F ILED U.S. Ba nk

ruptc y Appel la te P ane l of the Te nth Cir cui t Novem ber 30, 2017 Blain e F . Bates Clerk PUBLISH UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE TENTH CIRCUIT

IN RE JOHN THOMAS BIRD,

Debtor. BAP No. UT-16-039 BAP No. UT-16-040 (Consolidated)
GARY E. JUBBER, f

orm er Chapter 7 Trustee and FABIAN VANCOTT, Counsel to the f orm er Chapter 7 Trustee, Appellants, Bankr. No. 12-17345 Chapter 13

v. OPINION JOHN THOMAS BIRD ,

Appellee.

I N RE BRENT D AVID CHRI STENSEN and J O-AN N HALLCHRI STENSEN, Debtors.

GARY E. JUBBER, f

orm er Chapter 7 Trustee and FABIAN VANCOTT, Counsel to the f orm er Chapter 7 Trustee, Appellants, Bankr. No. 15-29773 Chapter 13

v.BRENT D AVID CHRI STENSEN and

J O-AN N HALLCHRI STENSEN, Appellees. 

### Nati on al Co ns um er Bankrupt cy Rig ht s Cen te r an d the Nati on al Ass oc iati onof Co ns um er Bankrupt cy

Att orne y s , Am ici Curiae. Appeal f rom the United States Bankruptcy Court f or the District of

Utah Douglas J. Pay

ne of Fabian VanCott (David P. Billings with him on the brief

s), Salt Lake City , Utah f

or Appellants Gary

E. Jubber and Fabian VanCott. Paul J. Toscano of

Salt Lake City , Utah f

or Appellees John Thom as Bird, Brent David Christensen and Jo-Ann Hall Christensen.

Bef ore MICHAEL , ROMERO , and HALL , Bankruptcy Judges.

HALL , Bankruptcy

Judge.

The f orm er Chapter 7 trustee and his counsel appeal the bankruptcy court’s Memorandum Decision and related orders (together, the “Order”) entered in two separate 1 2 cases on the sam e legal issue with respect to analogous f acts. The cases were consolidated

Appellants’ App. at 477. 1 See Order Denying Applications for Compensation , in Appellants’ App. at 514, 2 558. -2-on appeal f or purposes of

brief ing and oral argum ent. The Order denies f ee applications 3 (“Fee Applications”) submitted by the trustee and his counsel f or f ees and expenses incurred in connection with litigation of claim ed hom estead exempt ions prior to conversion of the cases to Chapter 13. Although the ultim ate issue in these cases relates to 4 prof essional com

pensation, the underlying f acts give rise to m ore dif

f icult f undam ental concerns such as the tension between the bankruptcy sy stem ’s f

resh start policy

and pay m ent of unsecured creditors. Moreover, these cases concern the r ole of a Chapter 7 trustee in f

inding the balance between those competing interests through objective perf orm ance of

the duties and responsibilities assigned to him under the Bankruptcy

Code. Finding no error in the bankruptcy court’s analy sis or ruling, we AFFIRM. I. FACTUAL AND PROCEDURAL HISTORY 5 John Bird (“Bird”) f

iled a voluntary

petition f or relief under Chapter 7 of

the

The Court entered its Order Joining Appeals on January 19, 2017, pursuant to 3 m otion of the Appellants. BAP ECF No. 14 in BAP No. UT-16-39; BAP ECF No. 13 in BAP No. UT-16-40. The Order denied the Former Chapter 7 Trustee’s Application for Allowance of 4 Administrative Expense and for Compensation and Reimbursement of Expenses f iled in each case. SeeAppellants’ App. at 363, 1067. The Order also denied the Verified Application for Allowance of Compensation and Reimbursement of Expenses by Fabian VanCott, Counsel for Former Chapter 7 Trustee and Request for Allowance and Payment of Administrative Claim f iled in each case. SeeAppellants’ App. at 374, 1078. This f actual background is substantially drawn f rom the Order, in Appellants’ 5 App. at 477, which is published at In re Christensen , 561 B.R. 195 (Bankr. D. Utah 2016). -3-Bankruptcy Code on October 19, 2015. On the same day , Brent and Jo-Ann Christensen 6 (the “Christensens”) f

iled their voluntary

petition f or Chapter 7 relief

(Bird and the Christensens collectively , “Debtors”). Debtors are represented by the sam e bankruptcy counsel, and Gary

E. Jubber, an attorney

and shareholder in the f

irm of Fabian VanCott, was appointed Chapter 7 trustee (“Trustee”) in both cases. Trustee f iled applications to

em ploy attorney Douglas J. Pay

ne and the f

irm of Fabian VanCott as counsel (“Counsel”) in both cases, which were approved by the bankruptcy

court. On Schedule A, Bird listed his residence located at 122 Manilla Drive, Draper, Utah (the “Bird Hom estead”), and the Christensens listed their residence located at 6358 Jam estown Ct., Murray , Utah (the “Christensen Homestead”) (collectively , the “Hom esteads”). Both Hom esteads were subject to mortgages and liens well in excess of their scheduled value. The Bird Homestead was scheduled with a value of $240,400, but

was encum

bered by the f ollowing liens: (i) a f

irst m ortgage of

$133,275.17; (ii) a second

m ortgage of

$20,550.05; (iii) a tax lien in f avor of the Internal Revenue Service (the “IRS”) of $147,661.33; and (iv) judgm ent liens totaling $5,383.93. The Christensen Hom estead was scheduled with a value of $351,000, but was encum bered by the f ollowing liens: (i) a m ortgage of

$300,000; (ii) a tax lien in f avor of the IRS of

$115,531.85; (iii) and a tax lien in f

avor of the Utah State Tax Comm ission of $1,962.99. On Schedule C, Bird claim ed a hom estead exempt ion of $30,000; sim ilarly , the Christensens claim ed a

All f uture ref erences to “Code,” “Section,” and “§” are to the Bankruptcy Code, 6 Title 11 of

the United States Code, unless otherwise indicated. -4-hom estead exempt ion of $51,000. In December 2015, Trustee objected to Debtors’ hom estead exempt ions, arguing there was no equity

in the Hom esteads to which the claimed exem ptions could attach (the “Hom estead Objections”). Trustee did not, however, set the matters for hearing. Notwithstanding that the Hom estead Objections were based on lack of equity , af

ter Debtors received their Chapter 7 discharges on January 20, 2016, Trustee f

iled applications to em ploy a real estate agent to sell the Homesteads. Debtors filed objections thereto, as well as responses to the Hom estead Objections. Additionally , Debtors f iled m otions seeking an order f

orcing abandonm ent of

the Hom esteads by

Trustee (the “Motions to Abandon”), arguing that (i) they were of inconsequential value and burdensome to the estates, and (ii) a sale would not be in the interest of creditors or Debtors. All of these

m atters were then set f

or a hearing bef

ore the bankruptcy

court on February

24, 2016. Just day s bef

ore the scheduled hearing, Trustee f iled stipulations pursuant to § 506(c) that he had entered into with the IRS (the “Stipulations”) and m otions to approve 7 the Stipulations (the “Motions to Approve Stipulation”). The Stipulations indicated the 8 IRS’ consent to sale of

the Hom esteads pursuant to § 363(f ), and f urther provided the IRS would, pursuant to § 506(c), “carve-out” $10,000 of the proceeds f

rom sale of each of the Hom esteads subject to the IRS’ liens “f or the benef

it of the bankruptcy

estate to be

Stipulation Pursuant to 11 U.S.C. § 506( c) , in Appellants’ App. at 131, 842. 7 Motions to Approve Stipulation , in Appellants’ App. at 160, 865. 8 -5-distributed in accordance with the priorities of the Bankruptcy

Code” (the “Carve-Outs”). 9 Additionally , each Stipulation provided that: The IRS hereby

subordinates any

lien or claim

it m ay have to the [ Hom estead] and the proceeds f rom the sale of

the [ Hom estead] to the extent of the Carve-Out and hereby waives and releases any

and all claim s it m ay have to the Carve-Out other than those claims it m ay have as a general unsecured creditor of

the estate. 10 At the February

24, 2016 hearing, the bankruptcy court overruled the Homestead Objections, allowing Debtors’ claimed exem ptions. Af

ter written orders were subsequently entered on March 1, 2016, Trustee then appealed the orders to the United States District Court f or the District of

