In Re Silvus
MEMORANDUM OPINION
These matters came on for hearing on July 8, 2005,
1
upon the Applications for Administrative Expense (“Applications”) filed in the cases of Nathaniel R. and Ina M. Silvus, Donald E. and Rosemarie Jur-gensen, and Joey B. and Lisa A. Sanders by the Former Chapter 7 Trustee in those cases, David R. Ruby (“Ruby”).
2
At the conclusion of the hearings, the Court ordered Ruby to file amended applications setting forth the proposed resolutions in Case Numbers 04-51841-SCS and 04-
I.
PROCEDURAL HISTORY
These four cases have generally the same procedural history, differentiated primarily by the dates on which certain events occurred. Additional factual background for each case is separately set forth below.
Each of the above-captioned cases was originally filed under Chapter 7 of the Bankruptcy Code. After having comparative market analyses performed upon the residential real property in each of the cases, Ruby determined that the residences were undervalued by the respective debtors in amounts ranging from $28,000.00 to $45,000.00, and that the residences, as assets of the individual estates, should be administered and liquidated. Ruby then filed Applications to Employ a Real Estate Agent and Motions to Grant Access to Estate Property in each of the cases.
In response to Ruby’s actions, the respective debtors in each case exercised their absolute right, pursuant to 11 U.S.C. § 706, to convert their cases from ones under Chapter 7 to ones under Chapter 13 of the Bankruptcy Code. Frank J. Santoro (“Santoro”) was appointed Chapter 13 Trustee in each of the cases upon their respective conversions. In all of the cases, Ruby filed objections to confirmation of the respective Chapter 13 plans, and in two of the four cases, to the amended Chapter 13 plans, which were either resolved by the parties or sustained by the Court. Ruby also filed Motions to Reconvert two of the four cases. Applications for Administrative Expenses were filed by Ruby in all of the cases; each Application requests a different amount in compensation and expenses, but are all based upon the same theory of recovery, that of quantum meruit. In short, Ruby argues that, but for his diligence and aggressiveness pre-conversion, each of the cases would have been a “no asset” case, and thus, that general unsecured creditors would have received no distribution from the bankruptcy estate. According to Ruby, his diligent and aggressive actions led him to uncover equity in the properties, and “forced the Debtors to convert their case to a Chapter 13 case to meet their responsibilities to their creditors through a Chapter 13 plan.” See Motion for Allowance and Payment of Administrative Priority Expense Claim by David R. Ruby, filed March 25, 2005, Case No. 04-51612-SCS, Docket Entry No. 68. The remainder of Ruby’s arguments in support of his Applications is discussed in more detail in Section III.
II.
FINDINGS OF FACT
A.
Nathaniel R. & Ina M. Silvus, Case Number 0Jp-51612~SCS
Nathaniel R. and Ina M. Silvus filed under Chapter 7 of the Bankruptcy Code
After the conversion, on October 25, 2004, Ruby filed a proof of claim in the Silvuses’ case, asserting an administrative priority claim of $3,511.57. That amount was itemized as $1,903.50 for “Quantum meruit value of services provided by Trustee;” $108.07 for expenses; and $1,500.00 for “Quantum meruit value of services provided by real estate agent.” The Silvuses objected to Ruby’s claim, asserting that Ruby was not entitled to file a claim because, as the Former Chapter 7 Trustee, he was not a creditor of the debtor as defined in Section 101 of the Bankruptcy Code. The objection to Ruby’s claim was resolved by the parties, and an order was entered on March 14, 2005, which provided that Ruby’s claim was thereby withdrawn. 3 That order also permitted Ruby to file an application for the payment of administrative exрenses.
In the interim, Ruby objected to the confirmation of both the original and amended Chapter 13 plans; both objections were resolved by the parties. Also in the interim, Ruby filed an Objection to Dismissal and Motion to Reconvert the Silvuses’ case in response to an order that was entered settling the objection by the Chapter 13 Trustee to the Silvuses’ Chapter 13 plan. That order provided, in part, that if the Silvuses failed to timely file a modified Chapter 13 plan, the Chapter 13 Trustee could submit an order dismissing the Silvuses’ case without notice or further opportunity for a hearing. The Objection to Dismissal and Motion to Reconvert was later withdrawn by Ruby, per an order entered on April 26, 2005. The Silvuses’ Chapter 13 plan was confirmed by an order of this Court entered July 8, 2005.
An additional issue arose during the course of the Silvus case prior to confirmation, that of proper categorization of their debt. More particularly, the debtors originally scheduled their debts as held solely by joint creditors. The debtors filed modified schedules on March 15, 2005, to clarify that only a small amount (approximately $3,000.00) of their total unsecured debt consisted of joint debt.
Ruby filed his Application for Administrative Expense in the Silvus case on March 25, 2005. In his Application, Ruby asserts that Mr. and Mrs. Silvus undervalued their residential real property in their bankruptcy schedules by valuing the property at $110,200.00. Ruby claims that, “based upon a comparative market analysis and personal inspection of the Property conducted by the Former Trustee’s Court-approved, experienced local real estate agent, Evelyn Wilby of Reliance Realty, Inc., the Property has been valued at $149,900.00.”
See
Motion for Allowancе and Payment of Administrative Priority Expense Claim by David R. Ruby, filed
Counsel for Mr. and Mrs. Silvus made an oral objection at the May 13, 2005, hearing, asserting that she did not agree that quantum meruit was the correct method by which to measure any compensation that Ruby might be entitled to receive. The Court heard testimony from Ruby at that hearing 5 and admitted into evidence a Statement of the Trustee’s Services. The Court also heard arguments from the parties. The Court continued the matter to June 10, 2005, for the Court to give its oral ruling after having the opportunity to review the evidence and the Sil-vuses’ objection.
