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In re Fidelity Mortgage Investors

decided: August 23, 1982.

IN RE FIDELITY MORTGAGE INVESTORS, DEBTOR, LIFETIME COMMUNITIES, INC., APPELLANT,
v.
THE ADMINISTRATIVE OFFICE OF THE UNITED STATES COURTS, APPELLEE



Appeal from an order of the United States District Court for the Southern District of New York, Duffy, J., which affirmed an order of the bankruptcy court, Babitt, J., denying appellant's application for a reduction in the amount of fees payable to the Referees' Salary and Expense Fund. Affirmed.

Timbers, Van Graafeiland and Kearse, Circuit Judges.

Author: Van Graafeiland

VAN GRAAFEILAND, Circuit Judge:

Lifetime Communities, Inc., the successor by merger to the rights and obligations of Fidelity Mortgage Investors, a rehabilitated Chapter XI debtor, appeals from an order of the United States District Court for the Southern District of New York, 16 Bankr. 477, Duffy, J., which affirmed an order of the bankruptcy court, Babitt, J. Judge Babitt's order had denied Lifetime's application for a reduction in fees totaling $1.65 million, which Lifetime is required to pay to the Referees' Salary and Expense Fund pursuant to section 40c(2) (b) of the Bankruptcy Act of 1898, ch. 541, 30 Stat. 544, as amended by Referees' Salary Act of 1946, ch. 512, 60 Stat. 323, 327 (repealed 1978). In seeking to avoid payment of this substantial amount, appellant argues that the promulgation of the fee schedule did not comply with the rulemaking provisions of the Administrative Procedure Act, ch. 324, 60 Stat. 237 (1946), recodified by Act of September 6, 1966, Pub. L. No. 89-554, 80 Stat. 378, 381-88, 5 U.S.C. §§ 551-59, and that the fee was so unexpectedly large as to be inequitable. For the reasons hereafter discussed, we affirm.

Beginning with the short-lived Bankruptcy Act of 1800, ch. 19, 2 Stat. 19 (repealed 1803), and up to the Bankruptcy Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549 (codified at 11 U.S.C. §§ 101-1330) district judges were assigned the task of appointing bankruptcy referees or their counterparts. The 1898 Bankruptcy Act as originally enacted provided that "such number of referees shall be appointed as may be necessary to assist in expeditiously transacting the bankruptcy business pending in the various courts of bankruptcy." § 37, 30 Stat. at 555. However, nothing in the 1898 Act prescribed how the determination of necessity was to be made. This lack was remedied with the enactment of the Referees' Salary Act of 1946, ch. 512, 60 Stat. 323 (repealed 1978). That Act provided that the Director of the Administrative Office of the United States Courts, after making appropriate local and national surveys of pertinent conditions, should recommend to the district judges, the various circuit councils and the Judicial Conference the number of referees to be approved and the territory which each should serve. Id. § 37b(1), 60 Stat. at 325. The district judges were directed to make recommendations thereafter to their respective circuit councils, which in turn would make recommendations to the Judicial Conference. Id. "In the light of the recommendations of the Director and of the councils", the Conference was to determine the number of referees to be appointed and the territories they were to serve. Id.

The primary aim of the Referees' Salary Act, was the replacement of the then-existing fee system for compensating referees with a salary system. S. Rep. No. 959, 79th Cong., 2d Sess. 2, reprinted in 1946 U.S. Code Cong. Service 1231, 1232. The method prescribed for fixing referees' salaries was the same as that used in determining the need for referees. The Administrator reported to the district judges, the circuit councils, and the Judicial Conference. The district judges advised the councils, the councils made recommendations to the Judicial Conference and "in the light of the recommendations of the councils", the Conference determined the salaries. Referees' Salary Act § 37b(1), 60 Stat. at 325 & § 40c(2), 60 Stat. at 327.