Utah (the “District Court”). In the meantim e, the bankruptcy court set the Motions to Abandon f or evidentiary

hearing on March 23, 2016. On the sam e day

he appealed the bankruptcy court’s orders overruling his Hom estead Objections to the District Court, Trustee f iled m otions to sell the Hom esteads (the “Motions to Sell”), soon f ollowed by

notices to take Debtors’ depositions and applications to em

ploy an appraiser. The Motions to Approve Stipulation and Motions to Sell were scheduled f

or hearing about a month after the hearing on the Motions to

The term “carve-out” is f

requently used but not of

ten def ined. Generally

speaking, 9 a “carve-out agreement,” is “an agreem ent by a party secured by

all or som e of

the assets of the estate to allow som e portion of its lien proceeds to be paid to others, i.e., to carve out of its lien position.”’ In re Robotic Vision Sys., Inc. , 367 B.R. 232, 240 n.23 (1st Cir. BAP 2007) (quoting In re U.S. Flow Corp. , 332 B.R. 792, 796 (Bankr. W .D. Mich. 2005)). Stipulations at 4, in Appellants’ App. at 131, 845. The Stipulation in Bird’s case 1 0 includes the language “11 U.S.C. § 724(b) and” f ollowing “to the extent of .” Stipulation at 6, in Appellants’ App. at 158, 872. -6-Abandon. The Motions to Sell were premised on sales contracts with a $322,000 purchase

price f or the Bird Hom estead, and a $425,000 purchase price f or the Christensen Hom estead. Although the sales contract prices f or the Hom esteads were quite a bit higher than Debtors’ scheduled values, they still only exceeded the total encumbrances by a

m inim um am ount – $4,129.52 in Bird’s case and $7,505.16 in the Christensens’ case. 11 Moreover, the proceeds f rom sale of the Hom esteads would be subject to pay m ent of Trustee’s and Counsel’s f ees and expenses, and additional administrative expenses for the six percent realtor commission and one percent closing costs provided f or in the sales contract. 12 Imm ediately

prior to the bankruptcy

court’s scheduled March 23, 2016 evidentiary hearing on the Motions to Abandon, Debtors f iled objections to the Motions to Sell on basically the sam e grounds as they did with respect to the Motions to Approve Stipulations. Debtors contended any sale of the Hom esteads would leave nothing f or their 13 hom estead exempt ions. At the sam e tim e, Debtors f iled m otions to vacate their Chapter 7 discharges and convert their cases to Chapter 13 (the “Motions to Convert”). Essentially , Debtors were seeking to avoid both Trustee’s liquidation of their Hom esteads without any pay m ent of their hom estead exempt ions, and growing legal f ees that continued to be incurred in connection with Trustee’s appeal of the bankruptcy

court’s orders overruling Order at 7, in Appellants’ App. at 483. 1 1 Appellants’ Br. 43. 1 2 Order at 6, in Appellants’ App. at 482; Debtor’s Objection to Trustee’s Motion to 1 3 Approve Sale of Real Property Free and Clear of Liens , in Appellants’ App. at 289, 967. -7-the Hom estead Objections. The Motions to Convert were set f or hearing with the Motions to Approve Stipulations and Motions to Sell on April 20, 2016, and the other m atters were continued to that date. Debtors also amended their respective Schedules C to rem ove the claim ed hom estead exemptions. 14 At the April 20, 2016 hearing, the bankruptcy court granted the Motions to Convert, and subsequently

entered written orders (the “Conversion”). The bankruptcy court’s orders granting the Conversion m ooted the num erous other pending m otions f iled by Trustee and Debtors. Trustee’s appeals to the District Court of the bankruptcy

court’s orders overruling his Hom estead Objections were also rendered moot when the Motions to Convert were granted and Debtors amended their Schedules C. 15 About two m onths f

ollowing the Conversion, Trustee and Counsel f iled their Fee Applications, requesting that such prof essional com

pensation be allowed as adminis trative expenses claim s under § 503(c) entitled to priority under § 507, m eaning they would be required to be paid in f

ull under Debtors’ Chapter 13 plans pursuant to § 1322(a)(2). In 16 Bird’s case, Trustee sought f ees of $3,634, and Counsel sought f ees and costs of $31,110.97, f

or total com

pensation of

$34,744.97. In the Christensens’ case, Trustee sought f ees of $2,765, and Counsel sought f ees and costs of

$28,998.63, f

or total

Order at 7, in Appellants’ App. at 483. 1 4 The District Court ultim ately dism issed the appeals in both cases as moot due to 1 5 the Conversion and Debtors’ amendm ents to their Schedules C to rem ove the hom estead exem ptions. Order at 8, in Appellants’ App. at 484. 1 6 -8-com

pensation of

$31,763.63. The exhibits attached to the Fee Applications readily indicate that Trustee perf

orm ed about seventy

percent of

Counsel’s work in both cases. 17 Debtors objected to the Fee Applications, and on August 16, 2016, the bankruptcy court conducted a hearing. The bankruptcy court denied the Fee Applications in their entirety on the basis that, under § 330(a)(4)(A)(ii), the f ees and costs sought were f or services neither necessary to administration of

the cases nor reasonably

likely to benef it Debtors’ estates. In determining Trustee and Counsel’s services were unnecessary , the bankruptcy

court f ound that, here where the Homesteads had no equity value in excess of liens but were subject to valid hom estead exempt ions, Trustee had “no obligation to seek carve-outs f

rom secured creditors or sell encumbered property subject to such agreem ents.” 18 For several reasons, the bankruptcy court also concluded the services provided were not reasonably

likely to benef it Debtors’ estates, i.e., result in a meaningful distribution to unsecured creditors. First, the bankruptcy court determ ined the proposed sales of the Hom esteads were not authorized by any subsection of

§ 363(f ). Specif ically , the hom estead

exem ptions were not subject to a bona f ide dispute under § 363(f )(4), and Debtors could not be com

pelled to accept a money

satisf action under § 363(f

)(5). Second, the bankruptcy

Exhibit “A” to Verified Application for Allowance of Compensation and 1 7 Reimbursement of Expenses by Fabian VanCott, Counsel for Former Chapter 7 Trustee and Request for Allowance and Payment of Administrative Claim , in Appellants’ App. at 383, 1087. Order at 14, in Appellants’ App. at 490. 1 8 -9-court reasoned that even if the sales were permitted, Debtors–and not unsecured creditors–would be entitled to the proceeds of the Carve-Outs as pay

m ent of their hom estead exempt ions. In reaching this result, the bankruptcy court disagreed with Trustee’s interpretation of §§ 724 and 522(c)(2)(B), that would permit him , pursuant to a carve-out agreement with a tax lien claim ant, to “liquidate the [ Hom esteads] in order to satisf y the tax liens to the detrim ent of

the Debtors’ hom estead exempt ions,” and that the Carve-Outs constituted a 19 valid § 506(c) surcharge. Finally , the bankruptcy court explained that the Bankruptcy Code’s f resh start policy

objectives did not support approval of the proposed sale of

the Hom esteads. In other words, Trustee’s proposal would impermissibly subordinate the hom estead exempt ions because the sale proceeds would go to pay large, unnecessary bankruptcy

adm inistrative f

ees, leaving Debtors with nondischargeable tax claims, no hom e, and no hom estead exemption. Trustee and Counsel (collectively , “Appellants”) now appeal the bankruptcy court’s Order. II. STANDARD OF REVIEW Appellants contend the bankruptcy court erred as a matter of law in denying the Fee Applications under § 330, based on its incorrect interpretations of §§ 522(c)(2)(B), 724(b), 363(f ) and the Utah hom estead exempt ion statute. A bankruptcy court’s decision to

Order at 28, in Appellants’ App. at 504. 1 9 -10-disallow com pensation under § 330 is reviewed f or abuse of

discretion. W e apply

a 20 clearly erroneous standard to its f actual f indings regarding whether services rendered were necessary to adm inistration of

the estate or reasonably

likely to benef it the estate. 21 However, we review “any statutory interpretation or other legal analy sis underlying the [ bankruptcy

court’s] decision concerning attorney f ees de novo .” Additionally , a

22 bankruptcy

court’s interpretation of

a state statute is reviewed de novo

. 23 III. DISCUSSION The prof essional com

pensation at issue in these cases arises in a somewhat unusual posture. Although the f

ees and expenses stem from fairly ty pical bankruptcy

litigation

m atters, i.e., the Hom estead Objections, the Motions to Sell, and the Motions to Abandon, the ty picalness is com

plicated by

the f ollowing. First, there are questions regarding whether it was appropriate, on the f acts presented, f

or Trustee to attem

pt to adm inister the In re Commercial Fin. Servs., Inc. , 298 B.R. 733, 747 (10th Cir. BAP 2003) (citing 2 0 In re Miniscribe Corp. , 309 F.3d 1234, 1244 (10th Cir. 2002)). In re Schupbach Invs., LLC, Nos. KS-13-077, KS-13-78, 2014 WL 6680122, at *5 2 1 (10th Cir. BAP Nov. 25, 2014) (citing In re Lederman Enters., Inc ., 997 F.2d 1321, 1323 (10th Cir. 1993) and In re Abraham , 221 B.R. 782, 785 (10th Cir. BAP 1998). Octagon Res., Inc. v. Bonnett Res. Corp. (In re Meridian Reserve, Inc.) , 87 F.3d 2 2 406, 409 (10th Cir. 1996) (citing Daleske v. Fairfield Communities, Inc. , 17 F.3d 321, 323 (10th Cir. 1994)); see also In re Lederman Enters., Inc. , 997 F.2d 1321, 1323-24 (10th Cir. 1993). In re Carlson , 303 B.R. 478, 481 (10th Cir. BAP 2004) . See also Secs. Inv’r Prot. 2 3 Corp. v. Stellatos (