At the hearing on June 10, 2005, the Court noted that the Chapter 13 plan in the case had not been confirmed. Upon inquiry, counsel for the Chapter 13 Trustee stated that outstanding issues existed as to whether the liquidation analysis set forth in 11 U.S.C. § 1325(a)(4) would be satisfied as well as whether the debtors would be objecting to any unsecured claims. Thus, the Court continued the matter to the July 8, 2005, to be heard with the hearings on the Applications in the Jurgensen and Sanders cases.
B.
Donald E. & Rosemarie Jurgensen, Case Number Oi-51841-SCS
Donald E. and Rosemarie Jurgensen filed under Chapter 7 of the Bankruptcy Code on July 1, 2004. David R. Ruby was appointed Chapter 7 Trustee. On October 6, 2004, Ruby requested that the Clerk of the Bankruptcy Court send a notice to all creditors and parties in interest that there may be assets available for distribution in the Jurgensens’ case. On October 7, 2004, Ruby filed an Application to Employ Evelyn Wilby as Real Estate Agent and Motion to Grant Access to Estate Property. Before an order could be entered regarding that application and motion, the Jur-gensens converted their case to one under Chapter 13 on October 13, 2004.
Ruby filed an objection to the confirmation of the Jurgensens’ original Chapter 13 plan as well as a Motion to Reconvert the Jurgensens’ case to one under Chapter 7, both of which were later settled by the parties. The Jurgensens filed a modified Chapter 13 plan, which was confirmed by the Court by an order entered on February 16, 2005.
Ruby filed his initial proof of claim for administrative expenses on November 8, 2004, in which he asserted an administrative priority claim of $3,028.34, itemized as: $1,438.50 for “Quantum meruit value of services provided by Trustee”; $89.84 for “Trustee Expenses”; and $1,500.00 for “Quantum meruit value of services provid
C.
Joey B. & Lisa A. Sanders, Case Number 04-5154-9-SCS
Joey B. and Lisa A. Sanders filed under Chapter 7 of the Bankruptcy Code on May 26, 2004. David R. Ruby was appointed Chaрter 7 Trustee. On August 5, 2004, Ruby requested that the Clerk of the Bankruptcy Court send a notice to all creditors and parties in interest that there may be assets available for distribution in the Sanderses’ case. On August 6, 2004, Ruby filed an Application to Employ Evelyn Wilby as Real Estate Agent and Motion to Grant Access to Estate Property. The Sanderses contested neither the application regarding the employment of the real estate agent nor the motion to permit the real estate agent to have access to their property, and an order was entered on August 18, 2004, granting both the application and motion.
Prior to that order being entered, however, the Sanderses filed a Motion to Convert their case to one under Chapter 13. That motion contained several deficiencies, however, and the case was not converted until the deficiencies were corrected. The order granting the amended Motion to Convert was entered on August 30, 2004.
Following the conversion and the filing by the debtors of their Chapter 13 plan, Ruby filed an objection to the confirmation of that plan. The objection was sustained by the Court at a hearing held on January 14, 2005. Ruby also objected to the Sanders modified Chapter 13 plan; that objection was later settled by the parties. In the interim, Ruby objected to the Sanders-es’ claim of exemptions. Ruby had filed an objection to the debtors’ exemptions prior to the conversion of the case, which was mooted by the conversion. The objection to exemptions filed by Ruby in the converted case was also settled by the parties.
Ruby filed his initial proof of claim requesting administrative expenses on Octоber 1, 2004, in which he asserted an administrative priority claim of $2,992.25, itemized as: $1,387.50 for “Quantum meru-it value of services provided by Trustee”; $104.75 for “Trustee fees”; and $1,500.00 for “Quantum meruit value of services provided by real estate agent.”
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His request for fees was reduced to $990.50 (itemized as $937.50 for compensation and $53.00 for reimbursement for expenses), according to his Application for Administrative Expense filed in the Sanders case on June 6, 2005. In the Application, Ruby argues
D.
Steve S. Lee, Case Number 0Í-52108-SCS
Steve S. Lee filed under Chapter 7 of the Bankruptcy Code on July 30, 2004. David R. Ruby was appointed Chapter 7 Trustee. On October 15, 2004, Ruby requested that the Clerk of the Bankruptcy Court send a notice to all creditors and parties in interest that there may be assets available for distribution in the Lee case. Also on October 15, 2004, Ruby filed an Application to Employ Evelyn Wilby as Real Estate Agent and Motion to Grant Access to Estate Property. Lee contested neither the application regarding the employment of the real estate agent nor the motion to permit the real estate agent to have access to his property, and an order was entered on October 27, 2004, granting that application and motion. Lee subsequently converted his case to one under Chapter 13 on November 2, 2004.
Ruby objected to confirmation of the Chapter 13 plan in the Lee case, which was settled by the parties. On April 15, 2005, an order was entered confirming Mr. Lee’s Chapter 13 plan.
Ruby filed his initial proof of claim requesting administrative expenses on December 7, 2004, in which he asserted an administrative priority claim of $2,857.61, itemized as $1,260.00 for “Quantum meruit value of services provided by Trustee;” $97.61 in trustee expenses; and $1,500.00 for “Quantum meruit value of services provided by real estate agent.” 8 His request for fees was reduced to a total of $855.86 (itemized as $810.00 for compensation and $45.86 for reimbursement of expenses), according to his Application for Administrative Expense, which was filed on June 6, 2005. In the Application, Ruby claims that Lee undervalued his residential real property in his bankruptcy schedules by assigning a value of $110,600.00 to that property. Ruby asserts, however, that, according to a comparative market analysis of the property conducted by Evelyn Wilby of Reliance Realty, Inc., the value of the property is $155,000.00. Thus, Ruby argues that Lee undervalued his property, and accordingly understated the equity in that property, by $44,400.00.
