Rick Warren v. United States Bankruptcy Court for the Western District of Oklahoma

BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 1 of 30

NOT FOR PUBLICATION 1
UNITED STATES BANKRUPTCY APPELLATE PANEL
OF THE TENTH CIRCUIT
_________________________________

IN RE ALEXANDER L. BEDNAR, BAP No. WO-20-041
BAP No. WO-20-042
Debtor.
___________________________________

JILL BEDNAR, RICK WARREN,
Oklahoma County Clerk of Court, and Bankr. No. 19-14021
JENNIFER BYLER, Deputy Courtroom Chapter 13
Clerk,

Appellants,

v.

ALEXANDER L. BEDNAR and JOHN T. OPINION
HARDEMAN, Chapter 13 Trustee,

Appellees.
_________________________________

Appeal from the United States Bankruptcy Court
for the District of Oklahoma Western
_________________________________

Before ROMERO, Chief Judge, SOMERS, and PARKER, Bankruptcy Judges.
_________________________________

ROMERO, Chief Judge.
________________________________

This unpublished opinion may be cited for its persuasive value, but is not
1

precedential, except under the doctrines of law of the case, claim preclusion, and issue
preclusion. 10th Cir. BAP L.R. 8026-6.
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 2 of 30

The subject of how chapter 13 Trustees are to deal with funds in their possession

upon the dismissal of a chapter 13 case has received considerable court attention the past

few years. This case presents yet another chapter in the ever-evolving manual for dealing

with such funds. In the matter before us, judgment creditors in a chapter 13 case

dismissed before confirmation moved the Bankruptcy Court for authority to initiate

garnishment proceedings against plan payments in the Trustee’s possession post-

dismissal. The Bankruptcy Court denied the request and this matter is now before us on

appeal.

I. FACTS

Alexander Bednar (“Bednar”) is a disbarred Oklahoma attorney who is no stranger

to the bankruptcy system. The present saga began in connection with proceedings to

foreclose Bednar’s interest in real property before the Oklahoma County District Court

(“Oklahoma Court”). Specifically, on June 6, 2019, Bednar was ordered by the

Oklahoma Court to appear for a hearing on assets. 2 Instead of appearing, Bednar filed a

voluntary petition under chapter 13 of the Bankruptcy Code before the United States

Bankruptcy Court for the Western District of Oklahoma (“Bankruptcy Court”), 3 causing

the hearing to terminate with no action. The First Case was promptly dismissed because

Bednar failed to obtain the mandatory credit counseling. 4

2
Appellants’ App. at 112.
3
Case No. 19-12312 (“First Case”). See id.
4
Id.
2
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 3 of 30

Subsequently the Oklahoma Court reset the asset hearing. 5 This was followed by

Bednar filing another bankruptcy petition, again preventing the hearing from going

forward. 6 Bednar failed to appear for the Meeting of Creditors and the Bankruptcy Court

dismissed the Second Case on September 6, 2019. 7 Once again, the Oklahoma Court

reset the asset hearing, 8 but the third try was not the charm, as Bednar filed bankruptcy

yet again on October 1, 2019. 9 These appeals arise from proceedings in the now-

dismissed Third Case.

Shortly after Bednar filed the Third Case, Oklahoma County Court Clerk Rick

Warren (“Warren”) and Deputy Courtroom Clerk Jennifer Byler (“Byler”) filed their

appearances before the Bankruptcy Court. 10 Warren and Byler, in their official

capacities, are each creditors of Bednar by virtue of four sanctions judgments against

him: two judgments issued by the Oklahoma Court and two issued by the Oklahoma

Supreme Court (“Sanctions Judgments”). 11 The four Sanctions Judgments arose upon

5
Id.
6
Case No. 19-12845 (“Second Case”). See id.
7
Id.
8
Id.
9
Case No. 19-14021 (“Third Case”). See id.
10
Appellants’ App. at 10 (Bankruptcy Court ECF No. 18).
11
Id. at 111.
3
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 4 of 30

findings Bednar engaged in frivolous and vexatious conduct and together total

$31,582.50 (excluding interest).

Warren and Byler promptly requested the Bankruptcy Court enter an order

confirming the non-existence of the automatic stay in the Third Case pursuant to 11

U.S.C. § 362(c)(4)(A)(i). 12 On October 10, 2019, the Bankruptcy Court agreed and

entered an Order confirming there was no stay in effect. 13

Over the next eight months, Bednar made multiple attempts to confirm a chapter

13 Plan. Each of Bednar’s confirmation attempts were opposed by Warren, Byler,

chapter 13 Trustee John Hardeman (“Trustee”) and Bednar’s ex-spouse, Jill Bednar (“J.

Bednar”). 14 On June 9, 2020, these efforts culminated in a final evidentiary hearing on

confirmation of Bednar’s Amended Chapter 13 Plan. 15 On June 24, 2020, the

Bankruptcy Court sustained the objections to confirmation, finding Bednar was not

eligible to proceed under chapter 13. 16 The Bankruptcy Court denied confirmation and

dismissed the Third Case effective June 24, 2020. 17 The Bankruptcy Court’s dismissal

12
Id. at 111-16. All future references to “Bankruptcy Code,” “Code,” or “§,” refer to Title
11 of the United States Code.
13
Id. at 117-18 (Bankruptcy Court ECF No. 20).
14
J. Bednar asserts non-dischargeable claims related to the parties’ divorce for at least
$141,469.56. See id. at 132.
15
Id. at 275 (Bankruptcy Court ECF No. 81).
16
Id. at 275-76.
17
Id. at 281-82 (Bankruptcy Court ECF No. 82).
4
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 5 of 30

order neither reserved jurisdiction for any particular purpose nor altered the typical

revesting of estate property provided in § 349(b).

