In Re Testaverde
MEMORANDUM OF DECISION AND ORDER
Pending before the Court is an appeal from the March 12, 2004 order of United States Bankruptcy Judge Stan Bernstein by the trustee of the Estate of Mary A. Testaverde (“Trustee”). For the reasons that follow, Trustee’s appeal is denied and Judge Bernstein’s order is affirmed.
The relevant facts and procedure are set forth in Judge Bernstein’s order:
On December 16, 2002, the debtor, Mary A. Testaverde, filed a voluntary petition for relief under Chapter 7. Mark A. Pergament was appointed the interim trustee and by operation of law became the permanent trustee of the estate. On January 30, 2002, the Court issued an order allowing the trustee to retain the law firm of Weinberg, Kaley, Gross & Pergament, LLP as counsel to the trustee. Counsel to the trustee represented the trustee in the prosecution and settlement of an adversary рroceeding against
A review of the trustee’s final report reveals that the trustee has $50,002.19 avаilable for distribution. As previously stated, trustee’s counsel seeks fees in the amount of $7,292.75. The report further indicates that there are $31,119.50 in allowed unsecured claims. By applying the maximum statutory formula under 11 U.S.C. § 326(a), the Court determines that the trustee is entitled to a cоmmission in the amount of $3,861.95. Trustee’s counsel’s fees and expenses are awarded in full.
In re Testaverde, No. 02-99887, slip op. at 1-2 (Bankr.E.D.N.Y. Mar. 12, 2004).
A district court reviews a compensation award by the Bankruptcy Court for a clear abuse of discretion.
In re United Merchants and Mfrs., Inc.,
Section 326 of the Bankruptcy code governs the compensation that a trustee may receive. It provides, in relevant part:
In a case under chapter 7 or 11, the court mаy allow reasonable compensation ... 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 excеss of $50,000 ... 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.
11 U.S.C. § 326.
Trustee contends that Judge Bernstein’s reduction of his commission “had no basis in the Bankruptcy Code and is at odds with settled case law” and thus should be reversed. (Trustee’s Mem. at 5.) According to Trustee, he should be compensated separately for the cost of consulting outside counsel, and he should be able to include that cost in the calculation of his commission. Trusteе submits that “the
The Court disagrees. First, the statute plainly states that the calculation is bаsed “upon all moneys disbursed or turned over in the case by the trustee to
parties in interest.”
11 U.S.C. § 326 (emphasis added). The statute does not define who is a “party in interest.” Under that circumstance, the Court must look at the plain meaning of the words.
See United States v. Ron Pair Enters.,
In Guido, the trustee sought to include in his compensation base the amount disbursed to debtor’s personal injury attorney for a personal injury settlement. The bankruptcy court did not permit trustee to do so, and interpreted Section 326 to hold that a trustee’s “commission can only be сalculated upon the funds actually received by the trustee.” Id. at 564. The court reasoned that the trustee should be compensated for work that he actually performs, which is reflected in his commission base by amounts distributed to parties in interest; work pеrformed by outside counsel is not something for which the trustee should receive compensation. See id. at 566.
Trustee argues that here, unlike Guido, the settlement proceeds were not subject to a lien and that “the compensation arrangement between a client and his personal injury cоunsel is different in nearly every respect from the arrangement between a Chapter 7 trustee and his/her litigation counsel.” (Trustee’s Mem. at 8.) Trustee’s attempt to distinguish Guido is unavailing because the underlying rationale for Gkddo and this case is the same: Section 326 provides compensation for work performed by the trustee, which does not include work performed by outside counsel.
Trustee cited two cases to support the proposition that administrative expenses are includable in his compensation base. Notably, neither case is from within the Second Circuit and thus not binding on this Court. Additionally, the Court disagrees with the rationale of both cases, as explained below. Trustee also cites Collier on Bankruptcy’s 15th edition for the proposition that administrative expenses may be included in the base to calculate a trustee’s compensation.
