Respondents Brief — Lamie v. United States Trustee
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AUG 6 - 2003
No. 02-693
In the Supreme Court of the United States
JOHN M. LAMIE, PETITIONER
v.
UNITED STATES TRUSTEE
ON WRIT OF CERTIORARI .
TO THE UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
BRIEF FOR THE RESPONDENT
THEODORE B. OLSON
Solicitor General
Counsel of Re cord
PETER D. KEISLER
JOSEPH A. GUZINSKI Assistant Attorney General
General Counsel
P. MATTHEW SUTKO
Attorney
THOMAS G. HUNGAR
Deputy Solicitor General
Executive Office for LISAS. BLATT
United States Trustees Assistant to the Solicitor
Washington, D.C 20530 General
D. partment of Justice
Washington, D.C. 20530-0001
(202) 514-2217
QUESTION PRESENTED
Whether Section 330(a)(1) of the Bankruptcy Code,
11 U.S.C. 330(a)(1), authorizes a court to use the funds
of a bankruptcy estate to compensate an attorney of a
chapter 7 debtor.
TABLE OF CONTENTS
2
Jurisdiction :
Statutory provisions involved .
———— —Y—-—„—V
— —
Argument:
Seetion 330 does not authorize the use of estate funds
to compensate a chapter 7 debtor’s attorney
A. The plain text of Section 330(a)(1) does not
catherine estate Sands to be paid toa chapter 7
. —
B. The statutory context is consistent with Con-
1 — “or the
ND —
C. The legislative history is consistent with an
intentional deletion of the phrase “or the debtor's
1 —
D. Enforcing Section 330(a)(1) as written furthers
reasonable policy objectives
Conclusion — .2— ——
8 ———.ñ—
TABLE OF AUTHORITIES
Cases:
Am. Steel Prod., Inc., In re, 197 F.3d 1354 (11th Cir.
1999) ꝗꝗ„— — —
BFP v. Resolution Trust Corp., 511 U.S. 531
8 — — —
(IIT)
ee
14
s K &
IV
Cases: Page
Century Cleaning Servs., Inc., In re, 195 F.3d 1053
(9th Cir. 1999) 10, 11, 18, 28, 40
Chan v. Korean Air Lines, Ltd., 490 U.S. 122
(1989) 11, 16
Chickasaw Nation v. United States, 534 U.S. 84
(2001) 15
Cohen v. de la Cruz, 523 U.S. 213 (1998) 32, 33
Connecticut Nat'l Bank v. Germain, 503 U.S. 249
(1992) 14
Dewsnup v. Timm, 502 U.S. 410 (1992) 33
Director, Office of Workers’ Comp. Programs v. New-
port News Shipbuilding & Dry Dock Co., 514 US.
122 (1995) 12
First Jersey Secs., Inc. In re, 180 F.3d 504 (3d Cir.
1999) 42
F Airlease II, Inc. v. Simon, 844 F.2d 99 (3d Cir.),
cert. denied, 488 U.S. 852 (1988) 8
Hammock v. Loan & Trust Co., 105 U.S. 77 (188)) ........ 12
Harrison v. PPG Indus., Inc., 446 U.S. 578 (1980) ......... 32
Hartford Underwriters Ins. v. Union Planters
Bank, N.A., 530 U.S. 1 (2000) 11, 33
Hughes Aircraft Co. v. Jacobson, 525 U.S. 432
(1999) 14
Iselin v. United States, 270 U.S. 245 (1926) 11,12
Louisiana World Exposition v. Federal Ins. Co.,
858 F. 2d 233 (5th Cir. 1988) 40
Milwaukee Engraving Co, In re, 219 F.3d 635
(7th Cir. 2000) 8
Mobil Oil Corp. v. Higginbotham, 436 U.S. 618
(1978) 11
Morales v. Trans World Airlines, Inc., 504 U.S. 374
(1992) 32
Mosser v. Darrow, 341 U.S. 267 (1951) 21
Pennsylvania Dep't of Pub. Welfare v. Davenpont,
495 U.S. 552 (1990) 32, 33
Pillowtex, Inc., In re, 304 F.3d 246 (3d Cir. 2002) ............. 42
_— —— — — ä — —
V
Cases Continued: Page
Pro- Snar Distribs., Inc., In re, 157 F.3d 414 (5th Cir.
1998) 10, 15, 16-17, 38
Raleigh v. Illinois Dep't of Revenue, 530 U.S. 15
(2000) — 33
Schreiber v. Burlington N., Inc., 472 U.S. 1
(1985) 7 14
Union Bank v. Wolas, 502 U.S. 151 (1991) ................... 11, 25
United States v. Granderson, 511 U.S. 39 (1994) ............. 12
United States v. Locke, 471 U.S. 84 (1985) 11
United States v. Ron Pair Enters., Inc., 489 U.S. 235
(1989) 11,33
United States Nat'l Bank v. Independent Ins. Agents
of Am., Inc., 508 U.S. 439 (1993) 11, 12, 13, 14, 22
Statutes, regulation and rule:
Act of Sept. 7, 1916, ch. 461, 39 Stat. 753 12
Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,
§ 330, 92 Stat. 2564 8-9
Bankruptcy Reform Act of 1994, Pub. L. No.
103-394, § 224, 108 Stat. 4130 —— 9-10
Bankruptcy Code, 11 U.S.C. 101 et seg.
Ch. 3, 11 U.S.C. 301 et seg.
11 U.S.C. 307 ä 2
11 U.S.C. 323(a) ' 20, 21, 40
11 U.S.C. 327 16, 17, 19, 20, 21, 34, la
11 U.S.C. 327(a) 3, 7, 35, 36, 37, 43, la
11 U.S. c. , 7, 20, 21, 34, 36, 37, 39, 43, la
11 U.S.C. 32&(c) 16, 20
il U.S.C. 329 42
11 U.S.C. 32%a) 42
11 U.S.C. 32%b) 42
11 U.S.C. 330 (1988) 3
11 U.S.C. 330 passim
11 U.S.C. 330(a) (1988) 5,9
11 U.S.C. 330(a) passim
11 U.S.C. 330(aX1) passim, 2a
OD Re SD enters 15, 16, 2a
VI VII
Statutes, regulation and rule—Continued: Page Statutes, regulation and rule—Continued: Page
11 U.S.C. 330(a)(4) 19, 3a 11 U.S.C. 1108 g 40
11 U.S.C. 330(a)(4)(A) 18, 19, 3a | 11 U.S.C. 1112(b) ......... 3
11 U.S.C. 3300 Ali) 19, 3a 11 U.S.C. 1121(a) 35
11 U.S.C. 3300) passim 11 U.S.C. 1121(b) 1 35, 37
11 U.S.C. 330005) 22, 3a 11 U.S.C. 11210 CREASE Sa 35
11 U.S.C. 331 22, 5a r IIE NU IE SN RNT VRPe aOR 35
11 U.S.C. 341 40 - passim
Ch. 5, 11 U.S.C. 501 et seg. 11 U.S.C. 1203 eee I eee 20, 35
11 U.S.C. 503 8 LET ATTICS 20, 35
11 U.S.C. 503(b)(2) 8 I 20, 35
11 U.S.C. 507 8 Ch. 13, 11 U.S.C. 1301 et %%ꝶ₄ ͤů. passim
11 U.S.C. SN 8 g _| ot — RTE 20, 35
11 U.S.C. 521(1) 40 | nn ² i.. ⁵? 20, 35
11 U.S.C. 52102) 40 Op T— 20, 35
11 U.S.C. 521(3)}(5) 40 11 ————— 20, 35
11 U.S.C. 521(4) 36, 40 r 26
11 U.S.C. 541 39, 42 Pub. L. No. 104-88, § 302, 109 Stat. 943 (199) 13
11 U.S.C. Sai) 37 Pub. L. No. 104-134, § 101, 110 Stat. 1321-74 (1996) ........... 13
11 U.S.C. S418) 37 Pub. L. No. 104-193, § 374(a)(1)-(4), 110 Stat. 2255
11 U.S.C. 547(b) 42 m ö 13
Ch. 7, 11 U.S.C. 701 et seq. passe Pub. L. No. 105-183, 66 2-4, 112 Stat. 517-518 (1998) ......... 13
11 U.S.C. 701 ...... r- Pub. L. No. 105-244, § 971(a), 112 Stat. 1837 (1998) ........... 13
— — 36.41 Pub. L. No. 105-277, § 603, 112 Stat. 2681-886 (1998) ......... 13
4 ' Pub. L. No. 106-181, § 744(a) and (b), 114 Stat. 175-176
11 U.S.C. 704(2) 41
11 U.S.C. 704(5) 41 —— 13
11 U.S.C. 726 8, 36, 37 Pub. L. No. 106-420, § 4, 114 Stat. 1868 (2000) 13
11 USC. 72%) 36, 37 Pub. L. No. 106-554, § 1(a)(5) [Tit. I § 112(c)], 114 Stat.
aaa passim 2763A-393 to 2763A-396 (2000) — 13
11 U.S.C. 1103 16, 17, 19 Pub. L. No. 107-204, § 803(1)-(3), 116 Stat. 801 (2002) 13
11 U.S.C. 1104(a\(1) 37 7 U.S.C. 136(hh\(3B) 17
11 U.S.C. 110442) — 37 11 U.S.C. App. Official Forma . 40
11 U.S.C. 1106 34, 37, 40 8 U.S.C. 11017 17
11 U.S.C. 1107 3, 35, 37 8 U.S.C. 1324a(b\1)(B) n 17
11 U.S.C. 1107(a) 34, 40 12 USC. 17152z-14(b) : 17
11 U.S.C. 1107(b) 34 j 12 U.S.C. 3303(a) 17
u UAC. s . . . 17
VIII
Statutes, regulation and rule—Continued: Page
U 17
16 U.S.C. 31680vö229——————————————.———¶——ꝙůõE 17
Ii . 17
16 U.S.C. BOLD aM x) ————.————.—ꝛñ.æ.....——9 17
16 U.S.C. (aK IF) ————.—6ꝰ7—ͤ...—g—3ꝗ⁊ů ⁊·õ—2h. 17
18 UC. 1] —————.—— 17
20 U.S.C. 1090099 ——————————2:—.———.—.: L 17
2 UBC. 62 ——— 17
BB UBC. 66. !łçö.7. — 17
2 U.S.C. , —————————————2yůↄ—õgõæi˙— 17
25 U.S.C. 16133 -b BMA) ) ——.——ͤ .—99—2ð⁊—23——4—. 17
26 U.S.C. 800019 ——Pf—7————————————.—— 17
26 U.S.C. Se ——.—.—ng•'—⸗¹nedõ————————.—⸗———— 17
28 U.. C. 58156 8—————————n˙—ͤ.. 2
28 U.S.C. 5880483 ———————————2—'vð u .—92Æꝙ5.uriò. L.. 7, 38
28 U.S.C. 5880203 C( (0) ———.———:——9—ᷓõ.⁊⅛æ. ... 30
28 U.S. C. 58802 3 KA 0 ————.—.—9＋”25ůðñÿi ... 2
28 U.S.C. 5880-3 (Ac ——.—..—..—4—⸗:ñͥ—.. 2
42 U.S.C. 405004 8) ———g.—.—..—.—.—.—.—. 17
4242 UBA.C. asu ————.— 17
42 U.S.C. 1395 bb(a2 2 ————.—.————.—2'7ůra 17
42 U.S.C. 1395 (d)(5 F MV II) ieee. 17
42 U.S.C. 13986 CU1O0MA) e. 17
42 U.S.C. 14362⁰⁴ee 2 ——————.—————.—2. . 17
4 UA c. 00 —7—7r—˖P——— 17
42 U.S.C. 56330243 E ——————.—.———.——..—. 17
a 17
42 U.S.C. 101380 65D —————.——.——.————.—5 17
4B UA. 666.1. 51„ÿꝓ„]oä8o 17
42 U.S.C. 140% Ac 489 —Tͥ———.—.—.———— 17
* U.S.C. 1 f.. 17
28 C. F. R. Pt. 58, App.: R ———.——.——. 31
Bankr. R.
