In re Carter, Civ. A. No. 88-0292-B.
| Decision Date | 19 May 1989 |
| Docket Number | Civ. A. No. 88-0292-B. |
| Parties | In re Ralph H. CARTER and Clara W. Carter d/b/a Carter Bros., Debtors. In re Leroy E. CARTER and Carol G. Carter d/b/a Carter Bros., Debtors. |
| Court | U.S. District Court — District of Maine |
Joseph Albanese, Brick, N.J., trustee.
Sidney S. Thaxter, Portland, Me., for respondent.
ORDER DISMISSING APPEAL OF TRUSTEE IN BANKRUPTCY
Now before the Court is an appeal of two Orders entered by the United States Bankruptcy Court for the District of Maine on August 16, 1988. One Order disallowed a substantial portion of the amount requested in the Trustee's application for statutory trustee commissions and out-of-pocket costs. The other Order disallowed a substantial portion of the amount requested in the Application for Fees and Expenses filed by the attorneys for the Trustee.
The appeal arises out of two related Chapter 7 bankruptcies filed in 1980. At the time these bankruptcies were filed initially, Thomas Goodwin, Esquire, was appointed Interim Trustee. Goodwin resigned as Interim Trustee in 1981, and was replaced by John Welch, who had worked on the bankruptcies for Goodwin. In 1982 the Bankruptcy Court, on petition of the United States Trustee, removed Mr. Welch for dereliction and neglect of duty. Appellant Joseph Albanese, Esquire, the present Trustee, is the third trustee to serve on this case and has administered the case continuously since 1982.
Welch's severance from this case has proved problematic. During his brief term as Trustee, Welch reportedly maintained few or no records and engaged in a number of questionable transactions, including an unauthorized transfer to his personal account of over $22,000 of estate money.
In 1983, Appellant initiated a lawsuit against Welch on behalf of the estate in the United States District Court, which was subsequently referred to the Bankruptcy Court. The complaint filed sought, inter alia damages for negligence and breach of fiduciary duty, as well as recovery of the $22,000 from Welch's personal account. The $22,000 was later returned to the estate. Welch, however, filed counterclaims against the estate for services rendered while serving as an employee of Thomas Goodwin, the Interim Trustee, in the amount of $4,500. Welch also disputed that he had failed in his duties as Trustee, and sought over $8,600 as compensation for his services in that capacity.
In early 1987, after a number of unsuccessful attempts to compromise, Appellant and Welch agreed, in principle, to a settlement of the ongoing dispute between Welch and the estate. Appellant agreed to pay Welch a lump sum of $5,000 in exchange for Welch's agreement to relinquish any and all claims against the estate. In addition, the estate would forgo any and all of its claims against Welch. This agreement was subject to approval by the Bankruptcy Court. Appellant submitted an application describing the details of the proposed agreement and asking the Bankruptcy Court for authority to settle.
The Bankruptcy Court held a hearing on May 13, 1987, at which time the application to compromise was denied. The Bankruptcy Court set the Welch litigation for trial. Upon request of counsel, the Bankruptcy Court conducted a pretrial conference on June 24, 1987.
At the pretrial conference, The Bankruptcy Court, sua sponte raised the issue of its denial of the application to compromise. The Bankruptcy Court stated, without inquiry of counsel, that its sole reason for disallowing the compromise was that it provided for a $5,000 lump sum payment to Welch. The Bankruptcy Court stated that it felt that the Court, not the parties, should make the final determination as to the amount due to Welch. The Bankruptcy Court then made it clear that it would accept the agreement if the parties were to change the compromise agreement so that it left the $5,000 amount as a maximum amount payable to Welch, with the actual amount to be determined by the Bankruptcy Court after proper inquiry.1
On November 13, 1987, Appellant and Welch executed a stipulation modifying the proposed agreement to conform with the terms suggested by the Bankruptcy Court. The Bankruptcy Court heard the parties on the compromise, and the hearing was continued to April 20, 1988. At that time, the Court accepted the compromise, and ordered that Welch was entitled to no compensation.
