Microf LLC v. Cumbess (In re Cumbess)

960 F.3d 1325

IN RE: Paul L. CUMBESS, Debtor.

Microf LLC, Plaintiff-Appellant,

v.Paul L. Cumbess, Camille Hope, Defendants-Appellees.

No. 19-12088

United States Court of Appeals, Eleventh Circuit.

June 3, 2020

C. Jeremy Pope, Auburn, AL, William Read Pope, Pope Partners, LLC, Dunwoody, GA, for Plaintiff-Appellant

Jason M. Orenstein, Macon, GA, for Defendant-Appellee

Camille Hope, Pro Se

Before MARTIN, NEWSOM and JULIE CARNES, Circuit Judges.

NEWSOM, Circuit Judge:

Stripped to its bare essence, this bankruptcy appeal presents the question whether the word "trustee" means "trustee." We hold that it does.

I

In June 2015, Paul Cumbess began leasing an HVAC unit from Microf LLC for use at his residence. Somewhere during the ensuing two years, however, Cumbess found himself unable to meet all of his financial obligations—including the lease payments he owed to Microf—and in August 2017, he filed a Chapter 13 bankruptcy petition in the U.S. Bankruptcy Court for the Middle District of Georgia. Cumbess's Chapter 13 reorganization plan stated that his "pre-petition arrears" on the Microf lease—i.e. , the money he already owed on it—would be "disbursed by the [Chapter 13] trustee pro rata." (If you're already confused, don't worry, a Chapter 13 primer is just around the corner.) Importantly, Cumbess's plan also provided (1) that "[t]he lease to Microf is assumed"—which, as we'll explain, is just a fancy way of saying that Cumbess intended to continue to perform his obligations under the lease—and (2) that Cumbess would "be the disbursing agent" on the Microf lease going forward—which, effectively, meant that Cumbess intended to handle the future lease payments himself. Also importantly, however—and for reasons that will become clear it's a big "however"—the Chapter 13 trustee assigned to Cumbess's case did not separately "assume" the Microf lease before the bankruptcy court confirmed Cumbess's plan.

Following his plan's confirmation, Cumbess consistently failed to make the required monthly payments on his Microf lease, and by July 2018, he owed Microf $1,763.95. Microf turned to the bankruptcy court for help, asking it to deem the missed payments "necessary costs and expenses of preserving the estate," and thus "administrative expenses" within the meaning of 11 U.S.C. § 503(b)(1)(A), and to authorize that they be paid with second priority under 11 U.S.C. § 507(a)(2). (Again, we'll explain this in due course, but essentially Microf asked to have its claim bumped up the creditor food chain). The Chapter 13 trustee opposed Microf's motion on the ground that the missed lease payments weren't "necessary costs and expenses of preserving the estate"—and therefore couldn't be considered administrative expenses within the meaning of § 503(b)(1)(A).

After conducting a hearing on the issue, the bankruptcy court denied Microf's motion. The court first held, contrary to Microf's assertion, that an administrative claim "d[id] not arise automatically from [Cumbess's] default" on the Microf lease. Central to the bankruptcy court's decision in that respect was 11 U.S.C. § 365(p)(1), which states that "[i]f a lease of personal property is rejected or not timely assumed by the trustee ... the leased property is no longer property of the estate." Because the Chapter 13 trustee had not assumed the Microf lease, the court reasoned, the lease was "exclu[ded] from the bankruptcy estate" by dint of § 365(p)(1). Accordingly, the bankruptcy court held, Microf was not automatically entitled to an administrative-expense claim because there was "no reason to presume a benefit to the estate by a debtor's assumption of a lease of property explicitly determined not to be property of the estate." Second, and separately, the bankruptcy court held that, even setting aside the lease's exclusion from the estate, Microf hadn't met its burden of proving that the lease payments were "actual, necessary costs and expenses of preserving the estate" and thus "administrative expenses" within the meaning of § 503(b)(1)(A). In particular, the court stated that although Cumbess admitted that he had personally benefitted from the ongoing use of the HVAC unit, there was no evidence that the equipment provided "an actual, concrete benefit" to the estate. The bankruptcy court thus denied Microf's claim, and Microf appealed to the U.S. District Court for the Middle District of Georgia.