III.
ARGUMENTS
Ruby makes identical arguments in each of his Applications for Administrative Expense. Ruby secured comparative market analyses on the properties in each of the cases because he believed that the properties had “significantly higher value” than that listed by the debtors in their bankruptcy schedules. Based upon the comparative market analysis, he determined that the properties should be administered
But for the pre-conversion efforts of the Former Trustee, this case would have been viewed as a no-asset case and general unsecured creditors would not be slated to receive any distribution. The Former Trustee’s diligence and aggressiveness forced the Debtor to convert their case to a Chapter 13 case and to meet their responsibilities to their creditors through a Chapter 13 plan which properly valued the Property.
Ruby goes on to argue that he “performed valuable services benefiting [sic] the estate and general unsecured creditors and believes that he is entitled to quantum meruit compensation for services rendered during the Debtors’ Chapter 7 case and for reimbursement of expenses in connection with those services.” Ruby also argues that he is entitled to administrative priority claim treatment.
Additionally, at the hearing on May 13, 2005, on the Application for Administrative Expense in the Silvus case, Ruby argued that the failure of the debtors to list their residential real property at the proper value had the effect of forcing the work product and due diligence that the debtors should be performing regarding valuing their property onto the Chapter 7 Trustee. To this extent, he argued that counsel for debtors in Chapter 7 cases were taking this approach, in his view, to “hope to get a better deal” for their clients post-conversion. Further, he asserted that he “spent more time than normal” working on the Silvuses’ Chapter 7 case.
Counsel for Mr. and Mrs. Silvus argued at the May 13, 2005, hearing that, in a Chapter 7 case that remained such, the Chapter 7 Trustee would receive funds only if a final report werе filed. Citing an unnamed case, counsel argued that a Chapter 7 Trustee should receive payment in a Chapter 13 case only if the Chapter 7 Trustee performed work that ultimately led to payments to the creditors in the Chapter 13 case, but in no event should the Chapter 7 Trustee receive more compensation than he would have received had the case continued as a Chapter 7 case.
Counsel for the United States Trustee stated at the May 13, 2005, hearing that the United States Trustee supported Ruby’s Application in the Silvus case because, in their view, the balance of the equities supports the payment, particularly in light of the inaccuracies on the debtors’ schedules concerning their joint debts.
At the beginning of the July 8, 2005, hearings, Ruby and Santoro stated that, after negotiations which also involved the Office of the United States Trustee, they had reached a proposed resolution as to the allowed amount of compensation and expenses that Ruby would receive and the basis upon which that compensation would be paid in the Jurgensen and Sanders cases; an agreement was not reached in the Silvus case. Counsel for the United States Trustee stated that, while the United States Trustee supported an award of compensation under the unique circumstances of these cases, she also noted that ultimately, it is the Court’s decision whether this type of compensation is ever appropriate.
The resolution of the Jurgensen and Sanders cases was based upon several factors. The first factor, that of quantum meruit, would be subject to a reasonableness standard. Second, the Chapter 13 Trustee would examine the actual out-of-pocket costs incurred by the Former Chapter 7 Trustee. Finally, the specific circumstances surrounding each case would be examined to determine a balance of the equities as well as the reality of the
At the August 12, 2005, hearing in the Lee case, Ruby reiterated his argument from his Application. He also stated that he had received communication from Mr. Lee’s counsel, who could not attend the hearing due to a scheduling conflict, that he did not object to the payment of compensation and reimbursement of fees to the Former Chapter 7 Trustee. Counsel for the United States Trustee stated that he had no objection to allowing “some” compensation to trustees in situations such as those before the Court. Santoro stated that he supported an award of compensation to Ruby on a quantum meruit basis.
Ruby submitted Supplemental Motions for Allowance and Payment of Administrative Priority Expense Claim (“Supplemental Motions”) in the Jurgensen and Sanders cases on August 1, 2005, and in the Lee case on August 9, 2005. The Supplemental Motions are nearly identical and state that the original Applications contain the resolution reached by Ruby, Santoro, and the Office of the United States Trustee regarding the reduction of his proposed compensation and expenses. Specifically, Ruby notes that the amendment of the expenses sought related to the reduction of fees for his travel time and expenses for mileage related to his conduction of the Section 341 meeting of creditоrs held in each of the cases. Ruby reiterated that he “believes that, but for the pre-conversion efforts of the Former Trustee, the case would have been viewed as a no-asset case and general unsecured creditors would not be slated to receive any distribution.” See Supplement to Motion for Allowance and Payment of Administrative Priority Expense Claim by David R. Ruby, filed August 1, 2005, Case No. 04-51841-SCS, Docket Entry No. 60; Supplement to Motion for Allowance and Payment of Administrative Priority Expense Claim by David R. Ruby, filed August 1, 2005, Case No. 04-51549-SCS, Docket Entry No. 67; Supplement to Motion for Allowance and Payment of Administrative Priority Expense Claim by David R. Ruby, filed August 9, 2005, Case No. 04-52108-SCS, Docket Entry No. 60.
Ruby also states in the Supplemental Motion that, as to the Jurgensen case, he originally sought compensation in the amount of $1,438.50 and fees of $89.84. He further states that even if he were paid his reduced fee of $988.50 and expenses of $38.09, general unsecured creditors would still receive a 40% distribution; that distribution would be 42% if Ruby’s claim was not paid.
Regarding the Sanders case, Ruby states that he originally sought compensation of $1,387.50 and fees in the amount of $104.75. He argues that, even if he were paid his reduced fee of $937.50 and reimbursed his fees in the amount of $53.00, general unsecured creditors would still receive an 88% distribution on their claims; that distribution would increase to 91% if his claim was not paid.
