John Bird v. United States Bankruptcy Court for the District of UtahJohn Bird v. United States Bankruptcy Court for the District of Utah
Douglas J. Payne of Fabian VanCott (David P. Billings with him on the briefs),
Paul J. Toscano of Salt Lake City, Utah for Appellees John Thomas Bird, Brent David Christensen and Jo-Ann Hall Christensen.
Before MICHAEL, ROMERO, and HALL, Bankruptcy Judges.
Chapter 13
OPINION
HALL, Bankruptcy Judge.
The former Chapter 7 trustee and his counsel appeal the bankruptcy court‘s Memorandum Decision1 and related orders2 (together, the “Order“) entered in two separate cases on the same legal issue with respect to analogous facts. The cases were consolidated on appeal for purposes of briefing and oral argument.3 The Order denies fee applications (“Fee Applications“) submitted by the trustee and his counsel for fees and expenses incurred in connection with litigation of claimed homestead exemptions prior to conversion of the cases to Chapter 13.4 Although the ultimate issue in these cases relates to professional compensation, the underlying facts give rise to more difficult fundamental concerns such as the tension between the bankruptcy system‘s fresh start policy and payment of unsecured creditors. Moreover, these cases concern the role of a Chapter 7 trustee in finding the balance between those competing interests through objective performance of the duties and responsibilities assigned to him under the Bankruptcy Code. Finding no error in the bankruptcy court‘s analysis or ruling, we AFFIRM.
I. FACTUAL AND PROCEDURAL HISTORY5
John Bird (“Bird“) filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code6 on October 19, 2015. On the same day, Brent and Jo-Ann Christensen (the “Christensens“) filed their voluntary petition for Chapter 7 relief (Bird and the Christensens collectively, “Debtors“). Debtors are represented by the same bankruptcy counsel, and Gary E. Jubber, an attorney and shareholder in the firm of Fabian VanCott, was appointed Chapter 7 trustee (“Trustee“) in both cases. Trustee filed applications to employ attorney Douglas J. Payne and the firm of Fabian VanCott as counsel (“Counsel“) in both cases, which were approved by the bankruptcy court.
On Schedule A, Bird listed his residence located at 122 Manilla Drive, Draper, Utah (the “Bird Homestead“), and the Christensens
In December 2015, Trustee objected to Debtors’ homestead exemptions, arguing there was no equity in the Homesteads to which the claimed exemptions could attach (the “Homestead Objections“). Trustee did not, however, set the matters for hearing. Notwithstanding that the Homestead Objections were based on lack of equity, after Debtors received their Chapter 7 discharges on January 20, 2016, Trustee filed applications to employ a real estate agent to sell the Homesteads. Debtors filed objections thereto, as well as responses to the Homestead Objections. Additionally, Debtors filed motions seeking an order forcing abandonment of the Homesteads by Trustee (the “Motions to Abandon“), arguing that (i) they were of inconsequential value and burdensome to the estates, and (ii) a sale would not be in the interest of creditors or Debtors. All of these matters were then set for a hearing before the bankruptcy court on February 24, 2016.
