Opinions of the United
1999 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


10-5-1999

In Re: Lan Assoc
Precedential or Non-Precedential:

Docket 98-5434




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Filed October 5, 1999

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

No. 98-5434

IN RE: LAN ASSOCIATES XI, L.P.

PATRICIA A. STAIANO,
UNITED STATES TRUSTEE

v.

JAMES J. CAIN,
TRUSTEE FOR LAN ASSOCIATES XI, L.P.,
       Appellant

On Appeal from the United States District Court
for the District of New Jersey
D.C. Civil Action No. 98-CV-2286
(Honorable Joseph E. Irenas)

Argued April 29, 1999

Before: SCIRICA, ROTH, and McKAY,* Circuit Judges.

(Filed October 5, 1999)



_________________________________________________________________

*The Honorable Monroe G. McKay, United States Circuit Judge for the
Tenth Judicial Circuit, sitting by designation.
       ARTHUR H. JONES, JR.,
        ESQUIRE (ARGUED)
       RONALD L. GLICK, ESQUIRE
       Mesirov, Gelman, Jaffe, Cramer
        & Jamieson
       1735 Market Street, 37th Floor
       Philadelphia, Pennsylvania 19103-
        7598

        Attorneys for Appellant

       ROBERT J. SCHNEIDER,
        ESQUIRE (ARGUED)
       PATRICIA A. STAIANO,
        UNITED STATES TRUSTEE
       DONALD F. WALTON,
        ASSISTANT U.S. TRUSTEE
       Office of the United States Trustee
       One Newark Center, Suite 2100
       Newark, New Jersey 07102

        Attorneys for Appellee

       JOSEPH I. WITTMAN, ESQUIRE
       National Association of Bankruptcy
        Trustees "NABT"
       435 S. Kansas Avenue - 2nd Floor
       Topeka, Kansas 66603-3401

        Attorney for Amicus Curiae-
        Appellant

OPINION OF THE COURT

McKAY, Circuit Judge.

The standing trustee in this matter, Appellant James J.
Cain, appeals from a district court order which reversed a
bankruptcy court award of final compensation in the
amount of $184,888.25 and $999.40 in costs. Based on the
language of 11 U.S.C. S 326(a), the district court held that
the trustee should not have received compensation based

                                  2
on a $7,781,200.00 credit bid sale. The district court also
determined that the bankruptcy court erred in considering
factors other than those enumerated in 11 U.S.C.S 330(a)
in determining the trustee's fee. The trustee argues that the
district court's interpretation of S 326(a) was improper and
that the determination of a fee award is not limited to the
factors enumerated in S 330(a). Consequently, the trustee
urges us to reinstate the bankruptcy court's fee
determination. We exercise jurisdiction pursuant to
28 U.S.C. SS 158(d) and 1291.

I.

The debtor, Lan Associates XI, L.P., commenced this
action on July 6, 1992, by filing a voluntary petition under
Chapter 11 of the Bankruptcy Code. Mr. Cain was
subsequently appointed as Chapter 11 trustee. The debtor's
principal asset was a parcel of property consisting of two
office complexes in Marlton, New Jersey, which was subject
to a mortgage in favor of First Fidelity Bank, N.A. Although
the debtor initially valued the property at $9,000,000.00, it
was later appraised at a fair market value of $9,727,000.00
with a liquidation value of $7,781,200.00. During the
bankruptcy proceedings, First Fidelity asserted a secured
claim of $12,865,434.55.

Pursuant to the Chapter 11 proceedings, the trustee
acted as landlord for the office complexes for eighteen
months. Accordingly, by Order dated April 8, 1993, the
trustee was awarded interim compensation of $28,665.51
based on disbursements of $949,183.54. Because the
trustee had rendered approximately 163.5 hours of service
as of the date of that award, his compensation as Chapter
11 trustee amounted to approximately $175.00 per hour.

On May 21, 1993, the Chapter 11 proceeding was
converted into a Chapter 7 proceeding and Mr. Cain was
reappointed as Chapter 7 trustee. Although the trustee
alleged that he was prepared simply to abandon the
property and allow First Fidelity to foreclose on it, First
Fidelity offered to purchase the property through a credit
bid at the liquidation price of $7,781,200.00.1 In connection
_________________________________________________________________

1. Section 363(k) of the Bankruptcy Code authorizes secured creditors to
purchase property through credit bids. See 11 U.S.C. S 363(k) (stating

                               3
with the purchase, First Fidelity offered to allow the trustee
to retain $372,387.00 from the cash collateral provided to
the trustee by First Fidelity to cover administrative
expenses and provide a distribution for unsecured creditors.2
First Fidelity also offered to waive any deficiency claim it
had remaining against the estate after the sale.

In response to First Fidelity's credit bid offer, the trustee
filed a motion and a certificate in support of the motion to
sell the property at a private sale. See J.A. at 76-85. The
certificate itemized the anticipated administrative expenses
of the sale, including the trustee's anticipated commission
of $233,616.00 based on the total sale price of
$7,781,200.00 and an additional $70,000.00 in
commissions based on rents received for the property. The
certificate also referred to the $372,387.00 in cash
collateral which First Fidelity agreed the trustee could
retain for payment of administrative expenses and
distribution to unsecured creditors and indicated that the
remaining $7,408,813.00 of the sale price would be applied
to the mortgage. See 

The trustee further explained
in the certificate that he agreed to contribute $83,346.00
out of his anticipated compensation to provide a
distribution for the unsecured creditors. According to the
trustee, once the administrative expenses were paid,
$62,500.39 would remain for the unsecured creditors,
_________________________________________________________________

that at a sale "of property that is subject to a lien that secures an
allowed claim, . . . the holder of such claim may bid at such sale, and,
if the holder of such claim purchases such property, such holder may
offset such claim against the purchase price of such property").

