Opinion ID: 681321
Heading Depth: 1
Heading Rank: 3

Heading: St. Angelo's Appeal

Text: 7 Before reaching the merits of St. Angelo's claim, we must address two issues raised by Victoria Farms on appeal. First, Victoria Farms claims that 28 U.S.C. Sec. 1930 is constitutionally invalid and therefore we may not reach the issue of the fee payments. Second, Victoria Farms claims that it lacks funds to pay St. Angelo should he succeed on this appeal and that St. Angelo's claim is therefore moot. 8 A. Uniformity Clause Challenge. Victoria Farms asserts that 28 U.S.C. Sec. 1930 is invalid under the Uniformity Clause, which empowers Congress to enact uniform Laws on the subject of Bankruptcies throughout the United States. U.S. Const. art. I, Sec. 8. It claims that, because the U.S. Trustee program--and the fee system which supports it--has not been implemented in Alabama and North Carolina, the law governing the fee system is not uniform and therefore must be struck down in its entirety. Accordingly, it asserts that St. Angelo has no standing to bring this appeal and is not entitled to any fees. Although Victoria Farms did not raise this issue in the proceedings below, it is purely a question of law and, accordingly, we have discretion to address it. Bolker v. Commissioner, 760 F.2d 1039, 1042 (9th Cir.1985). 9 Under the Bankruptcy Reform Act of 1978, Pub.L. No. 95-598, 95th Cong., 2d Sess. (1978), Congress established the U.S. Trustee program for an experimental period in 18 judicial districts. The program was intended to alleviate some of the administrative burdens faced by bankruptcy judges, to eliminate the appearance of favoritism arising from the close relationship that existed between judges and trustees, and to address the problem of cronyism that exists in many parts of the county in the appointment of trustees by bankruptcy judges. H.Rep. No. 595, 95th Cong., 2d Sess. 108 (1978), reprinted in 1978 U.S.C.C.A.N. pp. 5787, 5963, 6069. The success of the program prompted Congress to replace the pilot program with a permanent national program through the Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub.L. No. 99-554, 99th Cong.2d Sess. (1986). Congress chose to phase the program in over a two-year period for every state except North Carolina and Alabama. In contrast to the other 48 states, North Carolina and Alabama had the option of voting in the U.S. Trustee program; they were required, however, to implement the program by October 1, 1992. Bankruptcy Act of 1986, Pub.L. No. 99-554, 99th Cong., 2d Sess. Sec. 302 (1986). Although Congress provided an explanation for its decision to phase in the program over a two-year period for the other 48 states in a report accompanying the Act, it made no mention of the separate provisions governing North Carolina and Alabama. See H.Rep. No. 764, 99th Cong., 2d Sess. 29-30 (1986), reprinted in 1986 U.S.C.C.A.N. 5227, 5241-42. 10 Several years later, in section 317 of the Judicial Improvements Act of 1990, Congress extended the deadline for North Carolina and Alabama to implement the U.S. Trustee program to October 1, 2002. Pub.L. No. 101-650, 101st Cong., 2d Sess. Sec. 317(a) (1990). Again, Congress failed to provide an explanation for this extension, despite the fact that the ten-year extension was considerably longer than the original extension outlined in the Bankruptcy Act of 1986. 11 St. Angelo asserts that, despite the absence of any congressional statement, Congress intended to create two parallel programs in order to study the effect of the U.S. Trustee system upon the administration of bankruptcy proceedings. The sole justification he provides for his assertion is a 1992 GAO report. See GAO, Bankruptcy Administration: Justification Lacking for Continuing Two Parallel Programs (Sept.1992). 12 The GAO report, however, does not provide any information about Congress' intent in providing separate treatment for North Carolina and Alabama. Indeed, it significantly undermines St. Angelo's claim. First, the report makes clear that Congress provided no justification for either of its decisions to delay the implementation of the program in North Carolina and Alabama. Indeed, the authors of the report were compelled to rely upon their own discussions with bankruptcy judges and officials in the affected states to discover any possible explanation for the implementation period. Id. at 14. Clearly, the statements made by affected parties to GAO officials after Congress' enactment of section 317 do not represent a reliable indicator of congressional intent. 