FILED NOV 12 2024 ORDERED PUBLISHED SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL OF THE NINTH CIRCUIT

UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT

In re: BAP No. AZ-24-1012-FSL CHAPTER 13 TRUSTEE’S MOTIONS FOR DECLARATORY RELIEF Bk. No. 4:23-mp-00003-BMW CHALLENGING THE CONSTITUTIONALITY OF

(e) AND

(b)(2).

DIANNE C. KERNS, Chapter 13 Standing Trustee, Appellant, v. OPINION DAVID RONALD FOSS; FRANCIS R. MASTELLER; ELVIRA E. MASTELLER; DANIEL JOSEPH SCHNEIDER; ARTHUR ALLEN JOLIVETTE, III; ELISE KALEIMAKALII JOLIVETTE; KEIRA L. ADAMS; JILL H. FORD, Chapter 7 Trustee; MERRICK B. GARLAND, Attorney General of the United States; TARA TWOMEY, Esq., Director, U.S. Trustee Program; U.S. TRUSTEE, PHOENIX, Appellees.

Appeal from the United States Bankruptcy Court for the District of Arizona Brenda Moody Whinery, Bankruptcy Judge, Presiding APPEARANCES Mahesha P. Subbaraman of Subbaraman PLLC argued for appellant; Louisa Soulard argued for appellee Merrick B. Garland, Attorney General of the United States.

Before: FARIS, SPRAKER, and LAFFERTY, Bankruptcy Judges.

FARIS, Bankruptcy Judge:

INTRODUCTION

In order to fund their operations, chapter 131 trustees collect a

percentage of every debtor’s chapter 13 plan payments. In Evans v.

McCallister (In re Evans),

(9th Cir. 2023), cert. denied sub nom.

McCallister v. Evans,

(2024), the Ninth Circuit held that a

chapter 13 trustee is only entitled to receive the percentage fee if the plan is

confirmed; otherwise, if the case is dismissed or converted prior to

confirmation, the trustee must return all of the debtor’s plan payments to

the debtor, and the trustee receives nothing.

Appellant Dianne C. Kerns (“Trustee”) is a standing chapter 13

trustee in the District of Arizona. In the wake of the Evans decision, she

challenged the constitutionality of

(e)(1) and

(b)(2), arguing that the statutes violate due process because they

condition the compensation of quasi-judicial officers on the outcome of

plan confirmation. The bankruptcy court declined to reach the merits of her

Unless specified otherwise, all chapter and section references are to the 1

Bankruptcy Code,

.

2 arguments, instead holding that the Ninth Circuit’s decision in Evans

precluded her position.

The bankruptcy court incorrectly held that Evans barred the Trustee’s

constitutional challenge: the parties to that case did not raise, and the Ninth

Circuit did not consider, any constitutional argument. Nevertheless, the

Trustee’s argument fails. She is not a quasi-judicial officer; even if she were,

the due process rights she asserts do not belong to her; and her proposed

remedy would not address the purported due process problem.

We AFFIRM.

PROCEDURAL HISTORY

The Trustee is a standing chapter 13 trustee in the District of Arizona.

After the Ninth Circuit decided Evans, the Trustee filed motions for

declaratory relief in five cases assigned to her in which the debtors’ cases

were dismissed or converted to chapter 7 prior to plan confirmation.

The motions for declaratory relief argued that

(e)(1)

and

(b)(2) violate constitutional due process because they

condition chapter 13 trustees’ funding on plan confirmation. She reasoned

that chapter 13 trustees perform quasi-judicial functions and contended

that due process bars giving quasi-judicial officers a direct and substantial

pecuniary interest in plan confirmation.

Alternatively, the Trustee argued that, even if the trustees were not

quasi-judicial officers, the statutes are still unconstitutional because the

compensation scheme “tempt[s] the misuse of prosecutorial discretion in

3 the discharge of a public duty or office.”

The Trustee requested that the bankruptcy court sever the language

in the two statutes that gives rise to the due process violation – in other

words, allow chapter 13 trustees to collect their percentage fees whether or

not a plan is confirmed.

The bankruptcy court denied the Trustee’s motions, holding that

stare decisis obliged the court to follow Evans and reject the Trustee’s

constitutional challenge. The Trustee timely appealed.

JURISDICTION

The bankruptcy court had jurisdiction under

and

157(b)(1) and (2)(A). We have jurisdiction under

.

