3.8 Bankruptcy Court

• Library: Attorney Fees and Sanctions - Virginia and Federal Courts (Virginia CLE) (2016 Ed.)

3.8 BANKRUPTCY COURT

3.801 Statutory Basis. The statutory basis for allowing compensation to attorneys in bankruptcy cases is set forth in 11 U.S.C. § 330 and permits "reasonable compensation for actual, necessary services rendered by

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the trustee, examiner, ombudsman, professional person, or attorney and by any paraprofessional person employed by any such person, and reimbursement for actual necessary expenses." ⁴³⁵

3.802 Awards to Trustee and Trustee's Counsel. An award of compensation to a trustee's counsel is separate from an award of compensation to the trustee. They each stand on their own. Both the trustee and counsel are compensated for their own work. There are differences in determining the compensation for counsel and for a trustee. A trustee's compensation is capped and there is at least one additional consideration. ⁴³⁶ This is true even when the trustee and counsel are one and the same. Even though separate, their work and applications for compensation overlap. Nonetheless, the attorney may not be paid for trustee work. ⁴³⁷

In determining the amount of reasonable compensation to be awarded to a trustee, the court shall treat such compensation as a commission, based on section 326. ⁴³⁸

It is well settled that courts may not compensate an attorney appointed to represent a trustee for services statutorily required of the trustee . . . trustees must perform all ministerial and administrative duties of the estate . . . while attorneys appointed to represent the trust must exercise professional legal skills and expertise beyond the ordinary knowledge and skill of the trustee to receive compensation...Accordingly, attorneys have been denied compensation for: (1) services relating to the sale of the debtor's assets, the collection of accounts due, the examination of the debtor's papers . . .; (2) the preparation of notices and advertisements for the sale of the debtors assets, and license renewals . . .; (3) entries relating to routine telephone calls and correspondences with information seekers . . .; (4) charges for the reduction of the estate to money, the payment of routine bills—including taxes, the arranging of insurance coverage for the estate, and the examination of

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the debtor's books and records . . .; (5) and the arrangement for the sale of the properties of the debtor's estate. ⁴³⁹

The United States Supreme Court recently held that the Bankruptcy Code does not permit bankruptcy courts to award attorney fees to counsel and other professionals employed by the bankruptcy trustee for work performed in defending a fee application because there is no statutory provision providing for such recovery and because the professional's defense of an application is not considered services rendered to the administrator of the estate but rather a defense of the professional's own fees. ⁴⁴⁰

3.803 Determining Reasonable Compensation—Eastern District of Virginia. Courts in the Eastern District of Virginia have used two rather different approaches to determine...