Century Cleaning Serv. v. Garvey et al

• Decision Date: 12 March 1999
• Docket Number: No. 98-35027,98-35027
• Parties: (9th Cir. 1999) In re: CENTURY CLEANING SERVICES, INC. Debtor, UNITED STATES TRUSTEE, Appellant, v. GARVEY, SCHUBERT & BARER; MICHAEL BATLAN, Trustee, Appellee
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1053

195 F.3d 1053 (9th Cir. 1999)

In re: CENTURY CLEANING SERVICES, INC. Debtor, UNITED STATES TRUSTEE, Appellant, v. GARVEY, SCHUBERT & BARER; MICHAEL BATLAN, Trustee, Appellee.

No. 98-35027

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Argued and Submitted March 12, 1999--Seattle, Washington

Filed November 18, 1999

Frank W. Hunger, Assistant Attorney General, William Kanter, and Steve Frank, U.S. Department of Justice, Washington, D.C., for the appellants.

Charles C. Robinson, Garvey, Schubert & Barer, Seattle, Washington, for the appellees.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel; Hagan, Naugle, and Jones, Judges, Presiding. BAP No. OR-96-02118-HaNaJo

Before: Betty B. Fletcher, Stephen Reinhardt, and Sidney R. Thomas, Circuit Judges.

Opinion by Judge Reinhardt; Dissent by Judge Thomas

REINHARDT, Circuit Judge:

In this appeal, we consider whether the 1994 amendments to the Bankruptcy Code preclude a Chapter 7 debtor's attorney from receiving professional fees from the bankruptcy estate for post-petition services. We conclude that a debtor's attorney may receive such fees pursuant to 11 U.S.C.S 330, and therefore reverse the contrary determination of the Bankruptcy Appellate Panel.

I. FACTUAL AND PROCEDURAL BACKGROUND

On September 8, 1995, Century Cleaning Services (Century) filed a Chapter 11 bankruptcy petition. On the same day, the law firm-appellee in this case, Garvey, Schubert & Barer (Garvey), filed an application with the bankruptcy court seeking appointment as counsel for Century, a debtor-inpossession. The bankruptcy court granted the application. The firm also filed an affidavit stating that it had received a retainer of $27,860.34 from Century for post-petition legal services and expenses. Garvey already had been compensated for all of its pre-petition services.

On September 22, 1995, Century's case was converted to a Chapter 7 bankruptcy, and the court appointed a trustee. Garvey continued to provide legal services for Century, including filing the conversion petition, preparing schedules, amended reports, a statement of affairs, and a Rule 2015 report, communicating with creditors, and participating in 2004 examinations. Garvey, however, did not request reappointment as Century's attorney for the Chapter 7 proceedings.

On June 10, 1996, Garvey filed a fee application for "Chapter 7 attorney's fees and expenses for services from September 22, 1995-April 30, 1996" totaling $12,770.87. On June 13, 1996, the Chapter 7 trustee filed a notice of intent to allow Garvey to be compensated from the retainer funds. Upon review, the U.S. Trustee filed an objection, stating that the Bankruptcy Code, 11 U.S.C. S 330 in particular, did not permit attorney's fees to be paid out of estate funds. In response, Garvey contended that its services were necessary to the administration of the estate as the services were performed at the request of the bankruptcy court, the Chapter 7 trustee, and one of Century's creditors.

The bankruptcy court held that the Bankruptcy Code did not authorize payment to Garvey because Congress had recently amended S 330 to omit the term "debtor's attorney" from the list of professionals eligible for compensation under the statute. See In re Century Cleaning Servs., Inc., 202 B.R. 149, 151 (Bankr. D. Or. 1996). Nonetheless, the bankruptcy court held that Garvey had a valid state law lien on Century's retainer, and thus that Garvey could recover "reasonable fees." See id. at 153. The court awarded Garvey $10,568.37. The U.S. Trustee then appealed to the Bankruptcy Appellate Panel, which affirmed the award under the state law lien theory, after concluding, like the Bankruptcy Court, that Garvey could not be compensated under S 330. See United States Trustee v. Garvey, Schubert & Barer (In re Century Cleaning Servs., Inc.), 215 B.R. 18, 22 (B.A.P. 9th Cir. 1997). The U.S. Trustee appeals from that decision. On appeal, it contends that the Bankruptcy Appellate Panel correctly determined that S 330 precludes compensation to a Chapter 7 debtor's attorney, but that it erred in allowing Garvey compensation pursuant to an attorney's lien under Oregon law. The U.S. Trustee argues that Oregon law does not allow a lien for post-petition services, and that in any event, S 330 preempts Oregon law to the extent that it allows for such a lien in Chapter 7 proceedings.