In re Blinder, Robinson &Co.) , 124 F.3d 1238, 1243 (10th Cir. 1997); Sloan v. Zions First Nat’l Bank ( In re Castletons, Inc.) , 990 F.2d 551, 557 (10th Cir. 1993) (citing Salve Regina Coll. v. Russell , 499 U.S. 225, 231 (1991) (rejecting the view an appellate court should def er to the “local” f

ederal court’s interpretation of its state law)). -11-Hom esteads as property of the estate, and f

or whose benef

it such ef f orts were being m ade. Second, Debtors have now converted their Chapter 7 cases to Chapter 13 and withdrawn their hom estead exempt ions. Theref ore, if the Fee Applications were approved, Debtors would be required to pay

one hundred percent of

Trustee’s and Counsel’s f ees and expenses ($34,744.97 total in Bird’s case, and $31,762.98 total in the Christensens’ case) through their Chapter 13 plans. These com

plicating f

actors necessarily

give rise to the com

peting interests of bankruptcy ’s f

resh start policy

f or honest but unf

ortunate debtors and pay

m ent of a dividend to unsecured creditors. But more im portantly , these cases draw attention to Trustee’s critical role in perf orm ing the bankruptcy

sy stem ’s required balancing act. We begin with a brief

general discussion of

com pensation f

or bankruptcy

prof essionals bef

ore evaluating the bankruptcy court’s determination that the services provided by Trustee and Counsel were neither necessary to adm inistration of

the estate nor likely

to provide a benef it. Trustees and other bankruptcy prof essionals are entitled to com pensation f

or services rendered to the estate, subject to the limitations of §§ 326, 327, and 328. When a prof essional subm its an application f or com pensation, § 330 requires a bankruptcy court to independently

review the requested f

ees and expenses, regardless of whether any

objection has been m ade to the application. The purpose of the independent review is to ensure that the services provided were necessary , reasonable, and justif ied. In other words, a bankruptcy

court has an obligation to see that bankruptcy estates are administ ered

-12-ef

f iciently and econom ically

f or the benef

it of creditors. 24 The bankruptcy

court’s scrutiny

of prof essional f ee applications is particularly im portant when, as is the case here, a trustee and/or his f irm has been authorized to serve as an attorney

or accountant f

or the estate. Section 327(d) perm its this “dual capacity”

25 status. But in light of

the f act this recognized conf

lict of interest provides an opportunity f or self -dealing, a trustee m ay

be authorized to serve as counsel only if it “is in the best 26 interests of

the estate.” Further, because various trustee duties should be perf orm ed 27 without the assistance of

an attorney

or accountant, a bankruptcy court’s caref

ul review of 28 applications f

or f ees and expenses is critical in a dual capacity situation. A bankruptcy

court’s award of

prof essional com

pensation is governed by

§ 330. In general, that section provides: (a)(1) Af ter notice to the parties in interest and the United States Trustee and a hearing, and subject to section 326, 328, and 329, the court mayaward to a trustee . . . or a prof

essional person em

ployed under section 327 or 1103– (A) reasonable compensation for actual, necessary services

In re Peterson , 566 B.R. 179, 188 (Bankr. M.D. Tenn. 2017). 2 4 Again, the Fee Applications indicate that Trustee personally perf orm ed 2 5 approxim ately

seventy percent of

the services rendered by

Counsel. In re SonicBlue Inc., No. C-07-03482-RMW , 2007 WL 3342662, at *6 (N.D. Cal. 2 6 Nov. 9, 2007 )

. 11 U.S.C. § 327(d). “Best interests of the estate” usually

involve the opportunity 2 7 f or substantial savings and ef f iciencies. See SonicBlue, 2007 WL 3342662, at * 6; In re Marsh , No. 12-60195-7, 2013 WL 4501424, at *5 (Bankr. D. Mont. Aug. 21, 2013). 11 U.S.C. § 328(b). See also In re King , 546 B.R. 682 (Bankr. S.D. Tex. 2016); In 2 8 re Kusler , 224 B.R. 180 (Bankr. N.D. Okla. 1998). -13-rendered by the trustee . . . ; and (B) reim bursem ent f

or actual, necessary

expenses. 29 However, § 330(a)(4) provides that bankruptcy courts shall not allow com pensation f

or services that were not “reasonably likely to benef it the debtor’s estate” nor “necessary to 30 the adm inistration of

the case.” Af

ter reviewing the Fee Applications, the bankruptcy 31 court concluded § 330(a)(4) prevented approval of Trustee’s and Counsel’s f ees and expenses. On appeal, Appellants contend their services were, in f act, necessary

and benef

icial to adm inistration of

Debtors’ estates. The Court would note that the distinction between the statutory requirem ents that the services be “necessary to adm inistration of

the estate” 32 versus “reasonably

likely to benef it the estate” is not alway s clear. For example,

33 according to the United States Court of Appeals f

or the Tenth Circuit (“Tenth Circuit”), “[ a]n elem ent of

whether the services were ‘necessary ’ is whether they benef itted the bankruptcy

estate.” Nevertheless, we address them separately and in the sam e order as 34

11 U.S.C. § 330(a)(1) (emphasis added). 2 9 11 U.S.C. § 330(a)(4). 3 0 Id. 3 1 Id. 3 2 Id. 3 3 In re Lederman Enters. , Inc. , 997 F.2d 1321, 1323 (10th Cir. 1993). See also In re 3 4 Universal Factoring Co., Inc. , 329 B.R. 62, 78-79 (Bankr. N.D. Okla. 2005) (explaining that § 330(a)(4) was added to the statute subsequent to the Tenth Circuit’s Lederman decision, but that “[ u]nless the court determines that a service was reasonably likely to (continued...) -14-discussed by the bankruptcy

court, and agree with its conclusions. Additionally , Appellants argue the bankruptcy court’s conclusions regarding the necessity and benef

it of their services were premised on erroneous interpretation of certa in statutory provisions, and theref

ore its rulings cannot stand. W e ultim ately conclude, however, that the bankruptcy court’s determinations regarding necessity and benef

it to the estate of the services are well supported and that, even if its statutory

interpretations were incorrect, denial of

the Fee Applications is not reversible error. Further, Appellants

com plain that the bankruptcy

court’s denial of

the Fee Applications in their entiretyis error and they are entitled to som e com pensation. W e disagree. A. The Bankruptcy

Court Did Not Err in Concluding the Services W ere Not Necessary

to the Adm inistration of

Debtors’ Estates. Underscoring the bankruptcy court’s conclusion that the services provided by Trustee and Counsel were not necessary to the adm inistration of

the Debtors’ estates is a recognition that, on the f

acts of these cases, abandonment of the Homesteads would have better com

ported with a Chapter 7 trustee’s ultim ate duties and responsibilities. The Bankruptcy

Code, an abundance of

case law, and express language in the Handbook f or Chapter 7 Trustees prepared by the Of f ice of the United States Trustee (“Trustee

(...continued) 3 4 conf er a benef it upon the estate, the inquiry goes no f urther, and the f

ees are not com pensable.”). -15-Handbook”) all em phatically support the bankruptcy

court’s decision. 35 “A chapter 7 trustee is a f iduciary of the estate whose principal duty is to adm inister estate property

so as to m axim ize distribution to unsecured creditors, whether priority or general unsecured.” Section 704, which prescribes the duties of a Chapter 7 trustee, 36 directs a trustee to “collect and reduce to money the property

of the estate f

or which such trustee serves, and close such estate as expeditiously as is com patible with the best interests of parties in interest.” To m ake this possible, § 363 authorizes a trustee, af ter notice and a 37 hearing, to sell property

of the estate “other than in the ordinary course of business.” The

38 purpose of

liquidating the estate’s assets is so that the proceeds may be distributed to the debtor’s creditors. But a trustee’s duty to liquidate property

of the estate is not without its 39 lim its. In certain situations, such as when liquidation will result in little to no pay m ent to

Executive Of

f ice f or U.S. Trustees, U.S. Department of Justice, Handbook f or 3 5 Chapter 7 Trustees (Oct. 1, 2012), available at https://www.justice.gov/ust/private-trustee-handbooks-ref erence-materials/chapter-7-hand books-ref erence-materials (last visited Oct. 27, 2017). The Trustee Handbook, although not entitled to def

erence, serves as guidance f or how Chapter 7 trustees should f ulf ill their duties. In re Nave , No. 13-72140, 2016 WL 1254688, at *7 (Bankr. C.D. Ill. Mar. 30, 2016). In re All Island Truck Leasing Corp. , 546 B.R. 522, 532 (Bankr. E.D.N.Y. 2016). 3 6 11 U.S.C. § 704(a)(1). 3 7 11 U.S.C. § 363(b). Further, pursuant to § 363(f ), if certain requirements are m et, a 3 8 trustee m ay

sell the estate’s property

f ree and clear of

any interests or liens therein. See infra Section B(2). See Harris v. Viegelahn , 135 S.Ct. 1829, 1835 (2015) (citing 11 U.S.C. § 726). 3 9 -16-the unsecured creditors, the proper course of action is f

or a trustee to abandon the property pursuant to § 554. 40 Although the concept of

abandonm ent was not expressly provided f

or in the early Bankruptcy

Acts, it has been long recognized that bankruptcy courts should not adm inister

encum bered property

and authorize its sale “unless it is m ade to appear that there is a f air prospect of

the property

being sold f

or substantially

m ore than enough to discharge the lien or liens upon it.” Instead, the possession and control of f ully or over-encumbered property 41 should be released and surrendered. 42 As the bankruptcy

court explained, even in the f ace of court rulings condemning such practices, Congress noticed that “some trustees took burdensom e or valueless property into the estate and sold it in order to increase their commissions.” Congress 43

