                                                          FILED
 1                          ORDERED PUBLISHED              DEC 11 2015
                                                     SUSAN M. SPRAUL, CLERK
 2                                                       U.S. BKCY. APP. PANEL
                                                         OF THE NINTH CIRCUIT
 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )       BAP No.      EC-15-1133-DJuF
                                   )
 6   DELIA RUIZ,                   )       Bk. No.      14-10282
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     PETER L. FEAR, Chapter 7      )
 9   Trustee,                      )
                                   )
10                  Appellant,     )
                                   )
11   v.                            )       O P I N I O N
                                   )
12   UNITED STATES TRUSTEE,        )
                                   )
13                  Appellee.1     )
     ______________________________)
14
15                  Argued and Submitted on November 19, 2015
                            at Sacramento, California
16
                            Filed - December 11, 2015
17
                 Appeal from the United States Bankruptcy Court
18                   for the Eastern District of California
19            Honorable W. Richard Lee, Bankruptcy Judge, Presiding
20
     Appearances:      Appellant Peter L. Fear, argued pro se.
21
22
     Before:     DUNN, JURY, and FARIS, Bankruptcy Judges.
23
24   Opinion by Judge Dunn
     Concurrence by Judge Jury
25
26
27
          1
            The United States Trustee did not participate in this
28   appeal.
 1   DUNN, Bankruptcy Judge:
 2
 3        Chapter 72 trustee Peter L. Fear (“Trustee”) applied to the
 4   bankruptcy court for compensation and payment of expenses.
 5   Although the application was unopposed, the bankruptcy court
 6   awarded the Trustee only a portion of the requested
 7   compensation, reasoning that the requested amount, which
 8   exceeded the amount available for distribution on allowed
 9   unsecured claims, was too high.     The Trustee appeals.   We VACATE
10   the order of the bankruptcy court and REMAND the matter for
11   further proceedings.
12                           I.   FACTUAL BACKGROUND
13        The Debtor, Delia Ruiz, filed a chapter 7 petition on
14   January 23, 2014.   The Trustee was appointed on the same date.
15   On Schedule B, the Debtor listed an ownership interest in seven
16   motor vehicles, including a 2007 Dodge Ram pickup truck (the
17   “Dodge”), which the Debtor valued at $28,525.3    According to the
18   Debtor’s Schedule D, the Dodge was subject to a lien in the
19   amount of $16,477.35.    The Debtor also claimed exemptions in the
20   Dodge in the total amount of $12,047.65, the full amount of the
21   Dodge’s scheduled value net of the lien.
22        Based on the Debtor’s schedules, along with information the
23   Debtor provided following the first § 341(a) meeting of
24
          2
            Unless otherwise indicated, all chapter and section
25   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.
26        3
            We exercise our discretion to take judicial notice of
27   documents filed in the Debtor’s bankruptcy case, including the
     Debtor’s schedules. See Atwood v. Chase Manhattan Mortg. Co.
28   (In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

                                       -2-
 1   creditors, the Trustee tentatively concluded that the estate
 2   likely had no interest in the Dodge.   This conclusion changed
 3   over the course of the next four months and several continuances
 4   of the meeting of creditors, as the Debtor twice amended her
 5   schedules to revise her claimed exemptions and contemplated
 6   making an offer to purchase her nonexempt assets back from the
 7   estate.   Ultimately, the Debtor removed her claimed exemptions
 8   in the Dodge, and the Trustee concluded the meeting of creditors
 9   and commenced the process of selling the Dodge at auction.
10        The auctioneer expressed some skepticism that he could sell
11   the Dodge for its scheduled value,4 but he believed it would
12   provide some return for unsecured creditors.   The bankruptcy
13   court approved the auctioneer’s employment, and the auction took
14   place as scheduled on July 26, 2014.   The auctioneer’s
15   expectation proved correct: the Dodge sold for $21,000,
16   significantly less than its scheduled value but enough to pay
17   unsecured claims in part.
18        On October 24, 2014, the Trustee filed his Final Report,
19   Application for Compensation and Applications for Compensation
20   of Professionals (“Final Report”).   The Trustee reported total
21   receipts of $21,000, all attributable to the sale of the Dodge.
22   From that amount, the Trustee disbursed $15,046.84 to Safe 1
23   Credit Union, the holder of the lien on the Dodge, and $2,758 to
24   the auctioneer.   This left the estate with $3,195.16, which the
25   Trustee proposed to distribute as follows: $2,300 to the Trustee
26
27
          4
            The Debtor’s most recently filed Schedule B valued the
28   Dodge at $32,000.

