Court Opinion

ID: 2671469
Source: CourtListenerOpinion
Date Created: 2014-04-29 00:01:15.518706+00
Date Added: 2024-06-11T13:08:30.609605
License: Public Domain

PUBLISHED

                    UNITED STATES COURT OF APPEALS
                        FOR THE FOURTH CIRCUIT

                               No. 13-1270

In re:     GEOFFREY A. ROWE,

                  Debtor,

---------------------------------

H. JASON GOLD, Chapter 7 Trustee,

                  Trustee – Appellant,

     and

JUDY A. ROBBINS, II, U.S. Trustee,

                  Trustee.

----------------------------------

UNITED STATES OF AMERICA,

                  Amicus Curiae,

NATIONAL ASSOCIATION OF BANKRUPTCY TRUSTEES,

                  Amicus Supporting Appellant,

JOHN J. KORZEN,

                  Court-Assigned Amicus Counsel.

Appeal from the United States District Court for the Eastern
District of Virginia, at Alexandria.     Liam O’Grady, District
Judge. (1:12-cv-01073-LO-TCB; 09-20446-RGM)

Argued:     January 28, 2014                 Decided:   April 28, 2014
Before DUNCAN    and   FLOYD,   Circuit   Judges,   and   DAVIS,   Senior
Circuit Judge.

Reversed and remanded by published opinion.    Judge Floyd wrote
the opinion in which Judge Duncan and Senior Judge Davis joined.

ARGUED: Brett Shumate, WILEY REIN LLP, Washington, D.C., for
Appellant. Patrick M. Wallace, WAKE FOREST UNIVERSITY SCHOOL OF
LAW, Winston-Salem, North Carolina, for John J. Korzen, Court-
Assigned Amicus Counsel. N. Neville Reid, FOX, SWIBEL, LEVIN &
CARROLL, LLP, Chicago, Illinois, for Amicus The National
Association of Bankruptcy Trustees. ON BRIEF: Helgi C. Walker,
Rebecca L. Saitta, WILEY REIN LLP, Washington, D.C., for
Appellant.   John J. Korzen, as Court-Assigned Amicus Counsel,
Tammy C. Hsu, Third-Year Law Student, WAKE FOREST UNIVERSITY
SCHOOL OF LAW, Winston-Salem, North Carolina, for Court-Assigned
Amicus Counsel. Ramona D. Elliott, Deputy Director, P. Matthew
Sutko, Wendy L. Cox, Executive Office for United States
Trustees, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C.,
for Amicus United States of America. Erik J. Ives, FOX, SWIBEL,
LEVIN & CARROLL, LLP, Chicago, Illinois; Ronald R. Peterson,
JENNER & BLOCK LLP, Chicago, Illinois, for Amicus National
Association of Bankruptcy Trustees.

                                   2
FLOYD, Circuit Judge:

      There        are    two       questions       presented       in    this    appeal.          The

first    is       one    of    first     impression:         whether,       in    light       of   the

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

(BAPCPA), a bankruptcy court is required, absent extraordinary

circumstances, to compensate Chapter 7 trustees on a commission

basis.        Thus far, no circuit court of appeals has confronted

this issue, and the lower courts that have addressed it are

deeply divided.               Compare Hopkins v. Asset Acceptance LLC (In re

Salgado-Nava), 473 B.R. 911, 921 (B.A.P. 9th Cir. 2012) (holding

that,    absent          extraordinary          circumstances,           the     fee    award      for

Chapter       7    trustees         is   to    be    based     on    the    commission         rates

provided in § 326(a)), and In re Eidson, 481 B.R. 380, 384

(Bankr. E.D. Va. 2012) (“The purpose of the amendment to Section

330(a)(3), and the addition of Section 330(a)(7) to the Code in

2005,    was       to     clarify        Congress’s       intent         that    the     Trustee’s

compensation            is,    unlike     professional         fees,       to    be    commission-

based, absent extraordinary circumstances.”), with In re Brous,

370   B.R.        563,        568    (Bankr.        S.D.N.Y.    2007)       (“By       its    terms,

§ 326(a) sets a maximum limit, but does not create right to or

standard for awarding compensation.”), and In re Clemens, 349

B.R. 725, 729 (Bankr. D. Utah 2006) (asserting that, even after

the     BAPCPA          amendments,           the    bankruptcy          court        “must    still

determine the reasonableness of chapter 7 Trustee fees, but its

                                                     3
inquiry should now include a consideration of the provisions in

§ 326”).       The second question presented is whether we should

remand the case to the bankruptcy court with instructions to

apply the correct legal standard after an evidentiary hearing.