In re Schultz , 509 B.R. 190, 201 (Bankr. N.D. Ind. 2014) (quoting Mele v. First 4 0 Colony Life Ins. Co. , 127 B.R. 82, 85-86 (D.D.C. 1991) (“[ A]bandonm ent provisions are designed to allow the trustee to relinquish assets that would be a f inancial drain on the estate, or relieve the trustee of the f inancial burden of

administering inconsequential assets that would cost m ore than they are worth to the estate.”). Hoehn v. McIntosh , 110 F.2d 199, 202 (6th Cir. 1940). 4 1 Id. 4 2 Morgan v. K.C. Machine &Tool Co. ( In re K.C. Machine &Tool Co.) , 816 F.2d 4 3 238, 246 (6th Cir. 1987) (noting som e “early cases condemned this particular practice in no uncertain terms , and decried the practice of selling burdensom e or valueless property sim ply to obtain a f

und f or their own adm inistrative expenses.”).

-17-responded by adding abandonm ent provisions to the Bankruptcy Act of 1978, which are now codif

ied in § 554. Section 554 provides in pertinent part:

44 (a) Af ter notice and a hearing, the trustee may abandon any

property of the estate that is burdensom e to the estate or that is of inconsequential value and benef it to the estate. (b) On request of

a party in interest and af

ter notice and a hearing, the court m ay order the trustee to abandon any property of the estate that is burdensom e to the estate or that is of inconsequential value and benef it to the estate. 45 Thus, if property is burdensom e or of

no benef it to the estate, a trustee has the discretion to abandon such property ; and if a trustee does not abandon valueless property , a party in interest m ay

ask the bankruptcy

court to order a trustee to abandon such property

. The Trustee Handbook amplifies the directions f rom Congress to trustees that are

em bodied in §§ 704 and 554. It is a valuable source of guidance because it is prepared by the Executive Of

f ice of the U.S. Trustee Program , which was created “to promote the integrity and ef f iciency of the bankruptcy

sy stem f or the benef

it of all stakeholders – debtors, creditors, and the public.” In its introduction to a Chapter 7 trustee’s duties, the 46 Trustee Handbook admonishes: A chapter 7 case must be administered to m axim ize and expedite dividends to creditors. A trustee shall not administer an estate or an asset in an estate where the proceeds of liquidation will primarily benefit the trustee or the Id. 4 4 11 U.S.C. § 554(a), (b) (amending 11 U.S.C . § 554 (1984). SeePub. L. 98-353, 4 5 Title III, § 468, July

10, 1984, 98 Stat. 380). See United States Trustee Program Strategic Plan &Mission , available at 4 6 https://www.justice.gov/ust/strategic-plan-m ission (last visited Oct. 27, 2017). -18-professionals, or unduly delay the resolution of the case

. The trustee must be

guided by this fundamental principle when acting as trustee. Accordingly , the trustee m

ust consider whether suf

f icient f unds will be generated to m ake a m eaningf

ul distribution to unsecured creditors, including unsecured priority creditors, bef

ore adm inistering a case as an asset case. 28 U.S.C. § 586. 47 The Trustee Handbook f

urther provides that “a trustee should not sell property subject to a security interest unless the sale generates f unds f or the benef

it of unsecured creditors. A secured creditor can protect its own interests in the collateral subject to the security interest.” That guidance is underscored by another of

the Trustee Handbook’s directives: 48 In asset cases, when the property is f ully encum bered and of

nom inal value to the estate, the trustee must imm ediately

abandon the asset and contact the secured creditor imm ediately so that the secured creditor can obtain insurance or otherwise protect its own interest in the property . 11 U.S.C. §§ 554, 704. 49 A m ultitude of

reported cases reinf

orces these principles. In f act, as one bankruptcy appellate panel put it, “[ i]t is universally recognized, [ ] that the sale of a f ully encum bered asset is generally

prohibited.” 50 Nevertheless, Appellants contend the Homesteads could have, and should have, been sold because the Carve-Outs negotiated with IRS would result in a benef it to the

Trustee Handbook at 4-1 (emphasis added). 4 7 Id. See also In re Traverse , 753 F.3d 19, 25 (1st Cir. 2014). 4 8 Trustee Handbook at 4-7. 4 9 In re KVN Corp., Inc. , 514 B.R. 1, 5 (9th Cir. BAP 2016) (citing in part, Carey v. 5 0 Paulene ( In re Paulene) , 119 B.R. 727, 728 (9th Cir. BAP 1990); In re Scimeca Found. , Inc. , 497 B.R. 753, 781 (Bankr. E.D. Pa. 2013)). -19-unsecured creditors. As support f or their argum ent, Appellants cite several cases, as 51 52 well as certain language in the Trustee Handbook. While, the Court does not deny 53 Appellants’ cited authorities stand f or the proposition that the sale of f ully encum bered properties m ay

be warranted in some circum stances, it strongly disagrees that those ty

pe of circum stances are presented here. 54 As Appellants point out, the Trustee Handbook acknowledges exceptions to the general rule preventing the sale of f ully encum bered assets. Specif

ically , it states: In certain lim ited circum stances, however, a trustee may properly sell encum bered property

that would generate no proceeds f or the benef

it of unsecured creditors (“f

ully encum bered property”). For exam ple, a trustee m ay be able to satisf

y in f ull a blanket security

interest on m

ultiple units of property by selling only

one unit. Sim ilarly , a trustee m ay be able to obtain a higher price f

rom an aggregate sale of

assets than f

rom selling the assets individually . In a case with other f unds available f

or unsecured creditors, a trustee also m ay

sell f ully encum bered property

to elim inate a def

iciency , if

Appellant’s Br. 45-48. 5 1 In re Reeves , 546 Fed. Appx. 235 (4th Cir. 2013); In re Buerge , No. KS-13-23-25, 5 2 2014 WL 13096941, at *2 (10th Cir. BAP Apr. 2, 2014). Trustee Handbook at 4-16. 5 3 For exam

ple, the Reeves decision cited by Appellants is based on North Carolina 5 4 hom estead exempt ion law rather than Utah law, and it also appears the carve out the trustee negotiated with the IRS was signif icantly higher than the Carve-Outs here (30% of the net proceeds of

the sale of

debtors’ residence otherwise subject to the IRS’ lien, which m ay have been as much as $38,850 ($325,000 fair market value less m ortgage of $195,000 x 30%). Buergeinvolved nonexem pt stock of

closely-held bank holding com panies as opposed to a debtor’s homestead, and further, the BAP determined only that, in absence of

valuation of

the property , the bankruptcy court should not have com pelled abandonm ent. Buerge, 2014 WL 13096941, at *19. -20-the secured creditor agrees to waive any unsecured claim for a def iciency in the event the sale does not f ully satisf y the security

interest. 55 Clearly , however, while secured creditor carve-outs may be appropriate in certain circum stances, such circum stances are not present in these cases.

56 Again, we agree with Appellants that the Trustee Handbook does not prohibit carve out agreem ents with a secured creditor as per se improper, and directs that when adm inistering f

ully encum bered property , a trustee should obtain an agreement from a secured creditor to recover costs of sale f rom the collateral pursuant to § 506(c). 57 However, it does m ake it clear that a carve out negotiation should be undertaken only in appropriate circumstances: A trustee m ay

sell assets only

if the sale will result in a m eaningf ul distribution to creditors. In evaluating whether an asset has equity , the trustee m ust determ ine whether there are valid liens against the asset and whether the value of

the asset exceeds the liens. The trustee may seek a “carve-out” f rom a secured creditor and sell the property at issue if

the “carve-out” will result in a m eaningf

ul distribution to creditors. The trustee m ust also consider whether the cost of

administration or tax consequences of any sale would signif icantly erode or exhaust the estate’s equity interest in the asset. If

the sale will not result in a m eaningf ul distribution to creditors, the trustee m ust abandon the asset. 58

Trustee Handbook at 4-16. 5 5 The Trustee Handbook does not provide an exclusive set examples of exceptions 5 6 to the general rule that a Chapter 7 trustee should not sell f ully encum bered assets. Its exam ples should not be viewed as exclusive circumstances for permissible sales of f ully encum bered assets. Trustee Handbook at 4-16. 5 7 Trustee Handbook at 4-14. 5 8

-21-Thus, carve out agreements are only perm itted if

they result in meaningful

distributions to creditors. And the def

inition of m eaningf

ul depends on the totality of circum stances. As explained by

the First Circuit, “bankruptcy courts have def

ined the equity

that justif ies a sale of

property , consistently

and explicitly , in one way : the value rem aining f or unsecured creditors above any secured claims and the debtor’s exem ption.” This “equity

