Schollett, In re, 90-8049

• Decision Date: 25 November 1992
• Docket Number: No. 90-8049,90-8049
• Citation: 980 F.2d 639
• Parties: , 27 Collier Bankr.Cas.2d 1528, 23 Bankr.Ct.Dec. 1188, Bankr. L. Rep. P 75,026 In re Andrew Wyman SCHOLLETT and Laura Lynn Schollett, Debtors. Sharon A. DUNIVENT, Trustee, Appellant, v. Andrew Wyman SCHOLLETT and Laura Lynn Schollett, Appellees, United States of America, Amicus Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 639

980 F.2d 639

61 USLW 2350, 27 Collier Bankr.Cas.2d 1528,

23 Bankr.Ct.Dec. 1188, Bankr. L. Rep. P 75,026

In re Andrew Wyman SCHOLLETT and Laura Lynn Schollett, Debtors Sharon A. DUNIVENT, Trustee, Appellant, v. Andrew Wyman SCHOLLETT and Laura Lynn Schollett, Appellees United States of America, Amicus Curiae.

No. 90-8049.

United States Court of Appeals Tenth Circuit.

Nov. 25, 1992.

Russell M. Blood of Warnick & Blood, P.C., Casper, Wyo., for appellant.

Georg Jensen, Cheyenne, Wyo., for appellees.

Bruce G. Forrest, Attorney, Appellate Staff, Civil Div., Dept. of Justice, Washington, D.C. (Stuart M. Gerson, Asst. Atty. Gen., and William Kanter, Atty., Appellate Staff, Civil Div., Dept. of Justice, Washington, D.C., and John E. Logan, Gen. Counsel, and Martha L. Davis, Attorney, Executive Office for U.S. Trustees, Dept. of Justice, Washington, D.C., with him on the brief), for amicus curiae U.S.

Before SEYMOUR, HOLLOWAY and BARRETT, Circuit Judges.

HOLLOWAY, Circuit Judge.

This is an appeal from the district court's reversal of the bankruptcy court's order denying a request by the debtors, Andrew Wyman Schollett and Laura Lynn Schollett, for a reduction in fees owed to the standing bankruptcy trustee. The Scholletts argue that in light of the particular facts of their case the trustee's standing fee of ten percent was unreasonably high. The bankruptcy court refused to change the amount. On appeal, however, the district court agreed with the Scholletts' arguments and reduced the fee to 5%. Appeal was timely taken to this court by the trustee.

I

The debtors Andrew and Lynn Schollett filed a Chapter 12 (family farm) reorganization plan with the bankruptcy court for the District of Wyoming on April 15, 1987. After a series of negotiations with creditors the bankruptcy court confirmed the Scholletts' plan on June 26, 1987. Under the plan the Scholletts were required to make five annual payments of approximately $30,000. This money would be paid to the trustee, Sharon Dunivent, who would in turn pay the appropriate amounts to the various creditors.

The Scholletts made their first payment to the trustee on August 4, 1988. Dunivent, however, refused to remit any of the funds to the creditors because the Scholletts had failed to pay her an additional ten percent for trustees fees. One of the Scholletts' creditors, John Deere Co., then filed a motion seeking authority to repossess and to foreclose on the Scholletts. On September 23, 1988 the bankruptcy court issued an order confirming the Scholletts' obligation to pay to Ms. Dunivent a fee of ten percent for each payment owed under the plan "not withstanding any language in the plan or order to the contrary."

On appeal to the district court, the Scholletts argued that the trustee's duties in their case involved nothing more than writing seven checks and would take at most fifteen hours over five years. For this effort Dunivent would receive $15,000, an amount the Scholletts consider clearly unreasonable under the circumstances. Dunivent argued below, as she does here, that the statutory scheme which set up the United States Trustee System removed authority from the courts to review trustees' fees. The district court disagreed.

The judge's order said that under the repealed provisions of 11 U.S.C. § 1202(c), the bankruptcy court was charged with appointing trustees and determining their compensation. Before passage of the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub.L. No. 99-554, 100 Stat. 3088 (1986), most courts held that a reviewing court retained power to review the trustee's fee on request in individual cases and make downward adjustments where warranted. While 11 U.S.C. § 326(b) and related sections such as § 586 make it clear that the bankruptcy court no longer has authority to appoint standing trustees, the district judge said he could not ascertain that any of the amended provisions, including § 326(b), prevent judicial review of trustee compensation. He pointed out that the normal rule of statutory construction is that if Congress intends for legislation to change the interpretation of a judicially created concept, it makes that intent specific, and that the Supreme Court had stated it has followed this rule with particular care in construing the scope of bankruptcy codifications, citing Midatlantic National Bank of New Jersey v. Dep't of Environmental Protection, 474 U.S. 494, 501, 106 S.Ct. 755, 759, 88 L.Ed.2d 859 (1986). Thus the district judge concluded that the power to review trustees' fees for reasonableness had not been stripped from the courts. I R.Doc. 10, at 4-6.

