In In re Rowe,[1] the court considered the propriety of deviating from the percentage compensation set forth in Bankruptcy Code § 326(a) based on the chapter 7 trustee’s failure to perform as required. This case illustrates the effort needed to reconcile the tension between recognizing the trustee’s fee as a “commission” calculated by the formula set forth in § 326(a) and the court’s directive to award “reasonable” compensation to trustees and other professionals.
Trustee Gold sought payment of his “commission” pursuant to § 326(a) in the amount of $17,254.61. Finding that Gold “did not properly or timely complete his duties as trustee,”[2] Bankruptcy Judge Robert G. Mayer awarded the reduced amount of $8,020 (based on the trustee’s hourly rate).
The district court first considered the question of how to treat the calculations set forth in § 326(a), which provides:
- In a case under chapter 7 or 11, the court may allow reasonable compensation under section 330 of this title of the trustee for the trustee’s services, payable after the trustee renders such services, not to exceed 25 percent on the first $5,000 or less, 10 percent on any amount in excess of $5,000 but not in excess of $50,000, 5 percent on any amount in excess of $50,000 but not in excess of $1,000,000, and reasonable compensation not to exceed 3 percent of such moneys [sic] in excess of $1,000,000, upon all moneys [sic] disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.
In addition, Bankruptcy Code § 330(a)(7), as amended by BAPCPA in 2005, provides:
(7) In determining the amount of reasonable compensation to be awarded to a trustee, the court shall treat such compensation as a commission, based on section 326.
The district court recognized that the treatment of the percentage compensation set forth in § 362(a) is the subject of some debate. The district court identified the possible importance of the percentage calculation as being either (1) merely a ceiling to limit the amount payable, separate from the determination of what compensation is reasonable,[3] or (2) a legislative presumption that the percentage commission is the reasonable compensation, which must be awarded absent extraordinary circumstances.[4] The latter approach was adopted by the Ninth Circuit Bankruptcy Appellate Panel in In re Salgado–Nava.[5]
In Rowe, the district court did not reach a conclusion as to which approach to adopt, holding instead that even under the second approach, which Gold asked the court to adopt, the fee reduction was proper. The district court found “extraordinary circumstances” to justify a deviation from the percentage commission. Gold delayed the administration of the estate for more than a year without excuse or reason, to the injury of creditors; failed to review the invoices for his legal counsel (his own firm), which included legal fees for work that should have been performed by Gold as the trustee;[6] and caused the estate to incur unnecessary banking fees in excess of $900.[7]
Conclusion
While Bankruptcy Code § 330(a)(7) states that the district court “shall treat such compensation as a commission, based on section 326,” courts still either require or permit a showing that the amount requested is reasonable. Trustees are well advised to present evidence to justify the requested fees, and opposing parties (particularly in jurisdictions that follow the “presumption” approach) may have better results when they can demonstrate “extraordinary circumstances” justifying a reduction.
[1] 2013 WL 352654, 2013 U.S. Dist. LEXIS 11970 (E.D. Va. Jan. 29, 2013).
[2] In re Rowe, 484 B.R. 667, 668 (Bankr. E.D. Va. 2012).
[3] See, e.g., In re Mack Properties Inc., 381 B.R. 793, 797 (Bankr. M.D. Fla. 2007) (“[T]he calculations are caps and not fee entitlements.”).
[4] Mack notes that this is the position taken by the Executive Office of the U.S. Trustee, 381 B.R. at 797.
[5] 473 B.R. 911 (B.A.P. 9th Cir. 2012).
[6] The legal fees were originally $14,165. The request was reduced to $11,036.50 after a meeting with the U.S. Trustee’s office. The bankruptcy court further reduced the legal fees to $2,500. Rowe, 484 B.R. at 670.
[7] Id., 484 B.R. at 670.