2. We think the record is fairly clear that the $372,387.00 was part of
the total purchase price, rather than an amount over and above the
purchase price. See J.A. at 80 (indicating that $7,408,813.00 of
purchase price would go to mortgage and $372,387.00 would go to an
"[a]llocation [f]or [e]xpense[s] [a]nd [c]reditors"); 

(Trustee's
Deed
stating total sale price as $7,781,200.00). Nonetheless, the United States
Trustee displays some confusion on the matter. See Appellee's Br. at 6
n.2. The bankruptcy court will need to resolve this matter on remand. In
any event, both the district court and the U.S. Trustee indicate that the
$372,387.00 may be counted as part of the trustee's compensation base.
See In re Lan Assocs. XI, L.P., No. CIV. A. 98-2286, 

, at
*8 n.8 (D.N.J. Aug. 12, 1998); Appellee's Br. at 6 n.2.

                               4
which would amount to "a distribution of approximately
25%" of the $250,000.00 in unsecured claims. 

for the sale, the trustee forwarded a Notice of
Private Sale to all creditors and parties in interest,
including the United States Trustee, Appellee in this action.
The notice stated that the sale was to be "free and clear of
all liens." 

Although the bankruptcy court received
an objection to the sale from one creditor, the court
approved the sale by Order dated February 14, 1994, see

and the sale took place on April 18, 1994.

In October 1994, the trustee filed an interim application
for an additional $204,522.76 in commissions and $999.40
in expenses. See 

109. To calculate the amount
of the commissions, the trustee first added the
$7,781,200.00 from the credit bid sale to $2,763,942.42 in
operating revenues from the property. He then requested
$316,534.27 in compensation based on the maximum
percentages set forth in 11 U.S.C. S 326(a). See 

From this amount, the trustee subtracted the $28,665.51
he previously had received in interim compensation and the
$83,346.00 which he had agreed to contribute to the
unsecured creditors, which resulted in an amount of
$204,522.76.

Having received no objection to the interim fee
application, the bankruptcy court held a hearing on the
application on December 1, 1994. At the hearing,"the court
questioned the amount of the trustee's commission, as it
translated into an hourly rate, and questioned the amount
of the distribution intended for unsecured creditors."
Attach. to Appellant's Br. (Bankr. Ct. Op. at 7 (footnote
omitted)). However, no one raised the issue of whether the
credit bid could be included in the base on which the
trustee's fee was calculated at the hearing. See 

Op. at 8). The bankruptcy court approved the trustee's
application by Order filed December 2, 1994, see J.A. at
159, and he was paid on December 6, 1994. See Attach. to
Appellant's Br. (Bankr. Ct. Op. at 8).

On April 17, 1995, the trustee sought authorization to
make an interim distribution to the unsecured creditors in
the amount of $62,500.39. Because the unsecured claims

                                5
which remained outstanding amounted   to $328,538.03,
this payment amounted to only a 19%   dividend to the
unsecured creditors. The bankruptcy   court approved the
distribution without objection, and   the payments were
made on May 15, 1995. See 

13, 1995, the trustee submitted a final
report to the bankruptcy court. See J.A. at 173. In the
report, the trustee sought confirmation for the two prior
interim payments he had received, but he did not seek
additional compensation. One year later, on November 13,
1996, the U.S. Trustee submitted an objection to thefinal
report. See 

The U.S. Trustee argued that the
amount of the credit bid was improperly included in the
base on which the trustee's compensation was calculated,
and as a result, the trustee had been overpaid by
$142,449.40.3 The U.S. Trustee requested the court to
order the trustee to disgorge this amount with interest and
to disburse the disgorged funds to the unsecured creditors.

Following a hearing on December 12, 1996, the
bankruptcy court approved the trustee's final report and
ordered final compensation in the amount of $184,888.25
and $999.40 in costs. See Attach. to Appellant's Br. (Bankr.
Ct. Order at 2). Because the trustee had anticipated a 25%
dividend to the unsecured creditors but, in fact, provided
only a 19% dividend, the court ordered the trustee to
disgorge an additional 6% dividend of $19,634.51. 4 In
making its determination, the bankruptcy court first
reviewed the language of S 326(a) and the relevant case law
and concluded "that under the limited circumstances here,
where the secured creditor has consented to the
arrangement, and where the unsecured creditors are
_________________________________________________________________

3. According to the U.S. Trustee, the trustee collected $1,333,503.14 as
Chapter 11 trustee, and $1,679,079.80 as Chapter 7 trustee. Based on
these amounts, the U.S. Trustee argued that the maximum amount of
commissions to which the trustee was entitled was $90,738.87. See J.A.
at 235.

4. The bankruptcy court rejected the trustee's arguments that the U.S.
Trustee was estopped from challenging the compensation award based
on principles of collateral estoppel, equitable estoppel, and laches. The
parties did not challenge these rulings before the district court, nor do
they raise them in this appeal.

                               6
receiving some benefit from the transfer, the trustee may
base commissions on the total purchase price of the asset
transferred, including the credit bid of the
purchaser/lienholder." 

Op. at 17). The court
then conducted a reasonableness assessment of the
amount of the award pursuant to 11 U.S.C. S 330(a).
Because "both a percentage-based calculation and a
reasonableness analysis" must be conducted in establishing
an appropriate award, 

Op. at 31), the
bankruptcy court initially considered the amount of the
requested award in relation to the maximum percentage set
forth in S 326(a). It then examined the factors enumerated
in S 330(a)(1) and concluded that the amount requested by
the trustee was reasonable. Finally, although the court
noted that its reasonableness assessment was "based on
the statutorily articulated factors," 

Op. at
33), it

       readily acknowledge[d] that [it was] influenced . . . by
       the procedural history of this case, including four
       notices to the [U.S. Trustee] of the contemplated
       compensation, the timing of the first objection by the
       [U.S. Trustee], nearly two years after the award was
       entered and paid, and the potential for hardship to the
       trustee in the event that substantial disgorgement
       [was] required.

Op. at 33-34).

The U.S. Trustee appealed the bankruptcy court's fee
award to the United States District Court for the District of
New Jersey which reversed the bankruptcy court's decision
and remanded for a new determination of the trustee's
compensation. See In re Lan Assocs. XI, L.P., No. CIV. A.
98-2286, 

, at *10 (D.N.J. Aug. 12, 1998).
Noting that "[t]here is no ambiguity in S 326(a)," the court
interpreted S 326(a) according to its "plain meaning" and
found that "[n]either property nor value is`moneys' within
the meaning of the statute." 