In his Supplemental Motion in the Lee case, Ruby states that he originally sought compensation in the amount of $1,260.00 and reimbursement of $97.61 for his expenses. He further states that, if his reduced fees and expenses were paid, general unsecured creditors would still receive a 71% distribution. General unsecured creditors would receive 73% if Ruby’s claim were not paid.
IV.
CONCLUSIONS OF LAW
Before addressing the issue of whether Ruby is entitled to an award of fees, it is appropriate for this Court to address its duty to review fee applications. As alluded to by counsel for the United States Trustee, this Court remains obligated to independently review the validity and reasonableness of fee applications regardless of proposed resolutions or the lack of objections. As previously stated by this Court:
The Court’s responsibility in awarding fees is great, as each creditor individually has little reason to object to requested compensation due to the costs incidental to the objection which it would incur compared to the possible amount of recovery from the estate.... [T]he ultimate responsibility lies with the Court.
In re Elder,
No provision of this Title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
11 U.S.C. § 105(a) (2004).
See also In re Busy Beaver Bldg. Ctrs., Inc.,
In a similar vein, the Fourth Circuit has held, in the context of approving compensation for debtor’s counsel, that Section 329 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedure 2017 “ ‘furnish the court with express power to review payments to attorneys for excessiveness.’ ”
Burd v. Walters (In re
Walters),
Section 503 permits the payment of administrative expenses, as a cost of the administration of the bankruptcy estate, to trustees or other professionals within the bounds of Section 330. 11 U.S.C. § 503(b)(2). Section 330 provides that a trustee may be awarded “reasonable compensation for actual, necessary services rendered ... and reimbursement for actual, necessary expenses.” Id. §§ 330(a)(l)(A)-(B). In determining reasonable compensation, the Bankruptcy Code provides the following list of guiding factors:
[T]he court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including' — •
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the administration of, or beneficial at the time at which the service was rendered toward the completion of, a case under this title;
(D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; and
(E) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than cases under this title.
Id. §§ 330(A)-(E).
The amount of compensation that a trustee may receive is not without limitation, however. Section 326 expressly limits the amount of compensation a trustee may receive in a case; those amounts differ dependеnt upon the Chapter of the case. In a Chapter 7 case, a trustee’s compensation cannot exceed:
25 percent on the first $5,000 or less, 10 percent on any amount in excess of $5,000 but not in excess of $50,000, 5 percent on any amount in excess of $50,000 but not in excess of $1,000,000, and reasonable compensation not to exceed 3 percent of such moneys in excess of $1,000,000, upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debt- or, but including holders of secured claims.
Id. § 326(a). The compensation of a Chapter 13 Trustee is likewise limited by Section 326, which provides for “reasonable compensation ... payable after the trustee renders such services, not to exceed five percent upon all payments under the plan.” Id. § 326(b).
The Bankruptcy Code attempts to address the issue of multiple trustees in one bankruptcy case: “If more than one person serves as trustee in the case, the ag
Several theories exist regarding whether a former Chapter 7 Trustee in a converted case is entitled to compensation when he has made no distribution to the creditors, including that оf quantum meruit, which is posited by Ruby as the basis for his recovery of compensation and expenses. Other theories include the “multiple” or “composite” trustee theory; the theory that the plain language of Section 326(a) precludes such an award; the theory that the Chapter 13 case should be treated as separate and distinct from the Chapter 7 case; the “constructive disbursement” theory; and the theory that fees may be awarded pursuant to Section 105 of the Bankruptcy Code.
A.
“Multiple” or “Composite” Trustee Theory
The case of
In re Rodriguez,
Instead, the court in
Rodriguez
interpreted the final phrase of Section 326(a) as referring to a generic, “composite” trustee and to an aggregate of the distributions made by any trustee at any point during the administration of the case.
Id.
at 915. Thus, the total aggregate compensation that a Chapter 7 Trustee could receive would be limited by the cap set forth in Section 326(a) as applied to the aggregate disbursements made by any trustee that served in the case.
Id.
at 915-16. The court concluded that, because the case had been converted and both the Chapter 7 and Chapter 13 Trustees had served during the pendency of the case, Section 326(c) should be triggered to limit the ultimate compensation that the former Chapter 7 Trustee could receive.
Id.
at 914-15 (citing
In re Arius,
Subsection (c) provides a limitation not found in current law. Even if more than one trustee serves in the case, the maximum fee payable to all trustees does not change. For example, if an interim trustee is appointed and an elected trustee replaces him, the combined total of the fees payable to the interim trustee and the permanent trustee may not exceed the amоunt specified in this section. Under current law, very often a receiver receives a full fee and a subsequent trustee also receives a full fee. The resultant “double-dipping,” especially in the cases in which the receiver and the trustee are the same individual, is detrimental to the interest of the creditors, and needlessly increases the cost of administering bankruptcy estates.
Id. at 914 fn. 1 (citing H.R.Rep. No. 95-595, at 327-28, reprinted in 1977 U.S.C.C.A.N. 5963, 6283-84; S.Rep. No. 95-989, at 38, reprinted in 1978 U.S.C.C.A.N. 5787, 5824).
The court expressly rejected the quantum meruit argument. While acknowledging that Section 330 of the Bankruptcy Code essentially mandated a quantum me-ruit approach to compensation of trustees by virtue of the “reasonableness” component included in that section, the court concluded that the statutory cap contained in Section 326 could not be disregarded.
