In Re: Lan Assoc

Opinions of the United

1999 Decisions States Court of Appeals

for the Third Circuit

10-5-1999

In Re: Lan Assoc

Precedential or Non-Precedential:

Docket 98-5434

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Filed October 5, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

No. 98-5434

IN RE: LAN ASSOCIATES XI, L.P.

PATRICIA A. STAIANO,

UNITED STATES TRUSTEE

v.

JAMES J. CAIN,

TRUSTEE FOR LAN ASSOCIATES XI, L.P.,

Appellant

On Appeal from the United States District Court

for the District of New Jersey

D.C. Civil Action No. 98-CV-2286

(Honorable Joseph E. Irenas)

Argued April 29, 1999

Before: SCIRICA, ROTH, and McKAY,* Circuit Judges.

(Filed October 5, 1999)

_________________________________________________________________

*The Honorable Monroe G. McKay, United States Circuit Judge for the

Tenth Judicial Circuit, sitting by designation.

ARTHUR H. JONES, JR.,

ESQUIRE (ARGUED)

RONALD L. GLICK, ESQUIRE

Mesirov, Gelman, Jaffe, Cramer

& Jamieson

1735 Market Street, 37th Floor

Philadelphia, Pennsylvania 19103-

7598

Attorneys for Appellant

ROBERT J. SCHNEIDER,

ESQUIRE (ARGUED)

PATRICIA A. STAIANO,

UNITED STATES TRUSTEE

DONALD F. WALTON,

ASSISTANT U.S. TRUSTEE

Office of the United States Trustee

One Newark Center, Suite 2100

Newark, New Jersey 07102

Attorneys for Appellee

JOSEPH I. WITTMAN, ESQUIRE

National Association of Bankruptcy

Trustees "NABT"

435 S. Kansas Avenue - 2nd Floor

Topeka, Kansas 66603-3401

Attorney for Amicus Curiae-

Appellant

OPINION OF THE COURT

McKAY, Circuit Judge.

The standing trustee in this matter, Appellant James J.

Cain, appeals from a district court order which reversed a

bankruptcy court award of final compensation in the

amount of $184,888.25 and $999.40 in costs. Based on the

language of 11 U.S.C. S 326(a), the district court held that

the trustee should not have received compensation based

2

on a $7,781,200.00 credit bid sale. The district court also

determined that the bankruptcy court erred in considering

factors other than those enumerated in 11 U.S.C.S 330(a)

in determining the trustee's fee. The trustee argues that the

district court's interpretation of S 326(a) was improper and

that the determination of a fee award is not limited to the

factors enumerated in S 330(a). Consequently, the trustee

urges us to reinstate the bankruptcy court's fee

determination. We exercise jurisdiction pursuant to

28 U.S.C. SS 158(d) and 1291.

I.

The debtor, Lan Associates XI, L.P., commenced this

action on July 6, 1992, by filing a voluntary petition under

Chapter 11 of the Bankruptcy Code. Mr. Cain was

subsequently appointed as Chapter 11 trustee. The debtor's

principal asset was a parcel of property consisting of two

office complexes in Marlton, New Jersey, which was subject

to a mortgage in favor of First Fidelity Bank, N.A. Although

the debtor initially valued the property at $9,000,000.00, it

was later appraised at a fair market value of $9,727,000.00

with a liquidation value of $7,781,200.00. During the

bankruptcy proceedings, First Fidelity asserted a secured

claim of $12,865,434.55.

Pursuant to the Chapter 11 proceedings, the trustee

acted as landlord for the office complexes for eighteen

months. Accordingly, by Order dated April 8, 1993, the

trustee was awarded interim compensation of $28,665.51

based on disbursements of $949,183.54. Because the

trustee had rendered approximately 163.5 hours of service

as of the date of that award, his compensation as Chapter

11 trustee amounted to approximately $175.00 per hour.

On May 21, 1993, the Chapter 11 proceeding was

converted into a Chapter 7 proceeding and Mr. Cain was

reappointed as Chapter 7 trustee. Although the trustee

alleged that he was prepared simply to abandon the

property and allow First Fidelity to foreclose on it, First

Fidelity offered to purchase the property through a credit

bid at the liquidation price of $7,781,200.00.1 In connection

_________________________________________________________________

1. Section 363(k) of the Bankruptcy Code authorizes secured creditors to

purchase property through credit bids. See 11 U.S.C. S 363(k) (stating

3

with the purchase, First Fidelity offered to allow the trustee

to retain $372,387.00 from the cash collateral provided to

the trustee by First Fidelity to cover administrative

expenses and provide a distribution for unsecured creditors.2

First Fidelity also offered to waive any deficiency claim it

had remaining against the estate after the sale.

In response to First Fidelity's credit bid offer, the trustee

filed a motion and a certificate in support of the motion to

sell the property at a private sale. See J.A. at 76-85. The

certificate itemized the anticipated administrative expenses

of the sale, including the trustee's anticipated commission

of $233,616.00 based on the total sale price of

$7,781,200.00 and an additional $70,000.00 in

commissions based on rents received for the property. The

certificate also referred to the $372,387.00 in cash

collateral which First Fidelity agreed the trustee could

retain for payment of administrative expenses and

distribution to unsecured creditors and indicated that the

remaining $7,408,813.00 of the sale price would be applied

to the mortgage. See id. at 80. The trustee further explained

in the certificate that he agreed to contribute $83,346.00

out of his anticipated compensation to provide a

distribution for the unsecured creditors. According to the

trustee, once the administrative expenses were paid,

$62,500.39 would remain for the unsecured creditors,

_________________________________________________________________

that at a sale "of property that is subject to a lien that secures an

allowed claim, . . . the holder of such claim may bid at such sale, and,

if the holder of such claim purchases such property, such holder may

offset such claim against the purchase price of such property").

2. We think the record is fairly clear that the $372,387.00 was part of

the total purchase price, rather than an amount over and above the

purchase price. See J.A. at 80 (indicating that $7,408,813.00 of

purchase price would go to mortgage and $372,387.00 would go to an

"[a]llocation [f]or [e]xpense[s] [a]nd [c]reditors"); id. at 98 (Trustee's

Deed

stating total sale price as $7,781,200.00). Nonetheless, the United States

Trustee displays some confusion on the matter. See Appellee's Br. at 6

n.2. The bankruptcy court will need to resolve this matter on remand. In

any event, both the district court and the U.S. Trustee indicate that the

$372,387.00 may be counted as part of the trustee's compensation base.