99908868 —.——.9———————— 40
2 J 40
Rete 00 —1˖ñ„ö .. .9ç9ꝙ—Cꝓm————d 40
IX
Miscellaneous: Page
Administrative Office of the U.S. Courts <http://www.
uscourts. gov / Press Releases /eyO2. pdf (tbl. F- 2) .......... 28
Bankruptcy Reform: Hearing on H.R. 5116 Before
the Subcomm. on the Economy and Commercial
Law of the House Comm. on the Judiciary, 103d
. 28
Stanley B. Bernstein et al., Collier Compensation,
Employment and Appointment of Trustees and
Professionals in Bankruptcy (2001) viv
139 Cong. Rec.
p. 82610 (daily ed. Mar. 10, 1993) ..
pp. S 2621-82622 (daily ed. Mar. 10, 1993) 23,
p. 82622 (daily ed. Mar. 10, 1933) ...........ccscssssessssesssseneees
p. $14,625 (daily ed. Oct. 28, 1993)
140 Cong. Rec.
p. 84405 (daily ed. Apr. 19, 1994) .
pp. S44 15-844 16 (daily ed. Apr. 19, 1994) .
p. 84416 (daily ed. Apr. 19, 1994) .
pp. 84505-84506 (daily ed. Apr. 20, 1994)
p. 84507 (daily ed. Apr. 20, 1994) 25, 26,
p. 84646 (daily ed. Apr. 21, 1994) . ..
p. 84666 (daily ed. Apr. 21, 1994) . .
PP. 84741-84742 (daily ed. Apr. 21, 1994)
S4742 (daily ed. Apr. 21, 1994) . . .
814,461 (daily ed. Oct. 6, 1994)
$14,597 (daily ed. Oct. 7, 1994) 30,
H 10,006 (daily ed. Sept. 28, 1994) .
H 10, 726 (daily ed. Oct. 4, 1994) ..
H 10,752 (daily ed. Oct. 4, 1994) .
pp. H10,758-H 10,759 (daily ed. Oct. 4, 1994)
p. H10,917 (daily ed. Oct. 5, 1994)
p. D418 (daily ed. Apr. 21, 1994)
p. D1153 (daily ed. Sept. 28, 1994)
p. D1155 (daily ed. Sept. 28, 1996)
8 PP D
JAS SNN SSS SSN SS SNS STN NN S 8
149 Cong. Rec. (daily ed. Mar. 19, 2003):
ane 14
p. D262 9 RS RUD ERNNSDNEDESRESERERDEDEROEROEEEEIEODS 14
1 In the Supreme Court of the United States
Miscellaneous Continued: Page
Amy L. Good & Dean P. Wyman, Representing | No. 02-693
samy 0d 1 — Sane, 0 JOHN M. LAMIE, PETITIONER
Law., Mar. 1999 ...... ...... ......
H.R. 5116, 103d, 2d Sess. (1994) 27, 28, 30 |
H.R. 120, 105th Cong., Ist Sess. (1997) ...... 13 V.
H. R. 764, 105th Cong., Ist Sess. (1997) ...... 13
H. R. 975, 108th Cong., Ist Sess. (2003) ...... — 13-14 UNITED STATES TRUSTEE
H.R. Rep. No. 595, 95th Cong., 2d Sess. (1977) .... 2
H.R. Rep. No. 835, 103d Cong., 2d Sess. (1994) .... 30 |
Karl N. Llewellyn, The Common Law Tradition ON WRIT OF CERTIORARI
(1960) . . . . . . ..... . . . ...e. ... .. ... ..... 15 TO THE UNITED STATES COURT OF APPEALS
S. 540, 103d Cong., Ist Sess. (1993) 19, 23, 24, 25, 27, 28, 30 FOR THE FOURTH CIRCUIT
S. 1559, 104th Cong., 2d Sess. (1996) ...... 13
Teresa A. Sullivan et al., As We Forgive Our Debtors
(1999) PPP 8 „ „„ „ „ „ „ 6 2 2 „ 223 2 22 12 2%%ͥÿj 0 „jjjjũ?%ã½yẽ he 39 BRIEF FOR THE RESPONDENT
David Tatge et al., Chapter 7 Bankruptcy Trustee's
Manual (1993) a — — —
fessional Conduct (2002)
7 — — , Mission Statement <http://www. OPINIONS BELOW
usdoj. gov / ust / mission. htm ...... een. 2 The opinion of the court of appeals (Pet. App. 1a-14a)
Rosemary E. Williams, Bankruptcy Practice Hand- 0 is reported at 290 F.3d 739. The opinion of the distriet
book (2d ed. 2002) . . . . . . . .. .. .. . . · . . . . . 12 App. 15a-27a) is — at 260 B. R. 278.
The opinion of the bankruptcy court (Pet. App. 28a-44a)
is reported at 253 B.R. 724.
JURISDICTION
The judgment of the court of appeals was entered on
May 31, 2002. A petition for rehearing was denied on
August 5, 2002 (Pet. App. 45a). A petition for a writ of
certiorari was filed on November 4, 2002, and was
granted on March 10, 2003. The jurisdiction of this
Court rests under 28 U.S.C. 1254(1).
(1)
— — — — — — —
2
STATUTORY PROVISIONS INVOLVED
The relevant statutory provisions are reproduced in
an Appendix to this brief. App., infra, la-5a.
STATEMENT
1. United States Trustees supervise the administra-
tion of bankruptcy cases and trustees within specified
geographic regions. 28 U.S.C. 581-589. “The United
States Trustee Program acts in the public interest to
promote the efficiency and to protect and preserve the
integrity of the bankruptcy system.” http://www.usdo).
gov/ust/mission.htm. See H.R. Rep. No. 595, 95th
Cong., 2d Sess. 88 (1977) (United States Trustees
“serve as bankruptcy watch-dogs to prevent fraud, dis-
honesty, and overreaching in the bankruptcy arena.)
Congress provided in the Code that At he United
States trustee may raise and may appear and be heard
on any issue in any case or proceeding under this Title.”
11 U.S.C. 307. Congress also has specifically directed
United States Trustees to “review[] * * * applications
filed for compensation and reimbursement under
section 330 of title 11[] and * * * [to] fille] with the
court” any “objections to such application.” 28 U.S.C.
586(a)(3)(A)(i) and (ii).
2. On December 24, 1998, Equipment Services, Inc.,
filed a voluntary petition for relief under the debt re-
organization provisions of chapter 11 of the Bankruptcy
Code, 11 U.S.C. 1101 et seg. At the time of the filing,
the company had retained petitioner, an attorney, to
represent it in the bankruptcy proceedings and had
given petitioner a $6000 retainer, of which $1000 was
used to pay the fees and cosis of filing the petition.
Petitioner deposited the remaining $5000 in an escrow
account, to be drawn upon as petitioner earned fees. On
January 26, 1999, the Bankruptcy Court approved
3
petitioner’s employment as the attorney for the debtor-
in-possession in the chapter 11 proceeding. Pet. App.
2a, 28a; see 11 U.S.C. 327(a), 1107.
On March 17, 1999, on the motion of the United
States Trustee, the proceeding was converted into a
case under the liquidation provisions of chapter 7. 11
U.S.C. 1112(b). Petitioner filed an application with the
Bankruptcy Court seeking $2325 in attorneys fees,
$1325 of which was earned during the chapter 11
proceeding and $1000 of which was earned during the
chapter 7 proceeding. The United States Trustee
objected to the application to the extent that it
requested $1000 in compensation for services rendered
after the case was converted to a chapter 7 proceeding.
Pet. App. 4a, 15a-17a, 29a.
The Bankruptcy Court held that the Code did not
authorize a chapter 7 debtor’s attorney to be paid funds
from the bankruptcy estate. Pet. App. 30a-38a. The
court explained that, before the Code was amended in
1994, 11 U.S.C. 330 (1988) had authorized an award to
any debtor’s attorney, but Congress in a 1994 amend-
ment to Section 330 deleted the statutory language
authorizing such an award. Pet. App. 34a. The court
further observed that Congress in 1994 added a sepa-
rate provision to Section 330 that “provide[s] express
authority for payment of counsel to a Chapter 12 or 13
debtor from the estate.” Pet. App. 33a (citing 11 U.S.C.
330(a)(4)(B)). The court accordingly concluded that
there was no authority to award fees to a chapter 7
debtor’s attorney. The Bankruptcy Court nonetheless
awarded petitioner fees for services rendered while the
case proceeded under chapter 7 because the court
concluded that the pre-petition retainer was not, under
4
state law, property of the bankruptcy estate. Id. at
38a-43a.
The district court affirmed. Pet. App. 15a-26a. The
court concluded that Section 330(a)(1) was “plain” in not
authorizing fees to a chapter 7 debtor’s attorney. /d. at
22a, 24a. The district court nonetheless agreed with the
bankruptcy court’s conclusion that, under state law, the
retainer was not property of the estate and accordingly
that petitioner was entitled to draw from the retainer
fecs earned during the chapter 7 proceeding. Id. at 25a-
26a.
3. A divided panel of the court of appeals affirmed
the district court’s construction of Section 330, but the
panel unanimously reversed the district court’s con-
clusion that the retainer was not property of the bank-
ruptcy estate. Pet. App. la-14a. The court of appeals
held that Section 330(a) does not authorize a chapter 7
debtor’s attorney to be compensated from the estate.
Id. at 5a-9a. The court of appeals reasoned that
“§ 330(a), as revised in 1994, omits the phrase ‘or the
debtor’s attorney’ from the list of persons to whom a
court may award ‘reasonable compensation’ from the
bankruptcy estate for services rendered in a Chapter 7
proceeding.” Jd. at 6a. The court concluded that it
“should follow the plain language of the 1994 version of
§ 330(a), particularly because application of that plain
language supports a reasonable interpretation of the
Bankruptcy Code.” Id. at Sa. |
Judge Michael dissented from the court’s holding that
Section 330 did not authorize the award of fees to a
1 On July 10, 2000, the Bankruptcy Court had separately
approved petitioner’s application for $1325 in fees earned for ser-
vices rendered while he represented the company in its capacity as
a debtor-in-possession under chapter 11. Pet. App. 29a n.18.
—
5
chapter 7 debtor’s attorney. Pet. App. 13a-14a. In his
view, the deletion of the phrase “or to the debtor’s
attorney” from the statute was a “drafting error”
subject to correction by the court. Jd. at 13a.
SUMMARY OF ARGUMENT
A. The 1994 amendments to Section 330 removed
“the debtor’s attorney” from the list of eligible
individuals entitled to receive compensation. The
current version of Section 330 thus contains no statu-
tory authority to use estate funds to compensate a
chapter 7 debtor’s attorney. The judgment of the court
of appeals therefore must be affirmed unless petitioner
meets the heavy burden of showing that the omission of
the phrase “or the debtor’s attorney” from the statute
is unquestionably a scrivener’s error that produces
absurd results.
B. Petitioner fails to demonstrate beyond question
that Congress’s omission was an accident, much less
one that, if not corrected, would produce results that
Congress could not have rationally intended. The
statutory context indicates that Congress purposefully
omitted the phrase “or the debtor’s attorney” from Sec-
tion 330. The omission is the most direct and obvious
means to eliminate the authority to pay debtors’ attor-
neys out of estate funds held for the benefit of credi-
tors. Moreover, while the 1994 amendments to 11
U.S.C. 330(a) (1988) omitted the phrase “or the debtor’s
attorney,” the amendments enacted a new provision
authorizing only attorneys for individual chapter 12 or
13 debtors to be paid fees from the estate. 11 U.S.C.
330(a)(4)(B). Congress’s simultaneous denial of similar
authorization for attorneys for chapter 7 debtors
reflects deliberate action on the part of Congress.