Id.
at 914 (citing
In re Moore,
[W]e must recognize the explicit efforts of Congress to place a cap on the administrative expenses to be born by a bankruptcy estate as compensation for services by the various trustees. This Court cannot accept the proposition that it can ignore the explicit language of section 326 under the rubric of allowing fees on a quantum meruit basis.
Id.
Finally, the theory that the Chapter 13 case should be treated as separate and distinct from the Chapter 7 case was also rejected in
Rodriguez. Id.
at 915 (citing
Gill v. Wittenburg (In re Fin. Corp. of Am.),
B.
Strict Interpretation of Section 326
As the court in
Rodriguez
pointed out, several courts have precluded a former Chapter 7 Trustee from recovering compensation in converted cases based upon a strict interpretation of the language in Section 326(a). Courts that strictly interpret Section 326(a) have concluded that a former Chapter 7 Trustee must have either disbursed or turned over monies in order to be eligible to receive compensation in a converted case.
In re Fischer,
Being a chapter 7 trustee is a difficult and risky business. While the trustee is entitled to a statutory part of the filing fee, currently $60.00, that amount rarely compensates the trustee for the time spent on the case. Trustees can only hope that by achieving certain efficiencies by way of volume and by making a substantial fee in an occasional case, that the work of a trustee will be profitable. One of the risks that trustees take is that even if there are nonexempt assets in the case, that the debtor will convert the case to chapter 13 or obtain dismissal of the case short of final administration. This is one of those cases.
Id.
Also adopting this theory was the court in
In re Murphy,
The court in
In re Celano,
No. CIV.A. 01-310,
The plain language approach to interpreting Section 326(a) was also addressed in
In re Meadows,
No. 7-97-02526,
Finally, the court in Meadows addressed those cases in which either a strict application of Sections 326 and 330 had been eschewed or some other argument had been advanced to find that compensating a Chapter 7 Trustee is proper, stating that those decisions all sought to compensate a Chapter 7 Trustee for their diligent work in generating dividends from estate property, regardless of intervening events that may have prevented disbursement. Id. at *2. Despite the fact that “[ajdequate compensation in each case would promote the goal of ensuring diligent attention to all cases,” the court concluded that, “notwithstanding this court’s conviction that neither equity nor the best interest of the administration of the Bankruptcy Code are served by denying [the trustee] compensation under § 326(a), the decision of Congress, as reflected in its statutory language, must be applied. Therefore ... the court holds that [the trustee] is not entitled to receive statutory compensation under 11 U.S.C. § 326(a).” Id. at *3.
C.
Separate and Distinct Cases Theory
A third theory that has been advanced is to treat the Chapter 13 case as separate and distinct from the Chapter 7 case. By taking this apрroach, the courts hold, the limitation on trustee fees, and correspondingly the aggregation of fees if more than one person serves as trustee, is not triggered if a case converts. In
In re Yale
[T]he duties of a Trustee are different in a case under Chapter 11 than those of a Trustee in a case under Chapter 1.... Each Trustee has expended necessary time and performed his or her fiduciary functions and accounts for their stewardship and should be entitled to compensation for such services under § 326(a) without reference to the other.
Id. at 305.
The case of
Gill v. Wittenburg (In re Fin. Corp. of Am.),
D.
Constructive Disbursement Theory
The “constructive disbursement” theory imputes the distributions made by the
In determining that the Section 326(a) cap did not apply, the
Hages
court cited several problems that would result were that section to apply. First, the court notes that the more value added to the estate by the Chapter 7 Trustee, the less compensation he would recеive post-conversion.
Id.
at 795-96. Second, the court points to an inconsistent result between converted cases where more than one person serves as a trustee, in which the cap would apply, versus those converted cases where the same person is appointed as trustee, in which the cap would not apply, which it interprets would be the result if the
Rodriguez
court’s reasoning were applied.
Id.
at 796 (citing
In re Rodriguez,
Instead, the
Hages
court reads the phrase “trustee in the case” in Section 326(c) as referring not to the case as a whole, but to the “case under chapter 7” (or Chapter 11, 12, or 13). Reading the statute in this manner led the court to conclude that Section 326(c) is no longer applicable after a case converts because the limitations apply only if more than one person serves as a trustee when the bankruptcy case is under a particular Chapter of the code.
Id.
at 796 (citations omitted). In support of this conclusion,
Hages
cites to Sections 326, 330, and 331 to demonstrate that Congress set forth precise formulas and guidelines for awarding compensation to trustees, and given the context of these provisions, “it is highly unlikely that Congress intended the capricious result” of limiting a former Chapter 7 Trustee’s compensation at the expense of the compensation due the Chapter 13 Trustee.
Id.
at 796-97. Finally, citing
Gill v. Wittenburg (In re Fin. Corp. of Am.),
E.
Compensation Based Upon Section 105
Another theory that favors compensation of former Chapter 7 Trustees is found
Judge Jaroslovsky placed an equal amount of emphasis on the argument that equitable concerns favored compensating the former Chapter 7 Trustees, who, the court found, completed their jobs “diligently and effectively.”
In re Owens,
F.
Quantum Meruit Theory
Still other bankruptcy courts have relied upon the theory of quantum meruit in finding that compensation to a former Chapter 7 Trustee is not precluded in cases that are not fully administered. These courts, finding that Section 326 fails to address compensating formеr Chapter 7 Trustees, have reasoned that quantum me-ruit provides a basis for compensation if the trustee provided substantial services that benefitted the bankruptcy estate, but that such compensation should be a rare occurrence.
See, e.g., In re Moore,
[T]he chapter 7 trustee should be compensated on a quantum meruit basis in a case that is not fully administered, through no fault of the trustee, where the trustee performs substantial services that result in discovery of assets for the benefit of creditors. Conversely, the court does not envision windfalls for the trustee merely because a debtor converts for reasons unrelated to action by the trustee. We are further convinced that the effect of this decision will be to discourage a debtor’s intentional concealment of assets and encourage a trustee’s diligent discovery of assets.
