FILED NOT FOR PUBLICATION MAY 9 2025 SUSAN M. SPRAUL, CLERK U.S. BKCY. APP. PANEL UNITED STATES BANKRUPTCY APPELLATE PANEL OF THE NINTH CIRCUIT
OF THE NINTH CIRCUIT
In re: BAP Nos. NC-24-1181-CFB PHILIP JAMES METSCHAN, NC-24-1182-CFB Debtor. NC-24-1183-CFB (Related Appeals) CHRISTINA SHAY, Appellant, Bk. No. 21-30378 v. TIMOTHY W. HOFFMAN, Chapter 7 MEMORANDUM∗ Trustee; MACCONAGHY & BARNIER, PLC; BACHECKI, CROM & CO., LLP, Appellees.
Appeal from the United States Bankruptcy Court for the Northern District of California Hannah L. Blumenstiel, Bankruptcy Judge, Presiding
Before: CORBIT, FARIS, and BRAND, Bankruptcy Judges.
INTRODUCTION
Appellant Christina Shay (“Shay”) appeals orders awarding fees to the
chapter 71 trustee, the trustee’s attorney, and the trustee’s accountant in her
ex-husband Philip Metschan’s (“Metschan”) chapter 7 bankruptcy case. We
∗ This disposition is not appropriate for publication. Although it may be cited for
whatever persuasive value it may have, see Fed. R. App. P. 32.1, it has no precedential value, see 9th Cir. BAP Rule 8024-1. 1 Unless specified otherwise, all chapter and section references are to the Bankruptcy
Code, 11 U.S.C. §§ 101-1532, and all "Rule" references are to the Federal Rules of Bankruptcy Procedure. 1 AFFIRM the bankruptcy court’s award of professional fees to the chapter 7
trustee in BAP No. NC-24-1182 and AFFIRM the bankruptcy court’s award of
professional fees to Bachecki, Crom & Co., LLP, the firm hired by the chapter
7 trustee as accountants for the estate (“Trustee’s Accountant”), in BAP No.
NC-24-1183.
However, with respect to the fees awarded to MacConaghy & Barnier
PLC, the firm hired by trustee to serve as counsel for the estate (“Trustee’s
Attorney”), the existing findings and record are insufficient to support the fee
award. Consequently, we REVERSE and REMAND BAP No. NC-24-1181 for
further proceedings consistent with this Memorandum.
FACTS2
A. Dissolution and bankruptcy
Metschan and Shay were involved in a contentious marital dissolution.
In connection with the dissolution, Metschan and Shay executed a Marital
Settlement Agreement (“MSA”), which was entered as judgment in a
California state court on April 5, 2018. 3
After the dissolution, Metschan filed a chapter 7 bankruptcy petition. In
his petition, Metschan indicated he had an annual salary of $160,380.36. The
only property Metschan listed on his Schedule A was his residence in Novato,
California, which he valued at $1,200,000.00. Metschan did not list an
2 We exercise our discretion to take judicial notice of the docket and documents filed in the underlying bankruptcy case. See Atwood v. Chase Manhattan Mortg. Co. (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003). 3 The MSA was subsequently modified several times.
2 ownership interest in the property where Shay and their children lived (the
“Pinheiro Property”).
Timothy Hoffman ("Trustee") was appointed as the chapter 7 trustee.
Trustee quickly employed counsel, and after being hired, it appears that
Trustee’s Attorney took over almost all management of Metschan’s
bankruptcy case. Trustee also employed an accountant to prepare and file tax
returns and to investigate claims.
On August 6, 2021, Trustee’s Attorney filed a “Stipulation RE: Debtor’s
waiver of homestead exemption.” In the stipulation, Trustee and Metschan
agreed that (1) the Pinheiro Property was “worth $1.2 million” and
encumbered by two deeds of trust ($550,000 and $65,000), (2) although
Metschan did not reside at the Pinheiro Property and did not plan to reside
there, Metschan had the right to claim a homestead exemption, and
(3) Metschan was electing to waive his homestead exemption to allow Trustee
to sell the Pinheiro Property and pay all claims.
Trustee’s Attorney filed a motion to employ a real estate broker to
value, market, and sell the Pinheiro Property. Trustee’s Attorney stated that
Shay wanted to purchase Metschan’s interest in the Pinheiro Property and
that Trustee needed a broker to determine the value of the Pinheiro Property.
The bankruptcy court granted the motion.
