In re James
MEMORANDUM OPINION GRANTING DEBTOR’S MOTION TO COMPEL CHAPTER 13 TRUSTEE TO RELEASE FUNDS TO ATTORNEY (Docket No. 187)
Debtor Michael C. James (the “Debtor”) has moved to reopen his chapter 13 case and to compel standing chapter 13 trustee Tom Vaughn (the “Trustee”) to release funds in payment to the Debtor’s attorney Patience R. Clark (“Clark”).
Jurisdiction
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b) and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. The matter is a core proceeding under 28 U.S.C. § 157(b)(2)(A). Venue is properly placed in this Court pursuant to 28 U.S.C. § 1409(a).
Facts and Background
The pertinent facts, drawn from the parties’ pleadings, the exhibits attached thereto, and the Court’s docket, are not in dispute. On February 14, 2008, the Circuit Court of Cook County (the “State Court”) entered judgment in favor of Father & Sons Contractors, Inc. and against the Debtor in the amount of $19,761.98. The judgment was subsequently assigned to Brendan Financial, Inc. (“Brendan Financial”).
About five months later, on July 1, 2008, the Debtor filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code.
Fraught with numerous objections to confirmation and motions to dismiss, as well as two associated adversary proceedings, the Debtor’s highly contested case went on for more than four years without a plan ever being confirmed. During the pendency of the case, the Debtor made payments to the Trustee, pursuant to section 1326(a)(1),
On September 27, 2012, the case was dismissed on the Trustee’s motion for failure to make plan payments, and both adversary proceedings were dismissed and subsequently closed. Despite the dismissal of the Debtor’s bankruptcy case, the Court entered an order, also on September 27, 2012, granting the application for compensation filed by Clark for fees of $3,500 and expenses of $274.
On October 2, 2012, before the Trustee could release any funds, Brendan Financial caused the issuance of a third-party citation to discover assets from the State Court directed to both the Debtor and “Thomas Vaughn, as Trustee” (the “Citation”).
On December 13, 2012, the Debtor filed the instant motion to reopen the chapter 13 case and to compel the Trustee to release funds he was holding to pay the attorney’s fees.
Discussion
The Trustee argues that the supplementary proceedings in State Court were initiated against him in violation of the Barton doctrine and are, therefore, improper. The Barton doctrine takes its name from an 1881 decision of the United States Supreme Court, which held that “before suit is brought against a receiver[,] leave of the court by which he was appointed must be
The Seventh Circuit adopted the Barton doctrine in the context of bankruptcy, concluding that the “leave-to-sue” requirement is equally applicable to a bankruptcy trustee. In re Linton,
In this matter, Brendan Financial did not obtain leave of this Court before it initiated supplementary proceedings in the State Court by causing the Citation to be issued to the Trustee. Failure to follow the established procedure requiring prior permission from the Bankruptcy Court is grounds in itself to overrule the Creditors’ objection and grant the Debtor’s motion to compel the Trustee to release funds to Clark.
In addition, the Debtor’s motion must be granted under the substantive law controlling this matter. Because the Citation was not properly issued, the Illinois statute upon which the Creditors rely is not applicable. Rather, section 1326(a)(2) governs this matter, and that statute mandates the disbursement of funds to Clark.
Section 1326(a)(2) provides that payments made to the Trustee under a proposed plan
shall be retained by the trustee until confirmation or denial of confirmation. If a plan is confirmed, the trustee shall distribute any such payment in accordance with the plan as soon as is practicable. If a plan is not confirmed, the trustee shall return any such payments not previously paid and not yet due and owing to creditors ... to the debtor, after deducting any unpaid claim allowed under section 503(b).
11 U.S.C. § 1326(a)(2) (emphasis added). Section 503(b) provides, in turn, for the allowance of administrative expenses, which include compensation and reimbursement awarded under section 330(a). 11 U.S.C. § 503(b)(2). Pursuant to section 330(a), “the court may allow reasonable compensation to [a chapter 13] debtor’s attorney for representing the interests of the debtor[.]” 11 U.S.C. § 330(a)(4)(B).
