Lamie v. United States Trustee – Oral Argument – November 10, 2003

Media for Lamie v. United States Trustee

Audio Transcription for Opinion Announcement – January 26, 2004 in Lamie v. United States Trustee

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William H. Rehnquist:

We’ll hear argument first this morning in No. 02-693, John Lamie v. the United States Trustee.

Mr. Goldstein.

Thomas C. Goldstein:

Mr. Chief Justice, and may it please the Court:

The parties to this case agree on one thing, and that is that section 330(a) of the Bankruptcy Code contains a mistake of some kind.

Now, we disagree about what the mistake is, but there clearly is one.

The United States Trustee, for all of its rhetoric about the statute’s plain text, actually says that the statute contains two errors in two different places, but the list of compensable providers inadvertently includes a reference to the attorney and that the statute’s so-called payees’ list inadvertently omits the necessary conjunction or.

We say there was a different mistake, that the payees’ list inadvertently omits the reference to the debtor’s attorney, and our reading of the two is the superior one.

It is the one that’s most consistent with the… the structure of the statute as a whole, with the past bankruptcy practice, with the legislative history, and frankly, with common sense.

Sandra Day O’Connor:

Mr. Goldstein, who’s covered by fees available for a professional person employed under section 327 or 1103?

Thomas C. Goldstein:

That would be an attorney who’s retained by a trustee, and according to the U.S. Trustee, it would also be an attorney retained by a debtor in possession in a chapter 11 case.

The–

Sandra Day O’Connor:

But not chapter 7.

Thomas C. Goldstein:

–That’s correct.

The reason… and let me take you through the statutory scheme, and I should take you… everyone to the text, and it’s in the blue brief at page 2a of the appendix.

Anthony M. Kennedy:

That’s, obviously, of critical importance.

One piece of background information please.

Could the chapter 11 court have authorized the debtor’s attorney to do this work?

I mean, how does that work?

I… and I… I do agree that the chapter 7… the… the debtor’s attorney really is often required to do some very important things to get the chapter 7 filed.

But if the… if it’s an 11 first, as this one was, could the chapter 11 court have authorized the work to be done?

Thomas C. Goldstein:

According to the U.S. Trustee, no.

Let me, if I could, just step back and put this in context.

This is a converted case, just like, for example, the Hartford Underwriters case this Court had a few terms ago.

And so I take it the question might be, look, if they were a debtor’s attorney at one point… and we all agree that for the chapter 11 proceedings, they clearly were authorized to be paid under 330(a)… could that authorization have continued?

And I think the answer is no because at some point there will be a fee application and the fee application will be under 330(a), and what will happen is exactly what happened in this case.

The U.S. Trustee or the objector will say, look, for the period that it was a chapter 7, there’s a… a gap in the statute.

Anthony M. Kennedy:

Even if you tell the court in the chapter 11 proceeding, we’re going to go to 7 and we need the debtor to do some work, the… the court just has no power to authorize that work I guess is your position.

Thomas C. Goldstein:

Oh, no, no, no.

Our position is to the contrary.

The U.S. Trustee’s position is that it… they’re without power.

Thomas C. Goldstein:

I think it’s an important point.

We view the structure of the statute to operate just as it has for… the Bankruptcy Code has for 100 years, and that is, that the bankruptcy court is a gatekeeper.

It has to decide, in what are now the literal terms of the statute, whether the services of the debtor’s attorney are both necessary and beneficial to the estate.

The position of the U.S. Trustee is that even when the services are both necessary and beneficial to the estate… that is to say, even when they produce more money for the creditors, which is the whole point, after all… you still can’t perform the services and be compensable–

David H. Souter:

Well, why can’t the… I mean, their argument is the trustee can do it.

The trustee’s object is the maximize the… the value for the estate and so on, and… and therefore there’s no built-in conflict there.

Why isn’t that a way out of this drafting mess?

Thomas C. Goldstein:

–Because there are things that the Bankruptcy Code assigns as responsibility to the debtor, not the trustee.

And second, the provision that… and so let me… let me separate–

David H. Souter:

No, but is there any conflict in the trustee saying, look, you can do these things for the debtor and I’ll pay you?

Thomas C. Goldstein:

–Yes.

Let me take you to the relevant statutory provision.

This one is in the gray brief in the appendix.

That’s 327(e).

There is a passing suggestion in the Government’s brief… and, Mr. Chief Justice, that is at 1a of the gray brief.

It’s at the bottom.

There is a suggestion by the U.S. Trustee that if the debtor’s attorney really needs to do something, the trustee’s lawyer will hire the debtor’s lawyer, and so it all will work out in the end, and I take it that’s a point you’re picking up.

The statute is much more limited than that.

It says the trustee, with the court’s approval, may employ for a specified special purpose, other than to represent the trustee, and it goes on to say, an attorney that has represented the debtor.

The way this works… and we have tried very hard to find out how often this happens.

Mr. Lamie’s firm, for example, has been doing bankruptcy for 23 years and has represented the debtor in more than 4,000 cases.

In that entire time, the trustee has hired the debtor’s counsel two times.

David H. Souter:

Maybe… not to… not to be cute about it, but maybe those are the only times he should have.

Thomas C. Goldstein:

Well, we know that that’s not the case, Justice Souter, because the Bankruptcy Code does, as Justice Kennedy has suggested, give important responsibilities to the debtor qua debtor, not that are distinct from the duties of the trustee.

And let me give you an example of that.

And so those are jobs that can’t be handled by the trustee.

They’re the responsibility of the debtor.

David H. Souter:

But is there any conflict… any conflict of… of… you know, ethical or quasi-ethical conflict if the… if the trustee says, look, these responsibility… you’ve got to shoulder these responsibilities.

It’s very difficult for somebody who’s not a lawyer to do it.

Okay, I… I will employ a lawyer to help you.

David H. Souter:

Is there… is there any conflict between the trustee and the lawyer there?

Thomas C. Goldstein:

Yes, actually there is.

The… the problem is that the debtor and the trustee sometimes have divergent interests.

That’s why the legislative history to 327(e) says we want to limit the times that the trustee will hire the debtor’s lawyer.

But–

David H. Souter:

Would you give me… just give me an example, a garden variety example–

Thomas C. Goldstein:

–An exemption fight.

