‘Temple of Justice’ Rebuffs Trustee’s Attempt to Double Dip

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By Deborah Swann

A Chapter 7 trustee, authorized to serve as attorney for a bankruptcy estate, had her attorney compensation limited by a Tennessee court ( In re Peterson , 2017 BL 116166, Bankr. M.D. Tenn., Case No: 12-07575-CW3-7 Substantively Consolidated, 4/7/17 ).

Judge Charles M. Walker of the U.S. Bankruptcy Court for the Middle District of Tennessee refused to permit Susan Limor to be “doubly compensated” for doing the same work as an attorney for the estate that she did as a trustee.

The practice of doubling up, the court said, highlighted a “major problem within the Middle District of Tennessee,” namely, the routine practice of trustees “hiring their own firms to represent estates.”

In Chapter 7, a trustee is appointed to maximize the value of the debtor’s estate for the purpose of making distributions to creditors.

Here, Limor sought attorneys’ fees that, when coupled with her trustee’s compensation, amounted to over 50 percent of total receipts for the bankruptcy estate. This left general unsecured creditors with a paltry distribution of 2.8 percent.

The court held that proper exercise of the trustee’s business judgment in administering the bankruptcy estate requires the trustee to articulate why hiring her own firm will benefit the estate.

Upon meeting that standard for employment, the trustee then must ensure good billing judgment through proper management of hired professionals.

Intending to function as “keeper of the temple of justice,” the court directed the U.S. Trustee for the Middle District of Tennessee to distribute the court’s memorandum opinion to all panel trustees in the district.

To contact the reporter on this story: Deborah Swann in Washington at dswann@bna.com

To contact the editor responsible for this story: Jay Horowitz at JHorowitz@bna.com

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