6
C. The legislative history also is consistent with the
conclusion that Congress intentionally omitted the
phrase “or the debtor’s attorney” from Section
330(a)(1). The phrase was deleted in the same
amendment that added the authorization in Section
330(a)(4)(B) for estate fees to be paid solely to
attorneys for chapter 12 or 13 debtors. Furthermore,
the members of Congress had over five months before
final enactment in which to read and consider the text
of the Senate bill that had deleted the phrase “or the
debtor’s attorney” from Section 330(a). In that
intervening period, the deletion of the phrase was
brought to the attention of Congress by an organization
of debtors’ attorneys who expressed no objection to the
deletion, and Congress thereafter left the provision
unchanged.
D. Enforcing the statute as written serves legitimate
and substantial policy objectives. Unlike proceedings
under chapters 11, 12, and 13, in which the debtor is
responsible for developing repayment plans for the
benefit of creditors, a proceeding under chapter 7
involves liquidation of the estate by a trustee. 11
U.S.C. 704. Chapter 7 is a zero-sum game in which any
funds diverted from the estate to pay attorneys reduce
the amount of funds available to pay creditors. Con-
gress therefore quite rationally could have determined
to preserve chapter 7 estate funds for the benefit of
creditors.
At the same time, denial of estate funds to pay a
chapter 7 debtor’s attorney is entirely consistent with
the orderly administration and liquidation of chapter 7
estates. Such denial does not affect the 96% of all
chapter 7 cases in which there are no funds available in
the estate to pay counsel (or creditors, for that matter).
Moreover, where funds are available, the Code gives
7
the trustee the power to seek court approval to hire
counsel, including the debtor’s counsel, where appropri-
ate and in the best interest of the estate. 11 U.S.C.
327(a) and (e). Chapter 7 debtors play very little role in
the administration of the estate and are therefore given
no similar statutory authority to retain counsel to assist
the administration of the estate. Finally, regardless of
the size of the estate, a chapter 7 debtor who retains
counsel for the debtor’s personal benefit may compen-
sate counsel by giving counsel a pre-petition flat fee, by
using his post-petition income, or both. For those
reasons, the United States Trustees, who are charged
with supervising the administration of bankruptcy
cases, 28 U.S.C. 586(a)(3), view enforcing Section
330(a)(1) as written as furthering the proper admini-
stration of chapter 7 estates.
ARGUMENT
SECTION 330 DOES NOT AUTHORIZE THE USE OF
ESTATE FUNDS TO COMPENSATE A CHAPTER 7
DEBTOR’S ATTORNEY
The court of appeals correctly concluded that Section
330(a)(1) is plain on its face in not authorizing com-
pensation to the debtor’s attorney in a chapter 7 case.
The statutory context, history, and purposes are
consistent with the view that Congress intentionally
omitted the phrase “or the debtor’s attorney” from the
statute. Finally, because the statute as written creates
a sensible statutory scheme, there is no warrant for
— claim that the Court should rewrite the
e.
A. The Plain Text Of Section 330(a)(1) Does Not
Authorize Estate Funds To Be Paid To A Chapter 7
Debtor’s Attorney
1. The assets of a chapter 7 estate must be distri-
buted pursuant to the priority provisions of the Code.
11 U.S.C. 503, 507, 726. The Code gives priority to
administrative expenses, 11 U.S.C. 507(a)(1), and per-
mits “compensation and reimbursement awarded under
section 330(a)” to be treated as an administrative ex-
pense, 11 U.S.C. 503(b)(2). In re Milwaukee Engraving
Co., 219 F.3d 635, 636-637 (7th Cir. 2000); F/S Airlease
II. Inc. v. Simon, 844 F.2d 99, 108-109 (3d Cir.), cert.
denied, 488 U.S. 852 (1988). Petitioner in this case
sought such priority treatment in applying for com-
pensation out of the funds of the chapter 7 estate under
Section 330(a) for services performed during the chap-
ter 7 proceeding. Pet. App. 2a.
The 1994 amendments to Section 330(a), however,
compel the conclusion that the Code does not authorize
estate funds to be awarded to a chapter 7 debtor's
attorney. As originally enacted in the Bankruptcy
Reform Act of 1978, Section 330(a), entitled “Compen-
sation of officers,” provided that:
After notice to any parties in interest and to the
United States trustee and a hearing, and subject to
sections 326, 328, and 329 of this title, the court may
award to a trustee, to an examiner, to a professional
person employed under section 327 or 1103 of this
title, or to the debtor’s attorney—
(1) reasonable compensation for actual, neces-
sary services rendered by such trustee, exam-
iner, professional person, or attorney, as the case
may be, and by any paraprofessional persons
9
employed by such trustee, professional person,
or attorney, as the case may be, based on the
time, the nature, the extent, and the value of
such services, and the cost of comparable ser-
vices, other than in a case under this title; and
(2) reimbursement for actual, necessary ex-
penses.
Bankruptcy Reform Act of 1978, Pub. L. No. 95-598,
§ 330, 92 Stat. 2564 (11 U.S.C. 330(a) (1988)) (emphasis
added). In the Bankruptcy Reform Act of 1994, Con-
gress substantially revised Section 330(a) to provide in
relevant part:
(a)(1) After notice to the parties in interest and
the United States Trustee and a hearing, and sub-
ject to sections 326, 328, and 329, the court may
award to a trustee, an examiner, a professional per-
son employed under section 327 or 1103—
(A) reasonable compensation for actual,
necessary services rendered by the trustee, ex-
aminer, professional person, or attorney and by
any paraprofessional person employed by any
such person; and
(B) reimbursement for actual, necessary
expenses.
n + „ „ &
(4) * * * (B) In a chapter 12 or chapter 13
case in which the debtor is an individual, the court
may allow reasonable compensation to the debtor’s
attorney for representing the interests of the
debtor in connection with the bankruptcy case
10
based on a consideration of the benefit and
necessity of such services to the debtor and the
other factors set forth in this section.
Bankruptcy Reform Act of 1994, Pub. L. No. 103-394,
§ 224, 108 Stat. 4130 (11 U.S.C. 330(a)(1) and (4)(B)).
Thus, the prior version of Section 330(a) authorized
compensation to “a trustee, to an examiner, to a profes-
sional person employed under section 327 or 1103 of this
title, or to the debtor’s attorney.” By contrast, the
statute as revised permits an award of compensation to
only “a trustee,” “an examiner,” and “a professional
person employed under section 327 or 1103.” 11 U.S.C.
330(a)(1). Section 330(a)(1) thus unambiguously ex-
cludes attorneys from its catalog of professional officers
of a bankruptcy estate who may be compensated for
their work.” In re Pro- Snaæ Distribs., Inc., 157 F.3d
414, 425 (5th Cir. 1998). Section 330(a)(1) is accordingly
“clear textually on its face” in not providing statutory
authority to compensate any debtor’s attorney from
funds of the estate. In re Am. Steel Prod., Inc., 197
F.3d 1354, 1356 (11th Cir. 1999); In re Century
Cleaning Servs., Inc., 195 F.3d 1053, 1061 (9th Cir.
1999) (Thomas, J., dissenting) (“The plain language of
§ 330(a) is not ambiguous: it precludes an award of
attorney’s fees to Chapter 7 debtors’ attorneys from
the bankruptcy estate.”).
2. Given the complete absence of any statutory
authority to compensate a chapter 7 debtor’s attorney,
petitioner argues that Section 330(a)(1) should be
judicially revised to include the phrase “or the debtor’s
attorney.” In petitioner’s view (Pet. Br. 16, 28), the
absence of that phrase reflects a “scrivener’s error”
caused by a “slip of the pen” of a drafter who deleted
the phrase during the 1994 amendments to Section
<r — =e
11
330(a). See In re Century Cleaning Servs., Inc., 195
F.3d at 1060 (Reinhardt, J.). What petitioner requests,
however, “is not a construction of a statute, but, in
effect, an enlargement of it by the court, so that what
was omitted, presumably by inadvertence, may be
included within its scope.” Iselin v. United States, 270
U.S. 245, 251 (1926). This Court, however, does not
have “carte blanche to redraft statutes in an effort to
achieve that which Congress is perceived to have failed
to do.” United States v. Locke, 471 U.S. 84, 95 (1985).
“There is a basic difference between filling a gap left by
Congress’ silence and rewriting rules that Congress has
affirmatively and specifically enacted.” Ibid. (quoting
Mobil Oil Corp. v. Higginbotham, 436 U.S. 618, 625
(1978)). That conclusion is compelled out of “deference
to the supremacy of the Legislature, as well as recogni-
tion that Congressman typically vote on the language of
a bill.” Ibid.
Accordingly, when “the statute’s language is plain,
‘the sole function of the courts—at least where the
disposition required by the text is not absurd—‘is to
enforce it according to its terms.“ Hartford Under-
writers Ins. v. Union Planters Bank, N. A., 530 U.S. 1, 6
(2000) (quoting United States v. Ron Pair Enters., Inc.,
489 U.S. 235, 241 (1989)). In other words, when the
“result the text produces is not necessarily absurd, [it]
cannot be dismissed as an obvious drafting error.”
Chan v. Korean Air Lines, Ltd., 490 U.S. 122, 134
(1989); see Union Bank v. Wolas, 502 U.S. 151, 163
(1991) (Scalia, J., concurring) (A scrivener’s error is one
that produeſes] an absurd result.”).
This Court found a scrivener’s error subject to judi-
cial correction in United States National Bank v.
Independent Insurance Agents of America, Inc., 508
U.S. 439 (1993). In that decision, the Court disregarded
12
quotation marks appearing in the Act of Sept. 7, 1916,
ch. 461, 39 Stat. 753, and held that “the placement of the
quotation marks in the 1916 Act was a simple scriv-
ener’s error, a mistake made by someone unfamiliar
with the law’s object and design.” 508 U.S. at 462. The
Court invoked the settled rule permitting courts to
“disregard the punctuation, or repunctuate, if need be,
to render the true meaning of the statute.” Ibid.
(quoting Hammock v. Loan & Trust Co., 105 U.S. 77,
84-85 (1881)). The Court also found that, based on
“overwhelming evidence from the structure, language,
and subject matter of the 1916 Act,” At he true mean-
ing of the 1916 Act is clear beyond question.” Ibid.
(emphasis added).
Petitioner here requests a significant extension of
that decision. Petitioner seeks not to repunctuate the
statute, or, indeed, to interpret any particular statutory
text. Rather, he seeks to insert an entire phrase that is
conspicuously missing from the Code in order to create
a substantive authorization for chapter 7 debtors’
attorneys to be given priority over creditors in the
distribution of estate assets. Accordingly, even if there
were some basis for petitioner’s claim of a drafting
error in removing the phrase “or the debtor’s attorney”
—which there is not—the relief petitioner seeks would
be impermissible. As this Court stated in Iselin, 270
U.S. at 251, t lo supply omissions transcends the
judicial function.” See also United States v. Grand-
erson, 511 U.S. 39, 68 (1994) (Kennedy, J., concurring)
(“It is beyond our province to rescue Congress from its
drafting errors, and to provide for what we might think
is the preferred result.”). In her concurring
opinion in Director, Office of Workers’ Compensation
Programs v. Newport News Shipbuilding & Dry Dock
Co., 514 U.S. 122, 142 (1995), Justice Ginsburg similarly
13
observed that “[cJorrecting a scrivener’s error is within
this Court’s competence, see, e.g., [United States Nat'l
Bank, supra], but only Congress can correct larger
oversights of the kind presented by the OWCP Direc-
tor’s petition,” i.e., Congress’s failure to confer standing
on the Director when it amended the statute at issue.
There is particular reason for the Court to hesitate
here before embarking on the judicial creation of a
substantive right for all debtors’ attorneys to seek
compensation from the bankruptcy estate. Congress
has shown considerable willingness to amend the
Bankruptcy Code in order to correct perceived flaws or
achieve policy goals, and in fact has done so many times
since 1994 without choosing to insert language authoriz-
ing the use of chapter 7 estates to pay debtors’
lawyers.”