See In re Lan Assocs. XI, L.P., No. CIV. A. 98-2286, 1998 WL 467100, at

*8 n.8 (D.N.J. Aug. 12, 1998); Appellee's Br. at 6 n.2.

4

which would amount to "a distribution of approximately

25%" of the $250,000.00 in unsecured claims. Id.

To prepare for the sale, the trustee forwarded a Notice of

Private Sale to all creditors and parties in interest,

including the United States Trustee, Appellee in this action.

The notice stated that the sale was to be "free and clear of

all liens." Id. at 88. Although the bankruptcy court received

an objection to the sale from one creditor, the court

approved the sale by Order dated February 14, 1994, see

id. at 92, and the sale took place on April 18, 1994.

In October 1994, the trustee filed an interim application

for an additional $204,522.76 in commissions and $999.40

in expenses. See id. at 106, 109. To calculate the amount

of the commissions, the trustee first added the

$7,781,200.00 from the credit bid sale to $2,763,942.42 in

operating revenues from the property. He then requested

$316,534.27 in compensation based on the maximum

percentages set forth in 11 U.S.C. S 326(a). See id. at 113.

From this amount, the trustee subtracted the $28,665.51

he previously had received in interim compensation and the

$83,346.00 which he had agreed to contribute to the

unsecured creditors, which resulted in an amount of

$204,522.76.

Having received no objection to the interim fee

application, the bankruptcy court held a hearing on the

application on December 1, 1994. At the hearing,"the court

questioned the amount of the trustee's commission, as it

translated into an hourly rate, and questioned the amount

of the distribution intended for unsecured creditors."

Attach. to Appellant's Br. (Bankr. Ct. Op. at 7 (footnote

omitted)). However, no one raised the issue of whether the

credit bid could be included in the base on which the

trustee's fee was calculated at the hearing. See id. (Bankr.

Ct. Op. at 8). The bankruptcy court approved the trustee's

application by Order filed December 2, 1994, see J.A. at

159, and he was paid on December 6, 1994. See Attach. to

Appellant's Br. (Bankr. Ct. Op. at 8).

On April 17, 1995, the trustee sought authorization to

make an interim distribution to the unsecured creditors in

the amount of $62,500.39. Because the unsecured claims

5

which remained outstanding amounted to $328,538.03,

this payment amounted to only a 19% dividend to the

unsecured creditors. The bankruptcy court approved the

distribution without objection, and the payments were

made on May 15, 1995. See id.

On November 13, 1995, the trustee submitted a final

report to the bankruptcy court. See J.A. at 173. In the

report, the trustee sought confirmation for the two prior

interim payments he had received, but he did not seek

additional compensation. One year later, on November 13,

1996, the U.S. Trustee submitted an objection to thefinal

report. See id. at 226. The U.S. Trustee argued that the

amount of the credit bid was improperly included in the

base on which the trustee's compensation was calculated,

and as a result, the trustee had been overpaid by

$142,449.40.3 The U.S. Trustee requested the court to

order the trustee to disgorge this amount with interest and

to disburse the disgorged funds to the unsecured creditors.

Following a hearing on December 12, 1996, the

bankruptcy court approved the trustee's final report and

ordered final compensation in the amount of $184,888.25

and $999.40 in costs. See Attach. to Appellant's Br. (Bankr.

Ct. Order at 2). Because the trustee had anticipated a 25%

dividend to the unsecured creditors but, in fact, provided

only a 19% dividend, the court ordered the trustee to

disgorge an additional 6% dividend of $19,634.51. 4 In

making its determination, the bankruptcy court first

reviewed the language of S 326(a) and the relevant case law

and concluded "that under the limited circumstances here,

where the secured creditor has consented to the

arrangement, and where the unsecured creditors are

_________________________________________________________________

3. According to the U.S. Trustee, the trustee collected $1,333,503.14 as

Chapter 11 trustee, and $1,679,079.80 as Chapter 7 trustee. Based on

these amounts, the U.S. Trustee argued that the maximum amount of

commissions to which the trustee was entitled was $90,738.87. See J.A.

at 235.

4. The bankruptcy court rejected the trustee's arguments that the U.S.

Trustee was estopped from challenging the compensation award based

on principles of collateral estoppel, equitable estoppel, and laches. The

parties did not challenge these rulings before the district court, nor do

they raise them in this appeal.

6

receiving some benefit from the transfer, the trustee may

base commissions on the total purchase price of the asset

transferred, including the credit bid of the

purchaser/lienholder." Id. (Bankr. Ct. Op. at 17). The court

then conducted a reasonableness assessment of the

amount of the award pursuant to 11 U.S.C. S 330(a).

Because "both a percentage-based calculation and a

reasonableness analysis" must be conducted in establishing

an appropriate award, id. (Bankr. Ct. Op. at 31), the

bankruptcy court initially considered the amount of the

requested award in relation to the maximum percentage set

forth in S 326(a). It then examined the factors enumerated

in S 330(a)(1) and concluded that the amount requested by

the trustee was reasonable. Finally, although the court

noted that its reasonableness assessment was "based on

the statutorily articulated factors," id. (Bankr. Ct. Op. at

33), it

readily acknowledge[d] that [it was] influenced . . . by

the procedural history of this case, including four

notices to the [U.S. Trustee] of the contemplated

compensation, the timing of the first objection by the

[U.S. Trustee], nearly two years after the award was

entered and paid, and the potential for hardship to the

trustee in the event that substantial disgorgement

[was] required.

Id. (Bankr. Ct. Op. at 33-34).

The U.S. Trustee appealed the bankruptcy court's fee

award to the United States District Court for the District of

New Jersey which reversed the bankruptcy court's decision

and remanded for a new determination of the trustee's

compensation. See In re Lan Assocs. XI, L.P., No. CIV. A.

98-2286, 1998 WL 467100, at *10 (D.N.J. Aug. 12, 1998).