Just days before the scheduled hearing, Trustee filed stipulations pursuant to
The IRS hereby subordinates any lien or claim it may have to the [Homestead] and the proceeds from the sale of the [Homestead] to the extent of the Carve-Out and hereby waives and releases any and all claims it may have to the Carve-Out other than those claims it may have as a general unsecured creditor of the estate.10
At the February 24, 2016 hearing, the bankruptcy court overruled the Homestead
On the same day he appealed the bankruptcy court‘s orders overruling his Homestead Objections to the District Court, Trustee filed motions to sell the Homesteads (the “Motions to Sell“), soon followed by notices to take Debtors’ depositions and applications to employ an appraiser. The Motions to Approve Stipulation and Motions to Sell were scheduled for hearing about a month after the hearing on the Motions to Abandon. The Motions to Sell were premised on sales contracts with a $322,000 purchase price for the Bird Homestead, and a $425,000 purchase price for the Christensen Homestead. Although the sales contract prices for the Homesteads were quite a bit higher than Debtors’ scheduled values, they still only exceeded the total encumbrances by a minimum amount—$4,129.52 in Bird‘s case and $7,505.16 in the Christensens’ case.11 Moreover, the proceeds from sale of the Homesteads would be subject to payment of Trustee‘s and Counsel‘s fees and expenses, and additional administrative expenses for the six percent realtor commission and one percent closing costs provided for in the sales contract.12
Immediately prior to the bankruptcy court‘s scheduled March 23, 2016 evidentiary hearing on the Motions to Abandon, Debtors filed objections to the Motions to Sell on basically the same grounds as they did with respect to the Motions to Approve Stipulations.13 Debtors contended any sale of the Homesteads would leave nothing for their homestead exemptions. At the same time, Debtors filed motions to vacate their Chapter 7 discharges and convert their cases to Chapter 13 (the “Motions to Convert“). Essentially, Debtors were seeking to avoid both Trustee‘s liquidation of their Homesteads without any payment of their homestead exemptions, and growing legal fees that continued to be incurred in connection with Trustee‘s appeal of the bankruptcy court‘s orders overruling the Homestead Objections. The Motions to Convert were set for hearing with the Motions to Approve Stipulations and Motions to Sell on April 20, 2016, and the other matters were continued to that date. Debtors also amended their respective Schedules C to remove the claimed homestead exemptions.14
At the April 20, 2016 hearing, the bankruptcy court granted the Motions to Convert, and subsequently entered written orders (the “Conversion“). The bankruptcy court‘s orders granting the Conversion mooted the numerous other pending motions filed by Trustee and Debtors. Trustee‘s appeals to the District Court of the bankruptcy court‘s orders overruling his Homestead Objections were also rendered moot when the Motions to Convert were granted and Debtors amended their Schedules C.15
Debtors objected to the Fee Applications, and on August 16, 2016, the bankruptcy court conducted a hearing. The bankruptcy court denied the Fee Applications in their entirety on the basis that, under
For several reasons, the bankruptcy court also concluded the services provided were not reasonably likely to benefit Debtors’ estates, i.e., result in a meaningful distribution to unsecured creditors. First, the bankruptcy court determined the proposed sales of the Homesteads were not authorized by any subsection of
In reaching this result, the bankruptcy court disagreed with Trustee‘s interpretation of
Trustee and Counsel (collectively, “Appellants“) now appeal the bankruptcy court‘s Order.
Appellants contend the bankruptcy court erred as a matter of law in denying the Fee Applications under
III. DISCUSSION
The professional compensation at issue in these cases arises in a somewhat unusual posture. Although the fees and expenses stem from fairly typical bankruptcy litigation matters, i.e., the Homestead Objections, the Motions to Sell, and the Motions to Abandon, the typicalness is complicated by the following. First, there are questions regarding whether it was appropriate, on the facts presented, for Trustee to attempt to administer the Homesteads as property of the estate, and for whose benefit such efforts were being made. Second, Debtors have now converted their Chapter 7 cases to Chapter 13 and withdrawn their homestead exemptions. Therefore, if the Fee Applications were approved, Debtors would be required to pay one hundred percent of Trustee‘s and Counsel‘s fees and expenses ($34,744.97 total in Bird‘s case, and $31,762.98 total in the Christensens’ case) through their Chapter 13 plans.
These complicating factors necessarily give rise to the competing interests of bankruptcy‘s fresh start policy for honest but unfortunate debtors and payment of a dividend to unsecured creditors. But more importantly, these cases draw attention to Trustee‘s critical role in performing the bankruptcy system‘s required balancing act. We begin with a brief general discussion of compensation for bankruptcy professionals before evaluating the bankruptcy court‘s determination that the services provided by Trustee and Counsel were neither necessary to administration of the estate nor likely to provide a benefit.
