Cranberry Growers Cooperative v. Patrick Layng

Case Type:
Case Status:
Reversed and Remanded
No. 1:17-bk-13318-cjf (7th Cir. July 17, 2019) (7th Circuit, Jul 17,2019) Published
Reversing the ruling below, the Seventh Circuit found "disbursement" to be an "expansive term" covering all payments made by or for a debtor, including direct payments to revolving lines of credit. The Court declined to find that the 2017 increase in quarterly fees narrowed the term "disbursement" in light of the canon that Congress presumably knew of that definition when passing the fee increase. The Court also found no grounds to waive the fees. Finally, the Court found that the debtor waived its argument on unconstitutionality of the 2017 fee increase by failing to raise it below.
Procedural context:
Direct appeal to the Seventh Circuit from ruling of the United States Bankruptcy Court for the Western District of Wisconsin. from denial of petition regarding imposition of additional quarterly fees upon Chapter 11 debtor. De novo review of ruling below.
Chapter 11 debtor sought and obtained court approval to enter into post-petition financing "roll-up" arrangement with its pre-petition lender, including approval to receive additional post-petition credit, conditioned in part upon direct payment from debtor's customers to the lender to pay down pre-petition balances. During the Chapter 11 case, the debtor calculated its disbursements for the purposes of determining the quarterly fee amounts to be paid to the United States Trustee under 28 U..S.C. section 1930(a)(6) - and under the increased quarterly fee schedule that became effective in certain districts as of January 1, 2018, including on pending cases - without including amounts paid directly to the lender on grounds that those receivables collections comprised sweeps that paid down the lender and then resulted in additional extensions of credit and not disbursements under the statute. The UST disputed the calculation on grounds that payments that decreased pre-petition balances due comprised disbursements subject to the fee schedule. When the dispute came before the Bankruptcy Court, the debtor asserted that the payments to the lender were not disbursements from the debtor or its accounts and, alternatively, requested waiver of the fees. The Bankruptcy Court found that the payments to the lender under the post-petition financing arrangement effectively comprised a cash management mechanism where the funds "functionally belonged" to the debtor without actual expenditure in the typical sense, so that the payments failed to comprise disbursements for the purposes of quarterly fee calculation. The Bankruptcy Court also found that requiring the debtor to pay quarterly fees on amounts the lender received from the debtor's customers and then requiring the debtor to draw down the line to pay those quarterly fees effected a "double dip" by the UST. As a result, the Bankruptcy Court declined to determine that the debtor owed additional fees to the UST.
Ripple, Manion, Sykes

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