(See
Trustee’s Mem. at 9) (citing 2 Colliеr on Bankruptcy ¶ 326.01, at 326-19 (15th ed.1991)).
2
Al
The sole case cited in Collier, and one of the two cases proffered by Trustee is
In re Orient River Investments,
it is appropriate that operating trustees legitimately enhance their compensation by interpreting § 326(a) to allow disbursements made in actual opеration of businesses to be included among the “moneys turned over ... to parties in interest” in calculating trustees’ fees.
Id. at 733.
In reaching its conclusion, the Orient court relied on interpretations of the former Bankruptcy Code provision,11 U.S.C. § 76c(l) (repealed), which provided that trustee’s compensation was calculated on a percentage of moneys disbursed “to any person,” as opposed to the new section which states “to parties in interest.” It found that “[c]ases interpreting former 11 U.S.C. § 76c(l) uniformly interpreted that section as inсluding administrative costs of operating trustees to be within the category of ‘funds disbursed’ for purposes of computing trastees’ commissions.” Id. at 731 (citing cases). The Orient court recognized that Section 326 changed the language from “any persons” to “parties in interest,” but rationalized thаt the legislative history did not reveal any intended distinction between the terms, and thus permitted the trustee to include administrative expenses among the disbursements in calculating his commission. See id. at 731-32.
With all due respect to the
Orient
court, this Court does not agree that the bankruptcy code permits a trustеe to include his administrative expenses when calculating his compensation. This conclusion does not dovetail with the plain language of the statute, as explained above. When Congress changed the language of the statute from “any persоns” to “parties in interest” it presumably was aware that it was narrowing the trustee’s compensation base. Had Congress desired, it could have either kept the previous statutory language, or specifically included administrative expenses within the base fоr calculating trustee’s commission.
See In re Lan Associates XI, L.P.,
Section 726 directs the trustee to “distribute” property of the estate in accordance with the priority scheme set out therein. 11 U.S.C. § 726(a). Section 704(1) in turn imposes upon the trustee the duty to, inter alia, “collect and rеduce to money the property of the estate....” 11 U.S.C. § 704(1). One of the distributions of property the trustee is required to make is one “in payment of claims of the kind specified in ... section 507....” 11 U.S.C. § 726(a)(1). Section 507 in turn sets out the priorities in which payments are to be made, starting with administrative expenses allowed under section 503(b). 11 U.S.C. § 507(a)(1). Section 503(b)(1) authorizes the allowance, as an administrative expense, of post-petition claims arising from the actual, necessary costs and expenses of preserving the estаte, including wages, salaries, and commissions for services rendered to the estate post-petition. 11 U.S.C. § 503(b)(1)(A).
Id.
This Court has reviewed each of the cited statutory sections' — 726, 704, 503, 507 — and has not found authorization to include trustee’s counsel fees in the base for his cоmpensation. The court in
In re North American Oil & Gas
appears to focus on the term disbursements, or distributions, but makes no mention of the limiting phrase “to parties in interest.” While the former bankruptcy code section may have permitted disbursements “to any person” to be included in thе trustee’s base, the statutory language no longer contains such a broad phrase. Contrary to Trustee’s assertions, the black letter law does not include fees paid to trustee’s counsel in the computation of trustee’s commission.
See In re Pink Cadillac Associates,
No. 96 CV 4571,
CONCLUSION
For the foregoing reasons, the Trustee’s appeal is DENIED and Judge Bernstein’s decision is AFFIRMED. The Clerk of the Court is directed to close this case.
SO ORDERED.
Notes
. The Court notes that nоt only did Trustee give the wrong pinpoint citation, but Trustee has cited an outdated version, which has been subsequently replaced by the Revised 15th edition. While the revised edition states that administrative expenses may be included in the trustee's compensation base, the Court is not persuaded by its cited authority as ex