David H. Souter:

–of a conflict situation?

Thomas C. Goldstein:

An exemption fight.

David H. Souter:

Yes, okay.

Thomas C. Goldstein:

When you’re trying to… to decide whether or not the debtor gets to claim an exemption.

And so let me give you a couple more examples just about how this operates.

Ruth Bader Ginsburg:

Before you do, Mr. Goldstein, is it true that in most chapter 7’s, this is an academic question because there’s not any money to pay even the… any… the administrative creditors?

Thomas C. Goldstein:

Yes, but the fact that in relative terms, in terms of the percentage of chapter 7’s, it’s not that big a deal does not mean in absolute terms it’s not.

We know, for example, that there are at least 40,000 asset cases.

In particular, we have complicated business cases.

Hartford Underwriters, which you all had as a case, is an example.

William H. Rehnquist:

These end up as chapter 7 cases?

Thomas C. Goldstein:

Yes, Mr. Chief Justice.

There are a lot of converted business cases.

Generally when we believe there’s going to be an asset, they are pursued as a 11’s, but lots of times the ability to keep up with the creditors breaks down and they can get converted to 7’s.

And–

Sandra Day O’Connor:

Mr. Goldstein, you know, Congress had this problem brought to its attention a number of times and… and has chosen not to enact something, putting that language back in.

That I find somewhat persuasive.

Thomas C. Goldstein:

–In all candor, Justice O’Connor, I think that’s a point in their favor.

It’s just not one that’s going to overcome the other indications of Congress’ intent.

So let me speak to that and then what the other–

Stephen G. Breyer:

Before you get to the intent of Congress, I’m rather stuck with the language.

I mean, what we’d have to do, in order to come out your way, is to read the words, the court may award to a trustee, an examiner, a professional person employed under 327 or 1103, and the lawyer.

Is there one case that you’ve found… I’m sure you’ve looked because you’re very thorough… in the history of the world–

Stephen G. Breyer:

[Laughter]

–where… I couldn’t find any, but I don’t know all the cases in the history of the world… where… where, in fact, a court, when faced with a definite list like this and unable to say, and other such persons or… fool with the language.

Maybe you’ll think of some way of doing it… where a court is simply stuck in words of insignificance that weren’t there because they thought the legislature had made a mistake.

Can you give me a list of the most relevant such cases, if there are such?

Thomas C. Goldstein:

–Yes, and then I will come back to Justice O’Connor.

The point here is that there are a number of cases… and we cite these in our brief… that the expressio unius canon, on which you’re… to which you’re adverting–

Stephen G. Breyer:

No.

I’m not adverting to any canon.

Thomas C. Goldstein:

–Well–

Stephen G. Breyer:

I am adverting to the fact that the words aren’t there.

Thomas C. Goldstein:

–Justice Breyer, let me explain to why I think you are, and then you can tell me why I’m misguided, I’m sure.

[Laughter]

Stephen G. Breyer:

No.

All I want is the name of a case where a court–

Thomas C. Goldstein:

United States v. Wilson.

Stephen G. Breyer:

–All right.

Thomas C. Goldstein:

United States v. Wilson, and then I’ll come back to why I think their argument is an expressio unius one, and then I’ll explain to you U.S. v. Wilson.

It’s on page 10 of the yellow brief that we discuss it.

The statute says that the court may award to a trustee, an examiner, or professional person employed under section 327.

I’m back on 2a of the blue brief.

It has a list.

It doesn’t say only, and there are many cases.

There are legions of cases in which a list is not regarded as exclusive when… I think there’s a presumption of exclusivity, but when the contrary indications in the text or the history of the drafting or something else tells you that Congress didn’t intend the list to be exclusive, and this is such a case.

The reason I cite U.S. v. Wilson to you is that’s a case in which the statute referred specifically to the Attorney General.

The Attorney General, before the statute was revised, was supposed to compute the amount of time that is given as credit from pretrial detention.

Congress, as it did with section 330, rewrote the statute entirely, and this Court said, look, we admit that the reference to the Attorney General is gone, but it looks like it just got lost in the shuffle if we look at the other indications of Congress’ intent.

Now, let me just make one other important–

Sandra Day O’Connor:

Well, you think this just got lost in the shuffle?

Thomas C. Goldstein:

–Yes.

Sandra Day O’Connor:

That’s why I’m asking you a question that I hope–

Thomas C. Goldstein:

Yes.

Sandra Day O’Connor:

–you’ll be allowed to answer–

[Laughter]

–about what about Congress’ opportunity to correct it–

Thomas C. Goldstein:

Yes.

Sandra Day O’Connor:

–which they didn’t–

Thomas C. Goldstein:

Well, this Court has never really taken that view of subsequent legislative history, Justice O’Connor, but let me turn to the events.

In 1997, there were two bills that were proposed in the Congress that were a part of general correction legislation that had a variety of different provisions, including one fix for this one.

I think the important point is that at that time, the only case in the circuits interpreting the statute as it then stood went our way.

It was the 1996 decision of the Second Circuit in Ames.

And so I don’t think you can infer from the fact that Congress didn’t change the statute to confirm the rule in the circuits means that they intended to reject it.

Ruth Bader Ginsburg:

–Isn’t there a current… isn’t there a current correction… bankruptcy technical correction bill pending, and isn’t this absent from it?

Thomas C. Goldstein:

It is, but Justice Ginsburg… so now we have not just the failure to enact legislation exists, but the U.S. Trustee is relying on the failure to enact legislation that doesn’t even exist.

The point, I think, is that, look, if you read the statute, if you look at it right now, it’s simply ambiguous.

There’s a reference to the attorney that’s in there, and a reference to the attorney that’s missing.

This is not a case… and this is absolutely critical… in which there was a reference to the attorney, there was only one, and it disappeared, and we’re asking you to read it back in.

Our position is that the statute, as written, stands essentially in equipoise.

The two references to the attorney in the 1978 version of the statute were inextricably intertwined, and so if you look at the text right now, the fact that Congress hasn’t changed it doesn’t tell you anything about whether or not they intend it to be in there or not to be in there because the split is almost even.

There’s one–

Ruth Bader Ginsburg:

But now it has been called to their attention and it isn’t in the bill making other technical corrections.