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 1   for his fees and $52.44 for his expenses; and the remaining
 2   $842.72 to general unsecured creditors.   Concurrently with the
 3   Final Report, the Trustee filed a Narrative Report and
 4   Application for Compensation and Expenses (“Application”).     As
 5   shown in a table included in the Application, the maximum
 6   compensation allowed under § 326 was $2,850, but the Trustee
 7   requested less than the full amount in an apparent effort to
 8   provide a greater distribution to creditors.5   Notwithstanding
 9   this $550 reduction from the statutory commission, the Trustee’s
10   proposed distribution would have allowed the Trustee to receive
11   roughly three quarters of the funds remaining in the estate.6
12        Though no objections were filed to the Final Report, the
13   bankruptcy court entered an order setting the matter for hearing
14   to address the lopsided proposed distribution (“Hearing
15   Order”).7   The bankruptcy court noted that under our decision in
16   Hopkins v. Asset Acceptance LLC (In re Salgado-Nava), 473 B.R.
17   911 (9th Cir. BAP 2012), a trustee’s commission as calculated
18   under § 326 is presumptively reasonable except in extraordinary
19   circumstances.   Citing In re Scoggins, 517 B.R. 206 (Bankr. E.D.
20   Cal. 2014), the bankruptcy court stated that “[a] chapter 7
21
22        5
            The calculation of the Trustee’s maximum compensation
23   under § 326 is as follows, based on total disbursements of
     $21,000: 25% of the first $5,000 = $1,250; 10% of the remaining
24   $16,000 = $1,600; $1,250 + $1,600 = $2,850.
25        6
            The proposed $842.72 distribution would have allowed
26   unsecured creditors to recover 5.7% of their allowed claims.
          7
27          The Panel may review on appeal all earlier interlocutory
     orders that merge in the final appealed order. McBride v. CITGO
28   Petroleum Corp., 281 F.3d 1099, 1104 (10th Cir. 2002).

                                     -4-
 1   trustee’s request for compensation that exceeds the amount of
 2   money the trustee proposes to distribute to unsecured creditors
 3   constitutes one of those ‘extraordinary circumstances’ which
 4   commands a review of the fees for reasonableness.”    On that
 5   basis, the bankruptcy court found that extraordinary
 6   circumstances existed warranting scrutiny of the Application.
 7   To guide its determination of the reasonableness of the
 8   Trustee’s requested compensation, the bankruptcy court ordered
 9   the Trustee to produce his time records for the case.
10        The Trustee submitted a declaration in which he explained
11   that he did not keep detailed case-by-case time records for his
12   work as a chapter 7 panel trustee.   Instead of time records, he
13   included a narrative of his services in the case.    To provide
14   justification for his request for compensation in lieu of
15   specific time records for the case, the Trustee reported the
16   total hours he worked as a chapter 7 trustee in 2014 and the
17   compensation he received.   Based on his calculations, including
18   estimates of the time his legal assistant spent on activities
19   that would qualify as billable, the Trustee estimated that the
20   value of his chapter 7 trustee services in 2014 was $280,327,
21   while in fact he received $184,838.51 for those services.
22        After receiving the Trustee’s declaration, the bankruptcy
23   court entered an order on the Final Report and Application
24   (“Compensation Order”).   In the Compensation Order, the
25   bankruptcy court acknowledged that it had “no reservations about
26   the Trustee’s diligence and the performance of his duties.”
27   Nevertheless, the bankruptcy court found that there were
28   extraordinary circumstances present justifying compensation in

                                    -5-
 1   an amount less than that requested.       In support of this
 2   determination, the bankruptcy court noted that the Trustee had
 3   administered only one asset (the Dodge); that the Dodge had sold
 4   for less than expected; and that, as a result of the
 5   disappointing sale price, the Trustee’s requested compensation
 6   exceeded - by almost a factor of three - the amount unsecured
 7   creditors would receive under the proposed distribution.       With
 8   no time records to guide its determination of an appropriate
 9   level of compensation, the bankruptcy court turned to the United
10   States Trustee’s Handbook for Chapter 7 Trustees, which
11   instructs trustees not to administer assets “primarily for the
12   benefit of the trustee.”    Based on this principle, the
13   bankruptcy court reasoned that “the unsecured creditors should
14   receive at least as much” as the Trustee himself.       The
15   bankruptcy court awarded the Trustee $1,597.58, exactly half of
16   the net proceeds from the sale of the Dodge.
17        The Trustee filed a timely appeal of the Compensation
18   Order.
19                             II.    JURISDICTION
20        The bankruptcy court had jurisdiction under 28 U.S.C.
21   §§ 1334 and 157(b)(2)(A).       We have jurisdiction under 28 U.S.C.
22   § 158.
23                                III.    ISSUE
24        Whether the bankruptcy court abused its discretion in
25   awarding compensation to the Trustee in an amount less than that
26   requested in the Application.
27                       IV.     STANDARD FOR REVIEW
28        We review for abuse of discretion the bankruptcy court’s

