IN RE: PATRICK JOSEPH EDGIN, CHAPTER 7, Debtor.

CASE NO. 101-09738.United States Bankruptcy Court, M.D. Tennessee.
July 11, 2007

MEMORANDUM OPINION
MARIAN HARRISON, Bankruptcy Judge

This matter is before the Court upon cross motions for summary judgment regarding the United States Trustee’s (hereinafter “U.S. Trustee”) objection to the Chapter 7 Trustee’s (hereinafter “Trustee”) supplemental final report. There are no material facts in dispute, and the legal issues presented are as follows:

1. Whether 11 U.S.C. § 726 excludes administrative expenses, including trustee compensation, from payment of interest under 11 U.S.C. § 726(a)(5)?
2. Whether the compensation cap on trustee compensation in 11 U.S.C. § 326 precludes the addition of interest which would cause the aggregate paid to the trustee to exceed the cap?

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3. If interest is payable on administrative expenses under 11 U.S.C. § 726(a)(5), whether it accrues from the date of the order allowing the administrative expense?

For the following reasons, the Court finds that the Trustee is entitled to summary judgment on all three issues.

I. UNDISPUTED FACTS
1. The debtor filed a voluntary petition under Chapter 7 on August 31, 2001.

2. The debtor was initially represented by Christopher Dunn.

3. Samuel K. Crocker was appointed Chapter 7 Trustee on September 4, 2001.

4. The Meeting of Creditors was held October 10, 2001. At this meeting, the Trustee learned of an interest in real estate which was owned by the debtor, but not scheduled in the sworn statements and schedules filed by the debtor.

5. On October 31, 2001, Christopher Dunn filed a motion to withdraw as attorney for the debtor; by Order entered December 6, 2001, Mr. Dunn was allowed to withdraw. The debtor appeared pro se until Steve Lefkovitz took over the representation of the debtor. While proceeding pro se, the debtor filed several pleadings, including a motion to dismiss which was denied.

6. On August 2, 2002, the Trustee filed a motion requesting approval of the compromise and settlement of state court litigation. No objections were filed and an order

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was entered September 30, 2002, granting the motion and approving the proposed compromise and settlement.

7. The settlement funds were received by the Trustee and deposited into the Trustee’s estate account on November 1, 2002, in the amount of $4,791.50.

8. The Trustee filed a Report of Assets on June 18, 2003.

9. On June 20, 2003, the debtor filed a motion to convert his case from Chapter 7 to Chapter 13.

10. The case was converted to Chapter 13, and the Meeting of Creditors was continued several times until the debtor’s motion to dismiss was denied on October 16, 2003, and the Chapter 13 Trustee’s motion to re-convert the case to a Chapter 7 case was granted.

11. Samuel K. Crocker was re-appointed Chapter 7 Trustee on October 22, 2003.

12. The debtor received a Chapter 7 discharge on August 27, 2004.

13. Sometime thereafter, Mr. Lefkovitz ceased representing the debtor, and the debtor acted pro se throughout the remainder of the case.

14. On March 9, 2005, the Trustee filed a complaint against Lisa Edgin Hanna and the debtor seeking partition and sale of property. By order entered June 27, 2005, the Trustee’s motion for approval of compromise and settlement of the partition suit was granted.

15. On August 29, 2005, the Trustee received the settlement proceeds from the adversary proceeding from Lisa Edgin Hanna in the amount of $68,625.

16. On March 30, 2006, the Trustee submitted his Chapter 7 Trustee’s Final Report, and it was approved by the Court on May 30, 2006, over the objection of the debtor.

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17. The Trustee submitted an amended Trustee’s Supplemental Distribution Report on October 30, 2006, in order to distribute funds returned by the Internal Revenue Service.

18. The U.S. Trustee objected to the Trustee’s Supplemental Distribution Report on November 6, 2006, on the basis that the Trustee sought payment of interest on his trustee compensation and upon his attorneys fees and expenses.

19. The total funds received by the estate for distribution is $74,090.77.

20. Originally, the estate funds were insufficient to pay all creditors in full; however, when the Internal Revenue Service returned the funds it received in the distribution, the estate was able to pay all creditors’ claims in full as well as surplus funds to the debtor.

21. The Trustee was paid trustee compensation in the amount of $6,954.54 on June 5, 2006. The Trustee thereafter reimbursed the estate in the amount of $9.89, resulting in total trustee compensation of $6,944.65.

22. The maximum amount of trustee compensation allowable under 11 U.S.C. § 326 in this case is $6,749.07. The Trustee was overpaid an additional $195.58 in trustee compensation.

