In a split decision, the two judges on the Ninth Circuit Bankruptcy Appellate Panel took sides with the minority of courts around the country by ruling in a nonprecedential opinion that a standing chapter 13 trustee is entitled to retain her fee if the case is dismissed before confirmation.
All three judges on the panel offered their opinions. Bankruptcy Judge Gary A. Spraker wrote a concurring opinion to support the majority opinion by Bankruptcy Judge Scott Gan. Bankruptcy Judge William J. Lafferty penned a dissent. The three opinions consume 53 pages.
Combined, the opinions are the best exposé so far on both sides of the question. The opinions are a particularly fine discussion of the plain meaning doctrine, and when or whether it should be the end of the discussion. The opinions on both sides also analyze every conceivable canon of statutory construction applicable to the issue.
Typical Facts
A couple filed a chapter 13 petition in December 2019. Four months later, the court granted their voluntary motion to dismiss. On dismissal, the trustee was holding about $2,200. No one objected to the allowance and payment of the debtors’ counsel fee of some $1,800.
The bankruptcy court struck language in the proposed dismissal order that would have allowed the standing chapter 13 trustee to take her fee from the remaining $400. Instead, the bankruptcy judge ruled in substance that the trustee was not entitled to her fee because the case was dismissed before confirmation.
As authority, the bankruptcy court cited In re Evans, 615 B.R. 290 (Bankr. D. Idaho Feb. 13, 2020), by Chief Bankruptcy Judge Joseph M. Meier of Boise, Idaho. To read ABI’s report on Evans, click here. Evans was appealed, but there is no decision as yet.
Likely more concerned about the precedent than the $400, the chapter 13 trustee appealed and won in a 2/1 decision.
The Dueling Statutes
28 U.S.C. § 586(e) says that a standing trustee “shall collect such percentage fee from all payments . . . under [chapter 13] plans. . . .” [Emphasis added.]
Section 1326(a)(1) requires a chapter 13 debtor to commence making payments to the trustee within 30 days of filing. Subsection (a)(2) provides that payments made by the debtor “shall be retained by the trustee until confirmation or denial of confirmation. . . . If a plan is not confirmed, the trustee shall return any such payments not previously paid . . . to creditors . . . , after deducting any unpaid claim allowed under section 503(b).” The subsection says nothing explicitly about the standing trustee’s fee.
To add further confusion, chapter 12 and Subchapter V of chapter 11 explicitly say what happens when dismissal precedes confirmation. Section 1226(a)(2) specifically allows the trustee to retain the statutory fee if a plan is not confirmed, and Section 1194(a) allows a Subchapter V trustee to be paid if the case is dismissed before confirmation.
What’s to be taken from chapter 13’s failure to say explicitly whether a trustee is paid if the case is dismissed before confirmation?
The Majority Opinion – No Ambiguity – 28 U.S.C. § 586(e) Controls
Judge Gan found no ambiguity in the statutes. He held 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.” He also held that the standing trustee “obtains ownership of her percentage fee” when the debtor makes a payment under the plan.
In addition to what he said was the “common sense” and controlling meaning of “collect,” Judge Gan pointed out how a standing trustee’s compensation is controlled entirely by Section 586(e). The court has no control over the amount or payment via Section 330.
Simply stated, Judge Gan said “that the plain meaning of ‘shall collect such percentage fee’ means that a standing trustee obtains the fee upon receipt of each plan payment.”
Judge Gan reversed and remanded, devoting much of his opinion to explaining why Section 1326(a)(2) was not pertinent.
Concurring, Judge Spraker said that a chapter 13 trustee’s fee is akin to a “user fee,” where “payment does not depend upon the success of the endeavor that generates the fee.” Mirroring Judge Gan and disagreeing with Evans, he said that “the trustee is entitled to her fee as she receives the debtor’s plan payments whether that plan is confirmed or not.”
Judge Spraker said he did not base his conclusion on the idea that a standing chapter 13 trustee should be paid for her services regardless of whether the plan is confirmed. Rather, he agreed with Judge Gan “because I find [his] reasoning more natural and less damaging statutorily to give effect to the plain and ordinary meaning of § 586(e).”
The Dissent
From a “purely policy standpoint,” Judge Lafferty said in his dissent that he would agree with the majority and pay the chapter 13 trustee. However, he gave weight to the different result that Congress has mandated for chapter 12 and Subchapter V cases.
Judge Lafferty said he disagreed “vigorously” with the idea that the conclusion is found in the “‘unambiguous’ language in one provision of what [the majority] believes to be the only relevant statute.”
Judge Lafferty was not inclined to ignore legislative history. The House Report said that the fee is “fixed” by Section 586(e) but is payable under Section 1326(a)(2). Judge Lafferty’s dissent is an admirable survey of theories about when the plain meaning doctrine should or should not be invoked.
Recommendation and Observations
For anyone confronting the issue, the BAP opinion and Evans have everything there is to say.
There likely will be no appeal to the Ninth Circuit from the BAP opinion because the debtor was not motivated to appear on the first level of appeal. With only $400 in the balance, the debtor is not likely to appeal to the circuit.
However, Evans is sub judice in district court. Odds are, there will be an appeal to the circuit regardless of the outcome.
We salute the BAP for making its decision nonprecedential. Although BAP opinion are not binding except in the case on appeal, making the opinion nonprecedential signals to bankruptcy judges throughout the Ninth Circuit that they are at liberty to rule on the issue as they see fit.
In a split decision, the two judges on the Ninth Circuit Bankruptcy Appellate Panel took sides with the minority of courts around the country by ruling in a nonprecedential opinion that a standing chapter 13 trustee is entitled to retain her fee if the case is dismissed before confirmation.
All three judges on the panel offered their opinions. Bankruptcy Judge Gary A. Spraker wrote a concurring opinion to support the majority opinion by Bankruptcy Judge Scott Gan. Bankruptcy Judge William J. Lafferty penned a dissent. The three opinions consume 53 pages.
Combined, the opinions are the best exposé so far on both sides of the question. The opinions are a particularly fine discussion of the plain meaning doctrine, and when or whether it should be the end of the discussion. The opinions on both sides also analyze every conceivable canon of statutory construction applicable to the issue.