Before dismissal, Bednar made plan payments totaling $30,838.92. 18 The Trustee

deducted his fees of $1,572.77, leaving a balance of $29,266.15. On June 26, 2020,

Warren and Byler filed a motion with the Bankruptcy Court seeking leave to garnish

those funds in the hands of the Trustee. 19 J. Bednar then filed her own motion for leave

to garnish the funds in the Trustee’s possession, asserting her garnishment rights as a

priority creditor holding domestic support obligations were superior over Warren and

Byler’s interest as general unsecured creditors. 20

The Bankruptcy Court entered an order requiring the Trustee to file a response

stating his position and setting a telephonic hearing for July 31, 2020. 21 The Trustee

responded, stating he opposed allowing garnishment of the funds in his possession. 22 The

Trustee agreed with Warren, Byler, and J. Bednar that, under the Barton doctrine, the

Bankruptcy Court must consent to any garnishment action proceeding in state court.

However, the Trustee also maintained § 1326(a)(2) required him to return any

18
Id. at 428.
19
Id. at 283-89.
20
Id. at 354-58.
21
Id. at 359-60.
22
Id. at 361-66.

5
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 6 of 30

undistributed plan payments to the Debtor irrespective of the Barton doctrine. 23 The

Bankruptcy Court took the matter under advisement at the end of the telephonic hearing.

On September 2, 2020, the Bankruptcy Court entered its Order Denying Motions for

Leave to Garnish Funds, denying both Oklahoma County’s Motion and Bednar’s Motion

(the “Order”). 24

The Bankruptcy Court first framed the request, explaining the movants “are

essentially asking this Court to grant them permission to institute garnishment actions

against the Trustee in state court while imposing a stay preventing the Trustee’s

distribution of surplus funds as directed by § 1326(a)(2).” 25 According to the Bankruptcy

Court, “Movants and the Trustee agree that before Movants may initiate garnishment

actions in state court to reach the funds held by the Trustee, the Barton Doctrine requires

them to obtain approval from this Court.” 26 Reviewing the policy and intent underlying

the Barton doctrine, the Bankruptcy Court found “the relief Movants seek here is the type

of action the Barton Doctrine is designed to prevent.” 27

The Bankruptcy Court reasoned the Barton doctrine applies in this case to protect

the Trustee from “a tremendous administrative burden . . . requiring him to be personally

23
Id.
24
Id. at 427-34.
25
Id. at 430.
26
Id.
27
Id. at 431.
6
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 7 of 30

involved in garnishment actions across his district, which stretches across forty

counties.” 28 While the Bankruptcy Court acknowledged “the administrative duties may

be minimal in this one case,” the Bankruptcy Court found “the small burden of one

garnishment could quickly swell to a large burden of hundreds of garnishments if

creditors are given the green light to file immediately upon the conclusion of every

bankruptcy case.” 29 Even though the Bankruptcy Court found the Barton doctrine likely

prevented the garnishment from being enforced, after reviewing a split of authority on the

issue, it ruled the plain language of § 1326(a)(2) requires the Trustee to return the funds

to the Debtor with no possibility of any intervening diversion. 30

Warren, Byler and J. Bednar filed separate notices of appeal on September 15,

2020. J. Bednar requested the appeals be companioned for briefing and oral argument,

and a BAP motions panel (consisting of Judges Michael, Jacobvitz, and Parker) granted

the motion on October 13, 2020. Both appellants requested the Bankruptcy Court stay

the Order pending appeal. The Bankruptcy Court granted these requests on October 19,

2020, preventing the Trustee from returning the $29,266.15 to the Debtor prior to

disposition of the appeals.

28
Id.
29
Id. (internal citation omitted).
30
Id.
7
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 8 of 30

II. JURISDICTION AND STANDARD OF REVIEW

The Order affects the final distribution of chapter 13 plan payments in the

Debtor’s underlying bankruptcy case, and therefore is a final appealable order. 31 Here,

the issues on appeal primarily involve pure questions of law which are reviewed de

novo. 32 Specifically, the Bankruptcy Court’s application of § 1326(a)(2) as a per se bar

to garnishment of a trustee following dismissal, irrespective of the Barton doctrine, is

reviewed de novo. Similarly, whether the Barton doctrine applies and requires leave to

sue presents an issue which is “jurisdictional in nature” and therefore subject to de novo

review. 33 However, the Bankruptcy Court’s decision to decline leave to sue the Trustee

under the Barton doctrine is reviewed for abuse of discretion because “the bankruptcy

court . . . given its familiarity with the underlying facts and the parties, is uniquely

situated to determine whether a claim against the trustee has merit.” 34

31
See In re Miranda, 285 B.R. 344, 2001 WL 1538003, at *1 (10th Cir. BAP Dec. 4,
2001) (concluding order denying chapter 13 trustee’s motion to distribute 10 percent
administrative fee under 28 U.S.C. § 586 from plan payments was a final order)
(unpublished); In re Yates, 337 B.R. 728, 2005 WL 2499488, at *2 (10th Cir. BAP Oct.
4, 2005) (holding order denying motion for turnover of funds held by chapter 13 trustee
in case converted to chapter 7 was a final order) (unpublished).
32
Pierce v. Underwood, 487 U.S. 552, 558 (1988) (“For purposes of standard of review,
decisions by judges are traditionally divided into three categories, denominated questions
of law (reviewable de novo), questions of fact (reviewable for clear error), and matters of
discretion (reviewable for ‘abuse of discretion’”)). See also Fowler Bros. v. Young (In re
Young), 91 F.3d 1367, 1370 (10th Cir. 1996).
33
Lankford v. Wagner, 853 F.3d 1119, 1122 (10th Cir. 2017) (conducting de novo
review of District Court’s decision to dismiss suit against trustee under Fed. R. Civ. P.
12(b)(1) where plaintiffs did not seek or obtain leave under the Barton doctrine).
34
See In re VistaCare Grp., LLC, 678 F.3d 218, 232-33 (3d Cir. 2012).
8
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 9 of 30

