[00:00:02] Speaker 04:
Enraged Chapter 13 trustee fees in unconfirmed Chapter 13 cases.

[00:00:09] Speaker 04:
Mahisha Subraman appearing for appellant.

[00:00:14] Speaker 04:
Luisa A. Szilard appearing for appellee.

[00:00:28] Speaker 06:
Good morning.

[00:00:28] Speaker 06:
Would you like to reserve some time for rebuttal?

[00:00:30] Speaker 00:
Yes, I would, Your Honor.

[00:00:31] Speaker 00:
I'd like to reserve five minutes.

[00:00:32] Speaker 06:
Very good.

[00:00:33] Speaker 06:
Go ahead.

[00:00:34] Speaker 00:
May it please the panel?

[00:00:35] Speaker 00:
My name is Mahesha Subraman.

[00:00:37] Speaker 00:
It is my privilege to represent Chapter 13 Standing Trustee Diane C. Kearns.

[00:00:43] Speaker 00:
As the panel is aware, this appeal concerns the Trustee's due process challenge to the Bankruptcy Code's imposition of a planned confirmation condition on the user fees that fund the Trustee's office.

[00:00:56] Speaker 00:
The bankruptcy court erroneously determined that Ninth Circuit precedent foreclosed the trustees due process challenge as a matter of starry decisis.

[00:01:05] Speaker 00:
We ask that the panel reverse the bankruptcy court's decision, reach the trustees due process challenge, and decide that challenge in the trustees' favor.

[00:01:13] Speaker 00:
I welcome the panel's questions.

[00:01:15] Speaker 06:
You know, you cite the case involving the mayor who got paid for a conviction.

[00:01:20] Speaker 06:
One of my questions about that is, isn't your client the mayor?

[00:01:25] Speaker 06:
And if so, how is the mayor's due process rights violated by that arrangement?

[00:01:30] Speaker 06:
I can see how the defendant's rights are violated, but how are the mayor's rights violated?

[00:01:35] Speaker 00:
Well, Your Honor, I think that it's important to recognize that if you're kind of looking at this from a kind of what you might call an Article III standing perspective, the question is, do we have an injury?

[00:01:45] Speaker 00:
Is that injury being caused by the law or the issue that is at stake here, and can it be remedied?

[00:01:50] Speaker 00:
And I think we have all of that here.

[00:01:52] Speaker 00:
We have an injury, and we have two forms of injury essentially.

[00:01:56] Speaker 00:
One, we have the monetary injury that the trustee is suffering through the lost fees that she should otherwise be able to collect.

[00:02:02] Speaker 00:
But we also have in place a statutory requirement that the trustee is the representative of the estate and has to be disinterested.

[00:02:11] Speaker 00:
And that her fidelity or her ability to be faithful to that condition is impaired, as is true for all Chapter 13 trustees, so long as the condition remains in place.

[00:02:21] Speaker 00:
And so I think we can say at a minimum that the trustee has an interest, as funny as this might sound, in her disinterestedness, in ensuring that her office is able to perform the functions that the Bankruptcy Code requires it to perform, and that requires her by bond to faithfully perform.

[00:02:41] Speaker 06:
But I still don't see the injury has to be tied to the the violation, right?

[00:02:46] Speaker 06:
So how is her injury tied to a violation of her due process?

[00:02:51] Speaker 00:
Well, her due process interest is in being able to faithfully perform the functions of trustee.

[00:02:58] Speaker 00:
As we understand it, due process requires the trustee to be financially disinterested.

[00:03:03] Speaker 00:
That's what the BAP cases say.

[00:03:05] Speaker 00:
That's what the Ninth Circuit's cases say.

[00:03:07] Speaker 00:
And that's what the Supreme Court says.

[00:03:09] Speaker 00:
So if you think about a case, for example,

[00:03:11] Speaker 00:
like Mosser versus Darrow, which is the Supreme Court's seminal case on bankruptcy trustee.

[00:03:16] Speaker 00:
What that case says, very clearly, is that trustees have to forego any form of financial arrangement that biases them.

[00:03:26] Speaker 06:
Congress... Even if Congress imposes that relationship?

[00:03:30] Speaker 00:
Even if Congress imposes it, if what we're in the end talking about here is a constitutional due process restriction.

