Coalinga Regional Medical Center

• Court: United States Bankruptcy Court, E.D. California
• Decided: October 2, 2019
• Docket: 18-13677
• Status: Unknown

Opinion

UNITED STATES BANKRUPTCY COURT 1 EASTERN DISTRICT OF CALIFORNIA 2 FRESNO DIVISION 3 4 In re ) Case No. 18-13677-B-9 ) 5 COALINGA REGIONAL MEDICAL ) DC No. WW-14 ) 6 CENTER, a California local ) health care district, ) 7 ) ) 8 Debtor. ) ) 9

10 MEMORANDUM DECISION 11 12 13 INTRODUCTION 14 Creditor’s committees play valuable roles in chapters 11 15 and 9 reorganization dramas. They can be inconvenient 16 antagonists for certain debtors trying to emerge at play’s end 17 fully reorganized with new funds from a powerful secured 18 creditor. They can be protagonists opposing strong 19 constituencies in a herculean battle for the debtor’s existence. 20 This dispute is not about those roles. This is about how the 21 committee’s role is introduced. 22 Here the United States trustee for Region 17 (“UST”) 23 appointed a committee of unsecured creditors (“Committee”) under 24 authority UST purportedly has under 11 U.S.C. § 1102(a)(1) but 25 the debtor, a rural hospital district, opposes the appointment 26 contending UST did not have that authority under that 27 subsection. After reviewing the positions of the characters in 28 this drama, the court concludes Committee’s role was not 1 correctly introduced. 11 U.S.C. § 1102(a)(1) does not authorize 2 Committee’s appointment in this chapter 9 case and Committee 3 should be disbanded. 4 5 FACTS 6 A. Pertinent developments since the Chapter 9 filing. 7 For almost seventy years, the Coalinga Regional Medical 8 Center (“Debtor” or “CRMC”) provided medical services to 9 residents in a 900 square mile section of southwestern Fresno 10 County in Central California. Facing financial tumult and 11 numerous lawsuits for many years, CRMC’s Board of Directors 12 elected to close the hospital temporarily and filed a petition 13 under Chapter 9 of the United States Bankruptcy Code in 14 September 2018. 15 Two months later and before entry of the Order for Relief, 16 UST filed its Notice of Appointment of Unsecured Creditors’ 17 Committee under 11 U.S.C. §§ 901 and 1102(a). The two committee 18 members were Beckman Coulter, Inc. (“Beckman”) and Elitecare 19 Medical Staffing, Inc. (“Elitecare”). Doc. #55. Both creditors 20 filed claims exceeding $200,000.00. Beckman furnished medical 21 equipment, supplies and leasing services to CRMC. Elitecare 22 provided temporary medical personnel. The court entered the 23 Order for Relief on December 21, 2018. Doc. #78. Sometime 24 later, the UST filed an “Amended Appointment of Official 25 Committee of Unsecured Creditors” stating the two committee 26 members were appointed to the Committee effective December 21, 27 2018. Doc. #159. 28 1 During the three months after entry of the Order for 2 Relief, Debtor sought and obtained approval to limit notices, to 3 reject certain executory contracts, and to fix a bar date for 4 filing proofs of claim. Committee was silent. Then Debtor 5 filed a motion for court approval of a proposal to lease the 6 acute care hospital and other facilities to Coalinga Medical 7 Center, LLC, an affiliate of American Advance Management Group 8 (“CMC transaction”). CRMC’s Board and the district’s voters 9 approved the CMC transaction - understandable since the hospital 10 would reopen if the court approved.1 11 Now resuscitated, Committee applied to employ two law firms 12 as counsel: Smiley Wang-Ekvall, LLP (doc. #122) and Frandzel, 13 Robins, Bloom and Csato, L.C. (doc. #127). Debtor objected to 14 both applications. Doc. ##143, 146.2 Debtor’s arguments 15 opposing the applications largely raise the arguments addressed 16 here. Debtor also asserts that a committee is unnecessary and 17 that the debtor cannot be compelled to pay counsel fees. The 18 court has not ruled on these applications. 19 Committee filed a limited opposition to the CMC 20 transaction.3 Committee’s concerns were: whether the transaction 21 was Debtor’s best option, the fate of a portion of the sale or 22 lease proceeds that were arguably free of the interests of the 23 bondholders, and whether the better vehicle for the CMC 24 1 The CMC transaction also involved a “purchase option” of CRMC’s real 25 property and the sale of personal property assets. 2 Debtor also objected to Elitecare’s claim but that objection has not 26 been heard. Doc. #177. 3 Committee has been referred to by the court and Debtor as “putative 27 creditors committee” since this dispute arose. Also, Debtor has consistently 28 a ns es ie tr ht ee rd ci on n ci et ds e sp l te ha ad ti n tg hs e t ah pa pt o ie nv te mn e nt th o ou fg h t h“ ec o cm om mi mt it te te e” e i is s r ve af le ir de n nc oe rd , c oD nse eb nt to sr to payment of any fees if counsel is appointed. 1 transaction was in a Plan of Adjustment. The court approved the 2 CMC transaction. 3 A month later, Beckman filed its own motion asking the 4 court to appoint an Unsecured Creditors Committee under 11 5 U.S.C. § 1102(a)(2) – applicable in Chapter 9 cases under 6 §901(a) - which authorizes the court to appoint “additional 7 committees” if necessary “to assure adequate representation.”4 8 Alternatively, Beckman asks the court to “ratify” the UST’s 9 appointment of Committee. Almost concurrently, Debtor filed 10 this motion to vacate appointment of Committee and to disband 11 Committee.5 The hearings on Debtor’s and Beckman’s motions (and 12 the motions for appointment of Committee counsel) have been 13 continued at the parties’ request for about four months. 