Trustees and other bankruptcy professionals are entitled to compensation for services rendered to the estate, subject to the limitations of
The bankruptcy court‘s scrutiny of professional fee applications is particularly important when, as is the case here, a trustee and/or his firm has been authorized to serve as an attorney or accountant for the estate.25 Section 327(d) permits this “dual capacity” status. But in light of the fact this recognized conflict of interest provides an opportunity for self-dealing,26 a trustee may be authorized to serve as counsel only if it “is in the best interests of the estate.”27 Further, because various trustee duties should be performed without the assistance of an attorney or accountant,28 a bankruptcy court‘s careful review of applications for fees and expenses is critical in a dual capacity situation.
A bankruptcy court‘s award of professional compensation is governed by
(a)(1) After notice to the parties in interest and the United States Trustee and a hearing, and subject to section 326, 328, and 329, the court may award to a trustee ... or a professional person employed under section 327 or 1103—
(A) reasonable compensation for actual, necessary services rendered by the trustee ...; and
(B) reimbursement for actual, necessary expenses.29
However,
On appeal, Appellants contend their services were, in fact, necessary and beneficial to administration of Debtors’ estates. The Court would note that the distinction between the statutory requirements that the services be “necessary to administration of the estate”32 versus “reasonably likely to benefit the estate”33 is not always clear. For example, according to the United States Court of Appeals for the Tenth Circuit (“Tenth Circuit“), “[a]n element of whether the services were ‘necessary’ is
Additionally, Appellants argue the bankruptcy court‘s conclusions regarding the necessity and benefit of their services were premised on erroneous interpretation of certain statutory provisions, and therefore its rulings cannot stand. We ultimately conclude, however, that the bankruptcy court‘s determinations regarding necessity and benefit to the estate of the services are well supported and that, even if its statutory interpretations were incorrect, denial of the Fee Applications is not reversible error. Further, Appellants complain that the bankruptcy court‘s denial of the Fee Applications in their entirety is error and they are entitled to some compensation. We disagree.
A. The Bankruptcy Court Did Not Err in Concluding the Services Were Not Necessary to the Administration of Debtors’ Estates.
Underscoring the bankruptcy court‘s conclusion that the services provided by Trustee and Counsel were not necessary to the administration of the Debtors’ estates is a recognition that, on the facts of these cases, abandonment of the Homesteads would have better comported with a Chapter 7 trustee‘s ultimate duties and responsibilities. The Bankruptcy Code, an abundance of case law, and express language in the Handbook for Chapter 7 Trustees prepared by the Office of the United States Trustee (“Trustee Handbook“)35 all emphatically support the bankruptcy court‘s decision.
“A chapter 7 trustee is a fiduciary of the estate whose principal duty is to administer estate property so as to maximize distribution to unsecured creditors, whether priority or general unsecured.”36 Section 704, which prescribes the duties of a Chapter 7 trustee, directs a trustee to “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 parties in interest.”37 To make this possible,
Although the concept of abandonment was not expressly provided for in the early Bankruptcy Acts, it has been long recognized that bankruptcy courts should not administer encumbered property and authorize its sale “unless it is made to appear that there is a fair prospect of the property being sold for substantially more than enough to discharge the lien or liens upon it.”41 Instead, the possession and control of fully or over-encumbered property should be released and surrendered.42
As the bankruptcy court explained, even in the face of court rulings condemning such practices, Congress noticed that “some trustees took burdensome or valueless property into the estate and sold it in order to increase their commissions.”43 Congress responded by adding abandonment provisions to the Bankruptcy Act of 1978, which are now codified in
(a) After notice and a hearing, the trustee may abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
(b) On request of a party in interest and after notice and a hearing, the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.45
Thus, if property is burdensome or of no benefit to the estate, a trustee has the discretion to abandon such property; and if a trustee does not abandon valueless property, a party in interest may ask the bankruptcy court to order a trustee to abandon such property.