Noting that "[t]here is no ambiguity in S 326(a)," the court

interpreted S 326(a) according to its "plain meaning" and

found that "[n]either property nor value is`moneys' within

the meaning of the statute." Id. at *6. Consequently, the

court concluded "that under a literal application of S 326(a)

the value of a credit bid portion of a S 363(b) sale is not

`moneys disbursed or turned over . . . to a party in interest,'

and cannot be used to calculate the maximum allowable

amount of trustee compensation." Id. Although the court

7

held that the plain language of the statute was sufficient to

resolve the case, it also explained that the legislative history

supported its interpretation of S 326(a). See id. at *8. With

respect to the bankruptcy court's reasonableness

assessment, the district court held that the bankruptcy

court's consideration of the S 326(a) cap on trustee

consideration was "erroneous as a matter of law." Id. at *9.

The district court also concluded that the bankruptcy court

improperly considered the potential hardship to the trustee

and the lengthy period of time between the trustee'sfinal

report and the U.S. Trustee's filing of its objections in

determining reasonableness. See id. at *10. However,

because "it [was] impossible to discern whether the

bankruptcy court materially relied on these [three] factors,"

the district court simply instructed the bankruptcy court

not to consider them on remand. Id.

In this appeal, the trustee challenges both the district

court's determination that the credit bid should not have

been used to calculate the trustee's compensation and its

conclusion that the bankruptcy court erred by considering

the maximum percentages set forth in S 326(a), the

procedural history of the case, and the potential hardship

to the trustee in conducting its reasonableness assessment

pursuant to S 330(a). The U.S. Trustee urges this court to

uphold the district court's exclusion of the credit bid from

the calculation of the maximum compensation award under

S 326(a) and its conclusion that the reasonableness

analysis should be limited to the factors enumerated in the

statute.

Because the district court sat as an appellate court

reviewing an order of the bankruptcy court, we exercise

plenary review of its decision. See Interface Group-Nev., Inc.

v. TWA, Inc. (In re TWA, Inc.), 145 F.3d 124, 130 (3d Cir.

1998). This court reviews the bankruptcy court'sfindings of

fact for clear error and its conclusions of law under a

plenary standard. See id. at 131; Precision Steel Shearing,

Inc. v. Fremont Fin. Corp. (In re Visual Indus., Inc.), 57 F.3d

321, 324 (3d Cir. 1995).

8

II.

This court has not previously addressed the

appropriateness of including the value of a credit bid in the

base on which a trustee's compensation is calculated under

11 U.S.C. S 326(a). The trustee argues that the amount of

a credit bid should be included in the compensation base.

According to the trustee, because the encumbered property

was actually sold to First Fidelity and not simply

abandoned or turned over, an exchange of value occurred

which was sufficient to bring the transaction within the

meaning of 11 U.S.C. S 326(a).5 The trustee further

contends that there is no reason to distinguish between a

credit bid sale to a secured creditor and a sale free and

clear of liens to a third party and that distinguishing

between the two transactions elevates form over substance.

The trustee explains that the credit bid should be included

in the base just as the entire sale price from a sale free and

clear of liens to a third party is counted, including the

amount used to pay off the liens. See Appellant's Reply Br.

at 2.6 The U.S. Trustee responds that not only does the vast

_________________________________________________________________

5. The National Association of Bankruptcy Trustees, which filed an

amicus curiae brief in this matter, similarly argues that the value of

credit bid transactions should be included in the compensation base

under S 326(a). The NABT points out that one of the definitions of

"money" employed by the district court was"a measure of value," Amicus

Br. at 5, and that an exchange of property certainly involves an

exchange of value. Because this argument closely resembles those of the

trustee, we examine it in the course of our discussion. We decline to

address additional arguments raised by the NABT. See Kamen v. Kemper

Fin. Servs., Inc., 500 U.S. 90, 97 n.4 (1991) (stating that Court

ordinarily

does not address arguments raised only by amici curiae); Newark

Branch, NAACP v. Town of Harrison, N.J., 940 F.2d 792, 808 (3d Cir.

1991) (indicating that court has discretion " `to determine the fact,

extent, and manner of participation by the amicus' " (citation omitted)).

6. The U.S. Trustee emphasizes the fact that in the certification

requesting permission to sell the property the trustee indicated that

selling the property would allow him to pursue a deficiency claim against

the debtor's general partner, Antonio Reale. While it is true that the

trustee so indicated, he also stated in the same document that he "ha[d]

not made any decision as to whether [he] will bring th[e] [11 U.S.C. S 72]

action" against Mr. Reale and that he would evaluate the claim "after the

deficiency [was] determined and . . . after Mr. Reale's financial

condition

[was] re-evaluated." J.A. at 80-81. Further, because there is no

information in the record regarding the reasons why the potential claims

against Mr. Reale were abandoned, we have no basis for assessing this

fact and consider it irrelevant to our analysis and decision.

9

majority of cases support the district court's strict

interpretation of S 326(a) but also the interpretation

complies with well-established canons of statutory

construction and is supported by the legislative history of

the statute.

Sections 326(a) and 3307 of the Bankruptcy Code "control

the determination of the amount of compensation to be

awarded trustees appointed in a case under Chapter 7 or

Chapter 11." In re Biskup, 236 B.R. 332, 335 (Bankr. W.D.

Pa. 1999). Section 330 authorizes bankruptcy courts to

award reasonable compensation to trustees. See Garb v.

Marshall (In re Narragansett Clothing Co.), 210 B.R. 493,

496 (B.A.P. 1st Cir. 1997). Section 330's allowance of

reasonable compensation is subject to the maximum

percentages set forth in S 326(a), which provides in full:

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 exceedfifteen

percent on the first $1,000 or less, six percent on any

amount in excess of $1,000 but not in excess of

$3,000, and three percent on any amount in excess of

$3,000, 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. S 326(a) (emphasis added). Courts have

emphasized repeatedly that a trustee is not entitled to the

maximum fee allowed under S 326(a); "[t]he maximum

compensation allowable under S 326(a) is awarded to a . . .

trustee only in cases in which the result obtained and the

benefit realized by the estate are exemplary." Narragansett

Clothing, 210 B.R. at 496; see also Biskup , 236 B.R. at 336

("The language of S 326 is permissive rather than

mandatory in that it fixes the maximum compensation of a

_________________________________________________________________

7. Sections 326(a) and 330(a) of the Bankruptcy Code were amended in

1994. See Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, S 107,

108 Stat. 4111; Pub. L. No. 103-394, S 224(b), 108 Stat. 4119, 4130.

Because this case was commenced prior to October 22, 1994, however,

the amended provisions do not apply. Accordingly, in this opinion we

refer only to the pre-1994 amendment versions ofSS 326(a) and 330(a).

