1999 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

1-28-1999

US Trustee v. Gryphon Stone

Precedential or Non-Precedential:

Docket 97-3670

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Recommended Citation

"US Trustee v. Gryphon Stone" (1999). 1999 Decisions. Paper 24.

http://digitalcommons.law.villanova.edu/thirdcircuit_1999/24
Filed January 28, 1999 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

No. 97-3670 

UNITED STATES TRUSTEE 

v. 

GRYPHON AT THE STONE MANSION, INC., 

d/b/a Erik Lewis Global 

d/b/a Wanner Van Helden, 

 Appellant 

Appeal from the United States District Court 

for the Western District of Pennsylvania 

(D.C. No. 97-CV-00345) 

Before: The Honorable Gary L. Lancaster 

Argued Under Third Circuit LAR 34.1(a) 

November 18, 1998 

Before: McKEE, RENDELL and WEIS, Circuit Judges 

(Filed: January 28, 1999) 

 H. Thomas Byron, III, Esquire 

 (ARGUED) 

 U.S. Department of Justice 

 Civil Division, Appellate Staff 

 601 D Street, N.W. 

 Washington, DC 20530-0001 

 Counsel for Appellee 
 Daniel J. Gates, Esquire 

 Haller & Gates 

 415 Northgate Drive 

 Warrendale, PA 15086 

 Patricia L. Blais, Esquire (ARGUED) 

 Gates & Associates 

 415 Northgate Drive 

 Warrendale, PA 15086 

 Counsel for Appellant 

OPINION OF THE COURT 

RENDELL, Circuit Judge. 

We are asked to determine whether the Bankruptcy 

Court had jurisdiction to require payment of postconfirmation trustee's fees before closing the debtor's case. 

We also address the threshold issue of our jurisdiction to 

consider this appeal in light of the District Court's remand 

of the matter to the Bankruptcy Court. We conclude that 

we have appellate jurisdiction and that the Bankruptcy 

Court did in fact have jurisdiction over the award of fees in 

question. Accordingly, we will affirm the District Court's 

order that so held. As discussed in detail below, the 

Bankruptcy Court had jurisdiction pursuant to 28 U.S.C. 

S 157 and 28 U.S.C. S 1334, and we have jurisdiction on 

appeal pursuant to 28 U.S.C. S 158(d). The District Court 

had jurisdiction to review the Bankruptcy Court's decision 

pursuant to 28 U.S.C. S 158(a). 

Although the award of trustee's fees in bankruptcy cases 

has become a routine occurrence since S 1930 of Title 28 of 

the United States Code was first enacted in 1986, 

Congress's recent amendments to S 1930(a)(6) that imposed 

post-confirmation trustee's fees in all pending cases have 

created a controversy, with potential and actual legal and 

practical implications. Historically, S 1930(a)(6) set forth a 

scheme to impose the costs of the United States Trustee 

Program on its users. See H.R. Rep. No. 99-764, at 22 

(1986), reprinted in 1986 U.S.C.C.A.N. 5227, 5234. The 

statute originally provided, in relevant part, that"a 

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quarterly fee shall be paid to the United States trustee . . . 

in each case under chapter 11 of title 11 . . . for each 

quarter (including any fraction thereof) until a plan is 

confirmed or the case is converted or dismissed, whichever 

occurs first." Pub. L. No. 99-554, S 117, 100 Stat. 3088 

(1986). On January 26, 1996, Congress amended the 

quarterly fee provision to require payment of fees postconfirmation, by striking out the language providing that 

the fees would accrue until "a plan is confirmed," so that 

the statute now reads that the fees should be paid"until 

the case is converted or dismissed, whichever occursfirst." 

Pub. L. No. 104-91, S 101(a), 110 Stat. 7 (1996) & Pub. L. 

No. 104-99, S 211, 110 Stat. 26 (1996). 

After Congress passed the January 26, 1996 amendment, 

there was some confusion as to whether the amendment 

applied to cases in which plans had been confirmed prior to 

the amendment. In response, Congress enacted a second 

amendment to the quarterly fee provision on September 30, 

1996, providing that "the fees under 28 U.S.C.S 1930(a)(6) 

shall accrue and be payable from and after January 27, 

1996, in all cases (including, without limitation, any cases 

pending as of that date), regardless of confirmation status 

of their plans." Pub. L. No. 104-208, S 109(d), 110 Stat. 

