In re Ward
ORDER
Crеdit Solutions, S.C. (“Credit Solutions”), the appellant and sole party in these two separate bankruptcy appeals, served as counsel for the debtors in two separate Chapter 13 actions before Bankruptcy Judge Michael Halfenger. See In re Ward,
Prior to the dismissal of the cases, though, Credit Solutions filed fee applications with the Bankruptcy Court. Id. This presented a strange situation. Generally, the Bankruptcy Court must order that the trustee return all of a debtor’s funds to the debtor whenever a bankruptcy case is dismissed prior to confirmation. See id. (citing 11 U.S.C. § 1326(a)(2); 11 U.S.C. § 349(b)(3)). Predictably, Credit Solutions did not favor this approach because it would place Credit Solutions in a much more tenuous position: receipt of its fees for completed work would hinge entirely on the debtors’ respective decisions to pay or not pay those fees- from the funds returned to them by the trustee. See In re Ward,
Credit Solutions filed those fee applications near “the end of the objection period on the dismissal motions,” meaning that “counsel’s applications were not ripe for decision when the cases were dismissed.” In re Ward,
Thereafter, Judge Halfenger held hearings on the fee applications, ultimately denying them.
Credit Solutions then moved for reconsideration under Federal Rulеs of Civil Procedure 59 and 60 and for a stay of the return of funds pending appeal. In re Ward,
Judge Halfenger denied the reconsideration portion of those motions at a May 27, 2014 hearing.
Though he denied the motions for reconsideration, Judge Halfenger did issue a stay regarding the disbursement of funds. See, e.g., id., at 922. He found that Crеdit Solutions has some chance of prevailing on appeal and that the balance of potential harms weighed in favor of staying disbursement. Id., at 921 (citations omitted).
Credit Solutions appealed both cases, and those appeals are now before the Court. (See, e.g., Case No. 14-CV-882, Docket # 1; Case No. 14-CV-883, Docket # 1). Credit Solutions is the only party in either appeal,
1. STANDARD OF REVIEW
In reviewing this appeal, the Court must first address the standard of review that it must apply. Judge Halfenger identified two procedural irregularities that could potentially affect that standard. See In re Ward,
First, he pointed out that Credit Solutions’ notice of appeal related only to the denials of reconsideration. Id. (citing notices of appeals in bankruptcy cases). That being the situation, these appeals are arguably limited to Judge Halfenger’s denials of reconsideration. See In re Ward,
That is likely the case, here. In Faday-iro, Judge Posner stated that it was likely that Fed. R. Bankr.P. requires an appellant to explicitly list any order being ap
On the other hand, Fadayiro made that statement in dicta and is contrary to other circuits’ law. The firmest guidance on the .topic has come from the Ninth Circuit, which has held that appellants do not need to specifically mention in their notice of appeal every order that they intend to appeal. See, e.g., In re Dudley,
Accordingly, in light of the tenuous nature of Fadayiro’s guidance, which conflicts with the law of other circuits, the Court will address the issues, as though they are not limited to the motions for reconsideration.
Second, Judge Halfenger noted that Credit Solutions waited until it filed its motions for reconsideration to raise any substantive argument on the issue that it asserts on appeal, and, therefore, may have forfeited or waived such argument. In re Ward,
On this point, the Court departs from Judge Halfenger’s analysis. As Judge Halfenger acknowledged, the Seventh Circuit has treated forfeiture of statutory interpretation issues fairly liberally, allowing parties to raise those issues on appeal, even if not previously presented. In re Ward,
For these reasons, the Court finds it best to determine that Credit Solutions did not forfeit or waive its arguments.
