In re McConnell
| Decision Date | 04 January 2021 |
| Docket Number | Case No. 19-67128-pwb |
| Parties | IN RE: JAMES EDWARD McCONNELL, Debtor. |
| Court | United States Bankruptcy Courts. Eleventh Circuit. U.S. Bankruptcy Court — Northern District of Georgia |
IN RE: JAMES EDWARD McCONNELL, Debtor.
Case No. 19-67128-pwb
UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF GEORGIA ATLANTA DIVISION
January 4, 2021
IT IS ORDERED as set forth below:
Chapter 13
ORDER ON APPLICATION OF CHAPTER 7 TRUSTEE AND ATTORNEY FOR TRUSTEE FOR FINAL COMPENSATION AND REIMBURSEMENT OF EXPENSES
The Chapter 7 Trustee (the "Trustee") and his law firm filed an application (the "Application") for final compensation for services rendered and reimbursement of expenses incurred before conversion of this case to Chapter 13. [56]. The Trustee and his law firm request a total of $ 15,000: $ 13,304 for legal fees, $ 1,485.20 for the Trustee's fee, and $ 210.80 for expenses.1 Unsecured claims are about $ 20,000 and will be paid in full no matter what happens.
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The Court conducted a hearing on the Application on October 1, 2020 (the "Hearing").2 This Order constitutes the Court's findings of fact and conclusions of law pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, applicable under Rules 7052 and 9014 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"). All references to statutory sections are to sections of the Bankruptcy Code, title 11 of the United States Code, unless the context indicates otherwise.
Part I provides an overview of a chapter 7 trustee's statutory duties under § 704(a), a trustee's employment of professionals to assist and represent the trustee in the performance of those duties, and the standards for allowance of compensation of a trustee and professionals. Part II states the facts.
Part III concludes that the Trustee's law firm is not entitled to any compensation. In Sections III(A) and III(B), the Court denies compensation for services that were the performance
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of the Trustee's statutory duties. Section III(C) concludes that the law firm's services in opposing conversion to chapter 13 are not allowable because they were not necessary or beneficial to the estate. Section III(D) disallows compensation for services in connection with the Trustee's retention of the law firm and its application for compensation.
Part IV concludes that the circumstances of this case do not justify compensation of the Trustee on a quantum meruit theory and that, therefore, the Trustee is entitled only to a statutory commission of $ 406 due under § 326(a) and § 330(a)(7) calculated on his disbursement of $ 1,624 to the Chapter 13 Trustee upon the conversion of the case.
The Trustee and his law firm are entitled to reimbursement of the requested expenses.
A. The Chapter 7 Trustee's Role and Duties
A chapter 7 bankruptcy case typically involves five principal parties: (1) the debtor; (2) creditors; (3) the United States Trustee; (4) the chapter 7 trustee, and, often, (5) professionals employed by the chapter 7 trustee. The chapter 7 trustee plays a central role in the administration of the case.
Section 704(a) of the Bankruptcy Code sets forth the duties of the chapter 7 trustee. The chapter 7 trustee's duties are multi-fold, but the primary role is to "collect and reduce to money the property of the estate . . . and close such estate as expeditiously as is compatible with the best interests of parties in interest." § 704(a)(1).3 Another important duty is to investigate the financial affairs of the debtor and the existence of assets. § 704(a)(4).
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The United States Trustee, appointed by the Attorney General of the United States, 28 U.S.C. § 581(a), has the statutory duty, among others,4 to establish and maintain a panel of private trustees to serve in chapter 7 cases and to supervise them. 28 U.S.C. § 586(a)(1). The Executive Office for United States Trustees maintains the Handbook for Chapter 7 Trustees5 (hereinafter the "Chapter 7 Handbook") that states the views of the United States Trustee Program on the duties owed by a chapter 7 trustee to debtors, creditors, other parties in interest, and the United States Trustee.
Upon the filing of a chapter 7 case, the United States Trustee appoints an interim trustee from the panel of private trustees. § 701(a)(1). Unless creditors elect someone else at the meeting of creditors held pursuant to § 341(a) shortly after the filing of the case, § 702(b), the interim trustee becomes the trustee in the case. § 702(d). Creditors rarely elect a trustee, so the interim trustee becomes the trustee in almost all cases.