13 Second, the report directly contradicts St. Angelo's assertion that Congress twice extended the implementation period for North Carolina and Alabama for the purpose of studying the differences between the two systems. In fact, the report offers an entirely different reason for the original extension. The report notes that our discussion with bankruptcy judges and BA program officials [for the system currently in effect] in North Carolina and Alabama indicated that the impetus for having the BA program in the two states was their extreme dissatisfaction with the operation of the [U.S. Trustee] pilot program in the Northern District of Alabama. Id. at 14. Having cited that justification for the initial extension, the report finds absolutely no justification for Congress' subsequent decision in 1990 to extend the implementation period for an additional ten years. With respect to the extension contained in section 317 of the Judicial Improvements Act of 1990, the report explicitly notes, [w]e could not find any justification for continuing two separate programs. Id. at 16 (emphasis added). Indeed, because the problems in the Northern District of Alabama had been resolved, the report harshly criticizes section 317 for giv[ing] the BA program the appearance of permanence. Id. 4 14 St. Angelo also argues that the U.S. Trustee program serves a purely administrative function and therefore is not constrained by the requirements of the Uniformity Clause. We disagree. 15 For the purpose of the Uniformity Clause, the Supreme Court has defined bankruptcy as the  'subject of the relations between an insolvent or nonpaying or fraudulent debtor and his creditors, extending to his and their relief.'  Railway Labor Executives Ass'n v. Gibbons, 455 U.S. 457, 466, 102 S.Ct. 1169, 1175, 71 L.Ed.2d 335 (1982) (citing Wright v. Union Central Life Ins. Co., 304 U.S. 502, 513-14, 58 S.Ct. 1025, 1031-32, 82 L.Ed. 1490 (1938)). 16 The statute clearly governs the relationship between creditor and debtor and, accordingly, falls within the scope of the Uniformity Clause. The U.S. Trustees have assumed the supervisory roles of the bankruptcy judges. Indeed, the statute entrusts U.S. Trustees with extensive discretion to appoint interim and successor trustees, monitor and supervise bankruptcy proceedings, examine debtors, advise the bankruptcy courts, and even, in some circumstances, to seek dismissal of cases. See, e.g., 11 U.S.C. Secs. 343, 701, 703, 704, 707 & 727; 28 U.S.C. Sec. 586. Thus, the U.S. Trustees' activities have a direct effect upon the rights and liabilities of both debtors and creditors. 17 The U.S. Trustee program is not only intimately connected to the government's regulation of the relationship between creditor and debtor, it also has a concrete effect upon the relief available to creditors. Because debtors in states other than North Carolina and Alabama must pay higher fees for the supervision of bankruptcy proceedings, the current system reduces the amount of funds that the debtor can ultimately pay to his creditors in the other 48 states. 18 Given that the Uniformity Clause applies to the statutory provision at issue, we now turn to the question of whether section 317(a) of the Judicial Improvements Act of 1990, Pub.L. No. 101-650, 101st Cong., 2d Sess. Sec. 317(a) (1990), violates the Uniformity Clause. 19 The Uniformity Clause requires that bankruptcy laws enacted by Congress be geographically uniform. Vanston Bondholders Protective Comm. v. Green, 329 U.S. 156, 172, 67 S.Ct. 237, 244-45, 91 L.Ed. 162 (1946); Hanover Nat'l Bank v. Moyses, 186 U.S. 181, 188, 22 S.Ct. 857, 860, 46 L.Ed. 1113 (1902). 20 A bankruptcy law may have different effects in various states due to dissimilarities in state law as long as the federal law itself treats creditors and debtors alike. As the Supreme Court noted in Green, the effect of a law may differ due to variations in state law as long as the existing obligations of a debtor are treated alike by the bankruptcy administration throughout the country, regardless of the State in which the bankruptcy court sits. Green, 329 U.S. at 172, 67 S.Ct. at 244; see also Gibbons, 455 U.S. at 469, 102 S.Ct. at 1176-77; Stellwagen v. Clum, 245 U.S. 605, 613, 38 S.Ct. 215, 217, 62 L.Ed. 507 (1918); Moyses, 186 U.S. at 190, 22 S.Ct. at 861. 21 It is clear that this is not a provision which has different effects within North Carolina and Alabama due to differences in the laws of these two states. North Carolina and Alabama are the only states given the option to vote to adopt the U.S. Trustee system before the end of the implementation period, and these two states are the only ones that need not implement the system until October 1, 2002. It is federal law, rather than state law, that causes creditors and debtors to be treated differently in North Carolina and Alabama. 