14 Meanwhile, the Chapter 9 has advanced apace. CRMC asked 15 the court to approve a loan transaction and CRMC’s issuance of 16 new revenue bonds to “refinance” certificates of participation 17 (COP) that would be in default since the CMC transaction 18 involved a lease to a private entity. Certain benefits enjoyed 19 by Debtor, if approved, included releases of certain liens and a 20 lower interest rate. This transaction was approved. Debtor 21 filed many motions to reject certain executory contracts. 22 Debtor also sought and obtained orders about service and 23 scheduling hearings on the Plan of Adjustment and Disclosure 24 25 26 4 Unless specified otherwise, all chapter and section references are to 27 the Bankruptcy Code, 11 U.S.C. §§ 101-1532, all “Rule” references are to the 28 F te hd ee r Fa el d eR ru al le s R uo lf e sB a on fk r Cu ip vt ic ly PP rr oo cc ee dd uu rr ee . , and all “Civil Rule” references are to 5 Beckman’s motion has been continued to “track” this motion. 1 Statement. Debtor also filed a Plan of Adjustment and 2 Disclosure Statement.6 3 B. The arguments. 4 Debtor contends that the UST lacks authority to appoint 5 unsecured creditors’ committees in chapter 9 cases under 11 6 U.S.C. § 1102(a)(1). First, the plain language of § 1102(a)(1) 7 does not give the UST authority; it only applies in Chapter 11 8 cases. Second, the “[UST] has virtually no role in a chapter 9 9 case due, in part, to the reservation of rights to the States 10 that are not delegated to the federal government in accordance 11 with the Tenth Amendment of the United States Constitution.” 12 Doc. #223. And third, the statute listing UST’s authorized 13 duties, 28 U.S.C. § 586, omits any reference to chapter 9. 14 Debtor heavily relies on Judge Rhodes’ decision, In re City of 15 Detroit, 519 B.R. 673 (Bankr. E.D. Mich. 2014) (“Detroit”), the 16 only published decision the parties or the court found 17 confronting the UST’s authority to appoint committees in Chapter 18 9 cases. 19 Debtor also contends that § 105(a) as implemented by Rule 20 2020 (providing the procedure to contest any act of the UST) 21 authorizes the court to disband Committee. Debtor again relies 22 on Detroit to support its argument. 23 Beckman argues that the UST has the authority to appoint a 24 Committee under §§ 901 and 1102, and the court has the authority 25 to vacate a committee formed thereunder pursuant to § 105, but 26 such a remedy is not warranted in this instance. Doc. #292. 27 Because § 1102 is incorporated in its entirety, Beckman urges, 28 6 D e b t o r h a s r e q u e s t e d t h e hearing on the disclosure statement be continued for about two months. 1 § 1102(a)(1) is applicable in chapter 9 cases. Id. Lastly, 2 Beckman argues that disbanding Committee is unwarranted because 3 Debtor cannot adequately represent the interests of the 4 unsecured creditors since they are “a diverse set of creditors, 5 including . . . trade creditors, employees and lessors.” Id. 6 Detroit is not binding on this court, Beckman reminds us, and 7 argues that it is not persuasive because numerous committees 8 have been appointed in Chapter 9 cases in this circuit in the 9 past. Nevertheless, any review of UST actions should be on an 10 “abuse of discretion” basis and Debtor has not established that 11 UST has abused its discretion here. Id. 12 The UST argues that it has authority under §§ 901 and 1102 13 to appoint a committee of unsecured creditors. Doc. #294. UST 14 points out that § 901(a) includes both entire sections (e.g., §§ 15 301, 333, etc.) and subsections (e.g., §§ 347(b), 350(b), etc.), 16 establishing Congress’ intent to incorporate § 1102 in its 17 entirety – i.e., if Congress wanted to exclude § 1102(a)(1), it 18 knew how. This fact, UST claims, is evidenced in § 1161 19 (incorporating certain Code provisions in railroad 20 reorganizations) which specifically excludes § 1102(a)(1). 21 Congress chose not to explicitly exclude § 1102(a)(1) under 22 § 901, which means, according to UST, it intended for 23 § 1102(a)(1) to be applicable in chapter 9 cases. Doc. #294. 24 Detroit did not discuss § 1161 so, UST claims, that case is not 25 persuasive. 26 Another example why § 1102(a)(1) should be read to include 27 Chapter 9, UST contends, is § 1109. That section provides for 28 parties’ rights to be heard in “this chapter” (Chapter 11) and 1 is incorporated in Chapter 9. Putting aside the language “after 2 the order for relief under Chapter 11 . . .,” UST infers if 3 § 1102(a)(1) is read to exclude Chapter 9, it would render 4 § 1109 meaningless. Id. UST notes Detroit did not analyze 5 § 1109 either. 6 Finally, UST argues that the court does not have authority 7 to disband Committee. Section 1102 enumerates the court’s and 8 the UST’s authority pertaining to committees – and nowhere is 9 the court given authority to disband a committee. Supporting 10 their contention, the UST cites two decisions in Chapter 11 11 cases from the Northern District of Illinois: In re Shorebank 12 Corp., 467 B.R. 156, 164 (Bankr. N.D. Ill. 2012) (“Shorebank”) 13 (finding no power to “reconstitute” committee membership by 14 reviewing UST actions) and In re Caesars Entm’t Operating Co., 15 526 B.R. 265, 269-70 (Bankr. N.D. Ill. 2015) (“Caesars”) 16 (§ 105(a) cannot be a basis to disband a committee since court 17 powers over committees are enumerated in §§ 1102 and 1103). 