Inre: Dale Brookover v. ( 2003 )

RECOMMENDED FOR FULL-TEXT PUBLICATION
Pursuant to Sixth Circuit Rule 206 2 In re Brookover, et al. No. 02-3237
ELECTRONIC CITATION: 2003 FED App. 0451P (6th Cir.)File Name: 03a0451p.06 _________________
COUNSEL
UNITED STATES COURT OF APPEALS
ARGUED: William Kanter, UNITED STATES
FOR THE SIXTH CIRCUIT DEPARTMENT OF JUSTICE, Washington, D.C., for
_________________ Appellant. ON BRIEF: William Kanter, Wendy Keats,
UNITED STATES DEPARTMENT OF JUSTICE,
In re: DALE R. BROOKOVER; X Washington, D.C., for Appellant.
MONTGOMERY FARMS; JACK -
- _________________
GIULITTO,
- No. 02-3237
Debtors. - OPINION
________________________ > _________________
,
- DAMON J. KEITH, Circuit Judge. This appeal arises from
IRA BODENSTEIN , United - three cases filed under Chapter 12 of the Bankruptcy Code,
States Trustee, - 11 U.S.C. § 1201 et seq., in the bankruptcy court of the
Appellant. - Northern District of Ohio, Eastern Division. The United States
- Trustee (“UST”) appeals the district court’s order affirming the
N bankruptcy court’s order refusing to accept resignation of the
Appeal from the United States District Court standing Chapter 12 trustee and setting forth procedures for
for the Northern District of Ohio at Akron. such resignation. For the reasons set forth below, we
Nos. 01-01129; 01-01130; 01-01131— REVERSE the district court’s order.
Marilyn Shea-Stonum, Bankruptcy Judge;
David D. Dowd, Jr., District Judge. I. BACKGROUND
The trustee for each case was Michael V. Demczyk
Argued: October 21, 2003 (“Demczyk”), the standing Chapter 12 trustee appointed by the
UST pursuant to 28 U.S.C. § 586(b) and 11 U.S.C. § 1202. In
Decided and Filed: December 19, 2003 October 2000, Demczyk tendered his resignation as standing
trustee in these cases to the UST, who accepted it and notified
Before: KEITH, DAUGHTREY, and GILMAN, Circuit the bankruptcy court that a successor trustee would be
Judges. appointed. In accord with the UST’s standard practice to
provide prompt notice to the courts and all interested parties
regarding the resignation of a trustee and the assignment of a
successor, on November 7, 2000, the UST sent a letter to
Demczyk, with copies to the bankruptcy judges, clerk and
deputy clerks in charge of the four court locations for the
1
No. 02-3237 In re Brookover, et al. 3 4 In re Brookover, et al. No. 02-3237
Northern District of Ohio, Eastern Division, and certain J.A. at 13. Although the UST did not “file” the letters with the
individuals in the UST's office in Cleveland. In the letter, the court, the court itself made the letters part of the court record.
UST accepted the resignation of Demczyk. The letter read, in Information on the UST’s plan to name a successor trustee was
part: given to the court.
I have received your letter of resignation as Chapter 12 On November 28, 2000, the bankruptcy court, sua sponte,
Standing Trustee dated October 31, 2000, which indicates issued an identical Order in each of the cases, which was
that the resignation will be effective November 30, 2000. served on Demczyk, the UST, and the attorneys for the
I accept your resignation and thank you for your years of Chapter 12 debtors, stating, in pertinent part:
service as the Chapter 12 Standing Trustee for the Eastern
Division of the Northern District of Ohio. There have Michael V. Demczyk is the Standing Chapter 12 Trustee
been insufficient Chapter 12 case filings over the past few in this case. The Court recently received correspondence
years to support a Standing Trustee operation, and we from Donald M. Robiner, United States Trustee,
appreciate your willingness to administer these cases for Ohio/Michigan Region 9, which consists of two letters
minimal compensation. dated November 7, 2000 (the "Letters") . . . The Letters
raise a question about whether Mr. Demczyk wishes to
Notice will be filed with the Bankruptcy Court in each continue to serve as the Chapter 12 Trustee. If a change
case of your resignation and my appointment as Chapter is requested, the Court will await a motion filed and
12 interim trustee. My staff will be in contact with you served on all parties in interest. See 11 U.S.C. § 324. Mr.
regarding the transition of funds and files to our office. Demczyk is to continue to carry out his responsibilities in
We anticipate your full cooperation in this regard and in this case, absent a Court Order to the contrary.
the filing of your final annual report.
