Opinion ID: 3011280
Heading Depth: 1
Heading Rank: 2

Heading: effect of the reform act amendment to

Text: S 330 Before we consider the constitutional adequacy of the Bankruptcy Court's proceedings or the underlying merits of Hellring Lindeman's request for fees and expenses, we must decide if the attorney for a Chapter 11 debtor is statutorily entitled to receive compensation from the estate. Prior to 1994, the answer was clear. Debtors' attorneys were among four classes of officers to whom the Bankruptcy Court was specifically authorized to award such compensation.1 See 11 U.S.C. 330. Congress, however, made sweeping changes to the Bankruptcy Code with the passage of the Bankruptcy Reform Act of 1994 (Reform Act), Pub.L. 103-394. See First Merchants Acceptance Corp. v. J.C. Bradford & Co. , 198 F.3d 394, 400 n.2 (3d Cir. 1999) (listing some of the changes codified in the Reform Act). Among the sections amended by Congress was S 330, the statutory source for compensating officers of the debtor's estate. Section 330 now reads in relevant part: (a)(1) After notice to the parties in interest and the _________________________________________________________________ 1. The relevant section of the Bankruptcy Code provided that: After notice to any parties in interest and to the United States trustee and a hearing, and subject to sections 326, 328, and 329 of this title, the court may award to a trustee, to an examiner, to a professional person employed under section 327 or 1103 of this title, or to the debtor's attorney-- (1) reasonable compensation for actual, necessary services rendered by such trustee, examiner, professional person, or attorney, as the case may be, and by any paraprofessional persons employed by such trustee, professional person, or attorney, as the case may be, based on the nature, the extent, and the value of such services, the time spent on such services, and the cost of comparable services other than in a case under this title; and (2) reimbursement for actual, necessary expenses. 11 U.S.C. S 330(a) (1994) (emphasis added). 6 United States Trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a trustee, an examiner, a professional person employed under section 327 or 1103-- (A) reasonable compensation for actual, necessary services rendered by the trustee, examiner, professional person, or attorney and by any paraprofessional person employed by any such person; and (B) reimbursement for actual, necessary expenses. 11 U.S.C. S 330. The amended section is remarkable for two reasons. Missing from the list of officers eligible to receive compensation is a debtor's attorney. Also, the penultimate and ultimate class of officers are separated only by a comma and not by the disjunctive or. This omission renders the section grammatically unsound. It has also led to a split among courts considering whether debtors' attorneys are still eligible to receive compensation from the proceeds of the estate. Some courts, led by the Courts of Appeals for the Fifth Circuit and the Eleventh Circuit, have concluded that the plain meaning of S 330(a) precludes the award of compensation to debtors' attorneys. See In re Inglesby, Falligant, Horne, Courington & Nash, P.C. v. Moore (In re American Steel Product, Inc.), 197 F.3d 1354 (11th Cir. 1999); Andrews & Kurth L.L.P. v. Family Snacks, Inc. (In re Pro-Snax Distributors, Inc.), 157 F.3d 414 (5th Cir. 1998). Other courts, led by the Court of Appeals for the Ninth Circuit, have looked beyond the omission and determined that Congress's deletion of debtor's attorney from the statute was inadvertent and thus courts should read debtor's attorney back into the statute. See United States Trustee v. Garvey, Schubert & Barer (In re Century Cleaning Service, Inc.), 195 F.3d 1053 (9th Cir. 1999). See also In re Ames Department Stores, Inc., 76 F.3d 66, 72 (2d Cir. 1996) (stating in dictum that it was inclined to agree that debtor's attorneys were still eligible after passage of the Reform Act to receive compensation for their services and 7 expenses). This question of statutory construction is a matter of first impression in this Court.2 We begin by looking at the language of the statute. See Pennsylvania Dept. of Public Welfare v. Davenport , 495 U.S. 552, 557-58 (1990). When the language is unambiguous and the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language of the statute. United States v. Ron-Pair Enterprises, Inc., 489 U.S. 235, 240-41 (1989). After a close analysis of the disputed section and its location in the Bankruptcy Code, we find that, if the current version of the _________________________________________________________________ 2. We would not need to answer this complicated question here if Hellring Lindeman qualified as a