In re Colburn
| Decision Date | 22 March 1999 |
| Docket Number | Bankruptcy No. 398-32210-rld13,398-33273-rld13. |
| Citation | 231 BR 778 |
| Parties | In re Douglas R. COLBURN, Debtor. In re Alan D. Macklin Brenda J. Lindsey-Macklin, Debtors. |
| Court | U.S. Bankruptcy Court — District of Oregon |
M. Caroline Cantrell, Portland, OR, for Colburn and Macklin, Debtors.
Thomas M. Renn, Beaverton, OR, for Chapter 7 Trustee.
David B. Mills, Eugene, OR, for Michael J. Grassmueck.
Michael J. Caro, Portland, OR, for Creditor, Sydney Nilsen.
Pamela J. Griffith, Office of the U.S. Trustee, Portland, OR, for U.S. Trustee.
Daniel F. Vidas, Dunn, Carney, Allen, Higgins & Tongue, Portland, OR, for Chapter 7 Trustee.
John Mitchell, Inc., Portland, OR, pro se.
These Chapter 13 cases are before me on objections to the proofs of claims filed by the former Chapter 7 trustees, and trustee's counsel in the Colburn case. I have consolidated these cases for purposes of this Memorandum Opinion only, because they present a common issue for my decision.
Following the hearings held in the Colburn case on March 4, 1999, and the Macklin case on March 8, 1999, I have reviewed my notes, the parties' submissions and relevant legal authority. The findings that I set forth in this Memorandum Opinion are designated as the court's findings under Fed.R.Civ.P. 52(a), applicable in this contested matter under Fed. R. Bankr.P. 9014.
In re Douglas R. Colburn, Case No. 398-32210-rld13. Douglas R. Colburn ("Colburn") filed a voluntary Chapter 7 "no asset" petition on March 27, 1998. Michael A. Grassmueck, Inc. ("Grassmueck") was the duly appointed Chapter 7 trustee. Grassmueck objected to Colburn's claim for a wage exemption on the basis that Colburn had testified at the § 341(a)1 Meeting of Creditors that the "wages" were actually accounts receivable from Colburn's janitorial business. Grassmueck also sought a court order requiring that Colburn turn over to the trustee the sum of $2,600, which represented the proceeds of accounts receivable from the business. Colburn timely requested a hearing on the objection to exemption and the request for a turnover order. After the parties had fully briefed the issue of whether the funds Grassmueck sought were exempt wages as opposed to accounts receivable, but before the hearing scheduled to resolve the issue, the court entered an order on Colburn's motion to convert the case to a case under Chapter 13. Grassmueck asserts a right to compensation for having, through investigation, "found" an asset of the estate valued at $2,600.
At the same time Grassmueck was challenging Colburn's wage exemption, Sydney Nilsen ("Nilsen") was prosecuting a non-dischargeability and quiet title adversary proceeding against Colburn. Nilsen, Colburn's former mother-in-law, alleged that Colburn incurred $15,000 of debt on Nilsen's credit cards and encouraged Nilsen to transfer an interest in her home so that he could obtain a loan for their mutual benefit. The loan, in the amount of $75,000, was secured by Nilsen's home. The loan proceeds were used as follows: $30,000 to pay Colburn's debts, $15,000 to pay the credit card obligations Colburn had incurred on Nilsen's cards, $20,000 to pay off a vehicle loan for a third party (Colburn was a co-signor on the loan), and loan origination fees in an undisclosed amount. Nilsen sought to have Colburn's interest in her home rescinded based upon allegations of fraud. Colburn had not listed an interest in Nilsen's home in his schedules. Grassmueck obtained court approval to hire Thomas Renn ("Renn") to represent him in seeking to recover approximately $11,000 for the estate based upon Colburn's interest in Nilsen's home.
Following the conversion to Chapter 13, Grassmueck filed a Final Report in the Chapter 7 case stating that he had neither collected nor disbursed funds. The report claims a commission in the amount of $3,469.95 and expenses of $56.66, and Grassmueck filed an Application for Chapter 7 Professional Compensation (Claim No. 2) in Colburn's Chapter 13 case, seeking payment of these sums as an administrative expense. The commission amount is the maximum commission set forth in 11 U.S.C. § 326(a) based on distributions totaling $13,600, the amount Grassmueck asserts would have been distributed to creditors from the Chapter 7 estate. Both Colburn and Nilsen objected to Claim No. 2.