Consequently, the
court concluded "that under a literal application of S 326(a)
the value of a credit bid portion of a S 363(b) sale is not
`moneys disbursed or turned over . . . to a party in interest,'
and cannot be used to calculate the maximum allowable
amount of trustee compensation." 

court

                                 7
held that the plain language of the statute was sufficient to
resolve the case, it also explained that the legislative history
supported its interpretation of S 326(a). See 

With
respect to the bankruptcy court's reasonableness
assessment, the district court held that the bankruptcy
court's consideration of the S 326(a) cap on trustee
consideration was "erroneous as a matter of law." 

The district court also concluded that the bankruptcy court
improperly considered the potential hardship to the trustee
and the lengthy period of time between the trustee'sfinal
report and the U.S. Trustee's filing of its objections in
determining reasonableness. See 

However,
because "it [was] impossible to discern whether the
bankruptcy court materially relied on these [three] factors,"
the district court simply instructed the bankruptcy court
not to consider them on remand. 

appeal, the trustee challenges both the district
court's determination that the credit bid should not have
been used to calculate the trustee's compensation and its
conclusion that the bankruptcy court erred by considering
the maximum percentages set forth in S 326(a), the
procedural history of the case, and the potential hardship
to the trustee in conducting its reasonableness assessment
pursuant to S 330(a). The U.S. Trustee urges this court to
uphold the district court's exclusion of the credit bid from
the calculation of the maximum compensation award under
S 326(a) and its conclusion that the reasonableness
analysis should be limited to the factors enumerated in the
statute.

Because the district court sat as an appellate court
reviewing an order of the bankruptcy court, we exercise
plenary review of its decision. See Interface Group-Nev., Inc.
v. TWA, Inc. (In re TWA, Inc.), 

, 130 (3d Cir.
1998). This court reviews the bankruptcy court'sfindings of
fact for clear error and its conclusions of law under a
plenary standard. See 

Precision Steel Shearing,
Inc. v. Fremont Fin. Corp. (In re Visual Indus., Inc.), 

, 324 (3d Cir. 1995).

                               8
II.

This court has not previously addressed the
appropriateness of including the value of a credit bid in the
base on which a trustee's compensation is calculated under
11 U.S.C. S 326(a). The trustee argues that the amount of
a credit bid should be included in the compensation base.
According to the trustee, because the encumbered property
was actually sold to First Fidelity and not simply
abandoned or turned over, an exchange of value occurred
which was sufficient to bring the transaction within the
meaning of 11 U.S.C. S 326(a).5 The trustee further
contends that there is no reason to distinguish between a
credit bid sale to a secured creditor and a sale free and
clear of liens to a third party and that distinguishing
between the two transactions elevates form over substance.
The trustee explains that the credit bid should be included
in the base just as the entire sale price from a sale free and
clear of liens to a third party is counted, including the
amount used to pay off the liens. See Appellant's Reply Br.
at 2.6 The U.S. Trustee responds that not only does the vast
_________________________________________________________________

5. The National Association of Bankruptcy Trustees, which filed an
amicus curiae brief in this matter, similarly argues that the value of
credit bid transactions should be included in the compensation base
under S 326(a). The NABT points out that one of the definitions of
"money" employed by the district court was"a measure of value," Amicus
Br. at 5, and that an exchange of property certainly involves an
exchange of value. Because this argument closely resembles those of the
trustee, we examine it in the course of our discussion. We decline to
address additional arguments raised by the NABT. See Kamen v. Kemper
Fin. Servs., Inc., 

, 97 n.4 (1991) (stating that Court
ordinarily
does not address arguments raised only by amici curiae); Newark
Branch, NAACP v. Town of Harrison, N.J., 

, 808 (3d Cir.
1991) (indicating that court has discretion " `to determine the fact,
extent, and manner of participation by the amicus' " (citation omitted)).
6. The U.S. Trustee emphasizes the fact that in the certification
requesting permission to sell the property the trustee indicated that
selling the property would allow him to pursue a deficiency claim against
the debtor's general partner, Antonio Reale. While it is true that the
trustee so indicated, he also stated in the same document that he "ha[d]
not made any decision as to whether [he] will bring th[e] [11 U.S.C. S 72]
action" against Mr. Reale and that he would evaluate the claim "after the
deficiency [was] determined and . . . after Mr. Reale's financial
condition
[was] re-evaluated." J.A. at 80-81. Further, because there is no
information in the record regarding the reasons why the potential claims
against Mr. Reale were abandoned, we have no basis for assessing this
fact and consider it irrelevant to our analysis and decision.
9
majority of cases support the district court's strict
interpretation of S 326(a) but also the interpretation
complies with well-established canons of statutory
construction and is supported by the legislative history of
the statute.

Sections 326(a) and 3307 of the Bankruptcy Code "control
the determination of the amount of compensation to be
awarded trustees appointed in a case under Chapter 7 or
Chapter 11." In re Biskup, 

, 335 (Bankr. W.D.
Pa. 1999). Section 330 authorizes bankruptcy courts to
award reasonable compensation to trustees. See Garb v.
Marshall (In re Narragansett Clothing Co.), 

,
496 (B.A.P. 1st Cir. 1997). Section 330's allowance of
reasonable compensation is subject to the maximum
percentages set forth in S 326(a), which provides in full:

       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 exceedfifteen
       percent on the first $1,000 or less, six percent on any
       amount in excess of $1,000 but not in excess of
       $3,000, and three percent on any amount in excess of
       $3,000, 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. S 326(a) (emphasis added). Courts have
emphasized repeatedly that a trustee is not entitled to the
maximum fee allowed under S 326(a); "[t]he maximum
compensation allowable under S 326(a) is awarded to a . . .
trustee only in cases in which the result obtained and the
benefit realized by the estate are exemplary." Narragansett

; see also Biskup , 236 B.R. at 336
("The language of S 326 is permissive rather than
mandatory in that it fixes the maximum compensation of a
_________________________________________________________________

7. Sections 326(a) and 330(a) of the Bankruptcy Code were amended in
1994. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, S 107,
108 Stat. 4111; Pub. L. No. 103-394, S 224(b), 108 Stat. 4119, 4130.
Because this case was commenced prior to October 22, 1994, however,
the amended provisions do not apply. Accordingly, in this opinion we
refer only to the pre-1994 amendment versions ofSS 326(a) and 330(a).

