In re Brown

55 F.4th 945

IN RE: Alexander V. BROWN, Debtor.

Alexander V. Brown, Appellant,

v.William K. Harrington, United States Trustee for Region 1, Appellee.

No. 22-1314

United States Court of Appeals, First Circuit.

December 16, 2022

David G. Baker for appellant.

Andrew W. Beyer, Trial Attorney, United States Department of Justice, with whom Ramona D. Elliott, Deputy Director/General Counsel, P. Matthew Sutko, Associate General Counsel, William K. Harrington, United States Trustee for Region 1, John P. Fitzgerald, III, Assistant United States Trustee, and Eric K. Bradford, Trial Attorney, were on brief, for appellee.

Before Barron, Chief Judge, Selya and Lipez, Circuit Judges.

BARRON, Chief Judge.

This second-tier bankruptcy appeal challenges a judgment by the United States District Court for the District of Massachusetts that affirmed the dismissal of Alexander V. Brown's voluntary petition for relief under title 11 of the United States Code (the "Bankruptcy Code"). The United States Bankruptcy Court for the District of Massachusetts dismissed Brown's case on two independent grounds: that Brown failed to pay certain fees to the United States Trustee (the "U.S. Trustee") pursuant to 28 U.S.C. § 1930(a)(6) and that he failed to serve certain quarterly reports on the U.S. Trustee pursuant to the Bankruptcy Court's confirmation order. We affirm based on the second of those two grounds because that ground fully suffices to support the District Court's judgment. We emphasize that, in pursuing this more economical approach, we do not in any way mean to suggest that the first ground is not sound in its own right.

I.

The material facts are not in dispute. On March 17, 2011, Brown filed a voluntary petition for relief under chapter 13 of the Bankruptcy Code. After objections from the chapter 13 trustee and two mortgagees prevented Brown from confirming his plan of reorganization (the "Plan"), Brown converted his case from chapter 13 to chapter 11 on July 20, 2012.

On September 9, 2014, the Bankruptcy Court entered an order that confirmed Brown's Sixth Amended Plan as further modified by the same court order. The confirmation order provided, in relevant part, that:

The Debtor will be responsible for timely payment of quarterly fees incurred pursuant to 28 U.S.C. 1930(a)(6) until its case is closed or dismissed. After confirmation, the Debtor will serve the United States Trustee with a quarterly disbursement report for each quarter (or portion thereof) so long as the case is open. The quarterly report shall be due fifteen days after the end of the calendar quarter.

The confirmation order further explained that Brown's case could be administratively closed "pending completion of plan payments" and that "[d]uring the period that the case is administratively closed, the Debtor shall not be required to file monthly or quarterly reports and shall not be required to pay quarterly fees to the United States Trustee." The statutory provision referenced in the confirmation order, 28 U.S.C. § 1930(a)(6), required debtors to pay quarterly fees "in each case under chapter 11 of title 11 for each quarter (including any fraction thereof) until the case is converted or dismissed, whichever occurs first." 28 U.S.C. § 1930(a)(6) (2014).

The Bankruptcy Court administratively closed Brown's case on August 12, 2016 because he had "made his initial distribution under the Plan, and there [was] no cause for the case to remain open during the Plan payment period." However, the Bankruptcy Court reopened Brown's case twice thereafter. The Bankruptcy Court first reopened Brown's case on August 8, 2017, at Brown's behest, to facilitate a sale of estate property whose proceeds would be used "to complete all of the payments required by the plan." The Bankruptcy Court then administratively closed the reopened case on May 9, 2018, when the proposed sale did not go through. The Bankruptcy Court next reopened the case on September 17, 2018, after granting Brown's second motion to reopen to file an adversary complaint against a mortgagee.

During the four calendar quarters that Brown's case was reopened from August 8, 2017 through May 9, 2018, Brown did not serve the U.S. Trustee with any quarterly reports or pay the quarterly fees to the U.S. Trustee that § 1930(a)(6) required. Brown also did not serve quarterly reports on the U.S. Trustee or pay the U.S. Trustee the quarterly fees that § 1930(a)(6) required during any of the quarters after the Bankruptcy Court reopened Brown's case on September 17, 2018.

Brown filed an emergency motion on December 30, 2020 to administratively close his case "before the end of the year, thus avoiding additional fees to the United States Trustee." Brown did so prior to the enactment of the Bankruptcy Administration Improvement Act of 2020. That measure amended § 1930(a)(6) by striking the former subsection (B),¹ and replacing it, in relevant part, with the following:

During the 5-year period beginning on January 1, 2021, in addition to the filing fee paid to the clerk, a quarterly fee shall be paid to the United States trustee, for deposit in the Treasury, in each open and reopened case under chapter 11 of title 11, other than under subchapter V, for each quarter (including any fraction thereof) until the case is closed, converted, or dismissed, whichever occurs first.

