*

Honorable James K. Logan, Senior U.S. Circuit Judge for the

Tenth Circuit, sitting by designation. 

 1The UST is an official of the United States Department of

Justice charged by statute with the duty to oversee and supervise

the administration of bankruptcy cases. 28 U.S.C. § 586(a). The

UST is expressly given standing under 11 U.S.C. § 307 to raise

and be heard on any issue under Title 11, except that the UST may

not file a reorganization plan under Chapter 11. 

United States Court of Appeals,

Eleventh Circuit.

No. 95-2849.

In re GLADOS, INC., Debtor.

U.S. TRUSTEE, Plaintiff-Appellant,

v.

Jere M. FISHBACK and Lawrence S. Kleinfeld, Defendants-Appellees.

May 28, 1996.

Appeal from the United States District Court for the Middle

District of Florida. (No. 93-2905-CIV-T-23), Harvey E. Schlesinger,

Judge.

Before EDMONDSON and DUBINA, Circuit Judges, and LOGAN*

, Senior

Circuit Judge.

DUBINA, Circuit Judge:

The United States Trustee ("UST") 1 appeals the district

court's judgment affirming the bankruptcy court's judgment. The

bankruptcy court held that pursuant to 11 U.S.C. § 726(a)(5), a

trustee may receive interest on his or her compensation dating from

the trustee's appointment and that professionals other than the

trustee may receive interest on their fees dating from the

submission of their fee applications. Because we disagree with

both the bankruptcy court and the district court's conclusions, we

reverse the district court's judgment.
I. STATEMENT OF THE CASE

On September 30, 1983, Glados, Inc. (the "Debtor") filed a

voluntary petition for relief under Chapter 11 of the Bankruptcy

Code (the "Code"). The case was converted to Chapter 7 with the

bankruptcy court's approval on February 8, 1985. Lawrence S.

Kleinfeld (the "Trustee") was appointed as interim Chapter 7

trustee. At the time, the Debtor had no assets other than two

pending legal actions: (1) a claim in the United States District

Court for the Middle District of Florida against the Debtor's

insurance company to recover insurance proceeds resulting from the

destruction of the Debtor's business by fire; and (2) a claim

against the Debtor's former landlord for wrongful eviction. The

Trustee was substituted as plaintiff in the pending lawsuits and

sought to employ counsel. On September 9, 1985, the bankruptcy

court approved the Trustee's application to employ the law firm of

Kleinfeld & Fishback (hereinafter "Trustee's counsel") on a

contingency fee basis. Following six years of litigation, the

Trustee's counsel obtained favorable judgments in both lawsuits and

thus secured substantial litigation proceeds for the estate. The

insurance company appealed the judgment to this court and

ultimately to the United States Supreme Court. The judgment was

affirmed.

The Trustee's counsel filed a motion in the district court

seeking an award of attorneys' fees. On June 6, 1986, the district

court granted this motion and awarded the Trustee's counsel the sum

of $79,200. On March 14, 1988, the Trustee's counsel filed a

second motion for attorneys' fees for work performed at the
 2

The bankruptcy court awarded the Trustee $8,927.25 in fees

and $56.15 in expenses. The Trustee's counsel was awarded

$227,612.12 in fees and $1,515.02 in expenses. The Trustee's

counsel's compensation award consisted of $79,200 for the

district court litigation as well as $50,202.12 in judgment

appellate level. On September 18, 1991, the Debtor's insurer paid

the estate $129,402.12, which represented the trial level fees plus

accrued post-judgment interest. The Trustee and the Debtor's

insurer compromised on a fee for the appellate work in the sum of

$80,000, and on January 23, 1992, the bankruptcy court approved

this compromise.

Following the liquidation of the estate's assets, all secured

and unsecured claims, including administrative expenses, were fully

paid, and a surplus remained. On July 21, 1992, the Trustee filed

a Preliminary Report of the Estate along with his application for

compensation. The Trustee's counsel filed their fee application

which included a request for the fees awarded in the insurance

litigation in addition to fees for other work performed on behalf

of the Trustee. The bankruptcy court then issued a Notice of

Preliminary Report of Estate Funds and Notice of Surplus Funds to

all creditors and parties in interest. This Notice advised all

creditors of the availability of surplus funds to pay additional

claims if filed. On September 29, 1992, the Debtor's counsel filed

their fee application. However, on February 16, 1993, the

bankruptcy court deferred ruling on the fee applications until it

had determined whether the estate contained sufficient funds for

the payment of fees.