Thomas C. Goldstein:

–Justice Ginsburg, I agree, and I… I’m obviously not making this point well enough.

What I’m saying is that the inference that would be normally drawn from the failure to fix a statutory error doesn’t cut in either direction here because, as I began in the introduction, both sides believes there… believes that there’s an error.

But we both think there’s a mistake in the statute.

The fact that Congress hasn’t corrected the mistake doesn’t tell us anything about what the mistake was.

John Paul Stevens:

But, Mr. Goldstein, you’re overlooking one… one other argument I think.

Before this statute was enacted, the Association of Bankruptcy… whatever the name of it is… called their attention to this drafting error and said we think it’s a drafting error.

Thomas C. Goldstein:

We… yes.

John Paul Stevens:

And nothing was done.

Thomas C. Goldstein:

Justice Stevens, let me put that series of events in slightly more context, and that is that in the House, when the bill was not pending there, there was a hearing, and this is one line in a 718-page record of just written materials submitted that says there is an inadvertent omission.

The… the one canon of construction that runs through this Court’s bankruptcy cases–

John Paul Stevens:

Let me just add one thought.

They said this appears to have been some minor drafting errors, including the apparently inadvertent removal of debtors’ attorneys from the list of professionals whose compensation awards are covered by 330(a).

NACBA does not oppose this provision since it contains language and so forth and so on.

So they… it’s… one can read that as saying even with the error, we don’t… we don’t oppose the provision.

Right.

We actually… that reference, we do not oppose this provision, we believe, in the context of those remarks, could be referring to the addition of section (a)(4)(B).

Congress in 1994 added a provision that’s much debated in the briefs about chapter 12 and 13 bankruptcies.

Remember, this is the National Association of Consumer Bankruptcy Attorneys, and what they were not objecting to is the addition of a provision that relates to consumer bankruptcies.

But let’s be perfectly clear.

The… the United States has scoured the legislative record of this change and has found one sentence in one House hearing, and it says that it was a mistake.

The principle in bankruptcy is if there’s a statutory change and it’s not clear on the text or at least in the legislative history, it’s presumed not to change–

–But isn’t… isn’t it possible also to read this as saying, yes, you made a mistake, but even so, it’s still a good bill and we think even with the mistake, we’re in favor of it, and then… and then Congress looks at it and says, yes, we did make a mistake, but… but the… our… we’ll stick to that decision because the United States’ position now is that that’s a wise… the provision is a wise one?

Thomas C. Goldstein:

–It is important to note, of course, that when the Department of Justice and the U.S. Trustee commented on the bill at the time, they did not say that this would be the result of the statute or that they proposed it.

But I don’t… Justice Stevens, I don’t think that when someone says there’s a mistaken omission… and remember, it’s of course at the time when the U.S. Trustee says language is mistakenly included at the same time.

When someone says there’s a mistake, that’s a very different thing from Congress… let’s engage in all of the false assumptions that people actually read this thing in the Senate and people paid attention… that Congress actually acknowledged, yes, we’re changing bankruptcy policy.

The standards for changing bankruptcy policy, particularly a policy as settled as this one, are much higher–

William H. Rehnquist:

Well, are the standards for changing bankruptcy policy in Congress different from the standards of changing other kinds of policy?

Thomas C. Goldstein:

–Mr. Chief Justice, the indications in this Court’s precedents… the answer to that question is yes.

William H. Rehnquist:

And what… what precedents are those?

Thomas C. Goldstein:

Those would be principally the line of cases that begin with Midatlantic.

We cite several of them, Hartford Underwriters, Ron Pair, that sort of thing.

The Court has recognized, going back to well before the ’78 code and subsequent to the ’78–

William H. Rehnquist:

Well, but some of the… the Midatlantic, for example, was shortly after the Bankruptcy Code was adopted succeeding the 1898 act, and there, there was probably a good reason for saying when you have that sort of a comprehensive revision, the presumption is that if something… it’s not clear where something was changed, we meant to retain the old.

But this wasn’t that sort of thing.

Thomas C. Goldstein:

–That’s correct, Mr. Chief Justice, but I think that the relevant answer would be that Cohen v. de la Cruz, which deals with a much more minor revision of the Bankruptcy Code than even this one, the 1984 revision applies the same principle and that is this Court has recognized that the provisions of the Bankruptcy Code are incredibly interrelated.

There’s a longstanding practice that has built up over time, and that Congress doesn’t lightly change it.

And let me talk about why this would have to be the–

Stephen G. Breyer:

At some point, will you go back to my first question?

Thomas C. Goldstein:

–Yes.

Stephen G. Breyer:

I just… you have just a few–

Thomas C. Goldstein:

Yes.

Stephen G. Breyer:

–I mean, why… because I looked at United States v. Wilson.

It doesn’t seem like this at all.

The statute said there said a defendant shall be given credit towards his sentence for time previously spent in prison.

It’s in the passive voice.

It doesn’t say whether it shall be given credit by the AG or also by a district court.

Well, obviously, you could read the language either way.

What I’m having problems here with is that I don’t see any way to read this language so that it comes out with your favor without putting in three words that aren’t there.

And I haven’t heard from Justinian… the time of Justinian, a court ever having done that, and if there is a court that did it, it wasn’t Wilson.

Thomas C. Goldstein:

Okay.

I think I’m responding to–

Stephen G. Breyer:

You can have–

Thomas C. Goldstein:

–I… I think… I think we have a new thread.

Perhaps the best answer to your point is Green v. the Bach Laundry, which is not a case that’s discussed in the… in the briefs, but I will explain how this arises.

And that is, Federal Rule of Evidence 609 said, look, if there’s going to be… if you’re going to impeach a defendant, you get to use prior convictions, and the Court looked at it and said, really, it says defendants, and we acknowledge it means all… you know, that the plain language of that is all defendants, and the Court inserted the word criminal and said from the–

Stephen G. Breyer:

–Inserted the word what?

Thomas C. Goldstein:

–Inserted the word criminal.

It said that rule 609 would only apply to criminal defendants.

Stephen G. Breyer:

But that’s… you’re not missing… you’re missing my point.

There are millions of ways–

Thomas C. Goldstein:

Yes.

Stephen G. Breyer:

–to read language in a statute–

Thomas C. Goldstein:

Yes.

