# Respondents Brief — Lamie v. United States Trustee

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Respondents Brief
- **Published:** January 1, 2004
- **Citation:** 540 U.S. 526

## Text

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 . 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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0618%3A7. Public record. Not legal advice.