ISSUES

(1) Whether the bankruptcy court erred in ruling that stare decisis

barred it from considering the merits of the Trustee’s motions.

(2) Whether

(e)(1) and

(b)(2) are

unconstitutional to the extent they provide that chapter 13 trustees may not

collect percentage fees unless the bankruptcy court confirms a plan.

STANDARD OF REVIEW

We review de novo the bankruptcy court’s decision that the principle

of stare decisis precluded it from deciding the Trustee’s motions. See Alston

v. Nat’l Collegiate Athletic Ass’n (In re Nat’l Collegiate Athletic Ass’n Athletic

Grant-in-Aid Cap Antitrust Litig.),

, 1252 (9th Cir. 2020) (“The

application of stare decisis and res judicata are questions of law that we

4 review de novo.”), aff’d sub nom. Nat’l Collegiate Athletic Ass’n v. Alston,

(2021). Similarly, we review de novo any constitutional challenge to

a federal statute. Res. Funding, Inc. v. Pac. Cont’l Bank (In re Wash. Coast I,

L.L.C.),

(9th Cir. BAP 2012) (“We review the

constitutionality of a federal statute de novo.”).

“De novo review requires that we consider a matter anew, as if no

decision had been made previously.” Francis v. Wallace (In re Francis),

(9th Cir. BAP 2014).

We may affirm on any basis supported by the record. Black v. Bonnie

Springs Fam. Ltd. P’ship (In re Black),

(9th Cir. BAP 2013).

DISCUSSION

A. Evans and stare decisis do not bar the Trustee’s constitutional arguments.

The Trustee argues that the bankruptcy court erred in denying her

declaratory relief motions based on the stare decisis effect of the Ninth

Circuit’s Evans decision. We agree with the Trustee.

The doctrine of stare decisis is “the policy of the court to stand by

precedent; the term is but an abbreviation of stare decisis et non quieta movere

– ‘to stand by and adhere to decisions and not disturb what is settled.’”

U.S. Internal Revenue Serv. v. Osborne (In re Osborne),

(9th

Cir. 1996). Generally, it “compels lower courts to follow the decisions of

higher courts on a question of law.” Brewster v. Cnty. of Shasta,

(E.D. Cal. 2000) (quoting 18 Coquillette et. al, Moore’s Federal

5 Practice § 134.01[1] (3d ed. 2000)), aff’d sub nom. Brewster v. Shasta Cnty.,

(9th Cir. 2001).

But stare decisis applies only where the appellate court “confronts an

issue germane to the eventual resolution of the case, and resolves it after

reasoned consideration in a published opinion . . . .” United States v.

McAdory,

(9th Cir. 2019) (quoting Cetacean Cmty. v. Bush,

(9th Cir. 2004)). Conversely, a court is not bound to

follow an earlier decision on a particular issue if the earlier court did not

engage in “reasoned consideration” of that issue because it was not raised

in the earlier case. See, e.g., United States v. Wright,

, 947 (9th Cir.

2022) (holding that, where an issue was not raised in an earlier case, the

later court was not foreclosed from considering that issue because, despite

factual similarities, the earlier panel “did not mention this issue anywhere

in its opinion, much less grant it ‘reasoned consideration’” (cleaned up)).

The bankruptcy court denied the Trustee’s motions based on the

stare decisis effect of Evans. But Evans said nothing about the

constitutionality of

(e)(1) and

(b)(2) because

the parties did not raise any constitutional question until a post-decision

motion. The bankruptcy court was not bound by stare decisis because the

Ninth Circuit did not engage in a “reasoned consideration” of, let alone

decide, the constitutional question.

It is true that, as the bankruptcy court pointed out, the Evans trustee

raised the constitutional issue in a motion for rehearing, the Ninth Circuit

6 denied that motion, and the U.S. Supreme Court denied a petition for writ

of certiorari. But neither of these orders has stare decisis effect. See

Maryland v. Balt. Radio Show,

(1950) (The U.S. Supreme

Court “has rigorously insisted that such a denial [of a writ of certiorari]

carries with it no implication whatever regarding the Court’s views on the

merits of a case which it has declined to review.”); Sherman v. Reilly, No.

CV 05-08-RE,

, at *3 (D. Or. Apr. 4, 2007) (“A denial of

rehearing is not persuasive or binding precedent.”).