On February 25, 1993, the bankruptcy court informed the

Trustee of the allowed amounts of all administrative expenses.2
interest on that award, $80,000 for the appellate work, and

$18,210 for the balance of services provided by the Trustee's

counsel. 

Using this information, which included the compensation awards for

the Trustee and the Trustee's counsel as determined under § 330,

the Trustee prepared a proposed order allowing administrative

expenses, authorizing disbursements, and directing the payment of

dividends. The proposed order provided that following the full

payment of all claims, the estate would have surplus funds which

would be used to pay interest on the fees of the Trustee, the

Trustee's counsel, and the Debtor's counsel pursuant to §

726(a)(5). The UST objected to the proposed distribution solely

based on the allocation of surplus funds for interest. Billy Ray

Addison, the largest unsecured creditor, joined in the UST's

objection.

Following a hearing on the UST's objection, the bankruptcy

court entered an order on September 30, 1993. The bankruptcy

court's order allowed administrative fees and expenses to the

Trustee, the Trustee's counsel, and the Debtor's counsel. In

addition, the order provided for the payment in full of all

priority and unsecured claimants and allocated the remaining

$77,711.82 of surplus funds as interest on the administrative fees

and expenses. The bankruptcy court also concluded under §

726(a)(5) that interest on a trustee's fees accrues from the date

that the trustee is appointed and that interest on a non-trustee

professional's fees accrues from the date of the filing of the fee

application. Moreover, the bankruptcy court held that if other

litigation caused the professional to file a fee application with
another court, interest on those fees would accrue from the date

the professional filed the fee application with the other court.

The bankruptcy court advised using the federal judgment rate of

interest in effect on the date the Chapter 7 case was filed or, if

the case was originally filed under another chapter, the interest

rate on the date of conversion to Chapter 7. Consequently, the

bankruptcy court awarded the Trustee's counsel $73,400.68 in

interest, the Trustee $4,008.42 in interest, and the Debtor's

counsel $302.72 in interest. Such payments consumed the surplus.

The UST appealed to the district court, which affirmed the

bankruptcy court's order. The UST then perfected this appeal.

II. ISSUES

We address the following issues on appeal:

1. whether a trustee may, pursuant to 11 U.S.C. § 726(a)(5),

receive interest on his or her compensation in a case dating

from the trustee's initial appointment; and

2. whether professionals other than the trustee may, pursuant to 11

U.S.C. § 726(a)(5), receive interest on their compensation

dating from the professionals' submission of their fee

applications.

III. STANDARD OF REVIEW

 Because the district court functions as an appellate court in

reviewing bankruptcy court decisions, this court is the second

appellate court to review bankruptcy court cases. Haas v. Internal

Revenue Service, 31 F.3d 1081, 1083 (11th Cir.1994), cert. denied,

--- U.S. ----, 115 S.Ct. 2578, 132 L.Ed.2d 828 (1995). This court

reviews determinations of law, whether from the bankruptcy court or

the district court, de novo. Id. We review the bankruptcy court's

factual findings under the clearly erroneous standard of review.

Id.
IV. DISCUSSION

This case is novel in that rarely will a Chapter 7 case result

in assets that exceed the amount necessary to satisfy creditors and

administrative expenses. In the event of a surplus, the Code

allows for trustees and other professionals to receive interest on

their fees. This case revolves around the issue of when such

interest begins to accrue. The bankruptcy court and the district

court found that the Trustee is entitled to interest from the date

of his or her appointment and that the Trustee's counsel is

entitled to interest from the date of the filing of a fee

application. The UST argues that the Code and case law throughout

the country allow interest on trustee and other professional fees

to accrue only from the time of the court's fee award, and not from

the time of the appointment or the submission of an application.

A. Statutory Basis

Section 726 of the Code establishes the distribution system

governing a trustee's disbursement of funds at the close of a

Chapter 7 case. Subsection (a) describes the general priorities of

the different types of claims against the estate in paragraphs one

through four. Paragraph five provides for the payment of interest

on such claims. After all claims and any interest on such claims

have been paid, any remaining funds are distributed to the debtor

pursuant to paragraph six.

