In re Soussis

• Citation: 624 B.R. 559
• Decision Date: 12 November 2020
• Docket Number: Case No. 8-19-73686-reg
• Parties: IN RE: Julia F. SOUSSIS, Debtor.
• Court: United States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Eastern District of New York

624 B.R. 559

IN RE: Julia F. SOUSSIS, Debtor.

Case No. 8-19-73686-reg

United States Bankruptcy Court, E.D. New York.

Signed November 12, 2020

Ivan E. Guerrero, Guerrero Law Offices, P.C., Bay Shore, NY, Jeffrey Herzberg, Jeffrey Herzberg, PC, Hauppauge, NY, for Debtor.

Michael J. Macco, Macco Law Group, LLP, Islandia, NY, for Trustee.

MEMORANDUM DECISION DENYING DEBTOR'S MOTION SEEKING DISGORGEMENT OF THE CHAPTER 13 TRUSTEE'S FEES AND REIMBURSEMENT OF ATTORNEY'S FEES

Robert E. Grossman, United States Bankruptcy Judge

Before the Court is a motion ("Motion") by Julia F. Soussis (the "Debtor") seeking an order (1) directing Michael Macco, Esq., the standing Chapter 13 trustee (the "Trustee") to disgorge a portion or all of the statutory fees and expenses he collected in this Chapter 13 case and (2) directing the reimbursement of the Debtor's attorney's fees from the Trustee or the Office of the United States Trustee ("U.S. Trustee") pursuant to the Federal Torts Claims Act ("FTCA"). The Motion is opposed by the Trustee and the U.S. Trustee. The Court had previously granted the Debtor's motion seeking dismissal of her case prior to plan confirmation. The fundamental issue raised by the Debtor is one of first impression within this Circuit. The Court is asked to determine whether a Chapter 13 trustee must, as a matter of law, refund to a debtor any previously collected statutory fees and expenses upon dismissal of a case when the plan has not been confirmed. The relevant statutes that the Court must analyze to render a decision in this matter are 28 U.S.C. § 586 and 11 U.S.C. § 1326.

The Debtor's first request is for entry of an order of the Court directing the Trustee to disgorge the fees he earned in this case. Disgorgement is an equitable remedy which requires the Court to exercise its powers under § 105(a) of the Bankruptcy Code. While the Debtor fails to cite to this provision or to provide the Court with any basis to employ § 105(a), the Court is cognizant that these powers cannot be utilized to overcome statutory language which is contrary to the relief sought. Because the Court has no authority either under statute or case law to fix the fees of the Trustee, which are mandated by statute, the Court cannot use its equitable powers to reduce these fees. Likewise, a request for disgorgement of the entire fee cannot be granted using the Court's equitable powers because there has been no wrongdoing by the Trustee, nor has the Trustee run afoul of an order of this Court. In fact, the Trustee's conduct appears to be consistent with the practice of Chapter 13 trustees in this district and complies with the regulations recommended by the U.S. Trustee.

Recognizing the procedural infirmities of this portion of the Motion, and because this is a case of first impression, the Court has reviewed the Debtor's arguments, affording her the greatest latitude in analyzing what relief is being sought. It is clear as will be discussed herein that disgorgement of the Trustee's fee is not warranted. Section 28 U.S.C. § 586 clearly states that upon collection of each plan payment, the Trustee is entitled to take the portion of the payment corresponding to the Trustee's statutory fee. Once the plan payment is so apportioned, the portion allotted to the Trustee's fee is severed from the portion allotted for distribution to creditors upon confirmation. The percentage fee is the Trustee's to keep, regardless of whether the debtor's plan is confirmed. The language of 11 U.S.C. § 1326 only supports this conclusion as it directs the Trustee to return to the Debtor only payments earmarked for creditors in the event the plan is not confirmed.

This interpretation is consistent with the changes made to the Chapter 13 Trustee program. Enacted in 1978 as a pilot program and implemented on a nationwide basis through the Bankruptcy Judges, U.S. Trustees, and Family Farmer Bankruptcy Act of 1986 ("1986 Amendments"), the U.S. Trustee Program ("Trustee Program") was designed as a self-funding system. In essence, those who file for bankruptcy must pay a user fee to access the privileges and protections the Bankruptcy Code affords. Chapter 13 trustee fees are administrative in nature and support the efficacy of the Trustee Program. To permit debtors to evade payment of these fees solely on the basis of the success of their plans would result in an outcome inconsistent with Congressional intent and would ultimately hinder the abilities of the Trustee Program to fund itself. Thus, this Court finds the Trustee's fee is a user fee, directed by statute, that must be universally paid by all chapter 13 debtors regardless of the outcome of each case.

