In the Matter of THE ROBERT PLAN CORPORATION, et al,
Debtors.
Chapter 7, Case No. 8-08-74573-reg, Case No. 8-08-74575-reg
(Substantively Consolidated)
UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF
NEW YORK
2012 Bankr. LEXIS 3838
August 20, 2012, Decided
COUNSEL: [*1] For The Robert Plan of New York Corporation, Debtor
(8-08-74575-reg): Harold S Berzow, Ruskin Moscou Faltischek, Uniondale, NY.
For Kenneth Kirschenbaum, Trustee (8-08-74575-reg): Kirschenbaum &
Kirschenbaum,
Garden City, NY; Fletcher Strong, Kirschenbaum & Kirschenbaum PC, Garden
City,
NY; Kenneth Kirschenbaum, Kirschenbaum & Kirschenbaum, Garden City, NY.
For The Robert Plan of New York Corporation, Consolidated Debtor
(8-08-74573-reg): Harold S Berzow, Ruskin Moscou Faltischek, Uniondale, NY.
For The Robert Plan Corporation, Debtor (8-08-74573-reg): Harold S Berzow,
Ruskin Moscou Faltischek, Uniondale, NY.
For Kenneth Kirschenbaum, Trustee (8-08-74573-reg): Kirschenbaum &
Kirschenbaum,
PC, Garden City, NY; Fletcher Strong, Kirschenbaum & Kirschenbaum PC, Garden
City, NY; Kenneth Kirschenbaum, Steven B Sheinwald, Kirschenbaum &
Kirschenbaum,
Garden City, NY.
For Official Committee of Unsecured Creditors, Creditor Committee
(8-08-74573-reg): S Jason Teele, Sharon L Levine, Lowenstein Sandler PC,
Roseland, NJ.
JUDGES: Robert E. Grossman, United States Bankruptcy Judge.
OPINION BY: Robert E. Grossman
OPINION
Memorandum Decision
Kenneth Kirschenbaum, the Chapter 7 Trustee ("Trustee") in the
substantively
consolidated cases [*2] of The Robert Plan Corporation ("RPC") and The
Robert
Plan of New York Corporation ("RPNY") (collectively, the "Debtors") seeks
entry
of an order awarding fees for services rendered by the Trustee and his duly
retained professionals in connection with the Trustee's administration of an
ERISA plan ("Plan") for the benefit of the Debtors' former employees. The
Trustee filed an order scheduling a hearing on shortened notice to consider
applications by (i) the Trustee, for a second interim award of
compensation for
services rendered as Plan administrator, (ii) Kirschenbaum & Kirschenbaum
("K&K"), attorneys for the Trustee, for a second interim award of
compensation
for services rendered as counsel to the Trustee while acting as Plan
administrator, (iii) David J. Witz, AIF ("Witz"), pension consultant to the
Trustee, for a final allowance of compensation for services rendered to the
Trustee, and (iv) Travis L. Whitfield, CPA, PLLC ("Whitfield"), independent
auditor to the Trustee, for a final allowance of compensation
(collectively, the
"Applications"). The Trustee declares he is ready to terminate the Plan after
fully administering it, and intends to use funds remaining in the Plan, which
[*3] are not property of the Debtors' estate, to pay fees and commissions
awarded pursuant to the Applications. Because there are not sufficient
funds in
the Plan account to pay the contemplated awards to all professionals the
Trustee
has disclosed his intent to apply funds of the bankruptcy estate to make
up the
difference.
The U.S. Department of Labor ("DOL") objects to the Applications on
various
grounds. DOL asserts that this Court may award fees so long as those fees are
paid solely from property of the Debtors' estate. However, DOL argues that
this
Court lacks jurisdiction to award any fees that will be satisfied from Plan
assets. DOL alleges that this Court previously recognized in a written
decision
that it lacks jurisdiction to award fees from Plan assets and is
restricted to
awarding compensation under the Bankruptcy Code, and then only from funds
constituting property of the Debtors' bankruptcy estate. DOL concludes
therefore
that any award of fees or compensation by this Court where Plan assets may be
used to pay all or part of such award is not binding on DOL or any other
entity.
DOL also has specific objections to the Applications, and seeks reductions
as to
each request except [*4] for the Witz application.
One of the flaws in DOL's argument is that it is premised on a
misunderstanding of the Court's previous decision. In In re The Robert
Plan Corp
., 439 B.R. 29 (Bankr. E.D.N.Y. 2010), this Court unambiguously concluded
that
it maintains core jurisdiction to authorize the Trustee to retain
professionals
to assist the Trustee in performing his duties under Bankruptcy Code §
704(a)(11). The source of the Trustee's obligation to act as Plan
administrator
is found in the Bankruptcy Code. The fact that the Plan assets
administered by
the Trustee are not property of the Debtors' estate has no bearing on the
Court's jurisdiction over the Trustee when acting as the Plan
administrator. The
Court also ruled that it has core jurisdiction to award fees to the
Trustee and
his duly retained professionals in connection with the Trustee's acts as Plan
administrator. Whether the payments are made from the Plan assets or
Bankruptcy
estate assets do not in any way alter the legal analysis supporting the
Court's
ruling, a ruling that is now the law of the case. Any reference to the
requirements applicable to compensation under the ERISA statutes was not
meant
to limit the Bankruptcy [*5] Court's jurisdiction to award fees to a
Trustee,
whether from Plan assets or assets of the Bankruptcy estate. Furthermore,
Bankruptcy Code §§ 326 and 330, as applicable when determining the amount of
fees to award to the Trustee and his professionals, do not conflict with
ERISA
rules governing compensation of a Trustee as Plan administrator. ERISA has
applicable regulations regarding reasonable and appropriate compensation
for the
Trustee and his professionals, but there is no ERISA statute that requires a
Chapter 7 trustee or any trustee to seek a court's approval prior to the
taking
of fees. This Court's prior ruling makes clear however, that a Chapter 7
Trustee
must seek court approval of his compensation. Any such approval will only be
granted after a hearing on notice to all parties required under Fed. R.
Bankr.
P. 2002(a)(6), and upon a finding that the compensation sought complies
with the
Bankruptcy Code, which in turn requires a finding that the amount awarded is
reasonable. This procedure harmonizes with the applicable ERISA laws
regarding
compensation of a Plan administrator and his professionals. Congress could
have
exempted a Chapter 7 trustee from these requirements when [*6] it enacted
Bankruptcy Code § 704(a)(11), but it chose not to do so. Therefore, it is
clear
to this Court that (i) it has jurisdiction to award fees to the Trustee
and his
professionals, and (ii) there is no ERISA statute that conflicts with the
requirement under the Bankruptcy Code that the Trustee and his professionals
seek Bankruptcy Court approval of their fees.
Procedural History
On August 25, 2008 (the "Petition Date"), the Debtors filed voluntary
petitions for relief under Chapter 11 of the United States Bankruptcy Code
(the
"Bankruptcy Code"). On January 19, 2010, the Debtors' cases were converted to
cases under Chapter 7 of the Bankruptcy Code. The Trustee was duly
appointed and
qualified as acting trustee for both cases. By order entered on September 9,
2010, the Debtors' cases were substantively consolidated. On November 9,
2011,
the Trustee filed the Applications. On November 10, 2011, the Court
entered an
order scheduling a hearing on shortened notice to consider the
Applications. On
December 7, 2011, DOL filed an objection to the Applications. On December 13,
2011, the Trustee filed a Reply. Hearings were held before the Court on
December
14, 2011 and February 2, 2012. Thereafter, [*7] the matter was marked
submitted.