[00:03:36] Speaker 02:
Right.

[00:03:36] Speaker 02:
So Chapter 7 trustees should be in trouble then, huh?

[00:03:39] Speaker 00:
Your Honor, I'm not going to speak to anyone beyond Chapter 13 trustees.

[00:03:44] Speaker 02:
You're taking a pretty big axe to a pretty big tree here.

[00:03:47] Speaker 02:
So, I mean, if that's the case, then Chapter 7 trustees inherently are statutorily financially interested.

[00:03:55] Speaker 00:
Well, no, Your Honor, I don't think so, because I think in the end the question is, at least for the trust, just generally speaking for trustees, whether or not it is appropriate to condition the fees that they are being paid on planned confirmation.

[00:04:10] Speaker 00:
Now, there is no plan in a Chapter 7 case.

[00:04:13] Speaker 00:
There is in Chapter 13.

[00:04:14] Speaker 06:
There's objections to exemptions, there's sales of property.

[00:04:17] Speaker 06:
There's all kinds of ways in which the trustees' decisions put more money in the trustees' pocket and less in the debtor or creditor's pocket.

[00:04:24] Speaker 00:
That may well be the case, Your Honor, and I fully appreciate that.

[00:04:27] Speaker 00:
And maybe that's a challenge or an issue for another day.

[00:04:29] Speaker 00:
But the question is, when you look .

[00:04:31] Speaker 00:
.

[00:04:31] Speaker 02:
.

[00:04:31] Speaker 02:
Or maybe their fiduciary obligation is paramount, and there are means by which courts can regulate that exercise of fiduciary decisions akin to the recommendations

[00:04:43] Speaker 02:
that are brought in most jurisdictions on the Chapter 13 plan.

[00:04:47] Speaker 00:
So courts can absolutely regulate the fiduciary responsibilities that are borne by trustees.

[00:04:55] Speaker 00:
But it's important to recognize that due process protects not just kind of against actual bias, but the appearance of bias.

[00:05:02] Speaker 00:
And here, the government doesn't really dispute that the plan confirmation condition biases the trustee in favor of plan confirmation.

[00:05:11] Speaker 02:
And when you look at- I guess Judge Farris's point of,

[00:05:13] Speaker 02:
I see how that affects the debtor and the creditor.

[00:05:16] Speaker 02:
How does it affect the trustee?

[00:05:19] Speaker 00:
Well, Your Honor, we're not arguing that the creditor or a debtor could not come to this court and argue, I think my trustee is biased because they have an interest in plan confirmation.

[00:05:31] Speaker 00:
That shouldn't exist.

[00:05:32] Speaker 00:
But the mere fact that a debtor or a creditor could raise that argument doesn't mean that the trustees themselves can't.

[00:05:38] Speaker 00:
And part of the reason why is

[00:05:39] Speaker 00:
as this Court has pointed out, the trustee acts as a representative of the estate and acts in a representative role for the interests of many individuals or entities that aren't likely to appear in front of the Court.

[00:05:51] Speaker 00:
If you look at the S. Carcega case, I think that that case really crystallizes the neutrality and impartiality that is required of trustees because it says, for example, unsecured creditors aren't likely to be represented, aren't likely... The problem with that is the trustee owes duties to everybody

[00:06:09] Speaker 06:
and they all have conflicting interests.

[00:06:12] Speaker 06:
Judge London's treatise says the trustee is expected to work with everybody and for nobody.

[00:06:17] Speaker 06:
That's the only way it can work, right?

[00:06:19] Speaker 00:
That is absolutely correct, Your Honor.

[00:06:21] Speaker 00:
We couldn't agree with Judge London more.

[00:06:23] Speaker 00:
But then I think the question becomes, does the plan confirmation condition assure the due process principles that surround that responsibility that attends to every party in the bankruptcy process or every stakeholder in the bankruptcy process or not?

[00:06:37] Speaker 06:
Let me take you to the next step.

[00:06:38] Speaker 06:
Even if we were to go along with you wouldn't the trustees still have a financial interest in plan confirmation?

[00:06:44] Speaker 06:
Because if the plans not confirmed the case is going to get dismissed and the fees are going to stop flowing I'm sure I don't think I think that's the that's the source of the bias I don't I don't think let's suppose you're right and the trustee should get fees from day one and

[00:07:01] Speaker 06:
The trustee is going to get more fees if more plans get confirmed, right?