A complete understanding of interest paid pursuant to §

726(a)(5) necessarily involves a review of several additional

sections of the bankruptcy code. Section 726(a)(5) provides:

(a) Except as provided in section 510 of this title,

property of the estate shall be distributed—
(5) fifth, in payment of interest at the legal rate from

the date of the filing of the petition, on any claim paid

under paragraph (1), (2), (3), OR (4) of this subsection ...

Section 726(a)(5)'s reference to § 726(a)(1) results in a series of

references to various sections of the Code. First, § 726(a)(1)

provides:

(a) Except as provided in section 510 of this title,

property of the estate shall be distributed—

(1) first, in payment of claims of the kind specified in,

and in the order specified in, section 507 of this title, ...

Section 507 provides, in relevant part:

(a) The following expenses and claims have priority in

the following order:

(1) First, administrative expenses allowed under section

503(b) of this title, and any fees and charges assessed

against the estate under chapter 123 of title 28 ...

Section 503(b)(2) states:

(b) After notice and a hearing, there shall be allowed

administrative expenses, other than claims allowed under

section 502(f) of this title, including—

(2) compensation and reimbursement awarded under section

330(a) of this title.

Consequently, claims for compensation or reimbursement of expenses

are claims "of the kind specified in ... section 507" to the extent

that such claims are for "compensation and reimbursement awarded

under section 330(a)." Section 330(a) provides that after meeting

notice requirements, "the court may award to a trustee, an

examiner, a professional person employed under section 327 or 1103

... reasonable compensation for actual, necessary services rendered

... and reimbursement for actual, necessary expenses."

The problem with the district court's statutory analysis is

that it ends with § 726(a)(5)'s "any claim paid," thereby ignoring
 3

The appellees have not filed any cross-appeals and in fact

ask that the district court's judgment be affirmed in all

respects. The appellees assert later in their brief that the

bankruptcy court and district court's holding with respect to

interest on professional fees was "a well-reasoned compromise." 

Appellees' Br. at 17. 

the phrase in section 503(b)(2) that reads "compensation and

reimbursement awarded under section 330." Despite the long

statutory progression, courts addressing the issue of trustee and

professional interest on administrative expenses have faced a

dilemma:

Courts have recognized that administrative claims, including

attorneys' fees pursuant to 11 U.S.C. § 330(a), are entitled

to interest under § 726(a)(5) when there is a surplus in the

estate.... But, while determining that administrative claims

are entitled to interest, the courts have nevertheless been

faced with a quandary. Specifically, the courts are required

to pay interest under § 726(a)(5) "at the legal rate from the

date of the filing of the petition on any claim paid under ...

this subsection." However, professional compensation

allowable under § 330(a) often does not arise as a claim until

near or at the end of the case, when a court enters a fee

award.

In re Chiapetta, 159 B.R. 152, 159 (Bankr.E.D.Penn.1993) (citations

omitted). The appellees argue that the language of § 726(a)(5)

clearly provides that interest should be paid from the time of the

filing of the petition. However, the bankruptcy court and the

district court disagreed with this proposition and so limited

accrual to the time of appointment. 3

 The conflict inherent in a

literal reading of § 726(a)(5) is thoroughly explored in the case

law from around the country.

B. Case Law

The bankruptcy court and the district court failed to consider

sufficiently the existing case law. While the Eleventh Circuit has

not specifically addressed the issue presented in this case, the
Ninth Circuit addressed it in Boldt v. Crake (In re RiversideLinden Inv. Co.), 945 F.2d 320 (9th Cir.1991). Multiple

jurisdictions have followed the decision in Riverside-Linden,

including Chief Bankruptcy Judge Paskay in In re Brown, 190 B.R.

689 (Bankr.M.D.Fla.1996).

