McCallister v. Harmon (In re Harmon), BAP No. ID-20-1168-LSG
| Decision Date | 20 July 2021 |
| Docket Number | BAP No. ID-20-1168-LSG |
| Parties | In re: DOUGLAS JEROME HARMON; CHRISTINE RENNA HARMON, Debtors. KATHLEEN A. MCCALLISTER, Chapter 13 Trustee, Appellant, v. DOUGLAS JEROME HARMON; CHRISTINE RENNA HARMON, Appellees. |
| Court | U.S. Bankruptcy Appellate Panel, Ninth Circuit |
NOT FOR PUBLICATION
MEMORANDUM*Appeal from the United States Bankruptcy Court for the District of Idaho
Before: LAFFERTY, SPRAKER, and GAN, Bankruptcy Judges.
In this appeal we are confronted with an issue of first impression in the Ninth Circuit: whether a standing chapter 131 trustee is entitled to her statutory fee upon receipt of each plan payment, or if she must hold her fee pending confirmation, and return it to the debtor if the case is dismissed prior to confirmation.
Chapter 13 trustee Kathleen McCallister ("Trustee") appeals the bankruptcy court's order denying payment of her statutory fee after dismissal of the debtors' case and the court's denial of her motion for reconsideration. The bankruptcy court found an apparent conflict between § 586(e), which directs a standing trustee to collect her statutory fee from all payments made under the plan, and § 1326(a)(2), which requires the trustee to retain plan payments until confirmation and return those payments to the debtor after deducting unpaid administrative claims if the case is dismissed prior to confirmation. Construing the statutes together, the bankruptcy court held that § 586(e) directs the trustee to "collect and hold" the fee, while § 1326(a)(2) directs when and how to disburse payments, including the statutory fee.
Other bankruptcy courts that have addressed this issue have determined that because § 586(e)(2) does not indicate when a trustee must collect the fee, or expressly state what happens if a case is dismissed prior to confirmation, the statute is ambiguous. We find no ambiguity in the language of § 586(e), the specific context in which the language is used, or the broader context of the statute as a whole. The plain language of § 586(e)(2) means that a standing trustee is entitled to the statutory fee upon receipt of every payment under the plan.
Furthermore, the bankruptcy court's ruling that § 586(e) requires a trustee to "collect and hold" the fee is not a reasonable interpretation because neither § 1326(a)—nor any other provision of the Bankruptcy Code—provides for disbursement of the fee. Section 586(e)(2) is the only statute that provides for payment of a standing trustee's fee, and it simply mandates that a trustee "shall collect such percentage fee from all payments received . . . under plans."
We are aware that both § 1194(a)(3) and § 1226(a)(2) expressly provide that a standing trustee may retain the fee upon a preconfirmation dismissal, but we do not apply the negative inference canon or the canon against surplusage to contravene plain language, or where doing so would create its own ambiguity and surplusage. And because § 1326 was enacted prior to § 1194 and § 1226, the weight of any negative inference is greatly reduced.
Section 586(e) establishes a percentage fee which must be collected from all chapter 13 plan payments to compensate standing trustees for administrative tasks which they must perform regardless of whether a plan is confirmed. The statutory fee operates independently of the compensation and priority schemes of the Bankruptcy Code.
We hold that a standing trustee is entitled to collect the statutory fee under § 586(e) upon receipt of each payment under the plan and is not required to disgorge the fee if the case is dismissed prior to confirmation. Accordingly, we VACATE and REMAND for entry of an order consistent with this decision.
Debtors Douglas and Christine Harmon ("Debtors") filed a chapter 13 case in December 2019. They did not confirm a plan, and in April 2020, the bankruptcy court granted their voluntary motion to dismiss the case. After the dismissal, Debtors' counsel filed an application for compensation of $1,839. Trustee filed a response stating that she had funds on hand of $2,178.03 and had no objection to counsel's fee request. No other party objected to the application, and a proposed order was submitted to the court, signed by Debtors' counsel and Trustee. The order, as submitted, provided:
IT IS HEREBY ORDERED that Counsel's request for attorney's fees is hereby approved in the amount of $1839 with a balance due of $1839. Trustee is authorized to pay said fees from funds on hand on the date of dismissal with the balance of the fundson hand to be refunded to the Debtor(s). Said disbursement shall be subject to Trustees [sic] fees.
The bankruptcy court modified the order by striking out the last sentence and adding a note stating: " "3
Trustee timely moved for reconsideration of disallowance of her fee. She argued that Evans was wrongly decided, and she proffered an interpretation of the relevant statutes that required her to be paid her statutory fee regardless of whether a chapter 13 plan was confirmed.