3009 (1996). It is therefore clear that Congress has imposed 

a specific requirement that trustee's fees accrue and are 

payable after confirmation and up to closing of the case, 

which requirement applies to all cases pending as of 

January 1996.1 

_________________________________________________________________ 

1. It is generally agreed, and the parties before us do not argue 

otherwise, that the legislative scheme requiring payment of fees until the 

case is "converted or dismissed, whichever occursfirst" should be read 

so as to add "or closed." The Tenth Circuit recently decided this issue in 

United States Trustee v. CF&I Fabricators of Utah, Inc. (In re CF&I 

Fabricators of Utah, Inc.), 150 F.3d 1233 (10th Cir. 1998). Rejecting the 

argument that cases that are neither converted nor dismissed, but are 

successfully closed, are exempt from the fees, the court explained that 

the language of the statute providing that the fees were to be paid in 

"each" case under chapter 11 supported the conclusion that the statute 

applied in all three cases. Id. at 1236. The court also noted that, even 

though the statute does not explicitly state that fees would terminate 

upon "closure" of the case, it is unreasonable to assume otherwise, 

 3 
In the specific case before us, the debtor confirmed its 

plan of reorganization in June of 1995. The plan provides 

for payment of all priority and administrative claims, sets 

forth the treatment of several specific creditors, and 

provides that unsecured creditors will receive a pro rata 

distribution of the remaining funds, to be paid in 

installments commencing 73 months from confirmation, 

which would be in July of 2001.2 The debtor's plan is a 

liquidating plan; the debtor ceased its business and sold all 

of its assets as part of the plan and is distributing proceeds 

to creditors. The plan "estimates" that the fund available for 

unsecured creditors would be $83,042.40 and that 

unsecured creditors should receive 25-33% on account of 

their claims. 

The debtor moved for entry of a final order to close the 

case in April 1996, and the trustee objected on the basis 

that post-confirmation trustee's fees had not been paid.3 

The Bankruptcy Court entered an order granting the 

debtor's motion but reserving the issue of what fees were 

due. At oral argument before us, it was conceded that the 

funds awaiting distribution to unsecured creditors are on 

hand with the debtor's agent and that the postconfirmation trustee's fees at issue are in the approximate 

amount of $750. 

_________________________________________________________________ 

because once a case is closed it is no longer a case"under chapter 11" 

under the quarterly fee statute, and because there is no possibility of 

conversion or dismissal after closure. Id.; see also In re A.H. Robins 

Co., 

Inc., 219 B.R. 145, 149 (Bankr. E.D. Va. 1998). The Sixth Circuit came 

to a similar conclusion, albeit by different reasoning, in Vergos v. 

Gregg's 

Enters., Inc., 159 F.3d 989, 990-93 (6th Cir. 1998) (finding that, 

although S 1930(a)(6) is ambiguous, reading the statute to require 

termination of fees upon closure is consistent with Congressional intent). 

2. The Bankruptcy Court decided this case en banc because several 

dozen cases were impacted by the new requirement. However, we can 

only address the case before us on its own facts. This is especially 

important as we determine our jurisdiction to hear this matter on 

appeal, which, as we note below, may turn on the unique facts of the 

case. 

3. It is unclear whether the trustee actuallyfiled a claim for fees or 

otherwise sought enforcement, but the record indicates that the debtor 

did file an objection to the trustee's claim. 

 4 
The en banc Bankruptcy Court ultimately determined 

that the bankruptcy court lacks jurisdiction over postconfirmation claims and the trustee must go elsewhere to 

pursue these claims. En route to reaching this conclusion, 

however, the court entertained numerous difficult questions 

posed, and problems presented, by the legislative scheme 

that, the court felt, created an obligation seemingly 

inconsistent with the provisions of the Bankruptcy Code 

and the practical and legal implications of belatedly 

imposing such fees in the context of a confirmed plan.4 

Although neither of the parties on appeal argues that the 

Bankruptcy Court's holding was broader than its 

jurisdictional pronouncement (nor does either seek a 

remand in order for the District Court to address other 

issues argued to the court), nonetheless, each of the parties 

urges its own view as to whether the fees in question are to 

be paid in the context of a confirmed reorganization plan. 

