The Fifth Circuit sided with the Seventh by holding that the statutory commission for a chapter 7 trustee in Section 326(a) is presumptively reasonable and must be allowed by the bankruptcy court except in exceptional circumstances that “should be a rare event.”
Since the 2005 BAPCPA amendments to Section 330, Circuit Judge Leslie H. Southwick said in his Jan. 26 opinion that two approaches have developed regarding the allowance of commissions for a chapter 7 trustee. Led by the Seventh Circuit, some courts, he said, hold that the sliding-scale commissions in Section 326(a) are “not simply a maximum but also a presumptively reasonable fixed commission.” Some of those courts nonetheless say that the commission can be adjusted in “extraordinary circumstances.”
Other courts do not view the commission rate as presumptively reasonable but allow compensation, functionally speaking, after applying the “reasonableness” standards in Section 330(a)(3).
Judge Southwick explained that the 2005 amendments removed a chapter 7 trustee from the professionals explicitly subject to the Section 330(a)(3) factors. Those standards still apply to chapter 11 trustees and other professionals.
Although Section 330(a)(1)(A) still says that a trustee must be allowed “reasonable compensation” for “actual, necessary” services, the BAPCPA amendments also added Section 330(a)(7), which provides that 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.”
While Judge Southwick did not say so, the amendments generally were viewed as ensuring that a trustee in a lucrative case would receive the maximum commission to make up for “no asset” cases entailing nothing more than the $60 flat fee under Section 330(b).
Judge Southwick decided to follow the Seventh Circuit, believing that the amendments established a “commission-based award” as opposed to the “compensation-based awards” granted pre-BAPCPA. To continue fixing “reasonable” compensation after BAPCPA, he said, would give “little practical effect to the amended language.”
Judge Southwick held, “Section 330(a)(7) therefore treats the commission as a fixed percentage, using Section 326 not only as a maximum but as a baseline presumption for reasonableness in each case.”
He recognized that “Section 330 still allows a reduction or denial of compensation,” but only in a “rare event” where “‘exceptional’ is the key.”