522 B.R. 594
E.D. Wis.2015Background
- Chapter 7 trustee sought $28,030.33 in compensation calculated by applying the percentage formula in 11 U.S.C. § 326 to all cash disbursed in an asset case.
- Creditor Mohns objected, arguing the trustee was not entitled to the maximum commission and sought evidentiary hearing and detailed time records.
- BAPCPA amended § 330, removing Chapter 7 trustees from § 330(a)(3) and adding § 330(a)(7), directing that trustee compensation be “treated as a commission, based on section 326.”
- Post-BAPCPA courts split: some presume entitlement to § 326 percentages and reduce only for "extraordinary circumstances;" others apply a proportionality or performance-based reduction approach.
- Bankruptcy court applied the Fourth Circuit’s “extraordinary circumstances” presumption and awarded the § 326-based commission; district court reviewed the legal questions on appeal.
Issues
| Issue | Mohns' Argument | Trustee's Argument | Held |
|---|---|---|---|
| Whether § 330(a)(7) requires applying § 326 percentages in every Chapter 7 asset case | §330(a)(7) allows courts to adjust percentages; court should not mechanically apply §326 | §330(a)(7) requires commission treatment and application of §326 percentages as the default | Court: Presume entitlement to commission calculated by the §326 formula; §330(a)(7) directs use of §326 percentages in virtually every case |
| Whether courts may reduce a trustee’s commission below §326 maximum and what standard governs | Courts should grade trustee performance and reduce accordingly (Phillips approach) | Reductions permitted but only sparingly; Congress intended §326 formula to be the norm | Court: §330(a)(2) permits reductions, but courts should be reluctant and exercise power sparingly; reject routine performance-grading approach |
| Whether trustee must submit time records under Fed. R. Bankr. P. 2016(a) and undergo evidentiary hearing/finding requirements | Trustee must file detailed time statements and face hearing so court can assess reasonableness | When compensation is commission-based under §326, time records and evidentiary hearing are irrelevant to amount | Court: Rule 2016 noncompliance and no hearing/factual findings were not reversible error because time/effort are irrelevant to §326 commission |
| Whether proceeds from a particular asset (house) may be excluded from the §326 calculation if trustee did little of the work | Exclude proceeds of assets where broker/title company performed the work; reduce commission accordingly | Commission compensates trustee for overall role (including no-asset work); §326 requires using all moneys disbursed | Court: Proceeds cannot be excluded; commission must be calculated on "all moneys disbursed or turned over in the case" per §326 |
Key Cases Cited
- In re Rowe, 750 F.3d 392 (4th Cir. 2014) (adopts presumption in favor of §326 commission; reductions only for extraordinary circumstances)
- In re Salgado-Nava, 473 B.R. 911 (9th Cir. BAP 2012) (follows U.S. Trustee position presuming §326 commission)
- In re Scoggins, 517 B.R. 206 (Bankr. E.D. Cal. 2014) (discusses proportionality and factors for reducing trustee commission)
- In re Ward, 418 B.R. 667 (W.D. Pa. 2009) (considers time/effort as factor for reducing commission)
- In re Phillips, 392 B.R. 378 (Bankr. N.D. Ill. 2008) (advocates grading trustee performance and adjusting commission accordingly)
- In re McKinney, 383 B.R. 490 (Bankr. N.D. Cal. 2008) (reduces commission where fee is disproportionate to services)
- In re Coyote Ranch Contractors, LLC, 400 B.R. 84 (Bankr. N.D. Tex. 2009) (discusses presumptive entitlement but allows reduction for inequitable/disproportionate fees)