[00:07:05] Speaker 00:
So is that the same bias?

[00:07:07] Speaker 00:
No, I don't think so, Your Honor.

[00:07:08] Speaker 00:
And that's the argument that the government makes.

[00:07:10] Speaker 00:
The government says, well, there's already an inherent bias in the system, because the more plans that get confirmed, the more the trustee gets paid, and so forth.

[00:07:19] Speaker 00:
But I think the problem with that argument is, well, there are two problems.

[00:07:24] Speaker 00:
One problem is that, let's assume for the moment that that's a bias.

[00:07:27] Speaker 00:
It doesn't make sense to then say, well, let's pour gasoline on that bias by making the trustees fees contingent on plan confirmation.

[00:07:37] Speaker 00:
Let's make this problem even worse.

[00:07:39] Speaker 00:
We would, I think, all recognize there are biases throughout the judicial system.

[00:07:43] Speaker 00:
But we wouldn't say that then Congress can add to those biases because those pre-existing biases exist.

[00:07:48] Speaker 00:
So that's, I think, one way of looking at it.

[00:07:50] Speaker 06:
First, plans are supposed to be confirmed in about 60 days if you follow the statute.

[00:07:55] Speaker 00:
Well, Your Honor, I can tell you that in the District of Arizona, it's between 12 to 18 months before a plan gets confirmed.

[00:08:02] Speaker 00:
And I think that also kind of speaks.

[00:08:05] Speaker 06:
That blows me away.

[00:08:06] Speaker 00:
It may well.

[00:08:07] Speaker 00:
And I think that that then speaks to the reason why the US Supreme Court has been so protective of the neutrality standard.

[00:08:15] Speaker 05:
What do we do with a situation where the trustee is indifferent?

[00:08:18] Speaker 05:
You're a millimeter over the requirements here, but somebody comes in and objects who's not the trustee plan doesn't get confirmed.

[00:08:25] Speaker 05:
What about that?

[00:08:26] Speaker 00:
So I think that that type of situation underscores the reason why, for the appearance of justice's purposes, that there should not be a plan confirmation condition.

[00:08:36] Speaker 00:
Because the trustee's judgment in those circumstances, the razor thin call, do I object, do I not object, there shouldn't be any question as to whether that decision might have been influenced by... But there's an outside factor here that has nothing to do with the trustee, and frankly,

[00:08:52] Speaker 05:
no offense to the quasi-judicial argument, I know what judges do because I am one.

[00:08:57] Speaker 00:
Absolutely.

[00:08:58] Speaker 05:
So let's not give that more credit than it should.

[00:09:01] Speaker 05:
If we have a situation where a secure creditor or somebody else makes an argument that, look, the trustee may think the statute's been satisfied here, by the way, we don't agree, or there's this other issue, or there's something else that the trustee isn't looking at, and the plan isn't confirmed for that reason, do we pay the trustee then?

[00:09:17] Speaker 00:
I think in the end, Your Honor, and I hate to kind of push back a little bit on this, but I want to say... I wish you would, because I need an answer to that.

[00:09:25] Speaker 00:
Yeah, because I think this is a really kind of simple question.

[00:09:28] Speaker 00:
And really, the two questions that the Supreme Court's due process analysis here asks us is, one, is the trustee performing a quasi-judicial function

[00:09:38] Speaker 00:
when it comes to plan confirmation and the decisions that they make before plan confirmation, for example, enforcement related decisions as to whether to move to dismiss a case.

[00:09:47] Speaker 00:
When you read Escarcega, this court says very clearly that the bankruptcy court could not do its job unless it had the assistance of the Chapter 13 trustee.

[00:09:59] Speaker 00:
So I think when you have a statement that clear and that strong, it's really hard to say this is not a quasi-judicial function.

[00:10:06] Speaker 06:
You know, we couldn't do our job without the clerk sitting in front of the bench.

[00:10:09] Speaker 00:
Absolutely.

[00:10:09] Speaker 06:
And that's not a quasi-judicial officer, right?

[00:10:11] Speaker 00:
Actually, it is, Your Honor.