10

trustee, and it is not to be construed as an entitlement to

the maximum fee specified."); In re Guyana Dev. Corp., 201

B.R. 462, 474 (Bankr. S.D. Tex. 1996) (same); H.R. R EP. NO.

95-595, at 329 (1977), reprinted in 1978 U.S.C.C.A.N. 5963,

6286 ("Section 330 authorizes compensation for services

and reimbursement of expenses of officers of the estate. . . .

[T]he compensation allowable under this section is subject

to the maxima set out in section[ ] 326.").

"It is axiomatic that our interpretation of any statute

begins with the language of the statute." Director, Office of

Workers' Comp. Programs v. Sun Ship, Inc., 150 F.3d 288,

291 (3d Cir. 1998) (citing Consumer Prod. Safety Comm'n v.

GTE Sylvania, Inc., 447 U.S. 102, 108 (1980)). Having

reviewed the language of S 326(a), we are inclined to agree

with the district court that the value of a credit bid may not

be included in a trustee's compensation base. However, we

reach this conclusion for slightly different reasons than

those articulated by the district court.

Our primary area of concern with the district court's

determination is its confident assertion that the language of

S 326(a) is unambiguous. See Lan Assocs., 1998 WL

467100, at *6. In this day and age when we exchange by a

keystroke or series of keystrokes what we used to handle

only in cash, we do not think that the term "moneys" is so

clear as the district court indicated. In fact, one of the

definitions cited by the district court refers to money as "a

measure of value," see id. at *5 (citing WEBSTER'S THIRD NEW

INT'L DICTIONARY 1458 (1986)), which surely is a concept that

evolves along with and is dependent upon changing

cultural, social, and economic practices and institutions.

For example, in today's society the term "money" could

easily encompass the concept of credit, which increasing

numbers of people use as a method of payment. The term

"money" might also encompass property, especially when

property is used as a method of payment or a measure of

wealth. See WEBSTER'S II NEW COLLEGE DICTIONARY 707

(defining money as "[a] medium that can be exchanged for

goods and services and is used as a measure of their values

on the market" and as "[p]roperty and assets considered in

terms of monetary value"); supra note 5 (describing the

NABT's argument that an exchange of property involves an

11

exchange of value). But see In re Brigantine Beach Hotel

Corp., 197 F.2d 296, 299 (3d Cir. 1952) (referring to pre-

Code statute governing receiver compensation and stating

that "[i]t is clear that the word `moneys' in the clause `. . .

upon all moneys disbursed or turned over . . . ' is not the

equivalent of property."). These reasonable interpretations

of the term "moneys" render it ambiguous for purposes of

our interpretation of S 326(a). See Taylor v. Continental

Group Change in Control Severance Pay Plan, 933 F.2d

1227, 1232 (3d Cir. 1991) ("A term is ambiguous if it is

subject to reasonable alternative interpretations."); accord

United States v. Gibbens, 25 F.3d 28, 34 (1st Cir. 1994) ("A

statute is ambiguous if it reasonably can be read in more

than one way.").

Because we have concluded that the language of S 326(a)

is ambiguous, "we look to legislative history to determine

congressional intent." Sun Ship, Inc., 150 F.3d at 291

(citing Adams Fruit Co. v. Barrett, 494 U.S. 638, 642

(1990)). In describing S 326(a), Congress stated in relevant

part:

It should be noted that the base on which the

maximum fee is computed includes moneys turned

over to secured creditors, to cover the situation where

the trustee liquidates property subject to a lien and

distributes the proceeds. It does not cover cases in

which the trustee simply turns over the property to the

secured creditor, nor where the trustee abandons the

property and the secured creditor is permitted to

foreclose.

H.R. REP. NO. 95-595, at 327 (1977), reprinted in 1978

U.S.C.C.A.N. 5963, 6283-84. We think that a credit bid

transaction is more analogous to the latter situation

described in this passage, in which the trustee simply turns

over or abandons the property to the secured creditor, than

it is to the former, in which the trustee sells the property to

a third party and then distributes the proceeds. Whether

the secured creditor purchases the property through a

credit bid or whether the property is turned over or

abandoned to it by the trustee, the end result is the same--

in either case, the secured creditor receives the property in

satisfaction of its secured claim. In contrast, when the

12

trustee sells the property free and clear of liens to a third

party and then disburses the proceeds, the secured creditor

receives a payment, presumably of money (cash or its

equivalent), in satisfaction of its claim, which brings the

transaction within the literal language of the statute.

The legislative history also indicates that, in imposing the

primary duty on the trustee to reduce property to money,

Congress intended to distinguish between the concepts of

property and money. See United States Trustee v. Messer (In

re Pink Cadillac Assocs.), Nos. 96 CIV. 4571, 95-B-4243,

1997 WL 164282, at *3 (S.D.N.Y. Apr. 8, 1997) ("The

emphasis on `moneys,' rather than property or value,

accords with the drafter's understanding that `[t]he

trustee's principal duty is to collect and reduce to money

property of the estate for which he serves.' " (quoting H.R.

REP. NO. 95-595, at 379 (1977), reprinted in 1978

U.S.C.C.A.N. 5963, 6335); see also Pritchard v. United

States Trustee (In re England), 153 F.3d 232, 237 (5th Cir.

1998) (citing 11 U.S.C. S 704(1) and stating that a narrow

reading of S 326(a) harmonizes with the trustee's duty "to

reduce the property of the bankrupt's estate to money").

In addition to analyzing what the secured creditor

receives, our reading of the legislative history focuses on

the role played by the trustee in the transaction. See In re

Leedy Mortgage Co., 126 B.R. 907, 916 (Bankr. E.D. Pa.

