In re Anderson

United States Court of Appeals, Fourth Circuit, 811 F.3d 166 (2016).

'Facts

Henry Anderson filed a voluntary petition in a federal bankruptcy court for relief under Chapter 11 of the Bankruptcy Code (which governs reorganizations of the debtor's estate). The Internal Revenue Service (IRS) filed a proof of claim against the bankruptcy estate for unpaid taxes of nearly $1 million. This claim was secured by Anderson's property. Stubbs & Perdue, P.A., served as Anderson's counsel. The court approved compensation of $200,000 to Stubbs for its services. These fees constituted an unsecured claim against the estate for administrative expenses. Later, Anderson's case was converted to a Chapter 7 liquidation. The trustee accumulated more than $700,000 for distribution to the estate's creditorsbut this was not enough to pay the claims of both the IRS and Stubbs. The trustee excluded Stubbs's claim. Stubbs objected. The court dismissed Stubbs's objection. A federal district court upheld the exclusion. Stubbs appealed, arguing that the IRS's claim should be subordinated to Stubbs's claim for fees.

Why as a general rule should a court apply the law that is in effect at the time the court renders it's desicsion?

If Anderson had filed his initial bankruptcy petition under Chapter 7, not under Chapter 11, the result would have been differentStubbs would have been able to subordinate the IRS claim. Is this fair?