Court Opinion

ID: 9966059
Source: CourtListenerOpinion
Date Created: 2024-05-03 22:00:46.898397+00
Date Added: 2024-06-11T08:25:08.503414
License: Public Domain

In the

    United States Court of Appeals
                For the Seventh Circuit
                   ____________________
No. 23-2212
MARILYN O. MARSHALL,
                                                Trustee-Appellant,
                                v.

EDWARD JOHNSON,
                                                  Debtor-Appellee.
                   ____________________

      Appeal from the United States Bankruptcy Court for the
           Northern District of Illinois, Eastern Division.
       No. 22-04449 — Timothy A. Barnes, Bankruptcy Judge.
                   ____________________

     ARGUED FEBRUARY 15, 2024 — DECIDED MAY 3, 2024
                 ____________________

   Before SYKES, Chief Judge, and EASTERBROOK and KIRSCH,
Circuit Judges.
    KIRSCH, Circuit Judge. While Edward Johnson’s Chapter 13
bankruptcy case was pending, he made payments to the
bankruptcy trustee under his proposed repayment plan. But
the bankruptcy court never confirmed his plan and ultimately
dismissed his case for unreasonable delay. Consequently, the
bankruptcy court found that the trustee must return all of
Johnson’s undisbursed payments to him without first
2                                                   No. 23-2212

deducting a statutory percentage fee as compensation. The
trustee filed a direct appeal, arguing that she is entitled to be
paid a fee under 28 U.S.C. § 586(e)(2) and 11 U.S.C. § 1326(b),
even though Johnson’s case was dismissed. Because we agree
with the Ninth and Tenth Circuits that the United States
Bankruptcy Code requires the Chapter 13 trustee to return her
fee when the debtor’s plan is not confirmed, we affirm.
                                I
    Edward Johnson petitioned for bankruptcy relief under
Chapter 13 of the United States Bankruptcy Code. While his
case was pending before the bankruptcy court, he made
around $3,800 in payments to the bankruptcy trustee, Marilyn
O. Marshall, under his proposed repayment plan. Of those
payments, the trustee paid around $750 in pre-conﬁrmation
adequate protection payments to Johnson’s creditors. The rest
of the payments were to be disbursed upon plan conﬁrma-
tion. But despite the bankruptcy court holding multiple con-
ﬁrmation hearings, the court never conﬁrmed Johnson’s plan
because he was unable to satisfactorily address an outstand-
ing loan and his domestic support obligations. The bank-
ruptcy court ultimately dismissed his case for unreasonable
delay.
    Before returning Johnson’s undisbursed payments to him,
the trustee had deducted a percentage fee of around $260 as
compensation under 28 U.S.C. § 586(e)(2) and 11 U.S.C.
§ 1326(b). Johnson then ﬁled a motion requesting that the
trustee disgorge her fee. The bankruptcy court granted John-
son’s motion and ordered the trustee to return all undis-
bursed payments, including her fee, to him. The court rea-
soned that the trustee did not have statutory authority to
No. 23-2212                                                      3

deduct her fee because Johnson’s plan was not conﬁrmed. The
trustee ﬁled a direct appeal.
                                II
   Whether the Chapter 13 bankruptcy trustee must return
her fee if the debtor’s plan is not conﬁrmed is a question of
law that we review de novo, see Stamat v. Neary, 635 F.3d 974,
979 (7th Cir. 2011), and is one of ﬁrst impression in our circuit.
    We begin our analysis with the statutory text. Ransom v.
FIA Card Servs., N.A., 562 U.S. 61, 69 (2011). Within 30 days of
ﬁling a proposed repayment plan, a Chapter 13 debtor must
begin making payments as “proposed by the plan to the trus-
tee.” 11 U.S.C. § 1326(a)(1)(A). The trustee must retain such
payments until a plan is conﬁrmed or denied. Id. § 1326(a)(2).
As relevant here, pre-conﬁrmation payments to creditors are
allowed under certain circumstances if they “provide[] ade-
quate protection … to a creditor holding an allowed claim se-
cured by personal property … .” Id. § 1326(a)(1)(C). If the plan
is conﬁrmed, the trustee must distribute the remaining pay-
ments in accordance with the plan. Id. § 1326(a)(2). But where,
as here, a plan is not conﬁrmed, “the trustee shall return any
such payments not previously paid and not yet due and ow-
ing to creditors pursuant to paragraph (3) to the debtor, after
deducting any unpaid claim allowed under section 503(b).”
Id. This requires “the standing trustee [to] return all of the pre-
conﬁrmation payments [she] receives, without ﬁrst deducting
[her] fee.” In re Doll, 57 F.4th 1129, 1141 (10th Cir. 2023) (em-
phasis in original). While § 1326(a)(2) has two exceptions, nei-
ther covers the trustee’s fee. As to the ﬁrst, “[t]he Chapter 13
trustee’s fee is not an administrative expense under Section
503(b),” In re Evans, 69 F.4th 1101, 1104 n.2 (9th Cir. 2023), and
the trustee has not argued that it is. As for the second, the
4                                                      No. 23-2212