18 Committee’s opposition largely follows the UST’s 19 opposition. Also, Committee urges the court to look at the 20 whole statute (both Chapter 9 and incorporated provisions of the 21 Code). Section 1102 was amended in 1986, Committee correctly 22 points out, eliminating the court’s role in committee formation 23 and limiting court review of committee composition and cites In 24 re WHEELER TECH., 139 B.R. 235, 239 (B.A.P. 9th Cir. 1992) 25 (repeal of § 1102(c) in 1986 prevented the court from removing a 26 member of a Chapter 11 creditors committee). Committee adds 27 another example of a statute incorporated in Chapter 9 that is 28 not fully applicable: § 1125, which is incorporated without 1 exception in Chapter 9, though § 1125(f) only applies in small 2 business cases.7 Doc. #296. 3 Committee does argue though that even if the court did find 4 that it had the authority to disband the Committee, it is in the 5 court’s discretion to do so, and disbandment is not appropriate 6 here. Id. 7 Debtor has replied to these arguments. The plain reading 8 of § 1102(a)(1) limiting its applicability to Chapter 11 cases, 9 Debtor says, supports its position the UST has no authority to 10 unilaterally appoint Committee. Debtor offers its own example 11 of a statute being incorporated into Chapter 9 with some 12 subsections inapplicable, § 503. Debtor distinguishes the cases 13 cited by the opposition as not reaching the issue of the 14 authority of the UST in those cases. Debtor cites In re Pac. 15 Ave., LLC, 467 B.R. 868 (Bankr. W.D.N.C. 2012) as an example of 16 a court, in a Chapter 11 case, using § 105 to disband a 17 committee. 18 19 JURISDICTION 20 The United States District Court for the Eastern District 21 of California has jurisdiction over this matter under 28 U.S.C. 22 § 1334(b) since this is a proceeding arising under title 11 of 23 the United States Code. This court has jurisdiction to hear and 24 determine this matter by reference from the District Court under 25 26 7 “Small business” provisions in the Code are inapplicable in Chapter 9 27 cases. A “small business debtor” is a “person.” § 101(51D)(A). “Person” 28 d ho ee rs e .n o t “ Gi on vc el ru nd me e na t a“ lg o uv ne ir tn sm ”e n it na cl l uu dn ei mt u” n is cu ib pj ae lc it t it eo s .e x c §e p 1t 0i 1o (n 4s 1 )i .n a p Dp el bi tc oa rb l he e re is a “municipality” as defined by § 101(40). 1 28 U.S.C. § 157(a). This is a “core” matter under 28 U.S.C. 2 § 157(b)(2)(A). 3 4 ANALYSIS 5 1. The controversy. 6 Chapter 9, to implement its provisions, partially relies on 7 sections of the bankruptcy code that are applicable to or part 8 of other chapters. The incorporated sections and subsections 9 are listed in § 901(a). Sections referenced in full include 10 § 1102, the section dealing with creditors’ committees. Amended 11 in 1986, § 1102 removes the court from the initial committee 12 appointment process and confers that authority to the UST.8 But, 13 § 901(a) was not amended then and no change has since been made 14 to § 901(a)’s reference to § 1102. 15 Under § 1102(a)(1) the UST has both a mandatory duty to 16 appoint an unsecured creditors committee and discretionary 17 authority to appoint “additional committees . . . as the [UST] 18 deems appropriate.” But this subsection provides the “mandatory” 19 appointment (Detroit holds the discretionary authority also) is 20 to be exercised “as soon as practicable after the order for 21 relief under chapter 11 of this title” (emphasis added). 22 Tension arises between the plain understanding of the 23 limiting phrase “under chapter 11 of this title,” the historical 24 appointment of committees in Chapter 9 cases, harmonious 25 construction of statutes to give effect to all provisions, and 26 the important role creditors’ committees often play in 27 reorganization cases under chapters 11 and 9. This friction is 28

8 P.L. 99-554, Title II, Subtitle A, § 221, 100 Stat. 3101 (1986). 1 apparent here as the court must reach two issues. First, UST’s 2 authority, if any, to unilaterally appoint a creditors’ 3 committee in a chapter 9 case under § 1102(a)(1).9 Second, if 4 there is no such authority, the court’s power to disband the 5 committee that has been appointed. This decision begins with a 6 brief exposition the law the parties rely upon. Then the court 7 will consider the specific issues. 8 2. The parties legal foundations. 9 The UST’s standing to appear in any bankruptcy case is 10 provided under § 307:

11 The United States trustee may raise and may appear and 12 be heard on any issue in any case or proceeding under this title . . . . 13

14 This provision is not incorporated in Chapter 9 by § 901. 15 Nevertheless, even Detroit recognizes the UST’s interest in 16 defending its own actions and should be heard. Detroit, 519 B.R. 17 at 677. 18 Navigation of definitional problems when sections outside 19 chapter 9 are applied in chapter 9 is provided in § 901(b): 20

21 A term used in a section of this title made applicable in a case under this chapter by subsection (a) of this 22 section . . . has the meaning defined for such term 23 for the purpose of such applicable section, unless such term is otherwise defined in section 902 of this 24 title.