Facts
The Plan is sponsored by RPC for the benefit of its employees and is a
defined contribution plan governed by the terms of ERISA. Section 19.05 of
the
Plan provides as follows:
Costs of Administration. Unless some or all are paid by the
Employer, all reasonable costs and expenses (including legal,
accounting, and employee communications fees) incurred by the
Administrator and the Trustee in administering the Plan and Trust may
be paid from the forfeitures (if any) resulting under Section 11.08,
or from the remaining Trust Fund. All such costs and expenses paid
from the Trust Fund shall, unless allocable to the Accounts of
particular Participants, be charged against the Accounts of all
Participants on a pro rata basis or in such other reasonable manner as
may be directed by the Employer and accepted by the Trustee.
Prior to the Petition Date, RPC was the Plan administrator. Upon
conversion of
the Debtors' cases and appointment of the Trustee, the Trustee was required,
under Bankruptcy Code § 704(a) (11), to continue to perform the obligations
required of the Plan administrator. By application dated May 6, 2010, the
Trustee sought Court authorization [*8] to act as Plan administrator at an
hourly rate of $500.00, and sought Court authorization to retain the
services of
Witz as pension consultant, K&K as legal counsel to the Trustee as Plan
administrator, and Whitfield as independent auditor ("First Application"). By
supplemental application filed on June 10, 2010, the Trustee sought
authorization to pay the above-named entities and individuals up to certain
specified amounts subject to his discretion from the Plan funds ("Second
Application"). On August 6, 2010, the Trustee filed a supplemental
affirmation
in support of the Second Application, wherein the Trustee sought
authorization
to take whatever action the Trustee deems appropriate to bring the Plan into
compliance with applicable rules and regulations, and to terminate the Plan
("Second Amended Application"). In order to fund the costs associated with
bringing the Plan into compliance with applicable rules and regulations,
restore
funds to certain participants' accounts, file the necessary tax returns
and to
proceed to terminate the Plan, the Trustee directed that each Plan
participant's
account be surcharged three percent, which funds have been placed into an
account called a [*9] "Pguy Account." Pursuant to the Second Amended
Application, the Trustee sought authorization to pay himself $40,940.00 on an
interim basis as compensation for services rendered as Plan administrator.
DOL
objected to the Trustee's request for Court authorization to pay the
Trustee and
to retain and pay professionals on the basis that this Court lacks
jurisdiction
over the Trustee's actions when he acts as Plan administrator. In a
memorandum
decision dated October 26, 2010, this Court held that the Trustee, when
acting
as Plan administrator pursuant to Bankruptcy Code § 704(a)(11), is subject to
the Bankruptcy Court's core jurisdiction. In re The Robert Plan Corp., 439
B.R.
29 (Bankr. E.D.N.Y. 2010). This Court further ruled that it has jurisdiction
over any request by the Trustee to retain and pay professionals to assist the
Trustee in carrying out his duties as Plan administrator. Id. at 45. As a
creature of the Bankruptcy Code, the Trustee exercises a core function when
administering the Plan assets, and the fact that the Plan assets were not
assets
of the Debtor's bankruptcy estate did not place the Trustee's actions out
of the
reach of this Court's jurisdiction. The Court did not [*10] rule on
whether the
use of Plan funds to pay fees awarded by the Bankruptcy Court complied
with the
relevant ERISA statutes, but directed the Trustee and his professionals to
seek
to satisfy any award from Plan funds first. Id. at 45 - 46. The Court
declined
to rule on the Trustee's request for authorization to take unspecified
actions
in the future in connection with termination of the Plan, finding that the
request was premature. Id. at 46. The Court also declined to rule on the
Trustee's request for interim compensation for his services rendered as Plan
administrator on the same grounds. However, the Court did reserve for a
future
date a determination of whether the Trustee could be paid pursuant to the
formula set forth in Bankruptcy Code § 326. Finally, the Court denied without
prejudice the fee applications for K&K and the other professionals for
improper
service. No appeal was taken from the order denying in part and granting
in part
the First Application, the Second Application and the Second Amended
Application.
On January 5, 2011, applications for interim compensation ("First
Interim Fee
Applications") were filed by the Trustee, K&K, Witz and Whitfield. The
Trustee's
interim [*11] application covered the period of time from the date the
Trustee
was appointed to November 4, 2010. K&K's application covered the period of
time
from the date K&K was retained by the Trustee to November 4, 2010. Witz's
application covered the period of time from the date Witz was retained
through
December 15, 2010. Whitfield's application covered the period of time from
the
date Whitfield was retained through December 14, 2010. On January 25,
2011, DOL
filed responsive papers objecting to the applications of K&K and the Trustee,
and indicating that DOL had reached an agreement with Witz and Whitfield
regarding their interim requests. On January 28, 2011, the Trustee filed a
reply
to DOL's objections. At the hearing on February 7, 2011, the Court awarded
$45,300.00 plus expenses in the amount of $740.42 to the Trustee, which
represented 80% of the amount sought by the Trustee. The remainder was
subject
to a holdback pending a final fee application. The amount of this interim
award
was based on an hourly rate of $500.00 per hour, and not on the
calculations set
forth in Bankruptcy Code § 326. The Court also awarded $43,389.00 to K&K,
representing 80% of the total amount requested, $39,750.00 [*12] to
Whitfield,
representing 75% of the total amount requested, and $29,590.00 plus
reimbursement of expenses in the sum of $3,755.00 to Witz, representing
80% of
the total amount requested. No appeals were taken from the orders granting
the
First Interim Fee Applications. Pursuant to orders entered on March 1,
2011, the
Court granted such awards but, consistent with the prior memorandum
decision in
this case, refrained from specifying whether the awards were to be paid from
Plan assets, assets of the Debtors' estate, or some combination of both. The
Trustee paid himself the sum of $34,000.00 as interim compensation and
$740.42
as reimbursement of expenses from the Plan funds in the Pguy Account and
the sum
of $11,300.00 in interim compensation from Estate funds. K&K's award was paid
from Plan funds in the Pguy Account, as were the interim awards to Witz and
Whitfield.
The Trustee has distributed i) funds totaling $7,533,894.27 to Plan
participants either as rollovers to different accounts or as direct payments,
ii) $1,725,147.70 to third party custodians where IRA accounts were set up
for
those Plan participants who could not be located or who have not responded to
the notice of termination, [*13] iii) $40,580.27 from the forfeiture
account,
and iv) $116,587.45 in disbursements from the Pguy Account. The Trustee is
in a
position to file a final tax return on behalf of the Plan, and as of the
date of
the Applications, approximately $144,000.00 remained in the Pguy Account. An
additional $2,376.00 representing an insurance premium refund on a cancelled
fiduciary policy was to be deposited into the Pguy Account prior to the
hearing
scheduled for the Applications. Therefore, the balance available for
distribution from the Plan aggregated $146,382.01 as of the date of the
hearings
on the Applications.
The Trustee seeks a second award of interim award of compensation in the
amount of $132,378.24 for work performed solely in connection with
carrying out
the Trustee's duties set forth in Bankruptcy Code §704(a)(11). K&K seeks a
second award of interim compensation in the amount of $49,408.75. Witz and
Whitfield, the other professionals retained by the Trustee to assist him with
winding up the Plan, seek final awards for their work performed. Each of the
professionals have filed applications which include a recitation of work
performed and copies of time sheets for the Court's review. [*14] Each seek
awards based solely on work performed in connection with assisting the
Trustee
in carrying out his duties set forth in Bankruptcy Code § 704(a)(11). If the
compensation is granted as requested, there are insufficient funds in the
Pguy
Account to pay these amounts in full. There are sufficient funds in the
Debtors'
estate to make up any shortfall.