Renn also filed an Application for Chapter 7 Professional Compensation (Claim No. 9) seeking payment of $1,225.00 (representing 9.8 hours of services at $125.00/hr), for professional services performed, as an administrative expense. Nilsen objected to Claim No. 9.
The parties briefed the issues, and argument on the objections was heard March 4, 1999.
In re Alan D. Macklin and Brenda J. Lindsey-Macklin, Case No. 398-33273-rld13. Alan D. Macklin and Brenda J. Lindsey-Macklin (the "Macklins") filed a voluntary Chapter 7 "no asset" petition on May 1, 1998. John Mitchell ("Mitchell") was the duly appointed Chapter 7 trustee. Mitchell objected to the Macklins' claim for an exemption in a personal injury annuity. Mitchell obtained court approval to employ Daniel Vidas and the law firm of Dunn, Carney to represent him in opposing the Macklins' claim of exemption in the annuity. After the parties had fully briefed the issue regarding the Macklins' entitlement to an exemption in the annuity, the Macklins conceded that the annuity proceeds were not exempt and moved to convert their case to Chapter 13.
Mitchell filed the Final Report in the Chapter 7 case stating that he had neither collected nor disbursed funds. The report claims a commission in the amount of $4,250 and expenses of $8.55, and Mitchell filed an Application for Chapter 7 Professional Compensation (Claim No. 3) seeking payment of these sums as an administrative expense in the Macklins' Chapter 13 case. The commission amount is the maximum commission set forth in 11 U.S.C. § 326(a) based on distributions totaling $35,000, the amount Mitchell asserts would have been distributed to pay unsecured creditors in full from the Chapter 7 estate.2 The Macklins objected to Claim No. 3.3
The issue common to these cases is whether a Chapter 7 trustee is entitled to any compensation, beyond the statutory minimum provided for in § 330(b) of the Bankruptcy Code, when a case is converted to Chapter 13 prior to the receipt and disbursement of any funds by the Chapter 7 trustee. The Colburn case presents the additional issue as to whether counsel for a Chapter 7 trustee, employed pursuant to § 327(a), is entitled to compensation for services performed for the benefit of the Chapter 7 estate, where the case is converted to Chapter 13 before any assets have been collected and liquidated in Chapter 7. I will deal first with the issue of Chapter 7 trustee compensation.
The primary provisions of the Bankruptcy Code relating to trustee compensation are set forth in §§ 326 and 330. Section 330(a)(1) provides in relevant part:
After notice to the parties in interest and the United States Trustee and a hearing, and subject to sections 326, 328, and 329, the court may award to a trustee . . . (A) reasonable compensation for actual, necessary services rendered by the trustee . . . and by any paraprofessional person employed by any such person; and (B) reimbursement for actual, necessary expenses. (Emphasis added.)
Section 330 authorizes compensation and reimbursement of expenses for officers of the bankruptcy estate, including trustees. It further prescribes the standards for determining the amount of reasonable compensation to be approved. See H. Rept. No. 95-595 to accompany H.R. 8200, 95th Cong., 1st Sess. (1977) at pp. 329-30, U.S.Code Cong. & Admin.News 1978, p. 5787. However, § 330 expressly is subject to the provisions of § 326, which sets limits to trustee compensation.
Section 326(a) provides:
At least one court has interpreted § 326(a) as literally precluding any compensation to Chapter 7 trustees in converted cases where no moneys have been disbursed or turned over during the Chapter 7 proceedings, beyond the minimum provided in § 330(b). See In re Fischer, 210 B.R. 467 (Bankr.D.Minn. 1997).
However, I agree with the majority of courts that have considered this issue and have determined that § 326(a) does not preclude Chapter 7 trustee compensation in cases that are dismissed on the debtor's motion or converted to Chapter 13 prior to completion of Chapter 7 administration.4 See, e.g., In re Berry, 166 B.R. 932 (Bankr. D.Or.1994); In re Tweeten Funeral Home, PC, 78 B.R. 998 (Bankr.D.N.D.1987); In re Stabler,...
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