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Nature of Suit Code: 422
Nature of Suit: Bankruptcy Appeals Rule 28 USC 158
Cause of Action: 

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PUBLISH !4j 1 L l~J u 

UNITED STATES COURT OF APPEALS lJnited Statos Court tlf Appeal• 'rontb ctrcult 

TENTH CIRCUIT 

In re : BDT FARMS , INC . , 

Debtor, 

JOHN E. FOULSTON, United States 

Trustee, Region 20, 

Appellant, 

v. 

BDT FARMS I INC • I 

Appellee. 

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APR t ~ 1~94 

ROBERT 4 HOECKER CI~~'~ 

No. 93-6302 

Appeal from the United States District Court 

for the Western District of Oklahoma 

(D.C. No. CIV-93-672-W) 

Submitted on the briefs: 

. John E. Foulston, United States Trustee, Herbert M. Graves, Senior 

Assistant U.S. Trustee, and Mark B. Toffoli, Attorney, Office of 

the u.s. Trustee, Oklahoma City, Oklahoma, and Martha L. Davis, 

General Counsel, and Paul W. Bridenhagen, Attorney, Executive 

Office for u.s. Trustees, Washington, D.C., for Appellant. 

B.J. Brockett, Anthony L. Jackson, and J. Mark Spaeth, Oklahoma 

City, Oklahoma for Appellee. 

·• 

Before LOGAN and SETH, Circuit Judges, and KELLY,* District Judge. 

LOGAN, Circuit Judge. 

* The Honorable Patrick F. Kelly, Chief Judge, United States 

District Court for the District of Kansas, sitting by designation. 

Appellate Case: 93-6302 Document: 01019289128 Date Filed: 04/12/1994 Page: 1 
This appeal arises out of a Chapter 12 family farmer bankruptcy, 11 U.S.C. §§ 1201-31. The case presents a difficult question concerning the calculation of the standing trustee's fee 

under 28 U.S.C. § 586(e). The United States Trustee appeals from 

adverse decisions of the bankruptcy and district courts. We exercise jurisdiction under 28 u.s.c. §§ 158{d) and 1291, and 

1 

reverse. 

I 

BDT Farms, Inc., a family farm, filed a voluntary petition 

under Chapter 12 of the Bankruptcy Code in 1988. Appellant 

John E. Foulston was assigned as standing trustee, see 28 U.S.C. 

§ 586(b), and thus became entitled to a percentage fee for a 

standing trustee in a Chapter 12 proceeding. Id. § 586{e) (1) (B) 

(providing Attorney General has authority to set fee) . This percentage fee is "not to exceed ten percent of the payments made 

under the plan of [the] debtor, with respect to payments in an 

aggregate amount not to exceed $ 450,000." at 

§ 586 {e) (1) {B) {ii) (I). The Attorney General set the percentage 

during part of this proceeding at ten percent. Section 586{e) (2) 

provides that "[The standing trustee] shall collect such 

percentage fee from all payments received by such individual under 

plans in the cases under chapter 12 or 13 of title 11 for which 

such individual serves as standing trustee." 

1 After examining the briefs and appellate record, this panel has 

determined unanimously that oral argument would not materially 

assist the determination of this appeal. See Fed. R. App. P. 

34(a); 10th Cir. R. 34.1.9. The case is therefore ordered submitted without oral argument. 

2 

Appellate Case: 93-6302 Document: 01019289128 Date Filed: 04/12/1994 Page: 2 
~ 

.j 

In December 1992 debtor moved to close the case and the 

standing trustee objected. 2 The bankruptcy court sua sponte 

raised the issue whether the trustee's practice of assessing a fee 

on the total amount transferred to the trustee resulted in an 

effective fee of 11.1111%, in violation of the ten percent maximum. The court found it did violate the statute and the district 

court affirmed. 

The only issue on appeal is whether the standing trustee's 

percentage fee under 28 u.s.c. § 586(e) is computed on the amount 

intended to be paid creditors through the trustee, or on the total 

amount transferred to the trustee. The difference is small in the 

appeal before us, but the resolution has implications considerably 

beyond the instant case. The bankruptcy and district courts that 

have considered the issue have reached conflicting results, and we 

apparently are the first circuit court to have to decide the question. 