Discussion
DOL objects to the Applications on several grounds. DOL argues that
because
this Court held in its prior Memorandum Decision that any order awarding fees
would contain no determination of whether Plan assets could be used to
satisfy
the award, the issue of whether funds held in the Pguy Account may be used to
satisfy any award is not before the Court. Therefore, DOL does not comment on
whether the Trustee and his professionals have complied with the requirements
imposed by ERISA on a Plan fiduciary, such as the Trustee, and his
professionals. DOL does note that the Trustee may not be compensated from
Plan
assets to the extent he performs "settlor functions" which are expenses
incurred
for the benefit of the employer. U.S. Dep't of Labor Field Assistance
Bulletin
2002-2 (Nov. 4, 2002), http://wwww.dol.gov/ebsa/regs/fab_2002-2.html [*15]
("expenses incurred in connection with the performance of settlor functions
would not be reasonable plan expenses as they would be incurred for the
benefit
of the employer."). While DOL does not specifically identify which of the
Trustee's activities listed in the Application are non-compensable as settlor
duties, it appears that settlor functions are as follows:
Decisions and activities related to the management of the [ERISA] plan,
including the establishment, design and termination of the plan, are
generally
considered 'settlor expenses,' and may not be paid out of [ERISA plan funds].
Decisions and activities related to the management of the plan, including the
establishment, design and termination of the plan, are generally considered
'settlor' functions . . . properly paid by the bankruptcy estate pursuant
to 11
U.S.C. § 503(b). See In re Merry-Go-Round Enterprises, Inc., 180 F.3d 149
(4th
Cir. 1999).
In re Carolina Premier Medical Group, P.A., No. 00-82322C-7D (Bankr.
M.D.N.C.
Mar. 31, 2003). DOL also takes the position that the Trustee as a
fiduciary may
not "set" his own fees pursuant to 29 U.S.C. § 1106(b)(1). Accordingly, the
Trustee would have to seek an exemption from DOL, [*16] have his fees
approved
by another independent fiduciary, or enter into a settlement with the
Secretary
of Labor. DOL also asserts that to the extent any amounts are sought and not
awarded under the Bankruptcy Code, they would not be payable under 29
U.S.C. §
1104(a), which requires that ERISA plan assets be used exclusively for
providing
benefits and "defraying reasonable expenses for administering the plan."
According to DOL, a fiduciary such as the Trustee has the initial
burden of
demonstrating that the amounts paid are reasonable compensation, and cites to
Marshall v. Snyder, 572 F.2d 894, 900 (2d Cir. 1978) in support. DOL then
seems
to argue that this Court should adopt a standard that would define
reasonableness as what DOL claims is the customary rate for Plan services
performed by a non-bankruptcy ERISA plan administrator. DOL proceeds to
conclude
that the Trustee's hourly rate, based on the amount of commissions sought and
the time spent on administering the Plan, greatly exceeds this rate. However,
DOL maintains that even if this Court did adopt this standard, they would
not be
bound by any decision of the Court because this Court lacks jurisdiction
to rule
on any fee request [*17] where ERISA statutes would apply.
DOL argues that this Court is restricted solely to determining what
compensation is payable under the Bankruptcy Code, and only to the extent
such
compensation is paid from property of the Debtor's estate. If DOL's
argument is
followed to its logical conclusion, DOL would be free to disregard any
order of
this Court awarding fees if such fees are paid from Plan assets and to seek
recovery of any such fees from the Trustee or his professionals in a Court of
their choice.
DOL also objects to the Applications under the applicable Bankruptcy Code
sections except for the application of Whitfield. The Court shall consider
DOL's
general comments first, and then analyze the Applications separately.
Analysis
1. The Bankruptcy Court's Jurisdiction
By arguing that DOL has the right to bring a proceeding in District
Court to
seek the recovery of fees awarded by this Court to the Trustee and his
professionals, DOL challenges this Court's jurisdiction to award fees when
those
fees are paid from Plan assets. As this Court previously held in In re The
Robert Plan Corp., 439 B.R. at 39, Bankruptcy Code § 704 sets forth the
specific
obligations of the chapter 7 trustee, [*18] which include the obligation "to
perform the obligations required of the [ERISA] plan administrator." 11
U.S.C. §
704(a)(11). The Trustee is also charged with "following the relevant ERISA
statutes applicable to plan administrators and adhering to the obligations
imposed upon the plan administrator under the plan documents. The
standards for
Plan termination are found in the ERISA rules and regulations . . . ." Id.
Because the Trustee is required under the Bankruptcy Code to act as Plan
administrator, this Court previously ruled that, notwithstanding the
obligation
to comply with applicable ERISA rules and statutes, the Bankruptcy Court has
core jurisdiction over the Trustee's actions. Id. at 43. This Court also
ruled
that the Bankruptcy Court has core jurisdiction over the retention and
compensation of the Trustee and his professionals while performing the
Trustee's
duties pursuant to Bankruptcy Code § 704(a)(11). Id. at 44 - 45.
The fact that the Trustee may determine to seek payment of an award of
compensation from the Pguy Account is not germane to a finding that this
Court
has jurisdiction to enter an order awarding fees to the Trustee or his
professionals. Id. DOL chose not to [*19] appeal this decision, and
therefore
the findings contained therein remain the law of the case. See Arizona v.
California, 460 U.S. 605, 618, 103 S.Ct. 1382, 75 L.Ed.2d 318 (1983) ("When a
court decides upon a rule of law, that decision should continue to govern the
same issues in subsequent stages of the same case."). The doctrine of "law of
the case" has been described as follows:
'Law of the case rules have developed to maintain consistency and
avoid reconsideration of matters once decided during the course of a
single continuing lawsuit. These rules do not involve preclusion by
final judgment; instead, they regulate judicial affairs before final
judgment.'
In re PCH Associates, 949 F.2d 585, 592 (2d Cir. 1991) (quoting 18 C.
Wright, A.
Miller & E. Cooper, Federal Practice and Procedure § 4478, at 788 (1980)).
Although the Court held in its previous memorandum decision that any order
awarding fees would contain no determination of whether Plan assets could be
used to pay such award, the Court was very clear that it had jurisdiction to
make such award. Any reference as to whether certain services are compensable
under the relevant ERISA statutes should not be interpreted to undermine
[*20]
in any way this Court's obligation to consider the Applications and its
authority to award fees to the Trustee when acting as Plan administrator.
While DOL acknowledges the Court's previous rulings, DOL appearing in
opposition to the Applications asserted that if DOL disagrees with the
Court's
awards of compensation, DOL may disregard the Order of this Court and
challenge
any fees taken by the Trustee and/or his professionals from the Pguy
Account in
the District Court. DOL appeared in these cases, was served with the
Applications and appeared at the hearings. The Court has considered all of
the
issues raised by DOL in its papers. Whether the fees are drawn from the Pguy
Account or from assets of the Debtors' estate, this Court has the
jurisdiction
to consider and grant the Applications.
2. The Trustee
An issue not determined in the prior written decision is whether, under
the
facts of this case, Bankruptcy Code § 326(a) is the appropriate statute to
determine the Trustee's application for compensation. The Trustee seeks
compensation pursuant to Bankruptcy Code §§ 330, 331 and 326, and his
professionals seek compensation pursuant to Bankruptcy Code §§ 330 and
331. If §
326(a) is the applicable [*21] statute governing the Trustee's
compensation for
performing the duties of Plan administrator, then the Court must determine
whether ERISA laws apply to any award of fees to the Trustee. If there are
applicable ERISA statutes to consider when awarding compensation pursuant
to the
Trustee's application, the Court must apply the rules of statutory
construction
to determine whether there is a conflict between applicable Bankruptcy law
and
ERISA law. After first determining whether in fact there are conflicting
statutory provisions, the Court shall then consider each application
separately.
a. Whether § 326(a) Determines the Trustee's Compensation
The Trustee received $45,300.00 plus expenses in the amount of $740.42
pursuant to the First Interim Fee Application, and now seeks a total of
$132,378.24 as a second interim award. While the First Interim Fee
Application
sought an award calculated on an hourly fee basis, the Trustee now seeks an
award based on the formula set forth in Bankruptcy Code § 326(a).
