Jubber v. Bird (In re Bird)

• Decision Date: 30 November 2017
• Docket Number: Bankr. No. 12–17345, Bankr. No. 15–29773,BAP No. UT–16–039, BAP No. UT–16–040
• Citation: 577 B.R. 365
• Parties: IN RE John Thomas BIRD, Debtor. Gary E. Jubber, former Chapter 7 Trustee and Fabian Vancott, Counsel to the former Chapter 7 Trustee, Appellants, v. John Thomas Bird, Appellee. In re Brent David Christensen and Jo–Ann Hall Christensen, Debtors. Gary E. Jubber, former Chapter 7 Trustee and Fabian Vancott, Counsel to the former Chapter 7 Trustee, Appellants, v. Brent David Christensen and Jo–Ann Hall Christensen, Appellees. National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys, Amici Curiae.
• Court: U.S. Bankruptcy Appellate Panel, Tenth Circuit

577 B.R. 365

IN RE John Thomas BIRD, Debtor.

Gary E. Jubber, former Chapter 7 Trustee and Fabian Vancott, Counsel to the former Chapter 7 Trustee, Appellants,

v.John Thomas Bird, Appellee.

In re Brent David Christensen and Jo–Ann Hall Christensen, Debtors.

Gary E. Jubber, former Chapter 7 Trustee and Fabian Vancott, Counsel to the former Chapter 7 Trustee, Appellants,

v.Brent David Christensen and Jo–Ann Hall Christensen, Appellees.

National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys, Amici Curiae.

BAP No. UT–16–039

BAP No. UT–16–040

Bankr. No. 12–17345

Bankr. No. 15–29773

United States Bankruptcy Appellate Panel of the Tenth Circuit.

FILED November 30, 2017

Douglas J. Payne of Fabian VanCott (David P. Billings with him on the briefs), Salt Lake City, Utah for Appellants Gary E. Jubber and Fabian VanCott.

Paul J. Toscano of Salt Lake City, Utah for Appellees John Thomas Bird, Brent David Christensen and Jo–Ann Hall Christensen.

Before MICHAEL, ROMERO, and HALL, Bankruptcy Judges.

Chapter 13

OPINION

HALL, Bankruptcy Judge.

The former Chapter 7 trustee and his counsel appeal the bankruptcy court's Memorandum Decision¹ and related orders² (together, the "Order") entered in two separate cases on the same legal issue with respect to analogous facts. The cases were consolidated on appeal for purposes of briefing and oral argument.³ The Order denies fee applications ("Fee Applications") submitted by the trustee and his counsel for fees and expenses incurred in connection with litigation of claimed homestead exemptions prior to conversion of the cases to Chapter 13.⁴ Although the ultimate issue in these cases relates to professional compensation, the underlying facts give rise to more difficult fundamental concerns such as the tension between the bankruptcy system's fresh start policy and payment of unsecured creditors. Moreover, these cases concern the role of a Chapter 7 trustee in finding the balance between those competing interests through objective performance of the duties and responsibilities assigned to him under the Bankruptcy Code. Finding no error in the bankruptcy court's analysis or ruling, we AFFIRM.

I. FACTUAL AND PROCEDURAL HISTORY⁵

John Bird ("Bird") filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code⁶ on October 19, 2015. On the same day, Brent and Jo–Ann Christensen (the "Christensens") filed their voluntary petition for Chapter 7 relief (Bird and the Christensens collectively, "Debtors"). Debtors are represented by the same bankruptcy counsel, and Gary E. Jubber, an attorney and shareholder in the firm of Fabian VanCott, was appointed Chapter 7 trustee ("Trustee") in both cases. Trustee filed applications to employ attorney Douglas J. Payne and the firm of Fabian VanCott as counsel ("Counsel") in both cases, which were approved by the bankruptcy court.

On Schedule A, Bird listed his residence located at 122 Manilla Drive, Draper, Utah (the "Bird Homestead"), and the Christensens listed their residence located at 6358 Jamestown Ct., Murray, Utah (the "Christensen Homestead") (collectively, the "Homesteads"). Both Homesteads were subject to mortgages and liens well in excess of their scheduled value. The Bird Homestead was scheduled with a value of $240,400, but was encumbered by the following liens: (i) a first mortgage of $133,275.17; (ii) a second mortgage of $20,550.05; (iii) a tax lien in favor of the Internal Revenue Service (the "IRS") of $147,661.33; and (iv) judgment liens totaling $5,383.93. The Christensen Homestead was scheduled with a value of $351,000, but was encumbered by the following liens: (i) a mortgage of $300,000; (ii) a tax lien in favor of the IRS of $115,531.85; (iii) and a tax lien in favor of the Utah State Tax Commission of $1,962.99. On Schedule C, Bird claimed a homestead exemption of $30,000; similarly, the Christensens claimed a homestead exemption of $51,000.

