US Trustee v. Gryphon Stone ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
1-28-1999
US Trustee v. Gryphon Stone
Precedential or Non-Precedential:
Docket 97-3670
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Filed January 28, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
No. 97-3670
UNITED STATES TRUSTEE
v.
GRYPHON AT THE STONE MANSION, INC.,
d/b/a Erik Lewis Global
d/b/a Wanner Van Helden,
Appellant
Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. No. 97-CV-00345)
Before: The Honorable Gary L. Lancaster
Argued Under Third Circuit LAR 34.1(a)
November 18, 1998
Before: McKEE, RENDELL and WEIS, Circuit Judges
(Filed: January 28, 1999)
H. Thomas Byron, III, Esquire
(ARGUED)
U.S. Department of Justice
Civil Division, Appellate Staff
601 D Street, N.W.
Washington, DC 20530-0001
Counsel for Appellee
Daniel J. Gates, Esquire
Haller & Gates
415 Northgate Drive
Warrendale, PA 15086
Patricia L. Blais, Esquire (ARGUED)
Gates & Associates
415 Northgate Drive
Warrendale, PA 15086
Counsel for Appellant
OPINION OF THE COURT
RENDELL, Circuit Judge.
We are asked to determine whether the Bankruptcy
Court had jurisdiction to require payment of post-
confirmation trustee's fees before closing the debtor's case.
We also address the threshold issue of our jurisdiction to
consider this appeal in light of the District Court's remand
of the matter to the Bankruptcy Court. We conclude that
we have appellate jurisdiction and that the Bankruptcy
Court did in fact have jurisdiction over the award of fees in
question. Accordingly, we will affirm the District Court's
order that so held. As discussed in detail below, the
Bankruptcy Court had jurisdiction pursuant to 28 U.S.C.
S 157 and 28 U.S.C. S 1334, and we have jurisdiction on
appeal pursuant to 28 U.S.C. S 158(d). The District Court
had jurisdiction to review the Bankruptcy Court's decision
pursuant to 28 U.S.C. S 158(a).
Although the award of trustee's fees in bankruptcy cases
has become a routine occurrence since S 1930 of Title 28 of
the United States Code was first enacted in 1986,
Congress's recent amendments to S 1930(a)(6) that imposed
post-confirmation trustee's fees in all pending cases have
created a controversy, with potential and actual legal and
practical implications. Historically, S 1930(a)(6) set forth a
scheme to impose the costs of the United States Trustee
Program on its users. See H.R. Rep. No. 99-764, at 22
(1986), reprinted in 1986 U.S.C.C.A.N. 5227, 5234. The
statute originally provided, in relevant part, that"a
2
quarterly fee shall be paid to the United States trustee . . .
in each case under chapter 11 of title 11 . . . for each
quarter (including any fraction thereof) until a plan is
confirmed or the case is converted or dismissed, whichever
occurs first." Pub. L. No. 99-554, S 117, 100 Stat. 3088(1986). On January 26, 1996, Congress amended the
quarterly fee provision to require payment of fees post-
confirmation, by striking out the language providing that
the fees would accrue until "a plan is confirmed," so that
the statute now reads that the fees should be paid"until
the case is converted or dismissed, whichever occursfirst."
Pub. L. No. 104-91, S 101(a), 110 Stat. 7 (1996) & Pub. L.
No. 104-99, S 211, 110 Stat. 26 (1996).
After Congress passed the January 26, 1996 amendment,
there was some confusion as to whether the amendment
applied to cases in which plans had been confirmed prior to
the amendment. In response, Congress enacted a second
amendment to the quarterly fee provision on September 30,
1996, providing that "the fees under 28 U.S.C.S 1930(a)(6)
shall accrue and be payable from and after January 27,
1996, in all cases (including, without limitation, any cases
pending as of that date), regardless of confirmation status
of their plans." Pub. L. No. 104-208, S 109(d), 110 Stat.
3009 (1996). It is therefore clear that Congress has imposed
a specific requirement that trustee's fees accrue and are
payable after confirmation and up to closing of the case,
which requirement applies to all cases pending as of
January 1996.1
_________________________________________________________________
1. It is generally agreed, and the parties before us do not argue
otherwise, that the legislative scheme requiring payment of fees until the
case is "converted or dismissed, whichever occursfirst" should be read
so as to add "or closed." The Tenth Circuit recently decided this issue in
United States Trustee v. CF&I Fabricators of Utah, Inc. (In re CF&I
Fabricators of Utah, Inc.), 150 F.3d 1233 (10th Cir. 1998). Rejecting the
argument that cases that are neither converted nor dismissed, but are
successfully closed, are exempt from the fees, the court explained that
the language of the statute providing that the fees were to be paid in
"each" case under chapter 11 supported the conclusion that the statute
applied in all three cases. Id. at 1236. The court also noted that, even
though the statute does not explicitly state that fees would terminate
upon "closure" of the case, it is unreasonable to assume otherwise,
3
In the specific case before us, the debtor confirmed its
plan of reorganization in June of 1995. The plan provides
for payment of all priority and administrative claims, sets
forth the treatment of several specific creditors, and
provides that unsecured creditors will receive a pro rata
distribution of the remaining funds, to be paid in
installments commencing 73 months from confirmation,
which would be in July of 2001.2 The debtor's plan is a
liquidating plan; the debtor ceased its business and sold all
of its assets as part of the plan and is distributing proceeds
to creditors. The plan "estimates" that the fund available for
unsecured creditors would be $83,042.40 and that
unsecured creditors should receive 25-33% on account of
their claims.
