In re Ward

511 B.R. 909, 2014 WL 2919301
CourtUnited States Bankruptcy Court, E.D. Wisconsin
DecidedJune 26, 2014
DocketNos. 13-31965-GMH, 13-32016-GMH
StatusPublished
Cited by2 cases

This text of 511 B.R. 909 (In re Ward) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, E.D. Wisconsin primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Ward, 511 B.R. 909, 2014 WL 2919301 (Wis. 2014).

Opinion

DECISION

G. MICHAEL HALFENGER, Bankruptcy Judge.

Counsel for the debtors, Credit Solutions, S.C., has appealed my rulings that it [911]*911is not entitled to post-dismissal orders directing the trustee to pay counsel’s attorneys’ fees out of the debtors’ funds in her possession. Counsel has also moved in both cases under Federal Rule of Bankruptcy Procedure 8005 for a “stay” — really an injunction — prohibiting the chapter 13 standing trustee from distributing any of the debtors’ funds that she has in her possession until counsel’s appeals are resolved.

For the reasons that follow, I grant counsel’s motions. Although counsel’s likelihood of succeeding on appeal is slight, there is no clear-cut answer to the underlying legal question. Allowing the trustee to distribute the debtors’ funds in her possession while the appeals are pending threatens the appellate court’s ability to grant effective relief, and enjoining the trustee from distributing those funds poses no significant threat of harm to others.

I

The debtors in these chapter 13 cases were represented by the same counsel. I dismissed both cases on the chapter 13 standing trustee’s motion because the debtors failed to make pre-confirmation plan payments to the trustee as required under 11 U.S.C. § 1326(a)(1). While the trustee’s motions to dismiss were pending, counsel filed applications requesting that I allow it to recover its attorneys’ fees as administrative expenses to be paid out of the funds that the Bankruptcy Code required the debtors to pay to the trustee before confirmation. See 11 U.S.C. § 1326. In effect, the applications were counsel’s effort to change the Code’s default rule that a trustee must return “to the debtor” payments held by the trustee when a case is dismissed before confirmation. See § 1326(a)(2); see also 11 U.S.C. § 349(b)(3). Because counsel waited until the end of the objection period on the dismissal motions to file its applications, counsel’s applications were not ripe for decision when the cases were dismissed. As a result, both cases were dismissed without action on counsel’s fee applications.

After the cases were dismissed, counsel filed affidavits averring that no objections were received in response to its fee applications. I scheduled hearings on the applications for May 6, 2014. The cases were called separately, with the Wards’ case called first. During the Ward hearing, counsel argued that even though the cases were dismissed, I still had authority to grant its application because the case was still open.

I explained that the Code’s text appears to require counsel to obtain the court’s approval of a fee application before a case is dismissed. When a plan is not confirmed, as when a case is dismissed before confirmation, § 1326(a)(2) requires the chapter 13 trustee to return a debtor’s pre-confirmation plan payments to the debtor, less approved administrative expenses. § 1326(a)(2) (“If a plan is not confirmed, the trustee shall return any [pre-confirmation plan] payments ... to the debtor, after deducting any unpaid claim allowed under section 503(b) [i.e., any allowed administrative expense claim].”). In both the Ward and Simpson cases, however, no administrative expenses had been allowed when the cases were dismissed. As a result, I concluded that § 1326 required the trustee to return the payments held by the trustee to the debtors, and § 349(b)(3) revested the right to those payments in the debtors. Stating that I believed the revestment of the funds under § 349 was intractable absent grounds to vacate the dismissal order under Bankruptcy Rule 9024, I denied the Ward fee application.

[912]*912Following this explanation, counsel made no further argument in support of the fee application. Instead, counsel appeared to concede the point, saying only, “Sure. I understand. Okay.” Following a brief discussion of potential future alternative practices that would allow the court to consider a fee application before a case is dismissed, counsel stated, “It’s just a matter of getting [the application] in sooner. I understand.”

Ms. Simpson’s case was called next. I denied counsel’s application in the Simpson case on the same grounds that I denied counsel’s application in the Ward case: I indicated that it did not appear that I had the authority to approve counsel’s application and order the trustee to pay counsel from the debtor’s funds in her possession because when the case was dismissed the right to those funds revested in the debtor pursuant to § 349(b)(3). Counsel made no argument opposing my ruling during the Simpson hearing. I subsequently entered orders in each case denying counsel’s applications for compensation.

Counsel timely filed motions to reconsider, invoking the bankruptcy analogs to Federal Rules of Civil Procedure 59 and 60. See Fed. R. Bankr.P. 9023 & 9024. Counsel also filed motions to enjoin the chapter 13 trustee from disbursing the debtors’ funds in her possession until I resolved the motions to reconsider. I granted the injunctive relief to ensure that reconsideration was not rendered moot, and I held a hearing on the motions for reconsideration on May 27, 2014.

After considering the arguments of debtors’ counsel and counsel for the trustee at the May 27 hearing, I denied the motions to reconsider because they failed to meet the applicable standards. Counsel’s entire argument for reconsideration was that I had misapplied the law. Rule 60 does not afford an avenue for relief from a misapplication of the law; rather, the proper avenue for relief from a misapplication of the law generally is to appeal. See United Student Aid Funds, Inc. v. Espinosa, 559 U.S. 260, 270-71, 130 S.Ct. 1367, 176 L.Ed.2d 158 (2010) (evaluating Rule 60(b)(4)).

Rule 59, in contrast, provides an avenue by which a litigant can ask a trial judge to revisit an order on the grounds that the judge misapplied the law. Relying on Seventh Circuit precedent, I explained that “[rjule 59(e) allows the movant to bring to the ... court’s attention a manifest error of law or fact, or newly discovered evidence.” Bordelon v. Chi. Sch. Reform Bd. of Trs., 233 F.3d 524, 529 (7th Cir.2000). But “[a] ‘manifest error’ is not demonstrated by the disappointment of the losing party. It is the ‘wholesale disregard, misapplication, or failure to recognize controlling precedent.’ ” See Oto v. Metro. Life Ins. Co., 224 F.3d 601, 606 (7th Cir.2000). And Rule 59 may not be used to either “raise novel legal theories that a party [should have raised] in the first instance”, Russell v. Delco Remy Div. of Gen. Motors Corp.,

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Related

In re Ward
523 B.R. 142 (E.D. Wisconsin, 2014)
In re Ryan
517 B.R. 905 (E.D. Wisconsin, 2014)

Cite This Page — Counsel Stack

Bluebook (online)
511 B.R. 909, 2014 WL 2919301, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-ward-wieb-2014.