UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

This case was converted to Chapter 7 on December 21, 1994. Kenneth Battley was appointed the interim trustee on December 22, 1994. The initial § 341 meeting was held on January 19, 1995. At this meeting, Donna Willard, attorney for the subordinated debenture holders ("the subdebt"), requested a trustee election pursuant to 11 U.S.C. § 702 on behalf of her clients. The subdebt cast their votes for Joseph Pardo, an attorney who works and resides in New York. Other creditors present voted for Kenneth Battley, the interim trustee. Mr. Battley resides in Anchorage and retains an office here.

After the election, the United States Trustee's Office filed a report of disputed election and moved for resolution of the disputed election. A hearing on the motion was held February 24, 1995. After considering the arguments of counsel and reviewing the report of disputed election and other pleadings which have been filed, I have concluded that Kenneth Battley, the interim trustee, shall serve as trustee in this case.

Analysis

The parties raised several issues in connection with the disputed election. The eligibility of several creditors to vote was questioned on the grounds that those creditors did not hold claims of a type specified in 11 U.S.C. § 702(a). The eligibility of the subdebt to call for an election was questioned, as were the proxies submitted by the subdebt. Finally, the issue of how to define the "universe of claims" from which to determine the 20% requirement of 11 U.S.C. § 702(c)(1) was raised.
      4 ABR 73  I find it unnecessary to reach these issues, as a more basic one resolves the disputed election. Joseph Pardo, the individual selected by the subdebt to serve as a trustee, is not eligible to serve as a trustee in this district.

Eligibility to Serve as Trustee

"Creditors are bound by the provisions of section 321 and must elect a trustee who is eligible to serve." 4 Collier on Bankruptcy ¶ 702.05 at 702-27 (15th ed. 1994). Pursuant to 11 U.S.C. § 321(a)(1), a person may serve as a trustee in a Chapter 7 case only if he is both competent to perform the duties of a trustee and "resides or has an office in the judicial district within which the case is pending, or in any judicial district adjacent to such district."

Section 321 establishes mandatory eligibility requirements which apply to all trustees serving in cases under the Code regardless of the specific chapter involved. Section 321 is adapted from prior Bankruptcy Act Section 45 and supersedes former Bankruptcy Rule 209(d).

2 Collier on Bankruptcy ¶ 321.01 at 321-2 (15th ed. 1994). Section 45 of the Bankruptcy Act also required that the trustee reside or have an office in the judicial district in which he is appointed.

Receivers and trustees shall be (1) individuals who are competent to perform their duties and who reside or have an office in the judicial district within which they are appointed; . . .

Bankruptcy Act § 45, 11 U.S.C. § 73 (1976). The residence/office requirement "contemplated a fixed, readily accessible place of daily business rather than a legal or voting residence," to ensure the availability of the trustee. 2 Collier on Bankruptcy ¶ 321.01 at 321-5 (15th ed. 1994); see also In re National Discount Corp., 196 F. Supp. 766, 769 (W.D.S.C. 1961); In re Seider, 163 F. 138, 139 (E.D.N.Y. 1908).

A trustee shall have no interest adverse to the estate and shall be competent to perform the duties of his office. If an individual, he shall have a residence or office in the state in which the case is pending or in any adjacent state,...

The residence/office requirement recognized "the development of metropolitan and suburban communities that cross district and state boundaries." Notes of Advisory Committee on Rules, Rule 209(d), 11 U.S.C. Appendix - Bankruptcy Rules (1976). When § 321 of the Code was enacted, the residence/office requirement was limited to the judicial district where the case is pending, or an adjacent judicial district.

The Ninth Circuit narrowly construed the office requirement found in Section 45 of the Act in In the Matter of Drummond, 416 F.2d 931 (9th Cir. 1969). In that case, a trustee in the Northern District of California was disqualified from serving in the Eastern District. The trustee's main office was in Eureka, in the Northern District of California, where he was qualified to serve. His office in the Eastern District of California was in Redding, 134 miles from Eureka. It was staffed on an irregular basis by a secretary who worked there 15 to 20 hours a week. A telephone answering service was used to receive calls when the secretary was not in the office. The trustee himself had only been in the Redding office two to four days a month for the three months preceding his disqualification by the referee. The Redding office was used mainly for storage; all the trustee's pleadings were prepared at his main office in Eureka. The Ninth Circuit looked beyond technical compliance with the office requirements of § 45 of the Act. It required assurance "that a person qualifying under [§ 45] would be sufficiently present in the judicial district to be reasonably available for consultation and advice." Id. at 932. The court then affirmed the bankruptcy and district court decisions disqualifying the trustee.

I view Drummond as clear authority for the proposition that courts are to look beyond mere technical compliance with the residency/office requirements of § 321 of the Code in determining whether a proposed trustee meets its requirements. Applying Drummond to the instant case, Mr. Pardo's retention of an Anchorage office one week prior to the first meeting of creditors does not make him eligible to serve as trustee.

Mr. Pardo lives and works in New York, New York. His residence and primary office are over 4,000 miles from Anchorage, on the other side of the continent. He has no secretary for his Anchorage office. He plans to share a receptionist and use an answering service in the future. He had never been to his Anchorage office prior to the January 19, 1995,       4 ABR 75  creditors' meeting. He has nothing stored in his Anchorage office and no other business to conduct at the office. He has large clients in New York for whom he regularly conducts business. His associations with Alaska are far more remote than those of the trustee in Drummond who was disqualified. Notwithstanding his prospective intentions to be in Alaska as much as necessary, I find he is not eligible under § 321 to assume the duties of trustee because he had no true office in Alaska at the time of his alleged election.

Conclusion and Order

If a trustee is not elected under the provisions of 11 U.S.C. § 702, then the interim trustee serves as the trustee in a case. The subdebt requested an election and voted for a party who is ineligible to serve as a trustee in this district. The creditors who voted for the interim trustee are treated as not having requested an election. In re Oxborrow, 913 F.2d 751, 753 (9th Cir. 1990). Because no eligible individual was elected to serve as trustee at the creditors' meeting held on January 19, 1995, pursuant to the terms of 11 U.S.C. § 702(d), Kenneth Battley will serve as trustee in this case. Therefore,

IT IS ORDERED that the United States Trustee's motion for resolution of disputed election is granted. Pursuant to 11 U.S.C. § 702(d), the interim trustee, Kenneth Battley, shall serve as trustee in this case.

DATED: March 8, 1995.

BY THE COURT
DONALD MacDONALD IV
United States Bankruptcy Judge