Stephen G. Breyer:

–so that it has a limited scope or a scope over here or only applies there.

That’s so common every day of the week, and very often I look at the policy and I see if the statute is possibly construed in that way through that kind of limitation.

What I’ve never seen is a statute which you just can’t word by… read by limiting the scope or saying other things like this, et cetera.

Thomas C. Goldstein:

Right.

Stephen G. Breyer:

I’ve never seen a court just take three words out of the blue and insert them in that way in a statute.

Thomas C. Goldstein:

All right.

Justice Breyer, I think that I probably am not going to have a case that satisfies you, but I think that I can dispute successfully the premise, and that is, I do believe that your premise is that expressio unius applies.

Thomas C. Goldstein:

I promised I would come back to that point.

And the text says, the court may award to a trustee, an examiner, or professional person.

It doesn’t say to only those people.

What I’m telling you is that the other… the remaining indications of Congress’ intent indicate that Congress did not intend to limit the payment to go to those people.

And second, this is not a case in which only we have a textual problem.

Remember that the U.S. Trustee, just as you say we have to read in a… a word, they have to read out a word.

Antonin Scalia:

Well, they don’t have to read it out.

They just say the word is superfluous.

There’s… there’s no explanation for why it’s there.

But, you know, there are a lot of statutes that have superfluous words, and that does a lot less violence certainly to the statute to leave in a word that doesn’t have to be there than… than to insert a phrase, which is what you’re asking us to do.

Thomas C. Goldstein:

I think you and Justice Breyer may be making a similar point here, and that is, look, if we had the text and all we had was the text, it would do less violence you say, and I think I can conceded it would do less violence to read in the… the word rather than to render the other one superfluous or read it out.

But I don’t think that’s the question before you because you don’t just have the text.

If you… this was all that there was, you could apply a canon like that one.

It would do less harm, you know, the principle of sort of do no harm.

But what I’m telling you is that there is an ambiguity in the statute, that the provisions of the payees’ and the providers’ lists are inextricably intertwined, that the trustee can be paid for the services of the trustee, the examiner for services of the examiner, the professional person for services of the professional person.

And then there’s this gap for services of the attorney.

There’s an ambiguity.

And so just like any other case in which you have to resolve a statutory ambiguity, you look to other things.

Ruth Bader Ginsburg:

Why don’t you just say the first correction, which is… or the first, in… in your view, slip is the elimination of four words?

That’s really what they wanted to do because that’s the lead provision, and then in the subsidiary provision, there’s only one word that they left in.

So if you… just looking at the statute, I assume you would say the lead provision is the main one and the other, the subsidiary provision, four words in one case, one word in the other.

Thomas C. Goldstein:

I don’t think that we have to get down to the number of words or syllables or anything like that.

I think perhaps a more fair… if we’re… again, in the world of tie-breakers looking only at the text, it’s that the U.S. Trustee’s position requires you to conclude that there are mistakes in two different places, in both the payees’ list, the missing conjunction or, and the providers’ list, the inadvertent–

Ruth Bader Ginsburg:

But there were umpteen illustrations of missing or’s.

I mean, we really can’t put much weight on that.

Thomas C. Goldstein:

–Well, Justice Ginsburg, I don’t think there’s any greater canon that says we find errors presumptively in second provisions rather than first ones.

There are much greater indications of Congress’ intent than that.

We have a lot more to work with.

I do think I need to make two points.

The first is Justice O’Connor has, to some extent, focused on what happened here, you know, what did Congress know.

Thomas C. Goldstein:

I think it’s important to recognize, as I started to say, this would be a change without any consideration by Congress at all.

This statute started–

John Paul Stevens:

But how can you say that if this material I called to your attention was called to the attention at least of the staff of the committee?

Surely the staff would have recognized that because I presume they read it, and presumably they would have discussed it with the Congressmen and said, do you think we ought to make a change, and somebody said no.

Thomas C. Goldstein:

–Right, Justice Stevens, let me distinguish two different periods of time.

I was about to talk about… and we’ll come back to when this… the words got dropped out.

You’re focusing later, and so let me answer your question with… try and answer it in a somewhat different way, and that is, the only thing that was pointed out to them was that there was a mistake.

And if you look at the text, you don’t know what Congress’ intent was.

Was it to leave the language in or to delete it?

Because there are two parallel, intertwined references to the attorney.

I had said that I would come back to the ’84… to the ’94 change.

This is what the Fourth Circuit thought was so important.

That is, it mistakenly thought–

John Paul Stevens:

May I just get one other thought out?

What is the parallel provision that you say remains in?

Thomas C. Goldstein:

–That is the reference in… I’m on 2a of the blue brief, 11 U.S.C. 330(a), subsection (1)(A), what we’ve called the providers’ list.

And this providers’ list parallels the one in section 331.

John Paul Stevens:

Right.

Thomas C. Goldstein:

Reasonable compensation for actual, necessary services rendered by the trustee, examiner, professional person, or attorney.

So what happened is that–

John Paul Stevens:

Why… why couldn’t that refer to an attorney appointed by the trustee?

Thomas C. Goldstein:

–Well, it… as has been suggested, literally it could.

You could render it surplusage or you could say it’s the attorney of the trustee.

But a few things about that.

We know it really is surplusage because there’s already a reference to the attorney of the trustee.

That’s the professional person.

This was one of the first questions–

David H. Souter:

No, but it… not… the… the… there’s another possibility: any attorney employed by the trustee.

And that’s not surplusage.

You have given me a reason why there may be a conflict involved if the trustee does employ an attorney for the debtor, but whatever it is, it’s not surplusage.

Thomas C. Goldstein:

–It is, Justice Souter.

The reference in this line to a professional person is the professional person employed under section 327.

That’s the trustee’s attorney.

The… and the United States doesn’t dispute this.

It acknowledges that it is surplusage.

David H. Souter:

No, but if the trustee appoints an attorney not for himself, but for the debtor–

Thomas C. Goldstein:

Ah.

David H. Souter:

–then it’s not surplusage.

Thomas C. Goldstein:

I apologize.

The trustee is not empowered to… I… I think I may have confused you back at the beginning of this.

The trustee is not empowered to hire a person to represent the debtor.

David H. Souter:

I… let me… let’s assume I misspoke.

The trustee may very well be empowered to pay the person employed by the debtor.