In Riverside-Linden, the court addressed the issue of interest

on trustee's counsel fees and held that professionals are entitled

to interest on their fees from the time of the court's fee award

and not from the time of appointment. See Riverside-Linden, 945

F.2d at 324. The Ninth Circuit noted that a literal reading of §

726(a)(5) without reference to the remainder of the Code would be

illogical:

For claims existing prior to the filing of the bankruptcy

petition, a date-of-filing accrual date is appropriate and

mandated under the plain language of the statute.... For a

claim to Section 330(a) attorney's fees arising subsequent to

filing, however, a literal application of the statute makes

little sense; interest cannot accrue on fees for services

which have not yet been performed. See, e.g., Bob Jones Univ.

v. United States, 461 U.S. 574, 586, 103 S.Ct. 2017, 2025-

2026, 76 L.Ed.2d 157 (1983) ("it is a well established canon

of statutory construction that a court should go beyond the

literal language of a statute if reliance on that language

would defeat the plain purpose of the statute")....

Id. at 323-24 (citation and internal quotation omitted). The Ninth

Circuit further concluded:

The provision which defines attorney's fees as a compensable

administrative expense, Section 503(b), refers to

"compensation and reimbursement awarded under section 330."

... It is not until the fees have been awarded by the

bankruptcy court pursuant to Section 330, therefore, that they

become an administrative expense entitling them to treatment

as a claim under Section 726(a)(5).

Id. at 324.

Riverside-Linden has been consistently followed in subsequent

decisions addressing interest on trustee and non-trustee
professional fees under § 726(a)(5). See, e.g., In re Chiapetta,

159 B.R. 152, 159-60 (Bankr.E.D.Penn.1993) (neither trustee nor

trustee's counsel entitled to interest until after the award of

fees at the close of the case); In re Motley, 150 B.R. 16, 18-20

(Bankr.E.D.Va.1992) (trustee not entitled to pre-award interest

under § 726(a)(5)); In re Commercial Consortium, 135 B.R. 120, 127

(Bankr.C.D.Cal.1991) (trustee's counsel may not receive pre-award

§ 726(a)(5) interest, but the court may award current rates as

compensation for delay). Furthermore, courts have held that

professionals employed on behalf of a bankruptcy estate are not

entitled to compensation or interest on this compensation until the

final fee awards are made under § 330. See In re Child World,

Inc., 185 B.R. 14 (Bankr.S.D.N.Y.1995); In re Caribou Partnership

III, 152 B.R. 733 (Bankr.N.D.Ind.1993).

Riverside-Linden was favorably cited and followed by Chief

Judge Paskay in In re Brown, in which the trustee sought to recover

interest from the date of his appointment and the trustee's counsel

sought interest from the date of his fee application. See Brown,

190 B.R. at 689. Chief Judge Paskay noted that neither the

bankruptcy court's decision in the present case (Glados ) nor its

appeal decision (Fishback ) were published and are therefore not

binding precedent. Id. at 690. As Chief Judge Paskay stated, "In

this Court's view, the District Court's analysis [in Fishback ] is

an oversimplification of the law." Id. The Court noted the

problems with a literal interpretation of § 726(a)(5):

A literal interpretation of § 726(a)(5) produces

uncontemplated results as to interest allowable to attorneys

and trustees, whose administrative expenses arise subsequent

to filing. For instance, if the attorney for the trustee is
not employed until two years into the administration of the

case it would, in effect, permit the attorney to earn interest

on those fees when he did not perform any work. Equally, the

trustee would be encouraged to delay the administration of the

estate to allow the accrual of interest in a surplus case.

Id. at 691.

 Chief Judge Paskay also explained that the award of interest

to the trustee is contrary to the purpose of § 326(a), which sets

limits on the amount of trustee compensation based on the total

distribution made to creditors. Id. at 690. The bankruptcy court

noted that there is no mention of the accrual of interest in §

326(a). Id. In In re Motley, 150 B.R. 16, 20 (Bankr.E.D.Va.1992),

the bankruptcy court determined that interest was inappropriate

pursuant to the reasoning of Riverside-Linden and concluded that

the inconsistency between § 326(a) and § 726(a)(5) constitutes an

additional ground for denying interest to the trustee:

