Clinton Nurseries, Inc. v. Harrington (In re Clinton Nurseries, Inc.)

• Decision Date: 28 August 2019
• Docket Number: CASE No. 17-31900 (JJT) (Jointly Administered under Case No. 17-31897 (JJT)), CASE No. 17-31898 (JJT), CASE No. 17-31899 (JJT),CASE No. 17-31897 (JJT)
• Citation: 608 B.R. 96
• Court: U.S. Bankruptcy Court — District of Connecticut
• Parties: IN RE: CLINTON NURSERIES, INC.; Clinton Nurseries of Maryland, Inc.; Clinton Nurseries of Florida, Inc. ; and Triem LLC, Debtors. Clinton Nurseries, Inc.; Clinton Nurseries of Maryland, Inc.; Clinton Nurseries of Florida, Inc. ; and Triem LLC, Plaintiffs v. William K. Harrington, United States Trustee, Region 2, Defendant.

608 B.R. 96

IN RE: CLINTON NURSERIES, INC.; Clinton Nurseries of Maryland, Inc.; Clinton Nurseries of Florida, Inc. ; and Triem LLC, Debtors.

Clinton Nurseries, Inc.; Clinton Nurseries of Maryland, Inc.; Clinton Nurseries of Florida, Inc. ; and Triem LLC, Plaintiffs

v.William K. Harrington, United States Trustee, Region 2, Defendant.

CASE No. 17-31897 (JJT)

CASE No. 17-31898 (JJT)

CASE No. 17-31899 (JJT)

CASE No. 17-31900 (JJT) (Jointly Administered under Case No. 17-31897 (JJT))

United States Bankruptcy Court, D. Connecticut, Hartford Division.

Signed August 28, 2019

Eric A. Henzy, Esq., Zeisler & Zeisler, P.C., 10 Middle Street, 15th Floor, Bridgeport, CT 06604, Attorney for the Movants/Plaintiffs

Robert J. Schneider, Jr., Esq., Kim L. McCabe, Esq., Steven E. Mackey, Esq., Department of Justice, Office of the United States Trustee, Region 2, Giamo Federal Building, 150 Court Street, Room 302, New Haven, CT 06510, Attorneys for the Respondent/Defendant

RE: ECF Nos. 672, 725, 726, 743, 773

RULING AND ORDER CONVERTING CONTESTED MOTION TO ADVERSARY PROCEEDING AND MEMORANDUM OF DECISION DISMISSING ADVERSARY PROCEEDING FOR FAILURE TO STATE CLAIMS UPON WHICH RELIEF CAN BE GRANTED

James J. Tancredi, United States Bankruptcy Judge

I.INTRODUCTION

In his famous Lochner dissent, Justice Holmes wrote:

This case is decided upon an economic theory which a large part of the country does not entertain.If it were a question whether I agreed with that theory, I should desire to study it further and long before making up my mind.But I do not conceive that to be my duty, because I strongly believe that my agreement or disagreement has nothing to do with the right of a majority to embody their opinions in law....Some ... laws embody convictions or prejudices which judges are likely to share.Some may not.But a Constitution is not intended to embody a particular economic theory ....It is made for people of fundamentally differing views, and the accident of our finding certain opinions natural and familiar, or novel, and even shocking ought not to conclude our judgment upon the question whether statutes embodying them conflict with the Constitution of the United States.

Lochner v. New York , 198 U.S. 45, 75–76, 25 S.Ct. 539, 49 L.Ed. 937(1905)(Holmes, J., dissenting).¹Although those words concerned a different law passed in a different era that was struck down under a different part of the Constitution, they are apt here.

The related debtors, Clinton Nurseries, Inc.; Clinton Nurseries of Maryland, Inc.; Clinton Nurseries of Florida, Inc.; and Triem LLC(collectively, "Debtors") filed a Motion to Determine Amount of United States Trustee Fees Pursuant to 28 U.S.C. § 1930(a)(6)("Motion,"ECF No. 672), making two principal arguments: (1) that the 2017amendments to 28 U.S.C. § 1930(a)(6), made through the Bankruptcy Judgeship Act of 2017, Pub. L. 115-72, Div. B, § 1004(a);131 Stat. 1232("2017Amendments"), created non-uniform bankruptcy law, in violation of Article 1, Section 8, Clause 4 of the United States Constitution("Bankruptcy Clause"), and (2) that the 2017Amendments transformed the Debtors' Chapter 11 quarterly fees into an unconstitutional user fee.

The United States Trustee for Region 2, William K. Harrington("UST"), filed two objections, one procedural ("Procedural Objection,"ECF No. 725) and one substantive ("Substantive Objection,"ECF No. 726).In the Procedural Objection, the UST argues that the claims raised in the Motion must be brought in an adversary proceeding, and so the Motion should be denied.In the Substantive Objection, the UST argues that the 2017Amendments do not violate either the Bankruptcy Clause or the Fifth Amendment to the United States Constitution.

The Court has studied the Motion, the Objections, and the parties' reply briefs ("Reply,"ECF No. 743;"Sur-Reply,"ECF No. 773).After a scrupulous review of the statute in question, along with governing precedent, and the record of the hearing, the Court determines that: (1)Triem LLC, as alleged, has no standing to pursue these matters; (2)the Court will convert the Motion to an Adversary Proceeding and treat the UST's Substantive Objection as a motion to dismiss under Rule 12(b)(6) of the Federal Rules of Civil Procedure;(3)the 2017Amendments do not violate the Bankruptcy Clause and are otherwise being faithfully executed by the UST; and (4) the Debtors' allegations, as pleaded, are insufficient to establish a takings claim under the Fifth Amendment.The Court, therefore, DISMISSES the Adversary Proceeding upon the terms further stated within the Discussion.