Indeed, far from acting to authorize such payments,
Congress has specifically declined to pass three bills
that would have added the phrase “or the debtor’s
attorney” to Section 330(a)(1). H.R. 120, 105th Cong.,
Ist Sess. § 7 (Jan. 7, 1997); H.R. 764, 105th Cong., Ist
Sess. § 7 (Nov. 13, 1997); S. 1559, 104th Cong., 2d Sess.
§ 4 (Aug. 2, 1996). Similarly, the current bankruptcy
reform bill passed by the House would amend Section
330(a)(1) without reinserting the phrase “or the
debtor’s attorney.” H.R. 975, 108th Cong., Ist Sess.
2 Pub. L. No. 107-204, § 803(1)-(3), 116 Stat. 801 (2002); Pub. L.
No. 106-554, § 1(a)(5) [Tit. I § 112(c)], 114 Stat. 2763A-393 to
2763A-396 (2000); Pub. L. No. 106-420, § 4, 114 Stat. 1868 (2000);
Pub. L. No. 106-181, § 744(a) and (b), 114 Stat. 175-176 (2000); Pub.
L. No. 105-277, § 603, 112 Stat. 2681-886 (1998); Pub. L. No. 105-
244, § 971(a), 112 Stat. 1837 (1998); Pub. L. No. 105-183, §§ 2-4, 112
Stat. 517-518 (1998); Pub. L. No. 104-193, § 374(a)(1)-(4), 110 Stat.
2255 (1996); Pub. L. No. 104-134, § 101, 110 Stat. 1321-74 (1996);
Pub. L. No. 104-88, § 302, 109 Stat. 943 (1995).
14
§§ 332(b), 333 (Mar. 19, 2003); 149 Cong. Rec. D258,
D262 (daily ed. Mar. 19, 2003). In short, . [t]he current
version of § 330(a) has been in force now for eight years
and Congress has not elected to recognize that it made
a scrivener’s error when it amended the statute in
1994.” Pet. App. 9a. While such subsequent legislative
history may be a suspect interpretive tool in other
contexts, it is a significant obstacle to petitioner's
ability to carry the burden of showing that the text of
Section 330(a) can only be explained as a serivener's
error. Accordingly, at least in the absence of over-
whelming evidence” demonstrating “beyond question
(United States Nat’l Bank, 508 U.S. at 462) that
Congress could not have intended to remove the phrase
“or the debtor’s attorney” from Section 330(a), the
statutory text must be enforced as written.
B. The Statutory Context Is Consistent With Congress’s
Intentional Deletion Of The Phrase “Or The Debtor's
Attorney”
1. The starting point in discerning congressional
intent is, of course, the text of the statute. Hughes
Aircraft Co. v. Jacobson, 525 U.S. 432, 438 (1999);
Schreiber v. Burlington N., Inc., 472 U.S. 1, 5 (1985).
Inn interpreting a statute a court should always tare
first to one, cardinal canon before all others.
[Clourts must presume that a legislature says in a
statute what it means and means in a statute what it
says there.” Connecticut Nat'l Bank v. Germain, 503
U.S. 249, 253-254 (1992). That presumption should
apply in this case. The most efficient and direct way to
eliminate compensation for debtors’ attorneys was the
precise course that Congress chose here, i. e., the dele-
tion of “the debtor’s attorney” from the list of eligible
officers entitled to receive compensation under Section
15
330(a)(1). “[Bly deleting ‘to the debtor’s attorney’ from
the statute, Congress has clearly indicated that the
debtor’s attorney may not be compensated from the
estate.” In re Pro- Snaæ Distribs., Inc., 157 F.3d at 425.
Petitioner contends (Pet. Br. 4, 17, 20, 25) that the
omission of the phrase “or the debtor’s attorney”
reflects a scrivener’s error because, while Section
330(a)(1) excludes the debtor’s attorney from the list of
eligible officers entitled to receive compensation,
Section 330(a)(1)(A) permits an award of “reasonable
compensation for * * services rendered by the
trustee, examiner, professional person, or attorney.”
The most logical explanation for the “attorney” refer-
ence, however, is that Congress failed to make cor-
responding changes to the parts of Section 330(a)(1)(A)
that were affected by Congress’s deliberate removal of
the phrase “or the debtor’s attorney” from Section
330(a)(1). Cf. Chickasaw Nation v. United States, 534
U.S. 84, 94 (2001) (“The canon requiring a court to give
effect to each word ‘if possible’ is sometimes offset by
the canon that permits a court to reject words ‘as
surplusage’ if ‘inadvertently inserted or if repugnant to
the rest of the statute.’”) (quoting Karl Llewellyn, The
Common Law Tradition 525 (1960)). Making that
corresponding change might have resulted in a cleaner
text, but the fact remains that omitting the critical,
operative reference to “the debtor’s attorney” was the
most direct and efficient way to implement the change.
More importantly, the reference to “attorney” in Sec-
tion 330(a)(1)(A) does not render the statute unenforce-
able as written. As discussed, Section 330(a)(1) permits
the court to award fees to “a professional person em-
ployed under section 327 or 1103.” 11 U.S.C. 330(a)(1).
The Code expressly contemplates that the phrase “a
professional person” encompasses an attorney em-
16
ployed by the trustee under Section 327 or by chapter
11 creditor committees under Section 1103. 11 U.S.C.
327, 328(c), 1103. Accordingly, as the court of appeals
explained, the phrase “a professional person employed
under section 327 or 1103 could be the antecedent to
‘attorney’ as used in § 330(a)(1)(A), because the Trustee
is authorized to hire an attorney as a professional per-
son.” Pet. App. 8a (citation omitted). Although “the
reference in § 330(a)(1)(A) to ‘attorney’ may be super-
fluous,” id. at 9a, it is not “necessarily absurd,” Chan v.
Korean Air Lines, Ltd., 490 U.S. at 134, and therefore
does not justify judicial reinsertion of language that
Congress unambiguously omitted.
For similar reasons, petitioner errs in relying (Pet.
Br. 4, 14, 20) on the fact that Section 330(a)(1) contains a
grammatical error: there is a missing “or” between the
phrases “an examiner” and “a professional person.”
The omission of a conjunction, however, “is an oversight
that is as consistent with the deliberate deletion of the
words ‘debtor’s attorney’ as it is with the inadvertent
deletion of those words from that section.” Pet. App.
ga. The absence of a conjunction also does not affect the
substance or application of the text because “[the]
omission does not change the meaning of the words
around it.” In re Pro- Snaæ Distribs., Inc., 157 F.3d at
3 Petitioner mistakenly suggests (Pet. Br. 18-19) that the
reference to “attorney” in Section 330(a)(1)(A) “literal[ly]” author-
izes an award of fees to a chapter 7 debtor’s attorney. As peti-
tioner elsewhere concedes (Pet. Br. 4), Section 330(a)(1)(A) merely
lists “parties that provide compensable services” (including para-
professional persons), while Section 330(a)(1) “identifies persons
who may be paid compensation.” Thus, only persons who are
included in the latter provision may be awarded compensation
from the estate; chapter 7 debtors’ attorneys are notably absent
from that provision.
17
425 n.14. “Indeed, all that the omission would signify to
a reader unfamiliar with the pre-1994 statute is the
typographical deletion of ‘or’ before the phrase ‘a
professional person.“ Ibid. Such a missing conjunction
is not uncommon. The United States Code is replete
with such instances.‘
2. The structure of Section 330(a) is also consistent
with Congress’s intentional exclusion of the previously
existing authority to compensate a chapter 7 debtor’s
attorney. At the same time that Cohgress enacted
Section 330(a)(1) to limit fee awards to trustees, ex-
aminers, and professional persons employed under Sec-
tions 327 and 1103, Congress added Section 330(a)(4)(B)
to authorize compensation to a limited class of debtor’s
attorneys. Section 330(a)(4)(B) provides that /in a
chapter 12 or 13 case in which the debtor is an in-
dividual, the court may allow reasonable compensation
to the debtor’s attorney for representing the interests of
the debtor in connection with the bankruptcy case
based on a consideration of the benefit and necessity of
such services to the debtor and the other factors set
* Eg., 7 U.S.C. 136(hh)(3)(B); 8 U.S.C. 1101(a)(27); 8 U.S.C.
1324a(b)(1)(B); 12 U.S.C. 1715z-14(b); 12 U.S.C. 3303(a); 15 U.S.C.
78e(a)(34)(G); 15 U.S.C. 5201(b); 16 U.S.C. 3166(b)(2); 16 U.S.C.
3372(a); 16 U.S.C. 3911(a)(1)(A); 16 U.S.C. 4723(a)(1)(F); 18 U.S.C.
1030(a); 20 U.S.C. 1091(a); 22 U.S.C. 1972; 22 U.S.C. 2198; 22
U.S.C. 4802(c); 25 U.S.C. 1613a(b)(3)(A); 25 U.S.C. 3001(15); 26
U.S.C. 6038B(a); 42 U.S.C. 405(j)(4)(B); 42 U.S.C. 415(i)(1); 42
U.S.C. 1395bb(a); 42 U.S.C. 13895ww(d)(5)(F)(vii)(ID; 42 U.S.C.
1396a(a)(10)(A); 42 U.S.C. 1436a(i)(2); 42 U.S.C. 3026(a); 42 U.S.C.
5633(a)(3)(E); 42 U.S.C. 7651f(a); 42 U.S.C. 10138(b)(5); 42 U.S.C.
13992; 42 U.S.C. 14072(a)(3); 47 U.S.C. 396(i)(1).
18
forth in [Section 330(a)].” 11 U.S.C. 330(a)(4)(B)
(emphasis added).° .
If Congress had intended to permit compensation for
chapter 7 debtors’ attorneys, it naturally would have
included them in Section 330(a)(4)(B), which “allow[s]” a
court to award fees to a debtor’s attorney, but only in
cases under chapters 12 and 13. “Thus, although Chap-
ter 12 and Chapter 13 debtors’ attorneys were also
affected by the amendment to § 330(a), Congress spe-
cifically added a mechanism providing for their com-
pensation.” In re Century Cleaning Servs., Inc., 195
F.3d at 1062 (Thomas, J., dissenting). “The inclusion of
Chapter 12 and Chapter 13 debtors’ attorneys in a new
section of the statute, coupled with the omission of
‘debtor’s attorney’ from the general section, lends
support to the conclusion that the choice was deliberate
under the statutory construction principle of expresso
unius est exclusio alterius.” Ibid.
Petitioner is also wrong in arguing (Pet. Br. 23) that
Section 330(a) necessarily contemplates compensation
to all debtors’ attorneys because Section 330(a)(4)(B)
permits the compensation of attorneys for chapter
12 and 13 debtors under a standard that is an “excep-
tion” to the general standards set forth in Section
330(a)(4)(A). The authority to compensate those attor-
neys does not depend on an interpretation of the
statute that would authorize compensation of all debt-
ors’ attorneys. Section 330(a)(4)(B) itself authorizes
estate funds to be awarded to attorneys for chapter 12
5 Chapter 13 allows individuals with regular income to satisfy
their debts through a repayment plan. 11 U.S.C. 1301 et seq.
Chapter 12 similarly allows family farmers with regular annual in-
come to satisfy their debts through a repayment plan. 11 U.S.C.
1201 et seq.
—
P ˙ Ar
19
and 13 debtors by providing that the court “may allow”
reasonable compensation to those attorneys based on a
consideration of the benefit to the chapter 12 or 13
debtor and “the other factors set forth in this section.”
Section 330(a)(4)(B) also by its own terms makes
applicable to requests for compensation by chapter 12
and 13 debtors’ attorneys the factors that the court
considers in awarding fees to those seeking compen-
sation under 11 U.S.C. 330(a)(1), i. e., trustees, examin-
ers, and professional persons employed under Sections
327 and 1103.