22 Congress may enact non-uniform laws to deal with geographically isolated problems as long as the law operates uniformly upon a given class of creditors and debtors. The Supreme Court has upheld a bankruptcy statute governing railroad reorganization in one region on the ground that, because no railroad reorganization was pending outside that region, the law operates uniformly upon all bankrupt railroads. Regional Rail Reorganization Act Cases, 419 U.S. 102, 158-60, 95 S.Ct. 335, 365-67, 42 L.Ed.2d 320 (1974). The Court noted in Regional Rail Reorganization Act Cases that the uniformity clause requires that the Rail Act apply equally to all creditors and all debtors. Thus, the Court's holding depended on the fact that  'no provision of the Act restricts the right of any creditor wheresoever located to obtain relief because of regionalism.'  Regional Rail Reorganization Act Cases, 419 U.S. at 160, 95 S.Ct. at 367. 23 In Gibbons, the Supreme Court reaffirmed this principle, noting that it is acceptable to enact a law governing a particular region, but warning that a law must at least apply uniformly to a defined class of debtors. Gibbons, 455 U.S. at 473, 102 S.Ct. at 1178. Similarly, in the context of construing the Uniformity Clause governing taxation laws, the Supreme Court held that a tax was acceptable if it applied equally to ships in all ports, even if the tax did not apply to other modes of conveyance. Head Money Cases, 112 U.S. 580, 595, 5 S.Ct. 247, 252, 28 L.Ed. 798 (1884); see infra note 4 (noting that interpretations of the Uniformity Clause with regard to tax cases may provide guidance for applications of the Uniformity Clause to bankruptcy laws). 24 In this case, however, Congress has provided no indication that the exemption in question was intended to deal with a problem specific to North Carolina and Alabama, nor can we discern such a purpose in the structure of the statute or the legislative history of the amendment. Indeed, because creditors and debtors in states other than North Carolina and Alabama are governed by a different, more costly system for resolving bankruptcy disputes, see supra p. 13243, it is clear that 28 U.S.C. Sec. 1930, as currently amended, does not apply uniformly to a defined class of debtors. 25 We need not address what standard we would use to determine whether, had Congress provided a justification for treating members of the same class differently, the 1990 amendments to section 1930 would withstand constitutional scrutiny. Congress simply did not provide an explanation for its decision. Thus, although the Supreme Court has not clearly articulated a standard for scrutinizing Congress' decision to enact non-uniform bankruptcy laws, 5 section 317(a) must fail. Under any standard of review, when Congress provides no justification for enacting a non-uniform law, its decision can only be considered to be irrational and arbitrary. 26 In addition, Gibbons requires that, to survive scrutiny under the Bankruptcy Clause, a law must at least apply uniformly to a defined class of debtors. Gibbons, 455 U.S. at 473, 102 S.Ct. at 1178 (emphasis added). The provision in question fails even this most basic requirement. As we noted above, the relationship between creditor and debtor in states other than North Carolina and Alabama is governed by a different, more costly system than the two states to which the section 317(a) exemption applies. See supra p. 13243. In the absence of any evidence that Congress was addressing a geographically isolated problem or some other legitimate concern, we are required to hold that its decision to ignore the Uniformity Clause in enacting section 317(a) renders that section unconstitutional. 6 27 Victoria Farms asserts that, if we find section 317(a) to be unconstitutional, we must strike down all the provisions governing the U.S. Trustee fee system. We disagree. 28 In determining whether the statutory scheme governing the U.S. Trustee system in general, and the fee structure outlined in 28 U.S.C. Sec. 1930 in particular, are unconstitutional, we must adhere to the principle of judicial restraint. As Justice Brandeis noted in his well-known concurrence to Ashwander v. Tennessee Valley Authority, 297 U.S. 288, 56 S.Ct. 466, 80 L.Ed. 688 (1936), courts must cautiously exercise their power to declare a statute constitutionally void and narrowly confine their holdings when possible. Indeed, Justice Brandeis observed that [t]he Court will not 'formulate a rule of constitutional law broader than is required by the precise facts to which it is applied.'  Ashwander, 297 U.S. at 347, 56 S.Ct. at 483 (Brandeis, J., concurring) (citing Liverpool, N.Y. & P.S.S. Co. v. Emigration Commrs., 113 U.S. 33, 39, 5 S.Ct. 352, 355, 28 L.Ed. 899 (1885)). 29 Applying these principles to the case at hand, we confine our decision to the 1990 amendments to 28 U.S.C. Sec. 1930. Section 317(a) of the Judicial Improvements Act of 1990 is the basis for the existence today of a different statutory scheme governing the relationship between debtors and creditors in Alabama and North Carolina. It is section 317(a) that guarantees that creditors and debtors in the 48 other states are governed by an dissimilar, more costly bankruptcy system than members of the same groups in Alabama and North Carolina. 