                                10
trustee, and it is not to be construed as an entitlement to
the maximum fee specified."); In re Guyana Dev. Corp., 

, 474 (Bankr. S.D. Tex. 1996) (same); H.R. R EP. NO.
95-595, at 329 (1977), reprinted in 1978 U.S.C.C.A.N. 5963,
6286 ("Section 330 authorizes compensation for services
and reimbursement of expenses of officers of the estate. . . .
[T]he compensation allowable under this section is subject
to the maxima set out in section[ ] 326.").

"It is axiomatic that our interpretation of any statute
begins with the language of the statute." Director, Office of
Workers' Comp. Programs v. Sun Ship, Inc., 

,
291 (3d Cir. 1998) (citing Consumer Prod. Safety Comm'n v.
GTE Sylvania, Inc., 

, 108 (1980)). Having
reviewed the language of S 326(a), we are inclined to agree
with the district court that the value of a credit bid may not
be included in a trustee's compensation base. However, we
reach this conclusion for slightly different reasons than
those articulated by the district court.

Our primary area of concern with the district court's
determination is its confident assertion that the language of
S 326(a) is unambiguous. See Lan Assocs., 

, at *6. In this day and age when we exchange by a
keystroke or series of keystrokes what we used to handle
only in cash, we do not think that the term "moneys" is so
clear as the district court indicated. In fact, one of the
definitions cited by the district court refers to money as "a
measure of value," see 

(citing WEBSTER'S THIRD NEW
INT'L DICTIONARY 1458 (1986)), which surely is a concept that
evolves along with and is dependent upon changing
cultural, social, and economic practices and institutions.
For example, in today's society the term "money" could
easily encompass the concept of credit, which increasing
numbers of people use as a method of payment. The term
"money" might also encompass property, especially when
property is used as a method of payment or a measure of
wealth. See WEBSTER'S II NEW COLLEGE DICTIONARY 707
(defining money as "[a] medium that can be exchanged for
goods and services and is used as a measure of their values
on the market" and as "[p]roperty and assets considered in
terms of monetary value"); supra note 5 (describing the
NABT's argument that an exchange of property involves an

                               11
exchange of value). But see In re Brigantine Beach Hotel
Corp., 

, 299 (3d Cir. 1952) (referring to pre-
Code statute governing receiver compensation and stating
that "[i]t is clear that the word `moneys' in the clause `. . .
upon all moneys disbursed or turned over . . . ' is not the
equivalent of property."). These reasonable interpretations
of the term "moneys" render it ambiguous for purposes of
our interpretation of S 326(a). See Taylor v. Continental
Group Change in Control Severance Pay Plan, 

, 1232 (3d Cir. 1991) ("A term is ambiguous if it is
subject to reasonable alternative interpretations."); accord
United States v. Gibbens, 

, 34 (1st Cir. 1994) ("A
statute is ambiguous if it reasonably can be read in more
than one way.").

Because we have concluded that the language of S 326(a)
is ambiguous, "we look to legislative history to determine
congressional intent." Sun Ship, 

(citing Adams Fruit Co. v. Barrett, 

, 642
(1990)). In describing S 326(a), Congress stated in relevant
part:

       It should be noted that the base on which the
       maximum fee is computed includes moneys turned
       over to secured creditors, to cover the situation where
       the trustee liquidates property subject to a lien and
       distributes the proceeds. It does not cover cases in
       which the trustee simply turns over the property to the
       secured creditor, nor where the trustee abandons the
       property and the secured creditor is permitted to
       foreclose.

H.R. REP. NO. 95-595, at 327 (1977), reprinted in 1978
U.S.C.C.A.N. 5963, 6283-84. We think that a credit bid
transaction is more analogous to the latter situation
described in this passage, in which the trustee simply turns
over or abandons the property to the secured creditor, than
it is to the former, in which the trustee sells the property to
a third party and then distributes the proceeds. Whether
the secured creditor purchases the property through a
credit bid or whether the property is turned over or
abandoned to it by the trustee, the end result is the same--
in either case, the secured creditor receives the property in
satisfaction of its secured claim. In contrast, when the

                               12
trustee sells the property free and clear of liens to a third
party and then disburses the proceeds, the secured creditor
receives a payment, presumably of money (cash or its
equivalent), in satisfaction of its claim, which brings the
transaction within the literal language of the statute.

The legislative history also indicates that, in imposing the
primary duty on the trustee to reduce property to money,
Congress intended to distinguish between the concepts of
property and money. See United States Trustee v. Messer (In
re Pink Cadillac Assocs.), Nos. 96 CIV. 4571, 95-B-4243,

, at *3 (S.D.N.Y. Apr. 8, 1997) ("The
emphasis on `moneys,' rather than property or value,
accords with the drafter's understanding that `[t]he
trustee's principal duty is to collect and reduce to money
property of the estate for which he serves.' " (quoting H.R.
REP. NO. 95-595, at 379 (1977), reprinted in 1978
U.S.C.C.A.N. 5963, 6335); see also Pritchard v. United
States Trustee (In re England), 

, 237 (5th Cir.
1998) (citing 11 U.S.C. S 704(1) and stating that a narrow
reading of S 326(a) harmonizes with the trustee's duty "to
reduce the property of the bankrupt's estate to money").