The United States Trustee sought dismissal of Metschan’s case pursuant
to § 707(b)(1) and (b)(3)(B) based on Metschan’s income and apparent ability
to pay his creditors. The United States Trustee argued that Metschan’s
3 schedules and statements “significantly underrepresented” Metschan’s
income and overrepresented his expenses, and that, based on his true income
and expenses, Metschan “could pay a meaningful portion of his debts.” The
United States Trustee argued that, based on the totality of the circumstances,
Metschan’s case should be dismissed pursuant to § 707(b)(3)(B).
Both Metschan and Trustee’s Attorney objected to the dismissal motion.
Metschan argued that his case should not be dismissed because the sale of the
estate’s interest in the Pinheiro Property to Shay for approximately $140,000
would be sufficient to pay all claims against the estate. Metschan did not
address the United States Trustee’s allegation that his income and expenses
demonstrated his ability to pay his debts and that his bankruptcy case was
thus presumptively abusive. Nor did Metschan explain why, if the case was
dismissed, he could not (or would not) pay his few creditors.
Trustee’s Attorney’s opposition also ignored the grounds identified in
the United States Trustee’s motion. Instead, Trustee’s Attorney echoed
Metschan’s argument that the sale of the Pinheiro Property to Shay would
produce enough money to pay all creditors in full.
In its reply, the United States Trustee noted that neither Metschan’s nor
Trustee Attorney’s arguments were supported by the Bankruptcy Code or
supported by evidence. The bankruptcy court denied the motion to dismiss.
On October 26, 2021, Trustee’s Attorney filed a motion for an order
authorizing the sale of Metschan’s interest in the Pinheiro Property. The
motion argued that Trustee had the right to sell the “entire fee” of the
4 Pinheiro Property pursuant to § 363(h) and that Shay had a right of first
refusal pursuant to § 363(i). The motion stated, without explanation or
evidence, that a § 363(h) sale would only net the estate $140,000, so Trustee
was selling the estate’s interest in the Pinheiro Property to Shay for
$139,058.50. The motion was devoid of supporting evidence such as the value
of the Pinheiro Property even though Trustee’s Attorney hired the broker for
that purpose. Nor did the sale motion attempt to resolve Shay’s pending proof
of claim against the estate. The bankruptcy court approved the sale.
B. Shay’s proof of claim
In the meantime, Shay filed a late proof of claim for $93,307.00. Shay
indicated the claim was a domestic support obligation and represented
monies owed to her by Metschan under the MSA. Shay classified the entire
amount as priority unsecured under § 507(a)(1). Shay filed an amended proof
of claim on January 11, 2022, in the amount of $80,459.00. In the amended
claim, Shay asserted that only $29,292.00 was child support entitled to priority
treatment pursuant to § 507(a)(1). The balance of the claim consisted of
$36,966.00, representing Shay’s share of Metschan’s Long Term Incentive
Bonus (“LTI”) and film bonuses, $3,857.00 for Shay’s share of a class action
lawsuit, $2,014.00 for major home repairs, and a $250.00 award from child
services.
Trustee’s Attorney objected to Shay’s amended claim. Trustee’s
Attorney stated in bullet points that Shay’s claim should be disallowed
because (1) it was late filed; (2) it was unenforceable under the MSA; and
5 (3) no part of the claim was entitled to priority. However, rather than resting
her objection on the lateness of the claim (which statutorily subordinated
Shay’s claim to all timely filed claims), Trustee’s Attorney used a summary
report created by Trustee’s Accountant (the “Wade Report”) to specifically
contest each component of Shay’s claim.
After a hearing, the bankruptcy court entered an order allowing a subset
of Shay’s claim, including part of the priority claim, disallowing a second
subset, and ordering the parties to mediate a third subset.
Unfortunately, the mediation failed. At that point, Trustee had enough
money to pay in full all administrative expenses, Shay’s allowed priority
claim, and all timely filed unsecured claims, with about $24,000 left over for
either Shay or Metschan (depending on the outcome of the issues concerning
Shay’s claim that the bankruptcy court had reserved). In other words, no one
besides Shay and Metschan had any stake in litigating the remaining portion
of Shay’s claim.
Accordingly, at this point, Trustee could have simply withdrawn his
objection to the balance of Shay’s claim and left it to Metschan to assert his
own rights. Instead, Trustee’s Attorney moved the bankruptcy court to
abstain from adjudicating the balance of Shay’s claim. Trustee’s Attorney
argued that the issues should be litigated in state court because the outcome
of the dispute would have no impact on other parties in interest and because
Trustee would no longer be party to the litigation and therefore, no further
estate funds would be expended in litigation.