The    Trustee      contends       that    the        bankruptcy      court        violated       his

right    to        due     process       when        it     reduced      his        compensation

(1) without advance notice that it thought his fee request to be

extraordinary        or     (2)    a     meaningful         opportunity            to   put     forth

evidence to assuage the bankruptcy court’s misgivings.                                     We have

jurisdiction over this matter pursuant to 28 U.S.C. § 158(d).

       For    the        reasons        that     follow,         we   hold         that,      absent

extraordinary circumstances, Chapter 7 trustees must be paid on

a commission basis, as required by 11 U.S.C. § 330(a)(7).                                     Hence,

we     reverse       the     district          court’s          decision       affirming          the

bankruptcy court’s non-commission-based fee award and remand the

case    to    the    district       court       with      instructions         to       vacate    the

Trustee’s      fee       award    and    remand       the    matter      to    the      bankruptcy

court so that it can determine the proper commission-based fee

to award to the Trustee.

                                                 I.

       The    Trustee       in     this        Chapter      7    case,        H.    Jason       Gold,

requested      a    trustee’s      fee     of    $17,254.61.           Finding           that    Gold

failed to properly or timely complete his duties, however, the

                                                 4
bankruptcy court reduced his fee to $8,020.00.                      “Specifically,

the bankruptcy judge said, ‘The Trustee is at fault for not

properly supervising this case . . . and for that reason I will

allow his compensation based on his hourly rate but not on the

compensation schedule in the code.               That’s $8020.’”      In re Rowe,

No.    1:12-cv-1073,    2013    WL     352654,   at   *1   (E.D.    Va.    Jan.   29,

2013).      Gold moved that the bankruptcy court stay its order

while on appeal to the district court, and the bankruptcy court

granted his motion.          Thereafter, the district court affirmed the

bankruptcy court’s decision, but it subsequently granted Gold’s

motion for a stay pending his appeal to this Court.

                                         II.

       Gold contends that the bankruptcy court erred in failing to

award to him a commission-based fee.                   We review de novo the

legal    conclusions    of     the    bankruptcy      court   and    the   district

court.     Alvarez v. HSBC Bank USA, N.A. (In re Alvarez), 733 F.3d

136, 140 (4th Cir. 2013).             Thus, because we are called upon here

to determine the proper application of §§ 330(a)(7) and 326(a),

we review de novo “the appropriate statutory interpretation” of

those statutes.        See Johnson v. Zimmer, 686 F.3d 224, 227 (4th

Cir. 2012) (quoting Botkin v. DuPont Cmty. Credit Union, 650

F.3d     396,   398   (4th     Cir.     2011))    (internal    quotation      marks

omitted).

                                          5
        According to Gold, he is entitled to a commission, pursuant

to § 330(a)(7), based on the percentages set forth in § 326(a).

In analyzing this claim, an overview of § 330(a) is helpful.

                                        A.

     Section 330(a)(1) provides, in relevant part, that,

     After notice to the parties in interest and the United
     States Trustee and a hearing, and subject to section[]
     326 . . ., the court may award to a trustee . . .
     reasonable compensation for actual, necessary services
     rendered by the trustee . . . or attorney and by any
     paraprofessional person employed by any such person;
     and . . . reimbursement for actual necessary expenses.

11 U.S.C. § 330(a)(1) (formatting omitted).                   Next, § 330(a)(2)

states that “[t]he court may, on its own motion or on the motion

of the United States Trustee, the United States Trustee for the

District or Region, the trustee for the estate, or any other

party    in   interest,   award   compensation        that    is     less   than   the

amount of compensation that is requested.”                   These     two sections

are the same today as they were before the enactment of the

BAPCPA.

    Before      enactment    of   the       BAPCPA,    §     330(a)(3)      read    as

follows:

    In determining the amount of reasonable compensation
    to be awarded, the court shall consider the nature,
    the extent, and the value of such services, taking
    into account all relevant factors, including—
    (A) the time spent on such services;
    (B) the rates charged for such services;

                                        6
     (C) whether the services were necessary to the
     administration of, or beneficial at the time at which
     the service was rendered toward the completion of, a
     case under this title;
     (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; and
     (E) whether the compensation is reasonable based on
     the customary compensation charged by comparably
     skilled practitioners in cases other than cases under
     this title.

