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In re Ruiz

United States Bankruptcy Appellate Panel of the Ninth Circuit

December 11, 2015

In re: DELIA RUIZ, Debtor. PETER L. FEAR, Chapter 7 Trustee, Appellant,
v.
UNITED STATES TRUSTEE, Appellee. [1]

Argued and Submitted at Sacramento, California November 19, 2015.

Appeal from the United States Bankruptcy Court for the Eastern District of California. Bk. No. 14-10282. Honorable W. Richard Lee, Bankruptcy Judge, Presiding.

Peter L. Fear, Appellant, argued Pro se.

Before: DUNN, JURY, and FARIS, Bankruptcy Judges.

OPINION

DUNN, Bankruptcy Judge:

Chapter 7[2] trustee Peter L. Fear (" Trustee" ) applied to the bankruptcy court for compensation and payment of expenses. Although the application was unopposed, the bankruptcy court awarded the Trustee only a portion of the requested compensation, reasoning that the requested amount, which exceeded the amount available for distribution on allowed unsecured claims, was too high. The Trustee appeals. We VACATE the order of the bankruptcy court and REMAND the matter for further proceedings.

I. FACTUAL BACKGROUND

The Debtor, Delia Ruiz, filed a chapter 7 petition on January 23, 2014. The Trustee was appointed on the same date. On Schedule B, the Debtor listed an ownership interest in seven motor vehicles, including a 2007 Dodge Ram pickup truck (the " Dodge" ), which the Debtor valued at $28,525.[3] According to the Debtor's Schedule D, the Dodge was subject to a lien in the amount of $16,477.35. The Debtor also claimed exemptions in the Dodge in the total amount of $12,047.65, the full amount of the Dodge's scheduled value net of the lien.

Based on the Debtor's schedules, along with information the Debtor provided following the first § 341(a) meeting of creditors, the Trustee tentatively concluded that the estate likely had no interest in the Dodge. This conclusion changed over the course of the next four months and several continuances of the meeting of creditors, as the Debtor twice amended her schedules to revise her claimed exemptions and contemplated making an offer to purchase her nonexempt assets back from the estate. Ultimately, the Debtor removed her claimed exemptions in the Dodge, and the Trustee concluded the meeting of creditors and commenced the process of selling the Dodge at auction.

The auctioneer expressed some skepticism that he could sell the Dodge for its scheduled value,[4] but he believed it would provide some return for unsecured creditors. The bankruptcy court approved the auctioneer's employment, and the auction took place as scheduled on July 26, 2014. The auctioneer's expectation proved correct: the Dodge sold for $21,000, significantly less than its scheduled value but enough to pay unsecured claims in part.

On October 24, 2014, the Trustee filed his Final Report, Application for Compensation and Applications for Compensation of Professionals (" Final Report" ). The Trustee reported total receipts of $21,000, all attributable to the sale of the Dodge. From that amount, the Trustee disbursed $15,046.84 to Safe 1 Credit Union, the holder of the lien on the Dodge, and $2,758 to the auctioneer. This left the estate with $3,195.16, which the Trustee proposed to distribute as follows: $2,300 to the Trustee for his fees and $52.44 for his expenses; and the remaining $842.72 to general unsecured creditors. Concurrently with the Final Report, the Trustee filed a Narrative Report and Application for Compensation and Expenses (" Application" ). As shown in a table included in the Application, the maximum compensation allowed under § 326 was $2,850, but the Trustee requested less than the full amount in an apparent effort to provide a greater distribution to creditors.[5] Notwithstanding this $550 reduction from the statutory commission, the Trustee's proposed distribution would have allowed the Trustee to receive roughly three quarters of the funds remaining in the estate.[6]

Though no objections were filed to the Final Report, the bankruptcy court entered an order setting the matter for hearing to address the lopsided proposed distribution (" Hearing Order" ).[7] The bankruptcy court noted that under our decision in Hopkins v. Asset Acceptance LLC (In re Salgado-Nava), 473 B.R. 911 (9th Cir. BAP 2012), a trustee's commission as calculated under § 326 is presumptively reasonable except in extraordinary circumstances. Citing In re Scoggins, 517 B.R. 206 (Bankr. E.D. Cal. 2014), the bankruptcy court stated that " [a] chapter 7 trustee's request for compensation that exceeds the amount of money the trustee proposes to distribute to unsecured creditors constitutes one of those 'extraordinary circumstances' which commands a review of the fees for reasonableness." On that basis, the bankruptcy court found that extraordinary circumstances existed warranting scrutiny of the Application. To guide its determination of the reasonableness of the Trustee's requested compensation, the bankruptcy court ordered the Trustee to produce his time records for the case.

The Trustee submitted a declaration in which he explained that he did not keep detailed case-by-case time records for his work as a chapter 7 panel trustee. Instead of time records, he included a narrative of his services in the case. To provide justification for his request for compensation in lieu of specific time records for the case, the Trustee reported the total hours he worked as a chapter 7 trustee in 2014 and the compensation he received. Based on his calculations, including estimates of the time his legal assistant spent on activities that would qualify as billable, the Trustee estimated that the value of his chapter 7 trustee services in 2014 was $280,327, while in fact he received $184,838.51 for those services.

After receiving the Trustee's declaration, the bankruptcy court entered an order on the Final Report and Application (" Compensation Order" ). In the Compensation Order, the bankruptcy court acknowledged that it had " no reservations about the Trustee's diligence and the performance of his duties." Nevertheless, the bankruptcy court found that there were extraordinary circumstances present justifying compensation in an amount less than that requested. In support of this determination, the bankruptcy court noted that the Trustee had administered only one asset (the Dodge); that the Dodge had sold for less than expected; and that, as a result of the disappointing sale price, the Trustee's requested compensation exceeded - by almost a factor of three - the amount unsecured creditors would receive under the proposed distribution. With no time records to guide its determination of an appropriate level of compensation, the bankruptcy court turned to the United States Trustee's Handbook for Chapter 7 Trustees, which instructs trustees not to administer assets " primarily for the benefit of the trustee." Based on ...


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