In re Robert Plan Corp.
| Decision Date | 01 March 2018 |
| Docket Number | Case No. 8-08-74573-reg,Case No. 8-08-74575-reg |
| Parties | In the Matter of THE ROBERT PLAN CORPORATION, et al Debtors. |
| Court | U.S. Bankruptcy Court — Eastern District of New York |
(Substantively Consolidated)
Kenneth Kirschenbaum ("Trustee"), the Chapter 7 Trustee in the substantively consolidated cases of The Robert Plan Corporation ("RPC") and The Robert Plan of New York Corporation ("RPCNY") (collectively, the "Debtors"), seeks entry of an order awarding the Trustee commissions and awarding Kirschenbaum & Kirschenbaum legal fees and expenses on a final basis for work performed in the Debtors' consolidated cases. The Trustee, who has received interim commissions in the amount of $66,602.39 from the Debtors' estates, seeks a total award of commissions in the amount of $233,749.60 from the Debtors' estates. Kirschenbaum & Kirschenbaum, which has received interim fees in the amount of $497,530.13 from the Debtors' estates, seeks a total award of legal fees in the amount of $660,139.23 and expenses in the amount of $7,314.81 from the Debtors' estates. Significantly, upon the Trustee's appointment, he also became the administrator of the RPC ERISA Plan ("Plan"), with assets in excess of $8 million. As a result, the Trustee was also obligated to wind up the Plan by bringing it into compliance with applicable ERISA laws, making distributions to Plan participants and terminating the Plan. The Plan permits the administrator to surcharge the accounts of the Plan beneficiaries if there are insufficient free funds in the Plan to provide reasonable compensation for the work performed by the Plan administrator and his professionals. While the Trustee is free to take what he wishes from the Plan as compensation without a Court order, the Trustee would be subject to a potential challenge by the Secretary of the Department of Labor ("DOL") to seek disgorgement of amounts taken from the Plan in excess of what is permitted under ERISA law.
In cases such as this, it is common practice for Chapter 7 trustees to work with the DOL, which has oversight over the Chapter 7 trustee when acting as Plan administrator, to resolve any issues regarding the expenses incurred in performing this function. In this case, the Trustee took a different approach, and sought to curtail the DOL's right to challenge the expenses charged by the Trustee and his professionals by seeking relief from this Court.
The Trustee has attempted to frame the issue in the context of being placed in the impossible position of having to act both as Plan administrator and Trustee. He argues the statutes require that he serve "two masters," the Bankruptcy Court and the DOL. In order to resolve this perceived dilemma, the Trustee sought orders from the Bankruptcy Court authorizing his payment and the payment of his retained professionals from Plan assets. At the time the Trustee sought this relief, the Trustee was aware that the DOL believed the Trustee's counsel, Kirschenbaum & Kirschenbaum, was not experienced in administering ERISA plans and the firm's proposed hourly rates were far in excess of what the DOL believed were appropriate. Furthermore, the Trustee's charges for Plan services were also excessive according to the DOL. Had the Trustee candidly presented to the Court that the purpose of his motion practice was to insulate himself from the risk that the DOL may challenge his fees and the fees of his professionals, the vast bulk of the fees and costs incurred could have been avoided. In addition, had the Trustee better understood the statutory scheme he complains about perhaps he would have realized that he largely created these problems himself by seeking to take fees and expenses from the Plan assets which were unreasonable under ERISA standards.
After deciding to surcharge the Plan participants 3% and to keep his withdrawals for expenses within the confines of the amounts generated by the surcharge, the Trustee now seeks compensation from the bankruptcy estates in the amount of $233,749.60, which includes commissions based on distributions made to Plan beneficiaries. While the Trustee is entitled to reasonable compensation limited by the statutory commissions for administering the assets in the Debtors' consolidated estates, the Bankruptcy Code prohibits the payment of commissions based on the funds he distributed to the Plan beneficiaries. If properly calculated based on the Trustee's distribution of bankruptcy estate property only, the maximum compensation allowable under the formula set forth in 11 U.S.C. § 326(a) is $58,018.98, plus expenses of $2,300.69, resulting in a total award of $60,319.67. Because the Trustee has already received $66,602.39 in commissions from the bankruptcy estates, the Trustee has been overpaid by $6,282.72.
