Opinion
Bankruptcy Case No. 03-41192-JDP.
December 14, 2006
MEMORANDUM OF DECISION
Introduction
On October 10, 2006, R. Sam Hopkins, the chapter 7 trustee, filed his proposed Final Account Request for Compensation and Expenses. Docket No. 45. On October 26, 2006, at the Court's request, Hopkins filed an Affidavit in Support of Trustee's Fee Request. Docket No. 50. On December 5, 2006, the Court conducted a hearing concerning the trustee's request for compensation. Based upon the Court's review of the record, including the submissions and arguments made by Hopkins, the Court has determined that Hopkins is entitled to compensation, although in an amount less than requested. This Memorandum constitutes the Court's findings of fact and conclusions of law. Rules 9014; 7052.
Unless otherwise indicated, all chapter, section and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101- 1330, and to the Federal Rules of Bankruptcy Procedure, Rules 1001-9036.
The Proceedings in this Case
This voluntary chapter 7 bankruptcy case was commenced on June 16, 2003. Docket No. 1. Hopkins was appointed to serve as chapter 7 trustee the following day. Hopkins has now concluded his administration of the assets in this estate. According to his Final Account, Hopkins has slightly more than $22,000 in funds to distribute. Docket No. 45. He proposes to pay his attorneys $9,525.40 in compensation and expenses, an amount previously approved by the Court on October 30, 2006. Docket No. 51. He proposes to pay himself $3,010.66 in compensation and $67.94 in expenses. The remaining $9,702.63 will be distributed in partial payment of the claims of unsecured creditors.
According to the Final Account, Hopkins generated the monies in this estate in three ways. Approximately $4,800 was apparently turned over to him by the Debtors from their bank accounts and tax refunds. Another $9,500 was generated when Hopkins discovered that the certificate of title to a boat Debtors once owned had never been properly transferred to the new owners. Hopkins hired attorneys who sued the transferees, and that action was eventually resolved when Hopkins "sold" the boat to the unfortunate putative owners for cash. Hopkins v. Cummins, Adv. Proc. No. 05-8054. Finally, Hopkins, again acting through counsel, received $9,000 from a bank to resolve a preference claim. Hopkins v. U.S. Bank, Adv. Proc. No. 04-6122.
The Court appreciates that these sums total $23,300. The difference between that amount and the sums Hopkins proposes to distribute results from his prior payments to Debtors for their "share" of the tax refunds, and for miscellaneous administrative expenses, during the pendency of this case. In addition, a small amount of interest has accrued on Hopkins' trustee accounts during this time.
There is no indication in the record that any significant actions were required to recover Debtors' bank deposits and tax refunds. Debtors presumably surrendered these funds to him at his request. And as noted above, Hopkins hired attorneys to recover the value of the boat and the preference. Hopkins assisted his lawyers in performing their legal chores.
Hopkins did include a request for turnover of $2,654.86 from bank accounts in a motion for turnover filed by his attorneys. Docket No. 30. The motion was not contested and the Court granted by default in an order entered on May 16, 2005. Docket No. 31. The Court presumes Debtors complied with that order.
Because the bankruptcy estate had incurred over $9,500 in expenses stemming from the attorneys' involvement in this case, after an initial review of the Final Account and Fee Request, the Court required more proof from Hopkins that amount he requested for compensation ($3,010.66) was reasonable. Hopkins responded to this request via his affidavit, and further explained his activities in his oral comments at the hearing.
Applicable Law
Sections 330(a)(1) and 326(a) govern the bankruptcy court's determination of the amount of reasonable compensation to be awarded to a chapter 7 trustee. In re Jenkins, 130 F.3d 1335, 1337 (9th Cir. 1997); Roderick v. Levy (In re Roderick Timber Co.), 185 B.R. 601, 605 n. 3 (9th Cir. BAP 1995); In re Mazon, 2006 WL 3106708, (Bankr. D. Idaho October 30, 2006); In re Andona, 00.2 I.B.C.R. 105, 105 (Bankr. D. Idaho 2000). Trustee fee applications must conform to the requirements of Rule 2016. In re Roderick Timber Co., 185 B.R. at 605; In re Travel Headquarters, Inc., 140 B.R. 260, 261-62 (9th Cir. BAP 1992).
Section 326(a) provides: "In a case under chapter 7 or 11, the court may allow reasonable compensation under section 330 of this title of the trustee for the trustee's services, payable after the trustee renders such services, not to exceed 25 percent of 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 any amount in excess of $50,000 but not in excess of $1,000,000, and reasonable compensation not to exceed 3 percent of such moneys 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." (Emphasis added).
Section 330(a)(1) provides: "After notice . . ., the court may award to a trustee . . . — (A) reasonable compensation for actual, necessary services rendered by the trustee . . .; (B) reimbursement for actual, necessary expenses. (Emphasis added).
Rule 2016(a) provides: "An entity seeking interim or final compensation for services, or reimbursement of necessary expenses, from the estate shall file an application setting forth a detailed statement of (1) the services rendered, time expended and expenses incurred, and (2) the amounts requested. . . ." (Emphasis added.)
Section 326(a) sets forth the maximum compensation payable to a chapter 7 trustee. It establishes a compensation cap, not an entitlement; the bankruptcy court must decide the proper amount of the trustee's compensation. Arnold v. Gill (In re Arnold), 252 B.R. 778, 788 n. 12 (9th Cir. BAP 2000); In re Mazon, 2006 WL 3106708 (Bankr. D.Idaho 2006); In re Clampitt, 92 I.B.C.R. 153, 154 (Bankr. D. Idaho 1992).