The plain, unequivocal language of section 1326(a)(2) requires the Trustee to release the funds to Clark. As set out above, the Debtor’s case was dismissed without a plan being confirmed, and during the pendency of the case, the Debtor made plan payments of more than $11,000 to the Trustee. According to the express mandate of section 1326(a)(2), if a plan is not confirmed, the Trustee “shall” return to the Debtor the payments he made under the proposed plan “after deducting any unpaid claim allowed under section
One of the primary purposes of bankruptcy law is to provide for a distribution of the Debtor’s estate that is as fair as possible to all creditors. See Weitzman,
While section 1326(a)(2) governs this matter because the Citation was not properly issued, the provision would control even if the Creditors had obtained leave from this Court before issuing the Citation and the Illinois statute were applicable. The relevant state statute, 735 ILCS 5/2-1402, provides in pertinent part:
A judgment creditor ... is entitled to prosecute supplementary proceedings for the purposes of examining the judgment debtor or any other person to discover assets or income of the debtor not exempt from the enforcement of the judgment!.] ... A supplementary proceeding shall be commenced by the service of a citation issued by the clerk.
735 ILCS 5/2-1402(a) (West 2011 Supp.). According to the statute, “[t]he citation may prohibit the party to whom it is directed from making or allowing any transfer or other disposition of, or interfering with, any property not exempt from the enforcement of a judgment therefrom ... and from paying over or otherwise disposing of any moneys not so exempt which are due or to become due to the judgment debtor, until the further order of the court or the termination of the proceeding, whichever occurs first.” 735 ILCS 5/2-1402(f)(1).
Section 1326(a)(2) mandates a return of funds to the Debtor, after the deduction of administrative claims. The state citation statute, on the other hand, prohibits the transfer of the same funds in order to satisfy the judgment debt of particular creditors. Thus, the Illinois statute directly conflicts with section 1326(a)(2), and it is not possible to harmonize the two. See Kohler Co. v. Moen Inc.,
Therefore, if the state statute were applicable to this matter, a determination as to which provision controls would be required. Under the United States Constitution, federal law is “the supreme Law of the Land.” U.S. Const. art. VI, cl. 2. “[W]hen state law is contrary to federal bankruptcy law, the bankruptcy provisions prevail.” Ocasek v. Manville Corp. Asbestos Disease Comp. Fund,
The plain language of the statute requires the Trustee to release the funds at issue to Clark. Accordingly, the Creditors’ objection is overruled, the Debtor’s
Conclusion
For the foregoing reasons, the Debtor’s motion to compel the Trustee to release funds to the Debtor’s attorney is granted. A separate order will be entered consistent with this Memorandum Opinion.
Notes
. The Debtor's motion is styled as "Motion to Reopen Case and Motion to Compel Chapter 13 Trustee to Release Attorney Funds.” Pursuant to Local Bankruptcy Rule 9013-1 (B), "[e]very motion must be titled as one of the events contained in the court’s CM/ECF system[.]" L.R. 90134(B) (emphasis added). The Debtor here seeks to both reopen his chapter 13 case and compel the Trustee to release funds to Clark. Although the motion technically violates the Local Rule by including two events, it is clear that the Debtor filed the motion to reopen in order to compel the release of funds. As discussed infra, the case, having never been closed, need not be reopened. Thus, the Court will treat the Debt- or’s motion as a request solely to compel the Trustee to release the funds to Clark.
. Unless otherwise noted, all statutory references are to the Bankruptcy Code, 11 U.S.C. §§ 101 to 1532.
. Section 1326(a) provides, in pertinent part, that "the debtor shall commence making payments not later than 30 days after the date of the filing of the plan or the order for relief, whichever is earlier[.]” 11 U.S.C. § 1326(a)(1).
. According to Clark, "[v]ery shortly” after entry of the Court's order granting her application for compensation, the Trustee disbursed a check in payment of that compensation, but it was sent in error to Clark's former employer. Clark contacted the Trustee's office immediately. Although the person to whom she spoke acknowledged the mistake and agreed to redirect the funds to the correct address, the Citation had apparently been filed before the error could be rectified.
.A careful review of the docket reveals that, although the Debtor’s bankruptcy case was dismissed on September 27, 2012, the case was never closed. Case closing is distinct from case dismissal. Under section 350(a), the court shall close a case "[a]fter an estate is fully administered and the court has discharged the trustee!)]” 11 U.S.C. § 350(a). A case that has been dismissed but not administratively closed may not be reopened under section 350(b). In re Aztec Supply Corp.,