Lejeune v. JFK Capital Holdings, L.L.C. (In re JFK Capital Holdings, L.L.C), 16-31151

• Citation: 880 F.3d 747
• Decision Date: 26 January 2018
• Docket Number: No. 16-31151,16-31151
• Parties: In the MATTER OF: JFK CAPITAL HOLDINGS, L.L.C, Debtor Stacy Caillouet Lejeune, Succession Executrix for the Estate of Aaron Caillouet, Appellant v. JFK Capital Holdings, L.L.C.; Barbara Rivera-Fulton, in her Capacity as Chapter 7 Trustee of the bankruptcy Estate of John F. Kelly; HCM Fund I, L.L.C.; JHP Investments, L.L.C.; ISIS, L.L.C.; Jeffrey T. Summers; Chris Etheridge, Appellees
• Court: United States Courts of Appeals. United States Court of Appeals (5th Circuit)

880 F.3d 747

In the MATTER OF: JFK CAPITAL HOLDINGS, L.L.C, DebtorStacy Caillouet Lejeune, Succession Executrix for the Estate of Aaron Caillouet, Appellant

v.JFK Capital Holdings, L.L.C.; Barbara Rivera-Fulton, in her Capacity as Chapter 7 Trustee of the bankruptcy Estate of John F. Kelly; HCM Fund I, L.L.C.; JHP Investments, L.L.C.; ISIS, L.L.C.; Jeffrey T. Summers; Chris Etheridge, Appellees

No. 16-31151

United States Court of Appeals, Fifth Circuit.

Filed January 26, 2018

Alicia Martone Bendana, Mark Samuel Goldstein, Lowe, Stein, Hoffman, Allweiss & Hauver, L.L.P., New Orleans, LA, for Appellant.

James M. Garner, Esq., Thomas Joseph Madigan, II, Esq., Sher Garner Cahill Richter Klein & Hilbert, L.L.C., David John Messina, Esq., Attorney, Chaffe McCall, L.L.P., New Orleans, LA, for Appellees.

Before REAVLEY, SOUTHWICK, and HAYNES, Circuit Judges.

LESLIE H. SOUTHWICK, Circuit Judge:

This bankruptcy appeal presents a question of statutory interpretation concerning "reasonable compensation" of Chapter 7 bankruptcy trustees under 11 U.S.C. §§ 326 & 330. The bankruptcy court reduced the trustee's requested fee. The district court vacated and remanded the bankruptcy court's order because the court failed to provide sufficient explanation for its reduction. While we reject the district court's statutory interpretation on remand, we AFFIRM that court's decision to vacate and remand.

FACTUAL AND PROCEDURAL BACKGROUND

John F. Kelly, III allegedly operated an 80-plus entity single business enterprise to defraud his investors of millions of dollars. Kelly filed Chapter 7 bankruptcy in October 2014, and Barbara Rivera-Fulton was appointed as trustee to represent his estate ("the Kelly Trustee").

Unlike most of Kelly's business entities, JFK Capital Holdings, LLC, was solvent. JFK Capital was awaiting the receipt of a $876,000 settlement check related to a separate bankruptcy proceeding. Despite the incoming check, the law firms that negotiated the settlement on behalf of JFK Capital had not yet received their $320,000 in legal fees. The Kelly Trustee, seeking to preserve the $876,000 settlement, attempted to negotiate with the law firms, but the firms eventually filed a state-court lawsuit to secure their claim against the settlement proceeds. In response to that lawsuit, in April 2015, the Kelly Trustee filed Chapter 7 bankruptcy on behalf of JFK Capital, which resulted in an automatic stay on the state litigation. Aaron Caillouet, whose executrix is the appellant in this case, was appointed as the trustee of the JFK Capital estate ("the JFK Trustee").

The Kelly Trustee sought to consolidate the JFK Capital bankruptcy with the Kelly bankruptcy. She argued John Kelly was the alter ego of JFK Capital, JFK Capital was part of a single business enterprise with Kelly, and any JFK Capital funds would be paid to John Kelly's creditors. The JFK Trustee opposed consolidation. Recognizing that the law firms that had represented JFK Capital during the $876,000 settlement proceedings were JFK Capital's only creditors, the JFK Trustee sought to prioritize the law firms' interests to the settlement proceeds. The Kelly Trustee viewed this as "an abdication of [the JFK Trustee's] fiduciary duty to Kelly's creditors" because she believed the two bankruptcies should be consolidated. Moreover, she had already expended time and resources over JFK Capital's legal issues before JFK Capital filed for bankruptcy. Both the Kelly Trustee and the JFK Trustee hired lawyers to resolve these issues.

Tensions between the parties grew. As a result, "nearly every aspect of the JFK Bankruptcy was contested." The bankruptcy court's frustrations were apparent in the hearing for the JFK Trustee's First Interim Application for Chapter 7 Trustee's Fees. There, in addition to the JFK Trustee's application for just over $15,000 in trustee fees, the JFK Trustee's lawyers sought their own fees. The Kelly Trustee objected to the reasonableness of the fees sought by the JFK Trustee's lawyers. The bankruptcy court agreed that some of the work done in the course of the proceedings was "absolutely ridiculous," basically "arguing about ... commas and semicolons." Eventually, after questioning the JFK Trustee's lawyers about the amount of fees requested, the bankruptcy court explained: "[W]hat I'm going to do right now is I'm going to award $5,000 in fees plus costs. When [the Kelly Trustee's lawyer's] fee application comes up, I'm going to have a similar deduction on his."

