In re Virgin Offshore U.S.A., Inc.
In re Virgin Offshore U.S.A., Inc., 2015 Bankr. LEXIS 233 (Bankr. E.D. La. January 26, 2015): The Bankruptcy Court for the Eastern District of Louisiana held that a Chapter 11 trustee’s compensation is subject to the lodestar factors listed in 11 USC 330(a)(3) of Bankruptcy Code. when determining reasonable compensation, and that Section 330(a)(7) does not create a presumption that the statutory maximum provided for in Section 326 is reasonable compensation. Shows Courts are beginning to re-think blindly allowing Trustee’s fees in the statutory maximum amount allowed by 11 USC 326. Even though this decision involved a Chapter 11 trustee, all trustees should be careful to keep detailed time sheets in case a court wants to review them in determining reasonable compensation.
Facts:
A Chapter 11 trustee ("Trustee") submitted a third and final fee application for consideration by the Bankruptcy Court. The Trustee requested compensation calculated under Section 326 as a percentage of the funds distributed in the case to administrative, secured, and unsecured creditors. The court did not allow the full amount of the commission calculated under Section 326, but rather allowed fees in a reduced amount, taking into consideration the lodestar factors set forth in Section 330(a)(3), as well as other "relevant factors." The court considered other relevant factors such as: (1) the Trustee received an additional three percent of the fees awarded to the Trustee’s counsel because the Trustee was a member of the law firm that represented him; and (2) the court had to force the case to conclusion despite counsel for the Trustee initially advising that the case would be concluded in a matter of months.
The court held that the factors listed in Section 330(a)(3) must be considered in determining reasonable compensation to a Chapter 11 trustee. The court examined the Trustee’s billing statements, finding all of the time entries were reasonable. The court allowed compensation for all time billed but only at the lowest billing rate reflected on the Trustee’s billing statements of $375 per hour. The amount allowed was less than the amount calculated under Section 326.
Reasoning:
Section 330(a)(7) provides that a trustee’s compensation shall be treated as a commission under Section 326. Section 326 states that in a Chapter 7 or 11 case, the court may allow reasonable compensation to a trustee under Section 330 not to exceed certain amounts based on a percentage of the assets distributed in the case. For a Chapter 11 trustee, Section 330(a)(3) sets forth certain factors the court must review in determining reasonable compensation.
The court held that the more specific Section 330(a)(3) controls, rather than the more general Section 326 and as such, the factors set forth in Section 330(a)(3) must be examined in determining a Chapter 11 trustee’s compensation. Further, the court held that, contrary to the Trustee’s position, Section 330(a)(7) does not create a presumption that a trustee should receive the maximum compensation allowed under Section 326. If it did, then Section 330(a)(3) would be unnecessary. Rather, Section 330(a)(7) merely "incorporates the limitations of section 326 on any determination made under section 330(a)(3)."
This review is from the California State Bar Insolvency Committee e-newsletter of 2/23/15