In December 2015, Trustee objected to Debtors' homestead exemptions, arguing there was no equity in the Homesteads to which the claimed exemptions could attach (the "Homestead Objections"). Trustee did not, however, set the matters for hearing. Notwithstanding that the Homestead Objections were based on lack of equity, after Debtors received their Chapter 7 discharges on January 20, 2016, Trustee filed applications to employ a real estate agent to sell the Homesteads. Debtors filed objections thereto, as well as responses to the Homestead Objections. Additionally, Debtors filed motions seeking an order forcing abandonment of the Homesteads by Trustee (the "Motions to Abandon"), arguing that (i) they were of inconsequential value and burdensome to the estates, and (ii) a sale would not be in the interest of creditors or Debtors. All of these matters were then set for a hearing before the bankruptcy court on February 24, 2016.

Just days before the scheduled hearing, Trustee filed stipulations pursuant to § 506(c) that he had entered into with the IRS (the "Stipulations")⁷ and motions to approve the Stipulations (the "Motions to Approve Stipulation").⁸ The Stipulations indicated the IRS' consent to sale of the Homesteads pursuant to § 363(f), and further provided the IRS would, pursuant to § 506(c), "carve-out" $10,000 of the proceeds from sale of each of the Homesteads subject to the IRS' liens "for the benefit of the bankruptcy estate to be distributed in accordance with the priorities of the Bankruptcy Code" (the "Carve–Outs").⁹ Additionally, each Stipulation provided that:

The IRS hereby subordinates any lien or claim it may have to the [Homestead] and the proceeds from the sale of the [Homestead] to the extent of the Carve–Out and hereby waives and releases any and all claims it may have to the Carve–Out other than those claims it may have as a general unsecured creditor of the estate.¹⁰

At the February 24, 2016 hearing, the bankruptcy court overruled the Homestead Objections, allowing Debtors' claimed exemptions. After written orders were subsequently entered on March 1, 2016, Trustee then appealed the orders to the United States District Court for the District of Utah (the "District Court"). In the meantime, the bankruptcy court set the Motions to Abandon for evidentiary hearing on March 23, 2016.

On the same day he appealed the bankruptcy court's orders overruling his Homestead Objections to the District Court, Trustee filed motions to sell the Homesteads (the "Motions to Sell"), soon followed by notices to take Debtors' depositions and applications to employ an appraiser. The Motions to Approve Stipulation and Motions to Sell were scheduled for hearing about a month after the hearing on the Motions to Abandon. The Motions to Sell were premised on sales contracts with a $322,000 purchase price for the Bird Homestead, and a $425,000 purchase price for the Christensen Homestead. Although the sales contract prices for the Homesteads were quite a bit higher than Debtors' scheduled values, they still only exceeded the total encumbrances by a minimum amount—$4,129.52 in Bird's case and $7,505.16 in the Christensens' case.¹¹ Moreover, the proceeds from sale of the Homesteads would be subject to payment of Trustee's and Counsel's fees and expenses, and additional administrative expenses for the six percent realtor commission and one percent closing costs provided for in the sales contract.¹²

Immediately prior to the bankruptcy court's scheduled March 23, 2016 evidentiary hearing on the Motions to Abandon, Debtors filed objections to the Motions to Sell on basically the same grounds as they did with respect to the Motions to Approve Stipulations.¹³ Debtors contended any sale of the Homesteads would leave nothing for their homestead exemptions. At the same time, Debtors filed motions to vacate their Chapter 7 discharges and convert their cases to Chapter 13 (the "Motions to Convert"). Essentially, Debtors were seeking to avoid both Trustee's liquidation of their Homesteads without any payment of their homestead exemptions, and growing legal fees that continued to be incurred in connection with Trustee's appeal of the bankruptcy court's orders overruling the Homestead Objections. The Motions to Convert were set for hearing with the Motions to Approve Stipulations and Motions to Sell on April 20, 2016, and the other matters were continued to that date. Debtors also amended their respective Schedules C to remove the claimed homestead exemptions.¹⁴

At the April 20, 2016 hearing, the bankruptcy court granted the Motions to Convert, and subsequently entered written orders (the "Conversion"). The bankruptcy court's orders granting the Conversion mooted the numerous other pending motions filed by Trustee and Debtors. Trustee's appeals to the District Court of the bankruptcy court's orders overruling his Homestead Objections were also rendered moot when the Motions to Convert were granted and Debtors amended their Schedules C.¹⁵

About two months following the Conversion, Trustee and Counsel filed their Fee Applications, requesting that such professional compensation be allowed as administrative expenses claims under § 503(c) entitled to priority under § 507, meaning they would be required to be paid in full under Debtors' Chapter 13 plans pursuant to § 1322(a)(2).¹⁶ In Bird's case, Trustee sought fees of $3,634, and Counsel sought fees and costs of $31,110.97, for total compensation of $34,744.97. In the Christensens' case, Trustee sought fees of $2,765, and Counsel sought fees and costs of $28,998.63, for total compensation of $31,763.63. The exhibits attached to the Fee Applications readily indicate that Trustee performed about seventy percent of Counsel's work in both cases.¹⁷

Debtors objected to the Fee Applications, and on August 16, 2016, the bankruptcy court conducted a hearing. The bankruptcy court denied the Fee Applications in their entirety on the basis that, under § 330(a)(4)(A)(ii), the fees and costs sought were for services neither necessary to...