[00:10:13] Speaker 00:
And they're quasi-judicial, and they're entitled to quasi-judicial immunity.

[00:10:17] Speaker 00:
That's something different.

[00:10:18] Speaker 00:
Well, Your Honor, I don't think it is.

[00:10:20] Speaker 06:
About three words are the same, but that's about it.

[00:10:22] Speaker 00:
Well, the reason the words are the same, and I encourage the court to look at footnote 20 of Imbler versus Packman.

[00:10:28] Speaker 00:
That's a case we cite in our reply brief.

[00:10:31] Speaker 00:
In that case, the court explains where does the term quasi-judicial immunity comes from.

[00:10:36] Speaker 00:
And it says, well, we look at the function that's being performed.

[00:10:40] Speaker 00:
If the function is quasi-judicial, then we call it a quasi-judicial function.

[00:10:44] Speaker 00:
And then the immunity comes afterwards and is called quasi-judicial as well.

[00:10:49] Speaker 00:
So I think part of it, if you look at the logic of quasi-judicial immunity, which is what the Ninth Circuit talks about in the Castillo case, what

[00:10:58] Speaker 00:
The Ninth Circuit and what the Supreme Court has said about quasi-judicial immunity is it's there to protect the independence and the courageousness of the officers to whom it attaches.

[00:11:08] Speaker 00:
It's there to ensure that they don't shade their decisions in the face of financial pressure.

[00:11:13] Speaker 00:
Well, that's the same thing that the TUME due process standard is trying to do.

[00:11:18] Speaker 00:
It's trying to ensure that financial considerations don't influence the exercise of a quasi-judicial function.

[00:11:26] Speaker 00:
And I agree with you, Your Honor.

[00:11:28] Speaker 00:
Law clerk is not a judge.

[00:11:30] Speaker 00:
A juror is not a judge.

[00:11:31] Speaker 00:
A witness is not a judge.

[00:11:32] Speaker 00:
There are a lot of entities

[00:11:33] Speaker 00:
involved in the judicial process that are not judges.

[00:11:36] Speaker 00:
But the reason why the TUME standard is so important is if Congress tomorrow were to say, well, you know, we're not happy with the way magistrate judges are doing their jobs with respect to their disposition of summary judgment motions.

[00:11:51] Speaker 00:
Now, they don't decide those motions.

[00:11:53] Speaker 00:
They just write reports and recommendations.

[00:11:55] Speaker 00:
So we'll offer them $1,000 incentives.

[00:11:58] Speaker 00:
You don't get $1,000 unless you recommend that the

[00:12:03] Speaker 00:
the summary judgment motion gets granted.

[00:12:07] Speaker 00:
Well, if Congress were to pass that kind of law, I think that the defendants in those cases would say, that's a problem.

[00:12:13] Speaker 00:
And I think the same would be true if we were talking about a law that compensated a juror in a partisan way or compensated a clerk in a partisan way.

[00:12:22] Speaker 06:
We've talked you down to three minutes.

[00:12:23] Speaker 06:
Sure.

[00:12:24] Speaker 06:
I appreciate that, Your Honor, and thank you for your patience.

[00:12:26] Speaker 06:
Thank you.

[00:12:38] Speaker 06:
Go ahead, please.

[00:12:39] Speaker 03:
Good morning, your honor.

[00:12:40] Speaker 03:
May it please the court, Louisa Szilard on behalf of the United States.

[00:12:45] Speaker 03:
We ask the court to deny the constitutional challenge because Evans does not change the due process protections afforded parties whose interests are affected by confirmation.

[00:12:59] Speaker 03:
The Supreme Court in Toomey versus Ohio tells us that parties who may be deprived of life, liberty, or property are entitled to the due process protections of an impartial adjudicator.

[00:13:14] Speaker 03:
And that's exactly what they get in confirmation when an independent bankruptcy court decides whether to confirm a case and set the rights of the parties.

[00:13:25] Speaker 03:
Beyond a neutral decision maker, the Supreme Court in United Student Aid v. Espinoza tells us that parties who may be deprived of protected interests are also entitled to the due process protections of notice and an opportunity to be heard, which again is what they get here, notice of confirmation and an opportunity to object.

[00:13:53] Speaker 03:
With these three things, parties with protected interests receive the process they are due.

