Court Puts Trustee Fees Under the Microscope

Posted by NCBRC - September 11, 2018

Where the trustee made no distributions and performed only his regular duties as trustee, the court denied his fee application in total. Citing efficiency concerns, the court also reduced the trustee’s attorney fee application by almost half. In re Stroud, 2018 Bankr. LEXIS 2136, No. 15-74063 (Bankr. N.D. Ga. July 19, 2018).

The debtor filed a chapter 13 plan proposing to maintain her mortgage payments and pay unsecured creditors at 100%. When she missed payments on the plan she allowed her case to be converted to chapter 7. Five weeks later, having obtained new counsel, she moved to reconvert to chapter 13 and to continue her 100% plan. The chapter 7 trustee objected to the motion but the case was converted nonetheless. The chapter 7 trustee, as both trustee and member of the law firm representing him, submitted a fee application seeking $1,716.50 in trustee fees and $13,607.09 in attorney fees. The debtor objected.

The court began with the trustee fees. Section 330 provides for reasonable fees for trustee services, and section 326 bases those fees on a percentage of the trustee distributions. Here, the trustee did not make any distributions. However, in such cases, courts have awarded trustee fees on a quantum meruit basis, so the court went on to examine whether the trustee fees could be justified on that basis. It found they could not. The trustee’s time was spent preparing for the 341 meeting and investigating estate property such as the amount of equity in the debtor’s home—an issue not in dispute—and discovering the debtor’s post-petition game show winnings, which did not affect the estate. The court concluded that the trustee merely performed the regular duties of a trustee under section 704, did not add benefit to the estate, and was not entitled to fees.

Unlike the trustee, the trustee’s attorney is not limited to a percentage of distributions, so the court looked to whether the services provided were reasonable. The court initially reduced the attorney’s fees by the amount spent on services that were more appropriately deemed trustee services, it then looked at whether the remaining $10,000 was justified. The court found that $4,000 of that amount was incurred in addressing two motions for relief from stay, which the debtor did not oppose, and performing other necessary legal services. As to the remaining $6,000 which went to opposing the debtor’s motion to reconvert, the court, citing the need for efficient administration of the estate, cut that fee in half due to the fact that the other parties were adequately represented and could therefore protect their own interests, and because the debtor’s chapter 13 plan was 100%.

In sum, the court denied trustee fees altogether and allowed $7,000 in attorney fees.

Stroud bankr ND Ga

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