In re Equipment Services, Inc.

• Decision Date: 31 May 2002
• Docket Number: No. 01-1780.,No. 01-1779.,01-1779.,01-1780.
• Citation: 290 F.3d 739
• Parties: In re EQUIPMENT SERVICES, INCORPORATED, Debtor. United States Trustee, Plaintiff-Appellant, v. Equipment Services, Incorporated, Defendant-Appellee. In re Equipment Services, Incorporated, Debtor. United States Trustee, Plaintiff-Appellee, v. Equipment Services, Incorporated, Defendant-Appellant.
• Court: U.S. Court of Appeals — Fourth Circuit

290 F.3d 739

In re EQUIPMENT SERVICES, INCORPORATED, Debtor.

United States Trustee, Plaintiff-Appellant, v. Equipment Services, Incorporated, Defendant-Appellee.

In re Equipment Services, Incorporated, Debtor.

United States Trustee, Plaintiff-Appellee, v. Equipment Services, Incorporated, Defendant-Appellant.

No. 01-1779.

No. 01-1780.

United States Court of Appeals, Fourth Circuit.

Argued April 2, 2002.

Decided May 31, 2002.

ARGUED:

P. Matthew Sutko, Office of the General, Executive Office for United States Trustees, United States Department of Justice, Washington, D.C., for Plaintiff-Appellant. John Michel Lamie, Browning, Lamie & Gifford, P.C., Abingdon, Virginia, for Defendant-Appellee.

ON BRIEF:

Joseph A. Guzinski, Acting General, Office of the General, Executive Office for United States Trustees, United States Department of Justice, Washington, D.C.; Margaret K. Garber, Trial Attorney, Office of the United States Trustee, United States Department of Justice, Roanoke, Virginia; David R. Duncan, Regional Assistant United States Trustee, Office of the United States Trustee, United States Department of Justice, Columbia, South Carolina, for Plaintiff-Appellant.

Before NIEMEYER, WILLIAMS, and MICHAEL, Circuit Judges.

Affirmed in part and reversed in part by published opinion. Judge NIEMEYER wrote the opinion, in which Judge WILLIAMS joined. Judge MICHAEL wrote an opinion concurring in part and dissenting in part.

OPINION

NIEMEYER, Circuit Judge.

John M. Lamie, an attorney retained to represent Equipment Services, Inc. in bankruptcy, applied to the bankruptcy court for the payment of his legal fees incurred (1) prepetition, (2) during the Chapter 11 proceeding, and (3) after conversion to a Chapter 7 proceeding. Applying the current version of the Bankruptcy Code (as amended in 1994), 11 U.S.C. § 330(a) (2000), we affirm the district court's approval of fees incurred before the conversion to Chapter 7 and reverse its approval for fees incurred after. In reaching this conclusion, we reject Lamie's argument that § 330(a) included a "scrivener's error" when it was amended in 1994 to delete the "debtor's attorney" from the list of persons eligible to be paid from bankruptcy estate, and we join two circuits that have reached the same conclusion. Regretfully, this decision also widens the split on this issue with three other circuits.

I

Equipment Services, Inc. retained John Lamie to prepare for the company a voluntary petition for relief under Chapter 11 of the Bankruptcy Code and to represent the company in the bankruptcy proceedings. Equipment Services paid Lamie a $6,000 "retainer," of which $1,000 was used to pay the fees and costs of filing the Chapter 11 petition. Consistent with the arrangement reached with Equipment Services, Lamie deposited the remaining $5,000 in his client escrow account, to be drawn upon as Lamie earned fees. This retainer arrangement was not documented, but Lamie explained it to the bankruptcy court as follows:

The Court: What was your understanding, as far as the retainer was concerned?

Mr. Lamie: Well, the retainer was to pay me in advance for fees that I would earn during the case, Your Honor. And it was to assure some payment of those fees. That is the reason. That is the way we explained to the client.

The Court: Was it your understanding that any unused fees at the end of the case would be, in effect, refunded back to the Debtor?

Mr. Lamie: Oh, it would be the Debtor's property at the end of the case, yes, Your Honor.

The Court: So, the effect it [sic] to protect you ... you know, your ability to get paid, is that what you were doing?

Mr. Lamie: Yes. Yes, the money was put into trust and is billed against it. That is the way we have handled it.