J.A. at 14.
J.A. at 12. On the same date, November 7, 2000, the UST sent
a letter to the bankruptcy judge, with a copy sent to Joyce On December 7, 2000, the UST filed his motion to
Garner, Deputy Clerk in Charge in Akron. The letter read, in reconsider, and on January 23, 2001, he filed a memorandum
part: in support of the motion to reconsider. A hearing on the
motion to reconsider was held on February 16, 2001. At the
Enclosed for your information is a copy of my letter hearing, the court was shown Demczyk’s resignation letter of
accepting the resignation of Michael Demczyk as Chapter October 31, 2000. The letter read, in part:
12 Standing Trustee for the Eastern Division of the
Northern District of Ohio. There are no longer sufficient Please accept my resignation as the standing Chapter 12
Chapter 12 cases to justify a Standing Trustee under 28 trustee for the Northern District of Ohio, Eastern Division,
U.S.C. § 586(b). On the active Chapter 12 cases, we effective November 30, 2000. I have previously discussed
anticipate appointing successor individual case trustees this matter with your staff regarding an orderly transition
under 11 U.S.C. § 1202(a). These will be administered in of accounts, files, and other assets which might pertain to
a similar manner as Chapter 7 cases. this trusteeship.
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Therefore, whatever I can do to assist this transition bankruptcy lies. This issue has not been extensively litigated.1
and make it as efficient as possible, please do not The pivotal query in this case, however, is directed at the
hesitate to contact me at your earliest convenience. relationship between the common law and statutory authority
as it relates to the process of voluntary resignation and
J.A. at 35. acceptance of that resignation. On this issue, the law provides
adequate guidance.
Following the hearing, and with leave of court, on March 2,
2001, the UST filed a supplemental memorandum in support Generally, “where a common-law principle is well-
of the motion to reconsider. The bankruptcy court denied the established . . . the courts may take it as given that Congress
UST’s motion to reconsider in a published opinion. In re Dale has legislated with an expectation that the principle will apply
R. Brookover, et al., 259 B.R. 884 (Bankr. N.D. Ohio 2001). except ‘when a statutory purpose to the contrary is evident.’”
The UST appealed the orders to the district court pursuant to Astoria Fed. Sav. & Loan Ass’n v. Solimino, 501 U.S. 104, 108
28 U.S.C. § 158(a). The district court considered the three (1991) (citing Isbrandtsen Co. v. Johnson, 343 U.S. 779, 783
appeals, and issued an order affirming the bankruptcy court’s (1952)). Specifically, the UST argues that, under the common
decision for the reasons set forth therein. Robiner v. Demczyk law, absent an express statutory provision to the contrary, a
269 B.R. 167, 171 (N.D. Ohio 2001). public officer has the right to resign, and the authority to
accept the resignation resides with the person or body having
II. ANALYSIS authority to appoint the successor. See Rockingham County v.
Luten Bridge Co., 35 F.2d 301, 306 (4th Cir. 1929). The
A. Standard of Review bankruptcy court, however, found that “the UST, a creature of
statute, cannot[, as he is now attempting,] simply arrogate to
This is an appeal in a bankruptcy case raising questions of himself the power to accept a trustee’s resignation, without
law only. “In a case which comes to us from the bankruptcy Congress so providing.” In re Dale R. Brookover, 259 B.R. at
court by way of an appeal from a decision of a district court, 890 (citing Louisiana Pub. Serv. Comm'n v. F.C.C., 476 U.S.