According to
the Trustee, he will have disbursed a total of $9,560,215.70 in Plan
assets. If
the Trustee's maximum allowable compensation for services rendered is
calculated
using this as [*22] a base amount, the cap on the Trustee's commissions
would
be $310,056.47. Deducting the amount previously awarded to the Trustee
from the
maximum allowable compensation under § 326(a), the maximum allowable
compensation which the Trustee may be awarded for performing his § 704(a)(11)
duties would amount to $264,756.47. The Trustee has reduced this amount, and
seeks $132,378.24 as a result.
The Trustee's calculations are based on the formula set forth in
Bankruptcy
Code § 326(a). Section 326(a) of the Bankruptcy Code provides:
In 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,
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.
11 U.S.C. § 326(a). Prior to the enactment of the Bankruptcy Abuse and
Consumer
Protection Act ("BAPCPA"), Chapter [*23] 7 trustees were required to justify
their compensation under this section as well as Bankruptcy Code § 330(a)(3).
Bankruptcy Code § 330(a)(3) directed the Bankruptcy Court to consider certain
factors in addition to the formula set forth in § 326(a). The factors
included
the time spent on such services, the rates charged for such services, whether
the services were necessary to the administration of, or beneficial to the
case,
and whether the compensation was reasonable based on the customary
compensation
charged by comparably skilled practitioners in cases other than cases
under this
title.
Pursuant to BAPCPA, newly-added § 330(a)(7) provides 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." 11
U.S.C.
§ 330(a)(7). In cases filed post-BAPCPA, "[t]here is a presumption that
the fee
award will match the percentage calculation under § 326, though a trustee
is not
entitled to the statutory maximum as a matter of right." In re Siskin, No. 11
Civ. 9468 (NRB), 2012 WL 2367043 *5 (S.D.N.Y. Jun. 20, 2012) (citing 6
Collier
on Bankruptcy ¶ 721.03 (16th ed. 2010)). The general [*24] consensus
among the
courts is that Chapter 7 trustee fees are subject to judicial review for
"reasonableness" which is a guiding principle expressly stated in §
330(a)(7).
See In re Luedtke, No. 07-70924, 2011 WL 806003 * 3 (Bankr. C.D. Ill. Feb.
28,
2011) ("Courts . . . have consistently held that Chapter 7 trustee
compensation
remains subject to court review for reasonableness. See, e.g., In re Clemens,
349 B.R. 725 (Bankr. D. Utah 2006); In re Ward, 366 B.R. 470 (Bankr. W.D. Pa.
2007); In re Mack Properties, Inc., 381 B.R. 793 (Bankr. M.D.Fla. 2007);
In re
McKinney, 383 B.R. 490 (Bankr N.D. Cal. 2008); In re Phillips, 392 B.R. 378
(Bankr. N.D. Ill. 2008); In re Healy, 440 B.R. 834 (Bankr. D. Idaho 2010);
In re
B & B Autotransfusion Services, Inc., 443 B.R. 543, 2011 WL 144907 (Bankr. D.
Idaho Jan. 18, 2011)"). Despite having reached the consensus that the
commissions must still be found to be reasonable, courts do not agree on what
"reasonable" means. Id. at *4. As the Bankruptcy Court for the District of
Ohio
recently held in In re B & B Autotransfusion Services, Inc:
Some courts have continued to rely, at least in part, on the
so-called Johnson factors which have provided guidance [*25] in
awarding professional fees since 1974. See Clemens, 349 B.R. at 732,
citing Johnson v. Georgia Highway Exp., Inc., 488 F.2d 714, 720 (5th
Cir. 1974) (Johnson factors plus additional updated factors may be
considered); Phillips, 392 B.R. at 385 (Johnson factors still apply
with the exception of those specifically enumerated in § 330(a)(3),
which no longer apply). Other courts have held that time records, the
statutory commission formula of § 326, and "all other relevant
factors" should be considered in determining reasonable compensation
for Chapter 7 trustees. See McKinney, 383 B.R. at 493
2011 WL 144907 at *4.
The Trustee bases his request on the formula set forth in Bankruptcy
Code §
326(a), and has reduced the amount based on this formula by approximately
one-half. According to the Trustee, his request is reasonable, provides
proper
compensation for the Trustee's services and complies with the applicable
Bankruptcy Code requirements. If this case involved the Trustee's sale of
estate
assets, and the Trustee's application was based on the moneys disbursed
from the
sale to creditors, and the Trustee's request was approximately half of the
sum
derived under the formula set forth in [*26] § 326(a), it is likely that the
Court would conclude that the Trustee's request was reasonable. However, this
case presents a unique issue. In this case, the Plan assets which were
distributed are not property of the Debtors' estate, and the Plan
participants
who received the distributions are not creditors of the Debtors.
Therefore, the
Court must determine whether § 326(a) applies at all when fixing the
Trustee's
compensation, whether the formula is the beginning and ending point of the
inquiry, and if not, whether the Court must consider other factors in
order to
satisfy the requirements set forth in § 326(a). The Court shall turn to the
language of the statute first.
(i) Moneys Disbursed
The formula set forth in § 326(a) is based "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." 11 U.S.C. § 326(a) (italics
added). Courts have construed this section pursuant to the plain language
of the
statute. In re Circle Investors, Inc., No. 02-39553, 2008 WL 910062
(Bankr. S.D.
Tex. Apr. 3, 2008). For example, the word "moneys" has been interpreted
literally, and courts usually exclude the [*27] value of credit bids or the
value of property other than moneys transferred, in the calculation of the
trustee's commissions. United States Trustee v. Messer (In re Pink Cadillac
Associates), Nos. 96 CIV. 457 (LLS), 95-B-4243 (BRL), 1997 WL 164282 *3
(S.D.N.Y. Apr. 8, 1997) (citing, inter alia, Kandel v. Alexander Leasing
Corp.,
107 B.R. 548, 551 (N.D. Ohio 1988), aff'd, 889 F.2d 1087 (6th Cir. 1989)).
The
statute plainly does not require that disbursed funds be "property of the
estate." Some courts interpreting this language agree and conclude that
"[t]he
base is not limited to distributions of property of the estate, as a
trustee may
disburse monies to parties in interest, within the meaning of Section 326(a)
without in the process having actually distributed property of the
estate." In
re North American Oil & Gas, Inc., 130 B.R. 473, 478 (Bankr. W.D. Tex. 1990)
(other citations omitted). For example, where a trustee liquidates
property in
which the debtor and a third party hold an interest, the trustee is
fulfilling
his or her obligation to liquidate assets for the benefit of creditors,
and make
a distribution to the creditors of the debtor. 11 U.S.C. § 363(h), (j).1
Whatever moneys [*28] the trustee disburses, whether estate property or
not, is
included in the formula. The fact that a non-debtor is receiving non-estate
property as a result of the sale of the jointly owned asset does not
change the
application of this statute. The Court agrees that the statute applies
equally
in this case, where the Trustee is obligated under the Bankruptcy Code to
act as
Plan administrator. Central among the Trustee's obligations is to distribute
Plan assets to the proper beneficiaries. This obligation entails disbursing
non-estate funds, which funds fall within the term "moneys" as set forth in §
326(a), regardless of whether the moneys are property of the bankruptcy
estate.