Thomas C. Goldstein:

No.

David H. Souter:

That’s a way of reading these two sections together.

Thomas C. Goldstein:

Okay.

If so, we win.

[Laughter]

And there will be an explanation to follow.

David H. Souter:

I did not expect that answer.

Thomas C. Goldstein:

Yes.

[Laughter]

David H. Souter:

Why?

Thomas C. Goldstein:

We all should assume that all… the answer to all the questions, if so, we win, because what would happen is that, remember, literally the debtor’s attorney may be… provides compensable services, and then the ambiguity that Justice Breyer has focused on and then you have is that we have the question of, okay, who… who gets the money.

Does it go to the trustee, the examiner, or the professional person?

So if the trustee gets paid for the services of the debtor’s attorney… remember, this is a case in which Mr. Lamie acted at the request of the trustee… then the trustee has to turn the money over.

The money actually belongs to Mr. Lamie.

He provided the services.

That’s how it would all work together.

And that is, in a case like this one, where the debtor’s attorney acts at the request of the trustee… this case is your hypothetical.

Thomas C. Goldstein:

The money goes to the trustee who then obviously has to turn it over the attorney.

That’s who would have the equitable interest in it.

If I could retain the balance of my time.

William H. Rehnquist:

Very well, Mr. Goldstein.

Ms. Blatt, we’ll hear from you.

Lisa Schiavo Blatt:

Mr. Chief Justice, and may it please the Court:

The Bankruptcy Code contains no authority to use estate funds that are held for the benefit of creditors to compensate the chapter 7 debtor’s attorney.

Before 1994, the code authorized estate funds to be used to compensate all debtors’ attorneys, but the 1994 amendments unambiguously deleted the chapter 7 debtors’ attorneys from the class of persons eligible to receive compensation under the statute.

David H. Souter:

It eliminated them unambiguously I guess from the class of persons entitled to be paid directly, but did it eliminate them from the class of persons who might ultimately be compensated, i.e., the class in… in… what is it?

Subsection (a).

Lisa Schiavo Blatt:

Yes.

Only the… if… an attorney, including the debtor’s attorney, can still be compensated, but he has to be appointed by the court under section 327 and then he stands as a professional person that’s retained under 327, but that has to be retained under 327.

David H. Souter:

So… so the… so the reference is surplusage in (a).

Lisa Schiavo Blatt:

It’s superfluous in this sense.

Our reading of the statute is the same regardless because the attorney is nothing more than a subset of professional persons.

David H. Souter:

Yes.

Lisa Schiavo Blatt:

But Congress may… it may have failed to make a conforming change, but it’s also possible that Congress specifically left the word in because Congress often uses overlapping terms to accomplish its objectives.

And it was doing no harm there, and it would at least remove any doubt that even the debtor’s attorney could be paid as long as he qualified as a professional person that was retained under 327.

John Paul Stevens:

But the word attorney in 330 would then have a different meaning after the amendment than it had before because before the amendment, it clearly referred to the debtor’s attorney, did it not?

Lisa Schiavo Blatt:

That’s correct, but there’s no question that the… the code, as it now stands, has… omits the debtor’s attorney from one of the authorized people.

And what petitioner is basically seeking, Justice Stevens, is a substantive enlargement of the code because he wants to do something, that is, receive a–

John Paul Stevens:

Well, he’s arguing the word attorney means the same thing it always meant.

In other words, in 330.

Lisa Schiavo Blatt:

–That’s fine.

The debtor’s–

John Paul Stevens:

And you’re saying it means something different.

Lisa Schiavo Blatt:

–It could still mean the debtor’s attorney, but there’s no question in this case petitioner was not authorized to be retained by the trustee under section 327.

The debtor’s attorney is unambiguously not one of the list of people in 330(a) who is authorized to receive compensation, just like a creditor’s attorney is not on that list or a debtor’s spouse is not on that list.

Ruth Bader Ginsburg:

Why does it make any sense, considering that the code does give obligations, duties that must be done by the chapter 7 debtor?

And some of them are pretty complex.

Lisa Schiavo Blatt:

Well, I think it reflects the fundamental distinction between chapter 7 and all other codes.

That’s chapters 11, 12, and 13.

In a chapter 7 case, the bulk of the work is done pre-petition.

It’s advising the debtor about which chapter to file, filling out the schedules, telling the debtor what property is exempt, and so forth.

And in chapters 11, 12, and 13, the whole game is in doing a plan which is all post-petition, and the trustee and the debtor, the… excuse me… the debtor and the creditors work together to figure out a plan.

Anthony M. Kennedy:

But… but why doesn’t that help the petitioner?

As Justice Ginsburg is indicating, before the petition is filed, a chapter 7 debtor has to comply with some rather complex forms, plus be advised of… of his duties and liabilities.

Don’t take assets out the back door and so forth.

So there’s a chronological problem here that… the… the trustee can’t appoint the attorney until the proceeding is filed, but the attorney is really required to do some advance work.

Lisa Schiavo Blatt:

Justice Kennedy, there’s no question that both before and after the 1994 amendments, chapter 7 debtors retained counsel, but they do so in the overwhelming majority of cases with a pre-petition flat fee, usually 750 to $850.

They pay their lawyer pre-petition.

Sandra Day O’Connor:

And that can be paid.

Lisa Schiavo Blatt:

Absolutely.

Sandra Day O’Connor:

That is paid the lawyer–

–Is it established that’s not avoidable preference?

Lisa Schiavo Blatt:

Absolutely.

It’s in the ordinary course of–

William H. Rehnquist:

For current services?

Lisa Schiavo Blatt:

–Yes.

This is done day in and day out.

United States Trustees have supervised the liquidation of a million cases each year.

Ruth Bader Ginsburg:

It would be avoidable preference if it’s too high, wouldn’t it?

Lisa Schiavo Blatt:

If it’s too high, but I’m talking about the standard, routine fee of under $1,000 if somebody walks in because they’ve been overwhelmed by credit card debts or gambling debts or had a divorce, they need representation on how to fill out the schedules, what types of property are exempt, and they retain counsel, the counsel takes that money, gets the standard flat fee, that… and all the services are earned pre-petition with one exception.

David H. Souter:

What if the… what if the check bounced and there’s now been a conversion to 7 and the… and the lawyer says, I ought to be paid for my 11 work?