In addition to analyzing what the secured creditor
receives, our reading of the legislative history focuses on
the role played by the trustee in the transaction. See In re
Leedy Mortgage Co., 

, 916 (Bankr. E.D. Pa.
1991) ("The crucial issue in determining whether certain
payments should be considered in the calculations[of
trustee compensation] is whether the Trustee was himself
actually engaged in the process of making disbursements to
secured creditors, as opposed to a situation where sums
paid to such creditors do not actually pass through the
Trustee's hands."); cf. Pink Cadillac Assocs., 

, at *3 (stating that the legislative history of S 326(a)
"shows that the statute was intended to cover distribution
of proceeds after the sale of property" (emphasis added)). In
this case, even though the trustee presumably participated
in negotiating the credit bid sale, the trustee was not
involved in disbursing anything to the secured creditors
except for the property. Thus, the credit bid sale more
closely resembles an abandonment or turning over of the
property to the secured creditor than a sale to a third party.

                               13
Although we recognize that there may be cases in which the
trustee's arrangement and negotiation of a credit bid
transaction may prove to be as complex and time
consuming as liquidating estate assets by selling them to
third parties, cf. Southwestern Media, Inc. v. Rau, 

, 423 (9th Cir. 1983) (noting potential difficulty of
administering encumbered estate assets), these difficulties
do not change our analysis.

Further, if Congress had chosen to include property or
other consideration in the trustee's compensation base, it
certainly knew how to do so. Under the section of the
Bankruptcy Act which was replaced by S 326 in the
Bankruptcy Code, trustees were compensated differently for
"[n]ormal [a]dministration," 11 U.S.C. S 76(c)(1) (repealed
1978) (cited in Collier on Bankruptcy App. Vol. A, Pt. 3(a) at
3-41 (Lawrence P. King ed. in chief, 15th rev. ed. 1999),
than for "[p]lans of [r]eorganization." 

Although
the provision describing the compensation for normal
administration was substantially identical to the current
version of S 326(a), S 76(g) compensated trustees based
"upon all moneys disbursed or turned over . . . to any
persons, . . . and where under the plan of reorganization
any part of the consideration to be paid to unsecured
creditors is other than money, upon the amount of the fair
value of such consideration." 

not to
include such language in S 326(a) is indicative of its intent
to limit trustee compensation to "moneys" in the strict
sense of the word.

For these reasons, we are satisfied that Congress did not
intend to include credit bids in the trustee's compensation
base. Stated differently, we think that Congress intended to
limit trustee compensation to "moneys" in the narrow
sense, i.e., in the sense of "sums of money,""something
generally accepted as a medium of exchange," or "assets or
compensation in the form of or readily convertible to cash."
WEBSTER'S THIRD NEW INT'L DICTIONARY 1458 (1986).

A corollary of adopting a strict reading of S 326(a) is our
rejection of the constructive disbursement theory. This
theory allows a trustee to receive compensation for
disbursements of property or other consideration which are
deemed to be "moneys disbursed or turned over" under

                               14
S 326(a). Some courts have employed the constructive
disbursement theory to increase the trustee's compensation
base. See Southwestern 

("[C]ourts
have sometimes treated the sale of an encumbered asset as
one that includes a constructive disbursement to the lien
creditor, even as to the portion of the asset's value that
does not actually enter the estate and is not distributed to
the creditor by the trustee."); see, e.g., In re Greenley
Energy Holdings of Pa., Inc., 

, 405 (E.D. Pa.
1989) (holding that funds from guaranteed contracts
negotiated by trustee were "constructively disbursed to
creditors and therefore [were] `turned over' to creditors" and
"thus qualify as being money turned over to the estate upon
which trustee's commissions may be based pursuant to
section 326(a)"). In addition, a leading authority on
bankruptcy law states that in a case of a credit bid sale,
"the trustee is deemed to have constructively received and
paid out the `proceeds' of the sale." See 3 Collier on
Bankruptcy S 326.02[2][f] (citing Southwestern Media for the
proposition that disbursements to secured creditors are
included in trustee's compensation "even when the
mortgagee bids on the property pursuant to section 363(k)
and sets off its claim against the purchase price").

We are not persuaded by these authorities' adoption of
the constructive disbursement theory for several reasons.
First, because the constructive disbursement theory allows
the trustee to be compensated for disbursements of
property and other types of consideration, rather than
simply for money disbursements as Congress defined them,
it conflicts with our narrow interpretation ofS 326(a).

Second, our conclusion regarding the scope of S 326(a)
and our rejection of the constructive disbursement theory
are consistent with a recent Fifth Circuit decision. In
Pritchard v. United States Trustee (In re England), 

, the Chapter 7 trustee was charged with liquidating
two jointly administered estates whose assets consisted
primarily of real estate. Although the trustee successfully
sold some of the property, he reached an agreement with
the remaining creditors "to transfer the unsold real estate
. . . to two of the creditors in full satisfaction of their
claims." 

Strictly construing the language of

                                15
S 326(a), the United States Court of Appeals for the Fifth
Circuit held that the trustee was not entitled to
compensation on the transfers. See 

According to the court, "[t]he plain language of S 326(a)
indicates that the statute caps a trustee's compensation
based upon only the moneys disbursed, without any
allowance for the property disbursed." 

Third, the majority of district and bankruptcy court cases
have limited the basis of a trustee's compensation to cash
or its equivalent which the trustee actually disburses to
parties in interest. See, e.g., In re Barnett, 

,
489-90 (Bankr. N.D. Iowa 1991) (strictly interpreting
S 326(a) and concluding that the value of a lien attached to
property but not paid or disbursed by the trustee could not
be included in trustee's compensation base); In re Music
Merchandisers, Inc., 

, 379-80 (Bankr. M.D.
Tenn. 1991) (stating that " `[m]oney' means currency or
negotiable paper, not other forms of property" and
confirming the rule that the amount of a lien in a sale of
property subject to that lien is not included in the trustee's
compensation base); In re North Am. Oil & Gas, Inc., 

, 480 (Bankr. W.D. Tex. 1990) ("Unliquidated
assets simply `turned over' to the liquidating agent are not
includable in the base, because only `moneys' turned over
qualify for inclusion in the base." (footnote omitted));
Kandel v. Alexander Leasing Corp., 

, 551 (N.D.
Ohio 1988) (holding that value of money judgment was
properly excluded from trustee's compensation base
because no money actually passed through trustee's
hands); In re New England Fish Co., 

, 902
(Bankr. W.D. Wash. 1983) (concluding "that the trustee's
compensation must be based on actual monies disbursed
to parties in interest[ ] and not on assets or settlements
which can be construed as a constructive disbursement").
But see In re Toole, 

, 977 (S.D.N.Y. 1920)
(interpreting same language as construed in North Am. Oil
& Gas and finding "moneys" broad enough to encompass
securities disbursed).