59 f or unsecured creditors” is what authorizes a trustee to exercise his powers of sale under § 60 363 in the f

irst place, because liquidation should not be f or the benef

it of the estate’s secured creditors. Theref

ore, a trustee’s negotiation of a carve out with a secured creditor

as a m eans of

creating the equity

necessary

to justif y the sale of

f ully encum bered estate property is suspect and presents opportunities f or collusion. Here, Trustee and Counsel

61 f ees, together with realtor commissions and closing costs, would have totaled at least $57,284.97 in the Bird case ($34,744.97 + $22,540), and $61,513.63 in the Christensens’ case ($31,763.63 + $29,750). Unsecured creditors, on the other hand, would have 62 received only

$10,000 in each case. Trustee’s steps in obtaining the Carve- 63

In re Traverse , 753 F.3d 19, 29 (1st Cir. 2014). 5 9 Id. 6 0 In re Tobin , 202 B.R. 339, 340 (Bankr. D.R.I. 1996) (“approval of [ ] token ‘carve 6 1 outs’ f or sole purpose of

creating a Trustee’s commission f or adm inistering secured assets that should have been abandoned [ ] is a practice neither contemplated by nor provided f or in the Bankruptcy

Code”). Order at 7-8, in Appellant’s App. at 483-84. 6 2 $10,000 is a de m inim us am ount com

pared to the total unsecured nonprority debt 6 3 (continued...)

-22-Outs here in order to sell the Homesteads would shift estate assets away f rom the IRS to prof essionals, harm ing Debtors in the process. 64 On these f

acts, sale of

the Hom esteads undoubtedly violates the Trustee Handbook’s directive that estate property should not be sold “where the proceeds of liquidation will prim arily benef it the trustee or the prof

essionals, or unduly

delay the resolution of

the case.” Further, Trustee’s attempted sale is in derogation of courts’ universal recognition 64 that “the sale of

a f ully encum bered asset is generally

prohibited.” W e see no need to

65

(...continued) 6 3 listed by the Debtors on their Schedules. The Christensens listed $1,641,585.98 and Bird listed $539,042.52 in unsecured nonpriority debt. Appellants’ App. at 38, 749. W e also agree with Appellants’ position that the Supreme Court’s recent decision 6 4 in Czyzewski v. Jevic Holding Corp. , 137 S.Ct. 973 (2017), which reversed a bankruptcy court’s approval of

a structured dism issal in a Chapter 11 case, does not prohibit all carve out agreem ents. But Appellants m iss the larger point applicable here: Jevicstands f or the proposition that neither the parties, nor the courts, are f ree to circumvent the Bankruptcy Code’s rules and policies regarding priorities and distributions through manipulation of substantive and procedural protections. Jevic , 137 S.Ct. at 986-87. TrusteeHandbook at 4-1. 6 4 In re KVN Corp., Inc. , 514 B.R. 1, 5 (9th Cir. BAP 2016) (citing in part, In re 6 5 Covington , 368 B.R. 38, 41 (Bankr. E.D. Cal. 2006) (“[ W ]hen an asset is f ully encum bered by a lien, it is considered im proper f or a chapter 7 trustee to liquidate the asset.”); In re Feinstein Family P’ship , 247 B.R. 502, 507 (Bankr. M.D. Fla. 2000) (“Clearly , the Code never contemplated that a Chapter 7 trustee should act as a liquidating agent f or secured creditors who should liquidate their own collateral.”); In re Preston Lumber Corp. , 199 B.R. 415, 417 (Bankr. N.D. Cal. 1996) (“[ A]ctual conf licts of interest [ arise] when the trustee sees he can make m ore m oney f or him self

by liquidating collateral f

or a secured creditor than he can by asserting a claim

against the secured creditor on behalf

of the estate”).

-23-deviate f

rom these f irm ly entrenched rules here. The numbers in these cases m ore than adequately

support the bankruptcy

court’s belief

that the sale of

f ully-encum

bered property

ty pically benef its two parties: the trustee, who can adminis ter the property and receive a commission on the disbursed proceeds, and the secured party , which has its collateral liquidated without having to undertake the toil and labor of f oreclosure proceedings. 66 As a result, we conclude the bankruptcy court did not err in determini ng Trustee’s and Counsel’s services, f

or which the Fee Applications sought com pensation, were not necessary to the adm inistration of

Debtors’ estates. B. The Bankruptcy

Court Did Not Err in Concluding the Services W ere Not Reasonably

Likely to Benef it the Estates. Appellants also contend the bankruptcy court erred in determining the proposed sales of the Hom esteads were not reasonably likely to benef it the estates. On appeal, Appellants prim arily

argue the bankruptcy

court’s conclusion as to the non-benef icial nature of their services was f

ounded on several erroneous legal determinations: (1) Debtors were entitled to hom estead exempt ions even though there was no equity in the Hom esteads; (2) sale of

the Hom esteads was not authorized by § 363(f ); and (3) §§ 724(b) and 522 do not create exceptions to the homestead exem ption. W e address these assertions brief ly , but ultim ately

conclude the bankruptcy court’s determi nation that Appellants’ services were not likely

to benef it the estates was not reversible error, regardless of whether its legal determinations were correct or incorrect.

Order at 13, in Appellants’ App. at 489. 6 6

-24-Our conclusion is based on the totality of applicable statutes and case law and the way in which they

relate to one another. Looking at these authorities in combination, three principles stand out. First, exem ptions are extrem ely

im portant to the Bankruptcy Code’s f resh start policy , and of

these exem

ptions, the hom estead exempt ion is param ount. Second, a Chapter 7 trustee is duty bound to adm inister the estate solely f or the benef

it of creditors. And third, the Bankruptcy Code’s objective and priorities control and are not subject to being rearranged by the actions of

a Chapter 7 trustee. The bottom

line is that, in light of

these principles, we take no issue with the bankruptcy

court’s conclusion that these Homesteads should have been abandoned by the Trustee, and theref

ore, f ind no error in its ruling that Appellants’ services were not benef icial to the estate. While sale of the Hom esteads m ight adm ittedly have benef

itted the estates’ unsecured creditors to a minim um extent, the proceeds would primarily benef it Appellants and other bankruptcy prof essionals, to the considerable detriment of Debtors and the exem

ptions to which they

are entitled. As a result, Appellants’ services do not meet the com pensation criteria of

§ 330(a)(4)(ii). 1. Debtors W ere Entitled to Claim Hom estead Exem

ptions under Utah Law Appellants contend the bankruptcy court’s decision denying the Fee Applications is reversible because it erroneously interpreted the Utah exemption statute. Instead, they argue that Utah hom estead exemptions, which are denomi nated as specif ic am ounts, are

-25-based on value in the property and not the property

itself , and theref

ore not available to Debtors absent equity

in the Hom esteads. W e disagree. 67 The Utah Constitution comm ands that the legislature shall provide f or a hom estead

exem ption consisting of

“lands, together with the appurtenances and improvem ents thereon.” As a result, the Utah Exempti on Act provides in relevant part:

68 69 (2) (a) An individual is entitled to a hom estead exempt ion consisting of property in this state in an am ount not exceeding:

. . . (ii) $30,000 in value if

the property

claim ed is the prim ary personal residence of

the individual. (b) If the property

claim ed as exem

pt is jointly

owned, each joint owner is entitled to a hom estead exempt ion; however

. . . (ii) f or property

exem pt under Subsection (2)(a)(ii), the maxim

um exem ption m ay not exceed $60,000 per household. (c) A person may

claim a hom estead exempt ion in either or both of the f ollowing: (i)one or m ore parcels of

real property

together with appurtenances and improvem ents; or Appellants’ Br. 19. In support of this proposition, the Trustee cites the Utah 6 7 Exem ption Act, which provides “[ a]n individual is entitled to a hom estead exempt ion consisting of

property in this state” not to exceed a certain value. Utah Code § 78B-5- 503(2). Order at 20, in Appellants’ App. at 496. Utah Const. art. XXII, § 1 (“The Legislature shall provide by statute an exem

ption 6 8 of a hom estead, which m ay consist of

one or m ore parcels of

lands, together with appurtenances and improvem ents thereon, f rom sale on execution.” ). Utah Code Ann. § 78B -5-501 ( 2008). 6 9

-26-(ii)a m obile hom e in which the claim ant resides. .