11 U.S.C. § 330(a)(3) (Supp. 2005) (footnote omitted).                    But, the

current version of § 330(a)(3) speaks only to the compensation

of Chapter 11 trustees.            Id. § 330(a)(3) (“In determining the

amount of reasonable compensation to be awarded to an examiner,

trustee   under    chapter       11,    or    professional    person,   the   court

shall consider the nature, the extent, and the value of such

services,      taking     into     account       all   relevant    factors[.]”).

Thus, § 330(a)(3) is generally immaterial in determining the

compensation for a Chapter 7 trustee such as Gold.

     Section 330(a)(4) is the same as it was before enactment of

the BAPCPA.      It proclaims, as is relevant here, that “the court

shall not allow compensation for—(i) unnecessary duplication of

services; or (ii) services that were not—(I) reasonably likely

to   benefit    the     debtor’s       estate;    or   (II)   necessary    to   the

administration of the case.”                 11 U.S.C. § 330(4)(A) (formatting

omitted).      Sections 330(a)(5) and 330(a)(6) are irrelevant to

the matter before us.

                                             7
       The BAPCPA added § 330(a)(7) to the Code.                               This section

instructs      that,     “[i]n          determining         the   amount      of    reasonable

compensation to be awarded to a trustee, the court shall treat

such    compensation          as    a    commission,          based    on    section    326.”

According to § 326(a),

       [i]n a case under chapter 7 or 11, the court may allow
       reasonable compensation under section 330 of this
       title of the trustee for the trustee’s services,
       payable after the trustee renders such services, not
       to exceed 25 percent on the first $5,000 or less, 10
       percent on any amount in excess of $5,000 but not in
       excess of $50,000, 5 percent on any amount in excess
       of $50,000 but not in excess of $1,000,000, and
       reasonable compensation not to exceed 3 percent of
       such moneys in excess of $1,000,000, upon all moneys
       disbursed or turned over in the case by the trustee to
       parties   in  interest,   excluding  the  debtor,  but
       including holders of secured claims.

                                                B.

       “We    begin,    as     we       must,    with       the   plain     meaning    of   the

statutes.”         Gilbert v. Residential Funding LLC, 678 F.3d 271,

276 (4th Cir. 2012).                    “The starting point for any issue of

statutory interpretation . . . is the language of the statute

itself.”      Id. (alteration in original) (quoting United States v.

Bly,   510    F.3d     453,    460       (4th    Cir.       2007))    (internal      quotation

marks omitted).         “We have stated time and again that courts must

presume that a legislature says in a statute what it means and

means in a statute what it says there.                               When the words of a

statute      are   unambiguous,          then,       this    first    canon    is    also   the

                                                 8
last: ‘judicial inquiry is complete.’”                          Id. (quoting Conn. Nat’l

Bank       v.   Germain,        503     U.S.     249,       253–54        (1992))     (internal

quotation        marks       omitted).         Courts       seek    to    “interpret       [each]

statute ‘as a symmetrical and coherent regulatory scheme,’ and

‘fit, if possible, all parts into an harmonious whole.’”                                  FDA v.

Brown       &   Williamson      Tobacco        Corp.,       529    U.S.    120,     133   (2000)

(citations omitted).

       Section 330(a)(7) consists of two parts:                             (1) a dependent

clause—“In determining the amount of reasonable compensation to

be    awarded     to     a    trustee”—and          (2)    an     independent       clause—“the

court shall treat such compensation as a commission, based on

section 326.”          In re Salgado-Nava, 473 B.R. at 916.                         “In reading

this statutory directive, we think the most natural reading of

this provision is that the independent clause states a mandatory

rule, while the dependent clause states when that rule applies.”

Id.

       Congress        chose    to     employ       the     mandatory      term     “shall”    in

§ 330(a)(7)        when        speaking        of        compensation       for     Chapter    7

trustees.         See 11 U.S.C. § 330(a)(7) (“[T]he court shall treat

such       compensation       as   a    commission,          based    on    section       326.”).

Yet, it used the word “may” in other portions of the statute.

See, e.g., id. § 330(a)(1) (the bankruptcy court “may” allow

reasonable compensation after certain requisites are satisfied);

id.    §    330(a)(2)         (same);     id.        §    326(a)     (same).         “[I]t     is

                                                 9
uncontroversial      that        the    term    ‘shall’      customarily     connotes      a

command,      whereas        the        term         ‘may’      typically       indicates

authorization       without       obligation.”            Air      Line   Pilots    Ass’n,

Int’l. v. U.S. Airways Grp., Inc., 609 F.3d 338, 342 (4th Cir.