Among those factors is the prohibition in Section
330(a)(4)(A) that bars compensation if the services were
not “reasonably likely to benefit the debtor’s estate” or
“necessary to the administration of the case.” 11 U.S.C.
330(a)(4)(A)(ii). Thus, the “[e]xcept as provided in
subparagraph (B)” clause at the beginning of Section
330(a)(4)(A) authorizes the court to award fees to a
chapter 12 or 13 debtor’s attorney under “subparagraph
(B),” even where the services do not benefit the estate,
as long as the services benefit the debtor. That reading
is consistent with the provision’s history, which shows
that Section 330(a)(4) was derived from a previous
version of S. 540, 103d Cong., Ist Sess. (1993), which,
before it was limited to chapter 12 and 13 debtors,
would have provided that, “[iJn a case in which the
debtor is an individual, the court shall allow reasonable
compensation for services by the debtor’s attorney
representing the interests of the debtor without regard
to the benefit of such services to the estate.” 140 Cong.
Rec. $4416 (daily ed. Apr. 19, 1994); see p. 24, infra.
Accordingly, construing Section 330(a) in accordance
with its text yields no interpretive difficulties and is
consistent with the legislative evolution of the 1994
amendments.
20
Petitioner similarly errs in arguing (Pet. Br. 24) that,
because Section 330(a)(4)(B) applies when the attorney
represents the chapter 12 or 13 debtor, there must be
some other authorization in Section 330(a)(1) to com-
pensate such an attorney when he “represent(s] the
interests of the debtor’s estate.” Trustees, not chapter 7
debtors or debtors’ attorneys, represent the estate. 11
U.S.C. 323(a). Section 330(a)(4)(B) moreover permits a
chapter 12 or 13 debtor’s attorney to be compensated
for representing the debtor when his services benefit
the debtor as well as the estate. 11 U.S.C. 330(a)(4)(B).
Such a benefit typically occurs in chapter 12 and 13
under which the debtor proposes a repayment plan and
remains in possession of all property of the estate.
11 U.S.C. 1203, 1207(b), 1221, 1303, 1304, 1306(b), 1321.
No similar circumstances are present under chapter 7.
See pp. 35-36, infra.
3. Petitioner’s reading of Section 330(a)(1) should
also be rejected because it would circumvent a specific
provision in the Code that addresses the circumstances
under which the debtor’s attorney may be compensated
for services that benefit the estate. As discussed,
Section 330(a)(1) permits a court to award compen-
sation to individuals, including attorneys, retained by
the trustee as professional persons under Section 327.
11 U.S.C. 327, 328(c), 330(a)(1). In particular, Section
327(e) permits “(t]he trustee, with the court’s approval,
[to] employ, for a specified special purpose, other than
to represent the trustee in conducting the case, an
attorney that has represented the debtor, if in the best
interest of the estate, and if such an attorney does not
represent or hold any interest adverse to the debtor or
to the estate with respect to the matter on which such
attorney is to be employed.” 11 U.S.C. 327(e). Section
327(e) thus explicitly entrusts the trustee, a fiduciary
21
who represents the estate on behalf of creditors (11
U.S.C. 323(a); Mosser v. Darrow, 341 U.S. 267, 271
(1951)), with the responsibility of determining when to
hire a former debtor’s counsel, and the Code permits
such retention only if a court concludes that counsel
does not have a conflict of interest and his services
serve 4 special purpose and further the best interests of
the estate.
Under petitioner’s reading of the statute, however, a
chapter 7 debtor’s counsel would be able to bypass
altogether the provisions of Section 327(e) while still
obtaining compensation from the estate. Petitioner
freely admits (Pet. Br. 32) that Section 327 is unsat-
isfactory from his perspective, because retention under
Section 327 is “sufficiently uncertain—including be-
cause the choice would be left to the trustee and be-
cause the debtor’s counsel may be deemed to have a
preclusive conflict of interest.” This Court should
reject an interpretation that would usurp the trustee’s
authority under Section 327(e) to determine whether
counsel’s services are necessary, and that would permit
counsel with a conflict to sees compensation under
Section 330(a).’
: N In the United States Trustees’ experience, trustees usually
retain special counsel to litigate claims made against and on behalf
of the estate. See also David Tatge et al., Chapter 7 Bankruptcy
Trustee's Manual § 4.28 (1993).
As discussed, the Code expressly permits chapter 12 and 13
debtors’ counsel to seek fees from the estate. Moreover, because
chapter 12 and 13 debtors remain in possession of the estate, see
p. 20, supra, and chapter 12 and 13 trustees do not collect and
reduce to money the property of the estate, 11 U.S.C. 1202(b)(1)
and 1302(b)(1), counsel's services for the chapter 12 and 13 debtor
with respect to claims made against and on behalf of the estate
would not usurp the trustee’s role under Section 327(e).
22
4. Petitioner also relies (Pet. Br. 24-25) on Section
330(a)(5)’s direction to courts to reduce a final award of
professional fees by any interim compensation awarded
under 11 U.S.C. 331, which provides for interim com-
pensation to, inter alia, “a debtor’s attorney.” Peti-
tioner’s argument lacks merit. Section 331 provides
that various persons, including “a debtor’s attorney,”
“may apply to the court * * * for such compensation
for services * * * or reimbursement for expenses
* * * ag is provided under section 330 of this title.” 11
U.S.C. 331 (emphasis added). The authority to award
interim compensation under Section 331 is thus
expressly tied to the authority of the court to award
final compensation under Section 330. Read together,
Sections 330(a)(5) and 331 provide that debtors’
attorneys who are authorized under Section 330 to seek
compensation, i.e., attorneys for debtors in chapter 12
and 13, may seek an interim award of fees to be
credited in the final award of compensation. That
straightforward result provides no support for peti-
tioner’s counter-textual interpretation of the statute.
C. The Legislative History Is Consistent With An Inten-
tional Deletion Of The Phrase “Or The Debtor's
Attorney”
Petitioner places heavy reliance (Pet. Br. 18, 25-30)
on the legislative history of the 1994 amendments to
Section 330 in attempting to show that Congress inad-
vertently deleted the phrase “or the debtor’s attorney”
from the statute. The history, however, is consistent
with an intentional deletion of the phrase, and thus does
not demonstrate “beyond question” (United States
Nat! Bank, 508 U.S. at 462) that the deletion was
inadvertent.
|
ö
W —
23
1. The revised version of Section 330 origina
Seetion 309 of a Senate bill, S. 540, 103d — —
Sess., which was introduced in the Senate on March 10
1993, and referred to the Committee on the Judiciary.
139 Cong. Rec. $2610, S2621-2622 (daily ed. Mar. 10,
1993). Section 309 originally did not diminish the
existing right of any debtor’s attorney to seek fees bu’,
inter alia, deleted the phrase “of this title” from the
original 1978 Act and added new language requiring
— of the views of the United States
Section 309. Professional Fees.
Section 330(a) of title 11, United States Code, is
amended to read as follows:
“(a)(1) After notice to the ies in interest
the United States trustee — and ——
to sections 326, 328, and 329, the court may award to
a trustee, an examiner, a professional person em-
ployed under section 327 or 1103, or the debtor’s
attorney, after considering comments and objections
submitted by the United States Trustee in confor-
mance with guidelines adopted by the Executive
Office for United States Trustees pursuant to sec-
tion 586(a)(3)(A) of title 28
(A) reasonable compensation for actual, nec-
essary services rendered by the trustee, examiner,
professional person, or attorney and by any
paraprofessional person employed b
— ploy y any such
(B) reimbursement for actual, necessary
expenses.
24
139 Cong. Rec. at S2621-S2622. That version of the bill
also set forth new criteria for awarding compensation in
a new provision, Section 330(a)(2), and added another
provision, Section 330(a)(3), which provided that “(t]he
court shall not allow compensation for duplication of
services or for services that are not either reasonably
likely to benefit the debtor’s estate or necessary in the
administration of the case.” Id. at S2622.
On October 28, 1993, the Judiciary Committee re-
ported S. 540 to the Senate with a new provision,
Section 330(a)(3)(B), which would have provided that,
Aim a case in which the debtor is an individual, the
court shall allow reasonable compensation for services
by the debtor’s attorney representing the interests of
the debtor without regard to the benefit of such serv-
ices to the estate.” S. 540, 103d Cong., Ist Sess. (1993)
(emphasis added); 139 Cong. Rec. $14,625 (daily ed. Oct.
28, 1993).
On April 19, 1994, S. 540 was brought before the
Senate for debate. 140 Cong. Rec. at 84405, S4415-
4416. On April 20, 1994, the day before the phrase “or
the debtor’s attorney” was deleted from the bill,
Senator Heflin explained that Section 309 of S. 540 was
being revised in order to encourage debtors to file for
bankruptcy protection under chapter 13:
During the course of our hearings, it became very
apparent that chapter 13 is often the best overall
process for debtors, creditors, and the national econ-
omy. Numerous bankruptcy judges have indicated
that most individuals want to pay their debts in a
manner similar to the program offered under chap-
ter 13 of this code. Unfortunately, the use of this
chapter is not widespread throughout the country,
and many people are simply not informed that this
— 2 —
25
option is available when they seek the Bankruptey
Code’s protection. This title contains many provi-
sions that take into account these concerns.
140 Cong. Rec. 84507 (daily ed. Apr. 20, 1994); accord
id. at 84505, 84506.
The following day, Senator Heflin, on behalf of Sena-
tor Metzenbaum, introduced Amendment No. 1645,
which revised Section 330 with language identical to
that ultimately adopted by Congress later that year.
140 Cong. Rec. S4741-S4742 (daily ed. Apr. 21, 1994); id.
at S4646. The Senate unanimously passed the bill the
same day. /d. at S4666, D418.
Amendment No. 1645 is consistent with deliberate
action by Congress in important respects. The amend-
ment both deleted the phrase “or the debtor’s attorney”
from the committee’s version of Section 330(a)(1) and
simultaneously authorized in Section 330(a)(4)(B)
compensation solely to attorneys for chapter 12 and 13
debtors. 140 Cong. Rec. at S4741-S4742. Not only is
petitioner factually wrong in asserting (Pet. Br. 25) that
the 1994 amendments to Section 330 contained no
“substantive” change, but rather, “the fact that
Congress carefully reexamined and entirely rewrote
the * * * provision * * * supports the conclusion
that the text * * * as enacted reflects the deliberate
choice of Congress.” Union Bank v. Wolas, 502 U. S. at
160.
Other features of the amendment also signal a delib-
erate intent to preclude chapter 7 debtors’ attorneys
from seeking compensation out of estate funds. In
addition to deleting the authority to compensate all
debtors’ attorneys from Section 330(a)(1), the amend-
ment accomplished a similar result by deleting the
language in the committee’s version of the bill that
26
would have authorized compensation for any individual
debtor’s attorney, including an individual chapter 7
debtor’s attorney, when the services were necessary
and beneficial to the debtor. In light of the concerns
expressed by Senator Heflin, Amendment No. 1645
replaced the committee’s language with a new provi-
sion, Section 330(a)(4)(B), which authorized compensa-
tion solely to attorneys for individual debtors in
chapters 12 and 13. That elimination of authority to
compensate attorneys for individual chapter 7 debtors
was undoubtedly intentional, and it supports the con-
clusion that Congress acted with similar intent in
deleting the authority to compensate such debtors
torneys in Section 330(a)(1).
gs — the deletion of the phrase or the debtors
attorney” from Section 330(a) comports with the view
of the amendment’s sponsor, Senator Metzenbaum, that
“chapter 13 is often the best overall process for debtors,
creditors, and the national economy,” 140 Cong. Rec. at
84507, presumably because chapter 13 enlarges the
sources of repayment to creditors by drawing upon
post-petition income to fund a repayment plan, 11
U.S.C. 1321-1328. By making available estate funds to
compensate only chapter 12 and 13 debtors’ attorneys,
the 1994 amendments provided an incentive for
debtors’ attorneys to educate their clients about the
potential advantages to the debtor of a chapter 13
bankruptcy petition, rather than a chapter 7 liquidation.