On your theory, does he get paid?

Lisa Schiavo Blatt:

Not out of estate funds.

He should probably clear… have the check cleared before he performs the services.

David H. Souter:

He clears the check.

Yes.

Lisa Schiavo Blatt:

Bankruptcy counsel do this–

David H. Souter:

So you’re saying at this point, regardless of chapter 11 work, chapter 7 work, no payment out of the… the estate funds.

Lisa Schiavo Blatt:

–Not out of estate funds, but it’s… it’s critical to understand that in chapter 7, unlike all other chapters, the… the estate is frozen at the time of petition.

98 percent of all chapter 7 debtors are individuals.

If they have a job or any post-petition income or there are exempt assets, they can use that money to pay the… pay counsel to assist them in completing bankruptcy.

And I want to… do want to address one very… one class of very important services that came up that I think, Justice Souter, you raised, and that is when the debtor and the trustee or creditors are fighting over objections to exemption.

They could also be fighting over objections to discharge.

These are serious matters where often the debtor is accused of misconduct and the debtor will need a lawyer.

There’s no question that even before the 1994 amendments, the overwhelming majority of courts would have held that those are services that benefit the personal… that go to the personal benefit of the debtor and not the estate.

And they would not have been compensable even before 1994, and if this… if this Court is going to take the extraordinary step of writing it back in, it will not affect those cases.

And so–

John Paul Stevens:

Let me ask you about–

Lisa Schiavo Blatt:

–Sure.

John Paul Stevens:

–a provision of the statute you didn’t include in your brief, or at least in the appendix.

Section 329–

Lisa Schiavo Blatt:

Yes.

John Paul Stevens:

–specifically authorizes the debtor’s attorney to receive a retainer, as I understand it.

Lisa Schiavo Blatt:

That’s for the code as it… what… this is a… a pro-creditor provision that recognizes that debtors will often go to counsel before they file bankruptcy, and anyone, whether or not you seek compensation under the statute, any lawyer for any debtor who ultimately files for bankruptcy has to disclose their fee arrangement, and the court can order the cancellation of it or return of the fee if it’s excessive or unreasonable.

John Paul Stevens:

But… but if the court does not order a cancellation of it, it seems to me that provision contemplates a payment to the debtor’s attorney for his services to the debtor.

Lisa Schiavo Blatt:

Pre-petition.

This is for a… any type of fee arrangement that’s pre-petition whether or not you apply for compensation.

There are many cases where the chapter… excuse me… the debtor’s counsel will, in fact, be paid under 12, under 13, under 11, and those–

John Paul Stevens:

This refers to 7.

I think 329 applies to chapter 7 cases.

Lisa Schiavo Blatt:

–Right.

Any… any debtor.

Even if there was an express prohibition for money for the estate to be paid, section 329 would still independently operate to require the counsel to disclose his fee agreement.

It applies whether or not compensation is ever sought under 330.

John Paul Stevens:

Well, in section (b), it authorizes the court to cancel it… cancel the agreement if it’s unreasonable compensation.

So it seems to me it applies that if the compensation was reasonable, they could approve it.

Lisa Schiavo Blatt:

Right, but that’s… that’s pre-petition.

John Paul Stevens:

Well, I understand, but the money has to be paid pre-petition.

Here, of course, it was, but he kept it in escrow instead of putting it in his pocket.

Lisa Schiavo Blatt:

That’s right.

So it remained the funds of the estate and it had to be paid under 330 and it was… it was not a question of 329.

But the other… other point I want to get back on why this serves reasonable policy objectives, not only does the individual debtor have the ability to pay counsel with either his exempt assets, his post-petition income, or a pre-petition flat fee, but chapter 7, unlike all other cases, it is the trustee and not the debtor who manages, represents, and liquidates the estate.

And the code gives the trustee the explicit authority under section 327 of the code to retain counsel, including the debtor’s counsel, to take actions that further the benefit… the best interests of the estate.

Ruth Bader Ginsburg:

But not that would assist the debtor in the exemption example.

Lisa Schiavo Blatt:

No.

That’s exactly right.

If the… if for some reason the trustee could not read an accounting form and the debtor’s counsel couldn’t answer it, the trustee can go retain a professional person like an accountant, and if the trustee needs a lawyer to take actions to further the best interests of the estate, it is true that that lawyer represent the… represents the estate, but there’s no reason he can’t meet with the debtor and help him explain something.

But 96 percent of all chapter 7 cases, there are no assets in the estate to begin with.

These are the kind of cases I was talking about, where they are covered by a routine flat fee that covers–

John Paul Stevens:

I really don’t understand that argument because this case just involves the other 4 percent, and there are a lot of cases in the 4 percent, aren’t there?

Several thousand.

Lisa Schiavo Blatt:

–That’s true, and in those cases–

John Paul Stevens:

So what difference does it make that 96 percent… it doesn’t make any difference.

I don’t understand that argument.

Lisa Schiavo Blatt:

–I think it goes to the idea that given that there’s a plain absence of any statutory authority to do this, the question is, is this some sort of absurd result that Congress could not have plausibly intended?

And in the 4 percent of categories where there are assets, Justice Stevens, the trustee represents the estate.

He manages it and he liquidates it.

And if there’s money to be paid to… for counsel and the counsel’s services are needed, the trustee can use that money and retain counsel.

At the same time, the chapter 7 debtor–

John Paul Stevens:

Has retained counsel to do work to benefit the estate, not retained counsel to represent the debtor.

Lisa Schiavo Blatt:

–That’s right.

And at the same time, there is–

John Paul Stevens:

Which he could have done before 1996.

Lisa Schiavo Blatt:

–Right.

And there’s nothing in the 1994 amendments that prevents the debtor from taking his post-petition salary, his exempt assets–

Ruth Bader Ginsburg:

Not if he’s a company, as in this case.

Lisa Schiavo Blatt:

–Right.

Lisa Schiavo Blatt:

In a… in a company, Your Honor, it’s important, Justice Ginsburg, to keep in mind everything like objections to discharge, exempt assets… none of that applies to corporations.

Corporations, unlike individuals, do not survive bankruptcy, and so they don’t have issues like exempt assets and objections to discharge.

You have a defunct corporation that’s liquidating.