Having made these determinations, the Court ultimately concludes that it must review Judge Halfenger’s conclusions of law de novo. See, e.g., In re Berman,
2. ANALYSIS
There is only one issue to determine in this case: whether bankruptcy judges “can consider requests to allow an administrative expense claim after a case is dismissed.” In re Ward,
As Judge Halfenger recognized, there is a split of authority on the issue. Id., at 912-13 (citing In re Garris,
2.1 The Statutory Scheme
Reading the statutes on this issue according to their plain terms, the Court comes away firmly believing that the statutes simply cannot be read in harmony with one another. On one hand — favoring Credit Solutions’ position — is the text of 11 U.S.C. § 1326 and its related statutes. 11 U.S.C. § 1326 provides that, when “a plan is not confirmed, the trustee shall return” the res of the bankruptcy estate “to the debtor, after deducting any unpaid claim allowed under [11 U.S.C. § ]503(b).” 11 U.S.C. § 503(b)(2), in turn, allows for payment of attorneys’ fees if they are found to be allowed administrative expenses under 11 U.S.C. § 330(a)(1)(A). This seems to indicate that the trustee should return the bankruptcy estate to the debtor only after paying attorneys’ fees (as approved under 11 U.S.C. § 330(a)(4)(B)). On the other hand — weighing heavily against Crеdit Solutions’ position — is the text of 11 U.S.C. § 349(b)(3). That statute states that “[ujnless the court, for cause, orders otherwise, a dismissal of a case ... revests the property of the estate in the entity in which such property was vested immediately before the commencement of the case.” 11 U.S.C. § 349(b)(3). In other words, the dismissal itself causes the estate to immediately revest in the pre-bank-ruptcy owner — in this case, the debtor. The trustee would have to convey the estate back immediately, without providing for attorneys’ fees.
Courts have landed all over the map in attempting to construe these phrases.
In re Lewis held that 11 U.S.C. § 1326(a)(2) would apply only in cases where the bankruptcy court denied confirmation but did not dismiss the case (and thus would not apply in cases like In re Lewis or this one, in which the bankruptcy case was dismissed). See
The In re Garris court, after closely considering In re Lewis ‘holding, reached precisely the opposite conclusion. In re Garris,
In re Lewis and In re Garris, however, do have one common trait: both find that the bankruptcy court can consider attor-' neys’ fee petitions post-dismissal. See In re Lewis,
In the end, the Court finds In re Gar-ris ’ approach to be most sound. The Court finds that case’s review of the statutory language to be more persuasive than the reasoning in In re Lewis. 11 U.S.C. § 1326(а)(2) applies, by its plain terms, applies much more closely to this case than 11 U.S.C. § 349(b)(3), which would apply only to the pre-petition estate. In turn, 11 U.S.C. § 1326(a)(2) calls for the trustee to disburse the funds after deducting allowed administrative expenses, such as attorneys’ fees. Because Judge Halfenger did not allow those expenses prior to dismissal, the trustee should have disbursed the funds to the debtor without deducting attorneys’ fees.
This, however, leaves open the question of whether Judge Halfenger could have or should have retained jurisdiction over the issue to determine whether the fees were allowed administrative expenses.
So, the Court still must determine whether Judge Halfenger erred in finding that he could not exercise jurisdiction. Perhaps he did, but — even if so — it was harmless error.
The Court says that “perhaps” Judge Halfenger erred, because the law on retained jurisdiction is unclear. There are four different retained-jurisdiction regimes that the Court has identified:
(1) Ancillary Jurisdiction. There is some general acceptance of the proposition that a bankruptcy court can retain at least ancillary post-dismissal jurisdiction over fee petitions. See, e.g., In re Garris,496 B.R. at 354 (collecting a number of eases allowing ancillary jurisdiction); In re Elias,188 F.3d at 1164 .
(2) Ancillary Jurisdiction only for Reasonableness Determination. This position limits ancillary jurisdiction to determinations of reasonableness, see, e.g., Dery v. Cumberland Cas. & Surety Co.,468 F.3d 326 , 330-31 (6th Cir.2006); Tsafaroff v. Taylor,884 F.2d 478 , 481 (9th Cir.1989); Dahlquist v. First Nat’l Bank in Sioux City,751 F.2d 295 , 298 (8th Cir. [1985]).
(3) Express Grant. Other courts limit jurisdiction further, finding that, absent a decision by the bankruptcy court to retain jurisdiction, the bankruptcy court has no post-dismissal jurisdiction over fee petitions. See, e.g., In re Westgate Nursing Homes, Inc.,518 B.R. 520 [250] (Bankr.W.D.N.Y.2014) (noting that 11 U.S.C. § 349(b) causes the post-dismissal “disappearance” of the bankruptcy estate, leaving no “case or controversy” regarding attorneys’ fees for a court to decide) (citing Iannini v. Winnecour,487 B.R. 434 , 438-39 (W.D.Pa.2012); In re Sweports, Ltd.,511 B.R. 522 , 525 (Bankr. N.D.Ill.2014); In re Garnett,303 B.R. 274 , 278 (E.D.N.Y.2003)).