III. ANALYSIS

a. Barton Doctrine

Bankruptcy law, as it has evolved in United States jurisprudence, has led to the

creation of a few relatively obscure doctrines. One such concept, the Barton doctrine,

was established in Barton v. Barbour, 104 U.S. 126 (1881), and requires before suit can

be brought against bankruptcy trustees or their counsel for acts taken in their official

capacities during a bankruptcy case, the plaintiff must first seek leave of the overseeing

bankruptcy court. 35 The Barton doctrine includes actions seeking bankruptcy estate

property as well as actions against a bankruptcy trustee for conduct during the pendency

of the bankruptcy case. 36 Because of this, the Barton doctrine is “jurisdictional in

nature.” 37 As explained by the Bankruptcy Court, the doctrine “exists to ensure other

courts do not intervene in the bankruptcy court’s administration of an estate without

permission.” 38 Generally, the Barton doctrine is intended: “(1) to maintain the integrity

of the bankruptcy court’s jurisdiction; (2) to control burdensome litigation that may

35
See In re Lane, No. 11-20398 at ECF No. 1787 at 4-5 (Bankr. D. Wyo. Sept. 9, 2020)
(citing Lankford, 853 F.3d at 1122).
36
Id. (citing In re Delta Invs. & Dev., LLC, No. 12-01160-NPO, 2019 WL 137578, at *14
(Bankr. S.D. Miss. Jan. 8, 2019) (unpublished)).
37
Id. at 5 (citing Lankford, 853 F.3d at 1122).
38
Satterfield v. Malloy, 700 F.3d 1231, 1237 (10th Cir. 2012).
9
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 10 of 30

impede the trustee’s work as an officer of the court; and (3) to allow the bankruptcy court

to monitor effectively the trustee’s work.” 39

In Satterfield v. Malloy, 40 the Tenth Circuit Court of Appeals expounded on the

functions and purposes of the Barton doctrine. The court began by examining the

language of Barton v. Barbour itself, noting “[a] plaintiff who brings such a suit [against

a receiver] . . . attempts to ‘obtain some advantage over the other claimants upon the

assets in the receivers hands.’” 41 “If allowed to proceed, ‘the court which appointed the

receiver and was administering the trust assets would be impotent to restrain’ such a

plaintiff, complicating the proper administration of the estate.’” 42

Because the Barton doctrine is focused on protecting the receiver from

impediments to administration, as well as ensuring equality among competing claimants,

the Tenth Circuit applies the Barton doctrine to bankruptcy trustees as to “‘acts done in

the trustee’s official capacity and within the trustee’s authority as an officer of the

court.’” 43 The court further reasoned if a trustee “is burdened with having to defend

against suits by litigants disappointed by his actions on the court’s behalf, his work for

39
In re Horton, 612 B.R. 400, 404 (Bankr. D.N.M. 2020) (citations omitted).
40
Satterfield, 700 F.3d at 1234-35; see also Lankford, 853 F.3d at 1122.
41
Satterfield, at 1235 (quoting Barton v. Barbour, 104 U.S. 126 (1881)).
42
Id.
43
Id. (quoting Heavrin v. Schilling (In re Triple S Rests., Inc.), 519 F.3d 575, 578 (6th
Cir. 2008)).
10
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 11 of 30

the court will be impeded.” 44 Moreover, the Barton doctrine continues to apply after

dismissal of a bankruptcy case because:

Without the requirement [of obtaining leave from the appointing court],
trusteeship will become a more irksome duty, and so it will be harder for
courts to find competent people to appoint as trustees. Trustees will have to
pay higher malpractice premiums, and this will make the administration of
bankruptcy laws more expensive (and the expense of bankruptcy is already
a source of considerable concern). Furthermore, requiring that leave to sue
be sought enables bankruptcy judges to monitor the work of the trustees
more effectively. It does this by compelling suits growing out of that work
to be as it were prefiled before the bankruptcy judge that made the
appointment; this helps the judge to decide whether to approve this trustee
in a subsequent case. 45

In sum, in the Tenth Circuit the Barton doctrine “exists to ensure other courts do

not intervene in the bankruptcy court’s administration of an estate without permission.” 46

As explained by an Indiana bankruptcy court in In re Shields, the Barton doctrine applies

to prevent the trustee’s performance from being “compromised by state court proceedings

that divert the Trustee’s attention.” 47 Thus, “[t]he Trustee should not be required to

defend against or otherwise appear in state court each time he is served with the

garnishment order.” 48 A Georgia bankruptcy court in In re Jankauskas expanded on

44
Id.
45
Id. at 1236-37 (quoting In re Linton, 136 F.3d 544, 545 (7th Cir. 1998)).
46
Id. at 1237.
47
In re Shields, 431 B.R. 446, 452 (Bankr. S.D. Ind. 2010).
48
Id.