And we think this case is a perfect illustration of what happens when you have a case with marginal assets in chapter 7, and that’s usually where the… the businesses with no assets or marginal assets go, is chapter 7.

The trustee had ample authority to retain petitioner’s counsel, and in fact, what happened ultimately in this case is what… the bulk of what petitioner’s counsel was doing was representing the estate in a fight with a creditor and–

David H. Souter:

Well, he didn’t have ample authority to do it before the chapter 7 was filed, did he?

Lisa Schiavo Blatt:

–No.

When the case is in chapter 11, the debtor is the debtor in possession with all the powers and duties of the trustee, and it’s solely the debtor.

There is no trustee.

The debtor has to take actions to represent the estate.

All that changes when it converts to a 7.

Then it’s the trustee.

The keys have to be turned over to the trustee and the trustee runs the show.

David H. Souter:

But… but I thought you indicated that the trustee had ample authority to hire the debtor’s attorney, and I… in the chapter 7 proceeding, and I said, true, but does he have the authority to hire the debtor’s attorney before the chapter 7 is filed?

That’s what we’re talking about.

He doesn’t have that authority.

Lisa Schiavo Blatt:

This… I mean, I’ll try to take you chronologically.

The case started out an 11, and then the petitioner was… was retained under section 327, had a specific order, and therefore was entitled to be paid from the estate.

Once the case–

David H. Souter:

For work done from that time forward.

Lisa Schiavo Blatt:

–Work done just while it was an 11.

Once it’s in a 7, all those duties ceased.

There was nothing for the corporation to do except liquidate and cooperate with the trustee, who had the statutory responsibility to represent and manage and liquidate the estate.

Anthony M. Kennedy:

Well, there’s no trustee until chapter 7, is there?

Lisa Schiavo Blatt:

That’s right.

Right.

Once… once it converts to chapter 7, then it’s the trustee’s job to take over.

And the trustee eventually did take over the adversary proceeding and bring the… continue the case against the creditor.

John Paul Stevens:

And he can hire the… and he can hire the debtor’s attorney to do work in the chapter 7, but that doesn’t compensate for what… the work that was done before chapter 7.

Lisa Schiavo Blatt:

That’s right.

Ruth Bader Ginsburg:

The work that was done before chapter 7 was compensated in this case.

Lisa Schiavo Blatt:

Yes, it was paid.

There was $2,000 of fees in this case and $3 in expenses, and $1,000 has been paid for all the work in 11.

And what will happen, if the Court affirms the Fourth Circuit, is when cases convert, the debtor’s counsel will cease performing work unless the trustee actually gets a court order approving their retention.

The trustee can hire its own lawyer to assist with its… with… with his or her duties and can hire the debtor’s counsel for a special purpose.

And that would have been like this case where there’s an adversary proceeding either by or against the debtor.

United States Trustees have supervised and overseen the liquidation of millions of chapter 7 cases in the 9 years since the 1994 amendments, and it has been their experience that the statute, as written, has not interfered with the smooth functioning of chapter 7 cases.

William H. Rehnquist:

Are all trustees in chapter 7 cases United States Trustees?

They’re not, are they?

Lisa Schiavo Blatt:

None of them are.

The United States Trustees supervise and oversee the administration of all cases under 7, 11, 12, and 13, and one of their specific duties is to supervise trustees, private trustees, who… who perform their… their jobs and duties as trustees.

William H. Rehnquist:

Even if the Government isn’t involved in the case.

Lisa Schiavo Blatt:

Right.

There’s always a… there’s always a private trustee appointed except in 11 cases, but the United States Trustees supervises and oversees, serves as a watch dog, looks at things to make sure there’s no waste, fraud, or abuse, reviews all fee applications for the… by the trustee, the examiner, the debtor’s counsel in chapter 11 cases, and–

Ruth Bader Ginsburg:

The bankruptcy judge appoints the trustee.

Lisa Schiavo Blatt:

–I don’t know if… Justice Ginsburg, I’m not sure whether it’s the… the bankruptcy court does appoint the trustee.

That’s right.

But the United States Trustees within the Department of Justice manages a pool of available trustees who can serve to be appointed by bankruptcy courts.

And so we oversee trustees and make sure they’re fulfilling their duties.

William H. Rehnquist:

Does the bankruptcy court appoint a U.S. Trustee in every single case?

Lisa Schiavo Blatt:

No, no.

There are… no.

There are 21 United States Trustees that oversee all the regions of this country, with the exception of North Carolina and Alabama, and they just overview and supervise the administration of the cases in the sense of make sure that the cases are actually proceeding through the court, make sure that cases that need to be converted–

William H. Rehnquist:

They… they do that without any appointment by the bankruptcy court then I take it.

Lisa Schiavo Blatt:

–That’s right.

Under 28 U.S.C. 586, it’s… it’s a laundry list of specific statutory duties that the United States Trustees have to comply with.

Under the Bankruptcy Code itself, in 11 U.S.C. 307, it says that the United States Trustees may be… may raise or be heard on any matter in any bankruptcy case, and that’s why they’ve been in all of these cases involving fee applications because in their view, given the… that there’s just complete absence of any statutory authority to pay chapter 7 debtor’s counsel, they’ve been objecting to fee requests.

The one thing I just want to get back to on the statute is petitioner says that the statute is ambiguous, and we could not disagree more.

There is no language in the code that authorizes the chapter 7 to be paid.

What petitioner has relied on is a missing or and this overlapping or redundant reference to attorney.

Lisa Schiavo Blatt:

But it’s critical to understand that nothing about the missing or or the reference to attorney in (a)(1)(A) affects the substantive meaning of the statute or in any way prohibits the Court from applying the literal language of the code or requires the code to do… requires the Court to do something the code prohibits.

By contrast, what petitioner is seeking is a substantive enlargement, and as far as we can tell, there is no case of this Court’s jurisprudence where the Court has added back language in a statute and where… in a substantive way that Congress has specifically taken out when there’s no language that will bear that interpretation.

If there–

John Paul Stevens:

If you’re through, let me just–

Lisa Schiavo Blatt:

–Sure.

John Paul Stevens:

–Maybe this is a little repetitious, but I want to read you two sentences from Collier on Bankruptcy, the treatise that most of us rely on perhaps too much in this area.