- - - - - - - - - - - - - - Footnotes - - - - - - - - - - - - - - -1 11
U.S.C.
§ 363(j) provides:
After a sale of property to which subsection (g) or (h) of this
section applies, the trustee shall distribute to the debtor's spouse
or the co-owners of such property, as the case may be, and to the
estate, the proceeds of such sale, less the costs and expenses, not
including any compensation of the trustee, of such sale, according to
the interests of such spouse or co-owners, and of the estate.
11 U.S.C. § 363(j).
- - - - - - - - - - - - End Footnotes- - - - - - - - - - - - - -
(ii) Parties in Interest
The second issue for the Court to consider is [*29] whether the Trustee's
distribution of Plan assets to the Plan beneficiaries is being made to
"parties
in interest." While the Code does not define this term, courts have
interpreted
it broadly to mean "'any party who has an actual pecuniary interest in the
case,
as well as to those parties who have a practical stake in the outcome of the
case, or to those parties who will be impacted in any significant way by a
decision made in the case.' In re Citi-Toledo Partners II, 254 B.R. at 163
(citing In re Cowan, 235 B.R. 912, 915 (Bankr. W.D. Mo. 1999) (citing In re
Amatex Corp., 755 F.2d 1034, 1041-44 (3d Cir. 1985); Kapp v. Naturelle, Inc.,
611 F.2d 703, 706 (8th Cir. 1979); In re Johns-Manville Corp., 36 B.R.
743, 754
(Bankr. S.D.N.Y. 1984))." In re Circle Investors, Inc., 2008 WL 910062 at *4.
The Plan beneficiaries have an interest in the Debtors' case and in the
decisions made by this Court regarding (i) the compensation requested by the
Trustee and his professionals, and (ii) whether to issue an order
approving the
Trustee's final report at the conclusion of this case. Furthermore, to the
extent the Court determines whether the Trustee and his professionals are
to be
paid from estate [*30] assets versus Plan assets, and fixes the compensation
for the Trustee and his professionals, the Plan beneficiaries will be
affected.
Therefore, the Court concludes that the Plan beneficiaries, as recipients of
Plan assets, are "parties in interest." Having found that § 326(a) applies
when
fixing the Trustee's compensation, the Court now turns to whether this
section
of the Bankruptcy Code conflicts with the ERISA statutes. If there is an
irreconcilable conflict between statutes, the Court is charged with finding
which statute prevails.
b. Whether ERISA Laws Apply, and if so Whether They Conflict With the
Bankruptcy
Code
Before examining the ERISA statutes, a review of the rules of statutory
construction is in order. First, statutory analysis begins with the text
of the
statute and its plain meaning, if it has one. Gottlieb v. Carnival Corp., 436
F.3d 335, 337-38 (2d Cir. 2006); see Natural Res. Def. Council, Inc. v.
Muszynski, 268 F.3d 91, 98 (2d Cir.2001). If a statute is ambiguous,
courts must
resort to the canons of statutory construction to help resolve the
ambiguity. Id
. "[W]hen the plain language and canons of statutory interpretation fail to
resolve statutory ambiguity, we will [*31] resort to legislative history."
United States v. Dauray, 215 F.3d 257, 264 (2d Cir.2000) (other citations
omitted).
Second, courts must give effect to every word of a statute where possible:
the sole exception to this rule of construction applies where a statute
groups
words together in a list, in which case words should be given related
meaning.
United States v. Bernier, 954 F.2d 818 (2d Cir. 1992); See Bowsher v.
Merck & Co
., 460 U.S. 824, 833, 103 S.Ct. 1587, 1593, 75 L.Ed.2d 580 (1983) (citing
Fidelity Fed. Sav. & Loan Ass'n v. de la Cuesta, 102 S.Ct. 3014, 3027
(1982)).
Statutory construction 'is a holistic endeavor,' and, at a minimum, must
account
for a statute's full text, language as well as punctuation, structure, and
subject matter." Aircraft Mechanics Fraternal Ass'n v. Atlantic Coast
Airlines,
Inc., 55 F.3d 90, 94 (2d Cir.1995).
Third, "'when two statutes are capable of co-existence, it is the duty
of the
courts, absent a clearly expressed congressional intention to the
contrary, to
regard each as effective.'" F.C.C. v. NextWave Personal Commc'ns Inc., 537
U.S.
293, 304, 123 S.Ct. 832, 154 L.Ed.2d 863 (2003) (other citations omitted).
Where
two statutes conflict, a court [*32] must "give effect to both statutes
to the
extent that they are not mutually repugnant." Brotherhood of Ry., Airline and
S.S. Clerks, Freight Handlers, Exp. and Stations Emp., AFL-CIO v. REA
Exp., Inc
., 523 F.2d at 169. To the extent that two statutes contain language
giving rise
to irreconcilable conflicts, each of which by its terms applies to the facts
before the court, the statute which is the more recent of the two
prevails. Watt
v. Alaska, 101 S. Ct. 1673 (1981). Despite this maxim, "[i]t is a fundamental
tenet of statutory construction that a statute dealing with a narrow,
precise,
and specific subject is not submerged by a later enacted statute covering
a more
generalized spectrum, regardless of the priority of the enactment." In re
Petrusch, 14 B.R. 825, 829 (N.D.N.Y. 1981), aff'd, 667 F.2d 297 (2d Cir.
1981)
(citing Radzanower v. Touche Ross & Co., 426 U.S. 148, 153, 96 S.Ct. 1989,
1993,
48 L.Ed.2d 540 (1976) and Morton v. Mancari, 417 U.S. 535, 550-51, 94 S.Ct.
2474, 2482, 41 L.Ed.2d 290 (1974)). This rule is based on the presumption
that
when a legislature focuses on the details of a subject and enacts a
subsequent
statute in general terms treating the subject in a general [*33] manner, not
expressly contradicting the original act, that prior statute shall not be
considered to affect the more particular provisions in a later law.
Radzanower
v. Touche Ross & Co., 426 U.S. at 153, 96 S.Ct. at 1993 (other citations
omitted).
Although there is scant law regarding conflicts specifically between the
Bankruptcy Code and ERISA, the Bankruptcy Court for the District of
Massachusetts has considered this issue in In re NSCO, Inc., 427 B.R. 165
(Bankr. D. Mass. 2010). In a Chapter 7 case where the case trustee had
administered an ERISA plan formerly administered by the debtor
prepetition, the
Bankruptcy Court for the District of Massachusetts was called on to determine
whether the Bankruptcy Court had jurisdiction to enter an order
terminating the
ERISA plan, finding that the Chapter 7 trustee satisfied his obligations with
respect to the ERISA plan, and barring any claims related to his
administration
of the ERISA plan. The trustee's request came before the debtor's estate was
fully administered, but after the trustee had fully administered the ERISA
plan.
First the NSCO Court found that the Chapter 7 trustee's duties originated in
Bankruptcy Code § 704(a), not under [*34] ERISA:
When Congress amended the Bankruptcy Code in 2005, that it chose to
place the statutory obligation solely in the Bankruptcy Code, rather
than in ERISA or in both statutes, is some indication that Congress
intended ERISA responsibilities to fit within the framework of the
Bankruptcy Code, not the other way around. If the Court were convinced
that the two statutes are irreconcilable, it is cognizant of the maxim
that where two statutes conflict 'the latter in time prevails over the
former. Congress passed the Bankruptcy Code in 1978; ERISA was enacted
previously in 1974.' Therefore the Code is controlling. In re DeWeese,
47 B.R. 251, 256 (Bankr. N.C. 1985).
In re NSCO, Inc., 427 B.R. at 180, 181.