6 Shay opposed the motion. Shay argued that permissive abstention was
not appropriate. Shay also stated, for the first time in her opposition, that she
intended to seek approximately $25,000 in post-petition attorney’s fees under
a trio of California family law statutes (not reflected in her proof of claim at
the time).
At a hearing on the issue of abstention, the bankruptcy court noted that
both Shay’s counsel and Trustee’s Attorney had “been extremely
unprofessional” and that the pleadings were “terrible” and full of
“mudslinging and insults.”
After the hearing, the bankruptcy court entered a well-reasoned order
granting the motion to abstain (“Abstention Order”). In the Abstention Order,
the bankruptcy court found that the parties did not dispute that the
adjudication of the remaining components of Shay’s claim involved the
interpretation of MSA and state law. The bankruptcy court noted that it “must
acknowledge [the trustee’s] hypocrisy in filing the [claim] Objection and then
asking the court not to rule on its entirety.” Regardless, the bankruptcy court
determined that Trustee’s request for abstention was proper because there
was “simply no benefit whatsoever to this estate and its creditors in
continuing to litigate the Objection in this court.”
Shay appealed the Abstention Order. The district court affirmed, and
the Ninth Circuit dismissed Shay’s further appeal for lack of jurisdiction.
Trustee’s Attorney sought appellate attorney’s fees, arguing that Shay’s
appeal was frivolous. The Ninth Circuit disagreed and also implied that the
7 briefing submitted by Trustee’s Attorney was substandard, noting that
Trustee’s Attorney completely “fail[ed] to argue the [Ninth Circuit’s] lack of
jurisdiction [to hear the appeal] under 28 U.S.C. § 1334(d)” (the basis of the
Circuit’s dismissal).
In the bankruptcy court, Shay filed a second amended proof of claim for
$127,450. Shay’s amended claim asserted that $14,629.00 was entitled to
priority (reflecting the bankruptcy court’s previous ruling), and the claim
added post-petition attorney’s fees.
Shay also filed a motion for relief from the automatic stay to return to
state court and litigate the rest of her claim (a complete reversal of Shay’s
objection to Trustee’s motion to abstain, where she argued that she could not
litigate her claim in state court). The bankruptcy court granted the motion
without a hearing given that the requested relief was in accord with its
previous direction to the parties.
On May 20, 2024, Shay and Trustee’s Attorney filed a stipulation
regarding Shay’s claim that was approved by the court. The terms of the
stipulation revealed that despite the two years of litigation, Shay’s claim had
not materially changed. The stipulation stated that $14,629.00 was allowed as
an unsecured priority claim pursuant to § 507(a)(1)(A), that $48,902.96 was
allowed as a general unsecured claim, and that Shay could pursue her claims
for attorney’s fees in state court.
8 C. Professional fee applications
On July 24, 2024, Trustee’s Attorney submitted her first and final
application for fees and expenses, seeking $81,810.00 in fees and $3,149.81 in
costs. In the fee application, Trustee’s Attorney repeated the facts of the case
and categorized the fees as follows: (a) “general administration and
investigation” − 41 hours ($20,057.50); (b) “asset disposition” – 74.2 hours
($37,830.00); (c) “district court appeal” − 30.5 hours ($16,670.00);
(d) “employment compensation” – 7.7 hours ($3,877.50); and (e) “expenses” −
($3,149.81). Although the categorized fees total $78,434.50, Trustee’s Attorney
sought “total fees in the amount of $81,810.00.” Trustee’s Attorney did not
explain the discrepancy.
On July 31, 2024, Trustee’s Accountant filed his first and final
application for fees in the amount of $23,515.50 and expenses of $39.53.
On September 13, 2024, Trustee filed his Final Report. The Final Report
indicated that he had collected $140,630.99 for the estate and paid $297.22 in
administrative expenses and $6,815.71 in bank service fees, leaving
$133,518.06 to distribute. Trustee provided a table showing that he intended
to pay $118,820.61 in professional fees, leaving only $14,697.45 to distribute to
claimants (approximately 15%).
On the same day, Trustee filed his application for compensation seeking
statutory fees in the amount of $10,281.55 and expenses of $24.22.