The Trustee Handbook amplifies the directions from Congress to trustees that are embodied in
A chapter 7 case must be administered to maximize and expedite dividends to creditors. A trustee shall not administer an estate or an asset in an estate where the proceeds of liquidation will primarily benefit the trustee or the professionals, or unduly delay the resolution of the case. The trustee must be guided by this fundamental principle when acting as trustee. Accordingly, the trustee must consider whether sufficient funds will be generated to make a meaningful distribution to unsecured creditors, including unsecured priority creditors, before administering a case as an asset case. 28 U.S.C. § 586 .47
The Trustee Handbook further provides that “a trustee should not sell property subject to a security interest unless the sale generates funds for the benefit of unsecured creditors. A secured creditor can protect its own interests in the collateral subject to the security interest.”48 That guidance is underscored by another of the Trustee Handbook‘s directives:
In asset cases, when the property is fully encumbered and of nominal value to the estate, the trustee must immediately abandon the asset and contact the secured creditor immediately so that the secured creditor can obtain insurance or otherwise protect its own interest in the property.
11 U.S.C. §§ 554 ,704 .49
A multitude of reported cases reinforces these principles. In fact, as one bankruptcy appellate panel put it, “[i]t is universally recognized, [ ] that the sale of a fully encumbered asset is generally prohibited.”50
Nevertheless, Appellants contend the Homesteads could have, and should have, been sold because the Carve-Outs negotiated with IRS would result in a benefit to the unsecured creditors.51 As support for their argument, Appellants cite several cases,52 as well as certain language in the Trustee Handbook.53 While the Court does not deny Appellants’ cited authorities stand for the proposition that the sale of fully encumbered properties may be warranted in some circumstances, it strongly disagrees that those type of circumstances are presented here.54
As Appellants point out, the Trustee Handbook acknowledges exceptions to the general rule preventing the sale of fully encumbered assets. Specifically, it states:
In certain limited circumstances, however, a trustee may properly sell encumbered
property that would generate no proceeds for the benefit of unsecured creditors (“fully encumbered property“). For example, a trustee may be able to satisfy in full a blanket security interest on multiple units of property by selling only one unit. Similarly, a trustee may be able to obtain a higher price from an aggregate sale of assets than from selling the assets individually. In a case with other funds available for unsecured creditors, a trustee also may sell fully encumbered property to eliminate a deficiency, if the secured creditor agrees to waive any unsecured claim for a deficiency in the event the sale does not fully satisfy the security interest.55
Clearly, however, while secured creditor carve-outs may be appropriate in certain circumstances,56 such circumstances are not present in these cases.
Again, we agree with Appellants that the Trustee Handbook does not prohibit carve out agreements with a secured creditor as per se improper, and directs that when administering fully encumbered property, a trustee should obtain an agreement from a secured creditor to recover costs of sale from the collateral pursuant to
A trustee may sell assets only if the sale will result in a meaningful distribution to creditors. In evaluating whether an asset has equity, the trustee must determine whether there are valid liens against the asset and whether the value of the asset exceeds the liens. The trustee may seek a “carve-out” from a secured creditor and sell the property at issue if the “carve-out” will result in a meaningful distribution to creditors. The trustee must also consider whether the cost of administration or tax consequences of any sale would significantly erode or exhaust the estate‘s equity interest in the asset. If the sale will not result in a meaningful distribution to creditors, the trustee must abandon the asset.58
Thus, carve out agreements are only permitted if they result in meaningful distributions to creditors. And the definition of meaningful depends on the totality of circumstances.
As explained by the First Circuit, “bankruptcy courts have defined the equity that justifies a sale of property, consistently and explicitly, in one way: the value remaining for unsecured creditors above any secured claims and the debtor‘s exemption.”59 This “equity for unsecured creditors”60 is what authorizes a trustee to exercise his powers of sale under
On these facts, sale of the Homesteads undoubtedly violates the Trustee Handbook‘s directive that estate property should not be sold “where the proceeds of liquidation will primarily benefit the trustee or the professionals, or unduly delay the resolution of the case.”65 Further, Trustee‘s attempted sale is in derogation of courts’ universal recognition that “the sale of a fully encumbered asset is generally prohibited.”66 We see no need to deviate from these firmly entrenched rules here. The numbers in these cases more than adequately support the bankruptcy court‘s belief that
the sale of fully-encumbered property typically benefits two parties: the trustee, who can administer the property and receive a commission on the disbursed proceeds, and the secured party, which has its collateral liquidated without having to undertake the toil and labor of foreclosure proceedings.67
As a result, we conclude the bankruptcy court did not err in determining Trustee‘s and Counsel‘s services, for which the Fee Applications sought compensation, were not necessary to the administration of Debtors’ estates.