On June 20, 1988, Appellant filed an application for reimbursement for attorneys fees totaling $19,065.00, plus out-of-pocket costs of $1,054.85. Appellant also sought a statutory trustee commission in the amount of $11,872.27, plus expenses of $3,143.82.2 The Bankruptcy Court conducted a hearing on this application on July 13, 1988, upon which the matter was taken under advisement.
On August 16, 1988, the Bankruptcy Court issued the two Orders which are the subject of this appeal. The Bankruptcy Court allowed a trustee's commission in the amount of $8,000. With respect to attorneys fees, the Bankruptcy Court allowed the sum of $15,000. In addition, the Bankruptcy Court allowed reimbursement of $381.75 in out-of-pocket costs to the Trustee, instead of the $3,143.82. The difference represents the amount paid for para-professional assistance. Appellant filed a timely motion for reconsideration by the Bankruptcy Court.
A hearing on Appellant's motion for reconsideration was held by the Bankruptcy Court on October 13, 1988. Appellant's motion was denied. At this hearing, Appellant inquired of the Bankruptcy Court as to the reasoning behind the Orders reducing the amounts requested. In making this inquiry, Appellant implied that he believed the Bankruptcy Court had reduced the amounts payable to the Trustee and the attorneys in order to raise the distribution available to general creditors to above twenty percent.3 Transcript, Hearing on Motions for Reconsideration, October 13, 1988, at 13-14. The Bankruptcy Court then stated that it was "forced and backed into the corner to put on the record the real reason why these fees were cut in this case." Id. at 14. The Bankruptcy Court went on to express its discontent with the settlement arrived at with Welch, and to state that its reason for cutting the fees was that Appellant had failed to pursue Welch sufficiently to ensure that maximum recovery from Welch was accomplished. Id. at 15, 18-19, 26-27.
On October 24, 1988, Appellant filed a timely Notice of Appeal with the Bankruptcy Court. This Court received Appellant's Brief in Support of Appeal on February 14, 1989. The deadline for receipt of briefing in opposition to this appeal having passed, the Court considers Appellant's brief alone, along with the record submitted to this Court for appeal. The relief requested is as follows:
As the basis for his request for relief on appeal, Appellant claims that the Bankruptcy Court erred as a matter of law in reducing the amounts for which he applied. In the alternative, Appellant claims that the Bankruptcy Court's Orders constitute an abuse of discretion. Finally, Appellant claims that the Bankruptcy Court has violated sound public policy considerations. This Court now considers each of Appellant's claims in turn.
Appellant claims that the Bankruptcy Court's Orders reducing the amounts payable to the Trustee and the Trustee's attorneys constitute error as a matter of law. Curiously, Appellant cites no law as authority for this claim. Instead, Appellant argues that the Bankruptcy Court's reason for cutting the Trustee's and attorneys fees is inconsistent with its direction, and acceptance, of the specific compromise reached between Welch and the estate. The Bankruptcy Court stated that its reason for cutting the fees was that Appellant had not sufficiently protected the estate's interests in the settlement with Welch. Since the Bankruptcy Court suggested and then approved the terms of that settlement agreement, Appellant argues that the Bankruptcy Court's decisions to accept the compromise and then cut the amounts requested are so inconsistent that these actions together constitute error as a matter of law.
The Court does not agree. As Appellant himself acknowledges, the Bankruptcy Court has discretion in reviewing fee applications. Bankruptcy Rule 2014, 2016; see In re: Manning, 43 B.R. 712 (W.D.Va.1984). The Bankruptcy Court also has discretion in approving settlements or compromises. Bankruptcy Rule 9019(a); see In re: Patel, 43 B.R. 500 (N.D. Ill.1984).4 Appellant has not provided, nor is the Court aware of, any authority to support the proposition that inconsistency between two discretionary decisions of a Bankruptcy Court indicates error as a matter of law. Absent authority for such a proposition, the Court finds no error.
Appellant next claims that it was an abuse of discretion for the Bankruptcy Court to disallow the Trustee's commission and costs, as well as the attorneys fees. Once again, Appellant cites no authority for this proposition. Instead, Plaintiff claims that it is "unreasonable per se for a Court to authorize the Trustee to take a certain action (relinquishment of claims against the former Trustee) and then penalize the Trustee (on a fee application) for taking that...
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