Id.
at 417. The
Moore
court went on to state that the award of fees to former Chapter 7 Trustees would be only on a case-by-case basis, and that “the burden is on the trustee to establish entitlement to the fee through a detailed description of the services provided. The application should demonstrate a nexus between the trustee’s efforts and the uncovering of assets.”
Id.
In so holding, however, the court in
Moore
did not preclude the application of the percentages set forth in Section 326(a) to determine reasonable compensation for the former Chapter 7 Trustee.
Id.
The
Moore
court cited with approval the case of
In re Berry,
The court in
In re Colburn,
Analysis
Upon consideration of the numerous theories discussed above, this Court concludes the more compelling position is that which precludes awarding compensation based upon the plain language of Section 326(a). This Court finds, as did the courts in Fischer, Woodworth, Murphy, Celano, and Meadows, that Congress has spoken clearly in Section 326(a), and thus, it would be inappropriate for this Court to look beyond the bounds of the statute to formulate a basis upon which to award Ruby compensation.
Our analysis begins, as it necessarily must, with the statutory language of Section 326. It is a well-settled principle that “ ‘unless there is some ambiguity in the language of a statute, a court’s analysis must end with the statute’s plain language.’ ”
Hillman v. Internal Revenue Serv.,
[A] court is obliged to apply the Plain Meaning Rule unless the party contending otherwise can demonstrate that the result would be contrary to that intended by Congress. Requiring a demonstration that the plain meaning of a statute is at odds with the intentions of its drafters is a more stringent mandate than requiring a showing that the statute’s literal application is unreasonable in light of bankruptcy policy.
RCI Tech. Corp. v. Sunterra Corp. (In re Sunterra),
The second exception to the Plain Meaning Rule is triggered “ ‘when literal application of the statutory language at issue results in an outcome that can truly be characterized as absurd, i.e., that is so gross as to shock the general moral or common sense.’ ”
In re Sunterra,
In
Sunterra,
the Fourth Circuit considered,
inter alia,
the proper interpretation of Section 365 of the Bankruptcy Code and whether the word “or” should be construed in the disjunctive or as the conjunctive “and.”
Id.
at 262 and fn. 8. The Court found that, contrary to Sunterra’s argument, reading Section 365(c) literally would not produce an absurd result as it would not render other provisions of Section 365 inoperative, nor would it create an irreconcilable conflict with itself or neighboring statutes.
Id.
at 267. The Court also found that a literal reading of the statute would be consistent with the general bankruptcy policy constructed by Congress. In making the latter finding, the court explained that “if it is plausible that Congress intended the result compelled by the Plain Meaning Rule, we must reject an assertion that such an application is аb
Those courts which turn to the legislative history of Section 326 for support of their theories fare no better when the Plain Meaning Rule is applied. As stated in this Circuit, “legislative history suggesting an interpretation contrary to a statute’s plan meaning is not necessarily sufficient to override the Plain Meaning Rule.... [Cjourts are not free to replace a statute’s plain meaning with ‘unenacted legislative intent.’ ”
Id.
at 270 (citing
Sigmon Coal,
In applying the principles outlined in
Sunterra
and the cases cited therein, this Court concludes that the Plain Meaning Rule should apply to its interpretation of Section 326. In this Court’s view, the language of Section 326(a) is clear and unambiguous: that reasonable compensation to a Chapter 7 Trustee is to be computed based “upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.” It is undisputed that Ruby did not make any distributions or turn over any money in any of the four above-captioned cases. Thus, without any disbursements or money turned over to any parties in interest, there can be no calculation of compensation.
See In re Celano,
No. CIV.A. 01-310,
This Court also finds that neither of the enumerated exceptions to the Plain Meaning Rule apply in the instant matter. First, the result does not place Section 326(a) demonstrably at odds with the intention of the drafters. It creates no irreconcilable conflict with itself or with neighboring statutes. In fact, the contrary appears true, that any interpretation other than an application of the plain meaning would place Section 326(a) in conflict with itself and with neighboring statutes. Were former Chapter 7 Trustees allowed to recover compensation in this instance, it is conceivable that former Chapter 13 Trustees could, in the future, profess a like entitlement to a percentage of the funds that a Chapter 7 Trustee gathers and distributes after a case is converted from a Chapter 13 case to a Chapter 7 case. Such claim would clearly be in contravention to Section 326(b), which plainly allows only a Chapter 13 Trustee to recover only a percentage of all Chapter 13 plan payments. While the issue posed in this hypothetical is not before the Court, it does add further support to the Court’s conclusion that Congress sought, by the plain language of Section 326(a), to likewise limit Chapter 7 Trustees’ compensation based upon the distributions they make in a case.
Further, the result of interpreting Section 326(a) using the Plain Meaning
Additionally, as the courts in Celano and Meadows explain, Congress is the proper venue in which to seek a remedy to any problem with the result of applying statutory language. Such principle has been recently addressed by the Fourth Circuit: “As the Supreme Court has repeatedly emphasized, ... Congress is the policymaker — not the courts. [P]ut simply, the modification of a statutory provision to achieve a preferable policy outcome is a task reserved to Congress.” Id. at 269 (citations omitted). Congress was fully aware that bankruptcy cases may be converted, either voluntarily or upon the motion of a party in interest by virtue of the numerous provisions in the Code addressing conversions. Further, Congress was doubtlessly aware of the absolute right of conversion it elected to confer upon Chapter 7 debtors pursuant to Section 706(a). Thus, Congress could have stated, with regard to the disbursement language in Section 326(a), that a Chapter 7 Trustee’s compensation would be based “upon the actual disbursement by the Chapter 7 Trustee, or, in a case which has been converted, those disbursements made by the trustee in the converted case” or other language to this effect. Congress, however, did not include such language, and this Court will not read such language into the statute. If Congress desires that Chapter 7 Trustees be compensated in a circumstance where a case is converted prior to any trustee disbursements, then Congress is well-positioned to enact such a change.