We review the bankruptcy court's interpretation of the Bankruptcy Code and the Bankruptcy Appellate Panel's conclusions of law de novo. See McClellan Fed. Credit Union v. Parker (In re Parker), 139 F.3d 668, 670 (9th Cir.), cert. denied, 119 S. Ct. 592 (1998); Grey v. Federated Group, Inc. (In re Federated Group, Inc.), 107 F.3d 730, 732 (9th Cir. 1997).

II. LEGAL BACKGROUND

To answer the question whether a debtor's attorney can be awarded fees under S 330, we must first attempt to understand the changes to the Bankruptcy Code that give rise to the uncertainty in the statutory scheme. Prior to the passage of the Bankruptcy Reform Act of 1994 (Reform Act), Chapter 7 debtor's attorneys were clearly statutorily eligible to receive compensation from the bankruptcy estate for post-petition services. Specifically, prior to the Reform Act, the first sentence of 11 U.S.C. S 330(a) expressly included attorneys in both of the two places at which the sentence set forth the list of persons eligible to receive distributions under S 330(a):

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, to an examiner, to a professional person employed under section 327 or 1103 of this title, or to the debtor's attorney--

(1) reasonable compensation for actual, necessary services rendered by such trustee, examiner, professional person, or attorney, as the case may be, and by any paraprofessional persons employed by such trustee, professional person, or attorney, as the case may be, based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services other than in a case under this title; and (2) reimbursement for actual, necessary expenses.

11 U.S.C. S 330(a) (1994) (emphasis added).

The Reform Act amended S 330(a) extensively, adding, among other things, more detailed guidance about how a court should determine the reasonableness of fee requests. As it finally emerged from Congress following several floor amendments, the sentence-long Reform Act version of S 330(a)(1)¹ did not include "debtor's attorney" at the first place at which the list of persons eligible for compensation appeared, but did continue to expressly include attorneys at the place where the list appeared later in the sentence.² As amended by the Reform Act, the section now provides:

(1) After notice to the parties in interest and the United States Trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a trustee, an examiner, a professional person employed under section 327 or 1103--

(A) reasonable compensation for actual, necessary services rendered by the trustee, examiner, professional person, or attorney and by any paraprofessional person employed by any such person; and (B) reimbursement for actual, necessary expenses.

11 U.S.C.A. S 330(a) (West Supp. 1999) (emphasis added). Thus, after the 1994 amendment, on the face of the statute the list of persons to whom the court "may award" payments is different from the list of persons to whom the court may provide "reasonable compensation." See 11 U.S.C. S 330(a)(1), (1)(A).

The Second and the Fifth Circuits, as well as several bankruptcy courts, have wrestled with the significance of the Reform Act amendments. The Fifth Circuit and several bankruptcy courts have concluded that the plain language of the Bankruptcy Reform Act unambiguously precludes the award of fees to debtor's attorneys. See Andrews & Kurth L.L.P. v. Family Snacks, Inc. (In re Pro-Snax Distribs., Inc.) , 157 F.3d 414, 425-26 (5th Cir. 1998); In re Fassinger, 191 B.R. 864, 865 (Bankr. D. Ore. 1996); In re Friedland, 182 B.R. 576, 578-79 (Bankr. D. Colo. 1995). Finding the statutory language unambiguous, these courts have either refused to examine the legislative history of the Reform Act altogether, see In re Pro-Snax Distribs., Inc., 157 F.3d at 425-26, or, at the least, have refused to consider the historical evolution of the Bankruptcy Code absent any indication that a literal application of the statute would produce a result demonstrably at odds with the intention of its drafters. See In re Friedland, 182 B.R. at 578. In finding the statutory language unambiguous, however, none of these courts has even mentioned, let alone attempted to explain, the glaring inconsistency in the two listings of eligible persons contained in the single sentence that constitutes S 330(a)(1).

In contrast, the Second Circuit, other bankruptcy courts, and the leading treatise on bankruptcy law have all concluded that S 330(a)(1) should be interpreted to permit the payment of compensation to Chapter 7 debtor's attorneys. See In re Ames Dept. Stores, Inc., 76 F.3d 66, 71-72 (2nd Cir. 1996); In re Hodes, 235 B.R. 93, 98-99 (Bankr. D. Kan. 1999); In re Bottone, 226 B.R. 290 297 (Bankr. D. Mass. 1998); In re Miller, 211 B.R. 399, 401-402 (Bankr. D. Kan. 1997); 3 Collier on Bankruptcy P 330.LH[5] at 375-76 (Lawrence P. King et al. eds., 15th ed. rev. 1999). These courts and the Collier treatise all found that Congress's deletion of the term "debtor's attorney" from the first enumeration of eligible persons in S 330(a)(1) was inadvertent, see, e.g., In re Bottone, 226 B.R. at 297, and at least two courts have explicitly rejected the Fifth Circuit's contention that the Reform Act's language is unambiguous. See In re Miller, 211 B.R. at 40102; In re Hodes, 235 B.R. at 99. In finding the amendment ambiguous, Miller, which is...