Kirschenbaum & Kirschenbaum, which was retained by the Trustee in these cases, seeks $660,139.23 in fees and $7,314.81 in expenses as a final award. Included in the request is $254,070.48 for services performed related to the Plan. The District Court and the Second Circuit agree that the Bankruptcy Court lacks jurisdiction to award compensation to the Trustee and his professionals from Plan funds. The Second Circuit has also clarified that §704(a)(11) is a procedural vehicle for the assertion of substantive rights under the ERISA laws. While the question of whether the Bankruptcy Court has jurisdiction to award fees from the bankruptcy estate to Kirschenbaum & Kirschenbaum for Plan services is unresolved at the Second Circuit level, there is no statutory basis to award such fees in this case. The Plan work for which Kirschenbaum & Kirschenbaum seeks compensation did not benefit the bankruptcy estate, nor was it necessary to the administration of the case. In fact, after the Plan was administered, the time spent by Kirschenbaum & Kirschenbaum on alleged Plan services could only benefitKirschenbaum & Kirschenbaum. Therefore, the portion of the request related to the Plan services must be deducted from the total request, leaving $406,068.75 plus expenses in the amount of $7,314.81 as the maximum allowable compensation. The Court finds this amount reasonable and awards this on a final basis. Because Kirschenbaum & Kirschenbaum has already received $497,530.13 in interim awards from the Debtors' estates, Kirschenbaum & Kirschenbaum has been overpaid by $84,146.57. Pursuant to 11 U.S.C. § 330(a)(5), the Trustee shall disgorge $6,282.72 and Kirschenbaum & Kirschenbaum shall disgorge $84,146.57 to the Debtors' consolidated estates.
On August 25, 2008 (the "Petition Date"), RPC and RPCNY filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy Code"). On January 19, 2010, the Debtors' cases were converted to cases under Chapter 7 of the Bankruptcy Code. The Trustee was duly appointed and qualified as acting trustee for both cases. By order entered on September 9, 2010, the Debtors' cases were substantively consolidated. On February 15, 2017, the Trustee filed his Final Report, the Application for Compensation for the Trustee and for Kirschenbaum & Kirschenbaum. On February 16, 2017, the US Trustee filed objections to the Trustee's Application for Compensation and the Application for Compensation by Kirschenbaum & Kirschenbaum. On March 13, 2017, the Trustee and Kirschenbaum & Kirschenbaum filed a Reply to the objections filed by the US Trustee. On March 27, 2017, the DOL filed objections to the Trustee's Application for Compensation. On April 5, 2017, a hearing was held on the Trustee's Final Report, and the matter was marked submitted.
Upon conversion of the Debtors' cases from Chapter 11 to Chapter 7, the Trustee was required by statute to assume the obligation imposed upon RPC as the Plan administrator. According to the Trustee, the Plan fund held over $ 8 million and there were 281 fully vested Plan participants. The Trustee understood that his primary functions as Plan administrator would be to terminate the Plan and distribute the funds on hand to the Plan participants, to determine whether the Plan had been properly administered by Plan fiduciaries and to determine whether any legal action should be pursued against any party or person for violation of the Plan provisions or applicable ERISA laws. The Trustee filed an Application for Orders Appointing Trustee as Administrator of Debtors' Pension Plan, Authorizing Trustee to Employ David J. Witz as Pension Consultant, Authorizing Trustee to Employ Kirschenbaum & Kirschenbaum P.C. as Legal Counsel and Authorizing Trustee to Employ Hirschfield and Kantor LLP as Accountants dated May 6, 2010 ("Retention Application"). The Trustee recognized at the outset that he would need to retain professionals including a pension specialist, attorneys and accountants to fulfill his obligations with respect to the Plan. The Trustee also acknowledged that he would "likely be required to report to and communicate with the React Coordinator at the Department of Labor." (Retention Application). At the time the Trustee became obligated to act as the Plan administrator, the Plan had approximately $130,000 in a fund created from employer contributions to employees who left employment before their retirement benefits vested ("Forfeiture Fund"), which funds were meant to be used to cover the reasonable costs and expenses incurred in administering the Plan. Plan, § 19.05. The Plan also provides that the Trustee could pay for the costs of administering the Plan from the remaining trust fund by assessing a surcharge against the accounts of Plan participants. Plan, §§ 19.05, 20.14.
In the Retention Application the Trustee sought, inter alia, to retain Kirschenbaum & Kirschenbaum as counsel to the Trustee, to fix the Trustee's hourly rate at $500.00, and to authorize the Trustee to pay himself and all retained professionals from Plan assets. On June 10, 2010, the Trustee filed a motion ("Retention...
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