511 B.R. 909
Bankr. E.D. Wis.2014Background
- Two Chapter 13 cases (Ward and Simpson) were dismissed on the trustee’s motions for failure to make pre-confirmation plan payments under 11 U.S.C. § 1326(a)(1).
- Debtors’ counsel (Credit Solutions, S.C.) filed fee applications seeking allowance of attorneys’ fees as administrative expenses to be paid from funds the trustee then held; those applications were not decided before dismissal.
- The bankruptcy court denied the fee applications and later denied motions to reconsider, concluding § 1326(a)(2) and § 349(b)(3) required the trustee to return funds to debtors absent a pre-dismissal allowance or an express § 349 order.
- Counsel appealed the denials of reconsideration and moved under Fed. R. Bankr. P. 8005 for a stay (injunction) preventing the trustee from disbursing the funds pending appeal.
- The court granted the stay: although counsel’s likelihood of success on appeal was slight, the legal question was unsettled and allowing distribution would likely moot any effective appellate relief; holding the funds posed minimal harm to the debtors, trustee, or public.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a bankruptcy court may allow administrative-expense attorneys’ fees and order trustee payment after dismissal | Counsel: a pending fee application allows post-dismissal allowance or the court can exercise ancillary jurisdiction to do so | Trustee/Court: § 349(b)(3) revests estate property on dismissal absent pre-dismissal allowance or express order; post-dismissal allowance is generally impermissible | Court: Question unsettled; likely that post-dismissal allowance to pay trustee-held funds is improper absent pre-dismissal action or explicit § 349 order; counsel’s applications failed on the record |
| Whether a fee application pending at dismissal constitutes "cause" under § 349(b) to prevent revesting | Counsel: pending application can be cause to order that funds not revest | Trustee/Court: cause must be found before dismissal or reflected in dismissal order; cannot be created after the fact without Rule 9024 relief | Court: A pending application may constitute cause in some circumstances, but here dismissal orders contained no such provision and after-the-fact alteration is improper without Rule 9024 grounds |
| Whether counsel’s motions for reconsideration met Rule 59/60 standards | Counsel: court misapplied law; cited post-decision authorities | Trustee/Court: arguments were forfeited/raised too late and did not show manifest error or manifest injustice; fee applications also failed to show benefit to debtors under § 330 | Court: Denial of reconsideration was proper; counsel did not show manifest error or new controlling authority and failed to plead benefit to debtors |
| Whether a stay/injunction should bar trustee disbursement pending appeal | Counsel: disbursement would moot appeal and irreparably harm counsel | Trustee/Debtors: funds should return to debtors; stay harms debtors | Court: Legal issue unsettled and balance of harms favors stay; counsel’s slight chance of success plus risk of mootness justifies stay |
Key Cases Cited
- United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260 (2010) (Rule 60(b) does not provide relief for legal errors that should be appealed)
- Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375 (1994) (limits on ancillary jurisdiction and its proper scope)
- In re Forty-Eight Insulations, Inc., 115 F.3d 1294 (7th Cir. 1997) (stay-pending-appeal evaluated using sliding-scale similar to preliminary injunction standard)
- A & F Enterprises, Inc. II v. IHOP Franchising, LLC, 742 F.3d 763 (7th Cir. 2014) (when legal issue is unsettled, balance of harms governs stay analysis)
- Bordelon v. Chicago School Reform Bd. of Trs., 233 F.3d 524 (7th Cir. 2000) (standard of review and grounds for reconsideration under Rule 59)
- Lugo v. de Jesus Saez (In re de Jesus Saez), 721 F.2d 848 (1st Cir. 1983) (dismissal generally terminates the estate and limits post-dismissal jurisdiction)
- In re 5900 Associates, Inc., 468 F.3d 326 (6th Cir. 2006) (post-dismissal fee review precedents and limits on what may be adjudicated after dismissal)