Court Opinion

ID: 4510541
Source: CourtListenerOpinion
Date Created: 2020-02-26 19:00:24.996171+00
Date Added: 2024-06-11T12:13:35.968818
License: Public Domain

Case: 19-20492      Document: 00515321006         Page: 1    Date Filed: 02/26/2020

           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT
                                                                        United States Court of Appeals
                                                                                 Fifth Circuit

                                      No. 19-20492                             FILED
                                                                        February 26, 2020
                                                                          Lyle W. Cayce
In the Matter of: Raquel Tricia King                                           Clerk

              Debtor

JOSEPH M. HILL,

              Appellant

v.

RAQUEL TRICIA KING, also known as Raquel Tricia Boutte, also known as
Raquel King Boutte,

              Appellee

                   Appeal from the United States District Court
                        for the Southern District of Texas
                             USDC No. 4:16-CV-3380

Before DENNIS, GRAVES and WILLETT, Circuit Judges.
PER CURIAM:*
       Chapter 7 trustee Joseph M. Hill appeals the district court’s affirmance
of the bankruptcy court’s denial in part of his application for compensation and
expenses. We AFFIRM for the reasons set out herein.

       * Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH
CIR. R. 47.5.4.
    Case: 19-20492    Document: 00515321006    Page: 2   Date Filed: 02/26/2020

                                No. 19-20492
                 FACTS AND PROCEDURAL HISTORY
      Debtor Raquel Tricia King filed a voluntary Chapter 7 petition on
January 24, 2013, and Hill was appointed trustee. Though King’s schedules
showed no cash or hard assets for liquidation, Hill determined that various
issues, including King’s recent acrimonious divorce, required additional
investigation. Hill asserts that there were numerous assets jointly owned by
King and her ex-husband, Eric Boutte, that had not been liquidated.
Additionally, Boutte had alleged irregularities and inconsistencies in King’s
schedules.
      Hill retained his law firm, Cage, Hill & Niehaus, LLP, (CHN) as
authorized by the court, to investigate any irregularities. On November 16,
2015, CHN filed an application for compensation of $123,282.25 in fees and
expenses of $4,560.03 for its research and investigation. The largest creditor
objected, and an evidentiary hearing was held.      On March 18, 2016, the
bankruptcy court issued an opinion approving $42,140.75 of the requested fees
and $3,712.26 of the requested expenses. In re King (King I), 546 B.R. 682, 736
(Bankr. S.D. Tex. 2016). The court found that some requested fees were not
compensable for various reasons and that some entries included multiple
services “lumped” into a single time entry. More importantly, the bankruptcy
court also found that Hill had violated his fiduciary duty to the estate by
allowing his firm to seek illegitimate fees from the estate. CHN did not appeal
the bankruptcy court’s order.
      On June 10, 2016, Hill filed his application for compensation and
expenses, seeking $28,461.93 pursuant to the statutory maximum under 11
U.S.C. § 326(a) and $253.50 in expenses. After an evidentiary hearing, the
bankruptcy court issued an order on October 28, 2016, holding, in relevant part
that: (1) Hill violated his fiduciary duty by allowing his law firm to seek
excessive fees; (2) Hill violated Bankruptcy Rule 9019 by settling a portion of
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                                   No. 19-20492
the Objection to Exemption without court approval; (3) Hill allowed CHN to
bill $515.50 for reviewing claims but stated in his application to retain CHN
that he would review claims; and (4) Hill violated Bankruptcy Rule 2016(a) by
not submitting detailed statements with his application. In re King (King II),
559 B.R. 158 (Bankr. S.D. Tex. 2016). After consideration, the bankruptcy
court found that Hill was entitled to total fees of $5,692.39 and expenses of
$111.88. Id. at 175. Hill appealed to the district court, which affirmed without
discussion. Hill subsequently filed this appeal.
                           STANDARD OF REVIEW
      We review the district court’s decision by “applying the same standard
of review to the bankruptcy court’s conclusions of law and findings of fact that
the district court applied.”   In re Cahill, 428 F.3d 536, 539 (2005).        The
bankruptcy court’s award of fees is reviewed for abuse of discretion. Id. “An
abuse of discretion arises where (1) the bankruptcy judge fails to apply the
proper legal standard or follows improper procedures in determining the fee
award, or (2) bases an award on findings of fact that are clearly erroneous.”
Matter of Evangeline Refining Co., 890 F.2d 1312, 1325 (1989). Hill bears the
burden of proof in a fee application case. Id. “Moreover, since every dollar
received by the applicant results in one dollar less for creditors, justification
for compensation is a necessity.” Id. at 1326.
                                   DISCUSSION
I. Whether the bankruptcy court applied the correct standard in
determining the trustee’s compensation.