Our interpretation of S 326(a) and our resulting rejection
of the constructive disbursement theory accord with general
principles governing a trustee's duties in administering

                                16
estate assets. The trustee argues that he should receive
compensation for administering the property even though it
was fully encumbered and therefore of little value to the
estate. The trustee claims that his negotiation of the credit
bid sale benefitted the estate more than if he had simply
abandoned the property to First Fidelity. According to the
trustee, "the unsecured creditors would have received
nothing . . . if the Property had simply been abandoned to
[First Fidelity]." Appellant's Opening Br. at 3.

As several courts have noted, " `[t]he crucial test [for
whether a trustee is entitled to compensation] seems to be
. . . whether or not the particular property or fund has been
justifiably administered in the bankruptcy court, or
whether or not the trustee has properly performed services
in relation thereto.' " Southwestern 

n.4 (quoting In re Schautz, 

, 800 (2d Cir.
1968)); see 3 Collier on BankruptcyS 326.02[2][f][ii]. In turn,
whether a property or fund is justifiably administered
depends on whether administering the asset benefits the
general estate. Generally, if no estate benefit is anticipated,
then the proper course of action is to abandon the property.
See 11 U.S.C. S 554(a) (providing for abandonment of
property "that is of inconsequential value and benefit to the
estate"). Courts are in agreement that fully encumbered
assets are unlikely to benefit the estate, and, therefore,
such assets are not likely to be justifiably administered. See
In re Stanley, 

, 411 (Bankr. E.D. Tex. 1990)
("Several [c]ourts have addressed this issue and their
holdings are uniform that the proper course for a Chapter
7 Trustee to follow when presented with property of the
estate in which there is either no equity or slight equity is
to abandon the property."); In re Landreneau , 

,
13 (Bankr. W.D. La. 1987) (denying trustee's application to
sell fully encumbered property by offset bid and stating that
"[t]he Bankruptcy Code provides for the abandonment of
those assets in which there is no significant equity for the
estate. The trustee need not administer such assets."); In re
Lambert Implement Co., 

, 862 (Bankr. W.D. Ky.
1984) (indicating that trustees should not engage in the
" `sale of fully secured property where there is no potential
equity for general creditors and . . . the trustee enhanc[es]

                               17
his compensation with no corresponding benefit to the
general estate' " (citation omitted)).

It follows from these principles that a trustee who
expends time and effort administering fully encumbered
assets should not receive compensation except to the extent
that his actions provide an actual benefit to the estate. See
Music 

("One general rule
seems to be that the base for calculation of compensation
for a sale `subject to liens or encumbrances' excludes the
amount of liens and includes only the net or surplus
actually paid to (and presumably `disbursed or turned over'
by) the trustee."); In re National Enter. Wire Co., 

, 59 (Bankr. N.D.N.Y. 1989) ("Bankruptcy courts have
generally taken the position that a trustee is not entitled to
collect statutory commissions and expenses under Code
SS 326 and 330 on the sale of fully secured property since
the estate would not receive any proceeds to distribute to
those creditors holding unsecured."); 

("The trustee . . . should be compensated[for
administering fully encumbered assets] only to the extent
his actions actually benefitted the secured creditor."); cf.
Pink Cadillac Assocs., 

, at *4 ("[C]ourts
have found that a trustee may not count as `moneys
disbursed or turned over' the proceeds of a sale of property
that is fully encumbered or that has only slight equity,
because the proper course is to abandon or turn over such
property."); 

(noting that "trustees
have been denied a statutory fee based upon the sale price
of fully encumbered property or the sale of property
enjoying only slight equity"). An additional reason for
disallowing compensation for the sale of fully encumbered
property is that "there is no justification for the estate,
which is created for the benefit of the unsecured creditors,
to bear the fee for the benefit of the secured creditor." In re
Palm Beach Resort Properties Inc., 

, 324 (Bankr.
S.D. Fla. 1987); see also 

(explaining that selling property in which there is no equity
"would not result in any benefit to the unsecured creditors
and on the contrary can in certain instances result in an
actual detriment if the aggregate amount of a Chapter 7
Trustee's commission from the sale of property with only

                               18
slight equity exceeds the paper equity that appears to
exist").

In this case, we agree that the trustee may have achieved
a benefit for the estate beyond what it would have received
if he had simply abandoned the property to First Fidelity.
However, the trustee will receive compensation based on
the benefit he achieved for the estate. Not only do the
principles outlined above dictate that the trustee should
receive compensation for any actual benefit the trustee
achieved for the estate but also the U.S. Trustee does not
dispute that the compensation base should include this
amount. See supra note 2 (indicating that neither U.S.
Trustee nor district court disputes that the $372,387.00 in
cash collateral which First Fidelity contributed to
administrative costs and payment to the unsecured
creditors may be counted as part of the trustee's
compensation base (citing Lan Assocs., 

,
at *8 n.8; Appellee's Br. at 6 n.2)). Moreover, while there
may be instances in which a trustee receives less
compensation than he deserves when measured against the
amount and complexity of work he performed, see
Southwestern 

("[T]he policy
underlying the statutory provision allowing sale proceeds
used to liquidate liens to be counted in determining the
trustee's fee maximum . . . serves `the purpose of insuring
to trustees compensation commensurate with the trustees'
services.' "); cf. 

