Connolly v. Morreale (In re Morreale)

Case Type:
Business
Case Status:
Affirmed
Citation:
BAP No. CO-18-063 (10th Circuit, Jan 22,2019) Published
Tag(s):
Ruling:
Chapter 7 trustee, who had obtained an order in the Chapter 11 case of debtor's single-member LLC substituting himself for debtor as manager of LLC and authorizing him to manage and operate LLC's business, filed application requesting to be paid commissions in the Chapter 7 case based upon disbursements made not only in the Chapter 7 case, but in LLC's case as well. Debtor objected, arguing that trustee should only be granted a commission on disbursements made in the Chapter 7 case. The bankruptcy court denied the relief requested by the chapter 7 trustee and the 10th Cir. BAP affirmed.
Procedural context:
Chapter 7 trustee filed application for compensation seeking commissions based on disbursements made in both the chapter 7 case and the chapter 11 case. the bankruptcy court denied the request to the extent it sought commissions based on disbursements made in the chapter 11 case. The chapter 7 trustee appealed to the 10th Cir. BAP.
Facts:
Samuel Morreale (“Morreale”) organized, owned, and managed a single-member limited liability company, Morreale Hotels, LLC (“MHLLC” or “LLC”), that acquired, renovated, and operated two properties. MHLLC filed a Chapter 11 petition in December of 2012 and Morreale filed an individual chapter 11 case in October of 2013, which was subsequently converted to chapter 7 in 2014. The chapter 7 trustee in Morreale’s individual case obtained an order in MHLLC’s chapter 11 case substituting himself for Morreale as manager of MHLLC and authorizing him to manage and operate the business of MHLLC. Thereafter, the trustee proposed a plan of liquidation after seeking and obtaining bankruptcy court approval to sell the MHLLC properties. Acting as MHLLC’s manager, the trustee sold the two properties in MHLLC’s chapter 11 case and disbursed the proceeds of those sales to MHLLC’s secured and unsecured creditors. Surplus funds were paid to Morreale’s chapter 7 estate. Neither the confirmed amended chapter 11 plan of liquidation, nor the sale motions filed in MHLLC's chapter 11 case addressed whether the trustee would be compensated in connection with the MHLLC sales. Nor did the trustee seek appointment as a chapter 11 trustee or a professional in the chapter 11 case. When he filed his application requesting to be paid commissions in the chapter 7 case based upon disbursements made in both cases, Morreale objected. Because the chapter 7 estate also contained more funds than necessary to pay all its creditors, Morreale claimed an interest in the surplus. Morreale asserted that under section 326(a)’s formula, the trustee should only be granted a commission on disbursements made in the chapter 7 case. The chapter 7 trustee responded that because his actions in MHLLC's chapter 11 case benefitted the chapter 7 estate, he should receive section 326(a) commissions on what he disbursed in the chapter 11 case. The sole issue before the bankruptcy court was whether section 326(a) included the chapter 11 disbursements in the chapter 7 commission base, for purposes of calculating his compensation as chapter 7 trustee. The bankruptcy court concluded it did not and denied the chapter 7 trustee a commission on the chapter 11 disbursements.
Judge(s):
Nugent, Michael, and Somers

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