Jeff Bohm, United States Bankruptcy Judge.
Chapter 7 trustees in this district have come to expect that their fee applications will be routinely approved without a hearing for the maximum amount allowed by 11 U.S.C. § 326(a).
This Court has already issued one memorandum opinion in this case — In re King, 546 B.R. 682 (Bankr. S.D. Tex. 2016) (the "
In a footnote in the First Opinion, the Court set forth that given the Trustee's failure to properly monitor the Law Firm's billing, the Court would hold a hearing on his eventual application requesting his statutory trustee fee. Id. at 689 n.3. The footnote apprised the Trustee that this Court would not, as a matter of course, approve the maximum fee allowed by § 326(a).
Now pending before this Court is the Application for Trustee's Compensation and Expenses (the "
1. On June 10, 2016, the Trustee filed the Fee Application, [Doc. No. 164]; no documentation was attached evidencing what specific services the Trustee provided, when he provided them, or how much time he spent providing them. Aside from seeking the maximum statutory fee available (i.e., $28,461.93), the Trustee also seeks reimbursement of expenses totaling $253.50, for a total amount of $28,715.43. [Id. at p. 2 of 3]. Neither the United States Trustee nor any creditor has objected to the Fee Application. [See Minute Entry for June 10, 2016].
2. On August 1, 2016, this Court entered an order setting a hearing on the Fee Application. [Doc. No. 167]. The Court emphasized the need for this hearing in the First Opinion:
[Id. at p. 1 of 2 (citing King, 546 B.R. at 689 n.3)]. The Court's order also encouraged the Trustee to "adduce testimony and introduce exhibits in support of the [Trustee's Fee] Application." [Id. at p. 2 of 2].
3. On August 30, 2016, the Court held a hearing on the Fee Application. The Trustee gave testimony, but introduced no exhibits.
4. The Trustee testified that in administering this case, he performed standard trustee tasks such as conducting the creditors' meeting and reviewing the Debtor's schedules and statements of affairs. [Hr'g held on Aug. 30, 2016, at 10:07:41-10:07:46 A.M.]. The Trustee also testified that he had a meeting with Eric Boutte ("
5. Because of the meeting with Boutte, the Trustee decided that he needed to hire the Law Firm to conduct further investigation regarding whether: (1) to object to the Debtor's discharge; (2) to object to the Debtor's exemptions; and (3) to recover and sell a ranch located in Flatonia, Texas.
6. During his testimony at the hearing on the Fee Application, the Trustee, in an effort to convince this Court to approve his fee request for the maximum amount under § 326(a), attempted to explain why he had not caught the infirmities in the Law Firm's fee application prior to supporting the fees requested by the Law Firm. The Trustee admitted that he "had fallen into the habit" of reviewing "the narrative of the [Law Firm's] fee application," but that he did not review "each individual time entry." [Id. at 10:14:37-10:14:48 A.M.]. The Trustee also admitted that he had actually delegated the review of the Law Firm's time entries to an associate at the Law Firm whose name is Tim Wentworth ("
7. Six unsecured creditors have filed proofs of claim in this case, none of which have been challenged. The names of these creditors, and the amounts that they claim, are as follows:
Name Amount Harris County TRA $1,271.50 American InfoSource LP as agent for DirectTV, LLC $704.09 Apache Stone Quarry, LLC $16,607.11 Western Surety $2,729,777.53 Frost Arnett Agt for MD Aesthetic Surgery Ctr $1,020.00 Atascocita Timbers Homeowners' Association Corp $1,421.40TOTAL: $2,750.801.64
[Claim Nos. 1, 2, 3, 4, 5 & 6].
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b). Section 1334(b) provides that "the district courts shall have original but not exclusive jurisdiction of all civil proceedings arising under title 11 [the Code], or arising in or related to cases under title 11." District courts may, in turn, refer these proceedings to the bankruptcy judges for that district. 28 U.S.C. § 157(a). In the Southern District of Texas, General Order 2012-6 (entitled General Order of Reference) automatically refers all eligible cases and proceedings to the bankruptcy courts.