25 26 27 28 appoint9 N ao n p “a ar dt dy i ti in oc nl au ld ”i n cg o mt mh ie t tD ee eb t io nr ad i cs hp au pt te es r t 9h e c aU sS eT ih fa s d ia ru et ch to er di t ty o t bo y the court under § 1102(a)(2). 1 So, unless a term used in an incorporated section is otherwise 2 defined under chapter 9, the term means the same as if the case 3 were not pending under chapter 9. 4 The last germane statutory discussion in this portion of 5 the decision is a statute both parties rely upon, § 105(a). As 6 pertinent here, it provides: 7 The court may issue any order . . . that is necessary 8 or appropriate to carry out the provisions of this 9 title . . . [The court may] sua sponte [take]. . . any action or [make] any determination necessary or 10 appropriate to enforce or implement court . . . rules . . . . 11

12 Though this authority is substantial, it is not without limits. 13 Deocampo v. Potts, 836 F.3d 1134, 1143 (9th Cir. 2016).10 14 Detroit is relied upon by Debtor and limited or 15 distinguished by Committee, Beckman, and UST. Detroit held that 16 § 1102(a)(1) is not applicable in chapter 9 cases and that a 17 bankruptcy court has the authority under § 105(a) to disband a 18 creditors committee if the court could find that doing so was 19 “necessary or appropriate” to carry out the provisions of the 20 bankruptcy code under § 105(a). See Detroit, 519 B.R. at 680. 21 The court found that the phrase “as soon as practicable after 22 the order for relief under chapter 11 of this title” in § 1102 23 effectively limited § 1102 to chapter 11 exclusively. Id. at 24 677-78. “To interpret the limiting phrase any other way would 25 be to read it out of the statute. This is an unacceptable 26 result.” Id. at 677 (citations omitted). Detroit also held 27 28 UST thr10 o uA gr hg u Ra ub ll ey , 2 0§ 2 01 0 p5 r( oa v) i’ ds i nb gr o ta hd a ta u “t ch oo nr ti et sy t ec da n m ab te t ea rp ”p l ii se d t ht eo fa oc rt us m o ff o rt h ae review of any act or failure to act by the UST. 1 that § 901(a)’s incorporation of the entirety of § 1102 did not 2 “compel a different result” because other subsections of § 1102 3 clearly did not apply in chapter 9 cases, such as § 1102(a)(3) 4 and § 1102(b)(2). Id. at 678. 5 UST’s historical appointments of committees was not 6 persuasive to the court in Detroit. The court stated that 7 “[b]ecause the issue here is one of first impression, the Court 8 considers the express limiting language of § 1102(a)(1) to be of 9 much greater significance than the customary practice of the 10 U.S. Trustee in appointing committees of unsecured creditors in 11 chapter 9 cases.” Id. 12 The court in Detroit also found that because the 13 appointment of the committee was “null and void”, the committee 14 should be disbanded. Id. at 679. Alternatively, Detroit held 15 that § 105(a) provided authority to disband the committee since 16 there is no code provision specifically preventing the court 17 from disbanding the committee. Id. at 679-80. Finding neither 18 the value nor its cost justified keeping the committee, id. at 19 680-82, the court held disbanding the committee was “necessary 20 and appropriate” to carry out the provisions of the bankruptcy 21 code in that case. 22 3. UST’s authority to appoint committees in chapter 9 under 23 § 1102(a)(1). 24 “It is a bedrock principle of statutory construction that a 25 statute should not be interpreted in a manner that renders any 26 part of it ineffective.” In re Anderson, No. 19-11221, 2019 WL 27 4201512, at *3 (Bankr. D. Mass. Sept. 4, 2019) (citing Corley v. 28 U.S., 556 U.S. 303, 314, 129 S. Ct. 1558 (2009) (citing Hibbs v. 1 Winn, 542 U.S. 88, 101, 124 S. Ct. 2276 (2004) (quoting 2A N. 2 Singer, Statutes and Statutory Construction § 46.06, 99. 181-186 3 (rev. 6th ed. 2000) (“[A] statute should be construed so that 4 effect is given to all its provisions, so that no part will be 5 inoperative or superfluous, void or insignificant . . .”)); see 6 also Clark v. Rameker, 573 U.S. 122, 131, 134 S. Ct. 2242, 2248 7 (2014) (citing Corley v. U.S., 556 U.S. 303, 314, 129 S. Ct. 8 1558 (2009). Where Congress “includes particular language in 9 one section of a statute but omits it in another section of the 10 same Act, it is generally presumed that Congress acts 11 intentionally and purposefully in the disparate inclusion or 12 exclusion.” Bates v. United States, 522 U.S. 23, 29 (1997) 13 (citations omitted). “[W]e keep in mind that statutory 14 provisions are to be read in harmony in the context of the whole 15 statute.” Parks v. Drummond (In re Parks), 475 B.R. 703, 708 16 (B.A.P. 9th Cir. 2012) (citing In re Hougland, 886 F.2d 1182, 17 1184 (9th Cir. 1989) (citing Davis v. Mich. Dep’t of the 18 Treasury, 489 U.S. 803, 809 (1989)). “[A]ll parts of a statute 19 are to be read as a whole, and in harmony with one another.” 20 Culver v. Chiu (In re Chiu), 266 B.R. 743, 747, 750 (B.A.P. 9th 21 Cir. 2001), aff'd, 304 F.3d 905 (9th Cir. 2002). 22 Statutory construction is a “holistic endeavor” where 23 courts “must look not only to the ‘particular statutory language 24 at issue’ but also to ‘the language and design of the statute as 25 a whole.’” Zazzali v. United States (In re DBSI, Inc.), 869 26 F.3d 1004, 1010 (9th Cir. 2017) (citations omitted). The “text 27 is only the starting point.” Kelly v. Robinson, 479 U.S. 36, 28 43, 107 S. Ct. 353 (1986). “In expounding a statute, we must 1 not be guided by a single sentence or member of a sentence, but 2 look to the provisions of the whole law, and to its object and 3 policy.” Kelly, 479 U.S. at 43 (citations omitted). 