11
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 12 of 30

Shields’s application of the Barton doctrine to post-dismissal garnishments. 49 The court

explained the Barton doctrine applies to post-dismissal garnishments because trustees

may have residual liability to the issuing court for failure to comply with the mandate of

the garnishment. 50

In this case, the proposed garnishment directly implicates the Trustee’s fiduciary

duties to Bednar with respect to property that was formerly part of the estate. 51 The

garnishment would also affect the Trustee’s final administration of the estate by

determining to whom the residual funds should be paid. Thus, the Panel agrees with the

Bankruptcy Court the Barton doctrine applies. Importantly, however, this holding speaks

only to whether pre-suit leave is required, not whether such leave should or should not be

granted. As noted by the court in Jankauskas, “application of the Barton doctrine does

not establish a per se ban on garnishments against a trustee, it merely requires bankruptcy

court approval before the garnishment may be filed.” 52

49
In re Jankauskas, 593 B.R. 1, 9 (Bankr. N.D. Ga. 2018).
50
Id. at 10.
51
See In re Christensen, 598 B.R. 658, 668-69 (Bankr. D. Utah 2019) (holding Barton
doctrine required leave to sue trustee for negotiating short-sale for improper motive,
explaining “[a] trustee becomes a fiduciary vis-à-vis a debtor because he holds property
that belongs to the debtor by operation of law. The scope of his duty, therefore, is strictly
limited to safeguarding property of the estate in the trustee’s possession or the proceeds
from the sale thereof to which the debtor is entitled and ensuring that the debtor receives
that property.”).
52
Jankauskas, 593 B.R. at 11-12.

12
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 13 of 30

In In re VistaCare Group, the Third Circuit Court of Appeals reviewed the

bankruptcy court’s order granting Barton leave to sue a trustee and expounded on the

factors bearing on the court’s decision. 53 First, the party seeking Barton leave “‘must

make a prima facie case against the trustee, showing that its claim is not without

foundation.’” 54 Second, the bankruptcy court should consider the “potential effect of a

judgment against the trustee on the debtor’s estate.” 55 This “may involve a ‘balancing of

the interests of all parties involved’ and consideration of whether another tribunal may

have expertise regarding the issues in the proposed suit.” 56 However, the bankruptcy

court “is not required to consider immunities and defenses raised by a trustee when

evaluating a motion for leave. A bankruptcy court cannot be expected to conduct a trial

on the merits of a party’s proposed state law claim against a trustee simply to decide

whether to grant leave to purse such a claim in state court.” 57 Instead, the trustee

preserves any defenses for adjudication in the state court. 58

In In re Christenson, the bankruptcy court ruled it would exercise its discretion to

deny Barton leave to sue a trustee because none of the claims passed muster under the

53
In re VistaCare Grp., LLC, 678 F.3d 218, 232-33 (3d Cir. 2012).
54
Id. at 232 (quoting In re Nat’l Molding Co., 230 F.2d 69, 71 (3d Cir. 1956)).
55
Id.
56
Id.
57
Id. at 234-35.
58
Id.
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 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 14 of 30

prima facie analysis. 59 Further, it held “even if” the proposed claims were found to be

merited, the bankruptcy court would take guidance from the Ninth Circuit Bankruptcy

Appellate Panel in In re Kashani. 60 Specifically, the Kashani panel enumerated five

factors bankruptcy courts should consider in deciding whether to grant Barton leave:

1. Whether the acts or transactions relate to the carrying on of the business
connected with the property of the bankruptcy estate. If the proceeding is
under 28 U.S.C. § 959(a), then no court approval is necessary. However,
the moving party may request this initial review by the bankruptcy court in
the motion for leave to sue the trustee, or perhaps in the form of a
complaint, seeking a declaratory judgment from the bankruptcy court.
2. If approval from the appointing court appears necessary, do the claims
pertain to actions of the trustee while administering the estate? By asking
this question, the court may determine whether the proceeding is a core
proceeding or a proceeding which is related to a case or proceeding under
Title 11, United States Code.
3. Do the claims involve the individual acting within the scope of his or her
authority under the statute or orders of the bankruptcy court, so that the
trustee is entitled to quasi-judicial or derived judicial immunity?
4. Are the movants or proposed plaintiffs seeking to surcharge the trustee;
that is, seeking a judgment against the trustee personally?
5. Do the claims involve the trustee’s breaching her fiduciary duty either
through negligent or willful misconduct? 61

By conducting such an analysis, the bankruptcy court will determine

whether the issues affect solely the administration of the bankruptcy estate and

should be heard by the bankruptcy court. The bankruptcy court will also be able

to determine whether the claims have been previously decided on the merits and

59
In re Christensen, 598 B.R. 658, 673 (Bankr. D. Utah 2019).
60
Id. (citing Kashani v. Fulton (In re Kashani), 190 B.R. 875, 886-87 (9th Cir. BAP
1995)).
61
Kashani, 190 B.R. at 886-87.

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 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 15 of 30

should not be pursued by the movants or proposed plaintiffs on the basis of res

judicata or collateral estoppel. The bankruptcy court will also be in a position to

determine whether the trustee is entitled to quasi-judicial or derived judicial

immunity. Again, one or more of these factors may be a basis for the bankruptcy

court to retain jurisdiction over the claims. Such an analysis will also assist the

bankruptcy court in determining which claims should be tried in another forum. 62

Here, it appears the Bankruptcy Court’s Order in analyzing whether leave should

be granted focused upon mere speculation by the trustee that generally opening the

trustee to garnishment proceedings post-dismissal could create “a tremendous

administrative burden on him.” 63 As the foregoing authorities show, a bankruptcy court’s

exercise of discretion on a Barton question is much broader in scope and encompasses

much wider factors than potential inconvenience or burden to the Trustee. The mere

possibility of inconvenience cannot serve as a blanket protection for trustees from a legal

process to which any other person may ordinarily be subjected. It is significant the

Bankruptcy Court acknowledged in its decision “the administrative duties may be

minimal in this one case.” 64 In making a Barton determination, a bankruptcy court

should gather all relevant facts, and then consider the meritorious foundations of the

62
Id.
63
Order at 5, in Appellants’ App. at 431.
64
Id.

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garnishment claims, as well as the factors identified in the case law discussed herein,

particularly VistaCare Group and Kashani..