Having concluded that to the extent there was a conflict between the
Bankruptcy Code and an ERISA provision, the Bankruptcy Code would govern, the
Court considered the Chapter 7 trustee's request. The Bankruptcy Court
determined that the Chapter 7 trustee was entitled to be discharged once the
trustee fully administered the debtor's case. However, since the debtor's
case
was not yet fully administered, the request was premature. The Bankruptcy
Court
also concluded that there was no requirement [*35] that the bankruptcy
case be
kept open for six years to accommodate the ERISA statute of limitations
applicable to ERISA plan fiduciaries. If DOL discovered a breach of fiduciary
duty by the trustee after the case was closed, DOL had the right, as would
any
other party, to seek to reopen the bankruptcy case to commence an action
against
the trustee. Id. at 181-182.
Before considering whether the Bankruptcy Code reigns supreme over
ERISA in
the instant case, the Court must determine whether there is in fact a
conflict
between the relevant Bankruptcy Code and ERISA provisions. Bankruptcy Code
§ 330
, which is entitled "Compensation of officers," authorizes the Bankruptcy
Court
to award fees to a Chapter 7 trustee and his professionals only after
notice and
a hearing, and only to award "reasonable compensation for actual, necessary
services rendered by the trustee, examiner, ombudsman, professional
person, or
attorney and by any paraprofessional person employed by any such person." 11
U.S.C. § 330(a)(1)(A). Subsection (a)(3) also sets forth a detailed list of
factors the Bankruptcy Court is to take into consideration when
determining the
amount of fees to award to professional persons retained [*36] by a
Chapter 7
trustee and other parties. As discussed above, BAPCPA amended the Bankruptcy
Code to include § 330(a)(7), which specifically directs 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." The
Bankruptcy Code sets forth in specific detail the procedure for awarding
compensation and the factors to be taken into consideration by the Court when
awarding compensation.
In contrast to the Bankruptcy Code, ERISA contains no requirement that an
ERISA plan fiduciary such as the Trustee obtain court approval prior to
receiving compensation for his or her services in administering the Plan.
However, the Plan administrator is not entitled to compensation for
performing
the duties of the settlor, or Plan sponsor. In addition, the following ERISA
statutes govern the Plan fiduciary's actions in this case. First, a fiduciary
such as the Trustee or his professionals must act "with the care, skill,
prudence, and diligence under the circumstances then prevailing that a
prudent
man acting in a like capacity and familiar with such matters would use in the
conduct of an enterprise [*37] of a like character and with like aims." 29
U.S.C. § 1104(a)(1)(B). See L.I. Head Start Child Dev. Services, Inc. v.
Frank,
165 F. Supp.2d 367, 369 (E.D.N.Y. 2001) (ERISA permits a non-fiduciary
such as a
plan's attorney to be liable for knowingly participating in a fiduciary's
breach
of its duties). Second, under the "Exclusive Benefit Rule," plan fiduciaries
such as the Trustee are required to discharge their duties for the exclusive
purpose of providing benefits to participants and "defraying the reasonable
expenses of administering the plan." 29 U.S.C. § 1104(a)(1)(A). Third, 29
U.S.C.
§ 1106(a)(1)(C) prohibits the Trustee as plan fiduciary from entering into an
agreement for the "furnishing of goods, services, or facilities between
the plan
and a party in interest." Fourth, the Trustee as plan fiduciary shall not:
(1) deal with the assets of the plan in his own interest or for his
own account,
(2) in his individual or in any other capacity act in any
transaction involving the plan on behalf of a party (or represent a
party) whose interests are adverse to the interests of the plan or the
interest of its participants or beneficiaries, or
(3) receive any consideration for his own personal [*38] account
from any party dealing with such plan in connection with a transaction
involving the assets of the plan.
29 U.S.C. § 1106(b).
The prohibitions set forth above are subject to certain enumerated
exceptions, pursuant to section 1108 of ERISA, which include an exception for
the "[c]ontracting or making reasonable arrangements with a party in interest
for office space, or legal, accounting, or other services necessary for the
establishment or operation of the plan, if no more than reasonable
compensation
is paid therefor." 29 U.S.C. § 1108(b)(2). This exception does not require
prior
approval from DOL, a court, or any other agency or authority. Engelhart v.
Consolidated Rail Corp., No. CIV.A. 92 - 7056, 1996 WL 526726 * 12 (E.D. Pa.
Sept. 18, 1996). In addition, pursuant to 29 U.S.C. § 1108(c)(2), nothing
contained in section 1106 of ERISA is to be construed to prohibit any
fiduciary
such as the Trustee from "receiving any reasonable compensation for services
rendered, or for the reimbursement of expenses properly and actually
incurred,
in the performance of his duties with the [P]lan [with certain
restrictions not
applicable to this case]."
The proper procedure for a party such as [*39] DOL or a Plan
beneficiary to
follow in the event they believe ERISA sections 1104 or 1106 have been
violated
is to commence a proceeding against the Trustee and/or his retained
professionals. The statute of limitations for such action would be the
earlier
of (1) six years from the date of the "last action which constituted a
part of
the breach or violation" or (2) three years after "the earliest date on which
the plaintiff had actual knowledge of the breach or violation." 29 U.S.C.
§ 1113
.
None of the above cited ERISA provisions specifically require a Plan
fiduciary or professionals retained by a Plan fiduciary to obtain
authorization
from a court or any other agency or entity prior to taking fees from ERISA
plan
assets as compensation for their efforts. Notwithstanding the plain
language of
the Plan documents and these statutes, DOL asserts that prior approval is
necessary in this case. First, DOL claims that the Trustee is setting his own
fees in violation of 29 U.S.C. § 1106(b)(1) and (2). DOL argues that
because the
Trustee is attempting to set his own fees, he is required to either have his
fees approved by another independent plan fiduciary, or enter into a
settlement
with the [*40] Secretary of Labor. However, the fundamental flaw in DOL's
argument is its assertion that the Trustee is setting the fees for the
Trustee
and his retained professionals. The Trustee does not have the authority under
the Bankruptcy Code to "set" his fees. The Trustee is merely complying
with the
applicable Bankruptcy Code and Rules in making an application to the Court to
approve compensation for himself and his retained professionals. In complying
with the Bankruptcy Code, the Trustee subjects his application to full and
complete scrutiny by the Court and all parties served with the
application. In
fact, it is only because of this process that DOL has an opportunity to
participate in determining what is in fact reasonable compensation for the
Trustee before the Trustee takes any money for his services.
Second, DOL argues that under ERISA, the Trustee must establish that the
amounts sought are reasonable prior to taking any fees. Again, a careful
analysis of DOL's argument shows that its argument is misleading at best. An
ERISA plan fiduciary such as the Trustee is only entitled to reasonable
compensation for his work performed, but an ERISA plan fiduciary does not
have
the burden of [*41] establishing, prior to taking fees, that the amounts
being
sought are reasonable. The case of Marshall v. Snyder, 572 F.2d 894 (2d Cir.
1978), which is cited by DOL, does not in fact support DOL's argument. In
Marshall v. Snyder, DOL commenced an action against present and former
trustees
of certain ERISA plan, alleging that the trustees were engaging in self-
dealing
in violation of the fiduciary duties imposed upon them by 29 U.S.C. §
1104(a)(1)(A) and (B). The defendants consented to entry of an order
precluding
them from using the assets of the ERISA plan funds for their own benefit,
except
for making certain payments for services rendered, with maximum amounts set
forth in the consent order. Thereafter, the District Court for the Eastern
District of New York concluded, pursuant to a proceeding brought by DOL to
remove the defendant trustees of the ERISA plans and to set aside certain
transactions, that the "'inherent conflict of interest and potential for
self-dealing which result from the union officers' controlling both the Plans
and RPI, which is the administrative agent of the Plans, coupled with the
actual
conduct of the defendants since the consent order, and when interpreted
[*42]
in the light of the serious charges of misappropriation of trust fund monies
alleged in the complaint, require immediate and drastic action by the
court in
order to preserve from further dissipation the assets of the Plans for the
benefit of their participants and beneficiaries.'" Id. at 897 (citing
Marshall
v. Snyder, 430 F. Supp.1224, 1232 (E.D.N.Y. 1977). The District Court also
concluded that the payment of salaries to certain individuals was prohibited
under 29 U.S.C. § 1106(a)(1)(C).