The particular issue at bar constitutes a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) because it concerns the administration of this Chapter 7 estate. Further, it is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) because it involves the allowance or disallowance of claims against the estate — namely, the Trustee's claim for fees and expenses. Additionally, this matter is core pursuant to 28 U.SC § 157(b)(2)(0) because it involves the adjustment of the debtor-creditor relationship insofar as the fee and expense reimbursement request of the Trustee — a holder of a claim against the Debtor's estate — is being granted in part and denied in part. Finally, this matter is core pursuant to the general "catch-all" language of 28 U.S.C. § 157(b)(2). See In re Southmark Corp., 163 F.3d 925, 930 (5th Cir. 1999) ("[A] proceeding is core under 28 U.S.C. § 157 if it invokes a substantive
Venue is proper under 28 U.S.C. § 1408(1) because the Debtor resided in the Southern District of Texas for 180 days prior to the filing of her Chapter 7 petition.
In the wake of the Supreme Court's issuance of Stern v. Marshall, 564 U.S. 462, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), this Court is required to determine whether it has the constitutional authority to enter a final order in any dispute pending before it. In Stern, which involved a core proceeding brought by the debtor under 28 U.S.C. § 157(b)(2)(C), the Supreme Court held that a bankruptcy court "lacked the constitutional authority to enter a final judgment on a state law counterclaim that is not resolved in the process of ruling on a creditor's proof of claim." Id. at 503, 131 S.Ct. 2594. As already noted above, the pending dispute before this Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (B), and (0). Because Stern is replete with language emphasizing that the ruling is limited to the one specific type of core proceeding involved in that dispute, this Court concludes that the limitation imposed by Stern does not prohibit this Court from entering a final order here. A core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), and (0) is entirely different than a core proceeding under 28 U.S.C. § 157(b)(2)(C). See, e.g., In re Davis, 538 Fed.Appx. 440, 443 (5th Cir. 2013) cert. denied sub nom. Tanguy v. W., ___ U.S. ___, 134 S.Ct. 1002, 187 L.Ed.2d 851 (2014) ("[W]hile it is true that Stern invalidated 28 U.S.C. § 157(b)(2)(C) with respect to `counterclaims by the estate against persons filing claims against the estate,' Stern expressly provides that its limited holding applies only in that `one isolated respect' ... We decline to extend Stern's limited holding herein."); see also Badami v. Sears (In re AFY, Inc.), 461 B.R. 541, 547-48 (8th Cir. BAP 2012) ("Unless and until the Supreme Court visits other provisions of Section 157(b)(2), we take the Supreme Court at its word and hold that the balance of the authority granted to bankruptcy judges by Congress in 28 U.S.C. § 157(b)(2) is constitutional.").
Alternatively, even if Stern applies to all of the categories of core proceedings brought under 28 U.S.C. § 157(b)(2), see In re Renaissance Hosp. Grand Prairie Inc., 713 F.3d 285, 294 n.12 (5th Cir. 2013) ("Stern's `in one isolated respect' language may understate the totality of the encroachment upon the Judicial Branch posed by Section 157(b)(2)...."), this Court still concludes that the limitation imposed by Stern does not prohibit this Court from entering a final order in the issue at bar. In Stern, the debtor filed a counterclaim based solely on state law; whereas, here, the claim brought by the Trustee is based solely on express provisions of the Bankruptcy Code (§§ 326; 330) and judicially-created bankruptcy law interpreting these provisions. This Court is therefore constitutionally authorized to enter a final order on the Fee Application. See In re Airhart, 473 B.R. 178, 181 (Bankr. S.D. Tex. 2012) (noting that the court has constitutional authority to enter a final order when the dispute is based upon an express provision of the Code and no state law is involved).
No party-in-interest has objected to the Fee Application. [Finding of Fact No. 1]. The absence of such an objection, however, does not mean that this Court should automatically approve the Trustee's request for the maximum amount allowed under § 326(a).
In the case at bar, the Trustee requests a fee of $28,461.93. This Court must therefore determine if this amount represents a level of fees that is reasonable. §§ 330(a)(1)(A); 326(a); Evangeline, 890 F.2d at 1326.
Thus, under this current statutory scheme, courts may — and should — consider the surrounding facts and circumstances in determining what is reasonable compensation and whether to award less than the maximum amount allowed under § 326(a). Id. at 95; Phillips, 392 B.R. at 385 (holding that in the absence of clear and express statutory language, trustee compensation should not be afforded an absolute presumption of maximum compensation pursuant to § 326(a)). Such an inquiry may, but is not required to, include consideration of the § 330(a)(3) factors. Coyote, 400 B.R. at 95; In re McKinney, 374 B.R. 726, 730 (N.D. Cal. 2007).