1991) ("The crucial issue in determining whether certain

payments should be considered in the calculations[of

trustee compensation] is whether the Trustee was himself

actually engaged in the process of making disbursements to

secured creditors, as opposed to a situation where sums

paid to such creditors do not actually pass through the

Trustee's hands."); cf. Pink Cadillac Assocs., 1997 WL

164282, at *3 (stating that the legislative history of S 326(a)

"shows that the statute was intended to cover distribution

of proceeds after the sale of property" (emphasis added)). In

this case, even though the trustee presumably participated

in negotiating the credit bid sale, the trustee was not

involved in disbursing anything to the secured creditors

except for the property. Thus, the credit bid sale more

closely resembles an abandonment or turning over of the

property to the secured creditor than a sale to a third party.

13

Although we recognize that there may be cases in which the

trustee's arrangement and negotiation of a credit bid

transaction may prove to be as complex and time

consuming as liquidating estate assets by selling them to

third parties, cf. Southwestern Media, Inc. v. Rau, 708 F.2d

419, 423 (9th Cir. 1983) (noting potential difficulty of

administering encumbered estate assets), these difficulties

do not change our analysis.

Further, if Congress had chosen to include property or

other consideration in the trustee's compensation base, it

certainly knew how to do so. Under the section of the

Bankruptcy Act which was replaced by S 326 in the

Bankruptcy Code, trustees were compensated differently for

"[n]ormal [a]dministration," 11 U.S.C. S 76(c)(1) (repealed

1978) (cited in Collier on Bankruptcy App. Vol. A, Pt. 3(a) at

3-41 (Lawrence P. King ed. in chief, 15th rev. ed. 1999),

than for "[p]lans of [r]eorganization." Id. S 76(g). Although

the provision describing the compensation for normal

administration was substantially identical to the current

version of S 326(a), S 76(g) compensated trustees based

"upon all moneys disbursed or turned over . . . to any

persons, . . . and where under the plan of reorganization

any part of the consideration to be paid to unsecured

creditors is other than money, upon the amount of the fair

value of such consideration." Id. Congress' decision not to

include such language in S 326(a) is indicative of its intent

to limit trustee compensation to "moneys" in the strict

sense of the word.

For these reasons, we are satisfied that Congress did not

intend to include credit bids in the trustee's compensation

base. Stated differently, we think that Congress intended to

limit trustee compensation to "moneys" in the narrow

sense, i.e., in the sense of "sums of money,""something

generally accepted as a medium of exchange," or "assets or

compensation in the form of or readily convertible to cash."

WEBSTER'S THIRD NEW INT'L DICTIONARY 1458 (1986).

A corollary of adopting a strict reading of S 326(a) is our

rejection of the constructive disbursement theory. This

theory allows a trustee to receive compensation for

disbursements of property or other consideration which are

deemed to be "moneys disbursed or turned over" under

14

S 326(a). Some courts have employed the constructive

disbursement theory to increase the trustee's compensation

base. See Southwestern Media, 708 F.2d at 423 ("[C]ourts

have sometimes treated the sale of an encumbered asset as

one that includes a constructive disbursement to the lien

creditor, even as to the portion of the asset's value that

does not actually enter the estate and is not distributed to

the creditor by the trustee."); see, e.g., In re Greenley

Energy Holdings of Pa., Inc., 102 B.R. 400, 405 (E.D. Pa.

1989) (holding that funds from guaranteed contracts

negotiated by trustee were "constructively disbursed to

creditors and therefore [were] `turned over' to creditors" and

"thus qualify as being money turned over to the estate upon

which trustee's commissions may be based pursuant to

section 326(a)"). In addition, a leading authority on

bankruptcy law states that in a case of a credit bid sale,

"the trustee is deemed to have constructively received and

paid out the `proceeds' of the sale." See 3 Collier on

Bankruptcy S 326.02[2][f] (citing Southwestern Media for the

proposition that disbursements to secured creditors are

included in trustee's compensation "even when the

mortgagee bids on the property pursuant to section 363(k)

and sets off its claim against the purchase price").

We are not persuaded by these authorities' adoption of

the constructive disbursement theory for several reasons.

First, because the constructive disbursement theory allows

the trustee to be compensated for disbursements of

property and other types of consideration, rather than

simply for money disbursements as Congress defined them,

it conflicts with our narrow interpretation ofS 326(a).

Second, our conclusion regarding the scope of S 326(a)

and our rejection of the constructive disbursement theory

are consistent with a recent Fifth Circuit decision. In

Pritchard v. United States Trustee (In re England), 153 F.3d

232, the Chapter 7 trustee was charged with liquidating

two jointly administered estates whose assets consisted

primarily of real estate. Although the trustee successfully

sold some of the property, he reached an agreement with

the remaining creditors "to transfer the unsold real estate

. . . to two of the creditors in full satisfaction of their

claims." Id. at 234. Strictly construing the language of

15

S 326(a), the United States Court of Appeals for the Fifth

Circuit held that the trustee was not entitled to

compensation on the transfers. See id. at 235-37.

According to the court, "[t]he plain language of S 326(a)

indicates that the statute caps a trustee's compensation

based upon only the moneys disbursed, without any

allowance for the property disbursed." Id. at 235.

Third, the majority of district and bankruptcy court cases

have limited the basis of a trustee's compensation to cash

or its equivalent which the trustee actually disburses to

parties in interest. See, e.g., In re Barnett, 133 B.R. 487,

489-90 (Bankr. N.D. Iowa 1991) (strictly interpreting

S 326(a) and concluding that the value of a lien attached to

property but not paid or disbursed by the trustee could not

be included in trustee's compensation base); In re Music

Merchandisers, Inc., 131 B.R. 377, 379-80 (Bankr. M.D.

Tenn. 1991) (stating that " `[m]oney' means currency or

negotiable paper, not other forms of property" and

confirming the rule that the amount of a lien in a sale of

property subject to that lien is not included in the trustee's

compensation base); In re North Am. Oil & Gas, Inc., 130

B.R. 473, 480 (Bankr. W.D. Tex. 1990) ("Unliquidated

assets simply `turned over' to the liquidating agent are not

includable in the base, because only `moneys' turned over

qualify for inclusion in the base." (footnote omitted));

Kandel v. Alexander Leasing Corp., 107 B.R. 548, 551 (N.D.

Ohio 1988) (holding that value of money judgment was

properly excluded from trustee's compensation base

because no money actually passed through trustee's

hands); In re New England Fish Co., 34 B.R. 899, 902

(Bankr. W.D. Wash. 1983) (concluding "that the trustee's

compensation must be based on actual monies disbursed

to parties in interest[ ] and not on assets or settlements

which can be construed as a constructive disbursement").

