Section 330(a)(1) of the Bankruptcy Code governs compensation for various categories of bankruptcy court professionals, including Chapter 7 trustees. It states that, “subject to sections 326, 328, and 329, the court may award to a trustee * * * reasonable compensation for actual, necessary services rendered by the trustee * * * and * * * reimbursement for actual, necessary expenses.” Prior to BAPCPA, the statute provided factors for the court to consider when determining whether a Chapter 7 trustee’s fee was indeed reasonable, and Section 330(a)(3) of the Bankruptcy Code directed courts to consider all relevant factors, including time spent on services, the rates charged for the services, whether they were necessary and beneficial, whether they were performed in a reasonable amount of time, the complexity of the case, the skill of the professional, and customary compensation rates.
In enacting BAPCPA, however, Congress removed Chapter 7 trustees from the list of professionals subject to the Section 330(a)(3) factors. Rather, BAPCPA introduced Section 330(a)(7) of the Bankruptcy Code which requires courts to treat the compensation awarded to trustees as a “commission, based on Section 326.” Section 326 of the Bankruptcy Code, in turn, sets a cap on the maximum amount payable to trustees. 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 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 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.
Courts have disagreed as to the appropriate method for determining “reasonable compensation” for Chapter 7 trustees in light of the above-mentioned amendments. Matter of JFK Capital Holdings, L.L.C., 880 F.3d 747 (5th Cir.2018) described the different approaches. It noted that under one approach, Section 326(a) is not simply a maximum but also a presumptively reasonable fixed commission rate to be reduced only in rare or “extraordinary circumstance” instances. See, e.g., Mohns, Inc. v. Lanser, 522 B.R. 594, 601 (E.D.Wis.), aff’d sub nom. In re Wilson, 796 F.3d 818 (7th Cir.2015). See also, In re Salgado-Nava, 473 B.R. 911, 921 (9th Cir.BAP 2012). Yet other courts similarly presume that the Section 326(a) percentages are reasonable, but perform a more in-depth review of the trustee’s services to ensure the presumption is justified. Id. at 753; see also In re Scoggins, 517 B.R. 206, 214 (Bankr.E.D.Cal.2014).
Finally, some courts decline to presume Section 326(a) percentages are reasonable, concluding that the bankruptcy court has discretion to award reasonable compensation only for actual and necessary services, and may award an amount less than that requested by the trustee. This latter approach, does not confer an absolute right of a trustee to be paid the maximum amount allowed under §326(a). Rather, in light of the other applicable Section 330(a) provisions, the court can and should consider all surrounding facts and circumstances in deciding whether to award something less than the §326(a) commission, and that consideration “may include” the Section 330(a)(3) factors. Id.
JFK Capital Holdings adopted an interpretation aligned with the first approach, i.e., the percentage amounts listed in §326 are presumptively reasonable for Chapter 7 trustee awards. The court explained that “[i]n removing Chapter 7 trustees from Section and directing courts to treat the trustee’s compensation as a commission, Congress made clear that a trustee’s compensation should be determined on the basis of a percentage, rather than on a factor-based assessment of the trustee’s services[.]” Id. at 753 (quoting Mohns, Inc. v. Lanser, 522 B.R. 594, 599 (E.D.Wis.), aff’d sub nom. In re Wilson, 796 F.3d 818 (7th Cir.2015). Accordingly, Section 330(a)(7) “is best understood as a directive to simply apply the formula of Section 326 in every case.” Id. at 753-54 (quoting Lanser, 522 B.R. at 599).
[C]ommission percentages “are usually agreed to at the beginning of an engagement, before the actual amount of time spent on the matter could even be known.” Compensation, on the other hand, is defined as “'[r]emuneration and other benefits received in return for services rendered[.]” * * * * “[i]n removing Chapter 7 trustees from §330(a)(3) and directing courts to treat the trustee’s compensation as a commission, Congress made clear that a trustee’s compensation should be determined on a basis of a percentage, rather than on a factor-based assessment of the trustee’s services[.]”
Id. at 754 (quoting Lanser, 522 B.R. at 599 and 602).
Matthew T. Gensburg
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