B. The Bankruptcy Court Did Not Err in Concluding the Services Were Not Reasonably Likely to Benefit the Estates.
Appellants also contend the bankruptcy court erred in determining the proposed sales of the Homesteads were not
Our conclusion is based on the totality of applicable statutes and case law and the way in which they relate to one another. Looking at these authorities in combination, three principles stand out. First, exemptions are extremely important to the Bankruptcy Code‘s fresh start policy, and of these exemptions, the homestead exemption is paramount. Second, a Chapter 7 trustee is duty bound to administer the estate solely for the benefit of creditors. And third, the Bankruptcy Code‘s objective and priorities control and are not subject to being rearranged by the actions of a Chapter 7 trustee.
The bottom line is that, in light of these principles, we take no issue with the bankruptcy court‘s conclusion that these Homesteads should have been abandoned by the Trustee, and therefore, find no error in its ruling that Appellants’ services were not beneficial to the estate. While sale of the Homesteads might admittedly have benefitted the estates’ unsecured creditors to a minimum extent, the proceeds would primarily benefit Appellants and other bankruptcy professionals, to the considerable detriment of Debtors and the exemptions to which they are entitled. As a result, Appellants’ services do not meet the compensation criteria of
1. Debtors Were Entitled to Claim Homestead Exemptions under Utah Law
Appellants contend the bankruptcy court‘s decision denying the Fee Applications is reversible because it erroneously interpreted the Utah exemption statute. Instead, they argue that Utah homestead exemptions, which are denominated as specific amounts, are based on value in the property and not the property itself, and therefore not available to Debtors absent equity in the Homesteads.68 We disagree.
The Utah Constitution commands that the legislature shall provide for a homestead exemption consisting of “lands, together with the appurtenances and improvements thereon.”69 As a result, the Utah Exemption Act70 provides in relevant part:
(2)(a) An individual is entitled to a homestead exemption consisting of property in this state in an amount not exceeding:
...
(ii) $30,000 in value if the property claimed is the primary personal residence of the individual. (b) If the property claimed as exempt is jointly owned, each joint owner is entitled to a homestead exemption; however
...
(ii) for property exempt under Subsection (2)(a)(ii), the maximum exemption may not exceed $60,000 per household.
(c) A person may claim a homestead exemption in either or both of the following:
(i) one or more parcels of real property together with appurtenances and improvements; or
(ii) a mobile home in which the claimant resides....
