A standing chapter 13 trustee in Idaho twice appealed the denial of her fees because the cases were dismissed before plan confirmation. She won both times, once in the Bankruptcy Appellate Panel in July and now in district court.
In a 2/1 nonprecedential opinion, the Ninth Circuit Bankruptcy Appellate Panel reversed and ruled that the trustee was entitled to her fee. See McCallister v. Harmon (In re Harmon), 20-1168, 2021 BL 276666, 2021 Bankr Lexis 1960, 2021 WL 3087744 (B.A.P. 9th Cir. July 20, 2021). To read ABI’s report, click here.
Courts around the country are split; there is no authority from a circuit court, and the facts are always the same: A chapter 13 case is dismissed before plan confirmation, and the bankruptcy court must decide whether the standing trustee is entitled to her or his fee.
In the case on appeal to Chief District Judge David C. Nye of Boise, Idaho, the bankruptcy court had decided that the statutes were ambiguous and concluded that a chapter 13 trustee is paid only if a plan is confirmed. See In re Evans, 615 B.R. 290 (Bankr. D. Idaho Feb. 13, 2020). To read ABI’s report, click here.
Judge Nye reversed on February 8. His 15-page opinion takes a refreshingly different approach to answering the question.
The Pertinent 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.
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.
No Statutory Ambiguity
Judge Nye saw no ambiguity in Section 586(e). He looked at the statute word by word.
The first pertinent phrase, “shall collect,” Judge Nye said, “conveys something final. There is no condition or exception — collect it and its yours.” Collectors, he said, “are not in the business of returning payments.” When Congress wants a collection to be conditional or reversible, it says so.
Judge Nye said that the second phrase, “‘from all payments’ [,] . . . does not limit the percentage fees to those taken from payments received after confirmation. Section 586(e)(2), by itself, does not express any exception to collecting the percentage fee.”
The third phrase is “under plans.” Judge Nye said that the “statute places no limitations or exceptions on which plans are subject to the percentage fee. This generalization of ‘plans’ includes confirmed, not yet confirmed, and denied plans. If there is a plan, there is also a percentage fee.”
The fourth phrase is “serves as the standing trustee.” Judge Nye noted that the trustee serves before plan confirmation. “She gets the percentage fee as payment for her work as the standing trustee — not only for the work of the standing trustee after plan confirmation,” he said.
Judge Nye concluded that Section 586(e)(2) “is plain and unambiguous.” It has no “further qualifiers, limitations or exceptions.” Because “the fee is already paid to Trustee before confirmation, § 1326(a)(2) does not direct the Trustee to return it if confirmation does not happen.”
Judge Nye found ambiguity “only when you look to § 1226 and see that it directs the standing trustee in chapter 12 bankruptcy cases to retain the percentage fee, which is superfluous if § 586(e)(2) already directs the same. Thus, it is inappropriate to apply the rule against surplusage to alter the plain language of § 586(e)(2).”
Judge Nye said that the debtor and the trustee both had “sensible arguments” about policy. “However,” he said, “the Debtors’ arguments have failed to overcome or cast into doubt the plain language of § 586(e)(2).”
Judge Nye reversed and remanded for the bankruptcy court to enter an order allowing the trustee to retain her fee.
A standing chapter 13 trustee in Idaho twice appealed the denial of her fees because the cases were dismissed before plan confirmation. She won both times, once in the Bankruptcy Appellate Panel in July and now in district court.
In a 2/1 nonprecedential opinion, the Ninth Circuit Bankruptcy Appellate Panel reversed and ruled that the trustee was entitled to her fee. See McCallister v. Harmon (In re Harmon), 20-1168, 2021 BL 276666, 2021 Bankr Lexis 1960, 2021 WL 3087744 (B.A.P. 9th Cir. July 20, 2021).