The Court does not find persuasive the language in
In re Rodriguez,
which turned to the legislative history of Section 326 to support its decision to award compensation to Chapter 7 Trustees. The
Rodriguez
court cited to legislative history that discussed payments to interim trustees (those trustees who serve prior to the election of a permanent trustee), as opposed to trustees that subsequently serve following a conversion.
See In re Rodriguez,
In addition to the legal bases cited above, the Court also finds that certain policy reasons also support the preclusion of compensation for former Chapter 7 Trustees in these circumstances. The first of those policy reasons is based upon the fact that the debtors have a one-time absolute right to convert their case. Section 706 of the Bankruptcy Code provides that: “The debtor may convert a case under this chapter to a case under chapter 11, 12, or
Second, this Court finds that a Chapter 7 Trustee is statutorily charged to undertake his or her duties during the administration of a case regardless of an expectation of compensation. Section 704 provides, among other things, that the trustee
shall
“collect and reduce to money the property of the estate for which such trustee serves, and close such estate as expeditiously as is compatible with the best interests of the parties in interest,” and “investigate the financial affairs of the debtor.” 11 U.S.C. §§ 704(1), (4). The statutory, and thus mandatory, nature of the duties supports the notion that Chapter 7 Trustees should not expect compensation for performing them except in accordance with the provisions of the Bankruptcy Code. The court in the
Fischer
case also alluded to this policy reasoning in its discussion regarding the work of the trustee being a “difficult and risky business.”
In re Fischer,
For the same reasons that Chapter 7 Trustees should not expect compensation except in accordance with the express provisions of the Bankruptcy Code, the quantum meruit argument also fails. While awarding compensation under the theory of quantum meruit may encourage diligence on the part of the Chapter 7 Trustees, this Court finds that such remedy is not applicable to the instant cases.
Quantum meruit is an equitable doctrine that is “premised on the notion that one who benefits from the labor of another should not be unjustly enriched.”
Raymond, Colesar, Glaspy & Huss, P.C. v. Allied Capital Corp.,
The instant cases do not fit into the traditional quantum meruit framework, as no contract, implied or otherwise, exists. While Ruby’s efforts may well have been valuable to these four bankruptcy estates in terms of a greater recovery being had by the creditors, Chapter 7 Trustees, as addressed above, are statutorily bound to perform those duties. Even if the Court were to ignore this fact, however, quantum meruit cases, in addition to being cases based upon a contract, are also based upon an expectation of payment, which, as this Court discussed above, should not exist on the part of the Chapter 7 Trustee. Even if the Former Chapter 7 Trustee had an expectation of payment, such was not reasonable given the duties of the trustee set forth in the statutory scheme and the language in Section 326(a), which, as this Court has found, plainly states that compensation will be awarded only if the Chapter 7 Trustee makes disbursements. Like the court in
Rodriguez,
this Court also views Section 330 as mandating essentially a quantum meruit approach to trustee compensation.
In re Rodriguez,
Some courts that permit compensation on a quantum meruit basis have done so when the trustee has uncovered undisclosed assets, acknowledging the extraordinary circumstances that must exist to support an award of compensation.
See, e.g., In re Moore,
Next, despite a different view point as to the outcome, this Court agrees with the analysis in
Rodriguez
with regard to rejecting the “separate and distinct case” theory.
See In re Rodriguez,
Further, the application of Section 105(a) must be exercised with caution.
See Finney v. Smith (In re
Finney),
While the equitable powers emanating from § 105(a) are quite important in the general bankruptcy scheme, and while such powers may encourage courts to be innovative, and even original, these equitable powers are not a license for a court to disregard the clear language and meaning of the bankruptcy statutes and rules.
Mabey,
y.
SUMMARY
This Court’s admiration and professional respect for the Chapter 7 Trustees empaneled in the Eastern District of Virginia is both substantial and long-standing. As such, the assertion by a Chapter 7 Trustee that his efforts in a case subsequently converted to a proceeding under Chapter 13 of the Bankruptcy Code merit compensation must receive the full attention and consideration of this Court. It is not without substantial remorse and trepidation that this Court must answer the Chapter 7 Trustee’s plea in the negative. However, as this Court has concluded in other bankruptcy contexts, the Court must found its decision not upon its own notions of “sympathy” or “fairness” but on the express provisions of the Bankruptcy Code.
See Ferraro v. Ballard,
Nos. 00-71225-S, 00-7041-S,
A separate order will issue.
The Clerk shall deliver copies of this Memorandum Opinion to David R. Ruby, Former Chapter 7 Trustee; Frank J. San-toro, Chapter 13 Trustee; Richard G. Poinsett, Counsel for Debtors Nathaniel R. and Ina M. Silvus, and for Debtors Joey B. and Lisa A. Sanders; Michael C. Bruno, Counsel for Debtors Donald E. and Rosemarie Jurgensen; Michael J. Heath, Counsel for Debtor Steve S. Lee; and Robert Van Arsdale, Office of the United States Trustee.
