Opinion ID: 494670
Heading Depth: 2
Heading Rank: 4

Heading: Propriety of Fees Imposed

Text: 29 The bankruptcy court imposed on the Fox investors a 4% service charge on all loan payments collected and maintained by the trustee and a $100 administrative fee per loan released to an individual investor, pursuant to Bankruptcy Code sections 506(c) and 105(a), 11 U.S.C. Secs. 506(c), 105(a). The district court affirmed the imposition of these expenses as necessary to preserve the investors' property and because the investors were benefited by the trustee's actions. We reverse.
30 Section 506(c) allows the trustee to recover expenses from the holder of an allowed secured claim any time the trustee expends reasonable and necessary costs to preserve or dispose of the security. Section 506(a) defines an allowed secured claim as a claim secured by a lien on property in which the estate has an interest ... to the extent of the value of such creditor's interest in the estate's interest in such property. 11 U.S.C. Sec. 506(a). 31 By its terms, section 506(c) applies only to holders of allowed secured claims. 11 U.S.C. Sec. 506(c). Neither the legislative history nor case law indicates that section 506(c) also applies to those asserting ownership, as opposed to a security interest, in property administered by the trustee. Since the bankruptcy court determined that the Fox investors were owners of the notes and trust deeds in which they claimed an interest, and not holders of allowed secured claims, the imposition of expenses under section 506(c) was improper. 32 As one bankruptcy court has noted, [i]t is not within the province of this court to depart from or enlarge upon the specific wording of the statute. Even though this may be a case where the trustee's efforts deserve compensation in excess of the maximum allowable under the law, the solution is not with the Court but with Congress. In re New England Fish Co., 34 B.R. 899, 902 (W.D.Wash.1983) (discussing Bankruptcy Code section 326, 11 U.S.C. Sec. 326). 33 In the instant case, the district court attempted to remedy the bankruptcy court's error by concluding that the investors' status as owners or secured claimants was a distinction without a difference. The district judge reasoned that because the bankruptcy court processed claims filed by investors asserting an interest in the notes and trust deeds, 10 it implicitly found the existence of an allowed secured claim, thereby justifying the imposition of costs and expenses under section 506(c). We disagree. 34 The mere processing of a claim under section 501 does not render it an allowed secured claim within the meaning of section 506. Under the district court's analysis, section 506(c) would apply to all claimants who filed proofs of claim under section 501. However, the propriety of costs imposed under section 506(c) turns on whether those costs were incurred for the benefit of a secured party. In re Codesco, Inc., 18 B.R. 225, 228 (S.D.N.Y.1982). A secured party is defined in section 506(a) as one with a claim secured by a lien on property in which the estate has an interest. 11 U.S.C. Sec. 506(a). Since the bankruptcy court determined that the Fox investors were owners of the notes and trust deeds, they had no claim against Golden Plan secured by a lien on Golden Plan property.
35 The bankruptcy court also erred in concluding that, even if the investors did not fall within the letter of section 506(c), it was empowered by virtue of its broad equitable powers under 11 U.S.C. Sec. 105(a) to charge the Fox investors with the expense of administering their notes and trust deeds. 36 The Bankruptcy Code does not provide for the imposition of costs on owners as opposed to secured parties. Although 11 U.S.C. Sec. 105(a) empowers the bankruptcy court to exercise its equitable powers to protect the integrity of the bankrupt's estate, there is a strong reluctance to allow the assessment of any fees and costs in bankruptcy proceedings which are not expressly authorized by the Bankruptcy Act, or that are not well established by judicial precedent. See, e.g., Robinson, Wolas & Hagen v. Gardner, 433 F.2d 1104, 1105 (9th Cir.1970) (denial of compensation for debtor's attorneys absent statutory authorization); Saper v. John Viviane & Son, Inc., 258 F.2d 826, 828 (2d Cir.1958) (denial of compensation to trustee and his attorney); Guerin v. Weil, Gotshal & Manges, 205 F.2d 302, 304 (2d Cir.1953) (denial of reimbursement for expenditures by petitioning creditor not specifically allowed by any provision of Bankruptcy Act). 37 It has been held that a bankruptcy court's equitable powers must be strictly confined within the prescribed limits of the Bankruptcy Act. See Guerin, 205 F.2d at 304 (Where Congress intended that allowances [for costs and expenses] should be made it has carefully enumerated them, and any omissions must be construed as express exclusions.). 38 We find the case at bar to be analogous to Brandt & Brandt Printers, Inc. v. Klein (In re Friedman), 232 F.2d 151 (2d Cir.), cert. denied, 352 U.S. 835, 77 S.Ct. 53, 1 L.Ed.2d 54 (1956). In Friedman, the district court ordered certain assets, held by the bankrupt in partnership with the appellant, to be turned over to the appellant in order to wind up the partnership business. The appellant was in turn ordered to account to the bankrupt's estate upon settlement of the partnership business. The trustee claimed that the partnership assets should be subjected to charges for services it had rendered for the benefit of the estate and the creditors. The Second Circuit denied allowance of expenses, determining that the assets were not part of the bankrupt's estate and could not be charged with the compensation for the receiver, trustee, or their attorneys. Id. at 152-53. 39 The Friedman court's analysis is sound and is applicable to the instruments released to the Fox investors in this case. Since these instruments were owned by the Fox investors, they were not part of the Golden Plan estate and could not be administered by the trustee. Charging the Fox investors' assets with the costs of administration was improper.