Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-ca9-11-60072/USCOURTS-ca9-11-60072-0/pdf.json

Parties Involved:
Carl A. Eklund
Amicus Curiae
Hokulani Square, Inc.

Bradley R Tamm
Appellant
UST - United States Trustee, Honolulu
Appellee

Document Text:

FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

IN RE: HOKULANI SQUARE, INC., a

Hawaii corporation,

Debtor,

BRADLEY R TAMM, Chapter 7

Trustee,

Appellant,

v.

UST - UNITED STATES TRUSTEE,

HONOLULU,

Appellee.

No. 11-60072

BAP No.

10-1468

OPINION

Appeal from the Ninth Circuit

Bankruptcy Appellate Panel

Pappas, Dunn, and Jury, Bankruptcy Judges, Presiding

Argued and Submitted

October 10, 2013—Honolulu, Hawaii

Filed January 26, 2015

Before: Alex Kozinski, Raymond C. Fisher,

and Paul J. Watford, Circuit Judges.

Opinion by Judge Kozinski

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2 IN RE: HOKULANI SQUARE, INC.

SUMMARY*

Bankruptcy

The panel affirmed the Bankruptcy Appellate Panel’s

reversal of the bankruptcy court’s award of compensation to

a chapter 7 trustee.

The trustee’s compensation is calculated based on the

value of the bankruptcy estate assets he disburses. In this

case, secured creditors made a winning credit bid on real

property of the bankruptcy estate, using money the estate

owed them, rather than cash. The panel held that 11 U.S.C.

§ 326(a) does not permit a trustee to collect fees on a credit

bid transaction in which the trustee disburses only property,

not “moneys,” to the creditor.

COUNSEL

Bradley R. Tamm (argued); Lissa D. Shults and Melissa A.

Miyashiro, Shults & Tamm, ALC, Honolulu, Hawaii, for

Appellant.

Noah M. Schottenstein (argued), Trial Attorney, Ramona

Elliot, Deputy Director/General Counsel, P. Matthew Sutko,

Associate General Counsel, Executive Office for the United

States Trustees, Washington, D.C.; Tiffany Carroll, Acting

United States Trustee for Region 15, Curtis B. Ching,

Assistant United States Trustee, United States Department of

* This summary constitutes no part of the opinion of the court. It has

been prepared by court staff for the convenience of the reader.

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IN RE: HOKULANI SQUARE, INC. 3

Justice, Office of the United States Trustee, Honolulu,

Hawaii, for Appellee.

Daniel M. Benjamin, Ballard Spahr LLP, San Diego,

California, for Amicus Curiae Carl A. Eklund.

OPINION

KOZINSKI, Circuit Judge:

In bankruptcy, it’s the trustee’s job to manage the estate. 

Often, this means liquidating all the estate’s assets and

distributing the proceeds to creditors, shareholders and other

interested parties. Some of the proceeds are awarded to the

trustee as compensation, which is calculated based on the

value of the assets he disburses. We address whether the

trustee’s compensation may reflect the value of what is

known as a “credit bid.”

FACTS

Hokulani Square, Inc., filed for bankruptcy in May 2007. 

Bradley Tamm was appointed as the chapter 7 trustee. One

of Hokulani’s principal assets was a set of condominiums that

exposed the estate to serious liabilities. Recognizing the risks

of owning the condominiums, Tamm moved to auction them

off. Two groups of secured creditors, both of which had liens

on the condominiums, jointly submitted the winning bid at

$1.5 million.

To pay, the secured creditors exercised their right to credit

bid under 11 U.S.C. § 363(k). This means that they used the

money the estate owed them, rather than cash, in making their

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bid. In such a transaction, the creditors get the property, and

the estate’s debt is reduced by the amount of the bid.

Tamm petitioned the bankruptcy court for compensation

in the amount of $109,293. He came up with this number by

including the $1.5 million credit bid in his calculations. The

United States Trustee objected on the ground that including

the value of the credit bid was not authorized by 11 U.S.C.

§ 326(a). Excluding the credit bid would reduce Tamm’s fee

by approximately $40,000.

The bankruptcy court awarded Tamm the full $109,293,

but the Ninth Circuit Bankruptcy Appellate Panel (BAP)

reversed. Tamm appeals. We have jurisdiction under

28 U.S.C. § 158(d) and review the BAP’s interpretation of

section 326(a) de novo. See In re Sasson, 424 F.3d 864, 867

(9th Cir. 2005).

DISCUSSION

1. The bankruptcy court has discretion to award a trustee

fees up to a cap that is calculated as a percentage of “all

moneys disbursed or turned over in the case by the trustee to

parties in interest.” 11 U.S.C. § 326(a) (emphasis added). 

