In re Life Partners Holdings, Inc.
| Decision Date | 22 August 2019 |
| Docket Number | Case No. 15-40289-mxm-11 Jointly Administered |
| Citation | 606 B.R. 277 |
| Parties | IN RE: LIFE PARTNERS HOLDINGS, INC. et al., Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Texas |
G. Kevin Buchanan, Kevin Buchanan & Associates, PLLC, Richardson, TX, Jennifer Rudenick Ecklund, Nicole Leigh Williams, Thompson & Knight LLP, Susan B. Hersh, Susan B. Hersh, P.C., Kevin S. Wiley, Jr., Kevin S. Wiley, Sr., The Wiley Law Group, PLLC, John Machir Stull, Cantey Hanger LLP, Pronske Goolsby & Kathman, P.C., Dallas, TX, Melanie Pearce Goolsby, Jason Patrick Kathman, Gerrit M. Pronske, Pronske & Kathman, P.C., Plano, TX, Charles Alfred Mackenzie, C. Alfred Mackenzie, Attorney at Law, Waco, TX, Jeff P. Prostok, Forshey & Prostok, LLP, Ft. Worth, TX, Kimberly D. Hinkle, for Debtor
David M. Bennett, Thompson & Knight LLP, Katharine Battaia Clark, Hedrick Kring, PLLC, Dallas, TX, Jay Ong, Munsch Hardt Kopf & Harr, P.C., Austin, TX, Clayton D. Ketter, Melvin R. McVay, Jr., Phillips Murrah P.C., Oklahoma City, OK, for Debtor and Trustee
Timothy D. Kline, Raymond E. Zschiesche, Phillips Murrah, P.C., Oklahoma City, OK, Edward A. Clarkson, III, Hunton Andrews Kurth LLP, Houston, TX, Fareed Iqbal Kaisani, James M. McGee, Dennis L. Roossien, Thomas Daniel Berghman, Munsch Hardt Kopf & Harr PC, Jane Anne Gerber, Aaron Michael Kaufman, Dykema Gossett PLLC, Scott D. Lawrence, Michael D. Napoli, Akerman, LLP, Joshua Lee Shepherd, Linda S. LaRue, Dallas, TX, Jesse T. Moore, Austin, TX, Roetzel & Andress LPA, for Trustee
Relates to ECF No. 4307, 4346
On July 17, 2019, the Court held a hearing on two motions dealing with a statutory amendment to 28 U.S.C. § 1930(a)(6), which increased the United States Trustee quarterly fee schedule effective January 1, 2018. In the first motion,1 the Life Partners Position Holder Trust ("PHT ") requests an order finding that the amendment (a) does not apply to Chapter 11 cases that were filed prior to the effective date of the amendment, or (b) is unconstitutional. In the second motion,2 the U.S. Trustee asks for an order granting summary judgment and dismissing the PHT's motion, arguing that the PHT motion seeks relief that can be sought only through an adversary proceeding.
For the reasons explained below, the Court grants the PHT's motion because the statutory amendment does not apply to these Life Partners Chapter 11 cases, and even if the amendment does apply, it is unenforceable because it is unconstitutional. The Court also grants the U.S. Trustee's motion in part and converts this contested matter to an adversary proceeding for the balance of the contested issues.
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334(b) and 157(a). This matter is a core proceeding pursuant to 28 U.S.C. § 157(b). Venue is proper pursuant to 28 U.S.C. § 1409(a).
Life Partners Holdings, Inc. ("LPHI ") filed a voluntary Chapter 11 petition on January 20, 2015. On May 19, 2015, pursuant to this Court's April 7, 2015 authorization,3 H. Thomas Moran, II, Chapter 11 trustee (the "Chapter 11 Trustee "), initiated Chapter 11 bankruptcy cases for two subsidiaries of LPHI (the "Subsidiary Debtors "). Thereafter, the LPHI case and the Subsidiary Debtors' cases (collectively, the "Life Partners Chapter 11 Cases ") were ordered jointly administered for procedural purposes.4
On October 27, 2016, the Chapter 11 Trustee, the Subsidiary Debtors, and the official committee of unsecured creditors (the "Creditors' Committee ") (collectively, the "Plan Proponents ") filed their Revised Third Amended Joint Plan of Reorganization of Life Partners Holdings, Inc. et. al., Pursuant to Chapter 11 of the Bankruptcy Code (the "Plan ").5
On November 1, 2016 (the "Plan Confirmation Date "), this Court confirmed the Plan and entered its Order Confirming Revised Third Amended Joint Plan of Reorganization of Life Partners Holdings, Inc., et al. Pursuant to Chapter 11 of the Bankruptcy Code (the "Confirmation Order ").6
On December 9, 2016, the Plan Proponents filed their notice that the Plan became effective as of such date (the "Effective Date ").7
Under the Plan, the PHT was established, in part, to administer the portfolio of life insurance policies for the benefit of thousands of investors.8 Michael J. Quilling was appointed as successor Trustee of the PHT (the "Position Holder Trustee ") by the Life Partners Governing Trust Board pursuant to the provisions of the Plan and Position Holder Trust Agreement.9
The Confirmation Order provides that all fees due under 28 U.S.C. § 1930 "shall be paid on the Effective Date" and that "the Position Holder Trustee shall (a) continue to pay all fees due and payable pursuant to [ section 1930 ] until the closing, conversion, or dismissal of the Chapter 11 cases, and (b) provide the required post-confirmation reporting to the U.S. Trustee until the Chapter 11 Cases are closed."10 As required under the Plan, the Position Holder Trustee files the Post Confirmation Quarterly Operating Reports and pays the assessed U.S. Trustee's fees owing for each of the Life Partners Chapter 11 Cases.
