
The handbook requires the return of the percentage fee in cases that are dismissed prior to confirmation in jurisdictions that require such reversal. U.S. DEPT. OF JUSTICE, EXEC. OFFICE FOR THE U.S. TR., HANDBOOK FOR CHAPTER 13 STANDING TRUSTEES 2-3 (revised October 1, 2012), https://www.justice.gov/sites/default/files/ust/legacy/2015/05/05/Handbook_Ch13_Standing_Trustees_2012.pdf (internal citations omitted). Chapter two, section D, entitled "Calculation and Collection of Percentage Fee," provides:
Id. Later, in chapter 3, section H (entitled "Disbursements"), paragraph 1 (entitled "Monthly Disbursements"), provides:
Id. at 3-36.
The handbook to which Trustee refers requires the reversal of payments retained pre-confirmation if the case is dismissed in jurisdictions that recognize such a requirement. Later, the handbook requires reversal of the payments if the case is dismissed or converted pre-confirmation pursuant to § 1326(a)(2), and then refers the reader back to the provision that requires the reversal if the case is dismissed in jurisdictions that recognize such a requirement. Because there is no local precedent or law on this issue, the Court concludes the U.S. Trustee's Handbook is not conclusive. In any event, the handbook would not be binding upon this Court.
The parties each advanced public policy arguments to support their interpretations. The Trustee argues that denying trustee's fees in unconfirmed cases would result in an unfair system, urging "[d]ebtors that actually choose to confirm a plan will be required to pay the expenses for those debtors that are merely taking advantage of the bankruptcy process that
The U.S. Trustee puts forth a similar argument, stating that, "the costs of administering cases in which no plan is confirmed would be borne by the debtors whose plans are confirmed, and debtors in cases in which no plans are confirmed would obtain benefits at no cost." Dkt. No. 34. The Court is unpersuaded by this argument. Trustee fees are statutorily capped by § 586(e)(1). The cap is set for each individual case being handled by the trustee. There is no cumulative fee that is shared by all debtors under both confirmed and unconfirmed plans. Fees described under § 586(e) are attributable to each individual case. Therefore, the debtors whose plans are unconfirmed will not bear the cost of the case administration for those cases that are dismissed prior to plan confirmation.
The U.S. Trustee states, "Chapter 13 standing trustees incur significant expenses in every case in which they serve regardless of whether a plan is ultimately confirmed." Id. The standing trustee in In re Miranda put forth a similar argument as the Trustee in this case. 285 B.R. at 344. The Miranda court took note that "the standing trustee performs `front-end' services in addition to disbursing funds to creditors and [was] mindful that the policy concerns regarding a standing trustee earning an adequate salary are important." Id. Nonetheless, the court held for the debtors, explaining that its foremost responsibility was interpreting the statute in question. Id.
On the other hand, the Debtors argue that the result the Trustee seeks is not equitable. Dkt. No. 38. The Debtors believe the chapter 13 case confirmation process is laborious for all parties, and the Trustee in her role can either facilitate or hinder the process. Id. The Debtors speculate that Congress conditioned a chapter 13 trustee's percentage fee on the confirmation of a plan to motivate the trustee to assist debtors in achieving confirmation. Id.
This Court does not doubt the amount of work that goes into the administration of a chapter 13 case by a chapter 13 trustee, pre- or post-confirmation. However, like the Miranda court, this Court concludes it must rely on the text of the statute, and its interpretation thereof, and not decide the matter based on conflicting public policy arguments.
There is no controlling precedent or case law to which this Court is bound. Trustee relies on the decision of In re Nardello to support her position. 514 B.R. 105 (D.N.J. 2014). In that case, the debtor filed a chapter 13 petition. Id at 106. During the pendency of the case, but before confirmation, a third party filed a motion seeking court approval for the sale of real estate jointly owned by the third party and the debtor. Id. The bankruptcy court authorized the sale of the property, the debtor consented to the distribution of proceeds, and the court ordered the proceeds to be held by the standing trustee pending further order from the court. Id. The court then ordered the trustee to pay the third party their one-half share of the proceeds from the sale of the real estate, as well as the remaining proceeds of the sale which debtor owed for payment of debtor's share of the mortgage on the property. Id at 107. These disbursements were made according to the court order not pursuant to the plan. Id. The case was then voluntarily dismissed. Id. The standing trustee filed a final report and accounting, retaining trustee
The bankruptcy court found in favor of the standing trustee. Id. The bankruptcy court held that § 1326(a)(2) and (b) only apply to payments made as proposed by a plan. Id. Because the funds on which the trustee's percentage fee was based were not payments proposed by the plan, § 1326(a)(2) and (b) did not apply. Id. The bankruptcy court held that § 586 applied, and distinguished the case from cases where no payments were made to creditors pre-confirmation on the grounds that the debtor had consented to the disbursement of funds to the third party from the sale of the jointly held real estate prior to plan confirmation. Id at 108.