. . (3) A hom estead is exem

pt f rom judicial lien and f

rom levy , execution, or f orced sale except f

or: (a) statutory

liens f or property

taxes and assessm ents on the property ; (b) security

interests in the property

and judicial liens f

or debts created f or the purchase price of

the property ; (c) judicial liens obtained on debts created by f ailure to provide support or m aintenance f

or dependent children; and (d) consensual liens obtained on debts created by m utual contract. 70 For purposes of

the hom estead exempt ion, property is def ined as “(i) a primary

personal residence; (ii) real property ; or (iii) an equitable interest in real property awarded to a person in a divorce decree by a court.” 71 When a f ederal court interprets state law, it is required to look to the rulings of the highest state court, and theref ore we m ust initially

turn to Utah law. As the Utah Supreme 72 Court has explained, citizens have been granted the right to a homestead exem ption “to protect ‘the dependent and helpless’ and to insure such persons shelter and support f ree

Utah Code Ann. § 78B-5-503 (2008). 7 0 Utah Code Ann. § 78B-5-503(1)(d) (2008). 7 1 Johnson v. Riddle , 305 F.3d 1107, 1118 (10th Cir. 2002) (“When the f ederal courts 7 2 are called upon to interpret state law, the f ederal court must

look to the rulings of

the highest state court, and, if no such rulings exist, m

ust endeavor to predict how that high court would rule.”).

-27-f

rom f ear of f orced sale.” In light of

that policy , in Panagopulos v. Manning , the Utah 73 74 Suprem e Court held that the statutory right to a hom estead exempt ion is predicated on two bases or interests in real property – title and possession, and f urther that the exempti on “protect[ s] the phy sical thing as a whole f rom lien or sale so long as the exempti on continues.” It has f

urther opined that courts “cannot whittle down the exemption by 75 underm ining and cutting at its roots.” 76 On appeal, Appellants argue that when exemptions are limited in am ount, only an interest in the property

up to the specif

ied am ount is exem

pted, and not the property itself

. To support their contention, Appellants rely heavily on the Suprem e Court’s decision in Schwab v. Reilly. In Schwab , the Suprem e Court ruled value m ay be recovered f

or the 77 estate in an exempt

asset beyond the value debtor expressly declared exempt notwithstanding that interested parties did not f ile objections. W e do not f ind Schwab applicable, or even particularly helpf ul, on the f

acts presented here f

or num erous reasons.

In re Carlson , 303 B.R. 478, 482 (quoting Sanders v. Cassity , 586 P.2d 423, 425 7 3 (Utah 1978)); s ee also P.I.E. Emps. Fed. Credit Union v. Bass , 759 P.2d 1144, 1145 (Utah 1988) (“purpose of a hom estead exempt ion is to protect citizens and their f am ilies f rom the m iseries of

destitution”). 69 P.2d 614 (Utah 1937). 7 4 Panagopulos , 69 P.2d at 620. See also Stucki v. Ellis , 201 P.2d 486, 489-90 (Utah 7 5 1949) (holding that other equitable interest in the property m ay be suf f icient to claim

a hom estead exempt ion in proceeds of sale of the property). Panagopulos , 69 P.2d at 620. 7 6 560 U.S. 770, 782 (2010). 7 7

-28-First, the issue in Schwab , as f ram ed by the Suprem e Court, was whether an interested party m ust object to a claim ed exem ption where, as here, the Code def

ines the property

the debtor is authorized to exempt as an interest, the value of

which m ay

not exceed a certain dollar amount, in a particular ty

pe of asset, and the debtor’s schedule of exem pt property accurately

describes the asset and declares the “value of [ the] claim ed exem ption” in that asset to be an am ount within the limits that the Code prescribes. 78 Thus the Suprem e Court was ruling on a procedural issue in a much diff erent context. Second, in Schwab , the exem ption at issue was claim ed f or business equipm ent as tools of the debtor’s trade, not a homestead exem ption. Third, the property claim ed as exem

pt in Schwab was not subject to any liens or encum

brances. And f

ourth, the Schwab debtor claim ed an exemption f

or the property

pursuant to § 522(d)(5)-(6), and thus the Supreme Court was interpreting the Bankruptcy Code, and not Utah law. Accordingly , the Suprem e Court’s determ ination in Schwab that § 522(d) exem ptions are f

or a debtor’s interest in the asset, up to a specif

ied dollar am ount, and not the asset itself , does not control the result 79 here. 80

Id. at 774. 7 8 Id. at 782. 7 9 Appellants’ citations to num erous other cases, including Rousey v. Jacoway , 544 8 0 U.S. 320 (2005), In re Sanders , 39 F.3d 258 (10th Cir. 1994), and In re Brown , 851 F.3d 619 (6th Cir. 2017), to support their position regarding the bankruptcy court’s m isinterpretation of

the Utah hom estead exempt ion are also m isplaced. Although these cases m ay

contain statem ents in dicta that tangentially relate to the f

acts here, they

all presented signif

icantly dif f erent issues to the courts f or decision. In Rousey , the Suprem e Court ruled that f

unds in an IRA, up to a certain amount, are exem pt within the def

inition in § 522(d)(10)(E). InSanders , the Tenth Circuit ruled that under § 522(f ), the am ount of (continued...)

-29-Under both Utah and f ederal law, exemption laws m ust be liberally

construed in f avor of the claim ant of

an exem ption to ef

f ect their hum anitarian purposes. The Utah 81 Suprem e Court long ago held that the statutory hom estead exempt ion is predicated on title and possession of

real property

and “protect[ s] the phy sical thing as a whole f rom lien or sale so long as the exem

ption continues.” It has f urther opined that courts “cannot whittle 82 down the exem

ption by underm ining and cutting at its roots.” Although the Utah 83 hom estead exempt ion is expressed in term s of a lim ited dollar am ount, there is nothing to suggest that the Utah Suprem e Court’s decision in Panagopulos is not good law. Theref ore, possession and title allow Debtors to claim valid hom estead exempt ions, notwithstanding a lack of equity in the Hom esteads. 2. Utah Exem

ption Statutes and § 363(f ) Protect Debtors f rom a Forced Sale of

their Hom esteads by

Trustee

(...continued) 8 0 a hom estead exempt ion determ ines the extent to which it is im paired by a lien. And in Brown , af ter a debtor surrendered homestead property rather than claiming i t as exem pt, the Sixth Circuit ruled that § 522 will not support an exem ption on the basis of

state-law redem ption rights in a piece of

property if the proceeds f

rom the sale of

that property

are “insuf f icient to satisf

y the prior obligations owed to the secured creditors.” Brown , 851 F.3d at 625. These cases are of little value to our analy sis here. In re Carlson, 303 B.R. 478, 482 (10th Cir. BAP 2004) (citing Lampe v. 8 1 W illiamson (

In re Lampe) , 331 F.3d 750, 754 (10th Cir. 2003); Carbaugh v. Carbaugh ( In re Carbaugh) , 278 B.R. 512, 522 (10th Cir. BAP 2002); Homeside Lending, Inc. v. Miller, 31 P.3d 607, 613-14 (Utah Ct. App. 2001)). Panagopulos , 69 P.2d at 619-20. 8 2 Id. at 620. 8 3

-30-Appellants argue the bankruptcy court erred in denying their Fee Applications because Trustee should have been allowed to sell Debtors’ Homesteads free and clear under § 363(f

) so that pay

m ents could be m ade to unsecured creditors as result of the Stipulations and Carve-Outs with the IRS. W e disagree. 84 Pursuant to § 363, (f ) The trustee m ay

sell property

under subsection (b) or (c) of this section f ree and clear of

any interest in such property

of an entity other than the estate, only

if

-- (1) applicable nonbankruptcy law perm its sale of

such property f ree and clear of

such interest; (2) such entity

consents; (3) such interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property ; (4) such interest is in bona f ide dispute; or (5) such entity

could be com

pelled, in a legal or equitable proceeding, to accept a money satisf action of such interest. 85 Appellants contend the bankruptcy court erred in determining that none of the f ive options f or sale f ree and clear under § 363(f ) were met. S pecif

ically , Appellants take issue with the bankruptcy

court’s conclusions that: (1) the Homesteads were not subject to a bona fide

Appellants’ Reply

Br. 19. 8 4 11 U.S.C. § 363(f

). 8 5

-31-dispute f

or purposes of

§ 363(f )(4); and (2) Debtors could not be compelled to accept a 86

m oney satisf action in an am ount less that the f ull am ount of

Utah’s hom estead exempt ion f or purposes of

§ 363(f )(5). W e see no f

law in the bankruptcy

court’s analy sis on these 87 points. Trustee objected to Debtors’ claimed exem ptions in their Hom esteads based on a lack of equity . Subsequent events, however, undercut Trustee’s Homestead Objections and resolved the disputes: (1) Trustee received of f ers f or the Hom esteads and negotiated the Carve-Outs with the IRS creating equity ; (2) the bankruptcy court allowed the Hom estead Exem ptions; and (3) Debtors’ converted their cases to Chapter 13 and amended their

88 Schedules C to rem ove the claim ed exem ptions. Thus, no bona f

ide dispute existed f

or purposes of

§ 363(f )(4) that would permi t Trustee to sell the Hom esteads in absence of Debtors’ consent. 89 Order at 21, in Appellants’ App. at 497. 8 6 Order at 22, in Appellants’ App. at 498. 8 7 Trustee appealed the bankruptcy court’s orders allowing the Homestead 8 8 Exem ptions to the District Court, but the appeals were m ooted. Order at 5 n.10, in Appellants’ App. at 481. The purpose of

§ 363(f )(4) is to perm it sale of

estate property

f ree and clear of 8 9 interests that are disputed by the representative of

the estate in order to avoid delay s in liquidation of

the estate’s assets while such disputes are being litigated. In re Clark, 266 B.R. 163, 171 (9th Cir. BAP 2001) (citing 3 Lawrence P. King, Collier on Bankruptcy ¶ 363.06 (15th ed. rev. 1998)). In other words, a party whose interest is too controversial to warrant protection should not be able to interf ere in an otherwise legitimate sale. But here, Trustee should not be permitted to sell free and clear when it is Trustee that created the “§ 363(f

)(4) dispute” by

objecting to the Hom estead Exem ptions on the basis of

lack (continued...)