2010).     “[Y]oung children . . . . learn early on that ‘may’ is a

wonderfully     permissive         word.       ‘Shall,’      by     contrast,      is   more

sternly mandatory.          And whatever the merits of believing ‘may’

means ‘shall,’ they do not apply when Congress has employed the

two   different          verbs     in     neighboring           statutory     passages.”

Sheppard v. Riverview Nursing Ctr., Inc., 88 F.3d 1332, 1338

(4th Cir. 1996).           “[W]hen the same Rule uses both ‘may’ and

‘shall’, the normal inference is that each is used in its usual

sense—the     one    act     being       permissive,         the    other    mandatory.”

Anderson v. Yungkau, 329 U.S. 482, 485 (1947).

      Accordingly, we can rightly assume that Congress said what

it meant and meant what it said when it chose to include the

term “shall” in § 330(a)(7), thus making its application in the

determination       of     Chapter       7     trustee       fee    awards   mandatory.

Examining the other operative words in § 330(a)(7), we note that

a “commission” is “[a] fee paid to an agent or employee for a

particular transaction, usu[ally] as a percentage of the money

received from the transaction.”                     Black’s Law Dictionary 306 (9th

ed. 2009).     And, “based upon” means “derived from.”                       Grayson v.

Advanced Mgmt. Tech., Inc., 221 F.3d 580, 582 (4th Cir. 2000).

                                               10
These   definitions       of   the    operative    terms    in    the     independent

clause of § 330(a)(7) lead us to the unmistakable conclusion

that, absent extraordinary circumstances, a Chapter 7 trustee’s

fee award must be calculated on a commission basis, as those

percentages are set forth in § 326(a).

                                          C.

      But,   what     extraordinary        circumstances         might    allow      the

§ 326(a) commission rates to be reduced?                The court below stated

that “extraordinary circumstances . . . include not performing

trustee    duties,    performing       them    negligently     or      inadequately.”

In re Rowe, 484 B.R. 667, 669 (Bankr. E.D. Va. 2012).                           In its

Handbook for Chapter 7 Trustees, the United States Trustee has

stated that, “[e]xtraordinary factors are expected to arise only

in rare and unusual circumstances and include situations such as

where the trustee’s case administration falls below acceptable

standards    or     where      it    appears   a   trustee       has     delegated    a

substantial portion of his or her duties to an attorney or other

professional.”       2 U.S. Trustee, Handbook for Chapter 7 Trustees

Ch.       2-1,       at        39      (Apr.       2012),           available        at

http://www.justice.gov/ust/eo/ust_org/ustp_manual/docs/Volume_2_

Chapter_7_Case_Administration.pdf.                 At   oral        argument,     Gold

suggested that a court may also wish to consider evidence of the

customs and practices of other Chapter 7 trustees—both locally

                                          11
and nationally—in making this determination.                     It suffices to say

that,     with     these    broad     parameters       providing        guidance,       the

bankruptcy courts will be required to make the determination of

whether extraordinary circumstances exist in a Chapter 7 action

on a case-by-case basis.

     It bears noting that the term “extraordinary circumstances”

is absent from the statute.             Nevertheless, its employment in the

Chapter 7 fee determination scheme appears to be an attempt to

reconcile        § 330(a)(7)    and     §    326(a)      with     §    330(a)(1)     and

§ 330(a)(2).

     As    the     reader    will     recall,      §   330(a)(7)        sets    forth    a

mandatory    rule     that     “the   court      shall    treat       [the     Chapter   7

trustee’s] compensation as a commission, based on section 326.”

Thus, reading § 330(a)(7) alongside § 330(a)(1) (“The court may

award to a trustee . . . reasonable compensation for actual,

necessary    services        rendered       by   the     trustee.”           (formatting

omitted)), Congress stated, in effect, that the commission rates

in § 326(a) are reasonable compensation for Chapter 7 trustees.

See In re Salgado-Nava, 473 B.R. at 920 (“[W]e must assume that

Congress already has approved fees set as commissions in § 326

as reasonable for the duties it has set out for such trustees

. . . .      In    effect,     Congress      has   set    both    the    duties     of    a

trustee and the ‘market’ rate for compensation related to the

delivery of those services.”).