Section 586(e) is administered by the Attorney General, in 

consultation with the United States Trustee. See 28 U.S.C. 

§ 586(e). The Attorney General, through the Executive Office for 

United States Trustees, has established a policy that under 

I 

§ 586(e) (2), a Chapter 12 standing trustee is entitled to a percentage of all monies he or she receives from the debtor, including the trustee's fee itself. See Handbook for Chapter 12 United 

States Trustees at 28-30, Appellant's App. 73-75. The bankruptcy 

2 The standing trustee asserted, inter alia, that debtor owed him 

$542.89 in trustee fees for a direct payment of an administrative 

claim made pursuant to the plan. See Appellant App. 2. The bankruptcy court denied that claim. 

3 

Appellate Case: 93-6302 Document: 01019289128 Date Filed: 04/12/1994 Page: 3 
court in this case took a contrary view, relying on Edge v. 

Maikoff (In re Edge), 122 B.R. 219 (D. Vt. 1990), and the district 

court affirmed. 

We review de novo the district court's interpretation of a 

federal statute. FDIC v. LowekY, 12 F.3d 995, 996 (10th Cir. 

1993). We use the following analysis when we review an agency's 

interpretation of 'a statute which it administers: We first determine whether the statute is unambiguous, and if we decide that it 

is ambiguous, we determine whether the agency's construction of it 

is permissible. See Chevron U.S.A. Inc. v. Natural Resources 

Defense Council. Inc., 467 U.S. 837, 842-43 (19S4). We must give 

effect to an unambiguous statute, id., and must defer to an agency's reasonable interpretation of an ambiguous statute, id. at 

844. 

In determining whether the statute is unambiguous, we are 

mindful of the need to look not only at the statute itself, but 

also at the larger statutory context~ See Rake v. Wade, 113 

S. Ct. 2187, 2193 (1993} {"[S]tatutory terms are often clarified 

by the remainder of the statutory scheme--because the same ter.minology is used elsewhere in a context that makes [its] meaning 

clear.") (internal quotation omitted}. 

The bankruptcy court in this case relied on In re Edge, 122 

B.R. 219, for its finding (in a Chapter 13 case) 3 that § 586(e} is 

unambiguous when read in its statutory context and in light of its 

3 Because Chapter 12 was closely modeled after Chapter 13, H.R. 

Conf. Rep. No. 99-958, 99th Cong., 2d Sess. 48 (1986}, reprinted 

in 1986 U.S.C.C.A.N. 5227, 5249, consideration of Chapter 13 cases 

in analyzing questions under Chapter 12 is appropriate. 

4 

Appellate Case: 93-6302 Document: 01019289128 Date Filed: 04/12/1994 Page: 4 
. ) 

.. legislative history. 4 See 122 B.R. at 221. The Edge court examined other Chapter 13 statutes, in particular 11 U.S.C. 

§ 1326(b} (2), which states: "Before or at the time of each payment to creditors under the plan, there shall be paid 

percentage fee fixed for such standing trustee .. " 

the 

Edge, 122 

B.R. at 221-22. The court interpreted§ 1326(b) (2) as defining 

"payments under the plan" as payments to creditors. Id. The 

court therefore found that the trustee's fee is not a "payment[] 

received by such individual under [a Chapter 13] plan[]," 28 

u.s.c. § 586(e) (2}, and that the trustee's fee is therefore properly calculated as a percentage of only the money received by the 

trustee that is earmarked to be paid to creditors. Edge, 122 B.R. 

at 221. Although the Edge court found its definition for § 586 

language in a Chapter 13 statute, 11 U.S.C. § 1326(b) (2}, the 

bankruptcy court in this case pointed out that the parallel Chapter 12 section, 11 U.S.C. § 1226(b) (2}, has identical language. 

See Order on Motions for Reconsideration, Appellant's App. at 28-

29. 

The trustee argues that In re Weaver, 118 B.R. 730 (Bankr. D. 