In sum, on de novo review, the Panel holds the Barton doctrine required Warren,

Byler and J. Bednar obtain approval of the Bankruptcy Court before commencing their

garnishment actions. However, the Panel further concludes the Bankruptcy Court abused

its discretion by denying Barton leave based upon unsupported allegations of potential

inconvenience to the Trustee without weighing the other important factors bearing upon

such a decision.

b. Section 1326

Notwithstanding its conclusion that the Barton doctrine prohibited the

enforceability of the garnishment in question, the Bankruptcy Court also dealt with

whether the proposed garnishment was also prohibited by § 1326(a)(2).

Whether the Bankruptcy Code permits creditor garnishment of the Trustee

following dismissal of a bankruptcy case without a confirmed chapter 13 plan is a

question of statutory interpretation, which naturally begins with the language of the

statute itself. The initial inquiry is whether there is ambiguity in the relevant Code

sections because “where . . . the statute’s language is plain, ‘the sole function of the

courts is to enforce it according to its terms.’” 65 Here, § 1326(a)(2) provides plan

payments

United States v. Ron Pair Enters., 489 U.S. 235, 241 (1989) (quoting Caminetti v.
65

United States, 242 U.S. 470, 485 (1917)).

16
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 17 of 30

shall be retained by the trustee until confirmation or denial of confirmation.
If a plan is confirmed, the trustee shall distribute any such payment in
accordance with the plan as soon as is practicable. If a plan is not
confirmed, the trustee shall return any such payments not previously paid
and not yet due and owing to creditors . . . to the debtor, after deducting any
unpaid claim allowed under section 503(b). 66

Of course, § 1326 dovetails into the basic revesting language set forth in § 349(b)(3),

which provides dismissal “revests the property of the estate in the entity in which such

property was vested immediately before the commencement of the case under this

title.” 67

As recognized by the Bankruptcy Court, there is a split of authority in the

application of § 1326(a)(2). Some courts apply a plain meaning analysis to conclude

§ 1326(a)(2) and § 349(b)(3) unambiguously require the return of all plan payments to

the debtor following pre-confirmation dismissal. Other courts find ambiguity in

§ 1326(a)(2) within the context of § 349(b)(3), and instead focus on the technical

functionality of the competing Code provisions.

i. Plain Meaning Cases

The Bankruptcy Court adopted the view of those cases holding the plain language

of § 1326(a)(2) directs return of plan payments to debtors whose cases are dismissed

before confirmation. For example, in In re Oliver the court reviewed earlier case law and

concluded “section 13265(a)(2) [is] unambiguous, and the plain language of § 1326(a)(2)

66
11 U.S.C. § 1326(a)(2).
67
11 U.S. C. § 1326(b)(3).

17
 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 18 of 30

required the Trustee to turn over all funds to the debtor.” 68 The court reasoned its

conclusion would “place[] all of the relative parties in a position as near as possible to

where they would have been if the debtor had never filed for protection under the

Bankruptcy Code.” 69

Several years later, the court in In re Davis adopted what it referred to as the “In re

Oliver line of cases,” which hold § 1326(a) is clear and unambiguous with regard to the

disposition of funds. 70 The Davis court went further to expressly hold § 1326 “preempts

the state court garnishment statute” with respect to the trustee’s duty to return funds to

the debtor. 71 In reaching these conclusions, the Davis court relied heavily on its view of

the public policy underlying § 1326. As the court explained, the return of funds to the

debtor “fosters the policy of encouraging debtors who are financially able to repay their

debts to file Chapter 13. It ensures that debtors who attempt chapter 13 will not be

penalized for an unconfirmed attempt.” 72 The Davis court also reasoned the Oliver

approach ensures the “orderly and efficient disposition of chapter 13 cases” by ensuring

68
In re Oliver, 222 B.R. 272, 274 (Bankr. E.D. Va. 1998) (adopting the reasoning of In
re Walter, 199 B.R. 390 (Bankr. C.D. Ill. 1996) and In re Clifford, 182 B.R. 229 (Bankr.
N.D. Ill. 1995)).
69
Id. at 275. See also In re Hamilton, 493 B.R. 31, 37-38 (Bankr. M.D. Tenn. 2013)
(focusing on § 349(b) as the basis for the policy of returning debtors to their pre-petition
status quo ante).
70
In re Davis, No. 04-30002-DHW, 2004 WL 3310531 at *2 (Bankr. M.D. Ala. June 16,
2004) (unpublished).
71
Id.
72
Id.