9 D. Shay’s objections to the professional fee applications
Shay objected to all three fee requests. In a lengthy objection to Trustee’s
Attorney’s fee request, Shay accused Trustee’s Attorney of fee churning and
depleting a surplus estate. Shay argued that a significant portion of the fees
charged by Trustee’s Attorney was for performing the statutory duties of the
chapter 7 trustee rather than legal work. Shay also argued that Trustee’s
Attorney failed to exercise reasonable business judgment in continuing to
object to Shay’s claims.
Shay also filed a lengthy objection to Trustee’s fee application. Shay
argued that Trustee “harmed the estate in violation of his duties as trustee
which turned what would have been a 100% payout case to a 15% payout case
more than two years later, eating up nearly the entire estate with needless
administrative expenses.” Shay argued that § 326(a) established a
compensation cap, not an entitlement, so the court should examine the
reasonableness of the fee request. Shay further alleged that Trustee
unreasonably delegated his statutory duties to Trustee’s Attorney and had
failed properly to compare the costs and delays of litigation with the potential
recovery for the unsecured creditors.
Finally, Shay objected to the fees requested by Trustee’s Accountant.
Shay did not object to the fees for preparing and filing the tax returns, but she
argued that the remaining fees represented unnecessary work that was not
reasonably likely to benefit the estate. Shay also specifically objected to the
10 time billed by Trustee’s Accountant for attending the mediation as
unnecessary.
After a hearing, the bankruptcy court issued an oral ruling approving
each fee application in the full amount requested. The bankruptcy court noted
that it had broad discretion in evaluating compensation under § 330 and was
familiar with the record. The bankruptcy court found that Shay’s objections
appeared “to be based on nothing more than spite,” and were “filled with
personal attacks, baseless accusations, and convenient omissions of critical
information.”
The bankruptcy court specifically found that the Wade Report was
helpful in evaluating Shay’s untimely claim and that the compensation
requested by Trustee’s Accountant for preparing that report was reasonable
and necessary. The bankruptcy court also determined that all fees related to
the court-ordered mediation were necessary because the professionals were
complying with a court order.
As to Trustee’s fee request, the bankruptcy court described Shay’s
objection as essentially an argument that the chapter 7 trustee should not have
objected to Shay’s claim. The bankruptcy court disagreed, stating that if
Trustee had not objected to Shay’s claim, Trustee would have neglected his
statutory and fiduciary duties. The bankruptcy court also found it was
necessary to liquidate the priority component of Shay’s claim to administer
the estate.
11 As to Trustee’s Attorney’s fees, the bankruptcy court found that Shay’s
opposition was essentially a request that the bankruptcy court “micromanage
and second guess” every decision. The bankruptcy court determined that
§ 330 did not require such micromanaging. The bankruptcy court stated it was
“required to defer” to the professionals’ “reasonable business judgment” and
the professionals exercised their “judgment fairly [and] efficiently.”
The bankruptcy court concluded that the compensation and expenses
requested by each applicant were reasonable and that the services rendered
were necessary to the administration of the estate. Accordingly, the
bankruptcy court approved each fee application in the full amount requested.
The bankruptcy court entered fee orders consistent with its oral ruling.
Shay appealed from each of the three fee orders.
JURISDICTION
The bankruptcy court had jurisdiction under 28 U.S.C. §§ 1334 and
157(b)(2)(A). We have jurisdiction under 28 U.S.C. § 158.
ISSUES
Whether the bankruptcy court abused its discretion by granting
Trustee’s fee application.
Whether the bankruptcy court abused its discretion by granting
Trustee’s Attorney’s fee application.
Whether the bankruptcy court abused its discretion by granting
Trustee’s Accountant’s fee application.
12 STANDARD OF REVIEW
We review for abuse of discretion a bankruptcy court’s order awarding
compensation to an estate professional under § 330. Hopkins v. Asset
Acceptance LLC (In re Salgado-Nava), 473 B.R. 911, 915 (9th Cir. BAP 2012).
Under the abuse of discretion standard, we “affirm unless the [trial] court
applied the wrong legal standard or its findings were illogical, implausible or
without support in the record.” Gonzalez v. City of Maywood, 729 F.3d 1196,
1201-02 (9th Cir. 2013) (quoting TrafficSchool.com v. Edriver Inc., 653 F.3d 820,
832 (9th Cir. 2011)).