The debtor moved for entry of a final order to close the
case in April 1996, and the trustee objected on the basis
that post-confirmation trustee's fees had not been paid.3
The Bankruptcy Court entered an order granting the
debtor's motion but reserving the issue of what fees were
due. At oral argument before us, it was conceded that the
funds awaiting distribution to unsecured creditors are on
hand with the debtor's agent and that the post-
confirmation trustee's fees at issue are in the approximate
amount of $750.
_________________________________________________________________
because once a case is closed it is no longer a case"under chapter 11"
under the quarterly fee statute, and because there is no possibility of
conversion or dismissal after closure. Id.; see also In re A.H. Robins
Co.,
Inc., 219 B.R. 145, 149 (Bankr. E.D. Va. 1998). The Sixth Circuit came
to a similar conclusion, albeit by different reasoning, in Vergos v.
Gregg's
Enters., Inc., 159 F.3d 989, 990-93 (6th Cir. 1998) (finding that,
although S 1930(a)(6) is ambiguous, reading the statute to require
termination of fees upon closure is consistent with Congressional intent).
2. The Bankruptcy Court decided this case en banc because several
dozen cases were impacted by the new requirement. However, we can
only address the case before us on its own facts. This is especially
important as we determine our jurisdiction to hear this matter on
appeal, which, as we note below, may turn on the unique facts of the
case.
3. It is unclear whether the trustee actuallyfiled a claim for fees or
otherwise sought enforcement, but the record indicates that the debtor
did file an objection to the trustee's claim.
4
The en banc Bankruptcy Court ultimately determined
that the bankruptcy court lacks jurisdiction over post-
confirmation claims and the trustee must go elsewhere to
pursue these claims. En route to reaching this conclusion,
however, the court entertained numerous difficult questions
posed, and problems presented, by the legislative scheme
that, the court felt, created an obligation seemingly
inconsistent with the provisions of the Bankruptcy Code
and the practical and legal implications of belatedly
imposing such fees in the context of a confirmed plan.4
Although neither of the parties on appeal argues that the
Bankruptcy Court's holding was broader than its
jurisdictional pronouncement (nor does either seek a
remand in order for the District Court to address other
issues argued to the court), nonetheless, each of the parties
urges its own view as to whether the fees in question are to
be paid in the context of a confirmed reorganization plan.
However, this issue has little bearing on our ruling as to
the Bankruptcy Court's jurisdiction. It may, however, have
some bearing on the question of our jurisdiction over this
appeal, as becomes apparent in our discussion below.
The Bankruptcy Court reviewed cases commenting on the
limited role of bankruptcy courts after confirmation, and
drew from them the conclusion that its jurisdiction was
limited to matters concerning the implementation or
execution of a confirmed plan, and did not extend to
enforcement of the post-confirmation fee provision.5 The
Bankruptcy Court focused its analysis on 11 U.S.C.
S 1142(b), which provides that, in order to implement the
plan, the bankruptcy court may direct the debtor to
_________________________________________________________________
4. The court explored the enforceability of such a claim, its status as a
priority or administrative claim, the debtor's ability to modify a plan,
who
would be liable for such a fee, the potential for violation of the takings
clause of the Constitution, and, finally, the possible result that by
permitting collection, plan defaults would result, undermining both the
bankruptcy and trustee's fee statutes.
5. The Bankruptcy Court suggested that it would have had jurisdiction
if the confirmed plan reserved jurisdiction over the post-confirmation fee
issue. Of course, the confirmed plan did not address the post-
confirmation fees, since they did not exist at the time the plan was
confirmed.
5
perform such acts as are necessary for the consummation
of the confirmed plan. The District Court addressed the
issue of the Bankruptcy Court's jurisdiction in the broad
sense and determined that the Bankruptcy Court did in
fact have jurisdiction over the award of the trustee's fees.
The District Court accordingly remanded the case back to
the Bankruptcy Court for further proceedings.
Our review of the District Court's decision is governed by
the principle that we are in as good a position to evaluate
the Bankruptcy Court's findings as the District Court was.
