In re Eidson
MEMORANDUM OPINION
This mаtter comes before the Court on the Chapter 7 Trustee’s request for approval of his Final Report (Docket Nos. 139, 140) and the Debtor’s Objection (Docket No. 143). The issue is whether the Trustee is entitled to a commission under Bankruptcy Code Section 326(a) on proceeds that were distributed to the Debtor’s wife for her interest in property that the Trustee sold pursuant to Section 363(h) of the Bankruptcy Code. The Court concludes that a commission on a co-owner’s interest in property is not contemplated by Section 326(a). The Court will disallow the Trustee’s commission on Ms. Eidson’s interest in the property.
Findings of Fact
Having heard the arguments of the parties, and having reviewed the parties’ submissions, the Court makes the following findings of fact:
1. This voluntary Chapter 13 case was filed on June 13, 2008. Docket No. 1.
2. The case was converted to Chapter 7 on September 26, 2008 (Docket No. 33), and Mr. Gold was appointed as the Chapter 7 Trustee.
3. The Trustee was permitted to employ his law firm, Wiley Rein LLP, as his counsel. Docket No. 53.
4. In addition, with Court approval, the Trustee employed Long & Foster Realtors and Ms. Sanchez as the Trustee’s real estate broker and agent. Docket No. 78. The employment of the real estate agent
5. On February 3, 2009, the Trustee filed a Complaint in this Court against Ms. Eidson, seeking to sell the property. Adv. Pro. No. 09-01034-SSM.
6. On October 29, 2009, the Court approved a compromise, under which (among other terms): (a) Ms. Eidson would consent to a sale of the property, pursuant tо
7. On January 31, 2011, the Trustee moved to sell the real property. Docket No. 94. The Debtor objected to the sale. Docket No. 97. Ms. Eidson also filed a Response to the Motion to Sell. Docket No. 100. Notwithstanding these Objections, the sale was approved (Docket No. 104) and the sale closed on March 25, 2011 (Docket No. 111).
8. The property sold for a purchase price of $1,331,000. After payment of the real estate commissions, real estate taxes, and encumbrances against the property, the Trustee reported $441,736.61 in net proceeds from the sale. Trustee’s Report of Sale, Docket No. 111. After some credits and adjustments, the Trustee deposited $429,589.63 into his trustee account. Trustee’s Final Report, Docket No. 139, Ex. B.
9. Pursuant to the terms of the October 29, 2009, Order, the Trustee paid Ms. Eidson $50,000 out of the sale proceeds and paid Mr. Eidson $5,000 as his exempt property. Id.
10. On August 2, 2011, the Trustee filed a Motion for approval of a settlement with Ms. Eidson, with respect to her interest in the sale proceeds. Docket No. 132. Mr. Eidson objected to the proposed compromisе. Docket No. 134.
11. On August 25, 2011, the Court approved the Trustee’s compromise with Ms. Eidson, over Mr. Eidson’s objections. Docket No. 136. The compromise required the Trustee to pay Ms. Eidson the sum of $229,066.82. Id.
12. After payment of the $229,066.82 to Ms. Eidson, the Trustee was left with $149,032.35 net proceeds in the estate.
13. On June 21, 2012, the Trustee filed his Final Report, as well as an Application to compensate his law firm pursuant to
15. The Court ruled on August 14, 2012, that it would approve compensation to Wiley Rein for fees in the amount of $65,335.00, and expenses in the amount of $1,975.94. Docket No. 145. The Court took under advisement the Trustee’s request for payment of his commission, in order to consider whether Section 326(a) of the Bankruptcy Code allows the trustee a commission on the amount рaid to Ms. Eidson for her interest in the property.
Conclusions of Law
The Court has jurisdiction over this matter pursuant to
Ordinarily, a Debtor does not have standing to challenge the award of professional fees and еxpenses, nor to object to claims, in an insolvent Chapter 7 estate. Willemain v. Kivitz,
The Court, having approved the Trustee’s legal fees and expenses, has a single issue before it — the amount of the Trustee’s commission. Specifically, the issue is whether or not the Trustee is entitled to a commission on property that he has distributed to Ms. Eidson as a tenant by the entirety of the Arlington property pursuant to
1. Sections 326(a), 330(a)(7) and 330(a)(3)
Section 326 of the Bankruptcy Code defines limitations for the Trustee’s compensation. Specifically, Section 326(a) of the Code provides:
In a case under chapter 7 or 11, the court may allow reasonable compensation undersection 330 of this title of the trustee for the trustee’s services, payable after the trustee renders such services, not to exceed 25 percent on the first $5,000 or less, 10 percent on any amount in excess of $5,000 but not in excess of $50,000, 5 percent on anyamount in excess of $50,000 but not in excess of $1,000,000, and reasonable compensation not to exceed 3 percent of such mоneys in excess of $1,000,000, upon all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secured claims.
In determining the amount of reasonable compensation to be awarded to an examiner, trustee under chapter 11, or professional person, the court shall consider the nature, the extent, and the value of such services, taking into account all relevant factors, including— [the six factors generally known as the Johnson factors].
The Ninth Circuit Bankruptcy Appellate Panel recently considered the meaning of
[AJbsent extraordinary circumstances, chapter 7, 12 and 13 trustee fees should be presumed reasonable if they are requested at the statutory rate. Congress would not have set commission rates for bankruptcy trustees in§§ 326 and 330(a)(7), and taken them out of the considerations set forth in§ 330(a)(3) , unless it considered them reasonable in most instancеs. Thus, absent extraordinary circumstances, bankruptcy courts should approve chapter 7, 12 and 13 trustee fees without any significant additional review.