(3) A homestead is exempt from judicial lien and from levy, execution, or forced sale except for:
(a) statutory liens for property taxes and assessments on the property;
(b) security interests in the property and judicial liens for debts created for the purchase price of the property;
(c) judicial liens obtained on debts created by failure to provide support or maintenance for dependent children; and
(d) consensual liens obtained on debts created by mutual contract.71
For purposes of the homestead exemption, property is defined as “(i) a primary personal residence; (ii) real property; or (iii) an equitable interest in real property awarded to a person in a divorce decree by a court.”72
When a federal court interprets state law, it is required to look to the rulings of the highest state court,73 and therefore we must initially turn to Utah law. As the Utah Supreme Court has explained, citizens have been granted the right to a homestead exemption “to protect ‘the dependent and helpless’ and to insure such persons shelter and support free from fear of forced sale.”74 In light of that policy, in Panagopulos v. Manning, 93 Utah 198, 69 P.2d 614 (1937), the Utah Supreme Court held that the statutory right to a homestead exemption is predicated on two bases or interests in real property—title and possession, and further that the exemption “protect[s] the physical thing as a whole from lien or sale so long as the exemption continues.”75 It has further opined that courts “cannot whittle down the exemption by undermining and cutting at its roots.”76
On appeal, Appellants argue that when exemptions are limited in amount, only an interest in the property up to the specified amount is exempted, and not the property
First, the issue in Schwab, as framed by the Supreme Court, was
whether an interested party must object to a claimed exemption where, as here, the Code defines the property the debtor is authorized to exempt as an interest, the value of which may not exceed a certain dollar amount, in a particular type of asset, and the debtor‘s schedule of exempt property accurately describes the asset and declares the “value of [the] claimed exemption” in that asset to be an amount within the limits that the Code prescribes.77
Thus the Supreme Court was ruling on a procedural issue in a much different context. Second, in Schwab, the exemption at issue was claimed for business equipment as tools of the debtor‘s trade, not a homestead exemption. Third, the property claimed as exempt in Schwab was not subject to any liens or encumbrances. And fourth, the Schwab debtor claimed an exemption for the property pursuant to
Under both Utah and federal law, exemption laws must be liberally construed in favor of the claimant of an exemption to effect their humanitarian purposes.80 The Utah Supreme Court long ago held that the statutory homestead exemption is predicated on title and possession of real property and “protect[s] the physical thing as a whole from lien or sale so long as the exemption continues.”81 It has further opined that courts “cannot whittle
2. Utah Exemption Statutes and § 363(f) Protect Debtors from a Forced Sale of their Homesteads by Trustee
Appellants argue the bankruptcy court erred in denying their Fee Applications because Trustee should have been allowed to sell Debtors’ Homesteads free and clear under
Pursuant to
(f) The trustee may sell property under subsection (b) or (c) of this section free and clear of any interest in such property of an entity other than the estate, only if—
(1) applicable nonbankruptcy law permits sale of such property free and clear of such interest;
(2) such entity consents;
(3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property;
(4) such interest is in bona fide dispute; or
(5) such entity could be compelled, in a legal or equitable proceeding, to accept a money satisfaction of such interest.84
Appellants contend the bankruptcy court erred in determining that none of the five options for sale free and clear under
Trustee objected to Debtors’ claimed exemptions in their Homesteads based on a lack of equity. Subsequent events, however, undercut Trustee‘s Homestead Objections and resolved the disputes: (1) Trustee received offers for the Homesteads and negotiated the Carve-Outs with the IRS creating equity; (2) the bankruptcy court allowed the Homestead Exemptions;87 and (3) Debtors’ converted their cases to Chapter 13 and amended their Schedules C to remove the claimed exemptions. Thus, no bona fide dispute existed for purposes of
The bankruptcy court‘s conclusion that the condition stated in
In addition, another Utah exemption statute provides that “[p]roperty that includes a homestead may not be sold at execution if there is no bid which exceeds the amount of the declared homestead exemption.”91 Trustee‘s sale of the Homesteads would not have generated enough funds to pay Debtors’ exemptions, the mortgages, administrative expenses, and tax liens. When read in conjunction with the applicable Utah exemption statutes,
3. Sections 724 and 522 Do Not Give Trustee Additional Rights
Appellants argue Debtors’ homestead exemptions do not trump
Appellants also assert “[s]ection 724(b) makes it possible to sell property encumbered with tax liens in a chapter 7 because the IRS ‘pays’ the estates’ administrative fees out of its claims, not the Debtors’ or the lower priority creditors‘s [sic] claims.”95 Appellants overstate the effect of
