United States District Court, W.D. Kentucky, Louisville
CHARLES R. SIMPSON, III, Senior District Judge.
This matter is before the court on appeal from an order of the United States Bankruptcy Court setting the commission of William Stephen Reisz, Chapter 7 Trustee (hereinafter "Trustee"), at $5, 000.00.
The underlying facts in this case are undisputed. The Chapter 7 debtors, Sammy and May Wooten, owned and operated a trucking business and a grocery store in Sonora, Kentucky. The grocery store suffered from declining business over a period of time. By 2012, the Wootens were unable to repay over $1, 000, 000.00 in business debt that was secured by the grocery store, their residence, and an adjacent plot of undeveloped land. They filed for Chapter 7 relief on
The Chapter 7 Trustee administered the Wooten's bankruptcy estate. The Wootens had no equity in the properties or other nonexempt property which could be liquidated for the benefit of unsecured creditors. The Trustee agreed with the secured creditors to sell the properties free of liens and other encumbrances in exchange for a $50, 000.00 "carveout" from the sale proceeds, which would be used to the benefit of unsecured creditors. While this sort of sale is permitted under 11 U.S.C. § 363(f), a Chapter 7 Trustee should not enter into such a sale unless it generates funds for the benefit of unsecured creditors. See U.S. Dept. of Justice, Exec. Office for U.S. Trustees, Handbook for Chapter 7 Trustees at pp. 8-20. The parties agree that the intent was that proceeds from the "carveout" would be available for the benefit of unsecured creditors, but that due to a mistake made by the Trustee, the sum remaining in the estate at the end of the day was only $22, 964.92.
The bankruptcy court approved the "carveout" agreement and the properties were sold for $411, 600.00, and the Trustee received the agreed $50, 000.00 for the estate. However, the Trustee failed to consider the tax ramifications of the sale of the properties. He discovered after the fact that the commercial property, which had been sold at auction for $231, 000.00, had a low tax basis which caused substantial taxable gain to the estate. The Trustee was required to hire an accountant, file tax returns, and pay federal income tax of $12, 098.00 and state income tax of $5, 480.00.
Additionally, the Wootens sought and the bankruptcy court approved a homestead exemption in the amount of $7, 500.00.
After paying the homestead exemption, capital gains taxes and other miscellaneous payments such as bank fees, the Trustee was left with $22, 964.97. The Trustee then filed his final report and request for commission. He sought the entirety of the remaining $22, 964.97 as a Trustee's commission, noting that this was less than the statutory commission of $23, 830.00 based on the Trustee's total disbursements of $411, 600.00.
The United States Trustee objected to the amount of the commission sought by the Chapter 7 Trustee, and moved the bankruptcy court to set the commission at $5, 000.00 which represented the statutory commission calculated on the $50, 000.00 "carveout, " less the debtors' exemption of $7, 500.00. (DN 1-1, p. 321). The bankruptcy court granted the United States Trustee's motion and set the commission at $5, 000.00.
In its Order Setting Trustee's Commission (DN 1-2, p. 350), the bankruptcy court made the following determinations:
(1) If the Trustee receives his proposed commission, there will be no funds available for payment to unsecured creditors.
(2) Under 9th Circuit authority, absent extraordinary circumstances, Chapter 7, 12 and 13 Trustee fees should be presumed reasonable if they are requested at the statutory rate.
(3) Regardless of any presumption in connection with the statutory rate, courts still retain discretion to assess the reasonableness of a trustee's request for compensation.
(4) The court should consider all surrounding facts and circumstances in deciding whether to award something ...