we review directly the decision of the bankruptcy court. We 355, 374-76 (1986) (a federal agency may not confer power
accord no deference to the district court's decision . . . [and] upon itself or expand its power)). The foundation of the
review de novo the bankruptcy court's conclusions of law.” In bankruptcy court’s position is, therefore, that a Congressional
re Hurtado, 342 F.3d 528, 531 (6th Cir. 2003) (citing grant of authority must be the sole source of the UST’s power
Brady-Morris v. Schilling (In re Kenneth Allen Knight Trust), to accept a trustee’s voluntary resignation. Such a proposition,
303 F.3d 671, 676 (6th Cir.2002)). however, provides ample space for the expression of that
B. Absent an Express Statutory Provision to the invested power to be explicit or implicit. Implicit or incidental
Contrary power can be found in the absence of a “specific provision to
the contrary.” Carlucci v. Doe, 488 U.S. 93, 99 (1988)
The direct task before this court is to determine where the
power to accept the voluntary resignation of a trustee in
1
There is a case that touches on some of the constituent parts running
through the instant case, see, e.g., Richman v. Straley, 48 F.3d 1139,
1143-44 (10th Cir. 19 95), but no case squarely addresses the core
question before this court.
No. 02-3237 In re Brookover, et al. 7 8 In re Brookover, et al. No. 02-3237
(“[A]bsent a ‘specific provision to the contrary, the power of “removal” means “the dismissal from office,” whereas
removal from office is incident to the power of “resignation” means “renouncement or relinquishment of an
appointment.’”) (citation omitted)). Thus, the threshold office.” BLACK’S LAW DICTIONARY 1295, 1310 (6th ed.1990).
question is whether there is a relevant statutory provision that Under the terms of this discussion, it is conceded that the
limits, expressly or impliedly, the alleged common law resignation at issue is “voluntary” and, therefore, distinct from
authority of the UST to accept the voluntary resignation of a removal, to the extent that the latter, implicitly, if not
trustee, where that UST has the express authority to replace the explicitly, contains an element of involuntariness. Consistent
trustee without judicial or other oversight. with these understandings, Congress has consistently treated
resignation and removal as distinct events, both under the
C. Application of 11 U.S.C. § 324 Bankruptcy Code, see 11 U.S.C. §§ 703(a) and 1104(d), and
under Bankruptcy Rule 2012(b).
In the present case, the bankruptcy court rejected the
common law rule because it concluded that the Bankruptcy Scrutiny of the specific provision governing involuntary
Code specifies a role for the court in accepting or refusing the removal, 11 U.S.C. § 324, reveals that it does not control the
voluntary resignation of a trustee. Specifically, the bankruptcy administration of a trustee’s voluntary resignation. 11 U.S.C.
court stated that “[r]esort to common law is not proper in the § 324 states:
face of a [Bankruptcy] Code section clearly setting forth the
statutory procedure to be used when either a trustee seeks, or (a) The Court, after notice and a hearing, may remove a
other officer of the court or the Court seeks, the trustee’s trustee, other than the United States trustee, or an
removal from a pending case.” In re Dale R. Brookover, 259 examiner, for cause.
B.R. at 889 (emphasis added). Importantly, the bankruptcy
court uses the word “removal;” removal is a separate and (b) Whenever the court removes a trustee or examiner
distinct process from resignation.2 under subsection (a) in a case under this title, such trustee
or examiner shall thereby be removed in all other cases
“[W]here Congress uses terms that have accumulated settled under this title in which such trustee or examiner is then
meaning under . . . the common law, a court must infer, unless serving unless the court orders otherwise.