After describing the Government’s position in this, it would represent a fundamental change in the law.

The treatise goes on.

Section 329 of the code permits the debtor’s attorney to receive a reasonable retainer for services rendered in contemplation of or to be rendered in connection with a case under the Bankruptcy Code.

Such a provision would be superfluous if the deletion in section 330(a) is construed as excepting debtor’s counsel from compensation under section 330.

What’s your response to that again?

You’ve partly responded, but I want to be sure you cover it all.

Lisa Schiavo Blatt:

This is the reference to attorney, the reference to attorney in (a)(1)(A).

John Paul Stevens:

Yes.

Lisa Schiavo Blatt:

Your Honor, it’s… the… the short answer it’s… it’s in the wrong place.

The critical operative list that provides the type of people who can receive compensation is in (a)(1), and the reference to attorney just describes the type of compensable services, which also includes paralegals, para-professionals.

John Paul Stevens:

No.

They… they rely on section 329, which talks about–

Lisa Schiavo Blatt:

Oh, I’m… 329.

John Paul Stevens:

–that that’s… they say section 329 permits all this, and they say that provision would be superfluous if your reading of 330(a) is correct.

Lisa Schiavo Blatt:

Collier is just wrong.

The provision is–

[Laughter]

–on this point… is that it operates independently and requires a disclosure of all fee agreements whether or not there’s compensation, and maybe another way of putting it is is whether or not the Court rewrites the code, 329 is going to apply as… as it always has and require a disclosure of… of pre-petition fees.

Ruth Bader Ginsburg:

What was the… the fees that were attributed to the chapter 11 phase, when approval was sought, wasn’t that under 329 when… there… there was the… the lump sum $6,000, and something over $1,000 was attributed to the pre-petition chapter 11 time.

Wasn’t the approval of that under this section 329?

Lisa Schiavo Blatt:

Yes, Justice Ginsburg, by both the bankruptcy court and the district court because they proceeded on the erroneous assumption, as found by the Fourth Circuit, that this was money that belonged to the lawyer instead of the estate.

And if it had been… and this was an 11 case.

You don’t see in chapter 7 large pre-petition retainers like this because the chapter 11 usually contemplates ongoing work after bankruptcy.

But in this case, they did what most lawyers do, is put the money in the trust account, and it wasn’t earned… it wasn’t earned by the lawyer until the services were performed.

Lisa Schiavo Blatt:

But the bankruptcy court and the trial court proceeded on the assumption the money belonged to the lawyer, and so if the… if the pre-petition money is money of the lawyers, then it’s reviewed under 329.

But then the Fourth Circuit said, well, no, this is actually money of the estate and it has to be… it’s estate funds.

Those are held for the benefit of creditors and there’s no statutory authority to use estate funds to pay the chapter 7 debtor’s attorney.

If there are no questions, we’d ask the Court to affirm the Fourth Circuit’s–

William H. Rehnquist:

Very well, Ms. Blatt.

Mr. Goldstein, you have 3 minutes remaining.

Thomas C. Goldstein:

Mr. Chief Justice, the reason that the U.S. Trustees are not finding that this ambiguity creates a problem is that there has been a shift in practice in those courts like the Fourth Circuit that hold that you can’t be compensated as a chapter 7 debtor’s attorney under 330, and that is people in bigger cases are getting bigger and bigger retainers.

What’s happening is the scenario that Justice Stevens described, and that is, people are saying I’m not going to be paid on an ongoing basis, so I’ve got to get more money up front.

That can’t be a result that Congress contemplated under the U.S. Trustees’ vision of what Congress was up to–

Ruth Bader Ginsburg:

But can’t that be checked by the court under 329 and say that’s too much?

Thomas C. Goldstein:

–Precisely, precisely.

But that’s my point.

What results is the 329 fees are subject to a Lessing standard.

They just have to be reasonable.

They aren’t subjected to all the laundry list of 330.

So the result of this change, if there was a change, would only have been to decrease judicial oversight.

Retainers are subject to less to judicial scrutiny.

The second point I should make is that don’t come away from the argument that this… believing that this case is limited to chapter 7.

It applies equally to chapter 11 debtor out of possession cases and chapter 12 and 13 cases for services that are beneficial to the estate, but not the debtor.

The U.S. Trustee has always pitched this as somehow a case limited to chapter 7, but that’s not accurate.

And the Pro-Snax case from the Fifth Circuit, for example, is a chapter 11 debtor out of possession case.

Third, Justice Souter, I still don’t understand what the answer is to your reading of the statute.

Justice Breyer, Justice Souter said, okay, there are a list of three people who can get the check: the trustee, the examiner, the professional person.

Fine.

But we also know, as Justice Stevens has said, that the statute’s reference to the attorney has always been to the attorney, the same reference to the attorney in 331 is a reference to the attorney.

321 says a chapter 7 attorney can get a retainer.

Justice Souter has said isn’t the literal language, if we’re going to follow the literal language, that the money can go to the trustee, to which I said, and that’s… you know, the trustee directed Mr. Lamie to do these things, and therefore the trustee just owes the money back to the debtor’s attorney.

That rationalizes all of the text.

The important thing then in deciding whether to follow the literal text is, is there anything to support?

Is there a whit… a whit… of indication in the history of the statute that Congress intended to do what the U.S. Trustee has hypothesized?

Thomas C. Goldstein:

Is there a word that from 1898 to 1994 Congress decided to make this choice to eliminate fees that are both necessary and beneficial?

Those are the only fees we’re talking about, those that benefit the creditors.

Did Congress intend to eliminate them?

Is there any indication of that?

And the answer to that question is no.

And that’s important because the U.S. Trustee is not correct to say that when a chapter 7 is initiated or if the case is converted, that the debtor and the debtor’s attorney leaves the field.

There are ongoing duties.

There’s the 341 hearing, the meeting with the creditors.

There is the duty of the debtor’s attorney to transfer the materials to the trustee, to cooperate with the trustee.

Here, there was an adversary proceeding.

The trustee wasn’t substituted as counsel for 8 months, and somebody had to tell the trustee about that.

There are real responsibilities.

And we’re not talking about, in any particular case, a ton of money, but it is important.

William H. Rehnquist:

Thank you, Mr. Goldstein.

The case is submitted.