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“any attempts to reach the money would ensue outside the jurisdiction of the bankruptcy

court” so cases “may be closed as quickly as statutorily possible following dismissal.” 73

Thus, “[h]olding to the contrary would create a ‘race to the trustee’ and effectively ignore

the statutory mandate to return the money to the debtor.” 74

The court in Commonwealth of Virginia v. Beskin framed its plain language

approach against the Supreme Court’s expressed views on the voluntary nature of chapter

13 proceedings. 75 In Harris v. Vieglahn, the Court stated “the ‘wholly voluntary’ process

of chapter 13 bankruptcy is meant to ‘benefit debtors and creditors alike.’” 76 Moreover,

in Czyzewski v. Jevic Holding Corp., the Court “emphasized that dismissal of a

bankruptcy case ‘aims to return to the prepetition financial status quo.’” 77

In sum, courts adopting the plain language approach to post-dismissal pre-

confirmation garnishment find harmony between the wording of § 1326 and the policy

purposes served by the statutory language. The court in In re Inyamah summarized this

view by enumerating three “statutory purposes” served by the plain language of § 1326:

As noted by the In re Davis court, returning the funds to debtors
accomplishes three statutory purposes: (1) when plans fail allowing
creditors to seize debtors’ funds would be in conflict with the policy of
encouraging chapter 13 filings; (2) return of the funds to debtors allows for

73
Id.
74
Id.
75
Commonwealth of Virginia v. Beskin, 581 B.R. 162, 166 (Bankr. W.D. Va. 2017), aff’d
sub nom. Commonwealth of Virginia v. Webb, 908 F.3d 941 (4th Cir. 2018).
76
Id. (quoting Harris v. Viegelahn, 575 U.S. 510 (2015)).
77
Id. (quoting Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (2015)).

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the prompt closing of the estate by precluding conflicting efforts of
creditors to gain access to funds held by chapter 13 trustees; and (3)
returning funds to debtors fosters the concept of revesting upon dismissal
by placing the funds in their hands thereby restoring all parties to their
original positions. 78

ii. The “Debtor of a Debtor” Cases

The divergent line of cases, which approve of post-dismissal trustee garnishments,

not only takes a different view of the statutory language, but also the underlying policy

motivations. These cases generally do not disagree with the plain language interpretation

of § 1326, but instead take a more practical approach which gives the language more

meaning within the broader context of the Code.

The first such case is In re Steenstra. 79 There, the debtor’s chapter 13 case was

dismissed prior to confirmation of a plan and was followed by efforts to levy plan

payments held by the trustee. 80 The bankruptcy court followed the plain language

approach to § 1326, holding the funds remained in custodia legis and were not subject to

levy until the case was closed. 81 The First Circuit Bankruptcy Appellate Panel reversed,

approving the notion of post-dismissal garnishment.

78
In re Inyamah, 378 B.R. 183, 185 (Bankr. S.D. Ohio 2007). See also In re Locascio,
481 B.R. 285, 289 (Bankr. S.D.N.Y. 2012) (“The plain language of section 1326(a)(2),
the policies behind that provision, and the Supremacy Clause all mandate return of plan
payments directly to the debtor upon dismissal, despite the existence of a garnishment.”);
In re Hamilton, 493 B.R.at 31.
79
In re Steenstra, 307 B.R. 732 (1st Cir. BAP 2004).
80
Id. at 735.
81
Id.

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First, the panel focused on the termination of the bankruptcy estate and the

automatic stay upon entry of a dismissal order. 82 Thus, while § 1326(a)(2) and

§ 349(b)(3) ostensibly require a trustee return payments to the debtor, any such payments

lose the protection of the automatic stay upon dismissal. 83 In the panel’s view, this is

critical because “the revestment is not immediate or automatic.” 84 For example,

§ 1326(a)(2) requires the trustee to pay administrative expenses before returning the

funds to the debtor. 85 In this sense, “before the funds may be returned to the debtor, the

chapter 13 trustee must complete the administration of the case. . . .” 86 Because the

trustee’s withholding of administrative expenses occurs before the funds are returned to

the debtor, the funds payable for such expenses “are protected from levy or garnishment”

as part of trustee’s ongoing estate administration. 87 The question, then, is whether “the

remaining funds are also protected from levy or garnishment once the automatic stay has

terminated.” 88

82
Id. at 737-38 (“[D]ismissal of a bankruptcy petition ‘has the simultaneous effect of
undoing the bankruptcy estate and lifting the automatic stay[.]’”) (quoting In re Garnett,
303 B.R. 274, 278 (E.D.N.Y. 2003)).
83
Id.
84
Id. at 738.
85
Id.
86
Id.
87
Id.
88
Id.

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 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 22 of 30

The panel then approvingly cited In re Doherty as expressing the correct reasoning

upon which to consider this question. In Doherty, the court “reasoned that because the

dismissal order terminated the automatic stay, there was no stay in place to protect the

funds held by the trustee after the court entered the dismissal order.” 89 “Because the

dismissal of a bankruptcy case prior to confirmation removes the protections afforded by

the Bankruptcy Code, the funds belonging to the debtor but which are held by the trustee

are not afforded protection from levy merely because they were once part of the estate.” 90

This creates what the Steenstra panel approvingly referred to as the “debtor of the debtor”

approach to the trustee’s predicament:

[T]he Court finds that, once the order of dismissal is entered, and the stay
has been lifted, and the Trustee has been ordered to turn over the funds to
the Debtor, she becomes a debtor of the Debtor to that extent. The funds
held by the Trustee are subject to levy or garnishment by creditors of the
Debtor, pursuant to applicable law. The Trustee is bound to accept the levy
if she has any money that belongs to the Debtor. 91

Finally, the Steenstra panel considered whether the funds are excepted from the

possibility of levy because they remained within the bankruptcy court’s custody and

control pursuant to the doctrine of in custodia legis. 92 The panel rejected the possibility

of protection through this doctrine, reasoning that in the absence of a formal retention of

jurisdiction, entry of the dismissal order retires the bankruptcy court’s duties and

89
Id. at 739 (quoting In re Doherty, 229 B.R. 461 (Bankr. E.D. Wash. 1999)).
90
Id.
91
Id. at 740 (quoting In re Schlapper, 195 B.R. 805, 806 (Bankr. M.D. Fla. 1996)).
92
Id.

