Pacific Far East Lines, Inc., In re

• Decision Date: 08 November 1989
• Docket Number: No. 87-2937,87-2937
• Citation: 889 F.2d 242
• Parties: In re PACIFIC FAR EAST LINES, INC., a Delaware corporation, American Bear Steamship Company, aka American Wheat Steamship Company, a Delaware corporation; Atlantic Bear Steamship Company, aka APG Corporation, a Delaware corporation, Debtors. UNITED STATES of America, Appellee, v. Frederick S. WYLE, Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 242

889 F.2d 242

19 Bankr.Ct.Dec. 1682

In re PACIFIC FAR EAST LINES, INC., a Delaware corporation,

American Bear Steamship Company, aka American Wheat

Steamship Company, a Delaware corporation; Atlantic Bear

Steamship Company, aka APG Corporation, a Delaware

corporation, Debtors.

UNITED STATES of America, Appellee, v. Frederick S. WYLE, Appellant.

No. 87-2937.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Dec. 13, 1988.

Decided Nov. 8, 1989.

Isaac M. Pachulski, Los Angeles, Cal., for appellant.

Timothy F. Brown, Justice Dept., Washington, D.C., for appellee.

Appeal from the United States District Court for the Northern District of California.

Before CHOY, CANBY and NORRIS, Circuit Judges.

CANBY, Circuit Judge:

This appeal arises out of proceedings to liquidate the assets of the Pacific Far East Line, Inc., American Bear Steamship Company and the Atlantic Bear Steamship Co. (collectively, "Far East") under the Bankruptcy Act of 1898, 11 U.S.C. Sec. 1 et seq. (repealed) (the 1898 Act). ¹ The trustee of Far East, after reaching a compromise with the government on the amount due, paid approximately $776,000 to the Referees' Salary and Expense Fund ("RSEF"), as required by Sec. 40c(2) of the 1898 Act, 11 U.S.C. Sec. 68(c)(2) (repealed). Subsequently, Congress enacted the Referees' Salary and Expense Fund Act of 1984 (the 1984 RSEF), which provided that a fee in excess of $200,000 may not be charged under Sec. 40c(2) "in a case pending under [the 1898] Act on September 30, 1979." ² The bankruptcy court ordered the government to make a refund pursuant to Sec. 57k & 57l of the 1898 Act, 11 U.S.C. Sec. 93(k) & (l

) (repealed) ³. The district court reversed. In defending the district court's order in this court, the government contends that the bankruptcy court was without jurisdiction to order a refund. It also argues that, even if jurisdiction was proper, the bankruptcy court abused its discretion in granting the trustee's motion for reconsideration and refund. We reverse the district court and reinstate the bankruptcy court's decision.

BACKGROUND

Far East's case began on January 31, 1978, as an action for reorganization under Chapter XI of the 1898 Act. The reorganization effort failed and Far East was adjudicated a bankrupt on August 4, 1978. Liquidation commenced under Chapter VII. In Chapter VII proceedings under the 1898 Act, estates were required to make a contribution to the RSEF based on a specified percentage of the total net realization of the estate. The percentage rate was set by the Judicial Conference of the United States. See 1898 Act Sec. 40c(2), 11 U.S.C. Sec. 68(c)(2) (repealed). See generally 2A Collier on Bankruptcy, Sec. 40.01 et seq. (14th ed. 1978).

Although such contributions are usually not paid until the end of a bankruptcy case, the trustee, Frederick S. Wyle, and the government began negotiations in the Spring of 1983 over the fee due RSEF on the net realization of the estate through May 31, 1983. The parties held considerably different views of the net realization and, accordingly, the resultant fees. There was no disagreement over the proper percentage formula to be applied to the net realization figure to arrive at the fee. The trustee estimated the net realization at $16,806,871 and the fee at $504,456.13. The government estimated the net realization at $30,626,321 and the fee at $919,039.60. The parties settled on a compromise fee figure and, on April 30, 1984, the bankruptcy court entered an order approving the stipulation and authorizing payment to the government of $776,060.25 as the total fee due to the RSEF for assets processed through May 31, 1983.

On July 10, 1984, the President signed into law the Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub.L. No. 98-353, 98 Stat. 333 (1984), which included the 1984 RSEF Act and its provision that no RSEF fee in excess of $200,000 may be charged in any case pending under the 1898 Act on September 30, 1979. On July 25, 1984, the trustee wrote the government seeking a refund of the difference between the payment made pursuant to the stipulation, and the new $200,000 cap on RSEF contributions established by the 1984 RSEF Act. The government declined and on March 12, 1985, the trustee filed an "Application on Notice to Establish Procedure re Filing of Motion for Reconsideration of Claim and Related Adversary Proceeding and to Designate Applicability of Adversary Proceeding Rules." The government opposed the motion. On April 24, 1985, the bankruptcy court denied the motion but refused to foreclose the trustee from proceeding with a motion for reconsideration of the payment. The trustee filed that motion on October 25, 1985. The motion was granted and refund of the excess payment ordered on February 27, 1987. The government appealed to the district court, which reversed the bankruptcy court. The trustee appealed to this court. We have jurisdiction over the appeal under Sec. 24 of the 1898 Act, 11 U.S.C. Sec. 47 (repealed).

