Decided: April 28, 2014

The Fourth Circuit held that, absent extraordinary circumstances, Chapter 7 trustees must be paid on a commission basis, as required by 11 U.S.C. § 330(a)(7).  Thus, the Court reversed and remanded the district court’s decision, which affirmed the bankruptcy court’s non-commission-based fee award, with instructions to vacate the Trustee’s fee award, and remand the matter to the bankruptcy court to determine the proper commission-based fee to award to the Trustee.

The Trustee, Gold, in this Chapter 7 case, requested a trustee’s fee of $17,254.61.  Finding that Gold failed to properly or timely complete his duties, however, the bankruptcy court reduced his fee to $8,020.00.  In determining the Trustee’s fee, the bankruptcy court found that he did not properly discharge his duties.  Gold did not administer the estate expeditiously and in a manner compatible to the best interests of the parties in interest.  This court also found that he neglected to adequately supervise the case.  Consequently, the bankruptcy court based the Trustee’s compensation on an hourly rate, as opposed to a commission-based rate that § 330(a)(7) dictates.  The Trustee contends that the bankruptcy court violated his right to due process when it reduced his compensation (1) without advance notice that it thought his fee request to be extraordinary, or (2) a meaningful opportunity to put forth evidence to assuage the bankruptcy court’s misgivings.

The Court reviewed two questions in this appeal.  The first was one of first impression: whether, in light of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), a bankruptcy court is required, absent extraordinary circumstances, to compensate Chapter 7 trustees on a commission basis.  The second question was whether the case should be remanded to the bankruptcy court with instructions to apply the correct legal standard after an evidentiary hearing.

The Court followed the plain meaning rule, and determined that the definitions of the operative terms in the independent clause of § 330(a)(7) indicated that, absent extraordinary circumstances, a Chapter 7 trustee’s fee award must be calculated on a commission basis.  The Court held that the bankruptcy court should have determined what the maximum statutory commission rate for this case was pursuant to § 326(a).  Only after that determination should the bankruptcy court have decided whether any extraordinary circumstances existed such that the proper commission rate set out in § 326(a), which is presumptively reasonable, was unreasonable, and, thus, should have been reduced.  The Court did not decide the second question on appeal.  The Court reversed the district court’s decision affirming the bankruptcy court’s non-commission-based fee award, and remanded the case to the district court with instructions to vacate the Trustee’s fee, and remand the matter to the bankruptcy court to determine the proper commission-based fee to award to the Trustee.

Full Opinion

Grace Faulkenberry

Like us on Facebook!
Facebook By Weblizar Powered By Weblizar
Contact Information

South Carolina Law Review
1525 Senate Street
Columbia, SC 29208