It was in this context that the Court of Appeals for the Second Circuit
held
on appeal that the administrative agent of the ERISA plans at issue had the
burden of establishing that the compensation these individuals received were
reasonable, notwithstanding entry of the consent order. Id. at 900. As the
Second Circuit pointed out in Marshall v. Snyder, the entry of a consent
order,
after alleging that parties subject to a fiduciary relationship have
engaged in
self-dealing, will not absolve those charged with those offenses:
The argument [by the defendants] in essence appears to be that the
consent order must be considered as setting a reasonable rate of
compensation to [the defendants], and that since [*43] they were not
paid at greater rates than those set forth in the consent order, and
tendered the described amount of service to RPI, the Secretary could
avoid the exceptions of Section 1108(b)(2) and (c)(3) only by showing
that the amounts were unreasonable. There are many difficulties with
the argument. The consent order did not set reasonable rates. It
stated the amounts beyond which payments could not be made. The
responsibility for paying reasonable compensation was the unequivocal
fiduciary responsibility of the defendants. Also, it would be new law
to find that in a self-dealing transaction and prohibited transactions
involve self-dealing the party representing the beneficiaries of the
fiduciary whose self-dealing transaction is challenged must prove the
unfairness of the transaction. The settled law is that in such
situations the burden of proof is always on the party to the
self-dealing transaction to justify its fairness. Nedd v. United Mine
Workers of America, 3rd Cir. 1977, 556 F.2d 190, 210-211; cf. Pepper
v. Litton, 1939, 308 U.S. 295, 306-307, 60 S.Ct. 238, 84 L.Ed.281;
Tomarkin v. Vitron Research Corp., 2nd Dept. 1960, 12 AD2d 496, 206
N.Y.S.2d 869; 3 Fletcher, Cyclopedia [*44] of the Law of Private
Corporations (rev.perm.ed.1975) 362, 383.
572 F.2d at 900.
The Marshall case supports a finding that in general, a plan administrator
and his professionals may take reasonable fees without prior authorization
from
DOL or a court of competent jurisdiction. ERISA contains no obligation for a
plan fiduciary to make out a case for the fees taken prior to taking them,
and
Section 1108(c)(3) of ERISA specifically permits the Trustee as Plan
fiduciary
to receive compensation for services rendered so long as they are
reasonable. In
order to challenge fees taken for services rendered by a Plan fiduciary or
his
retained professionals, a party must bring a proceeding, and that party
has the
burden of establishing a prohibited action has taken place in violation of
the
party's fiduciary obligations under applicable ERISA laws. It is only
after such
steps are taken that the burden shifts to the party alleged of breaching
his or
her fiduciary duty to demonstrate that their actions were fair and no
breach has
occurred.
Based on the Court's plain reading of the applicable ERISA statutes and
Bankruptcy statutes, and keeping in mind that the Court should give effect to
both statutes [*45] if they are not completely at odds, the Court concludes
that Bankruptcy Code §§326 and 330 do not conflict in any meaningful way with
ERISA. In fact, the relevant provisions of the Bankruptcy Code and the ERISA
statutes can peacefully coexist. However, there is one area that, while it
does
not rise to the level of a conflict, nevertheless highlights a procedural
difference. The Bankruptcy Code directs the Trustee and his professionals to
seek authorization from the Court prior to taking fees for services rendered,
and the Court is obligated to base its interim award on the compensation
structure set forth in Bankruptcy Code § 326. The Bankruptcy Court must also
find that the award is reasonable. In contrast, the ERISA statutes do not
require prior court authorization, and permit the Trustee as Plan
administrator
to defray the reasonable expenses of administering the Plan. By applying the
Bankruptcy Code over the ERISA statutes, the Court is in effect adding a
layer
of review to a process that is otherwise absent of judicial review. In
fact, the
rights of any parties to bring an action against the Trustee for
violations of §
1104 of ERISA based on an alleged breach of his duties are [*46] not
compromised and remain intact.
Even if the Court were to find that the Bankruptcy Code and the ERISA
statutes exhibited a material conflict, the very specific nature of the
compensation scheme set forth in the Bankruptcy Code would govern over the
more
general terms contained in the applicable ERISA statutes. In addition,
Congress
amended the Bankruptcy Code at the same time to direct the Trustee to act
as an
ERISA plan administrator, and to direct the Court to employ the formula set
forth in Bankruptcy Code § 326(a) and find that the amount awarded is
reasonable
when fixing the compensation payable to the Trustee. Congress enacted
these two
provisions knowingly, and could have included a different compensation scheme
when a Chapter 7 trustee performs the duties set forth in Bankruptcy Code §
704(a)(11). The fact that Congress did not leads the Court to conclude that
Congress intended to compensate Chapter 7 trustees acting as ERISA plan
fiduciaries in the same way trustees are compensated for all other work under
the Bankruptcy Code.
c. Calculation of the Trustee's Compensation
Having established that the Trustee is entitled to an interim award of
compensation based on Bankruptcy Code §§ 330 [*47] and 326, and there is no
conflict with applicable ERISA provisions, the Court must now determine the
proper amount of the award. After considering the formula set forth in
Bankruptcy Code § 326(a), which would result in a much larger award than what
the Trustee seeks, the Court must determine whether the amount actually
requested is reasonable. A straightforward application of the formula set
forth
in Bankruptcy Code § 326(a), after deducting the compensation previously
awarded
by the Court, would amount to $264,756.47. The Trustee has reduced the
maximum
by one-half, and seeks $132,378.24. The Trustee has provided the Court
with time
sheets setting forth the time spent by the Trustee on each task, along with a
written narrative of the services performed by the Trustee. The narrative is
detailed and sets forth the various activities undertaken by the Trustee in
order to fulfill his responsibilities as Plan administrator. Only a small
portion of the activities listed appear to be related to the Trustee's
"settlor"
functions, and do not require a further deduction of the amounts requested by
the Trustee.
After reviewing the applicable case law regarding what the term
"reasonable"
means [*48] as set forth in section 326(a), the Court finds that it is
necessary to take into consideration the time records and the fact that the
Trustee is performing the duties of an ERISA plan administrator in fixing the
amount of the fee award. The Court also takes into consideration DOL's
objections.
DOL's specific objections to the Trustee's request are that 1) the Trustee
mistakenly recites to the business judgment rule in executing his
responsibilities, and not the higher duty of care imposed upon an ERISA
fiduciary, and 2) the Trustee made certain mistakes regarding the purchase
of a
fiduciary insurance policy. In viewing the time records and the work
performed
by the Trustee, the Court overrules DOL's objections. The Trustee is a
fiduciary
and is held to high fiduciary standards of conduct. In re Vebeliunas, 231
B.R.
181, 192 (Bankr. S.D.N.Y. 1999) (other citations omitted). The fact that the
Trustee exercises his business judgment when making decisions with respect to
the Plan does not interfere with his status as a fiduciary. As DOL recites in
its own pleadings, a plan fiduciary's investment decisions are subject to the
"prudent person" standard under ERISA, which is analogous to the [*49]
business
judgment rule followed by the Trustee. See In re Anderson, 357 B.R. 473, 476
(Bankr. W. D. Mich 2006) (The Chapter 7 trustee is obligated to exercise due
care and employ the business judgment rule when administering the bankruptcy
estate, but has a separate fiduciary duty to the estate and its creditors.)