the statute otherwise dictates, that Congress means to
incorporate the established meaning of these terms.” Field v. 11 U.S.C. § 324 (emphasis added). 11 U.S.C. § 324 governs
Mans, 516 U.S. 59, 69 (1995); Nationwide Mut. Ins. Co. v. “for cause” removal, which implies involuntary termination
Darden, 503 U.S. 318, 322 (1992). Under the common law, based on some fault or shortcoming of the person being
removed. The phrase “for cause” is not defined in the
Bankruptcy Code. According to Black’s Law Dictionary:
2
Notice and hearing are required where involuntary “for cause” With respect to removal from office, “for cause” means
removal pursuant to 11 U.S.C. § 324 is invoked, see, e.g., In the Matter for reasons which law and public policy recognize as
of Chapter 13, Pending and Future Cases, 19 B.R . 713, 714-17 (B ankr.
W.D. W ash.198 2) (stating that notice and hearing is required and cause
sufficient warrant for removal and such cause is “legal
for removal must be shown when a standing trustee for Chapter 13 case cause” and not merely a cause which the appointing
is remo ved for cause (citing 1 1 U .S.C. § 324)), but there is no indication power in the exercise of discretion may deem sufficient .
anywhere that such measures are necessary for acceptance of a voluntary . . The cause must be one in which the law and sound
resignation.
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public policy will recognize as a cause for official [sic] no resignation of a trustee, our attention shifts to the examination
longer occupying his office. of 28 U.S.C. § 586(b) as a potential positive source of that
authority. Section 586(b) states, in part: “The [UST] . . . shall
BLACK’S LAW DICTIONARY 644 (6th ed.1990) (citations supervise any such individual appointed as standing trustee in
omitted). the performance of the duties of the standing trustee.” 11
U.S.C. § 586(b). Some of the additional enumerated duties of
It is possible that some fault or shortcoming of a trustee the UST include: monitoring plans filed under Chapter 12,
could lie at the heart of her decision to voluntarily resign. That appointing a standing trustee under Chapter 12, and
fault or shortcoming may, therefore, be the moving force monitoring such trustee. 28 U.S.C. § 586. The bankruptcy
behind the trustee’s private policy. Nonetheless, such a court reasoned that, because acceptance of trustee resignations
coincidence would not vitiate the understanding that the cause is not one of the UST’s enumerated duties under 28 U.S.C. §
of such a voluntary resignation and, more importantly, the 586, the UST is barred from such a function under the maxim
force behind the decision to resign, lies in the trustee’s own expressio unius est exclusio alterius, meaning that the
reasons.3 In this way, public policy is neither the cause nor the expression of one thing is the exclusion of the other. In re
because of underlying the resignation. Dale R. Brookover, 259 B.R. at 893-94. This reasoning is
flawed.
For these reasons, 11 U.S.C. § 324, the “for cause” removal
provision, does not limit the authority of the UST, whether that First, as the UST rightly avers, the enumerated duty of the
authority is derived from a statutory scheme or the common UST to “supervise” is, arguably, broad enough to encompass
law, to the extent that that authority governs the administration the administrative authority to accept a trustee’s voluntary
of a trustee’s voluntary resignation. resignation, particularly when that authority is not expressly
withheld. See Carlucci, 488 U.S. at 99.
D. Application of 28 U.S.C. § 586(b)
Second, the Bankruptcy Code requires the UST to appoint
Having determined that 11 U.S.C. § 324 does not negate, or a qualified successor trustee who is automatically substituted
even act upon, the authority of a UST to accept the voluntary in the case, with no abatement of any pending action or
proceeding. 11 U.S.C. § 325.4 Where there is no Bankruptcy
3
The bankruptcy court may be correct when it states: “By definition 4
‘for cause’ contemplates considerations of public policy and law, which Chap ters 7 and 11 of the Code expressly refer to the U ST ’s role in
considerations would not, and could not, be addressed if a trustee were appointing a successor trustee who “dies,” or “resigns,” or “is remo ved,”
simply perm itted to resign without notice to interested parties and without whereas Chapters 12 and 13 d o not. It was necessary to specify the US T’s
the opp ortunity for a hearing, which by necessity involves the Court.” In role in appointing individual successor trustees under Chapters 7 and 11
re Dale Brookover, 259 B.R at 891. The considerations of public policy because that role, unlike its Ch apters 12 a nd 13 parallel, is contingent –
and law, however, are directly connected to the “cause” for the rem oval, in Chapter 7, on whether the creditors have exercised their right to elect
and not the effect of the removal. The rationale underlying the necessity a trustee, see 11 U.S.C. § 70 3, and in Chapter 11, on whether the court
for due process-like procedures in a removal “for cause” is, therefore, ordered appointment of a trustee in the first instance. See 11 U .S.C.