Because “moneys disbursed or turned over” isn’t defined in

the Code, it retains its ordinary meaning. See Ransom v. FIA

Card Servs., N.A., 131 S. Ct. 716, 724 (2011). There are

numerous ways to define “moneys,”1but dictionaries mostly

1 The statute uses the plural “moneys” and not “money,” the more

common collective-noun form. The plural “is frequently used, especially

in financial and legal contexts, to denote ‘discrete sums of money’ or

‘funds.’” Bryan A. Garner, Garner’s Modern American Usage 529 (2d

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IN RE: HOKULANI SQUARE, INC. 5

agree that the term refers to a generally accepted medium of

exchange. See, e.g., Third New Int’l Dictionary 1458 (2002)

(“something generally accepted as a medium of exchange,

measure of value, or a means of payment”); Black’s Law

Dictionary 1158 (10th ed. 2014) (“The medium of exchange

authorized or adopted by a government as part of its currency;

esp. domestic currency”); Oxford English Dictionary 992 (2d

ed. 1989) (“[c]urrent coin . . . in pieces of portable form as a

medium of exchange and measure of value”). It’s also clear

that “disburse” means to “pay out,” Black’s Law Dictionary

561 (10th ed. 2014), and “turn over” means to “deliver” or

“surrender,” Webster’s New Collegiate Dictionary 1262 (8th

ed. 1977). Taken together, this language seems to say that the

trustee may collect fees only on those transactions for which

he pays interested parties (in this case, secured creditors) in

some form of generally accepted medium of exchange.

In a credit bid transaction, the trustee turns property over

to the creditor, and the creditor reduces the amount the estate

owes him by the value of his bid. The only thing “disbursed

or turned over” by the trustee is the underlying property, in

this case, a set of condominiums. However broadlywe define

“moneys,” the term can’t be expansive enough to encompass

real estate, which is about as far from a “medium of

exchange” as one can get. See, e.g., Ping Cheng, et al.,

Illiquidity and Portfolio Risk of Thinly Traded Assets, 36 J.

Portfolio Mgmt. 126, 126 (2010) (categorizing real estate as

a highly illiquid asset). Congress elected to restrict the

trustee’s maximum compensation using the narrow term

“moneys,” as opposed to a broader term such as “property”

or “assets,” and we must “assume that the legislative purpose

ed. 2003). We can discern no significance to use of the plural here, and

the parties have suggested none.

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is expressed by the ordinary meaning of the words used.” 

INS v. Phinpathya, 464 U.S. 183, 189 (1984) (internal

quotation marks omitted).

The statute’s legislative history confirms this view. A

report of the House Judiciary Committee says that section

326(a) covers “the situation where the trustee liquidates

property subject to a lien and distributes the proceeds.” H.R.

Rep. No. 95-595, at 327 (1977). The report is careful to note

that section 326(a) “does not cover cases in which the trustee

simply turns over the property to the secured creditor, nor

where the trustee abandons the property and the secured

creditor is permitted to foreclose.” Id. This passage suggests

that Congress considered the possibility of paying trustees for

turning over property to creditors, and worded section 326(a)

so as to preclude it.

Looking at the same legislative history, two of our sister

circuits have also concluded that section 326(a) permits no

pay for property disbursements in satisfaction for creditors’

claims. The Fifth Circuit decided that section 326(a) doesn’t

allow a trustee to collect on the value of property given to

creditors in exchange for a reduction in the amount they’re

owed. In re England, 153 F.3d 232, 235 (5th Cir. 1998). It

reasoned that “[t]he plain language of § 326(a) indicates that

the statute caps a trustee’s compensation based upon only the

moneys disbursed, without any allowance for the property

disbursed.” Id. And the Third Circuit held that “Congress

did not intend to include credit bids in the trustee’s

compensation” because in a credit bid transaction “the

secured creditor receives [] property in satisfaction of its

secured claim.” In re Lan Assocs. XI, L.P., 192 F.3d 109,

117–18 (3d Cir. 1999).

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2. Tamm and amicus ask us to interpret section 326(a) to

align with bankruptcy practice prior to the 1978 Bankruptcy

Act. While it’s true that we typically “will not read the

Bankruptcy Code to erode past bankruptcy practice,” Pa.

Dept. of Pub. Welfare v. Davenport, 495 U.S. 552, 563

(1990), even the most well-established pre-Code practice

can’t overcome language of the Code that “leaves no room

for clarification,” Hartford Underwriters Ins. Co. v. Union

Planters Bank, N.A., 530 U.S. 1, 11 (2000). And, as noted,

section 326(a) leaves little to the imagination. Given

Congress’s clear statement that trustees may be compensated

for nothing but “moneys disbursed,” historical practice is

beside the point.

Even if we did seek guidance from past practices, it

would make no difference. Tamm and amicus cite a few preCode lower court cases that allowed fees on transactions

where the trustee returned property to a lienholder in

satisfaction of a secured claim. Interpreting section 326(a)’s

predecessor, these cases reasoned that the trustee

constructivelydisbursed moneys to creditors, even if he never

paid the creditors in cash. See, e.g., In re Columbia Cotton

Oil & Provision Corp., 210 F. 824, 827–28 (4th Cir. 1913). 