But see In re Toole, 294 F. 975, 977 (S.D.N.Y. 1920)

(interpreting same language as construed in North Am. Oil

& Gas and finding "moneys" broad enough to encompass

securities disbursed).

Our interpretation of S 326(a) and our resulting rejection

of the constructive disbursement theory accord with general

principles governing a trustee's duties in administering

16

estate assets. The trustee argues that he should receive

compensation for administering the property even though it

was fully encumbered and therefore of little value to the

estate. The trustee claims that his negotiation of the credit

bid sale benefitted the estate more than if he had simply

abandoned the property to First Fidelity. According to the

trustee, "the unsecured creditors would have received

nothing . . . if the Property had simply been abandoned to

[First Fidelity]." Appellant's Opening Br. at 3.

As several courts have noted, " `[t]he crucial test [for

whether a trustee is entitled to compensation] seems to be

. . . whether or not the particular property or fund has been

justifiably administered in the bankruptcy court, or

whether or not the trustee has properly performed services

in relation thereto.' " Southwestern Media, 708 F.2d at 423

n.4 (quoting In re Schautz, 390 F.2d 797, 800 (2d Cir.

1968)); see 3 Collier on BankruptcyS 326.02[2][f][ii]. In turn,

whether a property or fund is justifiably administered

depends on whether administering the asset benefits the

general estate. Generally, if no estate benefit is anticipated,

then the proper course of action is to abandon the property.

See 11 U.S.C. S 554(a) (providing for abandonment of

property "that is of inconsequential value and benefit to the

estate"). Courts are in agreement that fully encumbered

assets are unlikely to benefit the estate, and, therefore,

such assets are not likely to be justifiably administered. See

In re Stanley, 120 B.R. 409, 411 (Bankr. E.D. Tex. 1990)

("Several [c]ourts have addressed this issue and their

holdings are uniform that the proper course for a Chapter

7 Trustee to follow when presented with property of the

estate in which there is either no equity or slight equity is

to abandon the property."); In re Landreneau , 74 B.R. 12,

13 (Bankr. W.D. La. 1987) (denying trustee's application to

sell fully encumbered property by offset bid and stating that

"[t]he Bankruptcy Code provides for the abandonment of

those assets in which there is no significant equity for the

estate. The trustee need not administer such assets."); In re

Lambert Implement Co., 44 B.R. 860, 862 (Bankr. W.D. Ky.

1984) (indicating that trustees should not engage in the

" `sale of fully secured property where there is no potential

equity for general creditors and . . . the trustee enhanc[es]

17

his compensation with no corresponding benefit to the

general estate' " (citation omitted)).

It follows from these principles that a trustee who

expends time and effort administering fully encumbered

assets should not receive compensation except to the extent

that his actions provide an actual benefit to the estate. See

Music Merchandisers, 131 B.R. at 378 ("One general rule

seems to be that the base for calculation of compensation

for a sale `subject to liens or encumbrances' excludes the

amount of liens and includes only the net or surplus

actually paid to (and presumably `disbursed or turned over'

by) the trustee."); In re National Enter. Wire Co., 103 B.R.

56, 59 (Bankr. N.D.N.Y. 1989) ("Bankruptcy courts have

generally taken the position that a trustee is not entitled to

collect statutory commissions and expenses under Code

SS 326 and 330 on the sale of fully secured property since

the estate would not receive any proceeds to distribute to

those creditors holding unsecured."); Landreneau, 74 B.R.

at 13 ("The trustee . . . should be compensated[for

administering fully encumbered assets] only to the extent

his actions actually benefitted the secured creditor."); cf.

Pink Cadillac Assocs., 1997 WL 164282, at *4 ("[C]ourts

have found that a trustee may not count as `moneys

disbursed or turned over' the proceeds of a sale of property

that is fully encumbered or that has only slight equity,

because the proper course is to abandon or turn over such

property."); Barnett, 133 B.R. at 488 (noting that "trustees

have been denied a statutory fee based upon the sale price

of fully encumbered property or the sale of property

enjoying only slight equity"). An additional reason for

disallowing compensation for the sale of fully encumbered

property is that "there is no justification for the estate,

which is created for the benefit of the unsecured creditors,

to bear the fee for the benefit of the secured creditor." In re

Palm Beach Resort Properties Inc., 73 B.R. 323, 324 (Bankr.

S.D. Fla. 1987); see also Stanley, 120 B.R. at 411

(explaining that selling property in which there is no equity

"would not result in any benefit to the unsecured creditors

and on the contrary can in certain instances result in an

actual detriment if the aggregate amount of a Chapter 7

Trustee's commission from the sale of property with only

18

slight equity exceeds the paper equity that appears to

exist").

In this case, we agree that the trustee may have achieved

a benefit for the estate beyond what it would have received

if he had simply abandoned the property to First Fidelity.

However, the trustee will receive compensation based on

the benefit he achieved for the estate. Not only do the

principles outlined above dictate that the trustee should

receive compensation for any actual benefit the trustee

achieved for the estate but also the U.S. Trustee does not

dispute that the compensation base should include this

amount. See supra note 2 (indicating that neither U.S.

Trustee nor district court disputes that the $372,387.00 in

cash collateral which First Fidelity contributed to

administrative costs and payment to the unsecured

creditors may be counted as part of the trustee's

compensation base (citing Lan Assocs., 1998 WL 467100,

at *8 n.8; Appellee's Br. at 6 n.2)). Moreover, while there

may be instances in which a trustee receives less

compensation than he deserves when measured against the

amount and complexity of work he performed, see

Southwestern Media, 708 F.2d at 423 ("[T]he policy

underlying the statutory provision allowing sale proceeds

used to liquidate liens to be counted in determining the

trustee's fee maximum . . . serves `the purpose of insuring

to trustees compensation commensurate with the trustees'

services.' "); cf. Stanley, 120 B.R. at 413 (stating that "a

strict reading of 11 U.S.C. S 326(a) does not award

compensation to the Trustee even though a disposition of

the property may have required a great deal of the Trustee's

time and effort"), the solution to the potential

undercompensation of trustees lies with Congress. See

England, 153 F.3d at 237 ("Congress's decision to set a

maximum limit on trustee compensation based only upon

moneys disbursed may arguably lead to a trustee receiving

inadequate compensation in a particular case, but that is a

problem for Congress to remedy."); Barnett , 133 B.R. at 489

(noting the existence of meritorious arguments in favor of

compensating trustee for constructive disbursements but

stating that "the language of the statute can[not] bear their

weight"); New England Fish, 34 B.R. at 902 (stating that

"[e]ven though this may be a case where the trustee's

19

efforts deserve compensation in excess of the maximum

allowable under the law, the solution is not with the Court

but with Congress").

