Smith v. United States Trustee (In re Figueroa)

Case Type:
Consumer
Case Status:
Affirmed
Citation:
BAP No. AZ-23-1048-LCF (9th Circuit, Dec 19,2023) Not Published
Tag(s):
Ruling:
The U.S. Bankruptcy Appellate Panel of the Ninth Circuit held a bankruptcy court did not abuse its discretion in (a) vacating an order awarding attorney fees to a chapter 7 trustee representing himself, and (b) reducing the fee award. The record supported a finding of excusable neglect by the Office of the U.S. Trustee in not objecting to the fee application. And, the bankruptcy court did not err in finding the chapter 7 trustee failed to offer evidence sufficient to establish his services as an attorney were reasonable and necessary and special expertise was required.
Procedural context:
The issue before the BAP was whether the bankruptcy court erred in reducing the chapter 7 trustee's attorney fee request from $1,982.50 to $540. To address this issue, the BAP reviewed for an abuse of discretion the bankruptcy court's (a) decision to grant relief under Civil Rule 60(b) (incorporated under Fed. R. Civ. P. 9024) regarding a prior fee award, and (b) revised award of compensation to an estate professional under 11 U.S.C. § 330. In reaching its conclusion, the BAP explained why a deferential standard is applied to bankruptcy court decisions on fee applications and discussed the "tension in small cases like these between the work that should be done by the trustee and that which genuinely requires the assistance of an attorney." The opinion notes the BAP held a hearing in this appeal concurrently with hearings in three companion cases.
Facts:
After the debtors filed a chapter 7 bankruptcy petition in the U.S. Bankruptcy Court for the District of Arizona, Jim D. Smith was appointed as the chapter 7 trustee for the case. The bankruptcy court granted Smith's application to be appointed as attorney for the estate. Smith took actions in the case and was awarded $4,350 as attorney's fees. He then filed a final report disclosing the estate had $2,960.75 in funds on hand, which he proposed to pay himself as compensation for a portion of the allowed fees; he sought nothing as a trustee's commission. No party objected and the case was closed. Five months later, the bankruptcy court granted Smith's motion to reopen the case to recover an undisclosed insurance refund. Smith was reinstated as the trustee and filed an adversary proceeding for turnover. The matter settled for the full amount, $5,571.26, and the court approved the settlement. Smith then filed another application for allowance of attorney's fees incurred after the case reopened, requesting $1,982.50 in fees and $23.85 in expenses. The Office of the U.S. Trustee (UST) did not object and the court entered an order approving Smith's application. Smith then paid himself $2,005.85 from the estate. Four months later, Smith filed an amended final report. It provided an accounting from the petition date and indicated $2,933.29 remained in the estate account after payment of Smith's fees and costs from the two fee applications, among other payments. Smith then applied for a trustee's commission and reimbursement of expenses, seeking to use the remaining "funds to pay himself $1,648.20 in trustee’s commission, $46.17 in trustee’s expenses, and $1,292.28 as the remaining fees still owed from the Amended Fee Application." This proposal would result in no distribution to creditors. UST objected, offered a recitation of Smith's activity in the case, and contended Smith "was improperly seeking compensation as an attorney for tasks that should have been completed by the trustee." The court then received several written submissions from UST and Smith, heard oral argument, "requested 'case law' ... that differentiated a trustee’s efforts as trustee from those of trustee’s counsel[,]" explained "it it wished to better understand the UST’s position on that issue so that it could 'more clearly set a standard . . . to apply across the board[,]'" and instructed Smith "to 'take a hard look' at his time entries as some appeared to be administrative overhead expense." The court also held an evidentiary hearing at which Smith testified regarding his efforts in the case. Ultimately, the bankruptcy court entered an order vacating its prior fee award under Civil Rule 60(b) (incorporated under Fed. R. Civ. P. 9024) based on excusable neglect by UST concerning its review of Smith's last fee application, disallowed certain attorney fees as Smith did not establish attorney expertise was necessary, and awarded the requested trustee commission. "The court noted that even as reduced by the court’s orders, Smith nonetheless earned a combined total of $5,178.95 of trustee’s compensation under § 326(a) and attorney’s fees compensation under § 330 for the case." Smith appealed the reduction of his attorney fee award.
Judge(s):
LAFFERTY, CORBIT, and FARIS

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