inapp licable to a voluntary resignation where the “because” is not an § 1104 (d). The absence of an express provision, designed to deal with a
issue. At the hearing in this case, no suggestion was made by any specific contingency in different Chapters, does not impact Chapter 12,
participant that Demczyk had done anything other than commendable where that specific contingency is not at issue. “[It is] hornbook teaching
work. See J.A. at 35. that ‘the provisions of chapters 7, 9, 11, and 13 do not apply in chapter 12
No. 02-3237 In re Brookover, et al. 11 12 In re Brookover, et al. No. 02-3237
Code provision or Bankruptcy Rule assigning the duty to a bankruptcy trustee is not appointed by the court, is not a
accept the prior trustee’s resignation to the court, it is entirely court employee or official, and is specifically not required to
consistent with congressional intent to find that the authority be a lawyer. See 28 U.S.C. § 586(d); 28 C.F.R. §§ 58.3(b) &
to accept the resignation lies in common with the authority to 58.4(b). Rather, the trustee is a private individual appointed
fill the vacancy left by that resignation. by the Executive Branch to perform a public office under the
Bankruptcy Code.
Third, the acceptance of trustee resignations is entirely
consistent with the UST’s other statutorily assigned duties for Furthermore, a court’s inherent power to manage
the appointment, supervision, and general administrative proceedings is limited. In this case, Congress has deliberately
management of trustees. Richman, 48 F.3d at 1143-44 taken administrative responsibility for trustees away from
(“Allowing the same nonjudicial body to both appoint and courts and placed it with the UST. 28 U.S.C. § 586. The
terminate the appointment of standing trustees was consistent Bankruptcy Code already requires the UST to appoint a
with the legislative intent for the statutory scheme for the qualified successor trustee who is automatically substituted in
appointment and removal of standing trustees; the cronyism the case, with no abatement of any pending action or
and appearance of impropriety that the legislature sought to proceeding. 11 U.S.C. § 325. Finally, although Demczyk is an
remedy was the old system which had standing trustees attorney, he is not acting as an attorney in this case, and,
appearing before the judges who appointed them. 11 U.S.C.A. therefore, Ohio disciplinary rule DR 2-110 and Ohio Local
§ 324(a, b); 28 U.S.C.A. § 586(b)”). Moreover, imputing such Civil Rule 83.9, which were cited by the bankruptcy court and
a role to the courts is contrary to the common law rule and require court permission for an attorney to withdraw from
defeats the dominant purpose of Congress in creating the office representation of a client in a pending proceeding, are not
of the United States Trustee – that is, to take over the applicable.
administration of bankruptcy cases, including the management
of case trustees, from the courts. Likewise, the congressional Accordingly, if any provision, explicitly or implicitly,
intent to “to strip bankruptcy courts of their administrative role governs the acceptance of a voluntary resignation, it is 28
so that they could better perform their judicial tasks,” U.S.C. § 586(b).