DISCUSSION
A. Chapter 7 trustee’s fees
1. Applicable standards and guidelines
When a debtor files a chapter 7 case, the United States Trustee appoints
a case trustee from a panel of individuals specially qualified to manage and
administer the property of the estate. The Bankruptcy Code requires the
trustee to “collect and reduce to money the property of the estate . . . and close
such estate as expeditiously as is compatible with the best interest of parties in
interest.” § 704(a)(1). The trustee must also examine claims and object to those
that are improper, but only “[i]f a purpose would be served . . . .” § 704(a)(5).
Section 326(a) governs trustee compensation, providing that the
bankruptcy court may award “reasonable compensation under section
330 . . . for trustee’s services . . . not to exceed” specified percentages of “all
moneys disbursed . . . .” Section 330(a)(7) adds that “[i]n determining the
13 amount of reasonable compensation to be awarded to a trustee, the court shall
treat such compensation as a commission, based on section 326.” Although
the § 326(a) percentage is a cap on the compensation and not an entitlement,
this Panel previously determined that “absent extraordinary circumstances,
bankruptcy courts should approve chapter 7, 12 and 13 trustee fees without
any significant additional review.” In re Salgado-Nava, 473 B.R. at 921.
2. The bankruptcy court did not abuse its discretion in granting Trustee’s fee application.
On appeal, Shay generally argues that the bankruptcy court abused its
discretion because Trustee failed to stop litigation when it was evident that
continued litigation was no longer beneficial to the estate. Shay also argues
that Trustee wasted nearly the entire solvent bankruptcy estate by delegating
his work to professionals.
We share Shay’s concerns about Trustee’s delegation of his duties to his
attorney and questionable litigation judgment. But we are bound by the
holding in Salgado-Nava, and we cannot say that the bankruptcy court abused
its discretion when it found there were no exceptional circumstances and
awarded Trustee the full statutory fees requested.
B. Compensation for professionals hired by Trustee
A trustee may employ legal and accounting professionals to represent
or assist the trustee in carrying out his or her duties under the Bankruptcy
Code. See § 327. Section 330(a)(1)(A) permits the court to award “reasonable
compensation for actual, necessary services” rendered by a properly 14 employed professional person. Consequently, a bankruptcy court may not
award compensation for: (1) unnecessary duplication of services; or
(2) services that were not: (i) reasonably likely to benefit the debtor’s estate; or
(ii) necessary to the administration of the case. § 330(a)(4)(A)(i)-(ii).
The bankruptcy court’s duty to carefully review fee applications “is not
to be taken lightly, especially given the fact that every dollar expended on fees
results in a dollar less for distribution to creditors of the estate.” In re Crown
Oil, Inc., 257 B.R. 531, 538 (Bankr. D. Mont. 2000) (citation omitted); see also In
re Sann, Case No. 14-31370, 2016 WL 7852311, at *8 (Bankr. D. Mont. Dec. 15,
2016) (explaining that the obligation to carefully review all fee requests
implicates the “integrity of the bankruptcy system”).
2. The bankruptcy court did not abuse its discretion in granting the fee application of Trustee’s Accountant.
Shay argues on appeal that the bankruptcy court abused its discretion in
awarding Trustee’s Accountant the full amount of fees requested. We
disagree.
Shay’s proof of claim was premised on allegations that Metschan owed
her money based on ongoing periodic payments ordered in the original and
amended MSA. Attached to her proof of claim was Shay’s “accounting” and
supporting documentation. It was readily apparent that Shay’s accounting
was not performed by a professional accountant and was based on her
personal interpretation of the MSA. Importantly, Shay acknowledged that the
amounts she claimed depended on various factors such as an accurate
15 accounting of Metschan’s base salary, his annual income, his taxable income,
and application of the LTI/bonus structure to such factors.
The state court apparently foresaw potential pitfalls with the ongoing
MSA payments and attempted to prevent future conflict by directing Shay
and Metschan to have their accountants meet at least yearly to calculate and
“true up” the MSA payments. It is undisputed that the parties did not comply
with this directive. This contributed to the lack of clarity regarding the correct
amount of Shay’s claim.
Because Shay’s claim depended on calculations involving sophisticated
accounting concepts, Trustee hired an accountant to assist with the process.
Trustee’s Accountant was tasked with reviewing Metschan’s financial records,
evaluating the accuracy of Shay’s proof of claim, and preparing tax returns.
The record demonstrates that Trustee’s Accountant provided such services
and prepared the Wade Report, which included his summary and findings.
