Kevin W. Lally, 612 B.R. 246

Background

Debtor Kevin Lally converted his case from Chapter 11 to Chapter 7; Olga L. Gordon was appointed trustee and sought to employ her firm Murtha Cullina LLP as trustee's counsel; Kathleen DiFruscia was employed as special counsel for the personal-injury claim.
The estate’s principal asset was a prepetition personal-injury claim; the parties settled all claims for $300,000, plus $5,000 in other estate assets (total receipts $305,000).
The settlement allocated $101,038.61 to special counsel (fees/expenses), $22,823.74 to medical liens, and $176,137.65 net to the claimants (of which $58,712.55 was allocated to the non-filing spouse Sharon Lally and $117,425.10 to the Debtor).
Trustee sought the statutory maximum commission on the full $305,000 (claiming $18,500) and Murtha Cullina sought $14,166.50 in legal fees and $346.36 expenses.
Objecting creditors (the Germanos) disputed (a) the commission base and amount, and (b) the reasonableness of Murtha Cullina’s fees (hourly rate, delegation, billing for trustee duties).
The Court: treated §326 commission as presumptively reasonable under §330(a)(7), excluded funds that were not estate property (spouse’s share and corresponding portion of special-counsel fees) from the commission base, and reduced Murtha Cullina’s requested fees by $5,000.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Proper commission base under §326(a) (which disbursements count toward "moneys disbursed to parties in interest")	Exclude payments to trustee’s retained professionals and exclude funds paid to non-debtor spouse; those are not "parties in interest" or estate property.	Include payments to retained professionals and lienholders in the base; trustee included full $300,000 in computing commission.	Court adopts expansive view: payments to retained professionals and medical lienholders may be included; but funds that are not estate property (spouse’s $58,712.55) must be excluded, and the portion of special-counsel fees attributable to spouse likewise excluded. Net base = $212,607.91.
Whether statutory commission should be reduced as an "extraordinary" case because special counsel did most of the work	Germanos: This is a rare case where special counsel largely litigated and settled the claim, so the trustee should not get full statutory commission.	Trustee & U.S. Trustee: §326’s graduated commission is presumptively reasonable; using retained counsel is commonplace and not a basis for reduction.	Court: Not a rare/unusual circumstance warranting departure; statutory formula remains presumptive. After excluding non-estate funds, commission on adjusted base = $13,880.40.
Whether retained professionals are "parties in interest" for §326(a) purposes	Germanos: Relying on Testaverde, retained professionals are not parties in interest and payments to them should be excluded from the base.	Trustee: "Party in interest" should be defined broadly to include entities legitimately receiving distributions in furtherance of administration.	Court rejects Testaverde’s narrow view, adopts an expansive definition; retained professionals and lienholders can be parties in interest for §326(a) and thus generally included in the commission base.
Reasonableness of trustee-counsel fees (rates, delegation, and non-delegable trustee duties)	Germanos: $395/hr yields an excessive blended rate when combined with trustee commission; firm billed for tasks that were non-delegable trustee duties and insufficiently delegated to paralegals.	Trustee/Murtha Cullina: Rates and hours are reasonable; communications with counsel are billed as legal work; trustee certified no compensation sought for trustee-only duties.	Court: $395/hr is within community range, but applicant failed to justify delegation of certain tasks and failed its burden to show all billed work required counsel. Court reduced attorney fees by $5,000 and awarded $9,166.50 to the firm.

Key Cases Cited

Garb v. Marshall (In re Narragansett Clothing Co.), 210 B.R. 493 (1st Cir. B.A.P.) (historical use of lodestar in trustee-fee analysis)
Matter of JFK Capital Holdings, L.L.C., 880 F.3d 747 (5th Cir.) (§330(a)(7) directs courts to treat trustee compensation as commission under §326)
In re Rowe, 750 F.3d 392 (4th Cir.) (extraordinary circumstances can justify downward departure from statutory commission)
In re Wilson, 796 F.3d 818 (7th Cir.) (approving §326 commission approach over lodestar for chapter 7 trustees)
In re Testaverde, 317 B.R. 51 (E.D.N.Y.) (held retained professionals are not "parties in interest" for §326—court here rejected this narrow view)
In re North American Oil & Gas, Inc., 130 B.R. 473 (Bankr. W.D. Tex.) (funds returned to rightful owner are excluded from commission base)