Therefore, we hold that stare decisis was inapplicable and that the

bankruptcy court erred in declining to consider the Trustee’s declaratory

relief motions. Nevertheless, as discussed below, such error was harmless

because the Trustee’s constitutional arguments are meritless.2

2 We need not remand to the bankruptcy court. United States v. Patrin,

(9th Cir. 1978) (“When the issue conceded or neglected in the trial court is purely one of law and either does not affect or rely upon the factual record developed by the parties, or the pertinent record has been fully developed, the court of appeals may consent to consider it.” (citations omitted)); see also Planned Parenthood of Greater Wash. & N. Idaho v. U.S. Dep’t of Health & Hum. Servs.,

, 1111 (9th Cir. 2020) (holding that an appellate court may decide a “purely legal” issue in the first instance where “a litigant could not have tried his case differently either by developing new facts in response to or advancing distinct legal arguments against the issue” (cleaned up)). The asserted due process violation presents a pure question of law, the relevant facts are undisputed, and both parties fully argued the constitutional issue on appeal.

7 B. The percentage fee statutes do not violate the Trustee’s due process rights.

1. The chapter 13 trustee’s compensation and funding are governed by

(e)(1) and

(b)(2).

Chapter 13 trustees play an important role in the chapter 13 process.

The Bankruptcy Code requires that “[t]he trustee shall . . . appear and be

heard at any hearing that concerns . . . confirmation of a plan . . . .”

§ 1302(b). “The chapter 13 trustee has an affirmative statutory duty to

appear and be heard on the question of plan confirmation.” In re Escarcega,

(9th Cir. BAP 2017) (quoting Meyer v. Hill (In re Hill),

(9th Cir. BAP 2001)), aff’d in part, vacated in part, rev'd in part

sub nom. In re Sisk,

(9th Cir. 2020); see also Andrews v. Loheit (In

re Andrews),

(9th Cir. BAP 1993) (“The duty to appear and

be heard under § 1302(b)(2)(B) encompasses the duty to review plans for

compliance with confirmation requirements and to make a

recommendation to the court on confirmation.”), aff’d,

(9th Cir.

1995). We have noted the importance of the chapter 13 trustee’s role:

Imposing a duty on chapter 13 trustees to object to plans whenever appropriate is necessary to permit the bankruptcy court to do its job. . . . [T]he bankruptcy court has an independent obligation, even in the absence of any creditor objection, to ascertain that all plan confirmation requirements are met. The bankruptcy court could not effectively carry out this responsibility without the chapter 13 trustee’s assistance.

In re Escarcega,

. In carrying out these duties, “[t]he trustee is

8 charged with serving the interests of all creditors, secured and unsecured.”

(quoting In re Hill,

).

Chapter 13 trustees are entitled to compensation and expense

payment for this important work. The trustee receives compensation in an

amount fixed by the Attorney General (after consulting with the United

States Trustee) that is equal to the compensation paid to senior employees

in the executive branch, plus corresponding benefits. The trustee is also

entitled to payment of actual, necessary expenses under a budget approved

by the Attorney General after consultation with the United States Trustee.

(e)(1)(A).

To fund the trustee’s compensation and expenses, the trustee collects

post-confirmation a percentage of each plan payment. Section 1326(a)(1)(A)

provides that chapter 13 debtors must commence plan payments to the

trustee within thirty days after the filing of the plan or order for relief.

Section 1326(a)(2) provides that such payment “shall be retained by the

trustee until confirmation or denial of confirmation,” and that, once the

court confirms a plan, the trustee must distribute the payments “in

accordance with the plan as soon as practicable.” Whenever the trustee

makes a distribution under the plan, the trustee is paid a “percentage fee

fixed for such standing trustee under section 586(e)(1)(B) of title 28[.]”

§ 1326(b)(2). The percentage is fixed by the Attorney General (not to exceed

ten percent of plan payments), “based on such maximum annual

compensation and the actual, necessary expenses incurred by such

9 individual as standing trustee.”

(e)(1). 3 If the total

percentage fees collected by the trustee exceeds the trustee’s approved

compensation and expenses, the excess is deposited into the United States

Trustee System Fund.

(e)(2).