Id. at 921.
This Court agrees. The purpose of the amendment to
2. Section 36S(j)
The Trustee, in arguing for a commission based on Ms. Eidson’s portion of the sale proceeds, relies оn the plain language of
However, another section of the Code is relevant here, that of
After a sale of property to whiсh subsection (g) or (h) of this section applies, the trustee shall distribute to the debtor’s spouse or the co-owners of such property, as the case may be, and to the estate, the proceeds of such sale, less the costs and expenses, not including any compensation of the trustee, of such sale, according to the interests of such spouse or co-owners, and of the estate.
Thus, it is clear that under
The Trustee argues that, as a matter of statutory interpretation, the contention that his compensation under
Arguably, the Citi-Toledo Partners case relied upon by the Trustee (Trustee’s Mem., p. 6, (citing In re Citi-Toledo Partners II,
The second issue raised by the United States Trustee in this regards holds that as11 U.S.C. § 363Q ) specifically prohibits a trustee from receiving compensation for the disbursement of funds turned over to a non-debtor entity which had a co-ownership interest in an item of property, so too should compensation be denied to Ms. Vaughan given that this case is very analogous to such a situation. However, the Court must also reject this argument as the real estate sold in this case was composed of two separate parcels of property held by two separate bankruptcy estates, and§ 363 specifically limits its coverage to the situation where one parcel of property is held by two or more co-owners.
One reported decision from this district has held that the phrase “moneys disbursed or turned over in the case by the trustee to parties in interest” under
1. The money must be disbursed.
2. The Trustee must disburse the money (though the Trustee may direct a third party, such as a settlement agent, to disburse funds on his or her behalf).
3. The money must be property of the estate.
4. The money must be distributed to a party in interest.3
In re Market Resources Development Corp.,
The Trustee attempts to distinguish the Market Resources case, by arguing that the property in that case indisputably was not property of the estate — it was owned by a third party, and the Debtor held a disputed second lien deed of trust. See 320 B.R at 849 (“The trustee is no more entitled to include the funds as part of the base for purposes of calculation than if he had found the money on the street, picked it up and returned it to its owner.”). But if this was true in Market Resources, it is also true here — the Trustee plainly did not have any ownership interest in Ms. Eid-son’s interest in the property.
Indeed the Trustee’s argument on this point raises more quеstions than it answers. The Trustee argues that the property was held by the Debtor and Ms. Eidson as tenants by the entirety. A tenancy by the entirety is a form of ownership of property that comprises four unities: “unity of time, unity of title, unity of interest, and unity of possession.” In re Bradby,
Putting it back into the bankruptcy context, suppose that Ms. Eidson were in bankruptcy as wеll, in a separate case. Her Chapter 7 Trustee and the Chapter 7 Trustee in the instant case would not each be entitled to a commission on 100% of the sale proceeds. Each of the two Trustees would be entitled to a commission on that portion of the sales proceeds allocable to his or her Debtor’s interest in the property.
Moreover,
This gets us back to the premise that the Trustee’s compensation is commission-based, i.e., based on the results achieved for his or her bankruрtcy estate. If the Trustee’s position is correct, then the Trustee could sell the property, realize substantial net proceeds, and not care about the result for his estate as against the co-owner. Under the Trustee’s view of the statute, the Trustee has no incentive whatsoever to argue in favor of retaining the proceeds for the creditors of his bankruptcy еstate. He could simply agree (subject to Court approval) that Ms. Eid-son was entitled to the lion’s share of the proceeds, leaving only enough in the bankruptcy estate to pay his commission based on 100% of the sale proceeds. The Trustee argues that his position makes “practical sense,” in the following way:
Complicated factual and legal disputes that would otherwise cost the estate significant resources to litigate are often settled in bankruptcy court. Included amongst the issues settled may be those issues concerning whether property is property of the estate meaning that issues otherwise settled may need to be re-litigated months or even years after the issue was initially brought before the court.
Trustee’s Mem., Docket No. 146, pp. 7-8. But — the Trustee’s position stops short of what is ultimately required of him as a fiduciary. His job isn’t just to litigate over the proceeds, nor just to settle; his job is to retain as much for the creditors as is reasonably possible under the circumstances.
The Court’s conclusion is entirely consistent with the idea of a commission-based compensation to the Trustee, as now embodied in
For these reasons, the Court concludes that
Conclusion
For the foregoing reasons, the Trustee will not be allowed a commission based on the funds disbursed to Ms. Eidson for her interest in the property. The Trustee will be directed to re-notice his Final Report for a hearing, with the commission adjusted accordingly. A separate Order will issue.
Notes
. It is not clear to the Court why thеre was a delay of ten months between the Court's approval of the compromise with Ms. Eidson, and the Trustee's request for approval of his Final Report.
. Ms. Eidson filed a priority proof of claim for asserted domestic support obligations, in an undetermined amount. Proof of Claim No. 10-1. It is clear, however, that the above amounts of $50,000 and $229,066.82, were paid to her on acсount of her interest as a co-owner of the Arlington property, not on account of her status as an alleged priority creditor in the case.
. There is no dispute that Ms. Eidson is a party in interest with respect to the disposition of the proceeds of the sale.
.