-32-The bankruptcy court’s conclusion that the condition stated in § 363(f )(5) is not m et is supported by

the Utah statutes. As the bankruptcy court explained, Utah’s exemption statute provides that “[ a] hom estead is exem pt f rom judicial lien and f

rom levy , execution, or f orced sale except” in very limited situations. The statute only perm its a f

orced sale of 90 a hom estead f

or purchase-money

m ortgages, statutory

liens f or property

taxes, judicial liens obtained f

or f ailure to pay

child support, or consensual liens obtained on debts created by m utual contract. The sales proposed here contained Carve-Outs with the IRS to pay

91 the unsecured creditors a minim um am ount. Neither the IRS nor the estate’s unsecured creditors are the ty

pe of creditor the Utah statute permits to force sell a homestead. In addition, another Utah exemption st atute provides that “[ p]roperty that includes a hom estead m ay

not be sold at execution if there is no bid which exceeds the amount of the declared homestead exem ption.” Trustee’s sale of the Hom esteads would not have 92 generated enough f

unds to pay

Debtors’ exempt ions, the m ortgages, adm inistrative expenses, and tax liens. When read in conjunction with the applicable Utah exem ption statutes, § 363(f

)(5) does not authorize Trustee to sell Debtors’ Homesteads without satisf ying their exem

ption claim s. (...continued) 8 9 of equity , and then subsequently created equity

by negotiating the Carve-Outs with the IRS. Utah Code Ann. § 78B-5-503(3). 9 0 Id. 9 1 Utah Code Ann. § 78B-5-504(5). 9 2

-33-3. Sections 724 and 522 Do Not Give Trustee Additional Rights

Appellants argue Debtors’ homestead exem ptions do not trum

p §§ 522 or 724. 93 According to Appellants, “debt secured by ‘a tax lien, notice of

which is properly

f iled’ is not subject to exem

ption.” While it is true that property exem pt f rom the bankruptcy 94 estate rem ains subject to a tax lien perf ected bef ore the petition date pursuant to § 522(c)(2)(B), that does not mean Debtors are not entitled to a claim the hom estead

exem ption in the f

irst place, or that the Trustee is entitled to administ er and sell exempt property to satisf y such debt or to create a f und f or paying adm inistrative expenses. 95 Appellants also assert “[ s]ection 724(b) m akes it possible to sell property

encum bered with tax liens in a chapter 7 because the IRS ‘pay s’ the estates’ admi nistrative f ees out of its claim s, not the Debtors’ or the lower priority creditors’s [ sic] claim s.” 96 Appellants overstate the ef f ect of § 724. Section 724, entitled “Treatm ent of Certain Liens,” provides in part as f ollows: (b) Property

in which the estate has an interest and that is subject to a lien that is not avoidable under this title (other than to the extent that there is a properly perf ected unavoidable tax lien arising in connection with an ad valorem tax on real or personal property of the estate) and that secures an allowed claim

f or a tax, or proceeds of

such property , shall be distributed-- Appellants’ Br. 25. 9 3 Id. 9 4 See In re Quezada , 368 B.R. 44, 48 (Bankr. S.D. Fla. 2007) (stating § 704(a)(1) 9 5 only permits a trustee to “collect and reduce to money the property

of the estate” not exem pt property). Appellants’ Reply

Br. 20. 9 6

-34-(1) f irst, to any

holder of an allowed claim

secured by

a lien on such property

that is not avoidable under this title and that is senior to such tax lien; (2) second, to any

holder of a claim of a kind specif

ied in section 507(a)(1)(C) or 507(a)(2) (except that such expenses under each such section, other than claims for wages, salaries, or comm issions that arise af ter the date of

the f iling of the petition, shall be lim ited to expenses incurred under this chapter and shall not include expenses incurred under chapter 11 of this title), 507(a)(1)(A), 507(a)(1)(B), 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6), or 507(a)(7) of this title, to the extent of the am ount of

such allowed tax claim

that is secured by such tax lien; (3) third, to the holder of

such tax lien, to any

extent that such holder’s allowed tax claim that is s ecured by such tax lien exceeds any

am ount distributed under paragraph (2) of this subsection; (4) f ourth, to any

holder of an allowed claim

secured by

a lien on such property

that is not avoidable under this title and that is junior to such tax lien; (5) f if th, to the holder of

such tax lien, to the extent that such holder’s allowed claim secured by such tax lien is not paid under paragraph (3) of

this subsection; and (6) sixth, to the estate. 97 Appellants interpret this provision to m ean that a hom estead exempt ion does not take precedence over tax liens, and theref ore Trustee was entirely

justif ied in seeking to

11 U.S.C. § 724(b). 9 7

-35-liquidate the Hom esteads, “particularly where, as here, the IRS actively supported a sale and had agreed to a carve-out that would directly benef it general unsecured creditors.” 98 Such an interpretation ignores the saf eguard provisions of

§ 363(f ). Section 724 indeed perm its subordination of tax liens to the extent of

adm inistrative expenses. As is patently

obvious, however, the plain language of § 724 does not separately authorize sale of

estate property . Instead, it sets f orth a m andatory

distribution schem e af

ter an otherwise already

authorized sale has been conducted. Section 363 is the only basis f or authorizing Trustee to sell estate property

. Appellants’ attem pt to use § 724 to ef

f ect a 99 “cram down schem e” with regard to Debtors’ homestead exem ptions should not be allowed. 100 Appellants’ Br. 27. 9 8 In re Feinstein Family P’ship , 247 B.R. 502, 508 (Bankr. M.D. Fla. 2000); see 9 9 also W olters Vill., Ltd. v. Vill. Props., Ltd. ( In re Vill. Props., Ltd. ) , 723 F.2d 441, 444 (5th Cir. 1984) (“Section 363 def ines the rights and powers of the trustee regarding the use, sale or lease of

estate property

and the rights of

third parties with interests in the subject property .”). Perhaps Trustee took his cue f rom this play book: The IRS Is Y

our Friend: How 1 0 0 Trustees Can Use Tax Liens To W eave Straw Into Gold, 29 Cal. Bankr. J. 191 (2007). In that article, the author advocates that “because of the existence of

f ederal tax liens, estates that appear to have no value in f act do have value because the trustee can use the tax liens to trum p the debtors’ exemptions and create value f or the estate.” Id. The article does not, of course, point out that this procedure also creates a commission f or a Chapter 7 trustee under § 326. For support, the author cites to Grochocinski v. Laredo (In re Laredo) , 334 B.R. 401 (Bankr. N.D. Ill. 2005), and In re Bolden , 327 B.R. 657 (Bankr. C.D. Cal. 2005). Appellants rely

on these cases as well. While such cram down procedures may have been allowed in those cases, the decisions of other bankruptcy

courts are not binding on the Utah bankruptcy

court. Further, we do not f ind such schem es to be in keeping with the Bankruptcy

Code’s f resh start policy

f or debtors, or the Chapter 7 trustee’s obligation (continued...)

-36-The Suprem e Court’s ruling in Law v. Siegel that exem ptions can be denied only 101 on statutory

bases enum erated in the Bankruptcy Code underscores the sacrosanct nature of hom estead exempt ions. In Siegel , the Suprem e Court ruled that because § 522(k) prohibits

exem pt property

f rom being liable f

or pay m ent of ordinary adm inistrative expenses, even a debtor’s f raud was not grounds to “surcharge” his homestead exem ption to def

ray attorney ’s f

ees the trustee incurred in overcoming debtor’s fraudulent misrepresentations. 102 Sim ilarly , in Scrivner v. Mashburn ( In re Scrivner) , the Tenth Circuit held that a exempt 103 retirem ent f

unds could not be surcharged to prevent a debtor who ignored a bankruptcy court’s order to turnover nonexempt distributions from undeservedly benef itting to the detrim ent of

the estate and creditors. Though Trustee’s attempt to sell the Hom esteads 104 here is not strictly

analogous to the f

acts in Siegel

or Scrivner , it would nonetheless have the sam e ef

f ect—to deprive Debtors of their hom estead exempt ions on a basis other than

one enum erated in the Code. Moreover, Debtors in these cases do not stand accused of any f raudulent or contempt

uous behavior. Trustee’s scheme to sell the Hom esteads by negotiating Carve-Outs with the IRS is nothing m ore than an attempt to do indirectly

what

(...continued) 1 0 0 to adm inister the estate solely f or the benef

it of creditors. 134 S.Ct. 1188 (2014). 1 0 1 Id. at 1195. 1 0 2 535 F.3d 1258 (10th Cir. 2008). 1 0 3 Id. at 1265