      Hill asserts that the bankruptcy court applied an incorrect standard in
determining his compensation and erred in finding that he had breached his
fiduciary duty.      Specifically, as to the standard, Hill asserts that the
compensation of a Chapter 7 trustee is not controlled by 11 U.S.C. § 330(a)(3),
but rather by section 330(a)(7).
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                                  No. 19-20492
      Section 326 of the bankruptcy code states, in relevant part, that “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.” 11 U.S.C. § 326(a).
      Section 330 states, in relevant part:
             (a)(1) After notice to the parties in interest and the United
      States Trustee and a hearing, and subject to sections 326, 328, and
      329, the court may award to a trustee . . . .
               (A) reasonable compensation for actual, necessary services
             rendered by the trustee . . . ; and
               (B) reimbursement for actual, necessary expenses.
             (2) The 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.

11 U.S.C. § 330(a)(1),(2). Section 330 also provides the following guidance:
              (4)(A) Except as provided in subparagraph (B), 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.
             ...
              (5) The court shall reduce the amount of compensation
      awarded under this section by the amount of any interim
      compensation awarded under section 331, and, if the amount of
      such interim compensation exceeds the amount of compensation
      awarded under this section, may order the return of the excess to
      the estate.
             (6) Any compensation awarded for the preparation of a fee
      application shall be based on the level and skill reasonably
      required to prepare the application.
             (7) In 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.

11 U.S.C. § 330(a)(4)-(7).

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       The question centers around determining “reasonable compensation.”
This court discussed the above language and adopted the appropriate method
for determining Chapter 7 compensation in the case of In re JFK Capital
Holdings, 880 F.3d 747 (5th Cir. 2018). In JFK Capital Holdings, this court
specifically declined to adopt the approach used by the bankruptcy court here.
Id. at 753. Instead, this court adopted the interpretation that the trustee’s
compensation is treated as commission and “the percentage amounts listed in
Section 326 are presumptively reasonable for Chapter 7 trustee awards.” Id. 1
However, importantly, this court further added that treating Chapter 7
trustee’s compensation as a commission “leav[es] open the possibility of a
reduced commission based on ‘extraordinary circumstances.’” Id. at 755 (citing
In re Rowe, 750 F.3d 392, 397 (4th Cir. 2014)). In doing so, the court stated:
             To the extent extraordinary circumstances explicitly trigger
       the remaining provisions of Section 330, we agree such a
       circumstance might preclude a commission award. To the extent
       an extraordinary circumstances analysis evaluates the types of
       reasonableness factors articulated in Section 330(a)(3), such an
       approach suffers the same flaw as the district court's approach
       here. There is little distinction between the departure from a
       commission-based approach under extraordinary circumstances
       versus the pre-BAPCPA reasonableness inquiry.

Id. at 755-56. 2
       The court further said:
            While we recognize that Section 330 still allows a reduction
       or denial of compensation, this should be a rare event. We
       acknowledge that exceptional circumstances can alter the
       compensation, but “exceptional” is the key. The commission-based
       framework established by Congress facilitates more efficient
       Chapter 7 trustee compensation in the courts by placing the

       1 See Mohns, Inc. v. Lanser, 522 B.R. 594, 601 (E.D. Wis.), aff’d sub nom. In re Wilson,
796 F.3d 818 (7th Cir. 2015).
       2 BAPCPA is the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.

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        burden on the trustees to avoid wasting resources, as their
        commission remains the same regardless of potentially duplicative
        or unnecessary services.

Id. at 756.
        Here, the bankruptcy court predicted and addressed the possibility that
this court may adopt the above approach. Specifically, the bankruptcy court
said:
        Even assuming, however, that the Fifth Circuit were to adopt the
        holding in Rowe, this Court finds: (a) that “extraordinary
        circumstances” exist here (for the reasons discussed herein); (b) it
        is the Trustee’s burden to introduce evidence to prove that despite
        such extraordinary circumstances, this Court should still award
        him the fee that he requests; and (c) the Trustee has failed to meet
        this burden.