In the case at bar, for several reasons, the Court finds that it would be inequitable to award the Trustee the maximum amount of $28,461.93 that he requests. First, the Trustee violated his fiduciary duty to creditors of the estate by letting his own law firm seek fees well in excess of what he should have allowed. King, 546 B.R. at 685. Perhaps most galling, the Trustee abdicated his fundamental duty of reviewing the Law Firm's timesheets before allowing the Law Firm to seek approval of fees for the services rendered. [Finding of Fact No. 6]. Indeed, the Trustee admitted that he himself does not review the Law Firm's timesheets, but rather has delegated that duty to one of the Law Firm's associates (i.e., Wentworth). [Id.]. His failure to review these timesheets paved the way for the Law Firm to seek improper fees, which in turn led the largest unsecured creditor (Western Surety) to object and this Court to substantially reduce the fee request. King, 546 B.R. at 685-86, 736-38.
Second, the Trustee violated Rule 9019 by unilaterally settling a portion of his objection to the Debtor's exemptions, id. at 733-34; he never filed an application to compromise pursuant to Rule 9019 to give this Court and the estate's creditors the opportunity to evaluate and object to this settlement, id. at 734. This violation is particularly egregious because he agreed to settle for an amount (i.e., $4,000.00) that was substantially less than the value that the Trustee's own appraiser believed the jewelry that the Debtor was attempting to exempt was worth (i.e., $24,885.00). Id. at 733-34. Third, he made two misrepresentations to this Court when he sought approval to retain the Law Firm — representations upon which this Court relied in granting the Trustee's request to employ the Law Firm. First, he stated the following in both the amended application to employ the Law Firm and the second amended application to employ the Law Firm: "The initial review and assessment of claims filed in the debtor['s] cases is routinely undertaken by the trustee or his paralegals and law clerks without incurring legal fees." Id. at 687; [Appx. A, Findings of Fact Nos. 4 & 6]. Yet, after this Court approved the Trustee's retention of the Law Firm, he allowed the Law Firm to bill time for reviewing claims. King, 546
The second misrepresentation that the Trustee made — in the original application to employ the Law Firm as well as the amended applications to employ — was this: "Trustee is a partner in the law firm and such fact will ensure employment of the [Law Firm] will be in the best interest of creditors in this estate. Trustee's presence ensures greater control and fee monitoring as further described on Exhibit A." Id. at 736. Nothing could be further from the truth. In fact, the Trustee's presence ensured virtually no control and fee monitoring of the Law Firm. As already noted, the Trustee admitted at the hearing on the Fee Application that he never reviewed the Law Firm's time entries before the Law Firm filed its fee application, but rather had delegated that task to Wentworth, an associate at the Law Firm. [Finding of Fact No. 6]. Those un-reviewed timesheets were the subject of the hearing on the Law Finn's fee application, which led this Court to issue the First Opinion reducing the Law Firm's fee request from $123,282.25 to $42,140.75. Id.
There is more. Not only did the Trustee disregard Rule 9019 during his administration of this case; he now disregards Rule 2016 in prosecuting his own Fee Application. Rule 2016(a) requires the following: "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). This rule is not limited to professionals, such as attorneys and accountants; it also encompasses trustees seeking compensation. See Evangeline, 890 F.2d at 1326; Phillips, 392 B.R. at 390. Thus, Rule 2016 applies to the Trustee in the case at bar.
In Phillips, the court found that the trustee's application was submitted in accordance with Rule 2016(a). 392 B.R. at 390. In that case, the trustee sought the maximum allowable amount under § 326(a), and in support of his request, he provided the court an exhibit summarizing the tasks that he had performed as trustee and the amount of time spent undertaking these tasks. Id. at 380-81. Ultimately, the Phillips court awarded the trustee less than the maximum amount under § 326(a) because, although the trustee did good work, the difficult tasks were performed by the trustee's attorneys with little involvement from the trustee; thus, the court was not persuaded that the trustee deserved the maximum allowable amount. Id. at 392. But, at least the trustee in Phillips provided information to the court in support of his request for the maximum allowable fee.