However, this issue has little bearing on our ruling as to 

the Bankruptcy Court's jurisdiction. It may, however, have 

some bearing on the question of our jurisdiction over this 

appeal, as becomes apparent in our discussion below. 

The Bankruptcy Court reviewed cases commenting on the 

limited role of bankruptcy courts after confirmation, and 

drew from them the conclusion that its jurisdiction was 

limited to matters concerning the implementation or

execution of a confirmed plan, and did not extend to 

enforcement of the post-confirmation fee provision.5 The 

Bankruptcy Court focused its analysis on 11 U.S.C. 

S 1142(b), which provides that, in order to implement the 

plan, the bankruptcy court may direct the debtor to

_________________________________________________________________ 

4. The court explored the enforceability of such a claim, its status as a 

priority or administrative claim, the debtor's ability to modify a plan, 

who 

would be liable for such a fee, the potential for violation of the takings 

clause of the Constitution, and, finally, the possible result that by 

permitting collection, plan defaults would result, undermining both the 

bankruptcy and trustee's fee statutes. 

5. The Bankruptcy Court suggested that it would have had jurisdiction 

if the confirmed plan reserved jurisdiction over the post-confirmation fee 

issue. Of course, the confirmed plan did not address the postconfirmation fees, since they did not exist at the time the plan was 

confirmed. 

 5 
perform such acts as are necessary for the consummation 

of the confirmed plan. The District Court addressed the 

issue of the Bankruptcy Court's jurisdiction in the broad 

sense and determined that the Bankruptcy Court did in 

fact have jurisdiction over the award of the trustee's fees. 

The District Court accordingly remanded the case back to 

the Bankruptcy Court for further proceedings. 

Our review of the District Court's decision is governed by 

the principle that we are in as good a position to evaluate 

the Bankruptcy Court's findings as the District Court was. 

We review the Bankruptcy Court's findings by the same 

standard that should have been employed by the District 

Court to determine if the District Court erred in its review. 

Universal Minerals, Inc. v. C.A. Hughes & Co., 669 F.2d 98, 

102 (3d Cir. 1981). Thus, our review of the legal questions 

presented in this case is plenary. First Jersey Nat'l Bank v. 

Brown (In re Brown), 951 F.2d 564, 567 (3d Cir. 1991). 

We will affirm the District Court's ruling and adopt its 

reasoning. The District Court correctly concluded that an 

analysis of the Bankruptcy Court's jurisdiction begins with 

28 U.S.C. S 1334, not with 11 U.S.C. S 1142. See Belcufine 

v. Aloe, 112 F.3d 633, 636 (3d Cir. 1997). Section 1334 

provides that the district courts "shall have original and 

exclusive jurisdiction of all cases under title 11," and 

"original, but not exclusive, jurisdiction of all civil 

proceedings arising under title 11, or arising in or related 

to cases under title 11." 28 U.S.C. S 1334(a)-(b). The 

Bankruptcy Court, by virtue of referral by the District 

Court, has jurisdiction over cases falling under these 

categories. See 28 U.S.C. S 157(a)-(b). 

We agree with the District Court's conclusion that the 

trustee's action to enforce the post-confirmation fee 

provision is "related to" or "arising in" the bankruptcy, and 

was thus within the Bankruptcy Court's jurisdiction. A 

matter is "related to" a chapter 11 case if it " `could 

conceivably have any effect on the estate being 

administered in bankruptcy.' " Belcufine , 112 F.3d at 636 

(quoting Pacor v. Higgins, 743 F.2d 984, 994 (3d Cir. 

1984)). Belcufine further defined the test as whether the 

outcome of the case " `could alter the debtor's rights, 

liabilities, options, or freedom of action (either positively or 

 6 
negatively) and which in any way impacts upon the 

handling and administration of the bankrupt estate.' " Id. 

