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Click here for the full text of this decision FACTS:Max Tarbox, a Chapter 7 Trustee, filed a final report in a bankruptcy proceeding in which the he proposed to pay interest on administrative fees and expenses from the date of the filing of the petition, arguing that 11 U.S.C. 726(a)(5) requires such a result in cases where the estate contains enough assets to redistribute a remainder to the debtor, i.e., a surplus case. The United States Trustee for the Northern District of Texas (the UST) objected to the proposed payment, arguing that to allow interest to accrue from the date of the petition permits payment of money from the estate for a claim during a time period when no claim in fact existed. The UST urged, alternatively, that interest should accrue from the date the bankruptcy court awards compensation to the trustee. The bankruptcy court followed a third path in determining that the relevant statute denies interest on administrative fees and expenses altogether. Tarbox appealed the decision to the district court, which affirmed the finding of the bankruptcy court essentially for the reasons stated by the bankruptcy court. Tarbox timely filed the instant appeal. HOLDING:Afffirmed. The basic theory underlying the holding reached by the lower courts here is: While 726(a)(5) allows for the payment of interest from the date of filing on any claim paid under paragraph (1) of 726(a), paragraph (a)(1) refers to payment of section 507 claims, “proof of which is timely filed under section 501.” 11 U.S.C. 726(a)(1) (emphasis added). The fact that 501(a) specifically addresses the filing of proofs of claims by creditors and proofs of interest by equity security holders necessarily excludes trustees from recovering interest on their compensation and reimbursements. 501(a). A trustee is not a “creditor” as that term is defined by the Bankruptcy Code, because a trustee does not have “a claim against the debtor that arose at the time of or before the order for relief concerning the debtor.” 101(10)(A). Tarbox concedes this point, acknowledging that, in his capacity as a trustee, he did not hold a pre-petition claim. And, as the district court noted, “[a]lthough 726(a)(1) at first seems to include [administrative fees and expenses] by its reference to claims of the kind specified in 507, they are winnowed out by the reference to 501, because they are not of the kind proof of which is timely filed under 501 for pre-petition claims by creditors.” In re Reed, 312 B.R. 832 (N.D. Tex. 2004) (“Reed II”). Nor is a trustee an “equity security holder,” which is defined as a “holder of an equity security of the debtor.” 11 U.S.C. 101(17). The interpretation of 726(a) adopted herein draws support from the Second Circuit’s decision in In re Klein Sleep Products, Inc., 78 F.3d 18 (2d Cir. 1996). The court there was faced with interpreting 502(a), which addresses the allowance of filed claims. Section 502(a) provides that “[a] claim or interest, proof of which is filed under section 501 of this title , is deemed allowed, unless a party in interest . . . objects.” 11 U.S.C. 502(a) (emphasis added). The 2nd U.S. Circuit Court of Appeals interpreted the language of the provision (which is virtually identical to the statutory language in 726(a)(1)) as expressly precluding administrative expenses, noting that 501 specifically relates to pre-petition claims. The court further observed that administrative expenses are recoverable through 503. Tarbox argues that by removing trustees from the entities eligible to receive distribution of the debtor’s estate under 726(a), this court would, in effect, eliminate the vehicle through which trustees receive their administrative fees and expenses. However, in In re Van Gerpen, 267 F.3d 453 (5th Cir. 2001), this court distinguished between distribution to creditors and disbursements to trustees and their hired professionals. The court determined that, “while the payments made on account of compensation and other administrative expense applications must be accounted for, it is not necessary that they be claims paid within the final distribution.” Disallowing trustees to recover under 726(a) does not leave them without a means to ultimately receive the monies they are due. Instead, the fees and expenses sought by trustees in bankruptcy proceedings are clearly allowed under 503(b)(2), with payment authorized by 503(a). Additionally, the court concludes that to interpret 726(a) as urged by Tarbox (and followed by the minority view) would produce results at odds with Congress’s intention in drafting the legislation. The district court determined that it would “not be satisfied with a plain-meaning-of-the-language construction that yields an inequitable result, until it is convinced no equitable construction of that same language is possible.” To preclude recovery of all interest on a trustee’s compensation and administrative expenses is no more untenable a result than that reached by the minority view, which reading “allows for interest to accrue on services before they are rendered or expenses before they are incurred.” Reed II. OPINION:Harold R. DeMoss Jr., J., delivered the court’s opinion.

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