When ruling on Trustee’s Accountant’s fee application, the bankruptcy
court specifically stated that the Wade Report was helpful in determining the
amount of Shay’s claim entitled to priority. The bankruptcy court impliedly
found that such detailed review of financial documents was compensable by a
professional because the task “require[d] special expertise beyond that
expected of an ordinary trustee.” U.S. Tr. v. Boldt (In re Jenkins), 188 B.R. 416,
420 (9th Cir. BAP 1995), aff’d, 130 F.3d 1335 (9th Cir. 1997). The bankruptcy
court also specifically found that the services provided by Trustee’s
16 Accountant were reasonably likely to benefit the estate and were necessary to
the administration of the bankruptcy case.
On appeal, Shay does not demonstrate, nor do we find, that the
bankruptcy court “applied the wrong legal standard or its findings were
illogical, implausible or without support in the record.” TrafficSchool.com, Inc.,
653 F.3d at 832. Accordingly, the bankruptcy court’s award of the full amount
of fees requested by Trustee’s Accountant was not an abuse of discretion.
3. The bankruptcy court abused its discretion in granting Trustee’s Attorney’s fee application.
a. Were the services provided by Trustee’s Attorney compensable legal services?
Although many tasks fall within a chapter 7 trustee’s duties that
theoretically could be performed by a lawyer, an attorney is not entitled to
professional compensation for performing a trustee’s statutory duties. Ferrette
& Slater v. U.S. Tr. (In re Garcia), 335 B.R. 717, 725 (9th Cir. BAP 2005) (citing
§ 328(b)); In re Virissimo, 354 B.R. 284, 290 (Bankr. D. Nev. 2006). While it is
often difficult to differentiate between the roles of a trustee and an attorney,
the role of counsel should be to perform only those tasks that require special
expertise beyond that expected of an ordinary trustee. In re Garcia, 335 B.R. at
725; In re Jenkins, 188 B.R. at 420. The chapter 7 trustee is not an ordinary lay
person. Rather, a chapter 7 trustee is a “sophisticated individual,” with special
knowledge, “who regularly employs real estate agents, auctioneers, and
accountants to carry out” the § 704 duty to “collect and reduce to money the
property of the estate.” In re Craig, 651 B.R. 612, 619 (Bankr. S.D. Ala. 2023); see 17 also In re McKenna, 93 B.R. 238, 241-42 (Bankr. E.D. Cal. 1988) (to be a trustee,
the person must be competent to perform all statutory duties). For the
“services of an attorney to be chargeable as a cost of administration, the
attorney must exercise professional legal skill and expertise beyond the
ordinary knowledge and skill of the trustee, and the attorney cannot be
compensated for the performance of the fiduciary duties of the trustee-client.”
In re Perkins, 244 B.R. 835, 843 (Bankr. D. Mont. 2000) (internal quotation
marks and citation omitted); see also In re McKenna, 93 B.R. at 241-42.
Accordingly, before a bankruptcy court awards fees to the estate’s
counsel, it must first determine whether the services performed were
compensable legal services, as opposed to performance of the trustee’s
statutory duties. Unsecured Creditors’ Comm. v. Puget Sound Plywood, Inc., 924
F.2d 955, 957-59 (9th Cir. 1991). If the services provided by counsel did not
require legal expertise, and the estate pays both counsel’s fees and the
trustee’s statutory fee, then the estate paid for duplicate services. The
bankruptcy court is prohibited from awarding fees for duplicative services
under § 330(a)(4)(A).
Based on the record before us, we question whether Trustee’s Attorney
met her burden of establishing that the services she performed were
compensable legal services, as opposed to performance of Trustee’s statutory
duties. For example, we question whether Trustee’s Attorney established that
legal expertise was necessary to draft an exemption waiver for a homestead
exemption to which Metschan was not legally entitled. See McKee v. Anderson
18 (In re McKee), BAP No. CC-22-1042-GTS, 2022 WL 17091179, at *5 (9th Cir.
BAP Nov. 18, 2022) (explaining that absent certain circumstances not
applicable here, a debtor is not entitled to claim a homestead exemption in
property where the debtor does not reside or demonstrates an intent to
reside), aff’d, 90 F.4th 1244 (9th Cir. 2024). Likewise, we question whether
Trustee’s Attorney established that the motion to sell Metschan’s interest in
the Pinheiro Property required expertise beyond that required of a trustee,
given that the motion did not include basic relevant evidence such as the
value of the Property. See, e.g., In re Garcia, 335 B.R. at 727 (explaining that
communications with broker, reviewing title reports, and negotiating sales of
real property “are properly within the trustee’s province”); In re McKenna, 93
B.R. at 241 (appearing in court and preparing and submitting an order on an
uncontested motion to sell liquor license was within trustee’s duties); In re
Virissimo, 354 B.R. at 296 (“The presentation of a simple motion that relates to
a trustee duty and that requires no complex legal analysis or argument is
generally performed by a trustee without the aid of counsel.”). Employment
of counsel does not give counsel free rein to step into Trustee’s shoes to
perform and bill the estate for duties statutorily assigned to Trustee.