II.JURISDICTION

The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b)² and derives its authority to hear and determine this matter on reference from the District Court pursuant to 28 U.S.C. § 157(a) and (b)(1).Venue is proper under 28 U.S.C. §§ 1408and1409.This is a core proceeding under 28 U.S.C. § 157(b)(2)(A) and (O).

III.DISCUSSION

A. Triem LLCDoes Not Have Standing; Clinton Nurseries of Maryland, Inc., Has Limited Standing; No Debtor Has Standing Concerning 2019 Fees

The Court must first address the threshold issue of standing.Among other things, standing requires that a party seeking relief have an "injury in fact" that is "concrete and particularized[.]"Lujan v. Defenders of Wildlife , 504 U.S. 555, 560, 112 S.Ct. 2130, 119 L.Ed.2d 351(1992)(citations and internal quotation marks omitted).While pointing out that the Debtors combined pay substantially increased fees, the Debtors' allegations in the Motion make clear that not every Debtor was affected every quarter.As alleged, Triem LLC paid the exact same fees in each quarter of 2018 as it would have paid under the prior version of 28 U.S.C. § 1930(a)(6).Clinton Nurseries of Maryland, Inc., meanwhile, was only affected by the 2017Amendments in two of the four quarters.And, although the Debtors posit that their 2019 quarterly fees would be similar, the Debtors have not supplemented their pleadings to include what harm, if any, the Debtors have thus far experienced in 2019.³

The Debtors' prayer for relief in the Motion seeks "an order determining that USTrustee fees payable by the Debtors in these cases will be calculated based on the pre-amendment 28 U.S.C. § 1930(a)(6) fee schedule[.]"Implicit in this request is a concession that the Debtors would not consider themselves harmed by the former fee schedule.Therefore, the Court finds that the Debtors only have standing to challenge those fees that they allege are different from those they would have paid under the former fee schedule, which means that Triem LLC does not have standing to pursue this Motion,⁴Clinton Nurseries of Maryland, Inc., only has standing to challenge the second and third quarters of 2018, and no debtor has standing to challenge its 2019 fees under the facts alleged.

B.The Court Converts This Matter to an Adversary Proceeding

The Court next addresses the UST's Procedural Objection, which also poses threshold issues, but, as will be discussed, not jurisdictional issues.The UST argues that under Federal Rule of Bankruptcy Procedure("FRBP") 7001, the Debtors can only seek relief in an Adversary Proceeding.The Debtors maintain that FRBP 3012, rather than FRBP 7001, governs the issues and that, even if this matter should have been filed as an Adversary Proceeding, the UST has not been prejudiced, the Court could apply Part VII rules, or the Court could convert the matter to an Adversary Proceeding.The Court agrees with the UST that the issues raised in the Motion require an Adversary Proceeding, but the Court uses its powers under 11 U.S.C. § 105(a) to sua sponte convert the matter to an Adversary Proceeding.

1.FRBP 7001 Applies to This Matter

The parties principally disagree about which FRBP has been invoked by the issues raised in the Motion.⁵The UST argues that FRBP 7001 applies because the Debtors seek "to determine the validity ... [of an] interest in property" and seek "to obtain a declaratory judgment relating to any of the foregoing[.]"Fed. R. Bankr. P. 7001(2) and (9).The UST also argues that FRBP 2020⁶ does not apply because the Debtors are not challenging the UST's actions, but an act of Congress.Even if FRBP 2020 applies, the UST argues that FRBP 9014 itself requires the Debtors to seek relief through an Adversary Proceeding.The Debtors, meanwhile, assert that under FRBP 3012, the amount of a priority claim is determined as a contested matter and that the Debtors are challenging the UST's actions, through FRBP 2020, in issuing invoices seeking payment of quarterly fees.The Court agrees with the UST.

The UST is correct that the Debtors seek "to determine the validity ... [of an] interest in property,"Fed. R. Bankr. P. 7001(2), namely, money that is otherwise property of the Debtors' estates.FRBP 7001(2) does exempt from its definition "proceeding[s] under Rule 3012."FRBP 3012 states, in relevant part, that "the court may determine ... the amount of a claim entitled to priority under § 507 of the Code[,]" and that such "may be made by motion[.]"Fed. R. Bankr. P. 3012.The advisory committee notes make clear, however, that "[a]n adversary proceeding is commenced when the validity, priority, or extent of a lien is at issue as prescribed by Rule 7001.That proceeding is relevant to the basis of the lien itself" while FRBP 3012 is meant for valuation purposes.⁷Id.

The Debtors here do not merely seek to value what is owed to the UST.Their allegations make clear that they know how much they would owe for 2018 under the current and former versions of 28 U.S.C. § 1930(a)(6).Instead, the Debtors seek a determination that any amount paid beyond what the former fee schedule prescribed is invalid.Such must be sought in an Adversary Proceeding.SeeFed. R. Bankr. P. 7001(9).

FRBP 2020 is also inapplicable to this matter.Although the Rule applies to "proceeding[s] to contest any act or failure to act by the [U...