Section 724, entitled “Treatment of Certain Liens,” provides in part as follows:
(b) Property in which the estate has an interest and that is subject to a lien that is not avoidable under this title (other than to the extent that there is a properly perfected unavoidable tax lien arising
in connection with an ad valorem tax on real or personal property of the estate) and that secures an allowed claim for a tax, or proceeds of such property, shall be distributed— (1) first, to any holder of an allowed claim secured by a lien on such property that is not avoidable under this title and that is senior to such tax lien;
(2) second, to any holder of a claim of a kind specified in section 507(a)(1)(C) or 507(a)(2) (except that such expenses under each such section, other than claims for wages, salaries, or commissions that arise after the date of the filing of the petition, shall be limited to expenses incurred under this chapter and shall not include expenses incurred under chapter 11 of this title), 507(a)(1)(A), 507(a)(1)(B), 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of this title, to the extent of the amount of such allowed tax claim that is secured by such tax lien;
(3) third, to the holder of such tax lien, to any extent that such holder‘s allowed tax claim that is secured by such tax lien exceeds any amount distributed under paragraph (2) of this subsection;
(4) fourth, to any holder of an allowed claim secured by a lien on such property that is not avoidable under this title and that is junior to such tax lien;
(5) fifth, to the holder of such tax lien, to the extent that such holder‘s allowed claim secured by such tax lien is not paid under paragraph (3) of this subsection; and
(6) sixth, to the estate.96
Appellants interpret this provision to mean that a homestead exemption does not take precedence over tax liens, and therefore Trustee was entirely justified in seeking to liquidate the Homesteads, “particularly where, as here, the IRS actively supported a sale and had agreed to a carve-out that would directly benefit general unsecured creditors.”97 Such an interpretation ignores the safeguard provisions of
Section 724 indeed permits subordination of tax liens to the extent of administrative expenses. As is patently obvious, however, the plain language of
C. The Bankruptcy Court Did Not Err in Denying the Fee Applications in Their Entirety
Appellants contend denial of the Fee Applications in their entirety was
While receiving no compensation at all might seem a harsh result, the Court would point out that such a result is not uncommon. Compensation of a Chapter 7 trustee under
The obvious dictate here is that it makes no sense whatsoever to sell the Homesteads and incur administrative expenses of $57,284.97 in the Bird case,111 and $61,513.63 in the Christensens’ case,112 in order to get only $10,000 to unsecured creditors and at the same time deny Debtors their Homesteads. Even bankruptcy professionals performing services for an oversecured creditor, whose compensation will be paid from that creditor‘s own collateral, must exercise some restraint with respect to incurring fees and expenses.113 In other words, all bankruptcy professionals to be compensated from the estate must exercise billing judgment,114 so that only “reasonable compensation for actual, necessary services”115 is sought. In these cases, the actions of Trustee and Counsel fall woefully short of this standard.
IV. CONCLUSION
The bankruptcy court did not err in concluding Appellants’ services were neither necessary nor beneficial to the estate. Trustee‘s plan of action from the minute he was assigned these Chapter 7 cases was abundantly clear: he sought to manufacture equity through the Stipulations and Carve-Outs with the IRS in order to sell the Homesteads and generate funds that would primarily benefit Trustee, Counsel, and other bankruptcy professionals, while only minimally benefitting unsecured creditors. Almost all of the services for which Appellants seek compensation are in furtherance of that inappropriate plan. Therefore, the Order denying the Fee Applications in their entirety is not reversible error, and is hereby AFFIRMED.
Notes
Appellants’ Br. 47 n.14. The Court is perplexed by Appellants’ statement in this regard. The Stipulations filed with the bankruptcy court are titled “Stipulation Pursuant toThe bankruptcy court asserts that “§ 506(c) is the chosen statutory vehicle for the [Former] Trustee to receive the Carve-Outs” and that the Former “Trustee and the IRS are attempting to shoehorn their arrangement into § 506(c), but it does not quite fit.” Opinion, 561 B.R. 195, 215 (Bankr. D. Utah 2016). This vastly overstates the proposed role
§ 506(c) was to play. It is§ 724(b) that allows administrative expenses to be paid before the tax IRS‘s liens, not§ 506(c) . More importantly, neither the IRS nor the Former Trustee ever pointed to§ 506(c) as authority to pay the general unsecured creditors $10,000 in each case. Rather, the proceeds were subject to the IRS‘s lien; therefore, the IRS was free to have $10,000 of the proceeds distributed to general unsecured creditors if they wished.