497 B.R. 99
Bankr. D. Colo.2013Background
- Debtor filed Chapter 7 on June 28, 2012; Cynthia Skeen was appointed interim Chapter 7 trustee. Maria J. Flora, P.C. was employed as counsel for the Chapter 7 trustee on August 6, 2012 to investigate real property listed on schedules (the "Lakewood Property").
- On October 9, 2012 Flora filed an adversary complaint under 11 U.S.C. § 363(h) seeking sale of the estate’s interest in the Lakewood Property; the same day Debtor moved to convert the case to Chapter 13.
- After conversion, Flora applied for interim compensation for services performed during the Chapter 7 period (Aug. 2–Oct. 9, 2012); she later reduced her fee request to exclude time after conversion.
- Debtor objected, arguing (1) counsel for a Chapter 7 trustee lacks standing to assert an administrative claim post-conversion, (2) the § 363(h) work lacked justification and fees were unreasonable, and (3) any award should be capped by § 326(a)’s trustee-fee formula.
- The bankruptcy court held a hearing, treated the questions primarily as matters of law, and ultimately allowed Flora an administrative claim of $1,437.50 plus $46.08 in expenses for pre-conversion Chapter 7 work.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Standing to seek administrative claim after conversion | Flora: statutory scheme ( §§1322(a)(2),507,503,330) permits counsel for Chapter 7 trustee to assert administrative claim in converted Chapter 13 for pre-conversion work | Debtor: conversion terminates trustee and counsel’s standing (§348(e)) and Code doesn’t specifically authorize such claims | Held: Counsel for Chapter 7 trustee may hold §503/§330 administrative claim for services rendered pre-conversion and may assert it in the Chapter 13 case |
| Reasonableness/necessity of §363(h) work | Flora: services were within trustee duties, performed in good faith, and reasonable under §330 factors | Debtor: §363(h) claim was meritless (Debtor only had bare legal title) so fees are unnecessary/excessive | Held: Work was within trustee’s duties, reasonably likely to benefit estate, and fees/rates/time were reasonable under §330 |
| Applicability of §326(a) cap to trustee’s counsel fees | Debtor: fees should be limited by trustee statutory cap in §326(a) | Flora: §326(a) limits trustee compensation, not counsel employed under §327; counsel’s fees are separate administrative claims | Held: §326(a) caps trustee compensation only and does not limit counsel-for-trustee administrative fees |
| Requirement to modify Chapter 13 plan to pay claim | Flora: administrative claim entitled to priority and must be provided for in plan | Debtor: objected to allowance and plan treatment | Held: Court ordered Debtor to file a modified Chapter 13 plan providing for Flora’s allowed administrative claim |
Key Cases Cited
- Connolly v. Harris Trust Co., 257 B.R. 56 (Bankr. D. Colo. 2000) (discusses trustee duties and deference to trustee litigation decisions)
- Murphy, 272 B.R. 483 (Bankr. D. Colo. 2002) (discusses limits on trustee compensation under §326)
- Fischer, 210 B.R. 467 (Bankr. D. Minn. 1997) (distinguishes trustee statutory fees from attorney fees paid to counsel for trustee)
- Rodriguez, 240 B.R. 912 (Bankr. D. Colo. 1999) (allowed administrative claim but limited application of §326 to trustee)
- Kuhn, 337 B.R. 668 (Bankr. N.D. Ind. 2006) (recognizes separate administrative claim for counsel of Chapter 7 trustee and that §326 caps trustee, not counsel)
- Schneider, 15 B.R. 744 (Bankr. D. Kan. 1981) (authorized separate administrative claims for trustee as trustee and for professional services)
- Collins, 210 B.R. 538 (Bankr. N.D. Ohio 1997) (holds professional fees for trustee’s counsel differ from trustee’s statutory compensation)
- Sherr v. Winkler, 552 F.2d 1367 (10th Cir. 1977) (articulates trustee’s fiduciary duties and standard of care)