The Court finds the Debtor's second request for relief under the FTCA is misplaced. The FTCA involves a waiver of sovereign immunity which is expressly limited to government employees. As an administrator, the Trustee owes his duty to the Debtor's estate and not the government. Thus, the Court finds that the Trustee is not a government employee subject to the FTCA. Moreover, even if the Trustee were to be construed as a government employee, the Court lacks subject matter jurisdiction over the Debtor's FTCA claim because the Debtor has failed to comply with the administrative requirements set forth in 28 U.S.C § 2675 prior to bringing suit. As a result, the Debtor cannot yet sue the Trustee or the U.S. Trustee.

For these reasons and the reasons discussed below, the Court denies the Motion in its entirety. Conflicts must not be created where the statutes as written by Congress are otherwise clear. The relevant statutes discussed herein are straightforward in their meaning. Accordingly, the Trustee is entitled to keep his statutorily prescribed fees under 28 U.S.C. § 586 irrespective of confirmation in the Debtor's case and in all chapter 13 cases assigned to this Court going forward.

Procedural History and Facts

The Debtor's residence ("Property") located in Garden City, New York is encumbered by a first mortgage lien currently held by Chase Mortgage Holdings, Inc. ("Bank"). In 2007 the Bank's predecessor in interest commenced a foreclosure action against the Property ("State Court Action"). The Debtor represents that the summons and complaint were not properly served. In the State Court Action, the Debtor failed to file an answer or otherwise respond to the complaint. The state court entered a default judgment against the Debtor in favor of the Bank's predecessor in interest and ultimately a judgment of foreclosure and sale was entered. The Debtor filed an appeal, which was dismissed by the Second Department. JPMorgan Chase Bank, N.A. v. Soussis , 165 A.D.3d 1240, 84 N.Y.S.3d 805 (App. Div. 2nd Dept. 2018). The basis for the dismissal of the Debtor's appeal was that the Debtor had waived any claim that the lower court lacked personal jurisdiction over the Debtor.

On May 20, 2019 ("Petition Date"), the Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code. On the Petition Date, Marianne DeRosa, Esq. was appointed the Chapter 13 trustee. Due to prior filings, the Debtor's case was reassigned from the Hon. Louis A. Scarcella to the Hon. Robert E. Grossman, and on May 21, 2019, the Trustee became the Chapter 13 trustee for this case. On June 18, 2019, the Debtor filed a proposed plan ("Plan") [ECF No. 8]. The Plan provided for 60 monthly payments of $1,000 plus a lump sum payment of $380,000 on September 20, 2019. On August 7, 2019, the Debtor filed a motion to expunge claim No. 3 filed by PHH Mortgage Corporation as servicer for the Bank. [ECF No. 19]. On September 25, 2019, the Debtor filed a First Amended Plan ("Amended Plan") [ECF No. 20] which amended the dollar amount of the monthly payments and provided for a lump sum payment in the amount of $340,000 on or before November 29, 2019. On October 7, 2019, the Debtor filed an amended motion to expunge claim No. 3 [ECF No. 24]. On June 29, 2020, the Debtor filed an application to dismiss the Debtor's case, and on June 30, 2020, an order was entered dismissing the Debtor's case [ECF No. 37]. While the reasons for seeking dismissal of the case are not germane to the outcome of this Memorandum Decision, it appears that the Debtor sought to dismiss her case because of a change made to the New York Real Property Actions and Proceedings Law, effective December 23, 2019, which permits a defendant to raise the defense of lack of standing after a judgment of foreclosure has been entered.¹ Thereafter, the Trustee filed his accounting of receipts and disbursements in the Debtor's case ("Final Report"). The Final Report reflects that the Trustee received $362,100 from the Debtor, and that he returned to the Debtor $341,508. Based on the information in the Final Report, the Trustee retained $20,592 for his statutory fees and expenses. On August 11, 2020, the Debtor filed the Motion [ECF No. 41]. According to the Motion, the Debtor seeks entry of an order directing the Trustee to disgorge the fees he retained in the Debtor's case which were collected prior to any distributions made to creditors. The Debtor also seeks to be reimbursed for attorney's fees she has incurred in this case from either the U.S. Trustee or the Trustee under the FTCA. On September 2, 2020, the U.S. Trustee filed opposition to the Motion [ECF No. 43]. On September 3, the Trustee filed opposition to the Motion [ECF No. 45]. On September 8, the Debtor filed a Reply [ECF No. 46]. A hearing on the Motion was held on September 10, 2020. Thereafter, the matter was marked submitted.

Discussion

The Motion seeks two forms of relief. First, the Debtor seeks entry of an order directing (i) the Trustee to disgorge an unspecified portion of his statutory fees or (ii) the Trustee to disgorge all of his statutory fees received in this case. Second, the Debtor seeks reimbursement for attorney's fees she has incurred from either the Trustee or the U.S. Trustee under the FTCA. The Court shall consider the...