Notes
. The initial hearing in the case of Nathaniel R. and Ina M. Silvus, Case Number 04-51612-SCS, was held on May 13, 2005. At that hearing, counsel for the debtors made an oral objection to the Application. The Court also heard testimony from David R. Ruby, the Former Chapter 7 Trustee, and admitted into evidence a Statement of the Trustee’s Services. In addition, the Court heard arguments from the parties. The Court determined that it was appropriate to continue the hearing for the Court to review the evidence. Accordingly, the hearing was continued to June 10, 2005, for the Court to give its oral ruling. At the hearing on June 10, 2005, the Court noted that the Chapter 13 plan in the case had not been confirmed. According to counsel for the Chapter 13 Trustee, outstanding issues remained as to whether 11 U.S.C. § 1325(a)(4) would be satisfied as well as whether the debtors would be objecting to any unsecured claims. Thus, the Court continued the matter to the July 8, 2005, to be heard with similar applications in the Jurgen-sen and Sanders cases.
. At the hearing on July 8, 2005, the Court also held a hearing on the Application for Administrative Expense filed in the case of Robert W. and Ashiya Lloyd, Case Number 04-51763-SCS. The Court ordered Ruby to file an amended application setting forth the proposed resolution in that case, as well as the factual basis upon which Ruby believed his services had benefitted the Lloyd estate. The Court took the Lloyd case under advisement along with the Silvus, Jurgensen, and Sanders cases. On August 1, 2005, Ruby filed a Motion to Withdraw Claim, in which he stated that he had received information from the Chapter 13 Trustee indicating that the general unsecured creditors would receive only a small distribution in the Lloyd case. Ruby went on to state that “in light of the Debtors’ and their counsel's cooperation in the сase, the Former Trustee believes that his claim as set forth in the Motion and Amended Proof of Claim should be withdrawn.” Motion to Withdraw Claim by David R. Ruby, filed August 1, 2005, Case No. 04-51763-SCS, Docket Entry No. 59. The Court entered an order, which had been endorsed by Ruby, by counsel for the Lloyds, by the Chapter 13 Trustee, and by counsel for the Office of the United States Trustee, on August 9, 2005. Thus, given the withdrawal of the claim by the Former Chapter 7 Trustee, the issue as to that case is rendered moot.
. The Court notes that Ruby has not filed a subsequent or amended proof of claim in the Silvus case.
. At the May 13, 2005, counsel for the United States Trustee stated that the United States Trustee had requested a reduction in the amount sought in the Application. Both the United States Trustee and Ruby agreed upon the reduced amount currently sought.
. Ruby's testimony at the May 13, 2005, hearing essentially restated the information contained regarding the procedural history of the case and other information already within the Court's records.
. Ruby amended his proof of claim in the Jurgensen case on June 6, 2005, and now asserts a claim in the amount of $1,026.59, which is the amount sought in his Application for Administrative Expense in that case.
. Ruby amended his proof of claim in the Sanders case on June 6, 2005, and now asserts a claim in the amount of $990.50, which is the amount sought in his Application for Administrative Expense in that case.
. Ruby amended his proof of claim in the Lee case twice. The first amended proof of claim was filed on March 8, 2005, in which Ruby asserted an administrative claim of $1,357.61 (itemized as $1,260.00 for "Quantum meruit value of services provided by Trustee” and $97.61 in trustee expenses). The second amended proof of claim was filed on June 6, 2005, and now asserts a claim in the amount of $855.86, which is the amount sоught in his Application for Administrative Expense in the Lee case.
. According to this Court's review, there are at least eleven Applications for Administrative Expenses currently pending before it in the Norfolk and Newport News divisions, including the cases that are the subject of this opinion.
. Subsections (a) and (b) of Section 1112 both include language referring to the conversion of "a case under this chapter to a case under chapter 7 of this title.” 11 U.S.C. §§ 1112(a)-(b).
. This Court notes that the Westlaw versions of both
Ferris and Owens
bear the legend that the opinions "ha[ve] no value as precedent and [are] not intended for publication.” The court in
In re Hages,
which also cites to the
Ferris
decision, notes that it contacted Judge Jaroslovsky, who confirmed that the legend on
Ferris
was incorrect and was to be removed; thus, the case could be cited.
In re Hages,
. The Court would be less than candid if it did not indicate its view that the sheer number of converted cases in which the Chapter 7 Trustee seeks quantum meruit compensation illustrates the wisdom of Congress to provide for a simply applied measure in determining compensation. While it is doubtless that basing compensation on actual disbursements may from time to time result in a trustee in a converted case being uncompensated for his
. Section 348(a) provides:
Conversion of a case from a case under one chapter of this title to a case under another chapter of this title constitutes an order for relief under the chapter to which the casе is converted, but, except as provided in subsections (b) and (c) of this section, does not effect a change in the date of the filing of the petition, the commencement of the case, or the order for relief.
. The Supreme Court considered a similar argument in the bankruptcy context in
Hartford Undeiwriters Insurance Co. v. Union Planters Bank, N.A.,
. In a recent article, Bankruptcy Judge Ahart of the Central District of California expressed his view that bankruptcy judges have "scant perogative to invoke inherent powers ... and no general equitable power.” Alan M. Ahart, The Limited Scope of Implied Powers of a Bankmptcy Judge: A Statutory Court of Bankruptcy, Not a Court of Equity, 79 Am. Bankr. L.J. 1, 1 (2005). Judge Ahart reasoned that the Bankruptcy Court is not a court of equity, and thus, a bankruptcy judge is prohibited from overriding bankruptcy law on equitable grounds. Further, bankruptcy judges should refrain from invoking equitable doctrine unless doing so is authorized by a specific statutory provision or other applicable, non-bankruptcy law. Id. at 32-33. Thus, according to Judge Ahart, Section 105(a) may be invoked only if a Bankruptcy Court is called upon to decide an issue under non-bankruptcy law where the proceeding cannot be characterized as carrying out the provisions of the Bankruptcy Code, or where the Bankruptcy Code so provides. Id. at 6.