                                            12
       Nevertheless, it strains the bounds of credulity to think

that Congress would have thought those rates to be reasonable—or

meant    for   Chapter    7    trustees      to     receive    those       rates—when

extraordinary     circumstances        are        present.          This    is    when

§ 330(a)(2) comes into play.              As we noted above, § 330(a)(2)

provides that “[t]he court may, on its own motion or on the

motion of the United States Trustee, the United States Trustee

for the District or Region, the trustee for the estate, or any

other party in interest, award compensation that is less than

the amount of compensation that is requested.”

       Synthesizing       §    330(a)(2)—a          permissive         section—with

§ 330(a)(7)—a     mandatory     section—leads         us     again    to    the   same

conclusion: as a general rule, the fee for Chapter 7 trustees

must    be   determined   on   a    commission       basis,    as    set    forth   in

§ 326(a).      See In re Salgado-Nava, 473 B.R. at 921 (“[A]bsent

extraordinary circumstances, chapter 7 . . . trustee fees should

be presumed reasonable if they are requested at the statutory

rate. . . . Thus, absent extraordinary circumstances, bankruptcy

courts should approve chapter 7 . . . trustee fees without any

significant      additional        review.”)         Yet,      in     extraordinary

circumstances, the bankruptcy court may reduce the fee, pursuant

to § 330(a)(2).       See 11 U.S.C. § 330(a)(2) (“The court may . . .

award compensation that is less than the amount of compensation

requested.”).      As such, § 330(a)(7) creates a presumption, but

                                        13
not a right, to a statutory maximum commission-based fee for

Chapter 7 trustees.         But still, the starting point for deciding

Chapter 7 trustee compensation is always the commission rate to

which     the     trustee     would   normally       be   entitled     had     no

extraordinary circumstances existed.

                                      D.

      Here, in determining Gold’s fee, the bankruptcy court found

that Gold “did not properly discharge his duties.                  He did not

administer the estate expeditiously and in a manner compatible

to the best interests of the parties in interest.”                 In re Rowe,

484 B.R. at 669.       It also found that he neglected to adequately

supervise the case.         Id. at 670.      Consequently, the bankruptcy

court based Gold’s compensation on an hourly rate, as opposed to

a commission-based rate, as dictated by § 330(a)(7).                  In light

of the plain meaning of § 330(a)(7), however, this was a legal

error.

      The bankruptcy court ought to have first determined what

the     maximum   statutory     commission    rate    for   this     case    was,

pursuant to § 326(a).           Only after doing that should it have

decided    whether    any   extraordinary    circumstances     existed       such

that the proper commission rate set out in § 326(a), which is

presumptively reasonable, was in fact unreasonable, and, thus,

should have been reduced.        As the In re Salgado-Nava court held,

                                      14
        when confronted with extraordinary circumstances, the
        bankruptcy court’s examination of the relationship
        between the commission rate and the services rendered
        may, but need not necessarily include, the § 330(a)(3)
        factors and a lodestar analysis.       But bankruptcy
        courts still must keep in mind that tallying trustee
        time expended in performing services and multiplying
        that time by a reasonable hourly rate ordinarily is
        beyond the scope of a reasonableness inquiry involving
        commissions.

473 B.R. at 921.          Whatever factors that the bankruptcy court

considers      when    reducing    the    fee,    it    should   make     detailed

findings of fact explaining the “rational relationship between

the amount of the commission and the type and level of services

rendered.”      Id.

                                         III.

    Gold also argues that we ought to vacate the bankruptcy

court’s order and remand with instructions to apply the correct

legal standard after an evidentiary hearing.                     As we observed

above, Gold maintains that the bankruptcy court violated his

right to due process in reducing his compensation without either

advance       notice   that   it    harbored      reservations      as     to    the

appropriateness of his requested fee or a meaningful opportunity

to present evidence addressing the bankruptcy court’s concerns.

“When    an   appellate   court    discerns      that   a   district     court   has

failed to make a finding because of an erroneous view of the

law, the usual rule is that there should be a remand for further

                                          15
proceedings   to   permit   the   trial   court   to   make   the    missing

findings.”    Pullman—Standard v. Swint, 456 U.S. 273, 291 (1982).

     We need not reach the second question on appeal.               In light

of our decision directing the district court to remand the case

to the bankruptcy court, Gold will be given an opportunity to

address these matters with that court in due course.

                                   IV.

     For these reasons, we reverse the district court’s decision

affirming the bankruptcy court’s non-commission-based fee award

and remand the case to the district court with instructions to

vacate the Trustee’s fee and remand the matter to the bankruptcy

court so that it can determine the proper commission-based fee

to award to the Trustee.

                                                  REVERSED AND REMANDED

                                   16