The trustee's award of fees clearly satisfies this test, 

because it directly relates to the debtor's liabilities -- in fact 

it creates a liability -- and could impact the handling and 

administration of the estate. 

Although finding that the trustee's action is related to a 

bankruptcy case is sufficient in order to establish the 

Bankruptcy Court's jurisdiction, the District Court also 

found that the trustee's action might even be said to "arise 

in" bankruptcy. We agree. Proceedings "arise in" 

bankruptcy if they have no existence outside of the

bankruptcy. See Wood v. Wood (In re Wood), 825 F.2d 90, 

97 (5th Cir. 1987). By definition, an action for trustee's fees 

pursuant to S 1930(a)(6) applies only in chapter 11 cases, 

during the pendency of the case.6 

Furthermore, 11 U.S.C. S 1142(b), the provision relied 

upon by the Bankruptcy Court to support its conclusion 

that its jurisdiction was limited, does not change the 

jurisdictional analysis under S 1334. Section 1142(b) 

provides that the bankruptcy court may take action to 

ensure the consummation of a confirmed plan; it does not 

provide that this is the only action the bankruptcy court 

may entertain post-confirmation. As explained by the 

District Court, "[s]ection 1142(b) is a grant of authority to 

the bankruptcy court that channels, but does not abrogate, 

the bankruptcy court's jurisdiction post-confirmation." 

United States Trustee v. Gryphon at the Stone Mansion, Inc., 

216 B.R. 764, 768 (W.D. Pa. 1997) (emphasis added).

We affirm the reasoning of the District Court as a proper 

statement of the breadth of the Bankruptcy Court's 

jurisdiction to entertain issues that necessarily must come 

_________________________________________________________________ 

6. Because we have determined that this claim"arises in" bankruptcy, 

we need not be concerned about the extent of the Bankruptcy Court's 

power to resolve this claim on its own -- without reference to the 

district 

court -- on remand. Claims that by nature can only arise in a 

bankruptcy context are "core proceedings" that the bankruptcy court has 

comprehensive power to hear and decide by enteringfinal orders and 

judgments. See Torkelsen v. Maggio (In re The Guild & Gallery Plus, Inc.), 

72 F.3d 1171, 1178 (3d Cir. 1996). 

 7 
its way prior to the close of the case. Although the 

Bankruptcy Court may have been justified in harboring 

genuine reservations as to the categorization and 

implementation of this claim imposed by Congress after the 

fact, nonetheless the Bankruptcy Court clearly had 

jurisdiction to entertain the trustee's claim and provide for 

it. 

We address our jurisdiction to entertain this appeal at 

this juncture because our decision is informed by the facts 

we have recounted and statutory provisions we have 

referenced. The prevailing rule followed by the majority of 

the circuit courts is that courts of appeals have jurisdiction 

over bankruptcy appeals pursuant to 28 U.S.C. S 158(d) 

notwithstanding a remand ordered by the district court if 

there is little left for the bankruptcy court to do. See In re 

Lopez, 116 F.3d 1191, 1192 (7th Cir.), cert. denied, 118 S. 

Ct. 599 (1997) (explaining that such orders are appealable 

only if "the further proceedings contemplated are of a 

purely ministerial character"). Our court applies an even 

more liberal rule in determining appealability, balancing 

reluctance to broaden traditional interpretations offinality 

against desire to further the expeditious completion of the 

bankruptcy proceedings. See id. at 1193-94; In re Market 

Square Inn, Inc., 978 F.2d 116, 120 (3d Cir. 1992). This 

rule is based on the principle that "finality" in the 

bankruptcy sense is a flexible concept, taking into account 

the protracted nature of many bankruptcy proceedings, and 

the waste of time and resources that might result if 

immediate appeal were denied. See Market Square Inn, 978 

F.2d at 120. 

Nonetheless, if the Bankruptcy Court proceedings on

remand would be purely ministerial, we need not resort to 

the balancing test, since we would have jurisdiction under 

either the prevailing or our own test. In order to make that 

determination, we must answer the question: "What is left 

for the Bankruptcy Court to do on remand?" Here, the 

debtor has funds on hand awaiting distribution to 

unsecured creditors. It is up to the Bankruptcy Court to 

order trustee's fees to be paid from available funds in 

compliance with law. In fact, all the Bankruptcy Court has 

to do to assess the fees is look to the specific amounts 

 8 
provided for in S 1930(a)(6). This action is indeed

ministerial. 