King II, 559 B.R. at 165 n. 9.
        Thus, while Hill is arguably correct that the bankruptcy court applied
an incorrect standard based on then-existing precedent or the lack thereof, the
court also applied the correct standard in the alternative, making remand
unnecessary on this issue.
II. Whether the bankruptcy court erred in finding that the trustee
breached his fiduciary duty.

        Hill asserts that the bankruptcy court erred in finding that he breached
his fiduciary duty.
        In the first order addressing the fee application of CHN, the bankruptcy
court “expressly found that [Hill] had violated his fiduciary duty to the estate
‘by allowing his firm to seek illegitimate fees from the estate.’” King II, 559
B.R. at 159 (citing King I, 546 B.R. at 685) (internal citation omitted). In that
order, the bankruptcy court also gave Hill notice of its concerns and intention
to hold a subsequent hearing to determine whether Hill should be “afforded an

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                                       No. 19-20492
absolute presumption of maximum compensation.” King I, 546 B.R. at 689,
n.3. That order was not appealed.
       The bankruptcy court adopted the findings of fact and conclusions of law
from that first order in deciding Hill’s subsequent application, which contained
no supporting documentation.             In its order setting a hearing on Hill’s
application, the bankruptcy court encouraged Hill to offer testimony and
exhibits to support his application. King II, 559 B.R. at 160. Hill testified at
the hearing but offered no exhibits. Id. During the hearing, Hill acknowledged
that he had failed to review each individual time entry of CHN but instead
merely reviewed the narrative of CHN’s application. Id. at 161. Hill also
acknowledged that he had delegated review of the time entries to Timothy
Wentworth, a colleague at CHN.
       The bankruptcy court found that Hill violated his fiduciary duty based
on various factors, including the following: By letting his own firm seek
excessive, improper fees because he “abdicated his fundamental duty of
reviewing the law firm’s timesheets”; by unilaterally settling a portion of his
objection to King’s exemptions without filing an application to compromise
pursuant to Bankruptcy Rule 9019; 3 by making two misrepresentations to the
court when seeking approval to retain his own law firm; 4 and by disregarding

       3  Hill settled for $4,000, an amount substantially less than the $24,885 Hill’s
appraiser deemed the value of the jewelry that King was attempting to exempt. King I, 546
B.R. at 733-34; King II, 559 B.R. at 165.
       4 The misrepresentations are: (1) That the review and assessment of claims is

routinely undertaken by the trustee without incurring legal fees (Hill’s firm billed for
reviewing claims); and (2) the statement that employment of his firm would “be in the best
interest of creditors in this estate” because Hill’s presence would ensure greater control and
fee monitoring (the court found that Hill had virtually no control and did no fee monitoring).
King I, 546 B.R. at 736; King II, 559 B.R. at 165-66.
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                                       No. 19-20492
Rule 9019 during his administration of the case and Rule 2016 in pursuit of
his fees. 5
       Hill takes issue with each of the bankruptcy court’s findings, disputes
that he allowed CHN to seek excessive fees, characterizes his errors as “minor,”
asserts that the bankruptcy court improperly considered the factors under
Section 330(a)(3), and states that he should be presumed an “ordinary trustee”
rather than an attorney with extensive bankruptcy experience. In doing so,
Hill attempts to reargue CHN’s application for fees, which was not appealed,
and he ignores applicable authority.
       As stated previously, Hill bears the burden of proof in this case. To
establish an abuse of discretion, Hill must show that the bankruptcy court
failed to apply the proper legal standard or followed improper procedures in
determining the fees or that it based an award on clearly erroneous findings of
fact. Evangeline, 890 F.2d at 1325. Hill is unable to establish either or provide
justification for the full amount of compensation he seeks.
       For the reasons stated herein, we AFFIRM the district court’s order
affirming the bankruptcy court.

       5 Bankruptcy Rule 2016 requires that a trustee seeking compensation “shall file an
application setting forth a detailed statement of (1) the services rendered, time expended and
expenses incurred, and (2) the amounts requested.” Fed. R. Bankr. Proc. 2016(a).

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