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 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 23 of 30

jurisdiction with respect to property formerly part of the now non-existent estate. 93 In

contrast, in custodia legis “relates to specific funds held by the court for a specific

purpose.” 94 “[W]here nothing more remains for the custodian to do but make delivery of

the property or payment of the money, the reason for the doctrine of in custodia legis is

satisfied[.]” 95

The court in In re Fischer followed similar reasoning to conclude garnishment had

no effect on the trustee’s obligation to return funds to the debtor. 96 First, the Fischer

court reasoned:

In short, there is nothing special about funds the Chapter 13 trustee holds
that should prevent a creditor from proceeding with garnishment after
dismissal of a Chapter 13 case. If the trustee is holding funds that belong to
the debtor, viz-a-viz a third party creditor with a writ of garnishment, the
trustee is just like any other “debtor of the debtor,” and a creditor should
not be prevented from garnishing such funds. 97

Importantly, the Fischer court went on to reconcile its approach with the “plain

meaning” reasoning of courts reaching the opposite conclusion. Rather than finding

§ 1326 ambiguous, the Fischer court explained the statute “simply states that the ‘trustee

shall return’ to the debtor any payments made in accordance with an unconfirmed

93
Id.
94
Id.
95
Id. at 741 (quoting United States v. Powell, 492 F. Supp. 1030, 1032 (W.D. Tex. 1980),
aff’d, 639 F.2d 224 (5th Cir. 1981)).
96
In re Fischer, 432 B.R. 863, 864 (Bankr. M.D. Fla. 2010).
97
Id. at 865.

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plan.” 98 According to Fischer, nothing in the plain language of § 1326(a) prohibits post-

dismissal garnishment, but rather operates to prevent the trustee from retaining the funds

or distributing them to an unrelated party. 99 Thus, “there is no difference between this

situation and a typical wage garnishment in which an employee is entitled to any wages

earned, except when a creditor has a valid writ of garnishment allowing it to garnish

wages held by the employer.” 100

The court in In re Cohen also followed the “debtor of a debtor” reasoning, but

further responded to the purported policy justifications referenced in the plain meaning

cases (for example, those articulated by the court in Inyamah). 101 First, the court rejected

the idea that returning plan payments to debtors encourages chapter 13 filings by not

penalizing debtors for their failed efforts. The court reasoned this policy “fails to explain

why a debtor who did not confirm a plan is given greater consideration than one whose

plan is confirmed. Additionally, this argument may encourage bad-faith filings solely

motivated by the purpose of avoiding payment obligations.” 102 In the court’s view, a

hypothetical debtor “could file bankruptcy, receive protection from garnishment against

98
Id.
99
Id.
100
Id. See also In re Price, 484 B.R. 870, 873-74 (Bankr. E.D. Ark. 2013) (“[A] trustee
who owes amounts to a debtor is not any different than any other party that is subject to a
garnishment.”).

In re Cohen, No. 2:14-bk-11079-DPC, 2016 WL 797656 (Bankr. D. Ariz. Feb. 29,
101

2016) (unpublished).
102
Id. at *5.

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 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 25 of 30

his wages, fail to confirm a plan, receive those funds back safely from the trustee, and

then potentially spend those funds before a creditor could reinstate a wage garnishment

after the case is dismissed.” 103 The result of such a practice could be “rewarding debtors

who do not produce a viable plan, while not extending similar protections to debtors who

made serious efforts toward repaying creditors.” 104

Next, the Cohen court was not persuaded by the argument levy orders impose

additional administrative burdens on the trustee’s office. The court reasoned the trustee

has no stake in who gets the money, and therefore can comply with a garnishment as

easily as she could return the funds to the debtor. 105 Moreover, trustees can avoid the

problem altogether by immediately returning the funds upon dismissal, avoiding a race to

the trustee by preempting any garnishment efforts. 106

Finally, the Cohen court addressed the purported policy behind the plain language

approach to § 1326 to return debtors to the pre-petition status quo ante. These arguments

“greatly overlook[] the protections chapter 13 provides debtors” because prior to

dismissal “a debtor will have had the advantage of the bankruptcy automatic stay and

their income will have been protected against garnishment and levies all the while.” 107

103
Id.
104
Id.
105
Id.
106
Id.
107
Id.

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 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 26 of 30

Indeed, the court observed “[a]bsent the bankruptcy automatic stay, those funds likely

would have been garnished or levied at an earlier time.” 108 Therefore, returning the funds

to the debtor after dismissal does not actually return debtor to his pre-petition status, but

rather, enhances the debtor’s position by enabling him to delay levy with no

consequence. 109

Arguably, the foregoing analyses reach different conclusions from the plain

language cases without necessarily disagreeing on whether § 1326 is plain and

unambiguous. Rather, these cases can be viewed as simply taking a more nuanced and

functional approach to applying the statute. The court in Shields expanded on this

dynamic, while comprehensively summarizing the debtor of a debtor approach:

Assuming that § 1326(a)(2) applies in dismissed cases, it does not, and
cannot, provide for every scenario for disposition of funds in a dismissed
case with an unconfirmed plan. For example, to whom should the funds be
returned upon the death of a debtor? Upon incarceration of a debtor? Upon
incompetency of a debtor for which a guardian has been appointed? Would
the Trustee argue § 1326(a)(2) directs him to pay the funds to the debtor in
such cases? If the funds cannot be returned to the debtor due to the
debtor’s incarceration, incompetency or death, would the trustee hold the
funds indefinitely?