The bankruptcy court denied Trustee's motion without a hearing, issuing a written memorandum decision. In re Harmon, No. 19-01424-TLM, 2020 WL 6037759 (Bankr. D. Idaho June 23, 2020). Trustee timely appealed.
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and 157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
Whether the bankruptcy court erred by holding that Trustee was not entitled to a statutory fee under § 586(e) in a case that was dismissed prior to confirmation.
We review de novo a bankruptcy court's interpretation of the Bankruptcy Code. Reswick v. Reswick (In re Reswick), 446 B.R. 362, 365 (9th Cir. BAP 2011). De novo means review is independent, with no deference given to the bankruptcy court's conclusion. See First Ave. W. Bldg., LLC v. James (In re Onecast Media, Inc.), 439 F.3d 558, 561 (9th Cir. 2006).
Neither this Panel nor the Ninth Circuit Court of Appeals has addressed the question before us. The majority of bankruptcy courts which have confronted this issue have concluded, like Evans, that § 586(e) and § 1326(a) require a standing trustee to "collect and hold" the percentage fee and return it to a debtor if the case is dismissed prior to confirmation. See, e.g. In re Lundy, No. 15-32271, 2017 WL 4404271 (Bankr. N.D. Ohio Sept. 29, 2017); In re Dickens, 513 B.R. 906 (Bankr. E.D. Ark. 2014); In re Acevedo, 497 B.R. 112 (Bankr. D.N.M. 2013); In re Rivera, 268 B.R. 292 (Bankr. D.N.M.2001), aff'd sub nom., Skehen v. Miranda (In re Miranda), 285 B.R. 344 (table), 2001 WL 1538003 (10th Cir. BAP Dec. 4, 2001).
However, we agree with the minority position that the language of § 586(e) unambiguously requires a standing trustee to obtain payment of the percentage fee upon receipt of each plan payment. See Nardello v. Balboa (In re Nardello), 514 B.R. 105 (D.N.J. 2014); In re Soussis, 624 B.R. 559 (Bankr. E.D.N.Y. 2020). The plain language interpretation is confirmed by the context of § 586(e)(2), related fee collection statutes, and the larger statutory scheme of the Bankruptcy Code. And logic dictates that once the trustee collects her fee "from" each payment she receives, the fee is no longer part of the plan payments which must be retained by the trustee under § 1326(a)(2) and disbursed to creditors pursuant to the plan.
Congress enacted § 586 as part of the U.S. Trustee Pilot Program in 1978. See H.R. Rep. No. 95-595, at 1 (1977). The program allowed the United States Trustee ("UST") in certain districts to appoint private standing trustees to oversee and administer chapter 13 cases. See id. at 4. The purpose of the program was to "render the separation of administrative and judicial functions complete" resulting in a "fairer, more equitable and more effective system." Id. at 115. Because of the success of the program, Congress expanded it nationwide in 1986. H.R. Rep. No. 99-764, at 19 (1986).
Section 1302 provides that if the UST has appointed an individual to serve as standing trustee in chapter 13 cases, that individual shall serve as trustee when a chapter 13 case is filed. But if the UST has not appointed a standing trustee, it must appoint one disinterested person to serve as trustee in the case. Regardless of whether a trustee is a standing trustee, or is appointed under § 1302, she must perform the duties required by the Bankruptcy Code, under the supervision of the UST. See § 1302(b); § 586(a)(3). The major distinction between a trustee appointed under § 1302 and a standing trustee is the method of compensation.
A trustee appointed under § 1302 may be awarded by the bankruptcy court reasonable compensation for actual, necessary services and reimbursement for actual, necessary expenses. § 330. Such compensation is an allowed administrative expense under § 503(b)(2) and entitled to priority distribution under § 507(a)(2). Thus, a trustee appointed under § 1302 must be paid from distributions under a confirmed plan, and if a plan is not confirmed, she may deduct her compensation prior to returning plan payments to the debtor. § 1326(a)(2).
In contrast, standing trustees are not compensated under the Bankruptcy Code and their compensation is not subject to adjustment by the bankruptcy court.4 See § 586(e); § 326(b). Under § 586(e)(1), the AttorneyGeneral, after consultation with the UST, fixes the maximum annual compensation for standing trustees and sets a percentage fee not to exceed a statutory limit. Section 586(e)(2) directs the standing trustee to "collect such percentage fee from all payments...
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