[00:14:00] Speaker 03:
The standing trustee asked this panel to supplement these due process protections by requiring that her recommendation also comport with due process.

[00:14:13] Speaker 03:
This argument fails for two reasons.

[00:14:17] Speaker 03:
First, because regardless of the amount of weight that her recommendation is given, it's the bankruptcy court who decides whether to confirm a plan.

[00:14:31] Speaker 03:
And a standing trustee should not be treated as a decision maker.

[00:14:36] Speaker 03:
And we know that the bankruptcy court is independent because bankruptcy courts do overrule standing trustee objections and even deny confirmation when a standing trustee hasn't objected.

[00:14:52] Speaker 03:
And just touching on a couple of the arguments that were made by Mr. Subraman, this is an unusual case.

[00:15:02] Speaker 03:
Typically, in a due process case, what you have is a party who has been deprived of life, liberty, or property coming to the court and saying that they did not receive due process.

[00:15:17] Speaker 03:
That's what happened in Toomey when Ed Toomey, who was convicted by the mayor of violating the liquor laws, came to the court and said, no, this is not right.

[00:15:27] Speaker 03:
Same thing with United Student Aid, where the creditor came to the court and said, you can't discharge my interest.

[00:15:37] Speaker 03:
There's been a foul.

[00:15:38] Speaker 03:
We don't have that here, and it's unclear who exactly has been deprived of their life, liberty, or property.

[00:15:49] Speaker 03:
Perhaps it's the creditors, and if that's the case, then we still maintain that creditors receive all the due process to which they're entitled.

[00:16:00] Speaker 06:
It seems to me it's not the debtor because the debtor wants the plan confirmed.

[00:16:04] Speaker 06:
So a bias in favor of confirmation is not going to hurt the debtor.

[00:16:08] Speaker 06:
If anything, a 12 to 18 month delay in confirmation, I'd be outraged if I were a debtor.

[00:16:14] Speaker 03:
Excuse me, Your Honor.

[00:16:15] Speaker 03:
I meant the creditor.

[00:16:16] Speaker 03:
You said creditor.

[00:16:17] Speaker 06:
I was just trying to narrow it down.

[00:16:18] Speaker 05:
And in the rare case like Harmon, where the debtor just decided after x months, you know what?

[00:16:23] Speaker 05:
I don't need this anymore.

[00:16:24] Speaker 05:
That's a pretty rare case.

[00:16:25] Speaker 05:
I mean, the incentive is almost always get that plan confirmed.

[00:16:29] Speaker 03:
Another of the arguments that was raised this morning, Mr. Subraman says that the United States does not dispute that the standing trustee is biased.

[00:16:40] Speaker 03:
That's not true.

[00:16:42] Speaker 03:
We first argue that due process is not implicated, regardless of whether or not a standing trustee is biased.

[00:16:52] Speaker 03:
And I think there's an argument here that there is no bias.

[00:16:56] Speaker 03:
What the standing trustee has alleged in this case is that she's been denied $3,550.

[00:17:06] Speaker 03:
But in fiscal year 2023, she took in $1.5 million.

[00:17:12] Speaker 03:
That's 1.2 to cover her operating expenses, plus the maximum standing trustee compensation, plus about $50,000 in extra amounts that went into her operating reserve, which serves as a cushion.

[00:17:30] Speaker 03:
And this is not to say there's anything improper in this.

[00:17:34] Speaker 03:
This is part of one of the safeguards.

[00:17:37] Speaker 05:
So we're getting into a sort of an as-applied standard now, as opposed to just generally as- Well, I think this applies across the board, because the funding mechanism applies- Might be different in Idaho, for example.

[00:17:48] Speaker 05:
Or Alaska.

[00:17:49] Speaker 05:
Yeah, it might.

[00:17:50] Speaker 05:
It might.

[00:17:50] Speaker 05:
Yeah.

[00:17:51] Speaker 05:
But I don't know if that matters.

[00:17:52] Speaker 03:
Well, the funding mechanism is universal to all standing trustees.

[00:17:58] Speaker 03:
And it serves to spread the expenses across the year.

[00:18:05] Speaker 01:
And as long as there's enough there to spread.

[00:18:07] Speaker 01:
Yeah.

[00:18:08] Speaker 01:
Right.