4 “The task of resolving [a] dispute over the meaning of [a 5 statute] begins where all such inquiries must begin: with the 6 language of the statute itself (citations omitted) . . . it is 7 also where the inquiry should end, for where . . . the statute’s 8 language is plain, ‘the sole function of the courts is to 9 enforce it according to its terms.’” United States v. Ron Pair 10 Enters., 489 U.S. 235, 241, 109 S. Ct. 1026, 1030 (1989). But 11 there are “rare cases” where “the literal application of a 12 statute will produce a result demonstrably at odds with the 13 intentions of its drafters, and those intentions must be 14 controlling.” Griffin v. Oceanic Contractors, 458 U.S. 564, 15 571, 102 S. Ct. 3245, 3250 (1982). 16 There is nothing ambiguous or mysterious about 17 § 1102(a)(1). The subsection plainly states the condition to 18 the UST’s exercise of its authority is “after the order for 19 relief under chapter 11.” There is no “order for relief under 20 chapter 11” in a chapter 9 case. That condition applies to both 21 the UST’s mandatory “duty” to appoint a committee of creditors 22 with unsecured claims and its discretionary authority to appoint 23 additional committees of creditors or equity security holders as 24 the UST deems appropriate under § 1102(a)(1). See In re City of 25 Detroit, 519 B.R. 673, 677 (Bankr. E.D. Mich. 2014). This 26 application of the subsection is not “demonstrably at odds with 27 the intentions of its drafters.” No party has referred the 28 court and the court has not found any authority saying it was 1 the Code’s drafters’ intention to require the UST to 2 unilaterally appoint an unsecured creditors’ committee or permit 3 the UST to appoint additional committees under § 1102(a)(1) in a 4 chapter 9 case. 5 There is other support for this interpretation. First, 6 other statutory provisions support the conclusion. Section 307, 7 which gives the UST authority to “raise and . . . appear and be 8 heard on any issue in any case or proceeding under this title” 9 is not incorporated in chapter 9. Also, § 103(f) states 10 “[e]xcept as provided in section 901 of this title, only 11 chapters 1 and 9 of this title apply in a case under such 12 chapter 9.” Section 901 does incorporate many sections of 13 chapters 3, 5, and 11, but interpreting §§ 103(f) and 901(a) 14 together indicates that Congress intended to limit the UST’s 15 role in chapter 9 cases. 16 Second, other provisions of § 1102 are inapplicable in 17 chapter 9 cases even though it is fully incorporated in Chapter 18 9. So, there is nothing logically or legally inconsistent about 19 a literal application of § 1102(a)(1) excluding its application 20 in chapter 9 cases. The court may order no committee be 21 appointed in a case involving a small business debtor. See 22 § 1102(a)(3). A chapter 9 debtor cannot be a small business 23 debtor.11 Provisions governing equity security holder committees 24 have no application because a chapter 9 debtor will not have 25 equity security holders. See § 1102(b)(2). 26 Third, the duties of a committee are included in 27 § 1102(b)(3) and that provision is applicable if the committee 28

11 See footnote 7 above. 1 is appointed under § 1102(a). Consequently, a committee 2 appointed under § 1102(a)(2) would be subject to § 1102(b)(3)’s 3 provisions. 4 Fourth, § 901(a) may incorporate the entirety of § 1102, 5 but § 901(b) clarifies the limitations. Applying § 901(b) 6 definitional rules to the contested phrase here, “under chapter 7 11” results in the following: 8 A term [i.e. “chapter 11”] used in a section [of Title 9 11] made applicable in [chapter 9] by subsection (a) 10 [i.e., § 1102] or section 103(e) [of Title 11] has the meaning defined for such term [i.e. “chapter 11”] for 11 the purpose of such applicable section [i.e. § 1102], unless such term is otherwise defined in section 902 12 [of Title 11]. 13 14 Section 902 does not define “chapter 11” nor does it state 15 references to “chapter 11” are to be read as “chapter 9.” 16 In short, under §§ 307, 901(a), 901(b), 1102, applicable 17 federal rules of statutory interpretation, and this court 18 finding Detroit persuasive here, UST does not have authority 19 under § 1102(a)(1) to appoint an unsecured creditors’ committee 20 in a chapter 9 case. 21 UST’s historical “practice” of appointing committees is not 22 a reason to ignore statutory language. The parties dispute 23 whether UST’s chapter 9 committee appointments are “regular.” 24 That is beyond the point. No party has provided an example 25 (except Detroit) where a court examines UST authority to appoint 26 a committee in chapter 9 under § 1102(a)(1). Detroit holds the 27 UST does not.12 28 12 T h e r e a r e m a n y r e a s o n s UST committee appointments in chapter 9 cases may go unchallenged including: the debtor wants an ally in negotiating with 1 Nor do the authorities cited support the UST’s action here. 2 UST cites the Advisory Committee note to the 1991 amendment to 3 Rule 2014. See doc. #294. The note provides in part that UST 4 “appoints committees pursuant to § 1102 of the Code which is 5 applicable in chapter 9 cases under § 901.” Fed. R. Bankr. P. 6 2014 advisory committee’s note to 1991 amendments. But that 7 note is consistent with the notion that the UST has no authority 8 to appoint committees under § 1102(a)(1). The UST’s reliance on 9 In re E. Shoshone Hosp. Dist., 226 B.R. 430 (Bankr. D. Idaho 10 1998) is inapposite because that case does not reach the issue 11 of UST authority. The case dealt with a chapter 9 debtor’s 12 counsel’s fee application. There was no discussion of UST 13 authority under § 1102(a)(1). Likewise, In re Colo. Ctr. Metro. 14 Dist., 113 B.R. 25 (Bankr. D. Colo. 1990) is inapposite. There, 15 the court held the appointment of a bondholders committee in 16 that chapter 9 case before entry of the order for relief was 17 improper and the committee therefore had no standing to 18 prosecute a motion extending time to oppose entry of the order 19 for relief. See id. at 27. UST authority to appoint the 20 committee was assumed. 