In re Heath

• Decision Date: 15 July 1996
• Docket Number: No. NA 95-78-C-B/H. Bankruptcy No. 93-91138-BHL-13. Adversary No. 95-9003.,NA 95-78-C-B/H. Bankruptcy No. 93-91138-BHL-13. Adversary No. 95-9003.
• Citation: 198 BR 298
• Parties: In re June Marie HEATH, Debtor. UNITED STATES POSTAL SERVICE, Appellant, v. Joseph M. BLACK, Jr., Trustee, Appellee.
• Court: U.S. District Court — Southern District of Indiana

198 B.R. 298 (1996)

In re June Marie HEATH, Debtor UNITED STATES POSTAL SERVICE, Appellant, v. Joseph M. BLACK, Jr., Trustee, Appellee.

No. NA 95-78-C-B/H. Bankruptcy No. 93-91138-BHL-13. Adversary No. 95-9003.

United States District Court, S.D. Indiana, New Albany Division.

July 15, 1996.

Jeffrey L. Hunter, Assistant United States Attorney, Indianapolis, IN, for Appellant.

Joseph M. Black, Jr., Trustee, Rothring Lambring & Black, Seymour, IN, pro se.

ENTRY AND ORDER

BARKER, Chief Judge.

This is an appeal which derives from a Chapter 13 Bankruptcy petition filed by debtor June Marie Heath ("Debtor"). The actual decision from which an appeal has been taken is the judgment of the Bankruptcy Court entered on April 26, 1995. In that decision, it was concluded that the Postal Service (the "Postal Service"), which is the debtor's employer and which assessed a fee for its role in forwarding periodic sums from the debtor's income to the Bankruptcy Trustee, had "improperly assessed and collected a processing fee in connection with the Take Out Order." The Postal Service was therefore directed to return the money which had been collected. The Postal Service has appealed, with the Bankruptcy Court's decision being defended by the Chapter 13 Trustee.

The ultimate issue for resolution is whether the Chapter 13 Trustee was entitled to challenge the assessment by the Postal Service and, if so, whether the assessment was contrary to a portion of Title 11 of the United States Code. Resolution of this issue requires consideration of both statutory authority and case-specific language. The case has been briefed and is now fully at issue.¹

I. Background

The Debtor submitted, and the Bankruptcy Court approved, the Debtor's Chapter 13 Plan (the "plan"). Joseph M. Black, Jr., served as the Chapter 13 Trustee (the "Trustee"). Black was obligated and authorized to perform the functions set forth in 11 U.S.C. § 1302 (11 U.S.C. § 101 et seq. is hereinafter sometimes referred to as the "Bankruptcy Code"). The plan provided for periodic payments to be made by the Debtor, or her employer from her regular income, to the Trustee. The purpose of this was to enable the Trustee to make payments to unsecured creditors and others, as provided for in the plan. An Order Confirming Plan was entered on September 24, 1993. That order provided in pertinent part:

4. The Debtor\'s income and other assets including accounts receivables remain estate property to the extent necessary to fulfill the plan.

Amendments to the plan were approved on February 2, 1994 and February 28, 1994, but did not alter the definition of estate property quoted above.

A "Take Out Order" was entered by the Bankruptcy Court on December 8, 1994, directing the Postal Service to pay over $75.77 of the Debtor's earnings to the Trustee biweekly. This Take Out Order was contemplated by the Chapter 13 Plan. The Postal Service has, at all times, complied with the Take Out Order's directive.

The Postal Service charges a fee for all matters processed under 5 U.S.C. § 5520a, which provides that the administrative costs in executing a garnishment action may be added to the garnishment, and costs may be recovered as offsetting collections. 5 U.S.C. § 5520a(j)(2). It is apparently a one-time fee. The statute further provides that

(3) "legal process" means any writ, order, summons, or other similar process in the nature of a garnishment, that —

(A) is issued by a court of competent jurisdiction . . . ;

and

(B) orders the employing agency of such employee to withhold an amount from the pay of such employee, and make a payment of such withholding to another person, for a specifically described satisfaction of a legal debt of the employee, or recovery of attorneys\' fees, interest, or court costs. . . .

5 U.S.C. § 5520a(a)(3). The Postal Service determined that the Take Out Order fell within the scope of 5 U.S.C. § 5520a(a)(3), and subsequently withheld $50.00 from the Debtor's pay to offset its administrative costs. The amount withheld for this purpose did not reduce any bi-weekly payment made to the Trustee.

II. Issues

This appeal presents a number of issues:

1. Whether the Bankruptcy Court had jurisdiction to hear the adversary proceeding.

2. Whether the Trustee had standing to initiate or pursue the adversary action.

3. Whether the bankruptcy court erred in ordering return of the $50.00 fee at issue.

4. Whether the bankruptcy court erred in its determination that the Postal Service could not charge a processing fee under 5 U.S.C. § 5520a directly to the Debtor.