It appears to this Court that the formula fixing the § 326(a)

compensation for [the] trustee actually provides for the

trustee to benefit from interest earned without a court award

of fees. Section 326(a) calculates a trustee's fee based on

the distribution to creditors. Assets remaining in the estate

after payment of all claims allow for the payment of interest

in those claims under § 726(a)(5). If the trustee pays §

726(a)(5) interest on claims, ... the trustee earns a fee on

the interest paid on creditors' claims by virtue of the fee

formula of § 326(a). Then allowing [trustee] Ames' claim for

interest on the fees provided by § 326(a) would amount to two

bites of the apple and would result in a disincentive for

trustees to distribute assets in a timely manner. Under

[trustee] Ames['] reading of the Code and cases, a trustee

could delay final distribution, as was done in this

six-year-old case, allow the interest earned on assets

converted to cash to accumulate in escrow, earn a fee on the

distribution of those assets (which now include earned

interest) in satisfaction of claims, and as a part of his

compensation petition for interest on his fee under §

726(a)(5). In contrast to Ames' illogical, unjust, and

capricious scheme, the Code fairly provides for the trustee to

benefit from a commission earned from the payment of interest
 4

The appellees argue that Motley is distinguishable from the

present case because the Motley court was influenced by the fact

that no interim fee applications were filed. In the Middle

District of Florida no interim fee applications are entertained

in Chapter 7 cases. We will discuss the effect of the Middle

District of Florida's practice regarding interim fee applications

infra. 

on claims of creditors.4

Id. The purpose of a Chapter 7 case is to efficiently administer

the liquidation of the estate for the benefit of the creditors.

Providing an incentive for the trustee to delay the conclusion of

the case would thus be counterproductive.

 The district court concluded that the Trustee's counsel could

collect interest on their fees from the date of the filing of a fee

application, because once the application is filed, there is

evidence of work performed thus giving rise to a claim. District

Court Order at 12. Arguing that Riverside-Linden and the UST

construe the term "claim" too narrowly, the district court cited

our opinion in In re St. Laurent, 991 F.2d 672 (11th Cir.1993) in

support of the proposition that the term "claim" should be

interpreted as broadly as possible. However, we conclude based on

the statutory analysis, case law, and common sense, that attorneys'

fees are not entitled to treatment as compensable claims until

compensation is awarded under § 330(a). See 11 U.S.C. § 503(b)(2);

Riverside-Linden, 945 F.2d at 324; In re Brown, 190 B.R. at 691;

Huisinga v. Craig & Nichols (In re Byrd), 151 B.R. 925 (D.S.D.1993)

(denial of pre-award interest to debtor's counsel); In re

Chiapetta, 159 B.R. at 159-60; In re Caribou Partnership III, 152

B.R. at 740-41 (denying debtor's counsel pre-award interest); In

re Commercial Consortium, 135 B.R. at 127.
 Admittedly, plain language is preferable in statutory

construction, but as this court has held: "Rules of statutory

construction dictate that the plain meaning is conclusive, "except

in the "rare cases [in which] the literal application of a statute

will produce a result demonstrably at odds with the intent of its

drafters.' " In re Colortex Industries, Inc., 19 F.3d 1371, 1375

(11th Cir.1994) (quoting United States v. Ron Pair Enterprises,

Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290

(1989)) (quoting Griffin v. Oceanic Contractors, Inc., 458 U.S.

564, 571, 102 S.Ct. 3245, 3250, 73 L.Ed.2d 973 (1982)). Allowing

interest to accrue prior to actual awards is contrary to the

remainder of the statutory scheme, as well as to the case law

interpreting it. Consequently, we hold that the bankruptcy court

and the district court incorrectly concluded that trustees should

be awarded interest from the date of appointment and other

professionals from the date of submission of their fee

applications. Moreover, we are persuaded by Chief Judge Paskay's

published opinion in Brown, which expressly rejects the bankruptcy

court and the district court's unpublished conclusions.

C. Availability of Interim Fees and the Peculiarity of the Middle

District's Custom

 The appellees urge us to consider the policy argument that

out of fairness they should receive interest in order to compensate

for the delay that results from the Middle District of Florida's

policy of refusing to entertain interim fee applications until the

close of the case, despite the fact that such fees are provided for

in § 331. Both the bankruptcy court and the district court relied

upon this policy justification in their decisions to allow for
interest to accrue contrary to the Code and existing case law.

Nevertheless, we will not ignore statutory provisions and case law,

as well as common sense, simply because of procedural peculiarities

in the Middle District of Florida.