23. The Trustee requests interest on his trustee compensation in the amount of $1,025.95 which was calculated from the petition date of August 31, 2001, at the rate of 3.44% per day through December 18, 2006. The U.S. Trustee calculates the interest based upon the interest rate and time periods used by the Trustee to be $1,231.06. The difference is $205.11.

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24. The Trustee proposes to pay interest of $2,481.33 to Crocker Niarhos on their attorneys fees and expenses calculated at the rate of 3.44 % per day from the petition date through December 18, 2006.

25. Administrative claims allowed and paid in this case are as follows:

Samuel K. Crocker $6,954.54
Trustee Paid June 5, 2006

Crocker Niarhos $13,606.25 attorney fees and expenses
Paid February 2, 2006

Teri Hasenour Gordon $1,400 attorneys fees[1]
Paid June 6, 2006

Bankruptcy Court $150 fees and costs[2]
Paid March 16, 2005

International Sureties $7.23 in bond premiums[3]

[1] As noted by the U.S. Trustee, “Ms. Gordon was awarded attorney fees in adversary
proceeding 101-1723A on March 11, 2003. The trustee’s recommendation to pay the fees as an
administrative expense was approved in the Final Report.” The Trustee indicated during oral
argument that the parties agree that Ms. Gordon’s claim was not a true administrative claim.
[2] The Trustee paid this fee to the Bankruptcy Court upon the filing of an adversary complaint.
[3] The bond premiums were paid throughout the case.

26. The only administrative claims upon which the Trustee seeks to pay interest is his trustee compensation and the trustee’s attorneys fees and expenses.[4]

27. The debtor is entitled to payment of surplus funds, and the projected amount of $4,118.35 has not been paid.

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28. Samuel K. Crocker is a member of the law firm, Crocker
Niarhos.

II. SUMMARY JUDGMENT STANDARDS
Federal Rule of Civil Procedure 56(c), as incorporated by Federal Rule of Bankruptcy Procedure 7056, provides that summary judgment is proper if “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” The moving party bears the initial burden of informing the court of the basis for its motion and of identifying those portions of the pleadings and/or discovery materials which demonstrate that there is no genuine disputed issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S. Ct. 2548, 2553 (1986). Once the moving party meets that initial burden, the burden is shifted to the nonmoving party to go beyond the pleadings and by affidavits, depositions, answers to interrogatories, and/or admissions, designate specific facts showing that a genuine issue of fact does remain for trial.Id.; see also Klepper v. First Am. Bank, 916 F.2d 337, 342 (6th
Cir. 1990) (nonmoving party “must show sufficient evidence to create a genuine issue of material fact” to prevail).

III. DISCUSSION
In In re Hembree, 297 B.R. 515 (Bankr. M.D. Tenn. 2002) (relying on In re Smith, 267 B.R. 770 (Bankr. W.D. Tex. 2001)), Judge George C. Paine addressed the same issues

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raised in this case. Judge Paine methodically considered the relevant statutes and held that interest on the trustee’s commission and expense claims at the legal rate from and after the date of filing of the case is allowed:

`In this court’s view, the matter is resolved by a straightforward reading of the language of the relevant statutes. See United States v. Ron Pair Enterprises, 489 U.S. 235, 242, 109 S. Ct. 1026, 103 L. Ed. 2d 290
(1989).
Section 726(a)(5) directs that “property of the estate shall be distributed . . . fifth, in payment of interest at the legal rate from the date of filing of the petition, on any claim paid under paragraph (1) of this subsection.” 11 U.S.C. § 726(a)(5) (emphasis added). Subsection (1) of section 726(a) provides for distribution, as a first priority, “in payment of claims of the kind specified in, and in the order specified in, section 507 of this title . . .” 11 U.S.C. § 726(a)(1).
Section 507 in turn provides, as a first priority for distribution, “administrative expenses allowed under section 503(b) . . .” 11 U.S.C. § 507(a)(1). Then, section 503(b) permits the allowance as an administrative expense of “compensation and reimbursement awarded under section 330(a) . . .” 11 U.S.C. § 503(b)(2). Section 330(a)(1) allows the court to “(A) . . . award to a trustee . . . reasonable compensation for actual, necessary services rendered by the trustee . . . (B) reimbursement for actual, necessary expenses.” 11 U.S.C. § 330(a)(1). The award in section 330 is subject to section 326. That section in turn explains that “[i]n a case under chapter 7 . . . the court may allow reasonable compensation under section 330 . . . for the trustee’s services, payable after the trustee renders such services . . .” at certain maximum percentages dependent on the size of the estate. 11 U.S.C. § 326(a).
Thus, section 330 authorizes an award for the trustee’s commission and expenses, section 503(b) then authorizes the allowance of that award as an administrative claim against estate assets, and section 507(a)(1) accords that award a first priority of payment. Section 726(a)(1) then directs the distribution of estate assets to satisfy allowed claims which are accorded a first priority. Section 326 is a limitation on the maximum amount of the award that may be granted under section 330, but does not address, regulate, control, limit or otherwise affect the distribution process under section 726 [footnote omitted]. Subsection (5) of the distribution process does not come into play unless there are assets still left over after fully satisfying priority claims first,