Chapter 7 trustees in other districts have also provided similar documentation in support of their request for their statutory fee, see e.g., Coyote, 400 B.R. at 89 ("The Trustee has provided `backup' time and expense records to the court, showing that the combined time expended on the Coyote Ranch case by the Trustee and other professionals in his office was 461.7 hours...."), and other courts believe that such documentation is required, see, e.g., McKinney, 374 B.R. at 732 ("[I]t will continue to be necessary for trustees to present detailed fee applications, including a schedule of the number of hours spent, daily time records supporting the time spent and a narrative of the trustee's role
Here, the Fee Application provides no such information nor did the Trustee introduce any documentation into the record. [Finding of Fact No. 3]. Unlike the trustees in Phillips and Coyote, the Trustee in the case at bar has provided no detailed statements delineating the work he performed for the estate or how much time he spent performing these tasks. Under these circumstances, this Court could justifiably deny all compensation requested by the Trustee. Evangeline, 890 F.2d at 1327. However, rather than issuing a ruling that would create such a harsh result, the Court has taken it upon itself to review the Law Firm's timesheets introduced at the Law Firm's fee application hearing in order to try to determine the amount of time the Trustee spent administering this particular estate. After reviewing these timesheets, the Court finds that the Trustee spent, at most, 8.45 hours on various issues. [See infra Part III.D. 1].
It is noteworthy that one of the other panel trustees in the Southern District of Texas — Rodney Tow ("
This scenario would stink in the nostrils of the unsecured creditor body. These creditors, who hold over $2.7 million of debt in the aggregate, [Finding of Fact No. 7], could legitimately question the integrity of a bankruptcy system that allows a trustee and his own law firm to abuse the estate, yet gamer the lion's share of estate proceeds, leaving them with a few crumbs.
In sum, there have been numerous glaring problems with both the Trustee's administration of this case and his prosecution of the Fee Application, and these circumstances make it inequitable to award the Trustee the maximum amount that he requests. Accordingly, this Court finds that it should not award the entire fee of $28,461.93 that the Trustee requests. The question therefore becomes how much should he receive? Should the reduction from his fee request be slight, moderate, or significant? The Court finds that it should look to some of the § 330(a)(3) factors to make this determination.
There are six § 330(a)(3) factors. In the case at bar, the Court, exercising its discretion, chooses to focus on three of these factors: (1) the time spent by the Trustee providing services related to the administration of the estate; (2) the effective hourly rate for these services given the fee of $28,461.93 requested by the Trustee in the Fee Application; and (3) the Trustee's board-certification, skill, and experience in the bankruptcy field.
The Phillips court was faced with a trustee's request for the statutory maximum compensation. 392 B.R. at 381. In his fee application, the trustee itemized the work that he had performed — for example, ten hours spent negotiating a sale and fifteen hours involving litigation. Id. In total, the trustee represented that he had completed 38 hours of work. The court then divided the trustee's requested fee of $40,325.94 by 38, and found that this amount "computes to over $1,000.00 per hour." Id. The court ultimately awarded $33,410.74, which resulted in an effective rate of $835.26 per hour. Id. at 391. While this was a sizable hourly fee, the Phillips court did, after all, find that the trustee's work was "very good." Id. at 392. Awarding the trustee a fee corresponding to this effective hourly rate was consistent with the dual requirements that § 330(a) imposes upon bankruptcy courts: namely, to ensure that the compensation is "reasonable" but also to "treat such compensation as a commission, based on section 326." §§ 330(a)(1)(A), (a)(7).
First, unlike the trustee in Phillips, the Trustee in this case did not provide this Court with an itemized list of tasks performed and approximate time spent on each service. Thus, in order to find a denominator
The non-lumped time entries amount to a total of 3.45 hours, and the lumped entries show a total of 5.00 hours. Combined, the timesheets evidence that the Trustee spent, at most, 8.45 hours working on this case as a trustee. The Trustee also testified that he spent approximately one hour with Boutte, [Finding of Fact No. 4], which brings the Trustee's total time spent on the case, at most, to 9.45 hours. When one divides the Trustee's requested fee of $28,461.93 by 9.45 hours, the result is $3,011.85 per hour.