[00:18:08] Speaker 01:
Which is the Alaska situation.

[00:18:10] Speaker ?:
Yeah.

[00:18:11] Speaker 03:
Exactly, your honor.

[00:18:12] Speaker 03:
And based on the statistics from this last year, every standing trustee received compensation.

[00:18:20] Speaker 03:
So that tells us that all operating expenses, all operating fees were paid.

[00:18:27] Speaker 03:
So to that extent, we don't think there is a bias.

[00:18:33] Speaker 03:
But if you were to assume for the sake of argument that there is a bias, that's where the safeguards come in.

[00:18:41] Speaker 03:
And these safeguards included the bonding requirement, which is a monetary incentive for the standing trustee to act properly.

[00:18:52] Speaker 03:
We also have the U.S.

[00:18:54] Speaker 03:
trustee supervision, which is another monetary incentive for the trustee to fulfill her duty, because the U.S.

[00:19:02] Speaker 03:
trustee without qualification is required to supervise the administration of both Chapter 13 cases and Chapter 13 standing trustees.

[00:19:15] Speaker 03:
So to the extent a standing trustee is not fulfilling her statutory duties, the US trustee can initiate termination of the standing trustee from future assignments and can petition the court

[00:19:31] Speaker 03:
for the removal of the standing trustee from existing cases.

[00:19:35] Speaker 06:
It seems to me that if we were to accept the argument that there is this bias, the only way to make that bias really go away is to make standing Chapter 13 trustees salaried government employees.

[00:19:48] Speaker 03:
Well, this case isn't about whether the standing trustee program could be improved.

[00:19:56] Speaker 03:
Perhaps it could be.

[00:19:58] Speaker 03:
What this case is about is due process.

[00:20:01] Speaker 03:
And the standing trustees funding mechanism and the program itself does not change that

[00:20:10] Speaker 03:
Parties with protected interests receive the due process to which they're entitled in connection with confirmation.

[00:20:24] Speaker 03:
And the last point, again, just to touch on an argument that was made earlier.

[00:20:29] Speaker 03:
In Ray Costillo, as we said in our brief, we don't think that applies.

[00:20:36] Speaker 03:
It's an immunity case.

[00:20:38] Speaker 03:
And it doesn't have any applicability in our due process analysis.

[00:20:45] Speaker 03:
And one point that we found instructive was from the BAP decision in Inre Casillo.

[00:20:55] Speaker 03:
And it's footnote four.

[00:20:57] Speaker 03:
And it says that the question of quasi-judicial immunity arises with two different types of defendants.

[00:21:07] Speaker 03:
One is those who resolve disputes between parties like judges.

[00:21:13] Speaker 03:
And then the other is those who perform functions that are related to the judicial process like clerk and standing trustees in that case.

[00:21:23] Speaker 03:
And I think that just shows that what is being discussed in the due process cases like Toomey versus Ohio is only the first category of people subject to quasi-judicial immunity.

[00:21:41] Speaker 03:
So unless this panel has any additional questions, I'll conclude by saying the parties who may be deprived of protected interest in connection with confirmation are entitled to notice, an opportunity to be heard, and an impartial adjudicator.

[00:22:01] Speaker 03:
These due process protections have not changed as a result of Evans.

[00:22:07] Speaker 03:
Evans thus does not create a due process violation.

[00:22:11] Speaker 03:
We ask the court to deny the constitutional challenge.

[00:22:16] Speaker 06:
Any questions?

[00:22:17] Speaker 06:
Thank you very much.

[00:22:18] Speaker 03:
Thank you.

[00:22:20] Speaker 06:
All right.

[00:22:20] Speaker 06:
You have three minutes left.

[00:22:24] Speaker 06:
Please go ahead.

[00:22:25] Speaker 00:
Thank you.

[00:22:26] Speaker 00:
I want to start where the government leaves off in terms of safeguards.

[00:22:29] Speaker 00:
And Judge Ferris, you asked the question, isn't the answer here to make trustees, salaried employees?

[00:22:34] Speaker 00:
Respectfully, Your Honor, I don't think that the court has to say anything like that.

[00:22:37] Speaker 00:
I think all the court has to do is deal with the challenge in front of it.