2. Standing chapter 13 trustees are not quasi-judicial officers.

The Trustee’s primary argument is that she is a quasi-judicial officer

and that it is constitutionally impermissible to give her a direct pecuniary

interest in the outcome of a case. We reject this view of the chapter 13

trustee’s position.

a. The Trustee’s “decision” on a recommendation for plan confirmation does not make her a quasi-judicial officer akin to a bankruptcy judge with final decision-making authority in a judicial proceeding.

The Trustee contends that, because plan confirmation is a judicial

function and the chapter 13 trustee “shall appear and be heard” and offer a

recommendation on plan confirmation, the trustee is a quasi-judicial

officer. She believes that, for due process purposes, the trustee’s role is

indistinguishable from that of the bankruptcy judge. For example, she

3 The Handbook for Chapter 13 Standing Trustees provides that “[a] standing trustee’s percentage fee is fixed by the Director [of the Executive Office for United States Trustees] by delegation from the Attorney General, after consultation with the United States Trustee for the region in which the standing trustee serves. The standing trustee has no authority to negotiate a percentage fee other than that fixed by the Director.” U.S. Dep’t of Just., Handbook for Chapter 13 Standing Trustees at 2-3 (Oct. 1, 2012) (citation omitted), https://www.justice.gov/ust/private-trustee-handbooks-reference- materials/chapter-13-handbooks-reference-materials. 10 thinks that her recommendation “controls” plan confirmation; at oral

argument, she referred to herself as “the decider”; and elsewhere, she says

(somewhat more modestly) that her recommendations on plan

confirmation are “often dispositive.”

The Trustee relies on cases holding that due process is violated when

a judicial or similar decisionmaker has a pecuniary interest in the outcome.

For example, in Tumey v. Ohio,

(1927), state law empowered a

mayor to try cases involving alleged violations of liquor laws and provided

that the mayor could collect a fee only if there were a conviction. The court

held that “it certainly violates the Fourteenth Amendment and deprives a

defendant in a criminal case of due process of law to subject his liberty or

property to the judgment of a court, the judge of which has a direct,

personal, substantial pecuniary interest in reaching a conclusion against

him in his case.”

.

Similarly, in Connally v. Georgia,

(1977), state law

empowered a justice of the peace to issue search warrants and provided

that the unsalaried justices of the peace would be paid $5 only when they

issued a warrant. The Court held that this violated the due process rights of

a defendant convicted of marijuana possession:

The justice is not salaried. . . . His financial welfare, therefore is enhanced by positive action and is not enhanced by negative action. The situation, again, is one which offers “a possible temptation to the average man as a judge . . . or which might lead him not to hold the balance nice, clear and true between

11 the State and the accused.” It is, in other words, another situation where the defendant is subjected to what surely is judicial action by an officer of a court who has “a direct, personal, substantial, pecuniary interest” in his conclusion to issue or to deny the warrant.

.

In Ward v. Village of Monroeville,

(1972), the mayor sat as a

judge to decide ordinance violations and traffic offenses in the “mayor’s

court” and collected fees, fines, and costs that constituted a substantial

portion of the village’s income. Similarly, in Caliste v. Cantrell,

(5th Cir. 2019), the magistrate judge’s bail decisions generated funds that

helped fund court reporters, judicial secretaries, and law clerks, where a

portion of the bail bond was directed to a fund for the judge’s expenses.4

The Trustee relies on these cases to argue that an official whose funding for

her office is based on the collection of fees dependent on her decision has a

“partisan interest” and therefore cannot render impartial decisions. She

contends that she has a partisan interest in funding her office, which is at

odds with her position as a “judicial” officer.

All of these cases are inapplicable because, unlike the mayor in

Tumey or Ward, the justice of the peace in Connally, or the magistrate judge

in Caliste, the chapter 13 trustee is not the decisionmaker. The chapter 13

4 Similarly, another case cited by the Trustee, Meyers v. Shields,

(C.C.N.D. Ohio 1894), involves municipal auditors overseeing tax proceedings. In that situation, the auditor is the sole and final decisionmaker who is more akin to the bankruptcy judge than the chapter 13 trustee. 12 trustee is undoubtedly an asset to the bankruptcy court and often

persuades the bankruptcy court to follow his or her recommendation. But

the chapter 13 trustee is not the person who hears all of the arguments and

decides the case. The bankruptcy judge is ultimately and solely responsible

for deciding whether to confirm a plan. The Trustee’s recommendation in a

particular case is only that: a recommendation to the court that the court

may or may not follow. It is beyond the pale to suggest that the Trustee’s

recommendation is “dispositive” or that bankruptcy judges do not

independently consider and decide the merits of each case. Cf. United

Student Aid Funds, Inc., v. Espinosa,

(2010) (holding that

“bankruptcy courts have the authority – indeed, the obligation – to direct a

debtor to conform his plan” to the requirements applicable to that case,

even if there is no objection).