We review the Bankruptcy Court's findings by the same
standard that should have been employed by the District
Court to determine if the District Court erred in its review.
Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98,
102 (3d Cir. 1981). Thus, our review of the legal questions
presented in this case is plenary. First Jersey Nat'l Bank v.
Brown (In re Brown), 951 F.2d 564, 567 (3d Cir. 1991).
We will affirm the District Court's ruling and adopt its
reasoning. The District Court correctly concluded that an
analysis of the Bankruptcy Court's jurisdiction begins with
28 U.S.C. S 1334, not with 11 U.S.C. S 1142. See Belcufine
v. Aloe, 112 F.3d 633, 636 (3d Cir. 1997). Section 1334
provides that the district courts "shall have original and
exclusive jurisdiction of all cases under title 11," and
"original, but not exclusive, jurisdiction of all civil
proceedings arising under title 11, or arising in or related
to cases under title 11." 28 U.S.C. S 1334(a)-(b). The
Bankruptcy Court, by virtue of referral by the District
Court, has jurisdiction over cases falling under these
categories. See 28 U.S.C. S 157(a)-(b).
We agree with the District Court's conclusion that the
trustee's action to enforce the post-confirmation fee
provision is "related to" or "arising in" the bankruptcy, and
was thus within the Bankruptcy Court's jurisdiction. A
matter is "related to" a chapter 11 case if it " ``could
conceivably have any effect on the estate being
administered in bankruptcy.' " Belcufine , 112 F.3d at 636(quoting Pacor v. Higgins, 743 F.2d 984, 994 (3d Cir.
1984)). Belcufine further defined the test as whether the
outcome of the case " ``could alter the debtor's rights,
liabilities, options, or freedom of action (either positively or
6
negatively) and which in any way impacts upon the
handling and administration of the bankrupt estate.' " Id.The trustee's award of fees clearly satisfies this test,
because it directly relates to the debtor's liabilities -- in fact
it creates a liability -- and could impact the handling and
administration of the estate.
Although finding that the trustee's action is related to a
bankruptcy case is sufficient in order to establish the
Bankruptcy Court's jurisdiction, the District Court also
found that the trustee's action might even be said to "arise
in" bankruptcy. We agree. Proceedings "arise in"
bankruptcy if they have no existence outside of the
bankruptcy. See Wood v. Wood (In re Wood), 825 F.2d 90,
97 (5th Cir. 1987). By definition, an action for trustee's fees
pursuant to S 1930(a)(6) applies only in chapter 11 cases,
during the pendency of the case.6
Furthermore, 11 U.S.C. S 1142(b), the provision relied
upon by the Bankruptcy Court to support its conclusion
that its jurisdiction was limited, does not change the
jurisdictional analysis under S 1334. Section 1142(b)
provides that the bankruptcy court may take action to
ensure the consummation of a confirmed plan; it does not
provide that this is the only action the bankruptcy court
may entertain post-confirmation. As explained by the
District Court, "[s]ection 1142(b) is a grant of authority to
the bankruptcy court that channels, but does not abrogate,
the bankruptcy court's jurisdiction post-confirmation."
United States Trustee v. Gryphon at the Stone Mansion, Inc.,
216 B.R. 764, 768 (W.D. Pa. 1997) (emphasis added).
We affirm the reasoning of the District Court as a proper
statement of the breadth of the Bankruptcy Court's
jurisdiction to entertain issues that necessarily must come
_________________________________________________________________
6. Because we have determined that this claim"arises in" bankruptcy,
we need not be concerned about the extent of the Bankruptcy Court's
power to resolve this claim on its own -- without reference to the
district
court -- on remand. Claims that by nature can only arise in a
bankruptcy context are "core proceedings" that the bankruptcy court has
comprehensive power to hear and decide by enteringfinal orders and
judgments. See Torkelsen v. Maggio (In re The Guild & Gallery Plus, Inc.),
72 F.3d 1171, 1178 (3d Cir. 1996).
7
its way prior to the close of the case. Although the
Bankruptcy Court may have been justified in harboring
genuine reservations as to the categorization and
implementation of this claim imposed by Congress after the
fact, nonetheless the Bankruptcy Court clearly had
jurisdiction to entertain the trustee's claim and provide for
it.
We address our jurisdiction to entertain this appeal at
this juncture because our decision is informed by the facts
we have recounted and statutory provisions we have
referenced. The prevailing rule followed by the majority of
the circuit courts is that courts of appeals have jurisdiction
over bankruptcy appeals pursuant to 28 U.S.C. S 158(d)
notwithstanding a remand ordered by the district court if
there is little left for the bankruptcy court to do. See In re
Lopez, 116 F.3d 1191, 1192 (7th Cir.), cert. denied, 118 S.