The mistake that DOL points to regarding the Trustee's erroneous
purchase of
a fiduciary insurance policy is minor and was quickly corrected by the
Trustee.
Upon a review of the work performed in light of the fact that the Trustee is
obligated to perform the functions of an ERISA Plan administrator by the
Bankruptcy Code, the Court finds that the request made by the Trustee is
reasonable, complies with the Bankruptcy Code and therefore grants it in
full.
The Trustee has sufficiently demonstrated that the amount sought in this
interim
fee application is reasonable based on the nature of the services performed.
3. The Trustee's Professionals
Having determined that the Bankruptcy Code and the ERISA statutes
discussed
above do not substantively conflict with each other, the Court must now
determine whether the answer is the same for the compensation of the
Trustee's
retained professionals. [*50] The Court concludes that there is no
substantive
conflict between the Bankruptcy Code and ERISA. As set forth above, the
Bankruptcy Code and Rules provide a comprehensive statutory scheme and
procedure
for awarding fees to the Trustee's professionals. Furthermore, the Court must
enter an order finding that the fees are "reasonable," based on the following
list of factors set forth in Bankruptcy Code § 330(a)(3):
(A) the time spent on such services;
(B) the rates charged for such services;
(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;
(E) with respect to a professional person, whether the person is
board certified or otherwise has demonstrated skill and experience in
the bankruptcy field; and
(F) 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).
Section 1108(b)(2) of ERISA [*51] specifically permits the Trustee as the
Plan fiduciary to hire and pay professionals to assist in the operation of
the
Plan, so long as the compensation is "reasonable." There is no conflict
between
these two provisions, and so long as this Court finds, as it must, that the
compensation is reasonable, the compensation awarded will pass muster under
ERISA as well. The fact that the Bankruptcy Code requires an application
to the
Bankruptcy Court prior to taking compensation does not create a conflict
between
the statutes.
a. K&K
K&K seeks interim compensation in the amount of $49,108.77. DOL
objects, and
argues for a $9,721.25 reduction of compensation to $39,687.50, plus a 20%
holdback, resulting in a net payment of $31,631.00 to K&K. DOL believes that
reductions are warranted based on the excessive charges for preparation of
its
fee application and the fee application for the Trustee, the excessive
number of
attorneys who appeared for an interview requested by DOL, and the $1,480.00
sought in connection with the mistaken purchase and refund of the premium
for a
fiduciary insurance policy. The objections, except for the $1,480.00
incurred in
connection with the mistaken purchase of the [*52] fiduciary insurance
policy,
are overruled. The time spent on the two fee applications, resulting in
$11,180.00 in fees, is not excessive given the fact that the Trustee and K&K
prepared detailed fee applications, hoping perhaps to blunt any criticisms
raised by DOL. Furthermore, the time spent on determining the
"reasonableness"
component of Section 326(a) was appropriate. Therefore, the Court awards
$47,628.77 to K&K, subject to a 20% holdback.
b. Witz
Witz seeks final payment of $44,068.75 in fees and $3,755.00 in expenses.
This final award includes a previous allowance of $29,590.00 plus
reimbursement
of expenses in the sum of $3,755.00. DOL objects to Witz's application, and
argues that the award should be reduced by $7,838.00. This amount
represents the
portion of time spent by Witz on a 1) Request for Information to support the
Trustee's requested $500 per hour fee for ERISA plan administration
($3,163.00),
2) drafting a reply affidavit in support of the Trustee's first fee
application
($2,819.00), and 3) drafting a reply affidavit to the Declaration of
Marcia S.
Wagner dated February 7, 2011 ($1,856.00). Witz was retained by the
Trustee as a
pension plan expert, and DOL objects [*53] to the work Witz performed to
justify the $500 fee on the grounds that this work provided no benefit to the
bankruptcy or ERISA estates. DOL also asserts that this work was
inappropriate,
outside the scope of Witz's retention and resulted in providing misleading
information to the Court.
Witz was retained by the Trustee to advise the Trustee in matters
relating to
the Plan, and according to the application for Witz's retention, he has been
involved in the retirement plan industry for more than 29 years. The Trustee
sought the retention of Witz in order to ensure that the Trustee complied
with
ERISA and DOL requirements. One of the areas in which Witz provided
assistance
was the determination of the Trustee's fee for acting as Plan
administrator. DOL
objected to the Trustee's suggested hourly rate of $500 per hour, and DOL
objected in pleadings filed January 25, 2011, arguing that Bankruptcy Code §
326(a) did not apply at all and the Trustee failed to demonstrate that the
proposed rate was reasonable under applicable ERISA laws. Based on the
arguments
raised by DOL, the Trustee responded through its duly retained expert,
Witz, who
had conducted a survey to help determine an appropriate [*54] billing
rate for
the Trustee. Included in Witz's response was the comment that DOL previously
hired legal counsel at an hourly rate above $500.00 to terminate abandoned
plans
when other professionals capable of providing the same services were
available
at a lower rate. DOL took serious issue with this representation, and Witz
filed
a reply on February 14, 2011 to clarify that the expert who responded to
Witz's
questions charged more than $500 per hour for her services, and she had been
retained by DOL to perform work on abandoned ERISA plans in the past.
However,
the expert did provide a 10% discount to DOL and her rates were blended with
other associates who were billed at lower rates.
The Court finds that the issue of how to compensate a Trustee for work
performed pursuant to Bankruptcy Code § 704(a)(11) to be complex, and does
not
fault Witz for undertaking the work on this issue, especially in light of the
fact that DOL lodged objections to the Trustee's request for compensation. In
order to respond to DOL, it was reasonable for Witz to analyze the issues
as he
did, and the information regarding the one expert was not misleading, but
perhaps slightly incomplete. Based on a review [*55] of the time sheets
and the
narrative provided, the Court overrules DOL's objections and finds that the
amount requested is reasonable and complies with the relevant Bankruptcy Code
provisions. Therefore, the Court awards the final application of Witz in
full.
c. Whitfield
Whitfield was retained as auditor for the Trustee, and seeks a final
award of
fees in the amount of $53,000.00 and reimbursement of expenses in the
amount of
$1,111.64. Whitfield had previously agreed to a cap of $53,000.00 plus
expenses
for his audit work, and DOL does not object to this request. DOL also advises
that it has no objection to further payment to Whitfield in the event he
performs any additional necessary work at his retained rate of $250.00 per
hour.
The Court has reviewed the application of Whitfield and finds that the amount
requested is reasonable and complies with the relevant Bankruptcy Code
provisions. Therefore, the Court awards the final application of Whitfield in
full.
Conclusion
Except as noted above, the objections by DOL to the Applications are
overruled, and the Court grants the Applications as follows:
Trustee: $132,378.24 as an interim award
K&K: $47,628.77, as an interim award, subject to [*56] a 20% holdback
Witz: $44,068.75 in fees and $3,755.00 in expenses as a final award
Whitfield: $53,000.00 and $1,111.64 in expenses as a final award.
The Applicants may satisfy these awards using funds in the Pguy
Account, and
to the extent the funds in the Pguy Account are insufficient to pay these
awards
in full, the Applicants may use funds from the Debtors' estate for the
remainder. The Court shall enter an order simultaneously with this Memorandum
Decision.
Dated: Central Islip, New York
August 20, 2012
By: /s/ Robert E. Grossman
Robert E. Grossman
United States Bankruptcy Judge