Neb. 1990), rather than In re Edge provides a correct const~ction 

of § 586(e) (2). The Weaver court found, without analysis, that 

the "all payments received" language of § 586(e) (2) unambiguously 

4 Although Edge makes general references to congressional intent 

in amending the statute, the case provides no cites to legislative 

history and, in fact, its references appear to be the court's 

speculation. See 122 B.R. at 220-21. The legislative history 

mentions § 586(e} but does not discuss the specific change in the 

language of § 586(e) (2) that is discussed by the Edge court. Compare id. with H.R. Rep. No. 99-764, 99th Cong., 2d Sess. 25 

(1986), reprinted in 1986 U.S.C.C.A.N. 5227, 5237 (discussing section 116 of H.R. 5316). 

5 

Appellate Case: 93-6302 Document: 01019289128 Date Filed: 04/12/1994 Page: 5 
1 

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means that the standing trustee's fee is calculated as a percentage of all of the money the debtor pays to the trustee, including 

the trustee's fee. 118 B.R. at 731. 5 Legal analysis to support 

this result is provided by an unpublished opinion, In re Estes, 

No. 91-61209, 1992 WL 512785 (Bankr. E.D. Tex. May 20, 1992). The 

Estes court expressly disagreed with In re Edge for two reasons: 

(1) § 586(e) (2) unambiguously calls for a percentage fee on "all 

payments received" by the trustee, not on all payments intended 

for creditors; and (2) if § 586(e) (2) is ambiguous, then under 

Chevron, 467 U.S. at 865, the court should defer to the agency's 

permissible interpretation of the statute. Estes, 1992 WL 512785, 

at *2-3. 

In determining that § 586(e) (2) is unambiguous, the Estes 

court pointed out that 11 U.S.C. § 326(a), which fixes compensation for Chapter 7 and Chapter 11 trustees, "specifically limits 

[their] compensation to a percentage of 'moneys disbursed or 

turned over in the case by the trustee to the parties-ininterest.'" Estes, 1992 WL 512785, at *2 (quoting 11 U.S.C. 

§ 326 (a) ) . The court further reasoned that Congress knew how to 

5 The Weaver court focused on the statutory language, stating 

that the legal issues were "confused by [the] practical problems" 

of determining how much the debtor should pay the trustee to allow 

for both the trustee's fee and some designated amount to be paid 

to creditors. Weaver, 118 B.R. at 731. The court explained that 

since the trustee's fee under the statute is ten percent of all 

monies given by the debtor to the trustee, then the amount 

intended to be paid to creditors will be ninety percent of the 

total paid to the trustee. Thus, if the debtor wishes to pay 

creditors $120.00, the debtor should pay the trustee $133.33 to 

allow for the trustee's ten percent fee--$120.00 is ninety percent of $133.33. Id. 

6 

Appellate Case: 93-6302 Document: 01019289128 Date Filed: 04/12/1994 Page: 6 
clearly express such a limitation and its failure to do so indicates Congress did not intend such a limitation in § 586(e} (2}. 

The bankruptcy court in the instant case rejected Weaver and Estes 

because neither of those decisions discussed the "under the plan" 

language of § 586(e) (2). Appellant's App. 28. 

We have searched for guidance in the legislative history but 

it has not proved illuminating in this case. See Overholt v. Farm 

Credit Servs. (In re Overholt), 125 B.R. 202, 207 (S.D. Ohio 1990} 

(legislative history of Chapter 12 is "scant"}; see also In re 

Savage, 67 B.R. 700, 705 (D.R.I. 1986) (Chapter 13 legislative 

history is "delphic"}. There is no legislative history "reflecting Congressional consideration of . . . Chapter 12 provisions in 

relation to the applicable provisions of Title 28 governing United 

States Trustee fees." In re Finkbine, 94 B.R. 461, 464 (Bankr. 

S.D. Ohio 1988). The legislative history that does exist can be 

used to support either narrow or broad constructions of Chapter 12 

provisions and 28 U.S.C. § 586(e). In re Pianowski, 92 B.R. 225, 

231 (Bankr. W.O. Mich. 1988). 