The court then addressed the fee application, which had not been contested. Without any explanation, the court entered an order reducing the trustee's requested fee from $15,597.74 to $6,491.82, or from 7% to 3% of the money distributed. The JFK Trustee appealed that order to the district court.

The district court vacated and remanded the bankruptcy court's order because the order contained no explanation for reducing the JFK Trustee's fees. In doing so, the district court engaged in extensive analysis of the relevant statutory provisions for Chapter 7 trustee compensation. It directed the bankruptcy court to "redetermine" fees according to the district court's order on remand. The JFK Trustee appealed.

DISCUSSION

"This Court reviews the district court's decision 'by applying the same standard of review to the bankruptcy court's conclusions of law and findings of fact that the district court applied.' " Barron & Newburger, P.C. v. Tex. Skyline, Ltd. (In re Woerner) , 783 F.3d 266, 270 (5th Cir. 2015) (en banc) (quoting In re Cahill , 428 F.3d 536, 539 (5th Cir. 2005) ). The award of fees is reviewed for abuse of discretion. Id. "An abuse of discretion occurs where the bankruptcy court (1) applies an improper legal standard [, reviewed de novo ,] or follows improper procedures in calculating the fee award, or (2) rests its decision on findings of fact that are clearly erroneous." Id. at 270–71 (quoting Cahill , 428 F.3d at 539 ).

I. Standing to Participate in the Appeal

The JFK Trustee argues that the creditors of the Kelly Estate, who are appellees in this case, do not have standing to participate in this appeal. He refers specifically to HMC Fund I, LLC; JHP Investments, LLC; ISIS, LLC; Jeffery T. Summers; and Chris Etheridge. The JFK Trustee reasons that the Kelly bankruptcy was not substantively consolidated with the JFK Capital bankruptcy until after the bankruptcy order that gave rise to this appeal, so "the Kelly Creditors had no direct economic interest in the JFK Trustee's compensation at the time of the Order at issue."

We use the "person aggrieved" test to determine whether a party has standing to appeal an order of the bankruptcy court. See Fortune Nat'l Res. v. U.S. Dep't of Interior , 806 F.3d 363, 366 (5th Cir. 2015). That test requires the appellant to "show that he was directly and adversely affected pecuniarily by the order of the bankruptcy court in order to have standing to appeal." Id. (quoting In re Coho Energy Inc. , 395 F.3d 198, 203 (5th Cir. 2004) ). Here, the Kelly Estate has consistently argued entitlement to JFK Capital funds. Because the bankruptcy order concerned JFK Trustee fees that would reduce the funds available to Kelly Estate creditors, the creditors have standing.

II. "Reasonable Compensation" for Chapter 7 Trustees

The district court held that because the bankruptcy court failed to provide reasons for reducing the JFK Trustee's fee, it was unable to determine if the correct legal standard had been applied. Accordingly, the court remanded with instructions to determine a reasonable award fee in accordance with the standards expressed in its order. Both parties agree that the district court's decision to remand is proper, but dispute the legal standard required on remand.

The two statutory provisions at issue are 11 U.S.C. §§ 330 & 326. In 2005, Congress amended the two provisions as they pertain to Chapter 7 bankruptcy trustees in the Bankruptcy Abuse Prevention and Consumer Protection Act ("BAPCPA"). Since then, courts have been forced to determine the effect of the amendments in setting reasonable compensation for Chapter 7 trustees. Given the interplay between the various statutory provisions at issue, we first briefly summarize Sections 330 and 326 before evaluating the competing interpretations by the parties and other courts. We begin with the plain language of the statutes. Waggoner v. Gonzales , 488 F.3d 632, 636 (5th Cir. 2007). To the extent the language is "plain and unambiguous, it must be given effect." BMC Software, Inc. v. C.I.R. , 780 F.3d 669, 674 (5th Cir. 2015) (quoting Kelly v. Boeing Petroleum Servs., Inc. , 61 F.3d 350, 362 (5th Cir. 1995) ).

Chapter 7 trustees may receive two different types of compensation under Section 330. 11 U.S.C. § 330 (2012). First, they are awarded a fee of $60 per case under Section 330(b). They are also awarded "reasonable compensation" for each case under Section 330(a). At issue here is the proper interpretation of reasonable compensation under Section 330(a).

Section 330(a) governs compensation for various categories of bankruptcy court professionals, including Chapter 7 trustees. It states that, "subject to sections 326, 328, and 329, the court may award to a trustee ... reasonable compensation for actual, necessary services rendered by the trustee ... and ... reimbursement for actual, necessary expenses." § 330(a)(1). Prior to BAPCPA, the statute provided factors for the court to consider when determining whether a Chapter 7 trustee's fee was indeed reasonable. Section 330(a)(3) directed courts to consider all relevant factors, including time spent on services, the rates charged for the services, whether they were necessary and beneficial, whether they were performed in a reasonable amount of time, the complexity of the case, the skill of the professional, and customary compensation rates. § 330(a)(3) (2005).

In enacting BAPCPA, however, Congress removed Chapter 7 trustees from the list of professionals subject to the ...