21 Legislative history and “aggregate statutory construction” 22 do not negate the language of § 1102(a)(1). First, “given [a] 23 straightforward statutory command, there is no reason to resort 24 to legislative history.” United States v. Gonzalez, 520 U.S. 1, 25 6, 117 S. Ct. 1032, 1035 (1997). The Supreme Court has 26 bondholders secured by liens, the debtor can more easily negotiate a Plan of 27 Adjustment with its creditors represented by the committee, or case 28 p ca or nt si tc ii tp ua en nt cs y c (a in . ea .v o ri ed t ia r ep eu sb l oi rc pr ue bl la it ci o sn as f ef tr ya c pa es r si of n na e ls )y am rp ea t ch oe lt li ec c tively represented. 1 construed bankruptcy statutes strictly and either ignored or 2 discounted legislative history in several cases. See United 3 States v. Ron Pair Enters., 109 S. Ct. 1026, 1030 (1989); 4 Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 5 U.S. 1, 6, 120 S. Ct. 1942, 1947 (2000) (administrative 6 claimants unable to seek payment from property secured by a 7 creditor’s lien); and Lamie v. United States Tr., 540 U.S. 526, 8 534, 124 S. Ct. 1023, 1033-34 (2004) (reading statute 9 authorizing payment of professionals from estate assets as 10 excluding counsel for chapter 7 debtor even though wording is 11 “awkward, and . . . ungrammatical”). The condition of “order 12 for relief under chapter 11” triggering UST committee 13 appointment authority is straightforward. 14 Second, when a court takes the “aggregate view” of a 15 statutory scheme to interpret statutes, there are seemingly 16 contradictory or inconsistent provisions at issue. No such 17 contradiction is present here. True enough, § 1102 is fully 18 incorporated in chapter 9 under § 901(a). But there is no 19 inherent paradox in giving effect to all the language of § 1102 20 even though some language is inapplicable in chapter 9. 21 In Zazzali v. United States (In re DBSI, Inc.), 869 F.3d 22 1004 (9th Cir. 2017), a case cited by Committee, the Ninth 23 Circuit illustrates the point. The court in DBSI held that one 24 section of the Code authorizing trustees to use state laws to 25 avoid certain transfers, § 544(b)(1), could not be applied 26 isolated from a broad waiver of sovereign immunity found 27 elsewhere, § 106(a)(1). Id. at 1010. In DBSI, the creditor- 28 transferee (IRS) contended that under the state law used by the 1 trustee to avoid a $13.4 million transfer, the IRS would have 2 sovereign immunity to avoid a claim by a creditor to avoid the 3 transfer as a fraudulent conveyance. Id. at 1008. So, the IRS 4 argued, it should not be subject to the trustee’s avoidance 5 claim. Id. The Ninth Circuit parted from another circuit’s 6 holding and found the broad waiver of sovereign immunity under 7 § 106 applied permitting the suit to proceed. Id. at 1016. 8 True, DBSI did harmonize two statutes but the operative statute 9 used by the trustee there arguably limited the reach of the 10 avoidance power. Nothing here reaches that quandary. Rather, a 11 straightforward application of § 1102(a)(1) by its terms does 12 not eliminate the potential appointment of a committee; just the 13 way it happens. 14 In fact, the rationale of DBSI supports the court’s 15 reasoning here. First, DBSI noted that when enacting a statute, 16 Congress is presumed to be aware of existing law. Id. at 1011 17 (citations omitted). When Congress amended § 1102 in 1986, it 18 presumably knew the section was incorporated in chapter 9. 19 Nevertheless, the condition on UST exercising authority was 20 enacted. 21 Second, DBSI also relied on the rule that a statute should 22 not be interpreted to nullify another statute. Id. at 1011 23 (citations omitted). The responding parties here urge an 24 interpretation nullifying language in § 1102(a)(1). 25 Third, DBSI cites Keene Corp. v. United States, 508 U.S. 26 200, 208, 113 S. Ct. 2035, 2040-41 (1993) which held that 27 Congress acts intentionally in disparate inclusion or exclusion 28 in statutes. In re DBSI, 869 F.3d at 1012. Here the general 1 inclusion of all § 1102 in chapter 9 and the condition of “order 2 for relief in chapter 11” under § 1102(a)(1) must be intentional 3 and not “inadvertent.”13 4 References to other sections of the bankruptcy code 5 incorporated into chapter 9 suggested by the parties do not 6 undermine the analysis. Section 1109, which establishes rights 7 to be heard, contains a vague reference to “this chapter.” That 8 gives § 1109 equal breadth in chapters 9 and 11. Section 1125, 9 which deals with disclosure statements, is incorporated fully in 10 chapter 9, but § 1125(f) is only applicable in small business 11 cases and “ignored” in chapter 9 cases.14 This subsection added 12 in 1994 – § 901 was not amended then – does not nullify the 13 application of § 1125 in chapter 9 cases. In fact, proceeding 14 in chapter 9 without giving effect to § 1125(f) is consistent 15 with the court’s analysis of § 1102(a)(1) here. Finally, 16 § 1161’s specific exclusion of § 1102(a)(1) in railroad 17 reorganizations further evidences Congress’ intentional 18 exclusion which is consistent with this result. 19 20 13 Committee urges that § 348(b) is a further example of “Congressional 21 inadvertence.” That subsection incorporates many other sections including § 1102(a) and provides that if a case is converted to another chapter, where 22 the words “the order for relief under this chapter” appears it means the conversion of the case to the new chapter. A strict reading of § 1102(a)(1) 23 would mean, Committee argues, no committee would automatically be appointed by UST in the new chapter since § 1102(a)(1) references chapter 11 instead of 24 “this chapter.” First, §348(b) cannot be read to take away rights or duties. It merely eliminates confusion when certain rights or duties start upon 25 conversion. Second, Committee presents no example where this minor variance has any practical impact. Third, Committee’s “heavy burden” to establish 26 that either statute displaces the other has not been met here. See Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612, 1624 (2018), and cases cited therein, and 27 Trevino v. Select Portfolio Servicing, Inc., 599 B.R. 526, 541 (Bankr. S.D. 28 Tex. 20 141 9 W) h. y s m a ll business provisions are inapplicable in chapter 9 is discussed elsewhere. See footnotes 7 and 11 above. 