(4) Party Request. In re Lewis can be viewed as expanding the express-grant regime, allowing retained jurisdiction on the basis of a party request.346 B.R. at 103 (“the Lewis Motion, which was considered at the dismissal hearing, functioned as a request that the court order that the dismissal not result in the automatic revesting of estate property in the Debtor and was denied by separate order,” thus bifurcating the issues, and leaving open the fees issue).
Even if the Court were to adopt the position of the second or third regime, it would not mean that Judge Halfenger erred. Frankly, neither situation applies, here: there was no reasonableness determination left nor did Judge Halfenger expressly grant retained jurisdiction. Meanwhile, the Court finds that the fourth regime is inconsistent with the plain language of the statutes. That is, upon dismissal of the case — absent an express retentiоn of jurisdiction — when there is no bankruptcy estate remaining, 11 U.S.C. § 349(b)(3), and no finding of allowed expenses, 11 U.S.C. § 1326(a)(2), there is simply no question left to resolve and a party request or implicit court action based on that request does not create jurisdiction. See, e.g., In re Westgate Nursing Homes,
That leaves the issue of ancillary jurisdiction. Indeed, if the Court were tо
Finally, the Court points out thаt this is the best outcome in terms of serving the goals of the statutes and swift administration of bankruptcy cases. As to the first point, Judge Halfenger correctly pointed out that “the general purpose of § 349(b) ... is to ‘restore all property rights, as far as practicable, to the positions they occupied at the commencement of a case that was dismissed.’ ” (In re Ward,
3. CONCLUSION
For all of these reasons, the Court is obliged to affirm Judge Halfenger’s deci
Accordingly,
IT IS ORDERED that the decision of the bankruptcy court be and the same is hereby AFFIRMED; and
IT IS FURTHER ORDERED that this appeal be and the same is hereby DISMISSED.
The Clerk of Court is directed to enter judgment accordingly.
Notes
. The Court addresses these two separate appeals'together, because Credit Solutions is the only party in each and the appeals present practically identicаl issues. Judge Halfenger recognized this, and issued a single order addressing motions for reconsideration in the separate bankruptcy cases before him. See In re Ward,
. He held separate hearings in the cases, but reached practically identical conclusions, In re Ward, 511 B.R. at 911-12, so the Court treats them as one.
. Judge Halfenger described the reasons for this denial in a later-issued order, which seems to have expanded upon the reasoning provided at the hеarings. See In re Ward,
. The Court pauses to note that the debtors did not appear or file briefs in these appeals. Perhaps they determined that they did not wish to oppose Credit Solutions’ position (but then why would they not agree to simply pay Credit Solutions out of the reimbursed funds). Perhaps more likely, they were nеver advised of this appeal or its potential impact on them. Credit Solutions is taking a position that may be adverse to the debtors, and may therefore have required withdrawal as counsel. The Court does not rule that is the case — that may be an issue for disciplinary authorities to resolve if there is a dispute — -but the Court would hope that Credit Solutions took proper steps to advise the debtors and shield itself from ethical violations.
. The Court recognizes that Judge Halfenger issued this order after Credit Solutions had filed its notice of appeal, which is unorthodox. Nonetheless, even if the Court were to ignore the order, there is ample evidence in the transcript of Judge Halfenger's hearing that he would not have exercised ancillary jurisdiction (See, e.g., Case No. 14-CV-882, Docket # 1, Ex. 2, 68-69, 73 (internal transcript pages 12-13, 17); Case No. 14-CV-882, Doсket # 1, Ex. 2, 60-61, 65 (internal transcript pages 12-13, 17)).
. And, again, the Court does not necessarily find that to be the case. The case law on this topic is diverse, and the Court does not ultimately need to reach a decision on the issue to reach a disposition in this case. Moreover, Judge Halfenger explicitly considered authority on the issue and found that ancillary jurisdiction should not be exercised. (See, e.g., Case No. 14-CV-882, Docket # 1, Ex. 2, 68-69, 73 (internal transcript pages 12-13, 17); Case No. 14-CV-882, Docket # 1, Ex. 2, 60-61, 65 (internal transcript pages 12-13, 17)).