Rather, this case is analogous to Marshall v. Jerrico, Inc.,

(1980). Regional Department of Labor officials were empowered to assess

penalties for child labor violations, and the monetary fines were used to

fund the department’s enforcement efforts. The respondent in one such

case argued that this scheme “created an impermissible risk and

appearance of bias by encouraging the assistant regional administrator to

make unduly numerous and large assessments of civil penalties.”

.

The U.S. Supreme Court disagreed and held that an administrative

prosecutor did not have to meet Tumey’s impartiality standards for a

judicial official, because the administrative law judge made the final ruling,

13 not the administrative prosecutor.

(“The rigid requirements of

Tumey and Ward, designed for officials performing judicial or quasi-judicial

functions, are not applicable to those acting in a prosecutorial or plaintiff-

like capacity.”). Contrary to the Trustee’s contention, her role is akin to that

of the administrative prosecutor and not like that of the administrative law

judge. The administrative prosecutor was not a quasi-judicial officer for

due process purposes because another officer – the administrative law

judge—was the decisionmaker. Cf.

(stating that an administrative

prosecutor is not a decisionmaker under Tumey because “[h]e hears no

witnesses and rules on no disputed factual or legal questions”). Likewise,

the Trustee is not a quasi-judicial officer because another officer – the

bankruptcy judge – makes the decisions.

The Trustee also likens herself to a federal magistrate judge because

“[m]agistrate judges advise courts whether to grant summary-judgment

motions.” This is another false comparison. Magistrate judges are members

of the judiciary who preside over disputes between litigants and render

judicial decisions that can bind parties with the force of law. It is true that

sometimes magistrate judges make recommendations or other decisions

that are reviewed de novo, but that is not true of all of their decisions.

Further, all judges (other than Supreme Court justices) make decisions that

are reviewed de novo (such as conclusions of law), but no one would deny

that they are nevertheless “judges.” In contrast, a chapter 13 trustee’s

recommendations are never entitled to any legal deference. The Trustee is

14 not equivalent to a federal magistrate judge or any other federal judicial

officer. 5

b. The Trustee’s quasi-judicial immunity does not imply that she is a quasi-judicial officer.

The Trustee further argues that, because chapter 13 trustees enjoy

quasi-judicial immunity, they must be quasi-judicial officers. It is true that

the word “quasi-judicial” appears in both “quasi-judicial immunity” and

“quasi-judicial officer,” but the similarity ends there. As the Ninth Circuit

explained in Curry v. Castillo (In re Castillo),

(9th Cir. 2002), as

amended (Sept. 6, 2002), “[j]udicial or quasi-judicial immunity is not

available only to those who adjudicate disputes in an adversarial setting.

Rather, the immunity is extended in appropriate circumstances to non

jurists ‘who perform functions closely associated with the judicial

process.’”

(citation omitted). Having quasi-judicial immunity

does not make one a quasi-judicial officer for purposes of the Due Process

Clause.6

5 The Trustee points out that judicial law clerks, who are not judges yet make recommendations and are closely involved in the court’s decision-making process, cannot accept compensation contingent on a particular case outcome. But law clerks are not like judges. Law clerks are judicial employees who must comply with the terms of their employment. Law clerks cannot accept contingent compensation (or any compensation other than their salaries), not because of the Due Process Clause, but rather because that is one of the rules that the judiciary imposes on its employees. 6 The Trustee argues that Imbler v. Pachtman,

, 423 n.20 (1976),

supports her position because the Court said that the “functional comparability” of a person’s “judgments to those of [a] judge” confers the title of a “quasi-judicial officer.” But as we discussed above, the Trustee’s decisions with respect to plan confirmation are 15 c. The Trustee has not demonstrated a due process violation arising from her supposed “prosecutorial discretion” or enforcement function.

The Trustee argues that, even if she is not a quasi-judicial officer, due

process prohibits a funding scheme where standing trustees must

compromise their free and fair exercise of prosecutorial discretion.

