In Re: H. Jason Gold v. ( 2014 )

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