The burden is always upon the applicant to demonstrate an entitlement
to the fees requested. Shalaby v. Mansdorf (In re Nakhuda), 544 B.R. 886, 902 (9th
Cir. BAP 2016). On remand, the bankruptcy court must determine from the
record provided whether Trustee’s Attorney sufficiently supported her claim
19 that all services billed to the estate were compensable legal services, as
opposed to performance of Trustee’s statutory duties. 4
b. Were the legal services necessary or beneficial to the administration of the estate?
If the services of the trustee’s attorney are compensable, the analysis
centers on whether the fees amount to “reasonable compensation for actual,
necessary services.” § 330(a)(1)(A). To determine the reasonableness of the
requested compensation, a bankruptcy court must consider: (1) whether the
legal services were authorized; (2) whether the legal services were necessary
or beneficial to the administration of the estate at the time they were rendered;
(3) whether the legal services were adequately documented; (4) whether the
requested fees were reasonable, taking into consideration the factors set forth
in § 330(a)(3); and (5) whether the professional exercised reasonable billing
judgment.5 Leichty v. Neary (In re Strand), 375 F.3d 854, 860 (9th Cir. 2004)
(citing Roberts, Sheridan & Kotel, P.C. v. Bergen Brunswig Drug Co. (In re
Mednet), 251 B.R. 103, 108 (9th Cir. BAP 2000)).
4 The bankruptcy court’s review may be impeded by the many time entries which were vague, imprecise, and without sufficient detail for a fair evaluation of the work done and the reasonableness and necessity for such work. 5 Section 330(a)(3) instructs the court to consider the following factors: (A) the time
spent on the services; (B) the rates charged for the services; (C) whether the services were necessary or beneficial at the time the services were rendered; (D) whether the services were performed within a reasonable amount of time commensurate with the complexity, importance, and nature of the problem, issue, or task addressed; (E) whether the person demonstrated skill and experience in the bankruptcy field; and (F) whether the compensation is reasonable based on the customary compensation charged by comparably skilled practitioners in cases other than bankruptcy cases. 20 To exercise reasonable billing judgment, the professional must consider
the following:
(a) Is the burden of the probable cost of legal services disproportionately large in relation to the size of the estate and maximum probable recovery?
(b) To what extent will the estate suffer if the services are not rendered?
(c) To what extent may the estate benefit if the services are rendered and what is the likelihood of the disputed issues being resolved successfully?
In re Garcia, 335 B.R. at 724 (citation omitted).
In other words, exercise of reasonable billing judgment incorporates the
“actual and necessary” prong of § 330(a)(1) by requiring the professional to
consider the potential for recovery and balance the effort required against the
results that might be achieved. See Puget Sound Plywood, Inc., 924 F.2d at 959.
There is no doubt that Shay and her attorney made the case much more
difficult than it should have been. The record demonstrates that the hostility
and animosity between Shay and Metschan carried over from the marital
dissolution to the bankruptcy case. It is readily evident that Shay’s litigation
positions were aggressive and questionable. Thus, it is without reasonable
dispute that Shay’s obstreperous conduct contributed to the depletion of
estate assets. A review of the record highlights that Trustee and Trustee’s
Attorney, however, rather than being voices of reason, appeared to align with
the debtor and continued litigation that virtually depleted the estate even
21 when it was clear there was no reasonable likelihood of benefit to unsecured
creditors.