Richman, 48 F.3d at 1144, militates against the bankruptcy
court’s intervention to the extent that the intervention sprang E. Under the Common Law, the Authority to Accept the
from its presumed authority to regulate the trustee as an Resignation Resides with the Person or Body Having
“officer of the court.” Authority to Appoint a Successor
Judicial intervention in a trustee’s voluntary resignation, The Bankruptcy Code and Bankruptcy Rules explicitly
based on the premise that a trustee is an “officer of the court,” mandate how a trustee may be removed but not how a trustee
is unsound for several additional reasons. As an initial matter, may voluntarily resign. The absence of an express mandate in
the Bankruptcy Code and Bankruptcy Rules on the issue of
voluntary resignation may indicate that, as discussed above,
cases unless specifically incorporated by a particular section of chapter the power to accept the voluntary resignation of a trustee is
12.’” In re Dale R. Brookover, 259 B.R. at 890, n. 9 (quoting 8 C OLLIER contained in the UST’s supervisory authority pursuant to
O N B ANKRUPTCY § 1200 .02[2] (15th ed.)). At the same time, the 28 U.S.C. § 586(b). Alternatively, the power to appoint a
contention that the UST wields the sole authority to appo int and supervise successor without an abatement in the proceedings, or any
successor Chapter 12 trustees is undisputed.
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judicial oversight, may subsume the power to accept the appoint the successor. See Rockingham County, 35 F.2d at
voluntary resignation of the predecessor. 11 U.S.C. § 325; 306.
Bankr. Rule 2012(b) (“[w]hen a trustee dies, resigns, is
removed, or otherwise ceases to hold office during the Whether viewed directly through 28 U.S.C. § 586(b) or the
pendency of a case under the [Bankruptcy] Code . . . the prism of the common law, the light of the law falls squarely
successor is automatically substituted.”). Under either upon a single conclusion: the authority to accept the voluntary
proposition, the trustee’s choice to resign is, to the eyes of the resignation of a bankruptcy trustee is vested entirely within the
court, a black box. purview of the UST’s congressionally conferred authority.
Where, as is the case here, a common law principle is well-
If the authority to terminate, which is by definition an established, the courts may take it as given that Congress has
involuntary process, is implicit in the power of appointment, legislated with an expectation that the principle will apply
then there is no logical or statutory barrier to a finding that the except “when a statutory purpose to the contrary is evident.”
authority to accept a resignation, which is by implication Solimino, 501 U.S. at 108. No statutory purpose to the
voluntary or at least less involuntary than removal, is likewise contrary is present in this case. Accordingly, the UST has the
implicit in the power to appoint the successor trustee. authority to accept the voluntary resignation of a bankruptcy
Richman, 48 F.3d at 1143-44 (10th Cir. 1995) (“[T]ermination trustee in a pending case, and the law does not require the
authority was implicit in the statutory power of appointment.” decision to be submitted to the bankruptcy court for approval.
28 U.S.C. § 586(b) (citations omitted)). Moreover, if the Thus, the bankruptcy court’s ruling requiring a motion,
statutory authority to remove can be contained within the evidentiary hearing, and a judicial determination to decide
power to appoint, it would be unsound to say that, where the whether a bankruptcy trustee who wishes to resign voluntarily
UST holds the authority to appoint the successor, and the is justified in so doing is not supported by law.
power to appoint the successor is not judicially supervised, the
UST does not have the power to accept the voluntary III. CONCLUSION
resignation of the predecessor. Carlucci v. Doe, 488 U.S. at 99(statutory power to appoint implicitly encompasses power to For the reasons stated above, the judgment of the district
remove, unless the statute specifically denies such power).5 court affirming the bankruptcy court’s ruling is REVERSED,
The common law, recognizing this verity, has long held that, and the case is REMANDED for further proceedings
absent an express statutory provision to the contrary, a public consistent with this opinion.
officer has the right to resign and the authority to accept the
resignation resides with the person or body having authority to
5
Even where courts are vested with the power to remove a trustee,
that power has been held not to be exclusive. See Richman, 48 F.3d at
1143 (explaining the Bankruptcy Cod e section providing that court may
remove trustee for cause and that the rem oval for cause . . . did not
preclude the United S tates Trustee, as the party with the power of
app ointment, from removing standing Chapter 12 and Chapter 13 trustee.
11 U .S.C.A . § 32 4(a, b ); 28 U .S.C.A . § 58 6(b)).