. 1 0 4

-37-the Bankruptcy Code and Utah exempt ion statutes prevent him f rom doing directly

. 105 Accordingly , §§ 522 and 724 do not give Trustee powers enabling him to avoid the § 363(f ) requirem ents f

or sale f ree and clear of

the Hom esteads. C. The Bankruptcy

Court Did Not Err in Denying the Fee Applications in Their Entirety Appellants contend denial of the Fee Applications in their entirety was error because the bankruptcy

court did not evaluate “Appellants’ actions prior to or apart f rom the

Appellants take issue with the bankruptcy court’s conclusion that § 506(c) 1 0 5 provides no basis f

or the Carve-Outs, stating: The bankruptcy

court asserts that “§ 506(c) is the chosen statutory vehicle f or the [ Form er] Trustee to receive the Carve-Outs” and that the Former “Trustee and the IRS are attempting to shoehorn their arrangem ent into § 506(c), but it does not quite f it.” Opinion , 561 B.R. 195, 215 (Bankr. D. Utah 2016). This vastly

overstates the proposed role § 506(c) was to play . It is § 724(b) that allows adm inistrative expenses to be paid bef ore the IRS’s tax liens, not § 506(c). More im portantly , neither the IRS nor the Form er Trustee ever pointed to § 506(c) as authority to pay the general unsecured creditors $10,000 in each case. Rather, the proceeds were subjec t to the IRS’s lien; theref

ore, the IRS was f

ree to have $10,000 of

the proceeds distributed to general unsecured creditors if they wished. Appellants’ Br. 47 n.14. The Court is perplexed by Appellants’ statem ent in this regard. The Stipulations f

iled with the bankruptcy

court are titled “Stipulation Pursuant to 11 U.S.C. § 506(c),” and specif ically recite “the parties wish to stipulate to a carve-out of a portion of the sales proceeds f

rom the [ Hom estead], pursuant to 11 U.S.C. § 506(c), in order to f acilitate a sale of

the [ Hom estead] by

the Trustee and also provide unencum bered f unds to the bankruptcy

estate f or distribution to unsecured creditors of the bankruptcy

estate.” Stipulations at 3, 5, in Appellants’ App. at 844, 135. Only af ter the bankruptcy

court pointed out that Siegel and Scrivner clearly prevent any

ty pe of surcharge of

exem pt assets do Appellants now claim no true surcharge is in play

. -38-proposed sales.” Appellants thoroughly brief this issue by

again reviewing the 106

com pensation statutes and citing to num erous cases. They do not, however, point out specif ic services and associated time entries in the Fee Applications they believe are

com pensable, or otherwise provide any details that would assist the Court in m aking such a determ ination. In absence thereof , even a cursory

review of

the Fee Applications reveals that, f rom the very beginning, alm ost all the services f or which Trustee and Counsel seek

com pensation were in f

urtherance of

Trustee’s inappropriate scheme to sell the Hom esteads, and thus neither reasonable nor necessary under § 330(a)(1). Further, 107 108 although f

ees and expenses that are “unavoidably incurred,” are som etim es deem ed

109 necessary and com pensable, nothing suggests that is the case with respect to the f ees and expenses here. While receiving no com

pensation at all might seem a harsh result, the Court would point out that such a result is not uncomm on. Com pensation of

a Chapter 7 trustee under Appellants’ Br. 38. 1 0 6 In f

act, Trustee’s very

f irst tim e entry

on the Fee Applications, m ade in both cases 1 0 7 about a week prior to the § 341 meeting, indicates a call to the realtor he eventually sought to em

ploy and analy sis of

legal issues and sale under § 724. Fee Applications , in Appellants’ App. at 372, 1076. Af ter all, pursuant to § 330, courts can only award an attorney

em ployed under § 1 0 8 327 reasonable compensation for “actual, necessary services rendered.” In re Schupbach Invs., LLC, Nos. KS-13-77, KS-13-78, 2014 WL 6680122, at *8 (10th Cir. BAP Nov., 25 2014). In re Ricci Inv. Co., Inc. , 217 B.R. 901, 907 (D. Utah 1998) (concluding even if 1 0 9 f ees are f or services that do not benef it the estate, they

m ay be com pensable if

they were unavoidably

incurred).

-39-§ 330(a) is lim ited by § 326(a) to a certain dollar amount calculated as a percentage of the

m oney s disbursed or turned over in the case to parties in interest. Courts have of ten 110 observed that being a Chapter 7 trustee is a “risky business,” since in the absence of

111 assets to liquidate and distribute, the $60 portion of the statutory

f iling f ee set aside f

or the trustee m ay

be the only

rem uneration available. Moreover, several courts have held that 112 the lim itations in § 326 m ust be strictly

construed, resulting in no com pensation f

or a Chapter 7 trustee when the case is converted to Chapter 13, even if assets will be distributed under a Chapter 13 plan. Com pensation of

a Chapter 7 trustee’s attorney , 113 however, is not subject to the lim itations of § 326, and thus it m ay

seem particularly inequitable that Counsel’s f ees are being denied in their entirety as well, given Counsel Pursuant to § 326(a), the bankruptcy court m ay

allow a Chapter 7 trustee 1 1 0 reasonable compensation under § 330 “ not to exceed 25 percent on the f irst $5,000 or less, 10 percent on any

am ount in excess of

$5,000 but not in excess of $50,000, 5 percent on any am ount in excess of

$50,000 but not in excess of $1,000,000, and reasonable com pensation not to exceed 3 percent of such m oney s in excess of $1,000,000, upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.” 11 U.S.C. § 326(a) (em phasis added). In re Mingledorff

, No. 12–41543–EJC, 2015 WL 3897374, at *6 (Bankr. S.D. Ga. 1 1 1 June 23 2015) (citing In re Fischer , 210 B.R. 467, 469 (Bankr. D. Minn. 1997) (noting trustees are only

prof itable when they

achieve ef

f iciencies by

way of volum e and m ake a substantial f

ee in an occasional case)). 11 U.S.C. §330(b). 1 1 2 Mingledorff, 2015 WL 3897374, at *7 (“Here, the perceived unf airness of 1 1 3 allowing the Chapter 7 Trustee to go uncompensated for work done prior to the conversion is not a determi native f actor.”); In re Silvus , 329 B.R. 193, 207-21(Bankr. E.D. Va. 2005) (noting only Congress m ay

decide whether a dif

f erent m easure of

Chapter 7 trustee com

pensation is appropriate when a case is converted to Chapter 13).

-40-acted at Trustee’s direction. But, it bears reiteration that, notwithstanding Trustee’s

em ploy m ent of Douglas J. Pay

ne of his law f irm , Fabian VanCott, the Fee Applications indicate it was Trustee who perf orm ed over seventy

percent of

the legal services f

or which Counsel seeks com

pensation. In our view, this signif icantly m itigates f

airness concerns. The obvious dictate here is that it m akes no sense whatsoever to sell the Homesteads and incur adm inistrative expenses of $57,284.97 in the Bird case, and $61,513.63 in the 114 Christensens’ case, in order to get only $10,000 to unsecured creditors and at the same 115 tim e deny Debtors their Hom esteads. Even bankruptcy prof essionals perf

orm ing services f or an oversecured creditor, whose compensation will be paid from that creditor’s own collateral, m

ust exercise som e restraint with respect to incurring f ees and expenses. In 116 other words, all bankruptcy prof essionals to be com

pensated f

rom the estate m

ust exercise billing judgm ent, so that only “reasonable compensation for actual, necessary 117 services” is sought. In these cases, the actions of Trustee and Counsel f

all woef ully short 118 of this standard. Again, this total represents $34,744.97 f or services of

Trustee and Counsel, and 1 1 4 $22,540 f or realtor commissions and closing costs. Again, this total represents $31,763.63 f or services of

Trustee and Counsel, and 1 1 5 $29,750 realtor comm issions and closing costs. In re Fansteel, Inc. , No. 16–01823, 2017 WL 1929489, at *6 (Bankr. S.D. Iowa 1 1 6 May 9, 2017). Id. at *5 (f

ees m ust be “sensibly” incurred); In re Latshaw Drilling, LLC, 481 B.R. 1 1 7 765, 799 (Bankr. N.D. Okla. 2012) (counsel must act fairly , prudently , and ef f iciently ). 11 U.S.C. § 330(a) (1). 1 1 8

-41-IV. CONCLUSION

The bankruptcy

court did not err in concluding Appellants’ services were neither necessary nor benef

icial to the estate. Trustee’s plan of action f rom the m inute he was assigned these Chapter 7 cases was abundantly clear: he sought to m anuf acture equity through the Stipulations and Carve-Outs with the IRS in order to sell the Hom esteads and generate f unds that would prim arily benef it Trustee, Counsel, and other bankruptcy prof essionals, while only

m inim ally

benef itting unsecured creditors. Alm ost all of the services f or which Appellants seek compensation are in furtherance of that inappropriate plan. Theref

ore, the Order denying the Fee Applications in their entirety is not reversible error, and is hereby

AFFIRMED.

-42-