Some of the highest paid attorneys in Houston charge $1,125.00 to $1,445.00 per hour. See Billing Rates Across the Country, THE NAT'L LAW JOURNAL (Jan. 13, 2014), http://www.nationallawjournal.com/id=1202636785489/Billing-Rates-Across-the-Country?Slretum=20160814173006 (stating that the highest partner hourly rate in Houston is $1,125.00 at the former firm, Bracewell & Giuliani); [see In re Midstates Petroleum Co., Inc., Case No. 16-32237, Doc. No. 184, p. 7 of 14 (representing that at Kirkland & Ellis LLP, the firm's partners charge between $875.00-$1,445.00 per hour)]; [see In re Houston Regional Sports Network, L.P., Case No. 13-35998, Doc. No. 299, p. 4 of 29 (representing that at Haynes & Boone, one of the senior partners charges $810.00 per hour and another partner charges $630.00 per hour)]; [see In re Atinum MidCon I, LLC, Case No. 16-33645, Doc. No. 13, p. 6 of 8 (representing that at Andrews & Kurth, the highest rate for a partner is $1,300.00 per hour, and the rates of two of the partners providing services in this particular case are $730.00 and $895.00 per hour, respectively)]. Given the many shortcomings of the Trustee's administration of this case, it would be both unreasonable and disproportional to allow the Trustee to receive more than double the highest paid hourly rate for an attorney providing legal services in Houston. To make such an award would violate the Code's requirement that this Court only
This factor considers the skill and experience of the individual requesting compensation, including whether he is board-certified. § 330(a)(3)(E). In the present case, the Trustee has been practicing law in the State of Texas since 1976; has been serving as a bankruptcy trustee since 1976; has administered thousands of Chapter 7 cases; is board-certified in business bankruptcy law; and is often hired by other lawyers to handle complex bankruptcy matters. [Appx. A, Finding of Fact No. 2]. Yet, despite his qualifications, he has fallen woefully short in several respects in the case at bar.
As noted previously herein, the Trustee failed to supervise the Law Firm and, instead, allowed the Law Firm to improperly bill the estate. King, 546 B.R. at 689 n.3. He also violated Rule 9019 by settling a portion of his objection to the Debtor's exemption without seeking court approval. Id. at 733-34.
Even if the Trustee was not board-certified, his poor performance would merit a reduction in the amount of the fee that he requests, as he has extensive experience practicing law and serving as a trustee. But, because he is board-certified, he is held to an even higher standard. See Ritchey, 512 B.R. 847, 872 (Bankr. S.D. Tex. 2014) (holding a bankruptcy professional to a higher standard due to professional's board certification); In re Cochener, 360 B.R. 542, 574-75 (Bankr. S.D. Tex. 2007) (same). Thus, his shortcomings here warrant a substantial reduction in the amount of the fee he should receive.
As already noted, this Court is required, by statute, to only award fees that the Court finds are reasonable. §§ 326(a); 330(a)(1)(A). Reasonable compensation for Chapter 7 trustees has been defined differently by various courts.
The starting point is § 326(a). The maximum fee that can be awarded is determined by a three-tier formula set forth in this section. In the case at bar, the Trustee requests a fee of $28,461.93, which is the maximum allowed by § 326(a), as shown below:
First Tier: 25% of the first $5,000.00 disbursed by the Trustee: $1,250.00Second Tier: 10% of the next $45,000.00 disbursed by the Trustee: $4,500.00Third Tier: 5% of the remaining funds disbursed by the Trustee (which, in this case, is $454,238.57): $22,711.93Total $28,461.93
In Phillips, to arrive at a reasonable fee for the trustee, the court "graded" the trustee's work and likened its determination of "reasonable compensation" to the method of grading done by teachers in school. 392 B.R. at 391-92. For example, the court in Phillips only awards a full 5% on the third tier when the work is excellent — worthy of an "A" grade — then awards 4% for work deserving of a "B," and so on and so forth. Id. at 392. This Court now applies a similar grading system but expands it by applying it to all of the tiers, as shown below:
In this case, the starting point is to recognize that the Trustee is the administrator of an estate that has accumulated $191,000.00 of non-exempt, unencumbered funds. [Appx. A, Finding of Fact No. 8]. While the Trustee has played a relatively small role in recovering these funds — at most, he worked 9.45 hours while the Law Firm (rightly or wrongly) did virtually all of the work — he nevertheless should receive some credit for this result. Because most Chapter 7 cases do not produce this amount of non-exempt, unencumbered funds, the Court assigns an "A+" to the Trustee for this result. If the analysis stopped here, the Court would award the Trustee the the maximum amount allowed under § 326(a): $28,461.93.