***

I conclude that what § 1326(a)(2) and § 349(b)(3) do unambiguously
provide for is the return of the funds to (after payment of § 503(b)
expenses) and the revesting of property in the debtor where there are no
post dismissal intervening events that challenge the debtor's right to receive
the funds or claim the property. However, application of these sections
beyond this garden variety scenario, in my opinion, just was not

108
Id.
109
Id.

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contemplated by Congress. . . . I do not believe that Congress would have
so easily disregarded creditors who, free from the automatic stay, enforce
their judgments by obtaining valid state court garnishment orders and
levying property that is neither property of the estate nor property needed to
pay administrative claims. Had Congress intended to sequester funds from
these creditors under these circumstances, it certainly knew how to provide
for it and could have added “notwithstanding any challenge after dismissal
but before closing of the case” or similar language to § 1326(a)(2) or
§ 349(b)(3). . . .

Rather, I follow the lead of the Steenstra and Doherty cases and conclude
that, § 362 controls here. As stated in those cases, dismissal of a case
terminates the automatic stay and the bankruptcy estate. What was
formerly property of the estate revests in the entity in which it was vested
prior to the commencement of the case under § 349(b)(3) and is no longer
property of the estate. Such property loses the protection of the automatic
stay upon dismissal under § 362(c)(1) and nothing in § 362, § 349, or
§ 1326 expressly shields from levy funds that are not needed to pay
§ 503(b) claims. Since the funds are not protected, they are subject to levy
and the trustee is like any other third-party holding funds owed to a debtor
against which a judgment creditor has levied. 110

The Panel agrees with the reasoning of the “debtor of the debtor” approach as

summarized by Shields. The plain language cases are attractive for their simplicity, but

their literalistic approach to § 1326(a)(2) fails to account for the functional practicalities

of the tripartite relationship between the trustee, the garnishor, and the debtor. Because

of the termination of the automatic stay and the non-existence of the prior bankruptcy

estate upon entry of a dismissal order, the Trustee is effectively no longer operating as

court-appointed fiduciary. Certainly, the Trustee can no longer be thought of as a

representative of the estate exercising control over property of the estate.

110
In re Shields, 431 B.R. 446, 450-51 (Bankr. S.D. Ind. 2010). See also In re
Jankauskas, 593 B.R. 1 (Bankr. N.D. Ga. 2018).

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 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 28 of 30

Instead, the legal relationship between the debtor and a trustee following dismissal

is akin to a traditional bailment. 111 The debtor has voluntarily transferred personal

property to a third party who, absent the duties of a trustee as estate representative, is

merely a custodian safeguarding the debtor’s property in a trustee’s hands. As discussed

hereinabove, a similarly situated custodian, such as a bank, is not excused from

complying with a levy or garnishment concerning the subject property. The Panel sees

no reason why a different rule should apply to trustees merely because they were

formerly an estate representative and the property used to be in custodia legis through an

estate which no longer exists.

Moreover, even under the plain language approach, there is reason to question

whether a trustee’s compliance with the garnishment even violates the statutory direction

to return the funds to the debtor. While the trustee physically completes the transfer of

possession of the money to the garnishor, the transfer of title to the property occurs

through operation of state law, not by action of the trustee. This must be so because, as

discussed, the trustee merely holds possession of, but not title to, the funds after

dismissal.

Upon delivery of the garnished funds, the debtor’s ownership interest is removed

while the debtor’s liability on the underlying debt is reduced. Both sides of the

111
See Chambers v. Morgan, 671 P.2d 89, 90 (Okla. App. 1983) (“Bailment is a legal
status created by the transference of possession of personal property to another for the
accomplishment of some particular purpose and establishes a bailor-bailee [ ]
relationship.”).

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 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 29 of 30

transactional ledger must be considered, especially in a post-dismissal reference frame

where the debtor is no longer seeking reorganization or discharge. In this sense, the

trustee would in fact be returning the property to the debtor, not in the form of a cash

payment, but in the form of a debt reduction. In the same sense, the trustee is also

returning debtor’s ledger to its pre-petition status—the property and liability columns

have changed but in equal amounts on each side. The transfer may not be to the debtor,

but it is nevertheless made for the debtor’s benefit. 112

IV. CONCLUSION

Trustees play an invaluable role in the bankruptcy process and the Barton doctrine

provides appropriate protection against litigation which may seriously and adversely

affect the execution of their duties. The line is difficult to enunciate; but we believe more

than mere inconvenience is required to trigger such prohibition of actions against a

trustee once a case has been dismissed. Further, once a case is dismissed, if the Barton

doctrine does not prohibit a proposed garnishment action, a trustee sits in a similar

position to any other party holding money for another and subject to garnishment.

112
This approach also comports with the court’s solution in Shields. There, the court
directed the trustee to issue a check in the debtor’s name, but to deliver the check to the
possession of the state court which issued the writ of garnishment for further proceedings.
Shields, 431 B.R. at 452. The court explained “[b]y ordering the Trustee to issue the
Check payable to the Debtors and to send it to the State Court, the Trustee’s concerns
with § 1326(a)(2)’s ‘mandate’ are allayed, and the Court preserves a source of recovery”
for the creditor. Id.

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 BAP Appeal No. 20-41 Docket No. 38 Filed: 04/27/2021 Page: 30 of 30

For the foregoing reasons the decision of the Bankruptcy Court is REVERSED

and REMANDED for the purpose of conducting further proceedings on the Barton

doctrine issues consistent with this opinion.

30