trustee’s fee is not a payment “previously paid”—because
only certain adequate protection payments are permitted pre-
conﬁrmation—nor is it a payment “due and owing to credi-
tors.” 11 U.S.C. § 1326(a)(2). Because neither exception applies
to the Chapter 13 trustee’s fee, she must return her fee to the
debtor.
    The trustee argues that § 1326(b) authorizes her to keep
her fee when making pre-conﬁrmation adequate protection
payments to creditors. This argument is unavailing. That pro-
vision states: “Before or at the time of each payment to credi-
tors under the plan, there shall be paid … the percentage fee
ﬁxed for [the] standing trustee … .” Id. § 1326(b)(2). But
§ 1326(b) “addresses only payments made after a plan has
been conﬁrmed.” In re Doll, 57 F.4th at 1145 (emphasis in orig-
inal); see also In re Evans, 69 F.4th at 1107 (“The plain text of
Section 1326(b) unambiguously shows that it is the speciﬁc
provision governing when a trustee ‘shall be paid’: ‘before or
at the time of each payment to creditors under the plan,’
which necessarily means post-conﬁrmation of a plan.”). Be-
cause Johnson’s plan was never conﬁrmed, § 1326(b) is inap-
plicable. And regardless, § 1326(b) is inapplicable to adequate
protection payments because such payments are not pay-
ments “under the plan.” They are owed under an “order for
relief,” not the plan. Id. § 1326(a)(1)(C); see also In re Perez, 339
B.R. 385, 398–99 (Bankr. S.D. Tex. 2006), aﬀ’d sub nom. Perez
v. Peake, 373 B.R. 468 (S.D. Tex. 2007) (“[A] Chapter 13 debtor
… makes adequate protection payments pursuant to a court
order …, not pursuant to a proposed plan.”).
   Under the same logic, the trustee also has no right to keep
her fee under 28 U.S.C. § 586(e)(2), which states that the trus-
tee “shall collect such percentage fee from all payments
No. 23-2212                                                     5

received by such individual under plans … .” As discussed,
adequate protection payments are not payments “under
plans,” and thus this section is inapplicable to the pre-conﬁr-
mation payments the trustee made. And § 586(e)(2) is irrele-
vant, as it “only addresses the source of funds that may be
accessed to pay standing trustee fees.” In re Doll, 57 F.4th at
1140; see also id. at 1144 (“‘[C]ollect’ in 28 U.S.C. § 586(e)(2)
cannot mean … that the act of ‘collection’ of funds irrevocably
constitutes a payment to the Trustee of his fees.”); In re Evans,
69 F.4th at 1108 (“Section 586 only provides that when a trus-
tee does collect her fee pursuant to 1326(b), she does so by
collecting her fee from all payments received under con-
ﬁrmed plans.”) (cleaned up). Rather, § 1326(a) governs “what
happens to such [collected] payments if a Chapter 13 plan is
not conﬁrmed.” In re Doll, 57 F.4th at 1140. Section 1326(a)(2)
mandates that the trustee return all payments, including her
fee, to the debtor. Sections 1326(b) and 586(e)(2) do not com-
pel a diﬀerent result.
    The treatment of the trustee’s fee in other Chapters of the
Bankruptcy Code reinforces our interpretation. In cases
brought under Chapter 12 and Subchapter V of Chapter 11,
“Congress provided explicitly that the standing trustee
should ﬁrst deduct his or her fee before returning pre-conﬁr-
mation payments to the debtor.” Id. at 1141 (emphasis in orig-
inal); see 11 U.S.C. § 1226(a)(2) (“If a plan is not conﬁrmed, the
trustee shall return any such payments to the debtor, after de-
ducting … the percentage fee ﬁxed for such standing trus-
tee.”); 11 U.S.C. § 1194(a)(3) (“If a plan is not conﬁrmed, the
trustee shall return any such payments to the debtor after de-
ducting … any fee owing to the trustee.”). “Where Congress
includes particular language in one section of a statute but
omits it in another section of the same Act, it is generally
6                                                   No. 23-2212

presumed that Congress acts intentionally and purposely in
the disparate inclusion or exclusion.” Russello v. United States,
464 U.S. 16, 23 (1983) (cleaned up). Put diﬀerently, if Congress
intended for the Chapter 13 trustee to deduct her fee before
returning pre-conﬁrmation payments, it would have ex-
pressly said so. In re Doll, 57 F.4th at 1142.
   Accordingly, we join the Ninth and Tenth Circuits in hold-
ing that the Chapter 13 trustee must return her fee when, as
here, the debtor’s plan is not conﬁrmed.
                                                      AFFIRMED