But, this result cannot be viewed in a vacuum. The Trustee's conduct in administering the estate must be considered when grading him. In the first instance, the Trustee failed to fulfill his fiduciary duties to the estate — most notably, by allowing the Law Firm to improperly bill the estate. King, 546 B.R. at 737. He also violated Rule 9019, id. at 733-34, made misrepresentations to this Court in his application to employ the Law Firm, id. at 732, and failed to comply with Rule 2016 in conjunction with his own Fee Application. Those deserving of the highest percentage would not have succumbed to these pitfalls. In Phillips, the trustee was awarded 4% and 3.5%, respectively, in each of his cases because the work was good, but did not require much litigation or effort. 392 B.R. at 391-92. However, nowhere in that case did the court find that the trustee committed breaches of fiduciary duties, violated fundamental bankruptcy rules, or made misrepresentations to the court. Moreover, the Phillips court stated that the percentage should be "lower still where the services and results are merely good or average...." Id. at 391.
Taking all of the Trustee's actions into consideration, the Court finds that the Trustee's efforts were below "merely good or average" for a trustee of his caliber and experience; indeed, because the Trustee is board-certified, he is held to a higher standard, which means that his efforts here are well below being "merely good or average." While this Court starts by giving the Trustee an A+ for serving as trustee over an estate that has accumulated $191,000.00 of non-exempt, unencumbered funds, his violation of his fiduciary duty lowers his grade to an "A;" his violation of Rule 9019 reduces his grade to a "B;" his misrepresentations to the Court brings his grade down to a "C;" and his failure to comply with Rule 2016 lowers his grade to a "D." Just like children in school who are lazy, cheat, rely on others to do their work, and are caught in the act, the Trustee here deserves a "D," i.e., 5% for the first tier, 2% for the second tier, and 1% for the third tier. These deductions result in a total fee of $5,692.39, as shown below:
First Tier: 5% of the first $5,000.00 disbursed by the Trustee: $250.00Second Tier: 2% of the next $45,000.00 disbursed by the Trustee: $900.00Third Tier: 1% of the remaining funds disbursed by the Trustee (which, in this case, is $454,238.57): $4,542.39Total: $5,692.39
As stated earlier in this Memorandum Opinion, the Court finds that the Trustee has spent, at most, 9.45 hours administering this case, which brings his requested fee of $28,461.93 to an absurdly high hourly billing rate of $3,011.85 per hour. See supra Part IV.E.1(b). Based upon this Court's grading of the Trustee's work, the Trustee's compensation is $5,692.39 — which, when divided by 9.45 hours, results in an hourly rate of $602.37. This figure is still a very generous hourly rate given the Trustee's subpar administration of the estate in violation of fundamental rules; nevertheless he did play a role in generating $191,000.00 for the estate, [Appx. A, Finding of Fact No. 8], so he deserves some measure of compensation. While the hourly rate of $602.37 is certainly much higher than his hourly rate of $450.00 as an attorney, [see Doc. No. 133-3, p. 1 of 1] — leaving room for an argument that the Trustee's fee ought to be reduced even further — this Court finds that the $602.37 figure is an appropriate hourly rate that is consistent with this Court's duty to treat the Trustee's fee as a "commission" but also to ensure that the "commission" is reasonable. Under all of these circumstances, the Court finds that the fee of $5,692.39 is reasonable.
The Trustee provided no documentation in support of his requested fees. He did, however, attach some documentation to the Fee Application in support of his request for reimbursement of expenses. The Court has reviewed this documentation, and finds that the Trustee's request for reimbursement for postage and photocopies (totaling in the aggregate $111.88) is reasonable and therefore approved. However, the request for reimbursement of paralegal time totaling $141.62 is not approved. This is because the Trustee attached no documentation to the Fee Application describing the services rendered by any paralegal nor did he introduce evidence about these services at the hearing on the Fee Application. In re Rachel Lee, No. 13-37783, 2015 WL 1198690, at *7 (Bankr. S.D. Tex. Mar. 11, 2015) ("Likewise, the chapter 7 trustee adduced no evidence about these entries. These entries total $52.34. While the services represented by these entries may very well be compensable, the Court is compelled to disallow compensation for these entries due to the incomplete descriptions and the lack of evidentiary support.").