STANDARD OF REVIEW

We stand in the same position as did the district court in reviewing the bankruptcy court's order. In re Center Wholesale, Inc., 759 F.2d 1440, 1445 (9th Cir.1985); In

re Sambo's Restaurants, Inc., 754 F.2d 811, 814 (9th Cir.1985). We review the bankruptcy court's conclusions of law de novo, and its factual findings for clear error. In re Pizza of Hawaii, Inc., 761 F.2d 1374, 1377 (9th Cir.1985); In re Jules Meyers Pontiac, Inc., 779 F.2d 480, 482 (9th Cir.1985). We review for abuse of discretion the bankruptcy court's determination to grant reconsideration under Federal Rule of Civil Procedure 60(b)(6). United States v. Holtzman, 762 F.2d 720, 725 (9th Cir.1985).

I. THE JURISDICTION OF THE BANKRUPTCY COURT TO ORDER A REFUND OF THE RSEF CONTRIBUTION.

The government contends that the bankruptcy court lacked jurisdiction to reconsider the RSEF contribution and order a refund because Congress has never waived sovereign immunity with respect to suits concerning money paid into the RSEF. We disagree. Under Sec. 57k of the 1898 Act, bankruptcy courts are given jurisdiction to reconsider orders, and under Sec. 57l they are given jurisdiction, up until the closing of the estate, to order repayment of funds distributed from the bankruptcy estate. In re Pittsburgh Railways, 253 F.2d 654, 657 (3d Cir.1958). Sovereign immunity protects the property which belongs to the government independent of the bankruptcy process, but, where the government has acquired property through its affirmative actions under the jurisdiction of the bankruptcy court, it consents to the jurisdiction of that court over the property until the case is closed. Id. See also In re Greenstreet, Inc., 209 F.2d 660, 663 (7th Cir.1954).

In support of its contention that the RSEF contribution, once paid, is protected by sovereign immunity from further consideration by the bankruptcy court, the government cites American Guaranty Corp. v. Burton, 380 F.2d 789 (1st Cir.1967). There a debtor petitioned a district court to order a refund of its RSEF contribution on the ground that the formula established by the Judicial Conference of 1 percent of all recovered assets violated the statutory requirement that the fee be a graduated one. See 11 U.S.C. Sec. 65(b)(1) (repealed). The government raised the defense of sovereign immunity. The First Circuit agreed with the government that allowing the district court to render a judgment for the debtor plaintiff would " 'expend itself on the public treasury * * * [or] interfere with the public administration.' " American Guaranty Corp., 380 F.2d at 791 (quoting Land v. Dollar, 330 U.S. 731, 738, 67 S.Ct. 1009, 1012, 91 L.Ed. 1209 (1947)).

The First Circuit's decision may be distinguishable from our case because in the former action the plaintiff sought relief from a district court (rather than a bankruptcy court) and did not bring the action under Sec. 57 of the 1898 Act. The court itself acknowledged that the funds were "perhaps still subject to possible adjustment," id., although it did not specify how.

To the extent that the First Circuit may have denied the jurisdiction of a bankruptcy court to reconsider RSEF contributions under Sec. 57 of the 1898 Act, we disagree. In re Pittsburgh Railways and In re Greenstreet, Inc. both ruled that monies paid into the treasury through the bankruptcy court to settle tax liabilities of the debtors remained subject to the continuing jurisdiction of the bankruptcy court. ⁴ We find the reasoning of these cases persuasive and applicable.

The government clearly has an interest in funds paid into the treasury, but when

                those funds derive from the bankruptcy process the government must submit to the continuing jurisdiction of the bankruptcy court.  Prompt and effectual administration of bankruptcy estates would be hindered if all claims paid to the government as fees, administrative expenses, or dividends, were forever withdrawn from the jurisdiction of the bankruptcy court the moment they were paid.  Under such a rule trustees would have to hold the government's claims until the very end of the case in order to assure that no correction was necessary.  A better principle and policy is that " '[h]e who invokes the aid of the bankruptcy court by offering a proof of claim and demanding its allowance must abide the consequences of that procedure.' "    Katchen v. Landy, 382 U.S. 323, 333 n. 9, 86 S.Ct. 467, 474 n. 9, 15 L.Ed.2d 391 (1966) (quoting Wiswall v. Campbell, 93 U.S. 347, 351, 23 L.Ed. 923 (1876))
                

II. RSEF CONTRIBUTION REFUNDS UNDER THE ACT

The bankruptcy court held that a refund was required by the plain words of the 1984 RSEF Act, that "a fee may not be charged under Sec. 40c(2)(a) of the [1898] Act in a case pending under such Act on September 30, 1979, to the extent that such fee exceeds $200,000." There is a great deal to be said for that position. No one disputes that Far East's case was pending on September...