We have reviewed the many court decisions considering the 

language and legislative history of § 586(e) (2) as applied to 

related questions under Chapters 12 and 13, but these cases add 

confusion rather than clarity to the construction of§ 586(e). 6 

6 One such question is whether administrative claims are "under 

the plan" for the purposes of § 586(e}. One court has said yes. 

See Greseth v. Federal Land Bank of St. Paul (In re Greseth), 78 

B.R. 936, 941 (D. Minn. 1987). The Greseth court construed several provisions under Chapter 12 to reach the conclusion that the 

payment of a~inistrative claims is an important required function 

of the stand~ng trustee, and that the trustee is therefore entitled to a fee on such payments. Id. We take it that the Greseth 

7 (continued on next page) 

Appellate Case: 93-6302 Document: 01019289128 Date Filed: 04/12/1994 Page: 7 
j 

We can only conclude that § 586(e) is ambiguous. See In re Marriott, 161 B.R. 816, 818 (Bankr. S.D. Ill. 1993) ("divergent judicial interpretations evidence a certain ambiguity in statutory 

provisions relating to the payment of claims under a Chapter 12 

plan"); In re Pianowski, 92 B.R. at 231 (provisions of Chapter 12 

when read with 28 U.S.C. § 586 are somewhat ambiguous) .

7 Whether 

Congress intended to allow the standing trustee to, in effect, 

collect a fee on his or her fee, or intended to limit the trustee's fee to a percentage of disbursements, is not clear from the 

(continued from previous page) 

court meant that administrative payments are "payments under the 

plan" within the meaning of § 586(e) (2). See id. at 940. Indeed, 

the Greseth court stated that "[n]either chapter 12 nor section 

586(e) contemplates payments being made outside the plan." Id. 

This analysis runs contrary to the Edge court's view that payments 

"under the plan" are only those payments intended for creditors. 

See Edge, 122 B.R. at 221. 

Another related question is whether a Chapter 12 debtor may 

make direct payments to creditors to avoid the trustee's fee under 

§ 586(e), or whether a debtor's direct payment to a creditor is 

considered "under the plan" within the meaning of § 586(e) such 

that the debtor is merely a disbursing agent and the trustee still 

collects a fee. There is a split among the courts that have considered this question. Compare Fulkrod v. Savage (In re Fulkrod), 

973 F.2d 801, 802-03 (9th Cir. 1992) (holding that payments on 

impaired claims are "under the plan" for purposes of trustee's fee 

under § 586 and may not be made directly by debtor), and ~n re 

Finkbine, 94 B.R. at 464, 466 (finding that "under the plan" means 

affected by the plan, and that impaired claims must be paid under 

the plan), with In re Overholt, 125 B.R. at 211 (finding that an 

"under the plan/outside the plan" distinction is no longer valid; 

the crucial issue relevant to the trustee's fee under § 586(e) is 

whether the trustee "receives" payment, and that debtor may make 

direct payments on impaired claims to avoid the fee). Lines of 

cases have developed under both of these views and their analyses of the statutes vary. 

7 

Another court was more blunt in complaining about some of the 

language in§ 586(e): "This labyrinthine language cries out with 

some degree of desperation for the catharsis of an explication." In re Savage, 67 B.R. at 703. 

8 

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1 

., 

statutory language, the larger statutory context, or the legislative history. 

When Congress has not directly addressed a specific issue 

arising in construction of a statute, we must defer to the construction of the statute by the administering agency unless it is 

"arbitrary, capricious, or manifestly contrary to the statute." 

Chevron, 467 U.S. at 844. Here, the Executive Office for the U.S. 

Trustee has construed § 586(e) as providing that the standing 

trustee is entitled to collect a percentage fee of all monies he 

receives from the debtor, including the trustee's fees. This 

interpretation is permissible and under the ten percent cap of the 

statute. Because the statute is ambiguous, we must defer to it. 

REVERSED. 

9 

Appellate Case: 93-6302 Document: 01019289128 Date Filed: 04/12/1994 Page: 9