In the First Opinion, this Court warned the Trustee that it had concerns about his administration of this case and that it
This Court has a responsibility to ensure that the Trustee's fee is reasonable. §§ 326(a); 330(a)(1)(A). The Court's determination of "reasonableness" takes into account the Trustee's abdication of his responsibilities, his violation of the Rules, the misrepresentation that he made to this Court in the application to employ the Law Firm, and the lack of an evidentiary record made at the hearing on the Fee Application. Under these circumstances, the Court declines to approve the fee request of $28,461.93, and instead approves only $5,692.39; and declines to approve the expense reimbursement request of $253.50, and instead approves only $111.88. Thus, the Court denies the Fee Application in part to the extent of $22,911.16, and approves the Fee Application in part to the extent of $5,804.27. The $22,911.16 will be distributed not to the Trustee, but to those stakeholders to whom the Trustee owes a fiduciary duty: the unsecured creditors.
The chart set forth below paints an accurate portrayal of the unjust results that would have happened if this Court had approved both the Fee Application and the Law Firm's fee application in their entirety and the more equitable result that will in fact happen by virtue of this Court's denial, in part, of both the Fee Application and the Law Firm's fee application:
This chart illustrates that if this Court had approved the Fee Application and the Law Firm's fee application in their entirety, the Law Firm and its name partner (i.e., the Trustee) would have received an aggregate amount of $156,557.71 and the unsecured creditors would have received $20,114.87 — leaving the former with 88.61% and the latter with 11.39% of the estate's total proceeds on hand. With this Court's decision to reduce the Law Firm's fee request and the Trustee's fee request, the unsecureds will actually receive $125,015.30, representing approximately 70.76% of the estate's total proceeds on hand, with the Law Firm and the Trustee receiving a total of $51,651.28, or 29.24% of total proceeds. This result is equitable, particularly given the Trustee's failure to meet his burden to demonstrate that his requested fee of $28,461.93 is reasonable — a burden made difficult to satisfy given his less than stellar administration of the estate (most notably his failure to monitor his own Law Firm), his violation of the rules, and his misrepresentations to the Court.
The message should now be clear: This Court will not automatically award any Chapter 7 trustee the maximum amount allowed by § 326(a), and this is so even if no objections to the fee application are lodged. If the Court, after reviewing a trustee's fee application, chooses not to approve the fee request in chambers, but rather sets a hearing, then the trustee must earn his fee the old fashioned way: Prove it.
The United States Trustee is directed to distribute this Memorandum Opinion to all panel trustees in the Southern District of Texas.
Set forth below are the Findings of Fact from the First Opinion. The specific findings that are cited in this Memorandum Opinion are set forth in italics.
1. On January 24, 2013, Raquel Tricia King (the "
2. On January 25, 2013, the Trustee was appointed in this case. [See Doc. No. 8]. According to the resume that the Law Firm submitted when seeking approval to represent the Trustee, the Trustee has been practicing law in the State of Texas since 1976; has been serving as a bankruptcy trustee since 1976; has administered thousands of Chapter 7 cases; and is often hired by other lawyers to handle complex bankruptcy matters. He is board-certified in business bankruptcy by the Texas Board of Legal Specialization and the American Board of Certification. [Doc. No. 25, p. 17 of 19].
3. On March 20, 2013, the Trustee filed his Application for Retention of Counsel for the Trustee (the "
4. On April 15, 2013, the Trustee filed his Amended Application for Retention of Counsel for the Trustee (the "
5. On April 24, 2013, this Court entered an order granting the Amended Application to Employ. [Doc. No. 30].
6. On January 7, 2015, the Trustee filed his Second Amended Application for Retention of Counsel for the Trustee (the "
7. On February 19, 2015, this Court entered an order approving the Second Amended Application to Employ. [Doc. No. 94].
8. The Trustee has been able to recover approximately $191,000.00 for the estate. Approximately $179,000.00 was generated from the sale of certain real property located in Flatonia, Texas (the "
9. On June 21, 2013, the Law Firm, on behalf of the Trustee, filed a complaint objecting to the Debtor's discharge (the "
10. On July 2, 2014, after holding a trial on the Objection to Discharge, this Court entered a Judgment of Non-Dischargeability with respect to Adversary Proceeding No. 13-03142, wherein the Court denied the Debtor her discharge. [Doc. No. 85]; [Adv. Proc. No. 13-03142, Adv. Doc. No. 26].