1 4. Disbanding the committee is authorized by law. 2 Finding that UST was not authorized to appoint Committee 3 since § 1102(a)(1) does not apply in a chapter 9 case, the 4 Committee’s appointment was void and Committee should be 5 disbanded. In re City of Detroit, 519 B.R. 673, 679 (Bankr. 6 E.D. Mich. 2014). On the other hand, if the appointment was 7 voidable, then § 105(a) gives the court authority to order 8 Committee disbanded since it is necessary to carry out the 9 provisions of title 11. Section 1102(a)(1) does not apply in 10 chapter 9 and to carry out that provision as it is written, 11 Committee should be disbanded. 12 First, the authorities cited supporting the court’s limited 13 authority to disband the committee are not persuasive. UST and 14 Committee argue that UST alone has the authority to disband a 15 committee because § 1102 is clear in that regard15 and “the 16 express mention of one thing excludes all others.”16 Doc. #294. 17 Applying this to § 1102(a)(1), and specifically the phrase 18 “under chapter 11 of this title,” would therefore mean that 19 “under chapter 11” excludes chapter 9 because Congress says what 20 it means, this language is unambiguous, and that therefore “the 21 express mention of [chapter 11] excludes [chapter 9].” 22 More to the point, UST and Committee contend that the 23 court’s authority over committees is limited to the provisions 24 15 “[C]ourts must presume that a legislature says in a statute what it 25 means and means in a statute what it says there. [citations omitted]. When the words of a statute are unambiguous, then, this first canon is also the 26 last: ‘judicial inquiry is complete.’” Conn. Nat’l Bank v. Germain, 503 U.S. 249, 253-54, 112 S. Ct. 1146, 1149 (1992) (citations omitted). 27 16 The canon of construction “expressio unius est exclusio alterius.” 28 S 6e 7e 7 , C 5o 5n t S’ .l CI tl .l . 5 9N 5a ,t ’ 6l 0 7B a (n 1k 9 3& 5 )T ;r . S iC lo v. e rv s. vC .h i S. o, n yR . PI i. c t& u rP e. sR . E nC to m. ’, t ,2 9 I4 n cU .. ,S . 4 06 24 8, F.3d 881, 885 (9th Cir. 2005). 1 of §§ 1102(a)(2), (3), (4) and 1103(a). Not so. Those 2 provisions presume a proper committee appointment in the first 3 place. The court has determined Committee here was not 4 appointed under the proper procedure in a chapter 9 case. 5 Neither Shorebank nor Caesars are apposite here. Both 6 well-reasoned decisions from the Northern District of Illinois 7 were chapter 11 cases. Shorebank predates Detroit and does hold 8 the court has no power under the Code to remove committee 9 members since the power is not included in §§ 1102 or 1103. 10 But, the issue of UST authority to appoint the committee was not 11 part of the decision. Caesars postdates Detroit and disagrees 12 that the Detroit court properly used § 105(a) as authority to 13 disband the committee. But the UST unquestionably had authority 14 to appoint the committee in Caesars. The issue was not examined 15 because it was not necessary for the Caesars court.17 Besides, 16 the Detroit court used § 105(a) as an alternative ground for 17 disbanding the committee. Detroit, 519 B.R. at 679 (“[i]n the 18 alternative, the Court concludes that even if § 1102(a)(1) does 19 apply . . . the Court is authorized to vacate the appointment of 20 the Committee pursuant to 11 U.S.C. § 105 . . .”). 21 Second, the court here is not ordering something that is 22 precluded by the Code. The Supreme Court held in Law v. Siegel, 23 571 U.S. 415, 420-21, 134 S. Ct. 1188, 1194 (2014) that “[a] 24 bankruptcy court has statutory authority to ‘issue any order, 25 process, or judgment that is necessary or appropriate to carry 26 17 The court in Caesars concluded: “[committee issues can be addressed 27 through other remedies under the Bankruptcy Code] not by the unauthorized 28 d ui ns db ea rn d §i n 1g 1 0o 2r ( ah )a (m 1s ).t ”r in g Ii nn g r eo f C aa e sc ao rm sm i Et nt te me ’ tt h Ce o .U ,. 5S 2. 6 T Br .u Rs .t e 2e 6 5h ,a s 2 7a 1p p (o Bi an nt ke rd .

N.D. Ill. 2015) (emphasis added). 1 out the provisions of’ the Bankruptcy Code . . . [b]ut in 2 exercising those statutory and inherent powers, a bankruptcy 3 court may not contravene specific statutory provisions.” “It is 4 hornbook law that § 105(a) ‘does not allow the bankruptcy court 5 to override explicit mandates of other sections of the 6 Bankruptcy Code.’” Id. at 421 (citations omitted). The court 7 held that it would be “impossible” to “‘carry out’ the 8 provisions of the Code” if a court took “action that the Code 9 prohibits.” Id. “That is simply an application of the axiom 10 that a statute’s general permission to take actions of a certain 11 type must yield to a specific prohibition found elsewhere.” Id. 12 (citations omitted). The Supreme Court has “long held that 13 ‘whatever equitable powers remain in the bankruptcy courts must 14 and can only be exercised within the confines of’ the Bankruptcy 15 Code.” Id. 16 The Supreme Court in Law held that the chapter 7 trustee’s 17 attempt to “surcharge” debtor’s $75,000.00 California homestead 18 exemption to pay for administrative expenses he incurred in the 19 performance of his duties was unauthorized because it 20 contravened a specific provision of the Code. Id. at 422.18 21 In Law, there was a specific code provision, § 522(k), that 22 explicitly forbade the relief the trustee requested. But here, 23 18 “Section 503(b)(2) provides that administrative expenses include 24 ‘compensation . . . awarded under’ § 330(a); § 330(a)(1) authorizes ‘reasonable compensation for actual, necessary services rendered’ by a 25 ‘professional person employed under’ § 327; and § 327(a) authorizes the trustee to ‘employ one or more attorneys . . . to represent or assist the 26 trustee in carrying out the trustee’s duties under this title.’” Law, 571 U.S. at 422. 