In conclusion, despite our disagreement with the district

court regarding the ambiguity of the term "moneys," we are

persuaded by the legislative history of S 326(a) and by the

general policies underlying bankruptcy administration that

Congress did not intend to include credit bids in the

trustee's compensation base. In the context of a credit bid

sale, a trustee's compensation must be based only on

moneys actually disbursed or turned over to parties in

interest, not on constructive disbursements.

III.

We now address whether the district court erred in

concluding that the bankruptcy court considered improper

factors in conducting its reasonableness analysis of the

trustee's fee pursuant to 11 U.S.C. S 330(a). In this regard,

the district court held that it was erroneous as a matter of

law for the bankruptcy court to consider the following three

factors: (1) the maximum cap on trustee fees contained in

S 326(a); (2) the fact that the U.S. Trustee did not file any

objection to the fee award until approximately two years

after the trustee received it; and (3) the hardship to the

trustee that would result from a disgorgement order.

A.

With respect to the bankruptcy court's consideration of

the S 326(a) analysis, the trustee claims that the

bankruptcy court did not confuse or erroneously combine

the two analyses. According to the trustee, the bankruptcy

court conducted a complete S 330(a) analysis independently

from its determination of the trustee's maximum

compensation under S 326(a). The U.S. Trustee contends

that the district court was correct in instructing the

bankruptcy court not to consider S 326(a) and that,

because the trustee does not seek a holding thatS 326(a)

should be considered as a factor in the reasonableness

analysis, "he does not seek reversal of the District Court's

decision on this point." Appellee's Br. at 53. As a result, the

20

U.S. Trustee requests that we affirm the district court's

opinion in its entirety.

We agree with the district court's determination that

consideration of the maximum fees set forth in S 326(a) in

the course of a S 330(a) reasonableness determination is

erroneous as a matter of law. See Lan Assocs. , 1998 WL

467100, at *9; see also Biskup, 236 B.R. at 336 (citing Lan.

Assocs. for above proposition); cf. Gill v. Wittenburg (In re

Financial Corp. of Am.), 114 B.R. 221, 224 (9th Cir. B.A.P.

1990) (referring to trial court's possible "improper focus on

Section 326(a) in determining fees" pursuant toS 330(a)). In

determining compensation for trustees, a court begins by

applying the criteria set forth in S 330(a). See Financial

Corp. of Am., 114 B.R. at 223. The statute provides in

pertinent part that a court may award a trustee "reasonable

compensation for actual, necessary services rendered. . .

based on the nature, the extent, and the value of such

services, the time spent on such services, and the cost of

comparable services other than in a case under this title."

11 U.S.C. S 330(a)(1). Only after "reasonable fees are

determined according to the . . . criteria[ ] [of S 330(a)] [are]

a trustee's fees . . . cut down, if required, to the statutory

maximum stated in Section 326(a)." Financial Corp. of Am.,

114 B.R. at 223. We agree with the Bankruptcy Appellate

Panel for the Ninth Circuit that "the provisions of Sections

330(a) and 326(a) are independent of one another. Trustee

fees should be set according to the Section 330 criteria, not

merely according to the amount of moneys disbursed." Id.

at 223-24 (citations omitted). As another court explained, if

trustees' fees were to be computed according toS 326(a),

"there would have been little need for Congress to have

provided separate standards in 11 U.S.C. S 330(a) for

calculating the amount of such stipends." In re Roco Corp.,

64 B.R. 499, 502 (D.R.I. 1986); see also In re Draina, 191

B.R. 646, 648 (Bankr. D. Md. 1995) (referring to SS 326(a)

and 330(a) as "two separate limitations" on trustee fees

(emphasis added)). The legislative history accompanying

S 326(a) confirms this view:

[Section 326(a)] simply fixes the maximum

compensation of a trustee. Proposed 11 U.S.C. S 330

authorizes and fixes the standard of compensation.. . .

21

The limits in this section, together with the limitations

found in section 330, are to be applied as outer limits,

and not as grants or entitlements to the maximum fees

specified.

H.R. REP. NO. 95-595, at 327, reprinted in 1978

U.S.C.C.A.N. 5963, 6283. This passage indicates that while

Congress intended S 330 to prescribe the standard

pursuant to which trustee compensation is awarded,

S 326(a) merely caps the fees awarded pursuant to S 330.

Congress' description of the separate functions of the

statutes demonstrates that a fee determination must

involve independent consideration of each statute.

In light of the legislative history and the cases described

above, we conclude that the S 330(a) and theS 326(a)

analyses must be conducted separately. Although it is

difficult to tell whether or how the bankruptcy court relied

on S 326(a) in assessing reasonableness underS 330(a), we

affirm the district court's determination that the

reasonableness determination under S 330(a) should not

include consideration of the caps set forth in S 326(a).

Thus, we instruct the bankruptcy court to considerS 326(a)

independently of its reasonableness assessment under

S 330(a) on remand.

B.

The trustee also argues that the district court incorrectly

held that the bankruptcy court erred in considering both

the U.S. Trustee's delay in objecting to the trustee's final

report and the potential hardship to the trustee caused by

a disgorgement order under S 330(a). Specifically, the

trustee claims that because the factors set forth in S 330(a)

are not all-inclusive, the bankruptcy court's apparent

consideration of these factors was not erroneous.

"In employing the fee setting criteria of Section 330(a),

the bankruptcy judge is accorded wide discretion."