11. Of the total fee figure of $123,282.25 requested in the Law Firm's Fee Application, $50,856.25 relates to legal services rendered for prosecution of the Objection to Discharge.
12. On July 17, 2013, the Law Firm, on behalf of the Trustee, filed its objection to the Debtor's claim of exemptions (the "
13. On July 26, 2013, the Debtor filed a response to the Objection to Exemptions. [Doc. No. 62].
14. On October 23, 2013, this Court held a hearing on the Objection to Exemptions, and then continued this hearing to November 13, 2013.
15. On November 13, 2013, this Court held the continued hearing on the Objection to Exemptions wherein the Court heard testimony and admitted exhibits.
16. On December 2, 2013, this Court entered an Order on Trustee's Objection to Exemptions overruling the Trustee's Objection to Exemptions in its entirety. [Doc. No. 83].
17. Of the total fee figure of $123,282.25 requested in the Fee Application, $16,100.00 relates to legal services rendered for prosecution of the Objection to Exemptions.
18. On June 21, 2013, Western Surety filed a complaint objecting to the dischargeability of the Debtor, thereby initiating Adversary Proceeding No. 13-03145. [Doc. No. 59]; [Adv. Proc. No. 13-03145, Adv. Doc. No. 1].
19. On October 17, 2014, Western Surety and the Debtor entered into an Agreed Final Judgment wherein the parties stipulated that $200,000.00 of the debt owed to Western Surety by the Debtor would be non-dischargeable. [Adv. Proc. No. 13-03145, Adv. Doc. No. 28].
The following includes the time entries submitted with the Law Firm's Fee Application that reference communications that attorneys at the Law Firm had with the Trustee. Only the attorneys billed time for these communications, which means that the Trustee viewed these activities as part of his duties administering the estate. The lumped entries are denoted with an asterisk (*).
[Doc. No. 133-4, Ex. C., p. 2-11 of 11].
• The white column equals $127,842.28. This number is derived from adding the fees that the Law Firm requested ($123,282.25) plus the expenses requested ($4,560.03). [See Doc. No. 133, at p. 10 of 10].
• The black column equals $45,853.01. This figure is derived from adding the fees that this Court, pursuant to the First Opinion, actually granted ($42,140.75) plus the expenses actually awarded ($3,712.26). King, 546 B.R. at 736.
Set forth below are the calculations associated with the column entitled "Trustee:"
• The white column equals $28,715.43. This number is derived from adding the fee that the Trustee has requested ($28,461.93) plus the expenses requested ($253.50). [See Doc. No. 164, p. 2 of 13].
• The black column equals $5,804.27. This figure is derived from adding the fees that this Court is actually granting ($5,692.39) plus the expenses actually being awarded ($111.88).
Set forth below are the calculations associated with the column entitled "Unsecured Creditors:"
• The white column equals $20,114.87. This number represents what the unsecured creditors would have received if the Court granted both the Law Firm's fee application and the Fee Application in full. First, $176,942.02 is the amount left for distribution to all those holding allowed claims. [Doc. No. 162, p. 22 of 30]. Then, $127,842.28 (i.e., the Law Firm's requested fees and expenses) is subtracted to equal $49,099.74. Third, the Trustee's requested fees and expenses, $28,715.43, are subtracted — resulting in $20,384.31. Fourth, the bank service fee is subtracted, leaving only $20,114.87 for the unsecured creditors. [See id. (stating that the service fee is $269.44)].
• The black column equals $125,015.30 — a number not dissimilar to what the Law Firm originally requested in fees. This number represents what the unsecured creditors will actually receive with the reductions in compensation from both the Law Firm and the Trustee. This figure is derived by subtracting from the figure of $176,942.02 (the existing cash on hand in the estate) the following amounts: $45,853.01 (Law Firm's final award), $5,804.27 (Trustee's final award), and $269.44 (bank service fee).