5. Whether the bankruptcy court erred in its determination that the Postal Service could not charge a processing fee under 5 U.S.C. § 5520a directly to the Debtor, but was required to file an administrative claim requesting payment of such fee.

III. Discussion

The first issue, whether the Bankruptcy Court had jurisdiction to hear the adversary action, is interwoven with the resolution of whether the Trustee had standing to bring the action initially, for if he had no standing, there was no justiciable controversy, and the Bankruptcy Court lacked jurisdiction to decide the matter. In re FedPak Systems, Inc., 80 F.3d 207, 211 (7th Cir.1996). Hence, discussion of the jurisdictional question will be deferred until later in this Entry.

A. Standing

The duties of the Chapter 13 Trustee are set forth in 11 U.S.C. § 1302. This statute incorporates, inter alia, 11 U.S.C. § 704(2), (3), (4), (5), (6), (7) and (9). It is inarguable that none of the relevant statutory provisions specifically authorize the Trustee to bring an adversary action, post-confirmation, designed to force a creditor to turn over property to the debtor.

The jurisdiction of federal courts, including the Bankruptcy Court, is restricted "to actual controversies in which the litigants have a personal stake." FedPak, 80 F.3d at 211 (citing U.S. Const. Art. III § 2; Holstein v. City of Chicago, 29 F.3d 1145, 1147 (7th Cir.1994)). The issue of "personal stake" for the Trustee, hence the sine qua non for his standing in a particular action, is determined by reference to three components:

First, the plaintiff must have suffered an injury in fact — an invasion of a legally-protected interest which is (a) concrete and particularized, and (b) actual or imminent, not conjectural or hypothetical. Second, there must be a causal connection between the injury and the conduct complained of. . . . Third, it must be likely . . . that the injury will be redressed by a favorable decision.

FedPak, 80 F.3d at 212 (quotations and citations omitted).

The Trustee argues that he had standing to challenge the Postal Service's collection of an administrative fee based on several circumstances: (1) his statutory power under 11 U.S.C. § 1302; (2) the requirement that he give prior approval for certain consumer debts under 11 U.S.C. § 1305; (3) his inherent power to review and object to claims pursuant to 11 U.S.C. § 704(a)(5); and (4) based on the broad equities of the case, asserting "many courts have allowed the Trustee to act on behalf of the Debtor."

Courts that have examined the issue look to see whether the actions of the trustee are encompassed within, or closely related to, the trustee's statutory powers. See, Matter of Maddox, 15 F.3d 1347, 1353-56 (5th Cir. 1994); In re Kennedy, 139 B.R. 389, 390-92 (Bankr.N.D.Miss.1992); In re Ciavarella, 28 B.R. 823, 825 (Bankr.S.D.N.Y.1983). A Chapter 13 trustee has been found to have standing in certain instances where as a result of bringing an adversary action, the Trustee could potentially bring more assets into the estate and consequently increase payments available to unsecured creditors. See, e.g., Matter of Maddox, 15 F.3d at 1353-56; In re Kennedy, 139 B.R. at 390-92. In the case at bar, the ruling of the Bankruptcy Court resulted in a transfer of money from the Postal Service to the Debtor; no potential for increased payment to unsecured creditors was apparent either when the action was brought, or ultimately.

The Bankruptcy Court found that the Trustee had standing to bring the case pursuant to § 1302(b)(5), which provides that the Trustee bears the responsibility for ensuring that the Debtor commences making timely payments under the plan, and under § 1302(b)(4) which provides that the Trustee shall "advise, . . . and assist the debtor in performance under the plan."

This issue, as well as some of the others presented in this appeal, is one of first impression. To the extent there is no case or statutory law conferring standing on the Trustee in this instance, none apparently exists.

One of the few cases discussing the ability of a Chapter 13 Trustee to bring an adversary action not authorized by statute is In re Johnson (Boyajian v. Assocs. Financial Service Co. of Rhode Island), 13 B.R. 263 (Bankr.D.R.I.1981). Johnson involved a complaint filed by the Chapter 13 Trustee alleging violation of the Consumer Credit Protection Act, 15 U.S.C. §§ 1601, et seq. (Truth in Lending Act) and Regulation Z, 12 C.F.R. §§ 226.1, et seq. The defendant creditor argued that Bankruptcy Code § 1302(b)(3) limited the trustee's authority to advise and assist the debtors in performance of the repayment plan to matters other than legal, and that the action was, consequently, unauthorized. The court held:

The Defendant\'s reliance on § 1302(b)(3) is totally misplaced. The Trustee in this case is not providing the Debtors with advice on legal matters, nor is he representing the Debtors, but rather, in accordance with his legal duty to creditors, is pursuing a cause of action, title to which vested in the Trustee pursuant to Article IV of the Debtors\' Plan for Repayment, and Code § 1322(b)(9).

Johnson, 13 B.R. at 264. The holding hinged primarily on a provision of the plan specifically dealing with property of the estate. The plan provided that property of the estate vested in the trustee until the case was closed or otherwise disposed of....