Financial Corp. of Am., 114 B.R. at 224; see also In re C &

A Enters., Inc., 132 B.R. 303, 307 (Bankr. W.D. Pa. 1991)

("The bankruptcy court has the independent authority and

responsibility to determine the reasonableness of

compensation."). At least in part, the bankruptcy court's

22

broad discretion is due to the fact that "no matter how

close the [c]ourt comes to an objective determination of a

reasonable fee, [the fee determination] is still, in the final

analysis, a substantially subjective exercise." In re Garland

Corp., 8 B.R. 826, 831 (Bankr. D. Mass. 1981); see In re

Gillett Holdings, Inc., 137 B.R. 475, 481 (Bankr. D. Colo.

1992) ("[T]he setting of fees . . . is an art, not a science.").

Although many cases apply only the factors enumerated

in S 330(a), our research has not revealed any case--apart

from the district court opinion in this case--which has

expressly stated that a bankruptcy court's reasonableness

assessment is limited to only those factors. In fact, we have

located two cases which have concluded that the factors set

forth in S 330(a) are not exhaustive and that bankruptcy

courts may consider relevant factors beyond those listed in

the statute. See Roco Corp., 64 B.R. at 504 ("[T]he elements

set out in 11 U.S.C. S 330(a) do not purport to be all-

inclusive. Other guideposts can--and should--be

considered where pertinent and appropriate."); Garland

Corp., 8 B.R. at 829 ("The factors laid out in S 330 are not

exhaustive, and the Court will consider a totality of factors

in awarding fees."); 9 AM. JUR. 2D Bankruptcy S 322 (1991)

(same); cf. Greenley Energy, 102 B.R. at 406 (listing factors

to consider as the results achieved by the trustee, the time

spent, the intricacy of problems involved, the amount

involved, and the opposition encountered). Moreover, in

spite of the factors enumerated in S 330, many courts

continue to employ the twelve factors set forth in Johnson

v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19

(5th Cir. 1974) (determining the reasonableness of

attorneys' fees).8 See 3Collier on Bankruptcy S 330.04[3]

_________________________________________________________________

8. The Johnson factors are: (1) the time and labor required; (2) the

novelty and difficulty of the questions; (3) the skill requisite to

perform

the legal service properly; (4) the preclusion of other employment by the

attorney due to acceptance of the case; (5) the customary fee; (6) whether

the fee is fixed or contingent; (7) time limitations imposed by the client

or the circumstances; (8) the amount involved and the results obtained;

(9) the experience, reputation, and ability of the attorneys; (10) the

undesirability of the case; (11) the nature and length of the professional

relationship with the client; (12) awards in similar cases. See Johnson,

488 F.2d at 717-19.

23

(stating that courts have relied on Johnson factors to assess

the reasonableness of compensation under both the

Bankruptcy Act and the Bankruptcy Code and that "[m]any

courts continue to follow Johnson"); see, e.g., Garland

Corp., 8 B.R. at 831 (employing twelve Johnson factors to

determine trustee's fee under S 330(a)); cf. Grant v. George

Schumann Tire & Battery Co., 908 F.2d 874, 877-78 (11th

Cir. 1990) (considering Johnson factors in determining

trustee's attorneys' fees pursuant to S 330(a)); First Nat'l

Bank of Lea County v. Niccum (In re Permian Anchor Servs.,

Inc.), 649 F.2d 763, 768 (10th Cir. 1981) (adopting Johnson

factors for purposes of determining attorneys' fees in

bankruptcy cases); In re Malewicki, 142 B.R. 353, 355

(Bankr. D. Neb. 1992) (employing twelve Johnson factors to

determine fee for Chapter 13 debtor's counsel pursuant to

S 330(a)); Gillett Holdings, 137 B.R. at 481 & n.10 (Bankr.

D. Colo. 1992) (assessing fees for debtor's investment

banker based on Johnson reasonableness factors). Mindful

of these cases and of the broad discretion bestowed on

bankruptcy courts to determine appropriate trustee fees, we

hold that the factors enumerated in section S 330(a) are not

all-inclusive.

The changes Congress made to S 330 pursuant to the

Bankruptcy Reform Act of 1994 support our determination.

The amended version of S 330 clearly indicates that in

determining a reasonable fee, the court must "consider the

nature, the extent, and the value of such services, taking

into account all relevant factors." 11 U.S.C. S 330(a)(3).

While it appears that additional factors considered under

the statute should pertain to the nature, extent, or value of

the services, we think that this language clarifies Congress'

intent that a reasonableness assessment need not be based

solely on the statutorily enumerated factors. The fact that

this intent was not clearly articulated in the prior version of

S 330 does not preclude this interpretation.

Even though we have held that S 330, even in its pre-

1994 amendment form, does not present the court with an

exhaustive list of factors to be considered, neither the

procedural history of the case nor the potential hardship to

the trustee seems to bear significantly on the actual

services provided by the trustee. Accordingly, we think that

24

the relevance of these two factors mentioned by the

bankruptcy court is questionable. Because neither we nor

the district court can ascertain the extent to which the

bankruptcy court relied on these factors, however, we

merely instruct the bankruptcy court that although it need

not necessarily limit its reasonableness assessment to the

statutorily enumerated factors, it should consider on

remand only those factors which are somehow pertinent to

assessing the trustee's services.9

IV.

In conclusion, the trustee is not entitled to receive

compensation on the amount of First Fidelity's credit bid.

Additionally, the bankruptcy court should conduct its

reasonableness assessment independently of the maximum

percentages set forth in S 326(a) and should confine its

S 330(a) analysis to factors which have some relevance to

the services provided by the trustee. We therefore AFFIRM

the district court's reversal of the bankruptcy court's fee

award and REMAND to the bankruptcy court for a

determination of the final trustee compensation award

consistent with this opinion.

A True Copy:

Teste:

Clerk of the United States Court of Appeals

for the Third Circuit

_________________________________________________________________

9. For remand purposes, we take this opportunity to remind the

bankruptcy court that while "each factor enumerated by S 330(a) retains

independent significance," the factor examining the cost of comparable

services "has an overarching role to act as a guide to the value of the

services rendered given their nature and extent." In re Busy Beaver Bldg.

Ctrs., Inc., 19 F.3d 833, 849 (3d Cir. 1994); see also In re Marvel

Entertainment Group, Inc., 234 B.R. 21, (D. Del. 1999) (concluding, based

on Busy Beaver, that "the appropriate market for determining reasonable

[trustee] fees . . . depend[s] on the nature of the specific services . .

.

provided").

25