Section 329 Bankruptcy Courts Have Exclusive Jurisdiction Over Attorneys Fees in Bankruptcy Proceedings


By: Samantha M. Tusa

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

The Bankruptcy Court for the Eastern District of Michigan held, in In re Piccinini[1], that bankruptcy courts have exclusive jurisdiction over attorneys’ fees incurred in bankruptcy proceedings because of the “restrictive language” of section 329 of the Bankruptcy Code (the “Code”). [2]  The issue arose after the debtor terminated his original attorney who then filed a suit against the debtor in state court to collect his fees.[3]  The bankruptcy court stayed the state court collection action pending the bankruptcy court’s resolution of the fee dispute. [4]

Section 329 of the Code does not expressly grant exclusive jurisdiction to the bankruptcy court, but it does provide that “the court” may, inter alia, order attorneys to return any compensation that “the court” determines to be in excess of the reasonable value of that attorney’s services.[5] No court appears to have previously interpreted section 329‘s reference to “the court” to refer solely to the bankruptcy courts.  However, identical language in section 523(c)(1) of the Code has consistently been interpreted to grant bankruptcy courts exclusive jurisdiction over certain discharge exception claims in section 523(a).[6]  Because both sections 523(c)(1) and 329 use the term “the court” and courts have interpreted section 523(c)(1) to grant jurisdiction solely to bankruptcy courts, the Piccinini court reasoned that section 329(b)’s reference to “the court” must also refer exclusively to bankruptcy courts.[7]  Therefore, the Piccinini court concluded that bankruptcy courts have exclusive jurisdiction over attorney fee disputes regarding bankruptcy proceedings.[8]

The Piccinini court also supported its decision on policy grounds.  Among other things, it found that bankruptcy courts are the “guardians of the integrity of the bankruptcy system” and as such, bankruptcy courts have a heightened interest in the proper functioning of the court and its officers.[9]  The court also noted that bankruptcy courts are experts in evaluating bankruptcy fee requests and have the largest interest in maintaining uniform interpretation of the Code.[10]  The court reasoned that the complicated procedure of distributing and protecting a bankruptcy estate requires the expertise and vigilance of a bankruptcy court.[11]

Although the Piccinini court held that section 329(b)’s reference to “the court” should be given the same meaning as it is given in section 523(c)(1), it is not clear that this decision is justified. [12]  Courts interpreting the phrase “the court” in section 523(c)(1) had to look at the legislative history of that section because its meaning was not plain.  The legislative history for section 523(c)(1) clearly indicates that Congress intended “the court” to refer to the bankruptcy courts and to thereby confer exclusive jurisdiction on bankruptcy courts in the section 523 setting. [13]  However, section 329 does not have such legislative history.[14]  Therefore, it seems unclear whether the Piccinini court’s reliance on interpretations of section 523(c)(1)’s “the court” is an appropriate basis for conferring exclusive jurisdiction to the bankruptcy courts and thereby restricting access to state courts in fee disputes.[15]  This decision may be challenged in future fee disputes because of the lack of legislative history and case law supporting the interpretation of “plain language” in section 329.

 

 

 


[1] In re Piccinini, 450 B.R. 677 (Bankr. E.D. Mich. 2011).

[2] See id. at 678–79. The court explains that the operative language, “unless the court determines such debt to be excepted from discharge,” of section 523(c)(1) has been understood to deprive non-bankruptcy courts of jurisdiction and that because of that restrictive language’s presence in section 329, exclusive jurisdiction is given to bankruptcy courts over issues relating to attorney’s fees in bankruptcy proceedings.

[3] See id.

[4] See id.

[5] See 11 U.S.C. § 329(b) (2006).

[6] See 11. U.S.C. § 523(c)(1) (2006) (allowing debtor to be discharged of debt specified in section 523(a)(2), (4), and (6) unless the court determines such debt to be excepted). Section 523(c)(1) has consistently been interpreted to confer exclusive jurisdictin on the bankruptcy court. See In re Moncur, 328 B.R. 183, 189 (B.A.P. 9th Cir. 2005) (“We now hold that the term “the court” in section 523(c)(1) means a bankruptcy court with subject-matter jurisdiction over a debtor in a bankruptcy case pending before it.”).

[7] See In re Piccinni, 450 B.R. at 678 (comparing the language of sections 329 and 523(c)(1)).

[8] See id. at 678 (concluding section 329 contains the same “restrictive language” as in section 523(c)).

[9] See id. at 679 (arguing fear of overreaching of debtors’ attorney and expertise of bankruptcy court on the issue require exclusive jurisdiction over issues under section 329); see also MSR Exploration v. Meridian Oil, Inc., 74 F.3d 910, 914–915 (explaining historical and constitutional need for regulation of parties in bankruptcy proceedings to be within sole jurisdiction of bankruptcy courts).

[10] See U.S. Const. art. I, § 8, cl. 4 (granting Congress the power to establish “uniform laws on the subject of Bankruptcies . . .”). The Constitutionally required ‘uniformity’ was meant to disallow state courts from “creating their own standard as to when persons may properly seek relief in cases Congress has specifically precluded those courts from adjudicating.” See MSR Exploration, 74 F.3d at 915 (stating that bankruptcy’s unique and historical need for uniformity indicates once again Congress’ desire to have all bankruptcy related matters decided by the federal bankruptcy courts).

[11] See In re Piccinni, 450 B.R. at 679 (arguing that bankruptcy proceedings include particularly vulnerable circumstances involving complex law which requires a heightened level of scrutiny and understanding).

[12] See In re Piccinini, 450 B.R. 677, 678–79 (Bankr. E.D. Mich. 2011).

[13] See In re Moncur, 328 B.R. 183, 189 (B.A.P. 9th Cir. 2005) (“We now hold that the term “the court” in section 523(c)(1) means a bankruptcy court with subject-matter jurisdiction over a debtor in a bankruptcy case pending before it.”); See also Dollar Corp. v. Zebedee (In re Dollar), 25 F.3d 1320, 1325 (6th Cir. 1994) (“Dischargeablitiy determinations were vested in bankruptcy courts by the 1970 Amendments to the Bankruptcy Act. In so doing, Congress intended ‘to take the determinations governed by 11 U.S.C. § 523(c) away from state courts and grant exclusive jurisdiction in the bankruptcy courts.’”(citing Spilman v. Harley, 656 F2d. 224, 226 (6th Cir. 1981))).

[14] Research shows the legislative history of section 329 of the Bankruptcy Code focuses on the section’s purpose to prevent overreaching attorneys and does not specifically mention exclusive jurisdiction. See Zepecki v. Luther, 258 B.R. 719, 724 (B.A.P. 8th Cir. 2001) (stating “the legislature’s goal in enacting section 329 was to prevent overreaching by a debtor’s attorney.”).

[15] See In re Piccinni, 450 B.R. at 679 (holding attorney’s fee agreements are subject solely to bankruptcy courts’ jurisdiction).