In relieving referees of the responsibility of financing their individual offices, Congress did not abandon the concept of a self-supporting bankruptcy system. S. Rep. No. 959, supra, at 5-6, reprinted in 1946 U.S. Code Cong. Service at 1235-36; United States v. Kras, 409 U.S. 434, 448, 34 L. Ed. 2d 626, 93 S. Ct. 631 (1973). Instead, Congress provided that there should be a filing fee, plus additional fees based in substance upon the size of the estate, Mesa Farm Co. v. United States, 475 F.2d 1004, 1007-08 (9th Cir. 1973). The additional fees were to be fixed in such a manner that the total annual fees collected would approximate the total amount of the referees' annual salaries and expenditures. Referees' Salary Act § 40c(2), 60 Stat. at 327; United States v. Nickerson & Nickerson, Inc., 530 F.2d 811, 814 n.5 (8th Cir. 1976). Congress provided that the same procedure should be followed in determining the schedule of additional fees as was followed in fixing referees' salaries. Referees' Salary Act § 37b(1), 60 Stat. at 325. In order, however, that the total of salaries and fees would be kept in approximate balance, the Administrator was authorized to make limited revisions in the fee schedule once a year with the approval of the Conference. Id. § 40c(2), 60 Stat. at 327.

In thus empowering the Judicial Conference to set bankruptcy fees, Congress was following the precedent it had set with regard to Court of Appeals fees, Act of September 27, 1944, ch. 413, 58 Stat. 743 (codified as amended at 28 U.S.C. § 1913) and district court fees, Act of September 27, 1944, ch. 414, § 8, 58 Stat. 743, 744 (codified as amended at 28 U.S.C. § 1914(b)). Moreover, enactment of the Referees' Salary Act on June 27, 1946 followed by only sixteen days the enactment of the original Administrative Procedure Act, which took place on June 11, 1946. In view of the lockstep manner in which these two statutes came into being, Congress must have been acutely aware of the rulemaking provisions of the Administrative Procedure Act when it passed the Referees' Salary Act. By providing in the latter Act that the Judicial Conference should determine the schedules of graduated additional fees in asset, management and wage-earning cases "in the light of the recommendations of the Director and of the councils," Congress made clear its intent that the rulemaking provisions of the Administrative Procedure Act were not applicable to the Judicial Conference. See Gullung v. Humble Oil & Refining Co., 210 F. Supp. 292, 293 (E.D. La. 1962).

A ready explanation for this may be found in the legislative history of the Administrative Procedure Act. See Administrative Procedure Act, Legislative History 79th Cong., 1944-46, S. Doc. No. 248, 79th Cong., 2d Sess. (1946) [hereinafter cited as Legislative History]. The Senate Judiciary Committee Print of June 1945, reprinted in Legislative History, supra, at 11-44, contains explanations of various provisions in the Act, including section 2(a) which defines "agency". The Committee stated that the term "agency" is defined substantially as in the Federal Reports Act of 1942, ch. 811, 56 Stat. 1079, and the Federal Register Act, ch. 417, 49 Stat. 500 (1935). Legislative History, supra, at 12.

Section 7(a) of the Federal Reports Act, 56 Stat. at 1079-80 (current version at 44 U.S.C. § 3502), defines "Federal agency" as "any executive department, commission, independent establishment, corporation, owned or controlled by the United States, board, bureau, division, service, office, authority, or administration in the executive branch of the Government. . . ."

Section 4 of the Federal Register Act, 49 Stat. at 501 (current version at 44 U.S.C. § 1501), defines "agency" as "any executive department, independent board, establishment, bureau, agency, institution, commission, or separate office of the administrative branch of the Government of the United States but not the legislative or judicial branches of the Government. . . ."

The Senate Judiciary Committee's Report on the Administrative Procedure Act, S. Rep. No. 752, 79th Cong., 1st Sess. 10 (1945), reprinted in Legislative History, supra, at 185, 196, states that the word "agency" is defined in the Act "by excluding legislative, judicial, and territorial authorities." Id. at 196.

If legislative history has any significance at all, it is clear that Congress intended the entire judicial branch of the Government to be excluded from the provisions of the Administrative Procedure Act. Wacker v. Bisson, 348 F.2d 602, 608 n.18 (5th Cir. 1965).

It is little wonder, then, that the Judicial Conference, with its membership of judges only, has never followed the rulemaking provisions of the Administrative Procedure Act in determining fees. Neither is it surprising that nobody heretofore has challenged the Conference's well-established and well-known practice. Disgruntled debtors and creditors have not been reluctant to attack fee schedules on other grounds. See, e.g., United States v. Kras, supra, 409 U.S. 434; Mesa Farm Co. v. United States, supra, 475 F.2d 1004 (9th Cir. 1973); American Guaranty Corp. v. Burton, 380 F.2d 789 (1st Cir. 1967); American Guaranty Corp. v. United States, 185 Ct. Cl. 502, 401 F.2d 1004 (1968). In view of the Conference's long-established practice, we deem it significant that, in section 1930 ...


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