(stating that "a
strict reading of 11 U.S.C. S 326(a) does not award
compensation to the Trustee even though a disposition of
the property may have required a great deal of the Trustee's
time and effort"), the solution to the potential
undercompensation of trustees lies with Congress. See

("Congress's decision to set a
maximum limit on trustee compensation based only upon
moneys disbursed may arguably lead to a trustee receiving
inadequate compensation in a particular case, but that is a
problem for Congress to remedy."); Barnett , 133 B.R. at 489
(noting the existence of meritorious arguments in favor of
compensating trustee for constructive disbursements but
stating that "the language of the statute can[not] bear their
weight"); New England 

(stating that
"[e]ven though this may be a case where the trustee's

                               19
efforts deserve compensation in excess of the maximum
allowable under the law, the solution is not with the Court
but with Congress").

In conclusion, despite our disagreement with the district
court regarding the ambiguity of the term "moneys," we are
persuaded by the legislative history of S 326(a) and by the
general policies underlying bankruptcy administration that
Congress did not intend to include credit bids in the
trustee's compensation base. In the context of a credit bid
sale, a trustee's compensation must be based only on
moneys actually disbursed or turned over to parties in
interest, not on constructive disbursements.

III.

We now address whether the district court erred in
concluding that the bankruptcy court considered improper
factors in conducting its reasonableness analysis of the
trustee's fee pursuant to 11 U.S.C. S 330(a). In this regard,
the district court held that it was erroneous as a matter of
law for the bankruptcy court to consider the following three
factors: (1) the maximum cap on trustee fees contained in
S 326(a); (2) the fact that the U.S. Trustee did not file any
objection to the fee award until approximately two years
after the trustee received it; and (3) the hardship to the
trustee that would result from a disgorgement order.

A.

With respect to the bankruptcy court's consideration of
the S 326(a) analysis, the trustee claims that the
bankruptcy court did not confuse or erroneously combine
the two analyses. According to the trustee, the bankruptcy
court conducted a complete S 330(a) analysis independently
from its determination of the trustee's maximum
compensation under S 326(a). The U.S. Trustee contends
that the district court was correct in instructing the
bankruptcy court not to consider S 326(a) and that,
because the trustee does not seek a holding thatS 326(a)
should be considered as a factor in the reasonableness
analysis, "he does not seek reversal of the District Court's
decision on this point." Appellee's Br. at 53. As a result, the

                               20
U.S. Trustee requests that we affirm the district court's
opinion in its entirety.

We agree with the district court's determination that
consideration of the maximum fees set forth in S 326(a) in
the course of a S 330(a) reasonableness determination is
erroneous as a matter of law. See Lan Assocs. , 

, at *9; see also 

(citing Lan.
Assocs. for above proposition); cf. Gill v. Wittenburg (In re
Financial Corp. of Am.), 

, 224 (9th Cir. B.A.P.
1990) (referring to trial court's possible "improper focus on
Section 326(a) in determining fees" pursuant toS 330(a)). In
determining compensation for trustees, a court begins by
applying the criteria set forth in S 330(a). See Financial
Corp. of 

. The statute provides in
pertinent part that a court may award a trustee "reasonable
compensation for actual, necessary services rendered. . .
based on the nature, the extent, and the value of such
services, the time spent on such services, and the cost of
comparable services other than in a case under this title."
11 U.S.C. S 330(a)(1). Only after "reasonable fees are
determined according to the . . . criteria[ ] [of S 330(a)] [are]
a trustee's fees . . . cut down, if required, to the statutory
maximum stated in Section 326(a)." Financial Corp. of 

. We agree with the Bankruptcy Appellate
Panel for the Ninth Circuit that "the provisions of Sections
330(a) and 326(a) are independent of one another. Trustee
fees should be set according to the Section 330 criteria, not
merely according to the amount of moneys disbursed." 

(citations omitted). As another court explained, if
trustees' fees were to be computed according toS 326(a),
"there would have been little need for Congress to have
provided separate standards in 11 U.S.C. S 330(a) for
calculating the amount of such stipends." In re Roco Corp.,

, 502 (D.R.I. 1986); see also In re Draina, 

, 648 (Bankr. D. Md. 1995) (referring to SS 326(a)
and 330(a) as "two separate limitations" on trustee fees
(emphasis added)). The legislative history accompanying
S 326(a) confirms this view:

       [Section 326(a)] simply fixes the maximum
       compensation of a trustee. Proposed 11 U.S.C. S 330
       authorizes and fixes the standard of compensation.. . .

                               21
       The limits in this section, together with the limitations
       found in section 330, are to be applied as outer limits,
       and not as grants or entitlements to the maximum fees
       specified.

H.R. REP. NO. 95-595, at 327, reprinted in 1978
U.S.C.C.A.N. 5963, 6283. This passage indicates that while
Congress intended S 330 to prescribe the standard
pursuant to which trustee compensation is awarded,
S 326(a) merely caps the fees awarded pursuant to S 330.
Congress' description of the separate functions of the
statutes demonstrates that a fee determination must
involve independent consideration of each statute.

In light of the legislative history and the cases described
above, we conclude that the S 330(a) and theS 326(a)
analyses must be conducted separately. Although it is
difficult to tell whether or how the bankruptcy court relied
on S 326(a) in assessing reasonableness underS 330(a), we
affirm the district court's determination that the
reasonableness determination under S 330(a) should not
include consideration of the caps set forth in S 326(a).
Thus, we instruct the bankruptcy court to considerS 326(a)
independently of its reasonableness assessment under
S 330(a) on remand.

B.

The trustee also argues that the district court incorrectly
held that the bankruptcy court erred in considering both
the U.S. Trustee's delay in objecting to the trustee's final
report and the potential hardship to the trustee caused by
a disgorgement order under S 330(a). Specifically, the
trustee claims that because the factors set forth in S 330(a)
are not all-inclusive, the bankruptcy court's apparent
consideration of these factors was not erroneous.