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then ordinary unsecured claims second, then late-filed claims third, then claims for fines, penalties and the like fourth.
Before returning money to the debtor, the distribution scheme designed by Congress contemplated an interest payment, computed (1) at the legal rate, (2) from the date of filing, and (3) on any claim paid under, inter alia, paragraph (1) of section 726(a). There are no limitations or exceptions carved out in the statute with respect to this interest payment, and the language of the statute is both straightforward and plain. Neither policy considerations nor case law permit the court to ignore the plain language of the statute. See Ron Pair, 489 U.S. at 242-43, 109 S. Ct. 1026. The trustee’s commission and expense claims are two of the allowed claims that are satisfied with a distribution of estate assets, pursuant to section 726(a)(1). These allowed priority claims thus qualify for interest at the legal rate, just as do all other allowed claims that receive distribution under subsections (a)(1) through (a)(4) of section 726.
In addition, the interest to be paid pursuant to section 726(a)(5) is computed from the date of filing. Congress knew or should have known that the language that it selected (“from the date of filing”) would apply even to claims that were incurred after the date of filing. Congress nonetheless chose to permit a distribution of interest on such awards from the date of filing, in language that could not be more clear. If parties believe this proviso to be improvident or inappropriate, the remedy is to approach Congress for modification or amendment. Judicial amendments to clear statutory enactments are proscribed both by sound jurisprudential considerations and by the separation of powers principles built into our Constitution.’

In re Hembree, 297 B.R. 515, 518-19 (quoting In re Smith, 267 B.R. 770, 771-72).

Judge Paine went on to hold:

[t]he awarding of interest from the petition date, rather than some other judicially determined date, eliminates the uncertainty that would result in randomly selecting an alternative date. . . .
Section 726’s clear language allows payment of interest on section 507 claims (claims for administrative expenses allowed under section 503(b)), and section 503(b)(2) includes compensation awarded under section 330.

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Subsection (a)(5) of 726 provides for “interest at the legal rate” on any claim paid under 726(a)(1).

Id. at 520.

While these issues have not been addressed by the Sixth Circuit, its holding in Specker Motor Sales Co. v. Eisen, 393 F.3d 659 (6th Cir. 2004), is consistent with the reasoning set forth in Judge Paine’s opinion. In Specker, the Court held that 11 U.S.C. § 726(b) mandates a pro rata distribution among claims specified in each of the particular categories set forth in 11 U.S.C. § 726(a). Thus, the Court determined that the debtor’s attorney had to disgorge interim attorney fees to ensure a pro rata distribution among all administrative claimants. Id. at 664. Because interim compensation must be disgorged when necessary to achieve pro rata distribution of a Chapter 7 bankruptcy estate where there are insufficient funds to pay administrative claims in full, it follows that interest should be paid where a surplus of funds is available.

In the present case, the Trustee was reappointed in this matter on October 22, 2003. He filed his initial Final Report on April 4, 2006, which was approved on June 2, 2006, and filed his Supplemental Distribution Report on October 30, 2006. The administrative claims of the Bankruptcy Court and International Sureties were paid upon receipt while the Trustee’s claim for compensation was requested and approved at the conclusion of the administration of the estate and the Trustee’s claim for attorney fees and expenses was

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requested and approved shortly before. Accordingly, the Trustee and his law firm, as the only administrative claimants who were not paid contemporaneously, are entitled to interest pursuant to 11 U.S.C. § 726(a)(5).

IV. CONCLUSION
Based on the Court’s review of the pleadings, the arguments of counsel, and the relevant case law, the Court is persuaded by the reasoning set forth in In re Hembree, 297 B.R. 515. While other Circuits have held differently, the Court finds that Judge Paine’s opinion is in line with the Sixth Circuit’s approach to such issues. See Specker Motor Sales Co. v. Eisen, 393 F.3d 659, 664 (emphasizing central policy of “[e]quality of distribution among creditors,” and holding that one equally situated administrative claimant cannot receive more than pro rata share).

Accordingly, the Court finds that the U.S. Trustee’s objection to the Trustee’s Proposed Supplemental Distribution should be overruled and that the Trustee should be granted summary judgment.

An appropriate order will enter.

This Memorandum Opinion was signed and entered electronically as indicated at the top of the first page.

[4] Neither party argued that the other listed administrative claimants would be entitled to interest.