Ct. 599 (1997) (explaining that such orders are appealable
only if "the further proceedings contemplated are of a
purely ministerial character"). Our court applies an even
more liberal rule in determining appealability, balancing
reluctance to broaden traditional interpretations offinality
against desire to further the expeditious completion of the
bankruptcy proceedings. See id. at 1193-94; In re Market
Square Inn, Inc., 978 F.2d 116, 120 (3d Cir. 1992). This
rule is based on the principle that "finality" in the
bankruptcy sense is a flexible concept, taking into account
the protracted nature of many bankruptcy proceedings, and
the waste of time and resources that might result if
immediate appeal were denied. See Market Square Inn, 978
F.2d at 120.
Nonetheless, if the Bankruptcy Court proceedings on
remand would be purely ministerial, we need not resort to
the balancing test, since we would have jurisdiction under
either the prevailing or our own test. In order to make that
determination, we must answer the question: "What is left
for the Bankruptcy Court to do on remand?" Here, the
debtor has funds on hand awaiting distribution to
unsecured creditors. It is up to the Bankruptcy Court to
order trustee's fees to be paid from available funds in
compliance with law. In fact, all the Bankruptcy Court has
to do to assess the fees is look to the specific amounts
8
provided for in S 1930(a)(6). This action is indeed
ministerial.
This is not the situation which seemed to confound the
Bankruptcy Court in its opinion, namely, where no funds
are available. Nor do we view this, as the Bankruptcy Court
clearly did, as a situation in which Congress has legislated
a claim not cognizable in connection with a confirmed plan.
To the contrary, we agree with the statement of the
trustee's counsel that Congress's "mandate requiring
payment of post-confirmation quarterly fees is not an effort
to alter the terms of pre-existing debts; rather, it creates a
new expense that did not exist before the plan was
confirmed." Brief for Appellee at 7. Courts recently
addressing the nature of these post-confirmation fees have
regularly found them to be an administrative claim arising
during the case that must be paid or provided for, and, that
does not constitute an impermissible modification of the
confirmed plan. See, e.g., CF&I Fabricators, 150 F.3d at
1238 (noting that post-confirmation fees are administrative
expenses attendant to an open case and are " ``no different
from taxes arising post confirmation, or any similar post-
confirmation expenses not specified in the plan' " (quoting
A.H. Robins, 219 B.R. at 148)).
The holding in Holywell Corp. v. Smith, 503 U.S. 47(1992), is instructive on this issue. In Holywell, the
Supreme Court rejected the argument that a trustee was
not obligated to pay taxes that accrued post-confirmation
because they were not provided for in the confirmed plan.
Id. at 58. The Court noted that the tax liability did not arise
until after the plan was confirmed, and that the plan did
not and could not extinguish claims arising post-
confirmation. Id. at 58-59. Like the tax liability in Holywell,
the trustee's claim for post-confirmation fees did not exist
until after the plan was confirmed, so the plan could not
discharge the debtor's obligation to pay the fees.
Notwithstanding the Bankruptcy Court's skepticism that
Congress would impose fees in contravention of the scheme
set out in the Bankruptcy Code, we suggest that, by
amending S 1930(a)(6) as it did, Congress has in fact
purposely changed the scheme so as to require payment of
trustee's fees until the case is closed. The fact that the fees
9
do not fit nicely into plan parlance is irrelevant. Congress
has mandated that they be paid.7
We should also note that this issue should be of waning
importance, with the passage of time. Debtors, now aware
of this post-confirmation obligation, will reserve funds in
order to fulfill this obligation.
For all of the foregoing reasons, we will affirm the order
of the District Court.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
7. Courts have considered and rejected constitutional challenges to
amended S 1930(a)(6) based on retroactivity and violation of the takings
clause of the Fifth Amendment ("takings clause"). The retroactivity
argument, although not raised specifically by appellant on appeal, has
been rejected on the basis that the fee provision is not retroactive, or,
alternatively, that even if it is retroactive, it is constitutionally
sound
because it is supported by a rational legislative purpose. See CF&I
Fabricators, 150 F.3d at 1237-38; In re McLean Square Assocs., 201 B.R.
436, 441 (Bankr. E.D. Va. 1996); A.H. Robins, 219 B.R. at 148; In re
Richardson Serv. Corp., 210 B.R. 332, 334 (Bankr. W.D. Mo. 1997).
Appellant did raise a takings clause challenge to the statute, but it is
also without merit. Application of the fee provision post-confirmation is
not a violation of the takings clause because, due to the vagaries of the
bankruptcy process, there can be no reasonable expectation that the
amount of the final distribution will remain fixed throughout the
process. See CF&I Fabricators, 150 F.3d at 1238-39 (noting that one of
the elements of a takings clause violation is interference with reasonable
investment-backed expectations, and that "[i]n a bankruptcy case as
complex as this, we believe it would be patently unreasonable to expect
no variability in the final amount available to plan distributees").
10