Under BAPCPA's new § 330(a)(7), Congress has directed that "In determining the amount of reasonable compesation to be awarded to a trustee, the court shall treat such compensation as a commission, based on section 326." Of course, BAPCPA's changes to the Code do not apply in this case, and the Court expresses no opinion concerning the impact of the amendments in this context.
Sections 330(a)(3)(A)-(E) list the criteria the bankruptcy court shall consider in determining the amount of reasonable compensation to be awarded under § 330(a). These Code provisions instruct the bankruptcy court to consider the time spent by the trustee providing services; the necessity of the services; the rate charged for the services; and the complexity, importance and nature of the problems, issues or tasks addressed. Additional factors used in evaluating a trustee's request for compensation closely resemble those used in evaluating attorney fee applications, which include the time and labor involved, the novelty and difficulty of the questions presented in the bankruptcy case, and the experience, reputation and ability of the professional. In re Fin. Corp. of Am., 114 B.R. 221, 223 (9th Cir. BAP 1990), aff'd 945 F.2d 689 (9th Cir. 1991).
A trustee bears the burden of proof to show the reasonableness of the fees requested under § 330. In re Roderick Timber Co., 185 B.R. at 606; accord, In re Evangeline Refining Co., 890 F.2d 1312, 1327 (5th Cir. 1989). As stated in Roderick Timber, "[i]t has long been the rule in this circuit that trustees have a duty to meticulously maintain accurate records of time expended on behalf of the estate." Id. at 605 (quoting Matter of Beverly Crest Convalescent Hosp., Inc., 548 F.2d 817, 820 (9th Cir. 1976)). "In obedience to the statute, in every case, a bankruptcy court should award only those fees that are proven to be actual, necessary and reasonable. Any lesser requirement would make the Trustee's burden of proof a mere shell." In re Roderick Timber, 185 B.R. at 606.
In this case there was no objection made by any interested party or by the U.S. Trustee to Hopkins' fee request. But "[w]here, as here, there is a tension between the Trustee's role as the representative of creditors on the one hand and, on the other hand, his own self-interest in maximizing his compensation, beyond the mere power to review this fee application, the Court has a duty to scrutinize the application in the interest of protecting the integrity of the bankruptcy system." In re Pruitt, 319 B.R. 636, 638 (Bankr. S.D. Cal. 2004) citing In re Busy Beaver Bldg. Ctrs, Inc., 19 F.3d 833, 841 (3rd Cir. 1994) (emphasis in original). Under § 330(a)(2), in appropriate circumstances, "the court may, on its own motion . . . award compensation that is less than the amount of compensation that is requested.".
Disposition
As charged by the Code, the Court has considered the time spent by Hopkins providing services in this case; the necessity of those services; the rate charged for the services; and the complexity, importance and nature of the problems, issues or tasks addressed. Having done so, the Court concludes the amount requested by Hopkins for compensation, $3,010.66, the maximum allowed under these facts by § 326(a), exceeds a reasonable amount.
The Court will presume that the Final Account containing Hopkins' fee request, as supplemented by the itemization of time and services in his supporting affidavit, adequately complies with the requirements for a proper fee application under Rule 2016(a).
Hopkins' affidavit itemizes slightly more than 25 hours of time spent working on this case. The Court accepts this representation and concludes that the amount of time spent rendering these services is reasonable under the circumstances. The services provided consist primarily of routine trustee administrative tasks. However, all services performed by Hopkins were necessary, and he is entitled to compensation for his efforts.
Hopkins hired lawyers to do the "heavy lifting" in connection with securing and liquidating the bulk of the assets in this case. His attorneys litigated with the purported boat owners, the preference transferee, and settled those disputes for cash. And a significant portion of the funds recovered in these actions must be devoted to paying the lawyers' professional fees and expenses. While this observation is not intended as criticism of Hopkins' or his attorney, it is a fact.
Only a modest amount of the time Hopkins spent working on this case supported the activities of his attorneys. In noting this, the Court is not suggesting Hopkins should have devoted more time to helping his counsel. On the other hand, Hopkins should not be compensated for the results achieved primarily by his lawyers' efforts. But that would be the result if, in addition to approving the substantial attorneys' fees and expenses in this case, the Court also compensated Hopkins to the statutory maximum as proposed in his fee request. In other words, while the Court endorses Hopkins' decision to hire professionals under these facts, the Court must review Hopkins' fee requests to ensure he is paid for his services, not theirs.
Hopkins proposes in his affidavit that his services be valued at $140 per hour. While the Court understands Hopkins is trained and experienced as an accountant, special talents were not necessary nor applied in this case. The services Hopkins provided in this case were limited to the usual trustee administrative activities, such as conducting the § 341(a) meeting, reviewing and reconciling the bank statement, communicating with creditors and Debtors, and engaging and cooperating with his lawyers.
Of course, this is an assumption, not a fact finding based upon any evidence offered to the Court.
Hopkins, who the Court regards as a very competent trustee, offered no factual basis upon which the Court could determine the market value of these types of trustee services. Absent proof, the Court must rely upon its own experience in setting a reasonable rate of trustee compensation. In a similar setting, the Court recently valued a chapter 7 trustee's services at $90 per hour. In re Mazon, 2006 WL 3106708, at *3 (Bankr. D.Idaho 2006). Without evidence that another rate should be applied, there is no reason to depart from that approach here.
Conclusion
Hopkins performed 25 hours of necessary services. Using $90 per hour as a reasonable rate of compensation, the Court finds and concludes that Hopkins should be awarded $2,250 for his services in this case. His expenses will be allowed in the amount sought, $67.94. Hopkins should submit an amended Final Account reflecting this reduction in his compensation, and the redistribution of the additional amounts to creditors. When filed, the Court will enter an order approving the amended Final Account without further notice or hearing.