668 B.R. 881
9th Cir. BAP2025Background
- TBH19, LLC’s primary asset was a heavily encumbered piece of real estate in Beverly Hills.
- After a failed Chapter 11, the case was converted to Chapter 7 and a trustee (Leslie) was appointed, who engaged an accounting firm (LEA) and law firm (SBFB).
- The trustee negotiated a settlement with the senior secured creditor (DBD Credit Funding) to carve out $3.75 million from the sale proceeds for administrative expenses and a guarantee of at least $700,000 to unsecured creditors.
- Appellants (the HAR Parties), who are unsecured creditors and junior lienholders, did not object to the settlement or carveout but later challenged the final fee applications of the trustee and his professionals, arguing the fees were excessive.
- The bankruptcy court approved the fees in full, rejecting the contention that fees exceeding the unsecured creditors’ distribution were unreasonable; the HAR Parties appealed that ruling.
- The Bankruptcy Appellate Panel affirmed, focusing on the standards under §§ 326 and 330 of the Bankruptcy Code and prior Ninth Circuit BAP precedents.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trustee's statutory commission should be reduced because it exceeds the payout to unsecured creditors | Trustee's commission exceeding unsecured creditors’ distribution is unreasonable and constitutes extraordinary circumstances | Commission is presumptively reasonable by statute; extraordinary circumstances not present | Court found no extraordinary circumstances and upheld commission |
| Whether professionals’ fees (LEA, SBFB) are excessive given the limited distribution to unsecured creditors | Professionals' fees are disproportionate and not justified by their contributions; should not exceed half the carveout | Fees were for reasonable, necessary, and non-duplicative work essential to case outcome | Court held fees reasonable and necessary under § 330; no abuse of discretion |
| Whether the bankruptcy court applied the correct legal standards for trustee and professional fees | Applied incorrect standard by not focusing enough on proportionality to unsecured creditor payout | Applied statutory presumptions and proper standards under §§ 326 and 330 | Court correctly applied the statutory presumption and appropriate factors |
| Whether the HAR Parties provided sufficient evidence to challenge the fees | Their objections alone should have shifted the burden to the trustee | Objecting parties must produce evidence to rebut presumption, especially absent extraordinary circumstances | HAR Parties failed to produce evidence or use discovery remedies; objection insufficient |
Key Cases Cited
- In re Salgado-Nava, 473 B.R. 911 (9th Cir. BAP 2012) (statutory trustee commissions are presumptively reasonable unless extraordinary circumstances exist)
- Fear v. U.S. Tr. (In re Ruiz), 541 B.R. 892 (9th Cir. BAP 2015) (disproportionate commission alone does not rebut presumption of reasonableness)
- Roberts, Sheridan & Kotel, P.C. v. Bergen Brunswig Drug Co. (In re Mednet), 251 B.R. 103 (9th Cir. BAP 2000) (services must be reasonably likely to benefit the estate at the time rendered)
- Gold v. Robbins (In re Rowe), 750 F.3d 392 (4th Cir. 2014) (extraordinary circumstances determination is case-specific)