professional person[ ] employed under section 327 or 1103 pursuant to S 330. Unfortunately, Hellring Lindeman does not qualify for compensation as a professional person. Section 1103 is concerned with professional persons hired in support of the creditors' and equity security holders' committees. Section 327 concerns the employment of professional persons by the trustee. This section reads in pertinent part: (a) Except as otherwise provided in this section, the trustee, with the court's approval, may employ one or more attorneys, accountants, appraisers, auctioneers, or other professional persons, that do not hold or represent an interest adverse to the estate, and that are disinterested persons, to represent or assist the trustee in carrying out the trustee's duties under this title. (b) If the trustee is authorized to operate the business of the debtor under section 721, 1202, or 1108 of this title, and if the debtor has regularly employed attorneys, accountants, or other professional persons on salary, the trustee may retain or replace such professional persons if necessary in the operation of such business. . . . (e) The trustee, with the court's approval, may employ, for a specified special purpose, other than to represent the trustee in conducting the case, an attorney that has represented the debtor, if in the best interest of the estate, and if such attorney does not represent or hold any interest adverse to the debtor or to the estate with respect to the matter on which such attorney is to be employed. Since it was the debtors, not the Trustee or a creditors' committee, that retained Hellring Lindeman, Hellring Lindeman cannot show that it was hired pursuant either to S 327 or to S 1103. 8 statute is read to omit debtor's attorney, it is ambiguous and inconsistent with other provisions of the Bankruptcy Code. The most striking effect caused by the omission is on the internal consistency of S 330 itself. The section is comprised of just one long sentence. The sentence begins by delineating those officers to whom the District Court may award payments. As emphasized above, debtor's attorney is no longer included in this first list. But when the sentence continues at subsection (a)(1)(A), the list of potential fee recipients is unchanged from the previous version of the subsection. The Bankruptcy Court is authorized to award payment for services that are rendered by the trustee, examiner, professional person, or attorney and by any paraprofessional person employed by any such person. 11 U.S.C. S 330(a)(1)(A) (emphasis added). As S 330 now reads then, the second half of the sentence seems to partially permit what the first half prohibits. One possible explanation is that debtors' attorneys are not the only attorneys whose services could benefit the estate. Other officers of the estate must routinely hire attorneys to help with the administration of the estate. Those attorneys' services should be compensated. While this is true, however, the present structure ofS 330 does not support this conclusion. Prior to amendment, it was undisputed that the repetition of officers inS 330(a)(1)(A) was meant to parallel the officers previously listed in S 330(a)(1). See In re Miller , 211 B.R. 399, 402 (Bankr.D.Kan. 1997). Moreover, the current version uses the definite article the to modify the officers listed in S 330(a)(1)(A) rather than the indefinite articles a, an, or any. Webster's dictionary defines the as a function word to indicate that a following noun or noun equivalent is definite or has been previously specified by context or by circumstance. Webster's Ninth New Collegiate Dictionary 1222 (1989). See also BLACK'S LAW DICTIONARY 1477 (6th ed. 1990) (In construing statute, definite article `the' particularizes the subject which it precedes and is word of limitation as opposed to indefinite or generalizing force `a' or `an'.). The use of the in S 330(a)(1)(A) then refers to the universe of 9 officers listed in S 330(a)(1), thereby leaving the word attorney in S 330(a)(1)(A) without prior reference. See Miller, 211 B.R. at 402. See also In re Cohn, 54 F.3d 1108, 1115 (3d Cir. 1995) ([C]ourts are obliged to give effect, if possible, to every word Congress used.). If, on the other hand, Congress had wished to authorize payment for all attorney services performed for officers of the estate, Congress should have modified attorney with the indefinite article any, as it didparaprofessionals. This modification would not, however, have been necessary for payment of attorneys hired by the trustee because this category of attorneys can be compensated as professional persons employed under section 327 or 1103 . . . .3 11 U.S.C. S 330. Some courts have sought to explain the retention of attorney in S 330(a)(1)(A) by reference to S 330(a)(4)(B), which was added in the Reform Act. Section 330(a)(4)(B) provides that [i]n a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow reasonable compensation to the debtor's attorney for representing the interests of the debtor in connection with the bankruptcy case based on the consideration of the benefit and necessity of such services to the debtor and other factors set forth in this section. 