Given the concern that ſulnfortunately, the use of this
chapter [13] is not widespread throughout the country,
and many people are simply not informed that this
option is available when they seek the Bankruptcy
Code’s protection,” 140 Cong. Rec. at 84507 ; Congress
rationally could have sought to remedy this perceived
problem and to encourage the use of chapter 13 by pre-
27
cluding debtors’ attorneys from seeking compensation
from chapter 7 estates.
2. The events following the Senate’s passage of
Amendment No. 1645 further suggest that the mem-
bers of Congress were aware of the text of the legis-
lation that they enacted. As an initial matter, the
members of Congress had over five additional months
to read and consider Amendment No. 1645 before final
passage of the legislation as H.R. 5116 by the House on
October 5, 1994 (140 Cong. Rec. at H 10,9 7), and by the
Senate on October 6, 1994 (id. at S14, 46 l).“ During that
intervening period, moreover, the deletion of the
phrase “or the debtor’s attorney” was specifically
brought to Congress’s attention.
On August 17, 1994, three months after the Senate
passed Amendment No. 1645, the House Subcommittee
on Economic and Commercial Law held hearings on
bankruptcy reform. Among the written materiais sub-
mitted to the committee for the hearing was a state-
ment by National Association of Consumer Bankruptcy
Attorneys (NACBA). The NACBA is “the only na-
tional association of attorneys organized for the specific
purpose of protecting the rights of consumer bank-
Although the House held hearings on bankruptcy reform in
August 1994, no bankruptcy reform bill was apparently formally
introduced in the House until September 28, 1994, when H.R. 5116
was introduced and referred to the Committee on the Judiciary
without any amendmert to Section 330. 140 Cong. Rec. D1153,
D1155 (daily ed. Sept. 28, 1994); id. at H10,006. The House Com-
mittee on the Judiciary reported H.R. 5116 to the House on
October 4, also without amendment to Section 330. 140 Cong. Rec.
at H10,726. The same day H.R. 5116 was amended to include,
among other things, a revised Section 330 with language conform-
ing to S. 540 as passed by the Senate. Id. at H10,752, H10,758-
10,759.
28
ruptcy debtors,” NACBA Pet. Am. Br. 2, a class
that comprises approximately 98% of all chapter 7 debt-
ors <http://www.uscourts.gov/Press_Releases/cy02. pdf
(table F-2)>. In analyzing S. 540, the NACBA informed
the members of the Committee that the provision
regarding professional fees
appears to have some minor drafting errors, in-
cluding the apparently inadvertent removal of
debtors’ attorneys from the list of professionals
whose compensation awards are covered by section
330(a).
NACBA does not oppose this provision, since it
contains language ensuring that chapter 12 and 13
individual debtors’ attorneys may be awarded
compensation for their work in protecting the
debtor’s interests in a bankruptcy case.
Bankruptcy Reform: Hearing on H.R. 5116 Before the
Subcomm. on the Economy and Commercial Law of
the House Comm. on the Judiciary, 103d Cong., 2d
Sess. 551 (1994) (emphasis added). “Despite having the
specific impact of the Senate bill on Chapter 7 debtors’
attorneys called to its attention, the House of Repre-
sentatives passed House Bill 5116, which included the
text of § 330 as passed by the Senate.” In re Century
Cleaning Servs., Inc., 195 F.3d at 1063 (Thomas, J.,
dissenting).
The NACBA’s testimony is the only direct evidence
relating to petitioner’s assertion of a scrivener’s error,
and it is in clear tension with petitioner’s theory. It
shows that Congress was affirmatively notified of both
the deletion of the phrase “or the debtor’s attorney”
and the lack of any objection to the deletion, and
Congress passed the statute as written. That sequence
29
of events makes it highly unlikely that the deletion was
a mere accident, and the NACBA’s outright acquies-
cence in the provision certainly renders it difficult to
conclude that a rational Congress could not have de-
leted the phrase “or the debtor’s attorney” from the
statute. Petitioner’s retort is that, even were members
of Congress “aware of this snippet, they likely agreed
with its conclusion that the omission was inadvertent.”
Pet. Br. 29. Acceptance of that contention, however,
would turn the doctrine of scrivener’s error on its head,
since it would permit statutory amendment by judicial
fiat even where Congress consciously enacts the words
of a statute.
3. Petitioner argues (Pet. Br. 14, 18, 25-28) that Con-
gress deleted the phrase “or the debtor’s attorney” only
as a “last minute” addition to the Bankruptcy Reform
Act of 1994, and did so inadvertently when the statute’s
drafter removed the phrases appearing immediately
before and after the phrase “or the debtor’s attorney.”
As demonstrated above, the Senate had engaged in
over a year of deliberations leading up to its passage of
S. 540 as revised by Amendment No. 1645, i.e. from
March 10, 1993 until April 21, 1994. Congress also had
an additional five months to review the text of the
Senate bill before passage of the final legislation in
October 1994 and, in the intervening period, the House
was explicitly notified of the omission of the phrase “or
the debtor’s attorney.” See pp. 27-28, supra. Thus, the
deletion of the phrase “or the debtor’s attorney” was
the product of a lengthy deliberative process. And in
any event, there is no principle of law that deprives a
“last minute” statutory change to a bill of its statutory
force and effect, or that makes such a change less likely
to reflect a deliberate choice by the members of
Congress.
30
Contrary to petitioner’s theory, moreover, Amend-
ment No. 1645 made no change to the words that
appeared immediately before the phrase “or the
debtor’s attorney.” Rather, the phrase “of this title,”
which had appeared immediately before the phrase “or
to the debtor’s attorney” in Section 330 of the Bank-
ruptcy Reform Act of 1978, was deleted by the original
version of S. 540 that was introduced in the Senate on
March 10, 1993, a full year before Amendment No. 1645
removed the phrase “or the debtor’s attorney.” See
p. 23, supra. Nor is it significant that Amendment No.
1645 did delete the phrase that immediately followed
the phrase “or the debtor’s attorney” from the com-
mittee version of the bill. That phrase related to an
entirely different subject matter—comments, objec-
tions, and guidelines by the United States Trustees re-
garding fee applications—and that phrase was sepa-
rated from the phrase “or the debtor’s attorney” by a
comma. It is exceedingly unlikely that the statute’s
drafters, whose specific intent was to make “improve-
ments and modifications from the initial sections
adopted by the committee” (140 Cong. Rec. at 84507),
failed to notice that they were deleting the phrase “or
the debtor’s attorney” from the statute, either at the
time of the deletion or during the five months leading
up to the final passage of the legislation.
4. Petitioner also relies (Pet. Br. 28-29) on the House
Report to H.R. 5116 and post-enactment statements by
Senator Metzenbaum remarking that the United States
Trustees would develop guidelines for “fee applica-
tions” under the 1994 amendments to 28 U.S.C.
586(a)(3)(A). H.R. Rep. No. 835, 103d Cong., 2d Sess. 51
(1994); 140 Cong. Rec. S14,597 (daily ed. Oct. 7, 1994)
(Sen. Metzenbaum). As an initial matter, the cited
House Report related to a bill that contained no
31
changes to Section 330 of the Code, see note 8, supra
and therefore has little bearing on Congress’s intent in
passing Section 330 as amended. Moreover, nothing in
Senator Metzenbaum’s statement suggests that chapter
7 debtors’ attorneys may receive compensation from
the estate. As discussed, Section 330 permits the
award of fees to examiners, trustees, and professional
persons, as well as chapter 12 and 13 debtors’
attorneys, all of whom must submit “fee applications”
subject to the United States Trustees’ Guidelines. See
28 C. F. R. Pt. 58, App. A.
Senator Metzenbaum’s statements also refute the
notion that Congress intended the 1994 amendments to
“increase the compensation paid to counsel,” as sug-
gested by petitioner (Pet. Br. 3). In fact, Senator
Metzenbaum commented that, “throughout the process
of crafting a viable bankruptcy reform proposal, I have
reiterated that there is one problem in particular that
we must fix—professional fees in bankruptcy.” 140
Cong. Rec. at $14,597. The Senator explained that
earlier hearings had “revealed a number of examples of
how lawyers suck the financial life out of companies by
charging exorbitant and often unnecessary fees.” Ibid.
“In light of these abuses,” Senator Metzenbaum stated
that he was “particularly pleased that [his] proposal
relating to professional fees is included in the act.”
Ibid. In short, neither those statements, nor any other
piece of legislative history, shows that Congress un-
— 1 —— to authorize a chapter 7 debtor’s
attorney to be awarded fe
— es from the bankruptey
5. Petitioner also argues (Pet. Br. 14-16, 36-42) that
Congress would not have eliminated the rights of any
debtor’s attorney to seek fees without an affirmative
statement by members of Congress in the legislative
32
history. The 1994 amendments to Section 330, how-
ever, did not make the seismic shift asserted by peti-
tioner, see pp. 33-35, infra, and the NACBA, the group
who presumably would have been affected by the
omission of the phrase “or the debtor’s attorney,” did
not oppose the amendments because of the specific
grant of authority to chapter 12 and 13 debtors’ attor-
neys to seek fees. In those circumstances, Congress's
silence is hardly surprising. Harrison v. PPG Indus.,
Inc., 446 U.S. 578, 592 (1980) (HAllthough the number
of actions comprehended by a literal interpretation of
the statute] is no doubt substantial, the number would
not appear so large as ineluctably to have provoked
comment in Congress.”).
Moreover, “it would be a strange canon of statutory
construction that would require Congress to state in
committee reports or elsewhere in its deliberations that
which is obvious on the face of a statute. In ascer-
taining the meaning of a statute, a court cannot, in the
manner of Sherlock Holmes, pursue the theory of the
dog that did not bark.” Harrison, 446 U.S. at 592;
accord Morales v. Trans World Airlines, Inc., 504 U.S.
374, 385, n.2 (1992) (“Suffice it to say that legislative
history need not confirm the details of changes in the
law effected by statutory language before we will inter-
pret that language according to its natural meaning.”).
Petitioner similarly argues that the Court should
“not read the Bankruptcy Code to erode past bank-
ruptcy practice absent a clear indication that Congress
intended such a departure.” Pet. Br. 36 (citing Cohen v.
de la Cruz, 523 U.S. 213, 221 (1998) (quoting Pennsyl-
vania Dep't of Pub. Welfare v. Davenport, 495 U.S. 552,
563 (1990)). That canon is inapposite here. The Court
has invoked that principle to interpret terms in the
Bankruptcy Code of 1978 that were unclear on their
33
face or to resolve issues not explicitly addressed by the
text. Cohen, 523 U.S. at 221; Dewsnup v. Timm, 502
U.S. 410, 419-420 (1992); Pennsylvania Dep’t of Pub.
Welfare, 495 U.S. at 563; United States v. Ron Pair En-
ters., 489 U.S. 235, 245-246 (1989). That principle has
never been invoked to reinsert a phrase that Congress
specifically struck in an amendment to the Code. Be-
cause the omission of “the debtor’s attorney” in Section
330(a)( 1) is plain on its face in removing the statutory
basis for awarding counsel fees to chapter 7 debtors’
attorneys, the revised statute is controlling. See
Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15, 22
(2000) (“[T]he Code generally incorporates pre-Code
practice in the absence of explicit revision.”) (emphasis
added); Hartford Underwriters Ins. Co. v. Union
Planters Bank, N. A., 530 U.S. 1, 10 (2000) (“{P]re-Code
practice informs our understanding of the language of
the Code, [but] cannot overcome that language. It is a
tool of construction, not an extratextual supplement.”)
(citation and internal quotation marks omitted); BFP v.
Resolution Trust Corp., 511 U.S. 531, 546 (1994)
CTW Jhere the meaning of the Bankruptcy Code’s text is
itself clear, its operation is unimpeded by contrary
* * * prior practice.”) (citation and internal quotation
marks omitted).