The district court affirmed. Like the bankruptcy court, the district court relied principally on the plain language of 11 U.S.C. § 365(p)(1). The district court held that "the only reasonable interpretation" of § 365(p)(1) is that it "vests the trustee—not the debtor—with the sole power to obligate the bankruptcy estate on an unexpired lease in chapter 13 cases." Thus, the district court held that because it is "undisputed in this case the [t]rustee did not timely assume [Cumbess's] HVAC lease with Microf," the HVAC unit was "excluded from the bankruptcy estate on the day [Cumbess's] plan was confirmed by the bankruptcy court." Finding that Microf's administrative-expense claim "depend[ed] solely upon a finding that the HVAC unit did not exit the estate," the district court rejected it.

Microf then appealed to this Court.

II

A

Before we dive into the details of this case, a bit of Chapter 13 background is in order. First, let's talk mechanics. A Chapter 13 bankruptcy—sometimes called a "wage earners plan"—enables a debtor with a regular income to repay all or part of his debts, typically over a three- to five-year period. After the debtor initiates a Chapter 13 case by filing a petition, he must then—within 14 days—file a proposed plan of reorganization, which provides that he will make certain fixed payments over time. The bankruptcy court then determines whether the proposed plan conforms to the Bankruptcy Code. If it does, the court confirms the plan, which then becomes binding on the debtor, the creditors, and the Chapter 13 trustee, whose job it is to assist with the plan's administration. In a Chapter 13 proceeding, the bankruptcy estate—the pool of property from which the debtor's creditors are paid—comprises all of the debtor's legal and equitable interests in property at the time of the filing of the case, as well as those that he acquires after the filing. See 11 U.S.C. §§ 541, 1306(a). Unlike in a Chapter 7 "liquidation" proceeding, however, a Chapter 13 debtor can maintain possession of some or all of his assets throughout the bankruptcy; the debtor's plan payments (and thus the payments to his creditors) typically come from his future earnings.

Generally speaking, there are two types of claims in a Chapter 13 case: secured and unsecured. Importantly for our purposes, the Bankruptcy Code treats different kinds of unsecured claims, well, differently. A typical unsecured claim—also called a "general unsecured claim"—needn't be paid in full. The Code requires only that creditors holding general unsecured claims receive what they would under a Chapter 7 liquidation. 11 U.S.C. § 1325(a)(4). The Code also provides, though, that some unsecured claims are entitled to "priority," such that they have to be paid in full unless the creditor agrees otherwise. 11 U.S.C. § 1322(a)(2). Examples of claims entitled to priority include domestic-support obligations, certain taxes, and—as particularly relevant here—"administrative expenses" associated with the proceeding, including the "actual, necessary costs and expenses of preserving the estate." 11 U.S.C. §§ 503(b)(1)(A), 507.

Now, the players. First, of course, there's the debtor—he initiates the Chapter 13 proceeding, proposes the reorganization plan, and (if all goes well) makes payments in accordance with it. Within the Chapter 13 process, the debtor's objective is to "obtain court approval ... of a plan that provides for the payment of as little as possible to creditors and to emerge at the end of the process with as much property and as little debt as possible." Hon. W. Homer Drake, Jr., et al., Chapter 13 Practice and Procedure § 1:1 (2019). Then, there are the creditors—the people or entities who have claims against the debtor. Predictably, the creditors’ incentives run counter to the debtor's: Their aim is to "maximize their recoveries by having the debtor pay as much as possible." Id. Finally, there's the trustee, who is appointed by the bankruptcy court after the debtor files a Chapter 13 petition to assist with the case's administration. The Chapter 13 trustee is a "representative of the bankruptcy estate," id. at § 17:1, and her "primary purpose ... is ... to serve the interests of all the creditors," Hope v. Acorn Fin., Inc. , 731 F.3d 1189, 1193 (11th Cir. 2013). Although a Chapter 13 trustee has many statutory rights and responsibilities, see 11 U.S.C. § 1302(b), she plays a particularly important role in connection with the debtor's plan: She must appear and be heard at any hearing regarding plan confirmation or modification, advise and assist the debtor in his performance under the plan, ensure that the debtor makes timely payments under the plan, and disburse those payments to creditors in accordance with the plan. See Drake, et al., supra , at § 17:3.

There's one last piece of introductory ground we need to cover: executory contracts. At the time a debtor files a Chapter 13 petition, he may be subject to the ongoing benefits and burdens of an unexpired executory contract—such as, in this case, a lease. When this happens, the debtor has three choices going forward: he can "assume" the contract (i.e. , commit to performing its obligations), "reject" the contract (i.e. , commit to breaching its obligations), or "assign" the contract (i.e. , provide that a third party will perform its obligations). 11 U.S.C. § 1322(b). Less clear, however—and the issue at the center of this appeal—is the effect that the debtor's assumption-rejection-assignment election has on the bankruptcy estate and whether, for instance, the debtor's decision to assume...