[00:22:41] Speaker 00:
And in no case has the Supreme Court said that where a quasi-judicial function exists and that function is subject to a bias, that we will look to safeguards.

[00:22:51] Speaker 00:
Because if you look at Toomey, you look at Ward, you look at Connolly, in all of those cases, you had safeguards, arguably,

[00:22:58] Speaker 00:
present.

[00:22:58] Speaker 00:
In Ward, for example, the individual had a de novo appeal to a higher court.

[00:23:04] Speaker 00:
And the court said, that's not what we do here.

[00:23:06] Speaker 00:
It doesn't matter whether we're talking about $5 or $20.

[00:23:10] Speaker 00:
Even $1 is too much when it comes to due process.

[00:23:13] Speaker 00:
Safeguards aren't an answer to the problem of whether a judge or a quasi-judicial actor may have an interest in a matter that they've been tasked with resolving.

[00:23:27] Speaker 00:
That's the key, resolving.

[00:23:28] Speaker 00:
Resolving.

[00:23:28] Speaker 00:
And I want to speak to two important points that I think have gotten lost here on that front.

[00:23:34] Speaker 00:
First, I think that the government downplays the fact that when a trustee renders a recommendation on plan confirmation, in Escarcega, the court says they have to say yes or they have to say no.

[00:23:45] Speaker 00:
So they do have to make a decision.

[00:23:47] Speaker 00:
And that decision does have legal consequences, because as Escarcega points out, if the trustee objects, then that forces the debtor to meet stricter payment requirements and a three to five year plan.

[00:23:59] Speaker 00:
It also, if the trustee does- That's also true of a creditor.

[00:24:03] Speaker 00:
That's true, Your Honor, but the creditor is not a public officer, whereas the trustee is a public official.

[00:24:09] Speaker 00:
And then on top of that, you have the fact that the trustee alone can, through their recommendation, satisfy the debtor's burden of demonstrating good faith.

[00:24:19] Speaker 00:
That's what the Third Circuit has said, I believe, in the Sykes case.

[00:24:22] Speaker 00:
And we know that that burden is important based on what this case, what the BAP has said in Warren.

[00:24:28] Speaker 00:
So I think that there's that element to it.

[00:24:31] Speaker 00:
And then there's also the enforcement element, everything that comes before plan confirmation, all of the judgments, all of the decisions the trustee has to make, whether it's a debtor who's not making their payments on time, whether it's a debtor who's failed to produce their tax returns.

[00:24:46] Speaker 00:
In all of those instances,

[00:24:47] Speaker 00:
the trustee has to make a relatively final decision.

[00:24:50] Speaker 00:
Do I commence an enforcement proceeding?

[00:24:52] Speaker 00:
Do I ask for this case to be dismissed?

[00:24:54] Speaker 06:
But that's just another request, right?

[00:24:56] Speaker 06:
The court can either grant that or not grant that.

[00:24:58] Speaker 00:
That's true, Your Honor, but that's an enforcement function as opposed to a quasi-judicial function.

[00:25:03] Speaker 00:
But in the Marshall v. Jericho case on which the government relies, the Supreme Court leaves as an open question, what due process limits

[00:25:10] Speaker 00:
apply in the context of enforcement functions and here the government.

[00:25:17] Speaker 06:
I come back to my point about the built in bias in all percentage fees.

[00:25:22] Speaker 06:
Let's suppose the plan is confirmed and the trustee comes and says plan payments are behind, dismiss the case.

[00:25:29] Speaker 06:
That's going to cut off fees.

[00:25:31] Speaker 06:
And I know that some trustees are faster to file those motions than others.

[00:25:35] Speaker 00:
That may be true, Your Honor, but I think that there's a difference between that situation and saying you don't get any fees unless a plan is confirmed.

[00:25:42] Speaker 00:
That's giving the trustee an interest in the very matter that they are recommending to the judge.

[00:25:47] Speaker 00:
And the last point I do want to make on this.

[00:25:50] Speaker 00:
I'm sorry, Your Honor.

[00:25:51] Speaker 05:
Give you some more time.

[00:25:53] Speaker 05:
That objection may come or not come a month after plan confirmation on a five-year plan, right?

[00:26:00] Speaker 05:
So tell me why it's different.

[00:26:01] Speaker 00:
Well, the reason, Your Honor, it's different is because in the end, the trustee is not being asked.