30 The constitutional infirmity in question may be remedied simply by striking down section 317(a). There is no need to address the question of whether Congress' decision to phase the program in gradually was unconstitutional, or even whether Congress' initial decision to extend the implementation period only for North Carolina and Alabama violated the Uniformity Clause. These two issues were not specifically raised on appeal and, in any event, they are now moot since Congress originally provided that the U.S. Trustee program would be implemented in every state, including North Carolina and Alabama, by October 1, 1992. Bankruptcy Act of 1986, Pub.L. No. 99-554, 99th Cong., 2d Sess. Sec. 302 (1986). By striking down section 317(a)'s amendment of 28 U.S.C. Sec. 1930 rather than 28 U.S.C. Sec. 1930 in its entirety, we leave in place a uniform law governing bankruptcy throughout the nation. Thus, we decline to invalidate all of section 1930 or any other part of the statutory scheme governing the U.S. Trustee system. 7 Accordingly, the U.S. Trustee may bring this appeal. 31 B. Mootness Challenge. Victoria Farms next asserts that St. Angelo's appeal is moot because it has distributed all of the funds the bankruptcy court had disbursed to it and can no longer pay the fee sought by St. Angelo. We reject this argument. 32 We may only dismiss an appeal if it is impossible to fashion relief that is both effective and equitable. See In re Spirtos, 992 F.2d 1004, 1007 (9th Cir.1993). The burden is on the movant to demonstrate that an appeal is moot. Matter of the Brickyard, 735 F.2d 1154, 1159 (9th Cir.1984). 33 A court may properly award fees even after a bankruptcy case has been dismissed. See U.S.A. Motel Corp. v. Danning, 521 F.2d 117, 119 (9th Cir.1975) (per curiam). In addition, Victoria Farms has not met its burden of demonstrating that this court cannot fashion effective relief. 8 Thus, Victoria Farms has provided no reason to justify dismissing St. Angelo's appeal as moot. 34 C. The Fee Question. Turning to the merits of the appeal, we find that the district court erred by excluding the sale proceeds of Victoria Farm's secured property in calculating St. Angelo's fees. As noted above, the district court held--without citing any legal authority--that the term disbursements excludes all payments to a secured creditor from the sale proceeds of the secured property. 9 35 The term disbursements is not defined anywhere in 28 U.S.C. Sec. 1930(a)(6), its legislative history, or the case law. However, a plain language reading of the statute shows that Congress clearly intended disbursements to include all payments from the bankruptcy estate. As the Supreme Court noted in Perrin v. United States, 444 U.S. 37, 42, 100 S.Ct. 311, 314, 62 L.Ed.2d 199 (1979), [a] fundamental canon of statutory construction is that ... words will be interpreted as taking their ordinary, contemporary, common meaning. The definition of disburse is to expend ... pay out. Webster's Third New International Dictionary 644 (1976). 36 The statute does not in any way distinguish between payments to secured creditors and payments to non-secured creditors. See 28 U.S.C. Sec. 1930(a)(6). Nor is there any indication in the legislative history that Congress intended such a result. 10 The statute merely states that the trustee is entitled to fees based on the total amount of disbursements from the estate. Id. Accordingly, the district court's interpretation is simply without merit. 11 37 Upon appeal, Victoria Farms apparently concedes that the plain language of 28 U.S.C. Sec. 1930(a)(6) does not distinguish between payments to secured creditors and non-secured creditors. See Appellee's Brief at 25. Instead, it argues that its farm was never part of the bankruptcy estate in the first place--that is, that it relinquished title in the farm when it granted the two deeds of trust to Equitable and Visalia in 1979 and 1988. 38 We reject Victoria Farm's argument. Under California law, a deed of trust creates a lien on the property in favor of the creditor. See Monterey S.P. Partnership v. W.L. Bangham, Inc., 49 Cal.3d 454, 460, 261 Cal.Rptr. 587, 590, 777 P.2d 623, 626 (Cal.1989) (en banc). 12 Under the Bankruptcy Code, such a lien gives rise to a secured claim. See 11 U.S.C. Sec. 506(a). 13 39 We have expressly held that all property that is subject to a secured claim becomes part of the bankruptcy estate. In re Contractors Equipment Supply Co., 861 F.2d 241 (9th Cir.1988). In In re Contractors Equipment Supply Co. we stated that [t]he property of the debtor's estate includes property in which a creditor has a security interest. Id. at 244. Accordingly, we conclude that the farm was part of Victoria Farms' bankruptcy estate and its sale proceeds should not have been excluded in calculating St. Angelo's fees.