The Trustee’s reliance on Young v. United States ex rel. Vuitton et Fils

S.A.,

(1987), for this proposition is unavailing. In that case, the

petitioners were found guilty of criminal contempt but argued that the

district court erred by appointing the opposing party’s attorneys – rather

than disinterested individuals – to prosecute the contempt charge.

. The Court agreed, holding that prosecutors should be disinterested

and that the appointment of interested special prosecutors was error

because it offers no “assurance that those who would wield this power will

be guided solely by their sense of public responsibility for the attainment of

justice.”

.

Young is not applicable because the Trustee does not represent both a

private party to litigation and the government as a prosecutor; indeed, the

Trustee does not “represent” any party to the case (other than herself).

Further, contrary to the Trustee’s implication, the Court did not hold that

the appointment of a prosecutor who was not disinterested violated the

constitutional guarantee of due process. See

(Blackmun, J.,

not “judgments” similar to that of a judge for the purpose of the Due Process Clause. 16 concurring) (stating in a concurrence that he would go further than the

majority and hold that the practice violated due process). Rather, it held

that such an appointment was error because of various public policy

considerations. In other words, Young concerned policy, not due process,

and the Ninth Circuit in Evans already considered and rejected the policy

issues surrounding its decision. The court specifically rejected the trustee’s

policy argument “that holding in Debtors’ favor would incentivize trustees

to violate their duty to object to plans prior to confirmation, knowing that

they only get paid if a plan is confirmed.” In re Evans, 69 F.4th at 1109-10.

Similarly, the Trustee’s reliance on Marshall is also misplaced. The

Court held that the administrative prosecutors were not quasi-judicial

officials subject to Tumey, but it stated, “We do not suggest . . . that the Due

Process Clause imposes no limits on the partisanship of administrative

prosecutors. . . . A scheme injecting a personal interest, financial or

otherwise, into the enforcement process may bring irrelevant or

impermissible factors into the prosecutorial decision and in some contexts

raise serious constitutional questions.”

. But it declined to

“say with precision what limits there may be on a financial or personal

interest of one who performs a prosecutorial function . . . .”

. It

held that the administrative prosecutors were not subject to such scrutiny

because “[n]o governmental official stands to profit economically from

vigorous enforcement of the child labor provisions of the Act. The salary of

the assistant regional administrator is fixed by law.”

17 In this case, the Trustee has not shown that her financial stake raises

due process concerns. Increased percentage fee collections cannot benefit

her personally: her maximum salary and operating expenses are set

annually by the Attorney General; and any percentage fee collections in

excess of those amounts are ultimately paid over to the government. Cf.

(stating that there is no due process concern where the organization

“has minimized any potential for bias[,]” such as where funds are allocated

to offices based on actual expenses, “not on the basis of the amounts of

penalties collected”). Therefore, she cannot personally “profit” (in the

manner described by Tumey and Connally) from greater collections of

percentage fees.

Similarly, she offered no evidence that the reduction in percentage

fees resulting from Evans exposes her to any risk of loss. She produced no

evidence that her total percentage fee collections under the Evans

interpretation will be less than her maximum compensation plus her

approved expenses. In short, there is nothing in the record to show that she

is personally worse off under Evans than she would be if the percentage fee

were structured as she wishes.

The Trustee hypothesizes that the Evans interpretation might

disadvantage chapter 13 trustees with very low caseloads. But she offers no

evidence that any such trustee actually exists. Such a situation would only

exist if the Attorney General blundered by (for example) appointing more

standing chapter 13 trustees than the caseload warranted. In any event,

18 even if the Trustee could offer such evidence, her due process argument

would still fail for the reasons discussed herein.

3. Even if the Trustee were a quasi-judicial officer, the percentage fee system does not endanger the Trustee’s due process rights.

The Trustee’s due process argument also fails because the due

process rights that she asserts are not her rights.

In Tumey, Connally, and similar cases cited by the Trustee, defendants

brought the due process challenges, and the Court upheld those challenges.

But nothing in those decisions remotely suggests that the compensation

schemes violated the due process rights of the mayor in Tumey or the

justice of the peace in Connally, rather than the defendants in those cases.