D. Enforcing Section 330(a)(1) As Written Furthers Rea-
sonable Policy Objectives
1. Congress’s preclusion of fee awards to chapter 7
debtors’ attorneys advances legitimate policy goals
without adversely affecting the administration of bank-
ruptcy cases, and petitioner’s apocryphal allegations to
the contrary are without merit. The amendment did
not, as petitioner repeatedly suggests (Pet. Br. 5, 14, 15,
19, 30, 36) result in a “profound” or “radical” “sea
34
change” in bankruptcy practice by preventing an award
of fees to all debtor’s counsel. Such a change presuma-
bly would have garnered an objection by the NACBA
during the consideration of the 1994 amendments, but
no such objection was forthcoming. As discussed,
Section 330(a)(4)(B) expressly authorizes a court to
award fees to attorneys for chapter 12 and 13 debtors.
11 U.S.C. 330(a)(4)(B) (see pp. 17-18, supra). The Code
also permits a former debtor’s attorney to be awarded
fees when he is employed by the trustee, including in a
chapter 7 case. 11 U.S.C. 327(e), 330(a)(1) (see p. 20,
supra).
In addition, Section 330(a)(1) authorizes compensa-
tion to attorneys employed by debtors-in-possession
under the reorganization provisions of chapter 11. The
Code gives chapter 11 debtors-in-possession “all” statu-
tory powers, rights, and duties of a trustee, except the
right to be paid as a trustee. 11 U.S.C. 1107(a); see also
11 U.S.C. 1106. The chapter 11 debtor-in-possession’s
rights thus include the trustee’s right to retain counsel
under Section 327 “to represent or assist the trustee in
carrying out the trustee’s duties.” 11 U.S.C. 327(a).
Indeed, the Code is explicit in providing that an
attorney who was retained by a chapter 11 debtor-in-
possession before the filing of a petition “is not dis-
qualified from employment under section 327.” 11
U.S.C. 1107(b). Counsel who are retained by chapter 11
debtors-in-possession thus have express statutory
authority to seek fees from the estate as “a professional
person employed under section 327.” 11 U.S.C.
330(a)(1).”
o Petitioner argues (Pet. Br. 21-22) that an award of fees to
counsel for a chapter 11 debtor-in-possession conflicts with an
interpretation of the statute that gives “full effect” to the deletion
35
2. Substantial policy reasons support Congress’
choice to exclude attorneys fees in — 7 — —
chapter 11 cases where a trustee has been appointed
while permitting estate funds to be used to pay attor-
neys for debtors-in-possession under chapter 11 and
individual debtors in chapters 12 and 13. Debtors-in-
possession in chapter 11, like debtors in chapters 12 and
13, pursue along with creditors the common goal of
crafting and adopting a repayment plan to pay creditors
from an estate that includes post-petition assets and
income. Because only the chapter 11 debtor-in-posses-
sion is authorized to propose a plan initially, 11 U.S.C.
1121(a), (b) and (c), its counsel’s assistance in develop-
ing a plan benefits the creditors who are paid from post-
petition income and assets. 11 U.S.C. 1122-1129. The
same is true for chapters 12 and 13, under which deb-
tors remain in possession of all property of the estate
and have the responsibility to propose post-petition
repayment plans. 11 U.S.C. 1203, 1207(b), 1221, 1303
1304, 1306(b), 1321. Because those chapters include
post-petition assets in the pool of potential recovery
Congress rationally could have determined to authorize
estate funds to be paid to attorneys for debtors in
proceedings under those chapters as compensation for
their services in assisting the debtor to develop a
2 — — the benefit of creditors.
case under the liquidation provisions of chapter 7 is
fundamentally different from cases under —— 11,
of the phrase “the debtor's attorney.” Petitioner is mistaken. The
Code unambiguously 12 attorneys within the category of
persons“ who may be retained by the trust
USC. 327(a), or the chapter 11 he emai Mg —
— — —.— trustee, 11 U.S.C. 1107, and the Code
y au compensation to such fessi -
sonſs] in Section 330(a)(1). *
36
12, and 13. A chapter 7 debtor does not administer or
control the estate on behalf of creditors. That function
is instead performed by the trustee, who is appointed in
all chapter 7 cases, 11 U.S.C. 701, anc who represents
the estate on behalf of creditors, pp. 20-21, supra.
Moreover, the chapter 7 debtor does not propose a
repayment plan. Rather, he surrenderls * * * all
property of the estate” to the trustee, 11 U.S.C. 521(4),
who liquidates the debtor’s nonexempt assets for the
benefit of the estate’s creditors, 11 U.S.C. 704(1), 726.
Significantly, as discussed, the Code gives a trustee
who needs legal assistance in administering or liquidat-
ing a chapter 7 estate authority to seek court approval
to retain counsel. Section 327(a) thus permits “the
trustee, with the court’s approval, [to] employ one or
more attorneys * * * that do not hold or represent an
interest adverse to the estate, and that are disinter-
ested persons, to represent or assist the trustee in
carrying out the trustee’s duties under this title.” 11
U.S.C. 327(a). And Section 327(e) permits the trustee
to retain the former debtor’s counsel for a special
purpose when in the best interest of the estate.
Additionally, every dollar taken from the chapter 7
estate reduces the amount of funds available for
creditors. Because the size of a chapter 7 estate is cast
in stone as of the date of the filing of the petition, 11
U.S.C. 727(b), chapter 7 is a zero-sum game. Any
diversion of funds from a chapter 7 estate to pay for a
debtor’s personal attorney reduces the amount of estate
funds available to pay creditors. In those eireum-
stances, it was reasonable for Congress to prohibit the
siphoning of finite assets in chapter 7 cases by pre-
venting chapter 7 debtors from using estate funds to
pay the bills of their personal attorneys.
37
At the same time, the lack of authorization
estate funds to pay counsel for a chapter 7 —
not prevent the debtor from hiring an attorney, as sug-
gested by petitioner (Pet. Br. 2). Quite to the contrary
subject to certain limited exceptions, all assets and
income acquired by a chapter 7 individual debtor after
the petition is filed belong to the debtor. 11 U.S.C.
541(a)(5) and (6), 726, 727(b). An individual debtor
typically will have post-petition funds, particularly his
or her salary, that the debtor may use to pay counsel
for any post-petition legal services. Similarly, when a
corporate chapter 7 debtor is being liquidated, the Code
does not restrict the corporation’s former shareholders
— officers from using their personal funds to pay for
— — services in order to further their personal
3. Petitioner argues (Pet. Br. 30-36) that, without
access to estate funds, bankruptcy lawyers will be
discouraged from representing debtors in performing
10 Similar policy reasons support the absence of authority to
estate funds to compensate the debtor’s counsel in the unussal cane
where a chapter 11 trustee is appointed “for cause, including fraud,
an any, — or gress mismenagemen t of the affairs
of t by current management” or because the appointment
is in “the interest of creditors.” 11 U.S.C. 1104(a)(1) and (2). In
those circumstances, the debtor loses its powers over the estate
including the sole right under Section 1121(b) to propose an initial
reorganization plan and the rights and powers of a trustee under
Sections 327(a), 1106, and 1107 to retain professional persons. It is
thus entirely appropriate that the debtor should not be in a
position to siphon funds from the estate to pay the debtor’s
attorney—yet that is the result that would be permissible under
petitioner's interpretation. As discussed in the text, moreover, the
Code does not restrict the use of post-petition earnings by individ-
ual debtors, 11 U.S.C. 541(a)(6), and the Code permits the trustee
to retain the debtor’s counsel under Section 327(e).
38
their statutorily imposed duties in the over one million
chapter 7 cases filed each year. For several reasons,
however, it is the experience and considered view of the
United States Trustees, whom Congress has charged
with supervising the administration of bankruptcy
cases (28 U.S.C. 586(a)(3)), that enforcing Section
330(a)(1) as written has no appreciable detrimental
impact upon the administration of chapter 7 bankruptcy
cases.
First, the right to seek chapter 7 debtors’ counsel
fees from the bankruptcy estate has no practical effect
in the overwhelming majority of chapter 7 cases. The
data that the United States Trustees maintain on
chapter 7 cases in the regions they supervise reveal
that 96% of chapter 7 cases closed during 2002, i. e.,
1,001,697 of the 1,041,065 chapter 7 cases, had no assets
in the estate to pay anything to counsel (or creditors for
that matter). Thus, it is only in the remaining 4% of
chapter 7 cases—less than 40,000 cases annually—that
the amendment limits the ability of the chapter 7
debtor’s counsel to seek fees from the estate. In those
instances, however, Congress has made the rational
choice of preserving those funds for creditors and of
requiring the chapter 7 debtor to use non-estate, post-
u Chapter 7 filing data maintained by the United States Trus-
tees support the conclusion that enforcing Section 330(a)(1) as
written does not unduly discourage chapter 7 filings. In the years
1999 and 2000, chapter 7 filings declined nationally. Those filings
declined at a lower rate, however, in the Fifth and Eleventh
Circuits, which have enforced the statute as written. Jn re Pro-
Snax Distribs., Inc, 157 F.3d 414 (5th Cir. 1998); In re Am. Steel
Prods., Inc., 197 F.3d 1354 (11th Cir. 1999). Similarly, in 2001,
while chapter 7 filings increased nationally, such filings in the Fifth
and Eleventh Circuits increased at a higher rate than the national
average.
39
petition funds to pay for counsel if needed, or to comply
with the provisions of Section 327(e) that permit
retention of the debtor’s counsel by the trustee. See
pp. 20, 36-37, supra.
Second, the vast majority of chapter 7 debtors who
have retained counsel, both before and after Congress
amended Section 330, have paid their attorney a flat fee
prior to filing bankruptcy to compensate the attorney
for the typical services provided by counsel. Teresa A.
Sullivan et al., As We Forgive Our Debtors 23 (1999)
(“Because most attorneys insist on being paid in
advance, the debtor must find some money for fees and
filing before bankruptcy is possible. Some people are
literally saving up for their bankruptcies.”); Amy L.
Good & Dean P. Wyman, Representing Consumer
Debtors: Fiduciary Duties of Counsel, Prac. Law., Mar.
1999, at 33 (“Chapter 7 attorneys are generally paid a
one-time fee immediately before the filing of the
bankruptcy petition.”); Stanley B. Bernstein et al.
Collier Compensation, Employment and Appointment
of Trustees and Professionals in Bankruptcy 1 3.02(1],
at 3-2 (2001) (“In the majority of (chapter 7] cases, the
debtor’s counsel will accept an individual or a joint con-
sumer chapter 7 case only after being paid a retainer
that covers the ‘standard fee’ [which Bernstein esti-
mates as between $750 and $850 in 2001] and the cost of
filing the petition.”).
Those fees routinely compensate counsel for his work
in a chapter 7 case, most of which is completed before
the petition is filed and the debtor’s non-exempt assets
become part of the estate under 11 U.S.C. 541.
“Proceedings under Chapter 7 differ from cases under
other Chapters of the Code in that the bulk of the legal
and fact-finding work is done before the petition is
filed.” Rosemary E. Williams, Bankruptcy Practice
40
Handbook § 5:1, at 5-4 (2d ed. 2002); accord In re Cen-
tury Cleaning Servs., Inc., 195 F.3d at 1064 (Thomas, J.,
dissenting) (“In many Chapter 7 cases, there is little for
the debtor’s attorney to do after the petition is filed.”).
The Code imposes very limited duties on a chapter 7
debtor. The debtor must complete a bankruptcy peti-
tion, a schedule of assets and liabilities, a statement of
Financial Affairs, and a disclosure of debts secured by
real property. 11 U.S.C. 521(1) and (2); Bankr. R. 4002,
11 U.S.C. App. Official Forms 1, 6, 7. Those duties
generally may be performed before the debtor files for
bankruptcy. The debtor also must cooperate with the
trustee, surrender all property of the estate to the
trustee, and appear at any discharge hearing. 11 U.S.C.