We note that, looking at the information available at the time and not
through the lens of hindsight, there were several times when Trustee’s
Attorney could have essentially put on the brakes and preserved sufficient
estate funds to pay all timely filed unsecured claims. “Having an attorney
perform a task does not compel a finding that the fees were necessary per
se[.]” Smith v. U.S. Tr. (In re Banghart), BAP No. AZ-23-1049-LCF, 2023 WL
8784707, at *7 (9th Cir. BAP Dec. 19, 2023), aff’d No. 24-173, 2024 WL 4589340
(9th Cir. Oct. 28, 2024). Likewise, the court’s authorization to employ an
attorney to work in a bankruptcy case does not give that attorney “free reign
to run up a [professional fees and expenses] tab without considering the
maximum probable recovery,” as opposed to possible recovery. Puget Sound
Plywood, 924 F.2d at 958; see also Brosio v. Deutsche Bank Nat'l Tr. Co. (In re
Brosio), 505 B.R. 903, 913 n.7 (9th Cir. BAP 2014) (“Billing judgment is
mandatory.”). The record in this case indicates that professional fees were
incurred without due consideration to the probable recovery to the estate.
For example, Trustee’s Attorney has never explained why she
abandoned the objection that Shay’s claim was untimely. This ground of
objection had a good chance of success because Shay never denied that her
claim was late. Because the claim was untimely, it was statutorily
subordinated to all timely filed claims pursuant to § 726(a)(3). This
subordination would have made enough funds available to pay all unsecured
22 claims in full. But although Trustee’s Attorney raised the timeliness argument
in the objection, she inexplicably dropped it.
Even if Shay could have convinced the bankruptcy court to ignore the
tardiness of her claim, Trustee’s Attorney has never explained why she
objected to Shay’s claim in its entirety rather than simply objecting to the
portion Shay claimed as priority. Correcting the priority portion of the claim
also left enough funds to pay all unsecured creditors in full. Trustee’s
Attorney did not demonstrate why additional “services [related to the claim
objection] were ‘reasonably likely’ to benefit the estate at the time the services
were rendered.” In re Mednet, 251 B.R. at 108.
Thus, based on the facts known at the time, it was foreseeable that
continued litigation of the claim objection would deplete the surplus estate to
the detriment of the estate and its creditors. Therefore, we question whether
the bankruptcy court’s determination that Trustee’s Attorney exercised
reasonable billing judgment is supported by the facts in the record. This is
because from the record before the Panel, no unsecured creditors had any
possibility of benefitting from the continued claim objection litigation, the
“burden of the probable cost of legal services [was] disproportionately large
in relation to the . . . maximum probable recovery,” the estate would not
“suffer” with the discontinuation of the claim objection, and given the
hostility between the parties, there was little likelihood that continued claim
objection litigation would resolve the issue successfully. In re Garcia, 335 B.R.
at 724.
23 Finally, once the priority portion of Shay’s claim was corrected,
Trustee’s Attorney has never explained why she filed the abstention motion
rather than simply withdrawing the balance of the claim objection. While the
abstention had the worthy goal of forcing the parties to litigate the remaining
issues in state court, a withdrawal of the objection would have accomplished
the same goal and would not have consumed estate funds. “‘When a cost
benefit analysis indicates that the only parties who will likely benefit from [a
service] are the trustee and his professionals,’ the service is unwarranted[.]” In
re Mednet, 251 B.R. at 108-09 (quoting Estes & Hoyt v. Crake (In re Riverside-
Linden Inv. Co.), 925 F.2d 320, 321 (9th Cir. 1991)).
“While a trial court need not necessarily explain its analysis in terms of
elaborate mathematical calculations, for example, it must provide sufficient
insight into its exercise of discretion to allow an appellate court to exercise its
reviewing function.” Thomas v. Namba (In re Thomas), BAP No. CC-08-1307-
HMoPa, 2009 WL 7751299, at *12 (9th Cir. BAP July 6, 2009) (cleaned up), aff’d,
474 F. App’x 500 (9th Cir. 2012). Here, although the bankruptcy court cited the
correct law, it abused its discretion because the facts in the record are
insufficient to support the determination that Trustee’s Attorney was entitled
to her full fee application.
Accordingly, we REVERSE and REMAND the fee award to Trustee’s
Attorney, BAP No. NC-24-1181.
24 CONCLUSION
Based on the foregoing, the Panel AFFIRMS the bankruptcy court’s
award of professional fees to Trustee, BAP No. NC-24-1182. The Panel
AFFIRMS the bankruptcy court’s award of professional fees to Trustee’s
Accountant, BAP No. NC-24-1183. The Panel REVERSES the fee award to
Trustee’s Attorney, BAP No. NC-24-1181, and REMANDS for the bankruptcy
court to determine whether the services Trustee’s Attorney charged the estate
were compensable legal services and to further consider whether the services
related to the continued claim objection litigation were reasonable, necessary,
and beneficial to the estate.