This is not the situation which seemed to confound the 

Bankruptcy Court in its opinion, namely, where no funds 

are available. Nor do we view this, as the Bankruptcy Court 

clearly did, as a situation in which Congress has legislated 

a claim not cognizable in connection with a confirmed plan. 

To the contrary, we agree with the statement of the

trustee's counsel that Congress's "mandate requiring 

payment of post-confirmation quarterly fees is not an effort 

to alter the terms of pre-existing debts; rather, it creates a 

new expense that did not exist before the plan was 

confirmed." Brief for Appellee at 7. Courts recently 

addressing the nature of these post-confirmation fees have 

regularly found them to be an administrative claim arising 

during the case that must be paid or provided for, and, that 

does not constitute an impermissible modification of the 

confirmed plan. See, e.g., CF&I Fabricators, 150 F.3d at 

1238 (noting that post-confirmation fees are administrative 

expenses attendant to an open case and are " `no different 

from taxes arising post confirmation, or any similar postconfirmation expenses not specified in the plan' " (quoting 

A.H. Robins, 219 B.R. at 148)). 

The holding in Holywell Corp. v. Smith, 503 U.S. 47

(1992), is instructive on this issue. In Holywell, the 

Supreme Court rejected the argument that a trustee was 

not obligated to pay taxes that accrued post-confirmation 

because they were not provided for in the confirmed plan. 

Id. at 58. The Court noted that the tax liability did not arise 

until after the plan was confirmed, and that the plan did 

not and could not extinguish claims arising postconfirmation. Id. at 58-59. Like the tax liability in Holywell, 

the trustee's claim for post-confirmation fees did not exist 

until after the plan was confirmed, so the plan could not 

discharge the debtor's obligation to pay the fees. 

Notwithstanding the Bankruptcy Court's skepticism that 

Congress would impose fees in contravention of the scheme 

set out in the Bankruptcy Code, we suggest that, by

amending S 1930(a)(6) as it did, Congress has in fact 

purposely changed the scheme so as to require payment of 

trustee's fees until the case is closed. The fact that the fees 

 9 
do not fit nicely into plan parlance is irrelevant. Congress 

has mandated that they be paid.7 

We should also note that this issue should be of waning 

importance, with the passage of time. Debtors, now aware 

of this post-confirmation obligation, will reserve funds in 

order to fulfill this obligation. 

For all of the foregoing reasons, we will affirm the order 

of the District Court. 

A True Copy: 

Teste: 

Clerk of the United States Court of Appeals 

for the Third Circuit 

_________________________________________________________________ 

7. Courts have considered and rejected constitutional challenges to 

amended S 1930(a)(6) based on retroactivity and violation of the takings 

clause of the Fifth Amendment ("takings clause"). The retroactivity 

argument, although not raised specifically by appellant on appeal, has 

been rejected on the basis that the fee provision is not retroactive, or, 

alternatively, that even if it is retroactive, it is constitutionally 

sound 

because it is supported by a rational legislative purpose. See CF&I 

Fabricators, 150 F.3d at 1237-38; In re McLean Square Assocs., 201 B.R. 

436, 441 (Bankr. E.D. Va. 1996); A.H. Robins, 219 B.R. at 148; In re 

Richardson Serv. Corp., 210 B.R. 332, 334 (Bankr. W.D. Mo. 1997). 

Appellant did raise a takings clause challenge to the statute, but it is 

also without merit. Application of the fee provision post-confirmation is 

not a violation of the takings clause because, due to the vagaries of the 

bankruptcy process, there can be no reasonable expectation that the 

amount of the final distribution will remain fixed throughout the 

process. See CF&I Fabricators, 150 F.3d at 1238-39 (noting that one of 

the elements of a takings clause violation is interference with reasonable 

investment-backed expectations, and that "[i]n a bankruptcy case as 

complex as this, we believe it would be patently unreasonable to expect 

no variability in the final amount available to plan distributees"). 

 10