Tamm v. United Statest-U.s. Tr. (In re Hokulani Square, Inc.)

• Court: U.S. Court of Appeals — Ninth Circuit
• Writing for the Court: KOZINSKI
• Citation: Tamm v. UST (In re Hokulani Square, Inc.), 776 F.3d 1083 (9th Cir. 2015)
• Decision Date: 26 January 2015
• Docket Number: No. 11–60072.,11–60072.
• Parties: In re HOKULANI SQUARE, INC., a Hawaii corporation, Debtor. Bradley R. Tamm, Chapter 7 Trustee, Appellant, v. UST–United States Trustee, Honolulu, Apellee.

776 F.3d 1083

In re HOKULANI SQUARE, INC., a Hawaii corporation, Debtor.Bradley R. Tamm, Chapter 7 Trustee, Appellant,

v.UST–United States Trustee, Honolulu, Apellee.

No. 11–60072.

United States Court of Appeals, Ninth Circuit.

Argued and Submitted Oct. 10, 2013.

Filed Jan. 26, 2015.

Bradley R. Tamm (argued); Lissa D. Shults and Melissa A. Miyashiro, Shults & Tamm, ALC, Honolulu, HI, for Appellant.

Noah M. Schottenstein (argued), Trial Attorney, Ramona Elliott, Deputy Director/General Counsel, P. Matthew Sutko, Associate General Counsel, Executive Office for the United States Trustees, Washington, D.C.; Tiffany Carroll, Acting United States Trustee for Region 15, Curtis B. Ching, Assistant United States Trustee, United States Department of Justice, Office

of the United States Trustee, Honolulu, HI, for Appellee.

Daniel M. Benjamin, Ballard Spahr LLP, San Diego, CA, for Amicus Curiae Carl A. Eklund.

Appeal from the Ninth Circuit Bankruptcy Appellate Panel, Pappas, Dunn, and Jury, Bankruptcy Judges, Presiding. BAP No. 10–1468.

Before: ALEX KOZINSKI, RAYMOND C. FISHER, and PAUL J. WATFORD, Circuit Judges.

OPINION

KOZINSKI, Circuit Judge:

In bankruptcy, it's the trustee's job to manage the estate. Often, this means liquidating all the estate's assets and distributing the proceeds to creditors, shareholders and other interested parties. Some of the proceeds are awarded to the trustee as compensation, which is calculated based on the value of the assets he disburses. We address whether the trustee's compensation may reflect the value of what is known as a “credit bid.”

FACTS

Hokulani Square, Inc., filed for bankruptcy in May 2007. Bradley Tamm was appointed as the chapter 7 trustee. One of Hokulani's principal assets was a set of condominiums that exposed the estate to serious liabilities. Recognizing the risks of owning the condominiums, Tamm moved to auction them off. Two groups of secured creditors, both of which had liens on the condominiums, jointly submitted the winning bid at $1.5 million.

To pay, the secured creditors exercised their right to credit bid under 11 U.S.C. § 363(k). This means that they used the money the estate owed them, rather than cash, in making their bid. In such a transaction, the creditors get the property, and the estate's debt is reduced by the amount of the bid.

Tamm petitioned the bankruptcy court for compensation in the amount of $109,293. He came up with this number by including the $1.5 million credit bid in his calculations. The United States Trustee objected on the ground that including the value of the credit bid was not authorized by 11 U.S.C. § 326(a). Excluding the credit bid would reduce Tamm's fee by approximately $40,000.

The bankruptcy court awarded Tamm the full $109,293, but the Ninth Circuit Bankruptcy Appellate Panel (BAP) reversed. Tamm appeals. We have jurisdiction under 28 U.S.C. § 158(d) and review the BAP's interpretation of section 326(a) de novo. See In re Sasson, 424 F.3d 864, 867 (9th Cir.2005).

DISCUSSION

1. The bankruptcy court has discretion to award a trustee fees up to a cap that is calculated as a percentage of “ all moneys disbursed or turned over in the case by the trustee to parties in interest.” 11 U.S.C. § 326(a) (emphasis added). Because “moneys disbursed or turned over” isn't defined in the Code, it retains its ordinary meaning. See Ransom v. FIA Card Servs., N.A., 562 U.S. 61, 131 S.Ct. 716, 724, 178 L.Ed.2d 603 (2011). There are numerous ways to define “moneys,” ¹ but dictionaries mostly agree that the term refers to a generally accepted medium of exchange. See, e.g., Third New Int'l Dictionary 1458 (2002) (“something generally accepted as a medium of exchange, measure of value, or a means of payment”); Black's Law Dictionary 1158 (10th ed. 2014) (“The medium of exchange authorized or adopted by a government as part of its currency; esp. domestic currency”); Oxford English Dictionary 992 (2d ed.1989) (“[c]urrent coin ... in pieces of portable form as a medium of exchange and measure of value”). It's also clear that “disburse” means to “pay out,” Black's Law Dictionary 561 (10th ed.2014), and “turn over” means to “deliver” or “surrender,” Webster's New Collegiate Dictionary 1262 (8th ed.1977). Taken together, this language seems to say that the trustee may collect fees only on those transactions for which he pays interested parties (in this case, secured creditors) in some form of generally accepted medium of exchange.

