Court Opinion

ID: 9689752
Source: CourtListenerOpinion
Date Created: 2023-08-24 18:45:39.327411+00
Date Added: 2024-06-11T18:18:51.919429
License: Public Domain

CORDOVA, Bankruptcy Judge,
concurring in result.
Although I agree with the majority that the decision of the bankruptcy court must be reversed, I write separately to express my concerns with the majority’s determination that the Chapter 7 Trustee “commences distribution” under 11 U.S.C. § 726(a)(1) on the date that the bankruptcy court approves the Trustee’s final report.
As the majority recognizes, neither the Code nor the Rules provide guidance for answering the question presented in this case. Since the Bankruptcy Reform Act of 1994, when Congress added the language at issue to § 726(a)(1), see Pub.L. No. 103-394, § 213(b), 108 Stat. 4106, 4126 (1994), only two reported cases have addressed the meaning of the phrase “commences distribution.” In re Van Gerpen, 267 F.3d 453 (5th Cir.2001); In re Wilson, 190 B.R. 860 (Bankr.E.D.Mo.1996). The conclusion reached by the courts in those cases, and this Court’s holding today, however, is not mandated by the text of the statute. Drawing the line at the point in time when the court approves the Trustee’s final report, although practically sound, is in the nature of judicial guess-work about § 726(a)(1) in an effort to divine Congress’ intent.
I believe that the phrase “commences distribution” must be examined in the context of § 726 as a whole. Examining the statute in that context leads me to conclude that several points along the continuum of the administration process in a Chapter 7 case could constitute the Trust*928ee’s commencement of distribution. Given the text of the statute and the dearth of guidance in the Code, I believe that any of these alternative conclusions is equally plausible.
Section 726 is entitled “Distribution of property of the estate.” Subsection (a)(1) provides that property of the estate “shall be distributed ... first, in payment of claims of the kind specified in, and in the order specified in, section 507 of [Title 11], proof of which is timely filed under section 507 of [Title 11] or tardily filed before the date on which the trustee commences distribution under this section.” 11 U.S.C. § 726(a)(1). If distribution under § 726 is distribution of property of the estate, and such distribution is first begun “in payment of claims”1 entitled to priority, then how can the bankruptcy court’s naked act of approving the Trustee’s final report, before any claim has been paid, amount to the commencement of distribution under § 726? Although the Trustee may be authorized to commence distribution under § 726 “in payment of claims” only after the court approves the final report, the act of approval of the report alone does not necessarily constitute the commencement of distribution under § 726. Indeed, until the Trustee takes an affirmative act of sending payment to creditors, “[distribution of property of the estate ... in payment of claims” has not occurred.2
If, however, distribution under § 726 is a process, as the Trustee contends, rather than a single act, then when is that process commenced? The majority in this case concludes that the process of distribution is commenced when the bankruptcy court approves the Trustee’s final report. Again, this is a logical point for commencing the process because only after court approval may a prudent Trustee actually begin to send payments to creditors. The text of § 726(a)(1), however, does not require it.
The process of distribution could be commenced at an earlier point. As the bankruptcy court in this case concluded in its first Order Authorizing Distribution of Fees and Expenses dated February 16, 2001, the Trustee could commence distribution when he or she “files his [or her] notice, giving notice of the filing of the final report and intended distribution.” In this case, although the Trustee had filed the final report with the court on November 3, 2000, he did not send notice to creditors thereof until November 20, 2000. The act of noticing the final report could, at least conceivably, commence the process of distribution under § 726(a)(1), after which priority creditors who file proofs of claim would be stripped of their otherwise priority status.
Alternatively, the process could be commenced, as the bankruptcy court concluded in its Order on Motion to Reconsider Order Approving Trustee’s Final Report dated August 14, 2001, “when the trustee’s initial version of the final report is filed with the [c]ourt.” At that point, listed creditors have received notice of the necessity to file proofs of claim, the trustee has liquidated the assets of the estate and reviewed the proofs of claim that have been filed, and has received the approval *929of the final report from the Office of the United States Trustee. The final report then becomes a public document in the court’s file, and although it is noticed to parties in interest either simultaneously or shortly thereafter, the act of filing the final report with the court could constitute the commencement of the process of distribution under § 726(a)(1).
At the very least, the foregoing demonstrates the ambiguity in the phrase “commences distribution” as Congress used it in § 726(a)(1). In re Geneva Steel Co., 281 F.3d 1173, 1178 (10th Cir.2002) (noting that ambiguity “exists when a statute is capable of being understood by reasonably well-informed persons in two or more different senses”). “If a statute is ambiguous, a court may seek guidance from Congress’s intent, a task aided by reviewing the legislative history [or by considering] the purpose behind the statute.” Id.; see New Mexico Cattle Growers Ass’n v. United States Fish and Wildlife Serv., 248 F.3d 1277, 1282 (10th Cir.2001). The legislative history of the 1994 amendment to § 726(a)(1) provides little guidance, however, with respect to the precise issue presented herein.3 See Wilson, 190 B.R. at 861 (noting that 1994 amendment intended to resolve split of authority as to whether allowed claims under § 607(a) had to be timely filed for distribution under § 726(a)(1)); In re Dykas, Inc., 189 B.R. 1, 2 (Bankr.D.R.1.1995) (discussing 1994 amendment).
I write separately simply to point out that a trustee may commence distribution under the current version of § 726(a)(1) through a number of equally plausible extra-statutory means. I also recognize that the language of § 726(a)(1) provides little practical guidance as to when the Trustee “commences distribution.” Accordingly, I concur in the result.

. It is noteworthy that each numbered sub-part of § 726(a) begins with the phrase "in payment of.”

. Unless the Trustee, as a practical matter, always sends checks in payment of claims to every class of creditor on the same day, then such a reading would not render § 726(a)(2)(C) meaningless. That is, unless distributing property of the estate by paying claims is both commenced and finalized through the single act of paying all claims on the same date, an unsecured, non-priority creditor could file a tardy claim after the Trustee had commenced distribution under § 726(a)(1) but still take advantage of § 726(a)(2) because such a tardy claim would have been filed "in time to permit payment.”

. The legislative history indicates that the change to § 726(a)(1) in 1994 was intended to conform to the simultaneous amendment to § 502(b)(9), which now provides that the untimeliness of a proof of claim may be grounds for disallowance of the claim. "The amendment to section 502(b) is designed to overrule In re Hausladen, 146 B.R. 557 (Bankr.D.Minn.1992), and its progeny by disallowing claims that are not timely filed.... The amendments to section 726(a) of the Code, governing the distribution of property of the estate in a chapter 7 liquidation, conform to the amendments to section 1129(b) and 502(b). The amendments to paragraphs (2) and (3) of section 726(a) assure that the disal-lowance of late-filed claims under new section 502(b)(4) does not affect their treatment under section 726(a).” H. Rep. No. 103-835 (1994), reprinted in 1994 U.S.C.C.A.N. 3340, 3357.