Lamie filed the Chapter 11 petition on December 24, 1998, and, pursuant to Federal Rule of Bankruptcy Procedure 2016(b), he informed the bankruptcy court that he had received the remaining $5,000 from Equipment Services. He also obtained the bankruptcy court's permission to represent Equipment Services as the debtor-in-possession. Thereafter, during the Chapter 11 proceeding and before it was converted into a Chapter 7 proceeding, Lamie earned $1,325 in fees and incurred $3.85 in costs.

On March 17, 1999, on the motion of the United States Trustee, Equipment Services' Chapter 11 proceeding was converted into a Chapter 7 proceeding, and Robert E. Wick, Jr., was appointed to administer the bankruptcy estate. Lamie earned another $1,000 representing Equipment Services during the Chapter 7 proceeding. On June 5, 2000, Lamie filed an application with the bankruptcy court, seeking approval of attorneys fees in the amount of $2,325 ($1,325 earned during the Chapter 11 proceeding and $1,000 earned during the Chapter 7 proceeding) and $3.85 in costs incurred during the Chapter 11 proceeding. The United States Trustee objected to the award of fees to the extent that they included compensation for services rendered after the case was converted to a Chapter 7 proceeding. The Trustee argued that 11 U.S.C. § 330(a) "makes no provision for counsel of the debtor to be compensated by the estate" in a Chapter 7 proceeding. Moreover, the Trustee asserted that the application for fees did not specify what benefit the estate, as distinct from Equipment Services, received as the result of Lamie's work.

The bankruptcy court agreed with the Trustee that, under 11 U.S.C. § 330(a), a debtor's attorney is not authorized to be paid funds from the bankruptcy estate for services rendered after the case is converted to a Chapter 7 proceeding. The court nonetheless awarded Lamie all of his requested fees, in the amount of $2,325, plus $3.85 in costs, concluding that the prepetition retainer held by Lamie was property of the bankruptcy estate only to the extent that it exceeded the total fees allowed to the debtor's counsel for all services rendered in the case, including services rendered after the Chapter 7 conversion.

The United States Trustee appealed this ruling to the district court, and Lamie cross-appealed the bankruptcy court's ruling that 11 U.S.C. § 330(a) prohibits a debtor's attorney from obtaining compensation from a Chapter 7 estate. The district court affirmed the bankruptcy court on both issues, and the parties filed these cross-appeals, raising two issues: (1) whether 11 U.S.C. § 330(a) (2000) allows a Chapter 7 debtor's attorney to be compensated from the estate; and (2) whether Lamie was entitled to deduct his post-Chapter 7 fees from the retainer notwithstanding any lack of authorization from § 330(a) to pay the debtor's attorney from the bankruptcy estate.

II

We first resolve whether 11 U.S.C. § 330(a) (2000) allows a Chapter 7 debtor's attorney to be compensated from the bankruptcy estate, an issue on which the courts of appeals have split. Both the bankruptcy court and the district court concluded that the plain language of § 330(a) does not authorize a debtor's attorney to be compensated from the estate in a Chapter 7 proceeding. Lamie contends that these courts' conclusions fail to recognize that when the Bankruptcy Code was amended in 1994, Congress made a scrivener's error in omitting authorization to pay fees to the debtor's attorney from a Chapter 7 estate — an authorization that existed prior to the 1994 revisions.

The 1986 version of § 330(a) stated in relevant part:

(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.

11 U.S.C. § 330(a) (1988) (emphasis added). The Bankruptcy Reform Act of 1994 amended § 330(a) to read in relevant part as follows:

(a)(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.

11 U.S.C. § 330(a) (2000). Thus, § 330(a), as revised in 1994, omits the phrase "or the debtor's attorney" from the list of persons to whom a court may award "reasonable compensation" from the bankruptcy estate for services rendered in a Chapter 7 proceeding.

Lamie argues that the deletion of the reference to debtor's attorneys was inadvertent and that the omission renders the statute ambiguous, permitting courts to look to the legislative history in interpreting the statute. He maintains that the ambiguity arises from the fact that the 1994 version, while omitting "debtor's attorney" from its enumeration of persons whom bankruptcy courts can compensate from the estate, nonetheless retains a reference to attorneys in subpart (A). See 11 U.S.C. § 330(a)(1)(A) (2000) (allowing "reasonable compensation for actual, necessary services rendered by the trustee, examiner, professional person, or attorney ..."). Lamie also argues that a grammatical error supports his conclusion that the 1994 version of § 330(a) is ambiguous. He notes that there is no conjunction "or" between "examiner" and "a professional person" in the list of persons authorized to receive fees in § 330(a)(1), supporting the conclusion that the deletion of "or the debtor's attorney" was inadvertent. Based...