"In employing the fee setting criteria of Section 330(a),
the bankruptcy judge is accorded wide discretion."
Financial Corp. of 

; see also In re C &
A Enters., Inc., 

, 307 (Bankr. W.D. Pa. 1991)
("The bankruptcy court has the independent authority and
responsibility to determine the reasonableness of
compensation."). At least in part, the bankruptcy court's

                                22
broad discretion is due to the fact that "no matter how
close the [c]ourt comes to an objective determination of a
reasonable fee, [the fee determination] is still, in the final
analysis, a substantially subjective exercise." In re Garland
Corp., 

, 831 (Bankr. D. Mass. 1981); see In re
Gillett Holdings, Inc., 

, 481 (Bankr. D. Colo.
1992) ("[T]he setting of fees . . . is an art, not a science.").

Although many cases apply only the factors enumerated
in S 330(a), our research has not revealed any case--apart
from the district court opinion in this case--which has
expressly stated that a bankruptcy court's reasonableness
assessment is limited to only those factors. In fact, we have
located two cases which have concluded that the factors set
forth in S 330(a) are not exhaustive and that bankruptcy
courts may consider relevant factors beyond those listed in
the statute. See Roco 

("[T]he elements
set out in 11 U.S.C. S 330(a) do not purport to be all-
inclusive. Other guideposts can--and should--be
considered where pertinent and appropriate."); Garland

("The factors laid out in S 330 are not
exhaustive, and the Court will consider a totality of factors
in awarding fees."); 9 AM. JUR. 2D Bankruptcy S 322 (1991)
(same); cf. Greenley 

(listing factors
to consider as the results achieved by the trustee, the time
spent, the intricacy of problems involved, the amount
involved, and the opposition encountered). Moreover, in
spite of the factors enumerated in S 330, many courts
continue to employ the twelve factors set forth in Johnson
v. Georgia Highway Express, Inc., 

, 717-19
(5th Cir. 1974) (determining the reasonableness of
attorneys' fees).8 See 3Collier on Bankruptcy S 330.04[3]
_________________________________________________________________

8. The Johnson factors are: (1) the time and labor required; (2) the
novelty and difficulty of the questions; (3) the skill requisite to
perform
the legal service properly; (4) the preclusion of other employment by the
attorney due to acceptance of the case; (5) the customary fee; (6) whether
the fee is fixed or contingent; (7) time limitations imposed by the client
or the circumstances; (8) the amount involved and the results obtained;
(9) the experience, reputation, and ability of the attorneys; (10) the
undesirability of the case; (11) the nature and length of the professional
relationship with the client; (12) awards in similar cases. See 

.

                               23
(stating that courts have relied on Johnson factors to assess
the reasonableness of compensation under both the
Bankruptcy Act and the Bankruptcy Code and that "[m]any
courts continue to follow Johnson"); see, e.g., Garland

(employing twelve Johnson factors to
determine trustee's fee under S 330(a)); cf. Grant v. George
Schumann Tire & Battery Co., 

, 877-78 (11th
Cir. 1990) (considering Johnson factors in determining
trustee's attorneys' fees pursuant to S 330(a)); First Nat'l
Bank of Lea County v. Niccum (In re Permian Anchor Servs.,
Inc.), 

, 768 (10th Cir. 1981) (adopting Johnson
factors for purposes of determining attorneys' fees in
bankruptcy cases); In re Malewicki, 

, 355
(Bankr. D. Neb. 1992) (employing twelve Johnson factors to
determine fee for Chapter 13 debtor's counsel pursuant to
S 330(a)); Gillett 

& n.10 (Bankr.
D. Colo. 1992) (assessing fees for debtor's investment
banker based on Johnson reasonableness factors). Mindful
of these cases and of the broad discretion bestowed on
bankruptcy courts to determine appropriate trustee fees, we
hold that the factors enumerated in section S 330(a) are not
all-inclusive.

The changes Congress made to S 330 pursuant to the
Bankruptcy Reform Act of 1994 support our determination.
The amended version of S 330 clearly indicates that in
determining a reasonable fee, the court must "consider the
nature, the extent, and the value of such services, taking
into account all relevant factors." 11 U.S.C. S 330(a)(3).
While it appears that additional factors considered under
the statute should pertain to the nature, extent, or value of
the services, we think that this language clarifies Congress'
intent that a reasonableness assessment need not be based
solely on the statutorily enumerated factors. The fact that
this intent was not clearly articulated in the prior version of
S 330 does not preclude this interpretation.

Even though we have held that S 330, even in its pre-
1994 amendment form, does not present the court with an
exhaustive list of factors to be considered, neither the
procedural history of the case nor the potential hardship to
the trustee seems to bear significantly on the actual
services provided by the trustee. Accordingly, we think that

                               24
the relevance of these two factors mentioned by the
bankruptcy court is questionable. Because neither we nor
the district court can ascertain the extent to which the
bankruptcy court relied on these factors, however, we
merely instruct the bankruptcy court that although it need
not necessarily limit its reasonableness assessment to the
statutorily enumerated factors, it should consider on
remand only those factors which are somehow pertinent to
assessing the trustee's services.9

IV.

In conclusion, the trustee is not entitled to receive
compensation on the amount of First Fidelity's credit bid.
Additionally, the bankruptcy court should conduct its
reasonableness assessment independently of the maximum
percentages set forth in S 326(a) and should confine its
S 330(a) analysis to factors which have some relevance to
the services provided by the trustee. We therefore AFFIRM
the district court's reversal of the bankruptcy court's fee
award and REMAND to the bankruptcy court for a
determination of the final trustee compensation award
consistent with this opinion.

A True Copy:
Teste:

       Clerk of the United States Court of Appeals
       for the Third Circuit
_________________________________________________________________

9. For remand purposes, we take this opportunity to remind the
bankruptcy court that while "each factor enumerated by S 330(a) retains
independent significance," the factor examining the cost of comparable
services "has an overarching role to act as a guide to the value of the
services rendered given their nature and extent." In re Busy Beaver Bldg.
Ctrs., Inc., 

, 849 (3d Cir. 1994); see also In re Marvel
Entertainment Group, Inc., 

, (D. Del. 1999) (concluding, based
on Busy Beaver, that "the appropriate market for determining reasonable
[trustee] fees . . . depend[s] on the nature of the specific services . .
.
provided").
                                25