Bankruptcy Administration Improvement Act of 2020, Pub. L. No. 116-325, § 3, 134 Stat. 5086, 5088 (2021) (codified at 28 U.S.C. § 1930(a)(6)(B)(i) ).

Concerned with the "revolving door" nature of the case more than six years after confirmation, the Bankruptcy Court denied Brown's emergency motion and ordered an accounting of all Plan payments made on certain secured, administrative, and priority claims. Brown admitted in response to that order that, between the third quarter of 2012 and the first quarter of 2021, he had not paid quarterly fees to the U.S. Trustee pursuant to § 1930(a)(6) for eighteen quarters nor served quarterly reports on the U.S. Trustee for twenty-one quarters.

The U.S. Trustee moved to dismiss Brown's chapter 11 case "for cause" pursuant to 11 U.S.C. § 1112(b)(1). First, the U.S. Trustee alleged that, by not serving the quarterly reports for twenty-one quarters between 2012 and 2021, Brown had violated § 1112(b)(4)(E) ("failure to comply with an order of the court") and (H) ("failure timely to provide information ... reasonably requested by the United States trustee"). 11 U.S.C. § 1112(b)(4)(E), (H). The U.S. Trustee also alleged that, by failing to pay the quarterly fees required by § 1930(a)(6) during the same period, Brown had violated § 1112(b)(4)(K) ("failure to pay any fees or charges required under chapter 123 of title 28"). 11 U.S.C. § 1112(b)(4)(K). The Massachusetts Department of Revenue, one of Brown's creditors, filed a statement in support of the U.S. Trustee's motion to dismiss the case for cause.

Brown opposed the U.S. Trustee's motion. Brown first argued that the confirmation order's requirement to serve the quarterly reports on the U.S. Trustee required Brown to serve the reports only "so long as the case is open" and thus did not require him to serve those reports during the periods in which the case had been "reopened." Brown also contended that the version of § 1930(a)(6) in place when he allegedly failed to pay the required fees to the U.S. Trustee did not require that such fees be so paid during periods in which a case had been reopened.

The Bankruptcy Court granted the U.S. Trustee's motion to dismiss Brown's chapter 11 case for cause. In re Brown, No. 11-12265, 2021 WL 2656686, at *6 (Bankr. D. Mass. June 28, 2021). First, the Bankruptcy Court explained that Brown was required by the confirmation order to serve the quarterly reports on the U.S. Trustee "even after reopening, because a reopened case is, until closed again, open," but that Brown had "failed to produce reports for twenty-one quarters in which the case was open: the third quarter of 2012, the fourth quarter of 2015, and the third quarter of 2016 through the first quarter of 2021." Id. at *4. Thus, the Bankruptcy Court concluded that Brown had "twenty-one times failed to obey an order of the Court. These failures constitute[d] cause for dismissal under § 1121(b)(1) [sic] and (b)(4)(E)." Id. Second, the Bankruptcy Court explained that Brown was required to pay quarterly fees pursuant to § 1930(a)(6) while his case had been reopened because that requirement to pay the fees "applied to any quarter in which the case was open, whether because it had never been closed or because it had been reopened." Id. at *3. Thus, the Bankruptcy Court concluded that dismissal for cause of Brown's chapter 11 case was also warranted under § 1112(b)(1) and (b)(4)(K).² Id.

The Bankruptcy Court then determined that Brown had "offered no unusual circumstances establishing that conversion or dismissal is not in the best interest of creditors or the estate" under § 1112(b)(2), id. at *5, and granted the U.S. Trustee's motion to dismiss Brown's chapter 11 case, id. at *6. Brown thereafter sought post-judgment relief, which the Bankruptcy Court denied.

At that point, Brown appealed to the District Court. In that appeal, Brown largely reprised the arguments that he had made to the Bankruptcy Court, with one twist. Brown contended, for the first time, that the absence of the words "and reopened" in the pre-2021 version of § 1930(a)(6) showed that "open" and "reopened" cases were not one and the same. Thus, Brown contended, when his confirmation order was entered in 2014, Congress intended for debtors to pay quarterly fees to the U.S. Trustee pursuant to § 1930(a)(6) only in cases that had not been administratively closed, and not in cases that had been so closed but then reopened. He further contended that "open" as used in the confirmation order's reporting requirement must be read in that same restricted way, and thus to require that he serve quarterly reports on the U.S. Trustee only until his case...