She cites no case holding that the decisionmaker (as the Trustee purports to

be) suffered a due process violation. In short, the Trustee is not among the

parties who could conceivably be injured by the type of due process

violation identified in Tumey and Connally.7

7 The Trustee’s reliance on due process rights that do not belong to her calls her standing into question. In general, parties only have standing to assert their own rights and claims, unless the litigant has “suffered an ‘injury in fact,’ . . . ; the litigant must have a close relation to the third party; and there must exist some hindrance to the third party’s ability to protect his or her own interests.” Powers v. Ohio,

(1991) (citations omitted). Although it is an exceptionally close call, we hold that the Trustee has third-party standing in this instance to assert creditors’ due process claims relating to the percentage fee: at oral argument, the Trustee’s counsel suggested that her mere involvement in the percentage fee system, which she regards as improper, harms her; she owes legal duties to the creditors; and the disproportion between the benefit to any individual creditor of asserting the due process claims and the cost of 19 4. Even if the Trustee’s due process rights were violated, the Trustee’s proposed remedy lacks logic.

Even if we were to accept the Trustee’s arguments that the

percentage fee as interpreted in Evans is inconsistent with due process, her

proposed remedy would not resolve the issue.

The Trustee argues that requiring payment of the percentage fee only

if a plan is confirmed creates a due process problem because it gives

trustees an incentive to recommend confirmation when they should not do

so. But the Trustee’s proposed remedy – allowing payment of the

percentage fee out of all plan payments even if the plan is not confirmed –

would not eliminate the bias. If the debtor is unable to confirm a plan

promptly, the bankruptcy court will dismiss the bankruptcy case,

§ 1307(c)(1), (5), the debtor will stop making plan payments, and the

percentage fee will cease. Because confirmation of the plan keeps the

percentage fees flowing for a longer period, plan confirmation will usually,

and might always, produce more money for trustees than denial of

confirmation. Thus, trustees would still have a financial interest in plan

confirmation.

Further, the chapter 13 trustee always has a financial incentive to

argue for larger plan payments, because larger plan payments mean higher

percentage fees. Larger plan payments benefit creditors but harm debtors.

asserting those claims hinders their assertion.

20 Thus, if the Trustee is right, the percentage fee system always violates

debtors’ due process rights.

The logic of the Trustee’s argument would also call into question the

fee system in chapter 7 cases. Chapter 7 trustees are paid a percentage of all

money distributed to creditors. § 326(a). This gives them a personal

financial incentive to attack the debtor’s exemptions, challenge creditor’s

liens, sell property in which there is little or no equity, and take other

actions that may be adverse to the interest of the debtor and certain

creditors and (if the resulting collections are only sufficient to pay

administrative claims) may benefit no one other than the trustee. If a

financial incentive favoring such behavior violates due process, the chapter

7 compensation system would be questionable.

Finally, her proposal ignores the desirable incentive that the Evans

interpretation creates. The Code contemplates that chapter 13 plans will be

confirmed swiftly. Congress required courts to hold the hearing on plan

confirmation in the first few months of the case, § 1324(b), and empowered

courts to dismiss chapter 13 cases or convert them to chapter 7 for various

forms of delay, § 1307(c). Speedy plan confirmation is important because

the trustee may not make any distributions to creditors until the plan is

confirmed. § 1326(a)(2). Requiring the trustee to wait for her payment until

the plan is confirmed aligns the incentives of the trustee with the interests

of creditors.

The percentage fee system in chapter 13 cases undoubtedly has some

21 anomalous features. The amount generated by the percentage fee depends

entirely on the amount of the plan payments, which often has nothing to

do with the amount of effort and expense required of the trustee in any

particular case. Therefore, the chapter 13 trustee may be overpaid in easy

cases and underpaid in hard ones. The percentage fee also often has little or

nothing to do with the debtor’s ability to pay: many debtors file chapter 13

cases to cure defaulted mortgage debts; many of them need every penny of

their disposable income to pay their current mortgage payments and cure

their arrears; and therefore the trustee’s percentage fee may make chapter

13 relief too costly for debtors who badly need it. We cannot say, however,

that Congress violated the Trustee’s (or anyone’s) due process rights when

it adopted the “rough justice” of a percentage fee system for chapter 13

cases.

CONCLUSION

The Ninth Circuit’s Evans decision did not bar the bankruptcy court

from considering the Trustee’s challenge to the constitutionality of

(e)(1) and

(b)(2). Regardless, we hold that the

statutory scheme providing for the collection of percentage fees does not

violate due process. Accordingly, we AFFIRM.

22