The case at bar is distinguishable. Indeed, the court in Nardello distinguished the facts of that case from other cases because the court was considering whether the percentage fee payment was appropriate if payments are disbursed prior to plan confirmation but upon debtor approval, as well as payments received by the trustee that were not contemplated by the plan. On appeal, the district court distinguished Acevedo, Miranda, and Rivera, supra at fn. 2, because, in Nardello, the standing trustee was required to hold the sale proceeds from the property pre-confirmation "even though [the] proceeds were not contemplated in Debtor's initial plan. Had the Standing Trustee not been required to hold the sale proceeds, there would be no justification for the percentage fee sought." Id at 116.
Here, there are no sale proceeds held by the Trustee or disbursements made, only payments to the Trustee pursuant to, and contemplated by, the plan pre-confirmation. The debtor did not consent to any disbursements by the trustee prior to confirmation. Additionally, the Trustee was not required to disburse any creditor payments like the trustee in Nardello prior to plan confirmation.
Next, the U.S. Trustee disagrees with a New Mexico bankruptcy court's interpretation of the two conflicting statutes. Dkt. No. 34. The facts of In re Acevedo are similar to those presented here. 497 B.R. 112 (Bankr. D.N.M. 2013). In that case, the debtors filed a chapter 13 bankruptcy petition, made payments to the trustee pursuant to the plan, but the plan was never confirmed. Id at 114-15. Instead, the chapter 13 case was converted to a chapter 7. Id.
The U.S. Trustee argues, "even the court in Acevedo conceded that it was engaging in `a somewhat unnatural reading of section 586(e)(2).'" Dkt. No. 34 (quoting In re Acevedo, 497 B.R. at 124). However, it is important to consider the full context of that quotation. The Acevedo court goes on to say, in the very next sentence, "The only alternative, however, is a substantially less natural reading of § 1326(a)." Id at 124-25. "What's good for the goose is good for the gander." Bates v. Jones, 131 F.3d 843, 861 (9th Cir. 1997). If "a somewhat unnatural reading" would be unfavorable, a "substantially less natural reading" is even more unfavorable.
The Trustee directs the Court to the holding in In re Antonacci, No. BK-S-08-23349-LBR (Bankr. D. Nev. Dec. 27, 2011). The Court has reviewed that docket. The docket number in that case to which the Trustee cites is the U.S. Trustee's brief in support of the standing chapter 13 trustee's entitlement to fees. Brief of the Acting United States Trustee regarding the Trustee's entitlement to fees at 168, In re Antonacci, No. BK-S-08-23349-LBR (Bankr. D. Nev. Dec. 27, 2011). The U.S. Trustee in that case has a similar argument to the U.S. Trustee in this case. Here, the Trustee argues that the decision in Antonacci "was instrumental in causing the policy change in the [U.S.] Trustee's Handbook...." Dkt. No. 39.
In an article focusing on chapter 13 issues and projects in 2014, published by the Executive Office for U.S. Trustees, Martha Hallowell, the Deputy Assistant Director for Standing Trustee Oversight, discussed the policy change mentioned by the Trustee. See Martha Hallowell, Successful Projects in 2014 Include Training, Percentage Fee Policy and Unsecured Claims Review, EXEC. OFFICE FOR U.S. TRS., https://www.justice.gov/ust/file/nactt_201503.pdf/download. The percentage fee policy was changed in July 2012 in response to the Antonacci decision, informing "standing trustees that they could collect and retain a percentage fee on receipts in cases that dismiss or convert prior to confirmation." Id. In 2014, the percentage fee policy was changed again. Id. This change allowed standing trustees to collect their fees upon receipt of payment. Id. The article states that the "policy conclusion was the result of a detailed analysis of 28 U.S.C. § 586(e)(2) as part of our brief filed in In re Antonacci...." Id (emphasis added). Thus, the policy change, in part, was a result of the U.S. Trustees' own detailed analysis as part of the brief it filed in Antonacci.
The order granting trustee's fees in Antonacci is not so detailed. It is two pages long and contains no analysis. Order Allowing Trustee Fees Under 28 U.S.C. § 586(e) at 171, In re Antonacci, No. BK-S-08-23349-LBR (Bankr. D. Nev. Dec. 27, 2011). Accordingly, this Court does not find that order to be persuasive to the analysis in this case.
This Court believes the correct interpretation falls in line with the reasoning of Acevedo, Dickens, and Lundy. Section 586(e)(2) directs the trustee to collect and hold the payments pending plan confirmation and the source from which to collect the percentage fee, while § 1326(a)(2) tells the trustee when and how to disburse payments before or after confirmation. Accordingly, the trustee must hold the payments in her possession until confirmation or denial of confirmation. If a chapter 13 case is dismissed pre-confirmation, as in this case, the trustee shall return any such payments not previously paid and not yet due and owing to creditors to the debtor, including the trustee's percentage fee. Debtor's objection to the Trustee's final report and account is sustained.
A separate order will be entered.