When the Plan was confirmed in 2016, § 1930 of title 28 provided that the payment of quarterly fees to the U.S. Trustee would range between $6,500 and $30,000. In no event would the quarterly fee ever exceed $30,000 regardless of the amount of the disbursements for any given calendar quarter.11
In accordance with the existing U.S. Trustee fee regime in place on the Plan Confirmation Date, the Life Partners Chapter 11 Cases were assessed, and the Position Holder Trustee paid, the following U.S. Trustee fees during 2017:
In October 2017, Congress amended 28 U.S.C. § 1930(a)(6) (the "2017 Amendment ") to increase the U.S. Trustee quarterly fees when (i) a Chapter 11 debtor's disbursements equal or exceed $1 million during a quarter, and (ii) the United States Trustee System Fund balance was below $200 million in the most recent fiscal year.12 From January 1, 2018 onward, the U.S. Trustee has assessed and continues to assess fees based upon the increased fee schedule in all open Chapter 11 cases that are subject to the U.S. Trustee program, regardless of when such cases were filed.
The details of the 2017 Amendment, and the history of the statute, are detailed in In re Buffets, LLC13 and In re Circuit City Stores, Inc.14 As those opinions note, the U.S. Trustee argues that in districts that are part of the U.S. Trustee program (the "U.S. Trustee districts "), the increased fees apply to all Chapter 11 cases, regardless of when they were filed. In contrast, in the six federal judicial districts in Alabama and North Carolina that operate under the Bankruptcy Administrator Program (the "BA districts "), the increased fees apply only to Chapter 11 cases that are filed on or after October 1, 2018.
As a result, for the first three quarters of 2018, the U.S. Trustee assessed the Life Partners Chapter 11 Cases (which are filed in a U.S. Trustee district) the following amounts for U.S. Trustee fees:15
By comparison, had the Life Partners Chapter 11 Cases been filed in a BA district, the fee increase would not have applied to the Life Partners Chapter 11 Cases because they were filed prior to October 1, 2018. So the maximum fees the Life Partners Chapter 11 Cases could have been assessed in a BA district was $30,000 for each quarter in 2018 and beyond until the cases are closed.
On February 19, 2019, the PHT filed its Position Holder Trust's Motion to Determine Liability for Post-Confirmation United States Trustee's Quarterly Fees and to Partially Disgorge Trustee Quarterly Fees Paid in 2018 with Brief in Support (the "PHT Motion ").16 The PHT Motion requests an order finding that (a) the 2017 Amendment does not apply to the Life Partners Chapter 11 Cases since each of the cases was filed prior to the enactment of the amendment, or (b) the 2017 Amendment is unconstitutional. Also on February 19, 2019, the PHT filed its Notice of Constitutional Question under Fed. R. Civ. P. 5.1.17
On April 26, 2019, the U.S. Trustee filed his United States Trustee's Motion for Summary Judgment on Position Holder Trust's Motion to Determine Liability for Post-Confirmation United States Trustee's Fees and to Partially Disgorge Trustee Quarterly Fees Paid in 2018 (the "U.S. Trustee Motion ").18 Through this motion, the U.S. Trustee asks for an order granting summary judgment and dismissing the PHT Motion, arguing that the PHT Motion seeks relief that can be sought only through an adversary proceeding.
The Court held a hearing on both motions on July 17, 2019. The Court has considered the PHT Motion, the U.S. Trustee Motion, and each party's oral arguments, briefs, responses, replies, and supplemental papers.19
Although the legal issues in dispute concerning the 2017 Amendment are relatively new, the Court has the benefit of the Buffets and Circuit City decisions. Rather than re-creating the wheel, the Court adopts in this Order the legal analysis and conclusions in those opinions, except where noted below.
A. It is questionable whether the relief requested in the PHT Motion—as limited by the parties at the hearing—requires an adversary proceeding, but the Court will convert this contested matter to an adversary proceeding out of an abundance of caution for the balance of...
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