959 F.3d 1002
10th Cir.2020Background
- Morreale owned Hotels LLC (two Denver properties). Hotels LLC filed Chapter 11; Morreale later filed personal Chapter 11 that was converted to Chapter 7 and Connolly was appointed Chapter 7 trustee.
- As Chapter 7 trustee Connolly acquired Morreale’s membership interest in Hotels LLC, appointed himself manager, and elected to liquidate the LLC’s properties.
- Sales proceeds in the Hotels LLC Chapter 11 matter exceeded expectations: Chapter 11 creditors were paid in full, surplus flowed to the Chapter 7 estate, and Chapter 7 claims became likely to be paid in full.
- Connolly sought § 326(a) compensation in the Chapter 7 case based on combined disbursements: $1.947M (Chapter 7) plus $8.432M (Chapter 11) = $10.379M; he had separately sought payment in the Chapter 11 case but withdrew that request.
- The bankruptcy court awarded about $81,660 based only on the Chapter 7 disbursements ($1.947M). The BAP affirmed. The Tenth Circuit affirmed, holding § 326(a) limits compensation to moneys disbursed by the trustee in the case in which the trustee serves.
Issues
| Issue | Plaintiff's Argument (Connolly) | Defendant's Argument (U.S. Trustee / Morreale) | Held |
|---|---|---|---|
| Whether § 326(a)’s phrase “all moneys disbursed or turned over in the case by the trustee” permits including disbursements made in a separate Chapter 11 proceeding where the trustee did not serve as trustee | “In” should be read broadly to include moneys that arise from or relate to the trustee’s performance in the Chapter 7 case (i.e., disbursements that "relate to" estate property) | “In the case” refers to the specific bankruptcy proceeding where the trustee serves; § 326(a) compensates only for moneys disbursed by that trustee in that case | Held for defendant: § 326(a) compensation is limited to moneys disbursed by the trustee in the case in which the trustee serves; Chapter 11 disbursements where he served only as manager are excluded |
| Whether cited caselaw (e.g., In re Macco) supports including related-entity or separate-case disbursements in the § 326(a) base | Macco and other cases sanction broader inclusion of disbursements tied to a debtor’s operations and thus support Connolly’s position | The cited authorities either do not analyze the phrase “in the case” or concern disbursements within a single case; they are unpersuasive here | Held for defendant: prior cases do not compel expanding § 326(a); Macco is not persuasive because it did not analyze “in the case” language |
| Whether excluding Chapter 11 disbursements from the § 326(a) base conflicts with a trustee’s § 704(a)(1) duty to maximize estate value | Interpreting § 326(a) narrowly punishes trustees who manage related entities to maximize value; it conflicts with the trustee’s duty and discourages value-maximizing conduct | § 704 does not compel the particular actions Connolly took; § 326(a) ties compensation to disbursements, not to conduct, and does not guarantee payment | Held for defendant: no conflict—the Code’s compensation scheme caps trustee pay by disbursements in the case, and § 704 does not obligate the trustee to undertake the acts Connolly performed in another case |
| Whether policy/practical consequences (single-member pass-through entities) justify reading § 326(a) broadly | A narrow reading will undercompensate trustees handling pass-through entities and disincentivize estate-maximizing management | Policy concerns cannot override plain statutory text; courts must apply the Code as written | Held for defendant: court declines policy-based re-writing where statutory language is plain |
Key Cases Cited
- In re Woods, 743 F.3d 689 (10th Cir. 2014) (de novo review and use of ordinary, contemporary meaning for statutory words)
- Brown v. Gardner, 513 U.S. 115 (1994) (statutory ambiguity judged by statutory context)
- Sandifer v. U.S. Steel Corp., 571 U.S. 220 (2014) (give words their ordinary, contemporary, common meaning)
- Am. Fed'n of Gov't Emps., Local 1592 v. Fed. Labor Relations Auth., 836 F.3d 1291 (10th Cir. 2016) (ambiguity is determined by statutory context)
- In re Macco Props., Inc., 540 B.R. 793 (Bankr. W.D. Okla. 2015) (similar factual pattern but court did not analyze § 326(a) “in the case” language; not persuasive here)
- In re Rybka, 339 B.R. 464 (Bankr. N.D. Ill. 2006) (allowed inclusion of disbursements made through agent’s account within single case)
- Commodity Futures Trading Comm'n v. Weintraub, 471 U.S. 343 (1985) (trustee’s duty to maximize estate value)