11 U.S.C. S 330(a)(4)(B). See e.g., Century Cleaning, 195 F.3d at 1064 (Thomas, J. dissenting); In re Fassinger, 191 B.R. 864, 865 (Bkrtcy.D.Or. 1996). These courts have concluded that attorney in S 330(a)(1)(A) must reference a debtor's attorney permitted compensation by S 330(a)(4)(B). Moreover, courts have held that S 330(a)(4)(B) provided _________________________________________________________________ 3. The dissent in Century Cleaning, 195 F.3d at 1063, supported the restrictive interpretation of attorney inS 330(a)(1)(A) by concluding that it is entirely consistent . . . that Congress intended to eliminate compensation as a matter of course, but wished to retain the avenue for a Chapter 7 debtor's attorney to receive compensation on appointment by the trustee when the debtor's attorney acts for the estate's benefit. This explanation is faulty, however, because in such a situation the debtor's attorney would be eligible for an award as a professional person hired under section 327 or 1103. 10 further support for the conclusion that debtors' attorneys, other than those mentioned within that subsection, are precluded from the award of compensation for fees and expenses based on the canon of statutory construction, expressio unius est exclusio alterius. See Century Cleaning, 195 F.3d at 1057 n.3. This argument, however, ignores the structure of S 330. If S 330(a)(4)(B) is read without reference to the entire text of S 330(a)(4), it could be read to provide a Chapter 12 or Chapter 13 debtor's attorney a right to an award not shared by that attorney's peers. However, when S 330(a)(4)(A) is read in conjunction with the proceeding subsection, S 330(a)(4)(B), it is clear that this was not Congress's intent. Section 330(a)(4)(A) seeks to assure that only services that are unique, necessary or reasonably likely to benefit the debtor's estate are compensated. Section 330(a)(4)(B) sets forth a more liberal standard for attorneys representing individual debtors in a Chapter 12 or 13 bankruptcy proceeding. The fact that the statute employs a different standard to determine the level of reimbursement for Chapter 12 or Chapter 13 debtor's attorneys certainly does not suggest that the other debtor's attorneys are not entitled to reimbursement. Century Cleaning , 195 F.3d at 1057 n.3. Indeed, recognition by Congress that this discrete class of debtors' attorneys need to be excepted from the regular, more stringent standards for compensation evidences Congress's belief that debtors' attorneys in general remained eligible for compensation under the customary standard. To then read S 330 to preclude eligibility would create a glaring inconsistency in the Bankruptcy Code.4 In addition, S 329 contemplates the prepetition payment of fees to the debtor's attorney from the debtor, subject to court review for reasonableness. Payment by the debtor of a prepetition retainer would not remove those funds from the property of the estate. This being the case, would S 330 prevent the prepetition retainer from being applied to _________________________________________________________________ 4. Moreover, Congress did not omit debtor's attorney from section 330(a)(1) and replace it with debtor's attorney authorized under section 330(a)(4)(B). The omission in 330(a)(1) was without qualification. 11 postpetition attorney services performed for the debtor? See Miller, 211 B.R. at 402. If it did, this would create another imponderable in the Bankruptcy Code. Accordingly, because the statutory scheme would be rendered inconsistent if we were to read S 330(a) to omit debtors' attorneys and because the legislative history does not manifest an intent by Congress to change the longstanding practice of compensating debtors' attorneys,5 see Century Cleaning, 195 F.3d at 1058-60 (comprehensively detailing legislative history of the statute); see also Dewsnup v. Timm, 502 U.S. 410, 419-420 (1992) ([T]his Court has been reluctant to accept arguments that would interpret the Code, however vague the particular language under consideration might be, to effect a major change in pre-Code practice that is not the subject of at least some discussion in the legislative history.), we conclude that debtors' attorneys may still receive an award of compensation from the estate for services rendered and expenses incurred.