Beeson v. Bondi: Court Confirms Broad Discretion of U.S. Trustee in Chapter 11 Cases 

Summary

The United States District Court for the Northern District of Illinois (the Court) recently denied debtors’ writ of mandamus, which sought to compel the United States Trustee (UST) to submit a report on the alleged statutory violations by a trustee and her counsel during chapter 11 bankruptcy proceedings.  Beeson v. Bondi, ___ B.R. ___, 2025 WL 3089108 (N.D. Ill. 2025).  To view the opinion, click here:

Read the full decision.

FACTS:

In May 2021, Thomas and Donna Beeson (“Plaintiffs”) filed a voluntary chapter 11 petition in the Northern District of Illinois bankruptcy court.  Soon thereafter, the UST moved to appoint Miriam Stein Granek as the chapter 11 trustee (“Trustee”), which the bankruptcy court granted.  The bankruptcy court then approved the Trustee’s application to employ Adelman and Gettleman, Ltd. (“Adelman”) as attorneys for the Trustee.  In August 2023, the bankruptcy court confirmed the second amended chapter 11 plan, which had been proposed by the Trustee.

The Trustee and Adelman separately filed applications for compensation under 11 U.S.C. § 330 in September 2023.  Plaintiffs objected to both fee applications, arguing that the Trustee and counsel had violated their statutory duties under 11 U.S.C. § 1106.  The Plaintiffs also alleged that a staff attorney for the UST had attested to those violations in October 2023.  At a December 2023 hearing, however, the UST stated to the bankruptcy court that both the Trustee and her counsel had done a “terrific job on this case,” and it did nothing further to address the issue purportedly admitted by the staff attorney.  More to the point, the Plaintiffs alleged that the UST never submitted a “report” to the bankruptcy court concerning the alleged violations.  The bankruptcy court approved all the fees in both applications by order entered in February 2024.

In September 2024, the Plaintiffs continued to press on the issue of the breaches of duty and advised the UST they were going to bring a motion for reconsideration unless the UST produced the requested reports.  After not receiving the desired response, the Plaintiffs filed the motion for reconsideration, which the UST opposed.  The Plaintiffs then asked the UST to withdraw its opposition and instead support the motion, or, at a minimum, to provide the reports.  When neither occurred, the Plaintiffs filed a writ of mandamus against the UST (“Defendants”) in the District Court, asking the Court to “[o]rder Defendants to comply with all of their duties under 28 U.S.C. § 586” and “compelling Defendants to [prepare and] provide Plaintiffs with all of its reports regarding the subject matter of Debtors’ Motion for Reconsideration…[in order to] fulfill the statutory duties of the United States Trustee.”

The District Court denied the writ of mandamus, concluding the UST did not violate a mandatory statutory duty.

REASONING:

A writ of mandamus is an “extraordinary remedy…under 28 U.S.C. § 1361 [and] will issue only to compel the performance of a ‘clear nondiscretionary duty.’” Pittston Coal Group v. Sebben, 488 U.S. 105, 121 (1988).  Three elements must be met for the writ to issue: (1)  a clear right in the plaintiff to the relief sought; (2) a plainly defined duty on the part of the defendant to do the act in question; and (3) no other adequate remedy.   Cossio v. AFCCA, 129 F. 4th 1013 (7th Cir. 2025).

Plaintiffs relied only on 28 U.S.C. § 586 for the statute which purportedly supported their claim that the UST owed them reports regarding the reconsideration motion.  That Statute provides:

                  [the U.S. Trustee] shall… supervise the administration of cases and                       trustees in cases under [chapter 11]….by, whenever the United States                          trustee considers it to be appropriate –

                  (A)(i) reviewing, in accordance with procedural guidelines adopted by                   the Executive Office of the United States Trustee…, applications filed                      for compensation and reimbursement under section 330 of title 11;                            and

                  (ii) filing with the court comments with respect to such application                        and, if the United States Trustee considers it to be appropriate,                             objections to such application.

The plain language of this statute does not mandate the UST to take any action in response to a fee application. The words of the statute only permit the UST to comment and if “appropriate” to file objections.  The word “report” appears nowhere in the statute.  The section explicitly gives the UST broad discretion in supervision and administration of bankruptcy cases.  In short, without more, the Plaintiffs did not provide the Court support “for the proposition that the U.S. Trustee has a clear nondiscretionary duty to create and tender to debtors…reports about supposed misconduct by appointed trustees or their counsel.”  As  a result, the petition for writ failed to satisfy the first two required elements for issuance and the petition was denied.

AUTHOR’S COMMENTS:

A writ of mandamus is a rarely granted remedy in federal court.  A petitioner must demonstrate a clear, nondiscretionary duty for a federal agency to take some action and that the duty is owed to the petitioner.  It is not uncommon for a chapter 11 debtor  who  is “out of possession,” replaced by a chapter 11 trustee, to be frustrated with the layer of administrative expenses that appointment of a chapter 11 trustee will add to a case.  Often this cost comes directly out of the debtor’s hoped for profits. It is also not unique that these same debtors may believe the trustee has taken many actions which are not in their or their estate’s best interest, actions which may have directly or indirectly driven up administrative expenses which are paid to the trustee or her counsel.  And those debtors may complain to the UST, just as the Plaintiffs here did.

This case illustrates how difficult it can be for a debtor, even with a quasi-legitimate complaint, to get any help from the UST.  The statute has vested broad discretion in the UST to administer bankruptcy cases as it sees fit, to supervise as it deems necessary, and to allocate its investigatory powers on terms it deems appropriate. Whether this has allowed the perpetration of some abuses in the system is not mine to say.  But it does create the opportunity. 

[The Commercial Finance Newsletter is written by an ad hoc group of lawyers in the Business Law Section of the California Lawyers Association.  This review was written by the Hon. Meredith Jury, U.S. Bankruptcy Judge, Central District of California (Ret.), a member of the ad hoc group.   The opinions contained herein are solely those of the author.]