Stine v. Diamond ( 2005 )

FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re: JOHN F. FLYNN, 
Debtor,
No. 03-56340
ELSIE C. STINE,
Appellant,  BAP No.
CC-02-01553-KPB
v. OPINION
RICHARD K. DIAMOND, Trustee,
Appellee.

Appeal from the Ninth Circuit
Bankruptcy Appellate Panel
Brandt, Perris, and Klein, Bankruptcy Judges, Presiding
Argued and Submitted
May 2, 2005—Pasadena, California
Filed August 10, 2005
Before: Edward Leavy, Raymond C. Fisher, and
Jay S. Bybee, Circuit Judges.
Opinion by Judge Leavy
10369
IN RE FLYNN 10371
COUNSEL
Claudia Kloss, Venice, California, for the appellant.
Steven J. Schwartz, Danning, Gill, Diamond & Kollitz, LLP,
Los Angeles, California, for the appellee.
OPINION
LEAVY, Senior Circuit Judge:
Elsie Stine, the co-owner of real property with the bank-
ruptcy debtor, John Flynn, appeals the Bankruptcy Appellate
10372 IN RE FLYNN
Panel’s (BAP) decision that she was required to pay a pro-rata
share of the attorney’s fees incurred by the bankruptcy trustee
during the sale of the property. Stine also appeals the BAP’s
decision to permit the trustee to withhold Stine’s share of the
sale proceeds. We have jurisdiction under 28 U.S.C. § 158(d),
and we reverse.
BACKGROUND
Elsie Stine’s son, John Flynn, filed a Chapter 7 bankruptcy
case on July 30, 2001. Richard Diamond was appointed
trustee. The property of Flynn’s estate included a 50 percent
interest in real property located in Downey, California. The
other half interest was owned by Stine.
At the time the bankruptcy case was filed, the property was
the subject of a state court partition action between Stine and
Flynn. After the trustee stepped in and continued to litigate
the partition action, the trustee and Stine agreed to sell the
property under 11 U.S.C. § 363(h).1 They reserved, without
resolving, other claims in the partition action.
The sale of the property produced approximately $120,000
in net proceeds after the payment of outstanding liens and real
estate commissions. Under § 363(j), the trustee applied for
attorney’s fees incurred by his law firm for services allegedly
chargeable to the proceeds prior to distribution, including fees
for (1) defending the property from relief from stay proceed-
ings ($3,430.00); (2) marketing and selling the property
($20,368.50); (3) litigating the partition suit and negotiating
the proposed stipulation with Stine ($7,109.50); and (4) clear-
ing a cloud on title created by an unauthorized deed on the
property ($6,507.00).
1
Section 363(h) permits the trustee to sell both the estate’s interest and
any co-owner’s interest in property under certain circumstances. See 11
U.S.C. § 363(h) (2005).
IN RE FLYNN 10373
Stine argued that the requested attorney’s fees should be
paid solely from the estate’s one-half share of the sale pro-
ceeds. The bankruptcy court granted the trustee’s motion for
fees in part, finding that only $23,798.50 (the first and second
requests) were sufficiently related to the sale of the property.
Based on its finding that these fees “directly benefitted” Stine,
the court ordered Stine to pay a pro-rata share or $11,899.25
from her portion of the proceeds.
The bankruptcy court also granted the trustee’s motion for
an order permitting him to withhold Stine’s share of the sale
proceeds pending resolution of the remaining claims in the
partition action.
Stine appealed the bankruptcy court’s charge of attorney’s
fees against her share of the proceeds and its order permitting
the trustee to withhold her portion of the proceeds. The BAP
affirmed and Stine timely appealed.
STANDARD OF REVIEW
This court independently reviews a bankruptcy court’s rul-
ings on appeal from the BAP. See In re Deville, 361 F.3d 539,
547 (9th Cir. 2004). We review the bankruptcy court’s con-
clusions of law de novo and its findings of fact for clear error.
See In Re Dawson, 390 F.3d 1139, 1145 (9th Cir. 2004).
ANALYSIS
[1] Both issues raised by Stine on appeal, the charging of
attorney’s fees against her share of the proceeds and the with-
holding of the proceeds, require our interpretation of 11
U.S.C. § 363(j). Therefore, our analysis begins with the stat-
ute:
After a sale of property to which subsection (g) or
(h) of this section applies, the trustee shall distribute
to the debtor’s spouse or the co-owners of such prop-
10374 IN RE FLYNN
erty, as the case may be, and to the estate, the pro-
ceeds of such sale, less the costs and expenses, not
including any compensation of the trustee, of such
sale, according to the interests of such spouse or co-
owners, and of the estate.
11 U.S.C. § 363(j) (2005).
[2] The plain meaning of § 363(j) is that only costs and
expenses which do not include compensation of the trustee
may be deducted from the proceeds before they are divided.
Thus, the question before us is whether the attorney’s fees at
issue constitute compensation of the trustee. The attorney’s
fees in this case were incurred for preserving and disposing of
the property within the bankrupt’s estate. These are matters
squarely within the duties of a Chapter 7 bankruptcy trustee.
See 11 U.S.C. § 704 (2005); Latman v. Burdette, 366 F.3d
774, 784 (9th Cir. 2004); In re United Ins. Mgmt., Inc., 14
F.3d 1380, 1386 (9th Cir. 1994). Therefore, under § 363(j), a
pro-rata share should not have been charged against Stine’s
share of the proceeds.
[3] We reject the trustee’s argument that the fees were
properly charged to Stine because she directly benefitted from
the attorney’s work. We rejected a similar argument in In re
Golden Plan, 829 F.2d 705 (9th Cir. 1987), where we held
that, in the absence of authority in the governing statute (there
§ 506(c)), it was error for the bankruptcy court to charge a co-
owner with expenses incurred in disposing of property, even
when some of those expenses benefitted the co-owner. Id. at
713. As we noted, “it is not within the province of this court
to depart from or enlarge upon the specific wording of the
statute.” Id. at 712 (internal citation and quotation omitted).
Because § 363(j) provides no authority for the bankruptcy
court to charge Stine the attorney’s fees at issue, it was error
for the court to require Stine to pay a pro-rata share.2
2
We do not hold that attorney’s fees are never chargeable to a co-owner
under § 363(j). For example, in a jurisdiction where the services of an
attorney are required at closing, those fees are part of the expense of sale
of property.
IN RE FLYNN 10375
[4] We again turn to the statute to determine whether it pro-
vides authority for the trustee to withhold Stine’s share of the
proceeds pending resolution of other claims in the partition
suit. Section 363(j) mandates that, after the sale of the co-
owned property, “the trustee shall distribute to . . . the co-
owner of such property . . . the proceeds of such sale . . .
according to the interests of such . . . co-owner and of the
estate.” 11 U.S.C. § 363(j) (emphasis added). Again, the plain
language of the statute directs the trustee immediately to dis-
tribute proceeds after the sale. Thus, the bankruptcy court
erred when it permitted the trustee indefinitely to withhold
Stine’s portion of the sale proceeds.
REVERSED AND REMANDED for immediate distribu-
tion of Stine’s full share of the sale proceeds.