[00:26:08] Speaker 00:
It's not a situation where it's an all or nothing proposition.

[00:26:11] Speaker 00:
If a trustee is being paid, you know, let's compare the all or the nothing.

[00:26:15] Speaker 05:
I mean, the all may be three months to get the confirmation or not.

[00:26:19] Speaker 00:
Right.

[00:26:19] Speaker 05:
Or the all may be

[00:26:21] Speaker 05:
57 months of payments.

[00:26:23] Speaker 05:
That's Judge Farris's question.

[00:26:25] Speaker 05:
Why don't we have the same bias pre and post confirmation?

[00:26:30] Speaker 00:
Well, the difference is an all or nothing proposition.

[00:26:34] Speaker 00:
To give you a simple example, I think what's missing here, perhaps, and I think we try to express this in our case,

[00:26:40] Speaker 00:
is that what's lost in the government's account is a consideration of costs, right?

[00:26:45] Speaker 00:
Every case, you incur certain costs to administer the case and then you get certain revenues from the debtor in terms of the payments that you're extracting.

[00:26:53] Speaker 00:
Now, if the trustee, and this is generally the way it's supposed to work,

[00:26:57] Speaker 00:
If the trustee aligns the amounts to the costs, it generally balances out across the arc of the plan.

[00:27:06] Speaker 00:
But if you have a situation where it's an all or nothing situation, so for plan confirmation purposes, it's been six months, $1,200 of costs have been incurred.

[00:27:17] Speaker 00:
If the plan is not confirmed, the trustee is out $1,200.

[00:27:20] Speaker 00:
That's a different situation than saying the trustee all along collects around $1,200 and offsets the cost

[00:27:26] Speaker 06:
whether the plan is confirmed or not.

[00:27:29] Speaker 06:
We're past your time and I want to make one more question.

[00:27:31] Speaker 06:
And that is, isn't being out $1,200 just being the fee stays 10% longer during the year before the U.S.

[00:27:37] Speaker 06:
trustee cuts it down?

[00:27:39] Speaker 00:
Well, Your Honor.

[00:27:40] Speaker 06:
At least for this trustee.

[00:27:41] Speaker 00:
Well, the hypothetical we use in our case is we say, for example, imagine that you have a brand new trustee.

[00:27:50] Speaker 06:
I'm not that imaginative.

[00:27:51] Speaker 00:
Let's stick with most trustees.

[00:27:52] Speaker 00:
Sure.

[00:27:53] Speaker 00:
But I think the reason why that hypothetical is important is the trustee has to get revenue from somewhere.

[00:27:59] Speaker 00:
And if you have a brand new trustee for whom he has no plan confirmed cases, so he's not drawing any revenue.

[00:28:05] Speaker 00:
all of his revenue depends on plan confirmation, then if he, in 100 cases, he is objectively obligated, he feels to object to plan confirmation, the cases should be dismissed, he gets nothing.

[00:28:17] Speaker 00:
That's an anti-enforcement incentive, and that's what I think

[00:28:20] Speaker 00:
sets apart this circumstance.

[00:28:22] Speaker 00:
I think the panel correctly recognizes this is unusual in that it's the person, the decider, so to speak.

[00:28:29] Speaker 00:
I understand you may take issue with that.

[00:28:31] Speaker 00:
It's the decider who's objecting.

[00:28:32] Speaker 00:
But I would argue we want the deciders to come forward and to challenge potential biases that are being foisted on them, the same way we want judges to self-recuse.

[00:28:42] Speaker 00:
But the key point here is that in the end,

[00:28:46] Speaker 00:
We don't want to place an anti-enforcement incentive on trustees in this context.

[00:28:52] Speaker 00:
And that's something that no case, as far as I'm aware, defends.

[00:28:56] Speaker 06:
Thank you very much.

[00:28:56] Speaker 00:
Thank you, Your Honor.

[00:28:57] Speaker 00:
I appreciate your patience.

[00:28:58] Speaker 06:
Interesting case.

[00:28:59] Speaker 06:
The matter is under submission.

[00:29:00] Speaker 06:
Thank you.

[00:29:03] Speaker 04:
All rise.

[00:29:04] Speaker 04:
Court is in recess.