The district judge found that the fixed fee of ten percent here was excessive and reduced it to five percent, and remanded the case to the bankruptcy court for entry of an order adjusting the standing trustee's fees in accordance with the district court's order. This appeal followed. ¹

II

The question whether a court has the power to review an Executive Branch determination of the fees of a standing bankruptcy trustee is one of law. Accordingly we review this decision of the district court de novo. United States v. Maher, 919 F.2d 1482, 1485 (10th Cir.1990). More specifically, the central question presented by this appeal is whether the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, which generally took the power to appoint trustees away from the bankruptcy courts and placed it in the hands of the United States Trustee, also removed the power of the court to review the fees set by the Attorney General for standing bankruptcy trustees. Before addressing this question some history of the statute is necessary as background.

Prior to the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 92 Stat. 2549 (1978), the bankruptcy courts handled both the judicial and the administrative functions in bankruptcy. Thus in addition to their traditional judicial function of ruling on disputed matters in adversary proceedings, the bankruptcy courts organized and scheduled meetings of creditors, set up creditors' committees, appointed trustees, and set trustees' fees. In Congress' view this lack of separation of functions eroded public confidence in bankruptcy proceedings and burdened judges with unnecessary administrative obligations. H.Rep. No. 764, 99th Cong. 2nd Sess. 17-18, reprinted in 1986 U.S.C.C.A.N. 5227, 5230. Congress therefore implemented a pilot program in a limited number of judicial districts which transferred the administrative bankruptcy functions to United States Trustees appointed by the Attorney General.

Included among a United States Trustee's functions was the task of appointing individuals to serve as private trustees in Chapter 7 and Chapter 13 proceedings and, where appropriate, of appointing a standing trustee for all Chapter 13 cases in a given district. Id. The pilot program was generally considered a success and the 1986 Act therefore provided for its phase-in nationwide. Id. at 19. The Act also created a new bankruptcy chapter for family farmers, Chapter 12, which was closely modeled on the existing Chapter 13. 5 L. King, Collier on Bankruptcy p 1200.01 (1988). It was under this chapter that the Scholletts filed for protection.

Under the Act certain districts were immediately certified by the Attorney General as ready for the implementation of the United States Trustee System. Other districts, such as the District of Wyoming, were not. Therefore the responsibility for determining whether to appoint a standing trustee for the newly created Chapter 12 class of bankruptcies in uncertified districts fell to the district courts. Pub.L. No. 99-554, 100 Stat. 3119, § 302(c)(3)(B)(i) and (ii). On November 11, 1986, the day the Act took effect, the bankruptcy judge appointed Sharon Dunivent as standing trustee for all Chapter 12 cases in Wyoming. He also provided that she would, subject to certain statutory limitations, receive a fee not to exceed ten percent of the payments made under confirmed plans. It was under this system that the Scholletts' case was filed.

After the Scholletts' plan was confirmed, the Attorney General certified Wyoming for participation in the United States Trustee System. Once the District was certified, the duty of determining the need for a standing trustee shifted to the United States Trustee. The United States Trustee agreed with the bankruptcy judge's earlier conclusion that a standing trustee was necessary in Wyoming. Sharon Dunivent was promptly reappointed as standing trustee on August 31, 1987, with a fee of ten percent as fixed by the Attorney General. The first payment under the Scholletts' plan was made one year later. ²

III

The appellant, Trustee Dunivent, argues, inter alia, that 11 U.S.C. § 326(b) prohibits review by the courts of compensation properly set for a standing trustee in a Chapter 12 proceeding. The amicus says the standing trustee's fee is properly set by the Attorney General after consultation with the United States Trustee under 28 U.S.C. § 586(e) and should not be subjected to post-hoc adjustment by the courts based on perceived equities in a particular case.

The appellees maintain that this case involves the inherent ability of the court to administer and control cases before it; that the amendments to the Bankruptcy Code creating Chapter 12 reflected awareness of the plight of the family farmer; that the amendments made some preferences in treatment of family farmers; that it would be totally against legislative intent to afford family farmers small advantages over other debtors, and at the same time to add a lump-sum, nondiscretionary surcharge of ten percent to their debt service requirements; and that increased trustee compensation could risk the destruction of an otherwise viable opportunity for reorganization, citing In re Kline, 94 B.R. 557 (Bankr.N.D.Ind.1988). We disagree and accordingly reverse the district...