The Attorney General of the United States has prescribed the qualifications for membership on the panel of private trustees in 28 C.F.R. § 58.3(b),6 as 28 U.S.C. § 586(d)(1)
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requires. The qualifications by statute cannot include a requirement that the trustee be a lawyer. 28 U.S.C. § 586(d)(1).
An individual, therefore, may serve as a trustee even if she is not a lawyer. In the Northern District of Georgia, the United States Trustee has selected a panel of 20 chapter 7 trustees; two are accountants and the rest are lawyers. All are highly qualified and experienced in chapter 7 bankruptcy practice.
The provisions for the selection of highly qualified persons as panel trustees contemplate that the trustees be sophisticated, highly skilled, and thoroughly familiar with the operation of bankruptcy law and procedures that regularly arise in routine chapter 7 cases.
The Court agrees with the following descriptions of the capabilities of chapter 7 panel trustees.
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• "Having met [the high standards of 28 C.F.R. § 58.3(b)], the Trustee is presumed to possess the ability to perform the duties required of the position. . . . [A] trustee is appointed not devoid of any ability to function within the bankruptcy system. To the contrary, the appointment is based on an ability to perform statutory and required functions within a legal system involving the interests of various stakeholders in a bankruptcy estate."7
• "In order to be chosen as a panel trustee, a person must be sophisticated - at least in legal affairs or business matters. A trustee therefore necessarily has a greater skill set than a layman in performing duties such as investigating a debtor's financial affairs or writing letters to collect debts."8
• "The trustee is simply and obviously not a lay person unschooled in the art and science of finding, capturing, and obtaining the value of an asset. . . ."9
• "As a general proposition, a trustee will be held to the standard of a sophisticated pro se litigant and will be expected to handle routine administrative matters without the need of counsel."10
B. The Trustee's Employment of Professionals
A chapter 7 trustee may employ professionals to represent or assist the trustee in the performance of statutory duties. § 327(a).11 Such professionals specifically include, but are not
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limited to, attorneys, accountants, appraisers, or auctioneers. Id. A real estate broker is within the contemplation of § 327(a).
The Chapter 7 Handbook states, "The trustee must determine whether the services of a professional are needed and whether the cost is warranted. 11 U.S.C. §§ 330 and 704(a). Further, the trustee must determine at the outset the level of professional work required, and the estimated costs and benefits associated with the work." Id. at 4-19 (emphasis added).
As later text discusses,12 a trustee's employment of a professional requires approval of the bankruptcy court on application of the trustee that contains information that Bankruptcy Rule 2014(a) requires and establishes that the professional meets the statutory qualifications of § 327(a). Judges in this District typically enter an order on an ex parte basis approving the application, subject to objection by any party within 21 days of entry of the order. Particularly in consumer cases, objections are rare, and they usually object to the necessity of the employment rather than the qualification of the professional.13
C. Compensation of the Trustee and Professionals
1. Compensation of the trustee
A chapter 7 trustee's compensation is calculated based on a percentage of "all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims." § 326(a). The percentage differs based on the amount of money the trustee disburses. Id.
Although the chapter 7 trustee's compensation must also satisfy the requirement of § 330(a)(1)(A) that it be "reasonable" and for "actual, necessary services," § 330(a)(7) requires
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the bankruptcy court in making this determination to treat the trustee's compensation as a commission, based on § 326. Accordingly, the trustee receives a statutory commission as presumptively reasonable compensation, in the absence of extraordinary circumstances.14 Except in the unusual case, therefore, the time the trustee spends on a case is immaterial.
2. Compensation of the trustee's professionals
A professional's compensation depends on the type of services rendered, the customary method of compensation, and the value of the services to the estate. For example, a real estate broker would likely be paid a percentage fee from the sale of real property, an appraiser might receive a flat fee, and an accountant might bill at an hourly rate or provide services for a flat fee.
Likewise, the fee arrangements for attorneys employed by the trustee vary. For example, if a trustee employs her law firm to prosecute actions under the avoidance provisions of the Bankruptcy Code (e.g., §§ 544, 547, and 549) or other types of claims, the firm may do so based on an hourly rate. Alternatively, if the trustee retains special counsel to prosecute a debtor's personal injury claim, the engagement in all likelihood would be on a contingent fee basis.
Regardless of the method of calculation, all professional compensation must satisfy the requirements of § 330(a)(1).
Section 330(a)(1) authorizes the Court to award "reasonable compensation for actual,...
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