Subchapter V Trustee’s Right To “Appear And Be Heard”: Duties v. Powers

By: Donald L Swanson

Back in Subchapter V’s early days, I’m serving as Trustee in a Subchapter V case.  In that case:

• One of the parties files a motion, to which I file a written response. 
• The motion has nothing to do with any of the four topics specified in § 1183(b)(3)—value, confirmation, modification or sale.
• So an attorney for one of the parties calls and says, “You have no business taking such a position.”
• I say, “Why not?”
• The attorney answers, “You are not authorized by § 1183(b)(3) to take a position, since that section deals with specific topics that have nothing to do with this motion

11 U.S.C. § 1183(b)(3) is part of Subchapter V and says:

“(b) Duties.—The trustee shall— . . . (3) appear and be heard at . . . any hearing that concerns—(A) the value of property subject to a lien; (B) confirmation of a plan filed under this subchapter; (C) modification of the plan after confirmation; or (D) the sale of property of the estate.”  (Emphasis added.)

Duties v. Powers

The attorney’s position is wrong. 

Here’s why: there is a difference between a Subchapter V trustee’s statutory “duties” and a Subchapter V trustee’s powers.

• § 1183(b) identifies a Subchapter V trustee’s “duties”—these are things a trustee must do, whether the trustee wants to or not; but 
• A Subchapter V trustee’s powers (things a trustee may do) are identified elsewhere.

One such power is granted by 11 U.S.C. § 1109(b), which says:

“(b) . . . the trustee . . . may raise and may appear and be heard on any issue in a case under this chapter.”  (Emphasis added.)

Notably, § 1109 is incorporated into Subchapter V—by its omission from the § 1181(a) list of Chapter 11 sections that “do not apply” in a Subchapter V case.

§ 1109(b) Limitations

Case law has long held that the participation power under § 1109(b) is “a broad right.” [Fn. 1]

So, limitations on the power to “raise” and to “appear and be heard” (under § 1109(b)) relate to such narrow things as these:

• Whether the power extends to intervening in adversary proceedings—see, e.g., Dillworth v. Diaz (In re Bal Harbour Quarzo, LLC) (“majority view” sees “an unconditional right to intervene”; while “minority view” sees no such right) [Fn. 2];
• Whether the power extends to filing amicus briefs in adversary proceedings—see, e.g., Continental Casualty Co. v. Carr (In re W.R. Grace & Co.) (a trust is authorized by § 1109(b) to file an amicus brief in an adversary proceeding, without being a named party) [Fn. 3]; and
• Whether the power extends to defendants in a state court lawsuit who want to reopen the plaintiff’s bankruptcy proceeding—see, e.g., In re Odin Demolition & Asset Recovery, LLC (movants who cannot show actual or imminent injury have no constitutional standing and, therefore, have no power under § 1109(b) to reopen a case) [Fn. 4].

Conclusion

The upshot is this:

• While Subchapter V trustees have a set of “duties” to “appear and be heard” that are limited in scope;
• Subchapter V trustees also have a series of “raise” and “appear and be heard” powers that are very-broad, indeed.

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Footnote 1.  Frontier Insurance Co. v. Westport Insurance Corp. (In re Black, Davis, and Shue Agency, Inc., 460 B.R. 407, 413 (Bankr. M.D. Pa. 2011).

Footnote 2.  Adv. Pro. No. 20-1079, Southern Florida Bankruptcy Court, at 6 (decided 4/15/2022, Doc. 151).

Footnote 3.  Adv. Pro. No. 15-50766, Delaware Bankruptcy Court, fn. 37 (decided 10/17/2016).

Footnote 4.  544 B.R. 615, 628 (Bankr. S.D. Tex. 2016).

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