In a credit bid transaction, the trustee turns property over to the creditor, and the creditor reduces the amount the estate owes him by the value of his bid. The only thing “disbursed or turned over” by the trustee is the underlying property, in this case, a set of condominiums. However broadly we define “moneys,” the term can't be expansive enough to encompass real estate, which is about as far from a “medium of exchange” as one can get. See, e.g., Ping Cheng, et al., Illiquidity and Portfolio Risk of Thinly Traded Assets, 36 J. Portfolio Mgmt. 126, 126 (2010) (categorizing real estate as a highly illiquid asset). Congress elected to restrict the trustee's maximum compensation using the narrow term “moneys,” as opposed to a broader term such as “property” or “assets,” and we must “assume that the legislative purpose is expressed by the ordinary meaning of the words used.” INS v. Phinpathya, 464 U.S. 183, 189, 104 S.Ct. 584, 78 L.Ed.2d 401 (1984) (internal quotation marks omitted).

The statute's legislative history confirms this view. A report of the House Judiciary Committee says that section 326(a) covers “the situation where the trustee liquidates property subject to a lien and distributes the proceeds.” H.R.Rep. No. 95–595, at 327 (1977), 1978 U.S.C.C.A.N. 5963. The report is careful to note that section 326(a) “does not cover cases in which the trustee simply turns over the property to the secured creditor, nor where the trustee abandons the property and the secured creditor is permitted to foreclose.” Id. This passage suggests that Congress considered the possibility of paying trustees for turning over property to creditors, and worded section 326(a) so as to preclude it.

Looking at the same legislative history, two of our sister circuits have also concluded that section 326(a) permits no pay for property disbursements in satisfaction for creditors' claims. The Fifth Circuit decided that section 326(a) doesn't allow a trustee to collect on the value of property given to creditors in exchange for a reduction in the amount they're owed. In re England, 153 F.3d 232, 235 (5th Cir.1998). It reasoned that “[t]he plain language of § 326(a) indicates that the statute caps a trustee's compensation based upon only the moneys disbursed, without any allowance for the property disbursed.” Id. And the Third Circuit held that “Congress did not intend to include credit bids in the trustee's compensation” because in a credit bid transaction “the secured creditor receives [ ] property in satisfaction of its secured claim.” In re Lan Assocs. XI, L.P., 192 F.3d 109, 117–18 (3d Cir.1999).

2. Tamm and amicus ask us to interpret section 326(a) to align with bankruptcy practice prior to the 1978 Bankruptcy Act. While it's true that we typically “will not read the Bankruptcy Code to erode past bankruptcy practice,” Pa. Dept. of Pub. Welfare v. Davenport, 495 U.S. 552, 563, 110 S.Ct. 2126, 109 L.Ed.2d 588 (1990), even the most well-established pre-Code practice can't overcome language of the Code that “leaves no room for clarification,” Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 11, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000). And, as noted, section 326(a) leaves little to the imagination. Given Congress's clear statement that trustees may be compensated for nothing but “moneys disbursed,” historical practice is beside the point.

Even if we did seek guidance from past practices, it would make no difference. Tamm and amicus cite a few pre-Code lower court cases that allowed fees on transactions where the trustee returned property to a lienholder in satisfaction of a secured claim. Interpreting section 326(a)' s predecessor, these cases reasoned that the trustee constructively disbursed moneys to creditors, even if he never paid the creditors in cash. See, e.g., In re Columbia Cotton Oil & Provision Corp., 210 F. 824, 827–28 (4th Cir.1913). But a mere handful of lower court decisions, without more, does not demonstrate a “widely accepted and established” practice. See Hartford Underwriters, 530 U.S. at 9–10, 120 S.Ct. 1942 (internal quotation marks omitted) (concluding that “a number of lower court cases” were insufficient to show a clearly established pre-Code practice); cf. In re Bonner Mall P'ship, 2 F.3d 899, 912 (9th Cir.1993) (deferring to a pre-Code practice that “several Supreme Court cases had mentioned” and where there was direct evidence Congress had knowledge of the practice).

Furthermore, Tamm and amicus overlook pre-Code cases concluding that section 326(a)'s predecessor was “plain and unambiguous” in providing that “it is the moneys disbursed or turned over, and not property, that forms the basis for” the trustee's fee. In re Morris Bros., 8 F.2d 629, 630 (D.Or.1925); see also, e.g., In re Brigantine Beach Hotel Corp., 197 F.2d 296, 299 (3d Cir.1952) (“It is clear that the word ‘moneys' in the clause ‘ ... upon all moneys disbursed or turned over ...’ is not the equivalent of property.”). Considering the sparse and conflicting evidence of any historical practice of compensating trustees for credit bids, we doubt that this was “the type of rule that ... Congress was aware of when enacting the Code.” Hartford Underwriters, 530 U.S. at 10, 120 S.Ct. 1942 (internal quotation marks omitted).

Tamm also contends that our decisions—specifically York Int'l Bldg., Inc. v. Chaney, 527 F.2d 1061 (9th Cir.1975), and Sw. Media, Inc. v. Rau, 708 F.2d 419 (9th Cir.1983)—permit trustee compensation where no money...