The district court's opinion proposed to distinguish the prior

case law under § 726(a)(5) on the basis that in those other

jurisdictions interim compensation was available. However, as the

UST points out, the important component of the Riverside-Linden

decision is the statutory analysis of § 726(a)(5) and related

sections. Another important distinction is that although the

professional in Riverside-Linden had not filed an interim fee

application, later cases citing Riverside-Linden or its progeny and

stressing the availability of interim compensation are generally

Chapter 11 cases. See Byrd, 151 B.R. at 926 (debtor's counsel's

fees); Caribou Partnership III, 152 B.R. at 735 (debtor's

counsel's fees). Chapter 7 cases involve situations quite

different from those arising under Chapter 11 cases. In a Chapter

7 case there is generally no operating business from which ongoing

expenses can be paid. As a result, most Chapter 7 cases do not

possess sufficient funds from which to pay interim compensation

until the end of the case when all the assets of the insolvent

debtor have been collected and liquidated and all litigation has

been completed. Because the objective of Chapter 7 is the

expeditious administration of the estate, courts have been

indisposed to award interim fees for fear that awarding such fees

would provide the trustee with an incentive to prolong the

administration of the estate. See In re Domino Investments, Ltd.,
 5

The bankruptcy court stated:

It is the practice of this Court to defer ruling on

professional fee applications until the closing of the

case in order to assist the Court in the administration

of its large case load. If the Court were to follow

the position asserted by the United States Trustee,

professionals would never receive interest on their

administrative expense claims and professionals would

be unduly prejudiced because of this Court's inability

to promptly rule on fee applications when they are

filed.

Bankruptcy Court's Order at 7. 

82 B.R. 608, 609 (Bankr.S.D.Fla.1988) (denying interim compensation

in order to encourage timely administration of the estate).

Pursuant to § 331, trustees and other professionals in Chapter

7 cases are allowed to file applications for interim fee awards.

Notwithstanding this fact, in Chapter 7 cases many bankruptcy

courts are reluctant to consider such applications until the close

of the case because of the permissive language of § 331 and the

policy justification of efficiently conducting the close of the

estate. See generally Commercial Consortium, 135 B.R. at 120;

Domino Investments, 82 B.R. at 609. The Middle District of Florida

does not consider interim fee applications in Chapter 7 cases

because it does not have sufficient time due to its heavy case

load.5

In Commercial Consortium, concluding that § 331 does not

exclude Chapter 7 cases from the discussion of interim fees, the

court held that bankruptcy courts should entertain interim fee

applications from professionals in Chapter 7 cases. Commercial

Consortium, 135 B.R. at 124. In doing so, the court rejected the

policy argument that requiring counsel to wait until completion of
 6

One method of compensating for delay is the use of current

rather than historical rates in determining fee amounts. See

Commercial Consortium, 135 B.R. at 126-127. 

the case will encourage a more rapid closing. Id. The court

reasoned that this policy justification was not adequately

supported by its underlying necessary assumptions that counsel can

control the speed of the closing of a Chapter 7 case and that the

administration of Chapter 7 cases can usually be completed quickly

enough to make interim compensation unnecessary. Id. The court

acknowledged that the appropriateness of interim fees is dependent

upon such factors as the current availability of funds, the

existence of other accrued administrative obligations of the same

or higher priority that may deplete the funds, the continuing need

for funds to pay necessary administrative expenses in the future,

and the inability to file a final fee application in the near

future. Id. at 124-25. The court also placed the burden on the

professional seeking payment to present sufficient evidence to

persuade the court that such fees should be disbursed. Id. at 125.

The appellees argue that because the bankruptcy courts in the

Middle District of Florida do not consider interim fee applications

in Chapter 7 cases, they should be entitled to interest to

compensate them for the delay.6

 Unlike the situation in In re

Commercial Consortium, however, we are not directly presented here

with the issue of failure to consider interim fee applications.

Consequently, we decline to require the Middle District of Florida

to entertain such applications. Moreover, in holding that trustees

and trustee's counsel are entitled to interest accruing only from

the date of the award, we decline to express an opinion on the
Middle District's practice of refusing to review interim fee

applications.

V. CONCLUSION

For the foregoing reasons, we reverse the district court's

judgment affirming the bankruptcy court's judgment and remand this

case for further proceedings consistent with this opinion.

REVERSED and REMANDED.