27 28 sectionS e ic st i no on t 5 l2 i2 a( bk l) e s ft oa rt e ps a y“ m[ ep n] tr o op fe r at ny y t ah da mt i nt ih se t rd ae tb it vo er ee xx pe em np st es eu xn cd ee pr t t .h i .s . ,” but none of the listed exceptions applied in Law. 1 there is no specific code provision that explicitly forbids the 2 court from vacating the appointment of an unsecured creditors’ 3 committee. Section 1102 states that the UST, not the court, 4 shall appoint the committee. But there is no statute that 5 forbids the court from disbanding a committee. See generally In 6 re City of San Bernardino, 566 B.R. 46, 63 (Bankr. C.D. Cal. 7 2017) (distinguishing as inapplicable chapter 11 cases holding 8 that a third party injunction is not allowed in a Plan when 9 evaluating a chapter 9 Plan of Adjustment and noting Law did not 10 preclude application of § 105(a) in the absence of a contrary 11 statutory mandate); see generally Clark’s Crystal Springs Ranch, 12 LLC v. Gugino (In re Clark), 548 B.R. 246, 252-53 (B.A.P. 9th 13 Cir. 2016) (noting Law did not change the bankruptcy court’s 14 authority to order substantive consolidation under § 105, other 15 statutes and Ninth Circuit law); Official Comm. of Unsecured 16 Creditors of SGK Ventures, LLC v. NewKey Grp., LLC (In re SGK 17 Ventures, LLC), 521 B.R. 842, 849 (Bankr. N.D. Ill. 2014) 18 (“[t]here is no provision of the Bankruptcy Code prohibiting a 19 grant of derivative trustee standing, and so Law has no bearing 20 here”). 21 The argument that the court cannot disband Committee 22 because the power was not specifically conferred under §§ 1102 23 and 1103 ignores that § 105 authorizes the court to issue “any 24 order . . . that is necessary or appropriate to carry out the 25 provisions of this title” (emphasis added). UST has a duty to 26 appoint a creditors committee under § 1102(a)(1) (incorporated 27 under chapter 9) “as soon as practicable after an order for 28 relief under chapter 11 . . . .” Here, no order for relief was 1 entered under chapter 11. Consequently, to carry out that 2 provision of the Code, Committee must be disbanded.19 3 Third, this ruling is consistent with the limited role UST, 4 the court, and creditors have in chapter 9 cases. 28 U.S.C. 5 § 586 sets forth a nonexclusive list of duties of UST. Notably, 6 duties in chapter 9 cases are not specifically listed there. 7 That said, subdivision (a)(5) says, UST shall: “perform the 8 duties prescribed for the United States trustee under title 11 9 and this title, and such duties consistent with title 11 and 10 this title as the Attorney General may prescribe.” The court 11 here holds UST has no mandatory duty to appoint a creditors 12 committee in a chapter 9 case.20 Though having no force of law, 13 UST policies recognize the limited role played in a chapter 9 14 case: “[t]he United States trustee’s limited role in chapter 9 15 cases avoids the potential for actual or perceived interference 16 with the sovereign power of the states in a manner that would 17 run afoul of the Tenth Amendment.”21 18 This decision does not minimize the valuable effect 19 committees have in Chapter 9 or 11 cases. This decision does 20 not criticize the parties appointed to Committee here. The 21 19 The court is unpersuaded by Committee’s extension of the Supreme 22 Court’s holding in Law. The notion that the Court’s reference to the “exhaustive” list of exemptions and the specific exceptions to exempt 23 property not liable for debts in § 522 equate to a statutory mandate prohibiting committee disbandment, ignores the holding in the case. Law held 24 the bankruptcy court could not surcharge the homestead exemption because the exemptions were “final” and § 522 specifically lists the exceptions to the 25 exemptions. The egregious behavior of the debtor there was not among them. 20 It appears UST policy though is to continue to appoint creditor’s 26 committees in chapter 9 cases except in the Eastern District of Michigan — the district where Detroit was decided. United States Trustee Policy and 27 Procedures Manual Chapter 5-1.9 fn 1) (U.S. Dept. of Justice 2015) accessed 28 a pt r och et dt up rs e: s/ -/j mu as nt ui ac le . lg ao sv t. / vu is st i/ tu en di t Se ed p- t.s t 3a 0t ,e s 2- 0t 1r 9u .s tee-program-policy-and- 21 Id. Chapter 5-2. 1 court was asked to examine a relatively uncharted area of law 2 and apply the statutes at issue as written. The difficulty this 3 issue presents is born not from the parties’ bad faith or poor 4 choices, but the limits on the ability of Congress to consider 5 every scenario when a statute is codified or amended.22 6 7 CONCLUSION 8 Debtor’s motion to vacate the appointment of the Unsecured 9 Creditors Committee and amended appointment of the committee is 10 GRANTED. The Committee shall be disbanded. Accordingly, the 11 employment applications of Smiley, Wang-Ekvall, LLP and 12 Frandzel, Robins, Bloom and Csato, L.C. shall be DENIED WITHOUT 13 PREJUDICE as moot. Beckman’s motion to appoint a creditors 14 committee under § 1102(a)(2) is continued to a later date that 15 has been set by the court. Separate orders shall issue.23 16 17 18 19 20 21 22 23 24 22 Beckman’s arguments are not fully addressed here because they largely 25 rested on UST’s exercise of discretion. The court here finds in this case UST did not have discretion because the appointment of Committee was 26 unauthorized. 23 This memorandum is the court’s findings of fact and conclusions of 27 law under Civil Rule 52 (made applicable to bankruptcy contested matters 28 u in sd e nr o tR u al e cs o r7 e0 5 p2 r oa cn ed e d9 i0 n1 g4 ,( c t) h) e. n tS hih so u ml ed m oi rt a nb de u md e st he ar lm li n be ed tt hh ei s c oc uo rn tt ’e ss t pe rd o pm oa st et de r findings of fact and conclusions of law under 28 U.S.C. § 157(c)(1). 1 Instructions to Clerk of Court 2 Service List - Not Part of Order/Judgment

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