§21(3)-(5); Bankr. R. 4002(2) and (3). Additionally, the
debtor must attend an initial meeting of creditors
where he may be asked questions to make sure that he
accurately reported assets and liabilities on the bank-
ruptey filings. 11 U.S.C. 341. Thus, where counsel is
retained in chapter 7, the attorney typically analyzes
the debtor’s financial condition, advises the debtor
whether to file bankruptcy, prepares schedules for
filing, and appears at the — — | — ereditors.
Representing Consumer Debtors, supra, .
— amuse (Pet. Br. 1) that At he debtor” has
a duty to “maximize the value of the estate.” The deci-
sion cited by petitioner, Louisiana World Exposition v.
Federal Insurance Co., 858 F.2d 233, 246 (5th Cir.
1988)), however, involves a chapter 11 debtor-in-posses-
sion, which has the duty of a trustee to manage the
estate on behalf of creditors, 11 U.S.C. 1106, 1107(a),
1108. That duty has no application to debtors in
chapter 7, who have neither the right nor obligation to
control or manage the estate. 11 U.S.C. 323(a), 521(4).
41
For similar reasons, petitioner errs in attempting to
show (Pet. Br. 6-7, 30-31) that the services he per-
formed—such as his work in reviewing proofs of claims,
in connection with the adversary complaint, and in
investigating flood damage to the estate property—are
illustrative of essential services by chapter 7 debtors’
attorneys. The chapter 7 trustee, not the debtor,
reviews proofs of claims, 11 U.S.C. 704(5), reduces to
money the property of the estate, 11 U.S.C. 704(1), and
acts to preserve the estate’s assets, 11 U.S.C. 704(1)
and (2). There was thus no need for petitioner to
perform those services, which should have been per-
formed by the trustee or counsel retained by the
trustee (and subject to the trustee’s direction, not the
debtor’s) under the specific provisions of Section 327.”
Based on the limited and generally pre-petition
nature of the duties of a chapter 7 debtor, it is the
United States Trustees’ experience that chapter 7
debtors’ counsel routinely receive flat fees before the
bankruptcy petition is filed, even in those circuits that
allow chapter 7 debtors’ counsel to seek fees in “asset”
cases (i.e., those relatively few cases in which the
chapter 7 estate actually contains some assets for dis-
tribution). Indeed, only the most imprudent attorney
would fail to secure payment before commencing work
for a client who is entering chapter 7. Regardless of the
2 Some of petitioner’s services were potentially adverse to the
estate’s interests. Petitioner observes (Pet. Br. 6), for example,
that post-conversion he explained to the debtor, a defunct corpora-
tion, how it could attempt to reconvert the case to chapter 11.
Petitioner's time records also suggest that he drafted a notice of
appeal from the order converting the case to chapter 7. Pet. Br.
App. 13a. Petitioner was therefore performing services that ap-
parently were designed to benefit the debtor’s equity holders, not
the estate that petitioner no longer represented.
42
outcome of this case, the United States Trustees fully
expect debtors’ counsel in chapter 7 cases to continue to
charge a flat fee in advance for their services, rather
than work for free and then face the uncertain prospect
of seeking judicial approval for an award of fees from
the assets (if any) of the liquidating estate.
Because chapter 7 counsel are already routinely fully
paid for their services up front, petitioner also errs
(Pet. Br. 35) in predicting that enforcement of the
statute as written will encourage enhanced flat fees
that would unduly reduce the size of the estate. In any
event, the Code already ensures that any pre-petition
fee arrangement must be reasonable. Section 329
requires any attorney representing a debtor, whether
or not the attorney “applies for compensation,” to
disclose all fee arrangements made within one year of
the petition and to return any payment that “exceeds
the reasonable value” of counsel services. 11 U.S.C.
329(a) and (b). The Code similarly prohibits preferen-
tial payments to counsel. 11 U.S.C. 547(b); In re
Pillowtex, Inc., 304 F.3d 246, 250 (3d Cir. 2002); In re
First Jersey Secs., Inc., 180 F.3d 504, 508-514 (3d Cir.
1999)."°
13 Petitioner notes (Pet. Br. 36 n.7) that some States consider
funds that are paid to an attorney for services that have not yet
been performed to be potentially refundable to the client. In that
instance, such funds may be part of the estate when the petition is
filed. 11 U.S.C. 541. Any chapter 7 debtor’s attorney who prac-
tices in those jurisdictions may nonetheless be compensated out of
the debtor’s post-petition salary or other income for any post-
petition services. As discussed, moreover, most services of the
chapter 7 debtor’s attorney are typically performed pre-petition,
i. e., before the creation of the estate, and an attorney can accord-
ingly be paid reasonable compensation for his pre-petition services.
43
4. Petitioner also speculates (Pet. Br. 33) that an
attorney who represents a chapter 11 debtor-in-posses-
sion may find himself ethically compelled to work] for
free” if the case converts to chapter 7. Conversions,
however, form only a very small fraction of chapter 7
cases. Records maintained by the United States
Trustees indicate that conversions reflect less than
0.26% of chapter 7 cases. Furthermore, counsel may
seek in advance to limit the scope of the representation
to his services for the chapter 11 debtor-in-possession
as approved by the court under Section 327(a). Cf.
Model Rules of Professional Conduct Rule 1.2(c) (2002)
(“A lawyer may limit the scope of the representation if
the limitation is reasonable under the circumstances
and the client gives informed consent.”). In any event,
there is no reason to think that the chapter 7 debtor’s
attorney will be saddled with post-petition work in the
typical case, see pp. 39-40, supra, and Section 327(e)
permits retention of the debtor’s counsel as needed.
* * * * *
In sum, the statute as enacted by Congress produces
reasonable results that are fully consistent with the
proper administration of bankruptcy proceedings.
Indeed, the United States Trustees have observed no
detrimental effects from the 1994 amendments to
Section 330(a) on the administration of bankruptcy
cases throughout the country, including in the circuits
that have enforced the statute as passed by Congress.
In light of the United States Trustees’ experience and
Congress’s refusal over the last eight years to amend
Section 330 as urged by petitioner, there is no justifica-
tion for accepting petitioner’s extraordinary request to
rewrite the Bankruptcy Code.
44
CONCLUSION
The judgment of the court of appeals should be
affirmed.
Respectfully submitted.
THEODORE B. OLSON
Solicitor General
PETER D. KEISLER
Assistant Attorney General
JOSEPH A. GUZINSKI THoMaS G. HUNGAR
p — 0 Deputy Solicitor General
‘Attorney Lisa S. BLATT .
— Office for Assistant to the Solicitor
United States Trustees General
AUGUST 2003
APPENDIX
1. Section 327 of Title 11, U.S. Code, provides:
§ 327. Employment of professional persons
(a) Except as otherwise provided in this section, the
trustee, with the court’s approval, may employ one or
more attorneys, accountants, appraisers, auctioneers,
or other professional persons, that do not hold or
represent an interest adverse to the estate, and that
are disinterested persons, to represent or assist the
trustee in carrying out the trustee’s duties under this
title.
(b) If the trustee is authorized to operate the
business of the debtor under section 721, 1202, or 1108
of this title, and if the debtor has regularly employed
attorneys, accountants, or other professional persons on
salary, the trustee may retain or replace such profes-
sional persons if necessary in the operation of such
business.
(e) In a ease under chapter 7, 12, or 11 of this title, a
person is not disqualified for employment under this
section solely because of such person’s employment by
or representation of a creditor, unless there is objection
by another creditor or the United States trustee, in
which case the court shall disapprove such employment
if there is an actual conflict of interest.
(d) The court may authorize the trustee to act as
attorney or accountant for the estate if such authoriza-
tion is in the best interest of the estate.
(e) The trustee, with the court’s approval, may
employ, for a specified special purpose, other than to
represent the trustee in conducting the case, an
attorney that has represented the debtor, if in the best
(la)
2a
interest of the estate, and if such attorney does not
represent or hold any interest adverse to the debtor or
to the estate with respect to the matter on which such
attorney is to be employed.
(f) The trustee may not employ a person that has
served as an examiner in the case.
2. Section 330 of Title 11, U.S. Code, provides:
§ 330. Compensation of officers
(a)(1) After notice to the parties in interest and the
United States Trustee and a hearing, and subject to
sections 326, 328, and 329, the court may award to a
trustee, an examiner, a professional person employed
under section 327 or 1103—
(A) reasonable compensation for actual, neces-
sary services rendered by the trustee, examiner, pro-
fessional person, or attorney and by any para-
professional person employed by any such person;
and
(B) reimbursement for actual, necessary
expenses.
(2) The court may, on its own motion or on the
motion of the United States Trustee, the United States
Trustee for the District or Region, the trustee for the
estate, or any other party in interest, award compen-
sation that is less than the amount of compensation that
is requested.
(3A)! In determining the amount of reasonable
compensation to be awarded, the court shall consider
the nature, the extent, and the value of such services,
taking into account all relevant factors, including—
So in original.
3a
(A) the time spent on such services;
(B) the rates charged for such services;
(C) whether the services were necessary to the
administration of, or beneficial at the time at which
the service was rendered toward the completion of, a
case under this title;
(D) whether the services were performed
within a reasonable amount of time commensurate
with the complexity, importance, and nature of the
problem, issue, or task addressed; and
(E) whether the compensation is reasonable
based on the customary compensation charged by
comparably skilled practitioners in cases other than
cases under this title.
(4)(A) Except as provided in subparagraph (B), the
court shall not allow compensation for—
(i) unnecessary duplication of services; or
(ii) services that were not
(I) reasonably likely to benefit the deb-
tor’s estate; or
(II) necessary to the administration of the
case.
(B) In a chapter 12 or chapter 13 case in which
the debtor is an individual, the court may allow
reasonable compensation to the debtor’s attorney for
representing the interests of the debtor in connection
with the bankruptcy case based on a consideration of
the benefit and necessity of such services to the
debtor and the other factors set forth in this section.
(5) The court shall reduce the amount of compen-
sation awarded under this section by the amount of any
4a
interim compensation awarded under section 331, and,
if the amount of such interim compensation exceeds the
amount of compensation awarded under this section,
may order the return of the excess to the estate.
(6) Any compensation awarded for the preparation
of a fee application shall be based on the level and skill
reasonably required to prepare the application.
(b)(1) There shall be paid from the filing fee in a case
under chapter 7 of this title $45 to the trustee serving
in such case, after such trustee’s services are rendered.
(2) The Judicial Conference of the United
States—
(A) shall prescribe additional fees of the same
kind as prescribed under section 1914(b) of title 28;
and
(B) may prescribe notice of appearance fees
and fees charged against distributions in cases
under this title;
to pay $15 to trustees serving in cases after such
trustees’ services are rendered. Beginning 1 year after
the date of the enactment of the Bankruptcy Reform
Act of 1994, such $15 shall be paid in addition to the
amount paid under paragraph (1).
(c) Unless the court orders otherwise, in a case
under chapter 12 or 13 of this title the compensation
paid to the trustee serving in the case shall not be less
than $5 per month from any distribution under the plan
during the administration of the plan.
(d) In a case in which the United States trustee
serves as trustee, the compensation of the trustee
under this section shall be paid to the clerk of the
bankruptcy court and deposited by the clerk into the
5a
United States Trustee System Fund established by
section 589a of title 28.
3. Section 331 of Title 11, U.S. Code provides:
§ 331. Interim compensation
A trustee, an examiner, a debtor’s attorney, or any
professional person employed under section 327 or 1103
of this title may apply to the court not more than once
every 120 days after an order for relief in a case under
this title, or more often if the court permits, for such
compensation for services rendered before the date of
such an application or reimbursement for expenses
incurred before such date as is provided under section
330 of this title. After notice and a hearing, the court
may allow and disburse to such applicant such com-
pensation or reimbursement.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.