But a mere handful of lower court decisions, without more,

does not demonstrate a “widely accepted and established”

practice. See Hartford Underwriters, 530 U.S. at 9–10

(internal quotation marks omitted) (concluding that “a

number of lower court cases” were insufficient to show a

clearly established pre-Code practice); cf. In re Bonner Mall

P’ship, 2 F.3d 899, 912 (9th Cir. 1993) (deferring to a preCode practice that “several Supreme Court cases had

mentioned” and where there was direct evidence Congress

had knowledge of the practice).

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Furthermore, Tamm and amicus overlook pre-Code cases

concluding that section 326(a)’s predecessor was “plain and

unambiguous” in providing that “it is the moneys disbursed

or turned over, and not property, that forms the basis for” the

trustee’s fee. In re Morris Bros., 8 F.2d 629, 630 (D. Or.

1925); see also, e.g., In re Brigantine Beach Hotel Corp.,

197 F.2d 296, 299 (3d Cir. 1952) (“It is clear that the word

‘moneys’ in the clause ‘. . . upon all moneys disbursed or

turned over . . .’ is not the equivalent of property.”). 

Considering the sparse and conflicting evidence of any

historical practice of compensating trustees for credit bids, we

doubt that this was “the type of rule that . . . Congress was

aware of when enacting the Code.” Hartford Underwriters,

530 U.S. at 10 (internal quotation marks omitted).

Tamm also contends that our decisions—specificallyYork

Int’l Bldg., Inc. v. Chaney, 527 F.2d 1061 (9th Cir. 1975), and

Sw. Media, Inc. v. Rau, 708 F.2d 419 (9th Cir. 1983)—permit

trustee compensation where no money changes hands but the

trustee nonetheless “has properly performed services in

relation” to “the particular property.” Id. at 423 n.4 (quoting

In re Schautz, 390 F.2d 797, 800 (2d Cir. 1968)). But our

cases adopt no such theory. In York, which was decided

before the Code, we said in a footnote without explanation

that, “[f]or the purpose of calculating the trustee’s fee under

this section, we treat the assumption of the existing

mortgages as a disbursement.” York, 527 F.2d at 1074 n.12. 

Not only does York fail to address credit bids, but it also

doesn’t discuss the meaning of “moneys disbursed.” Instead,

York applies a different statute, one that doesn’t tie a trustee’s

compensation to the amount of “moneys disbursed.” 

Southwestern Media is equally inapplicable; it concerns not

trustees’ fees but whether a trustee violated his fiduciary

duties. While that opinion contains some advisory language

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about trustee compensation, we made clear that we were “not

decid[ing] how the trustee’s fee base would [be] defined,”

rendering any language about section 326(a) rank dicta. Sw.

Media, 708 F.2d at 424.

Finally, Tamm argues that our reading of section 326(a)

produces absurd results. See Green v. Bock Laundry Mach.

Co., 490 U.S. 504, 527 (1989) (Scalia, J., concurring). 

According to Tamm, taking the text literally means that the

difference for a trustee between being paid for his services

and working for free may turn on trivialities. When a third

party wins an auction, the money collected counts in

calculating the trustee’s fee, but if a secured creditor tops the

third party’s bid by a mere dollar, the trustee gets nothing,

even though he does the same work and achieves the same

result for the estate.

The distinction drawn by section 326(a) may be harsh and

misguided, but it is not absurd. The absurdity canon isn’t a

license for us to disregard statutory text where it conflicts

with our policy preferences; instead, it is confined to

situations “where it is quite impossible that Congress could

have intended the result . . . and where the alleged absurdity

is so clear as to be obvious to most anyone.” Public Citizen

v. U.S. Dep’t of Justice, 491 U.S. 440, 471 (1989) (Kennedy,

J., concurring); see also Antonin Scalia & Bryan Garner,

Reading Law 234 (2012). If the text of section 326(a) is not

wise, it is at least rational. Excluding credit bids may have

been meant to motivate trustees to seek out third party buyers

and thus get better results for the estate. The legislators may

have estimated that this benefit of excluding credit bids from

trustees’ fees outweighed any of the problems described

above. Congress made a policy judgment in selecting the

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words of section 326(a), and we are in no position to

contradict it.

* * *

In drafting section 326(a), Congress may not have chosen

the most sensible path. But between the statute’s clear

language and on-the-button legislative history, it appears that

Congress’s choice was deliberate. We hold that section

326(a) does not permit a trustee to collect fees on a credit bid

transaction in which the trustee disburses only property, not

“moneys,” to the creditor. Other courts of appeals have

reached the same conclusion and we find no basis for creating

a circuit conflict.

AFFIRMED.

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