In re Main Realty & Management, LLC

277 B.R. 1, 2002 Bankr. LEXIS 458, 39 Bankr. Ct. Dec. (CRR) 148, 2002 WL 856810
CourtUnited States Bankruptcy Court, D. Connecticut
DecidedApril 19, 2002
DocketNo. 00-23242
StatusPublished
Cited by2 cases

This text of 277 B.R. 1 (In re Main Realty & Management, LLC) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Connecticut primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
In re Main Realty & Management, LLC, 277 B.R. 1, 2002 Bankr. LEXIS 458, 39 Bankr. Ct. Dec. (CRR) 148, 2002 WL 856810 (Conn. 2002).

Opinion

RULING ON CHAPTER 7 TRUSTEE’S FEE APPLICATION

ROBERT L. KRECHEVSKY, Bankruptcy Judge.

I.

ISSUE

The question in this matter is the entitlement of a Chapter 7 Trustee to reasonable compensation from the debtor’s property when the debtor’s Chapter 7 case was reconverted to one under Chapter 11 and then dismissed, without any distribution to creditors during the Chapter 7 case. Although the debtor does not object to the requested compensation, the United States Trustee for Region 2 and Assistant United States Trustee for the District of Connecticut (together, “the U.S. Trustee”) oppose the fee application.

[2]*2II.

BACKGROUND

Main Realty & Management, LLC (“the debtor”) filed a petition under Chapter 11 on December 8, 2000, listing as its only significant asset an office building located at 121-131 Main Street, New Britain, Connecticut (“the property”). The U.S. Trustee, on June 20, 2001, filed a motion to convert the debtor’s Chapter 11 case to one under Chapter 7, or, alternatively, to require the debtor to take certain actions by stipulated dates, intended to lead to a hearing on plan confirmation (“the U.S. Trustee’s motion”). When, after several continuances, the U.S. Trustee’s motion, on August 23, 2001, came on for hearing, the debtor’s attorney, James F. Ripper, Esq. (“Ripper”)1 failed to appear. The court, consequently, ordered the debtor’s case converted to one under Chapter 7 and requested the U.S. Trustee to appoint a trustee. The U.S. Trustee appointed Anthony S. Novak, Esq. (“Novak”) from the panel of private trustees as interim case trustee.

Three weeks later, on September 13, 2001, the debtor filed a motion to vacate the order of conversion and to permit the debtor’s estate to remain in Chapter 11. The debtor alleged that Ripper’s failure to attend the August 23, 2001 hearing was due to Ripper’s belief that the debtor had filed all delinquent reports and the U.S. Trustee was going to withdraw the conversion motion. The court, after a duly-noticed hearing held on October 11, 2001, vacated the conversion order, with the U.S. Trustee’s consent. Novak, by a pleading dated October 10, 2001, had filed a “limited objection” to the debtor’s motion to vacate, contending that any order of reconversion should provide that Novak’s services and expenses during the Chapter 7 case “in excess of $1,500” be paid. (No-vak Obj. at 2).

The debtor thereafter submitted a disclosure statement and a plan of reorganization. But, on January 24, 2002, the debtor filed a motion for dismissal of its Chapter 11 case, asserting that it was in the best interest of creditors and the debt- or. Novak then submitted the instant application for Chapter 7 administrative trustee fees and expenses, duly itemizing expenditures of time amounting to $4,932.50 and costs of $35.46. The application, in paragraph nine, stated: “Upon consultation with Debtor’s counsel, the Trustee has agreed to a payment of $1,300 for his fees and expenses incurred in this case.” Novak further asserted that the itemized services rendered were “associated with the pursuit of assets on behalf of creditors in this case.” (Novak App. ¶ 11).

On April 2, 2002, the U.S. Trustee filed a brief in opposition to Novak’s application, noting that under a “literal application” of Bankruptcy Code § 326(a), Novak is not entitled to compensation and that Novak did not perform “substantial services on the estate’s behalf to warrant equitable compensation based on quantum meruit.” (U.S. Trustee Br. at 3).

The court, on April 4, 2002, held a hearing on the debtor’s motion to dismiss its case and on Novak’s fee application. There being no objection from the appearing parties, the court entered an order dismissing the debtor’s Chapter 11 case. Novak testified concerning the extent of his services as Chapter 7 trustee. They included reviewing land records, visiting the property, conferring with secured parties concerning the perfection and status of the security documents and contacting re[3]*3altors to determine the market value of the property. He also had collected rents totaling $2,539.74, out of which he still retains $1,300 pending the court’s ruling on his application.

III.

DISCUSSION

A.

There are a number of reported opinions from district and bankruptcy courts generally dealing with the issue raised in this proceeding. They are divided in their holdings.

Bankruptcy Code § 330(a),2 inter alia, authorizes the court to award to a trustee, subject to § 326, “reasonable compensation.” Section 326(a)3 limits a Chapter 7 trustee’s compensation to certain percentages of monies distributed to creditors, “excluding the debtor.... ” Some courts rely upon the plain meaning rule to hold that since the Bankruptcy Code contains no provision for compensating Chapter 7 trustees when no monies are disbursed to creditors,4 the court lacks discretion to make an award. In a situation comparable to the present case, where the debtor’s Chapter 7 case was converted to one under Chapter 11 and, then, voluntarily dismissed, a district court upheld the bankruptcy court’s denial of fees to a Chapter 7 trustee, holding: “The plain language of section 326(a) indicates that only money the trustee distributes can be included in calculating the compensation base.” In re Celano, No. CIV.A.01-1310, 2001 WL 1586778, at *3 (E.D.La. Dec.7, 2001). The court further concluded that if unfairness to a diligent trustee might result, “the problem needs to be remedied by Congress, rather than this Court.” Id; see also In re Murphy, 272 B.R. 483, 485 (Bankr.D.Colo.2002) (“Notwithstanding what might otherwise qualify as ‘reasonable compensation’ for a trustee under section 330(a), Chapter 7 trustee’s fees are limited by the plain language of section 326(a) to a percentage of moneys Chapter 7 trustees disburse, even in cases that convert to Chapter 13.”); In re Fischer, 210 B.R. 467, 469 (Bankr.D.Minn.1997) (denying the Chapter 7 trustee’s request for compensation after case was converted to Chapter 13, stating that “[o]ne of the risks that trustees take is that even if there are nonexempt assets in the case, that the debtor will convert the case to chapter 13 or obtain dismissal of the case short of final administration.”); In re [4]*4Woodworth, 70 B.R. 361, 363 (Bankr.N.D.N.Y.1987) (denying Chapter 7 trustee compensation when case was converted to Chapter 13 even though trustee had discovered valuable asset). Cf. In re England, 153 F.3d 232, 235 (5th Cir.1998) (concluding that calculation of Chapter 7 trustee’s maximum compensation cannot include unliquidated property transferred to unsecured creditors, and stating that “[t]he plain language of § 326(a) indicates that the statute caps a trustee’s compensation based upon only the moneys disbursed, without allowance for the property disbursed.”).

Other courts, and they are presently in the majority, conclude that a literal application of § 326(a) may result in harshness, and where a Chapter 7 trustee has, for example, discovered assets before the conversion or voluntary dismissal of the debtor’s case occurred, an award of compensation on a quantum meruit basis is justified. See In re Rodriguez, 240 B.R.

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Bluebook (online)
277 B.R. 1, 2002 Bankr. LEXIS 458, 39 Bankr. Ct. Dec. (CRR) 148, 2002 WL 856810, Counsel Stack Legal Research, https://law.counselstack.com/opinion/in-re-main-realty-management-llc-ctb-2002.