                                         -6-
 1   award of fees under § 330(a).       In re Salgado-Nava, 473 B.R. at
 2   915.    A bankruptcy court abuses its discretion if it applies an
 3   incorrect legal standard or misapplies the correct legal
 4   standard, or if its factual findings are illogical, implausible
 5   or unsupported by evidence in the record.        TrafficSchool.com,
 6   Inc. v. Edriver Inc., 653 F.3d 820, 832 (9th Cir. 2011); United
 7   States v. Hinkson, 585 F.3d 1247, 1262 (9th Cir. 2009) (en
 8   banc).
 9                               V.    DISCUSSION
10          As stated above, we review the Compensation Order for abuse
11   of discretion.    Review for abuse of discretion requires us first
12   “to determine de novo whether the [bankruptcy] court identified
13   the correct legal rule to apply to the relief requested.”
14   Hinkson, 585 F.3d at 1262.       If a bankruptcy court fails to
15   identify or misapplies the correct rule of law, the inquiry ends
16   there, and we “must conclude [the bankruptcy court] abused its
17   discretion.”    Id.   Accordingly, we must identify the applicable
18   rule of law and determine whether the bankruptcy court applied
19   it correctly.
20   A.     The “extraordinary circumstances” test
21          Section 326(a) provides a formula for determining the
22   maximum compensation a trustee may receive in a chapter 7 case.
23   In our decision in Salgado-Nava, we analyzed the interaction
24   between this maximum compensation formula and the provision of
25   § 330(a)(7) that the bankruptcy court must “treat [a trustee’s]
26   compensation as a commission, based on section 326.”        In re
27   Salgado-Nava, 473 B.R. at 915-22.        We held that a trustee’s
28   request for compensation should be presumed reasonable as long

                                        -7-
 1   as the amount requested does not exceed the statutory maximum
 2   calculated pursuant to § 326.    “[A]bsent extraordinary
 3   circumstances, bankruptcy courts should approve chapter 7, 12
 4   and 13 trustee fees without any significant additional review.”
 5   Id. at 921.   If the court has found that extraordinary
 6   circumstances are present, only then does it become appropriate
 7   to conduct a further inquiry to “determine whether there exists
 8   a rational relationship” between the compensation requested and
 9   the services rendered.   Id.
10   B.   The bankruptcy court’s extraordinary circumstances inquiry
11        To begin with, the bankruptcy court correctly identified
12   the legal rule articulated in Salgado-Nava, acknowledging both
13   the presumption of reasonableness and the “extraordinary
14   circumstances” standard.    In applying this standard, however,
15   the bankruptcy court went on to state: “A chapter 7 trustee’s
16   request for compensation that exceeds the amount of money the
17   trustee proposes to distribute to unsecured creditors
18   constitutes one of those ‘extraordinary circumstances’ which
19   commands a review of the fees for reasonableness.”    See In re
20   Scoggins, 517 B.R. at 217.
21        It is clear from this statement that the bankruptcy court
22   applied a per se rule in its extraordinary circumstances
23   inquiry, which would require a finding of extraordinary
24   circumstances in every case in which the trustee’s requested
25   compensation exceeds the proposed distribution to unsecured
26   creditors.    Thus, our task is to determine whether this per se
27   rule is consistent with the applicable statutory provisions, as
28   analyzed in Salgado-Nava.    For the reasons that follow, we

                                     -8-
 1   conclude that it is not.
 2   C.   Trustee compensation in excess of distribution to unsecured
          creditors is not per se an extraordinary circumstance
 3
 4        In Salgado-Nava, we left open the question of “what facts
 5   might qualify as extraordinary for purposes of activating the
 6   bankruptcy court’s duty to determine the reasonableness of the
 7   § 326(a) commission rates.”    In re Salgado-Nava, 473 B.R. at 922
 8   n.16.    But we recognized “Congress’s clearly expressed intent to
 9   fix trustee commission rates for the vast majority of cases.”
10   Id. at 920 (emphasis added).   We noted that “we must assume that
11   Congress already has approved fees set as commissions in § 326
12   as reasonable,” and that payment of a commission without close
13   scrutiny in the absence of extraordinary circumstances provided
14   “a certain symmetry” when balanced against the modest $60 fee
15   that trustees receive in no-asset cases.   Id. at 921-22.   The
16   per se rule would disrupt this symmetry and would vitiate the
17   congressional imperative that trustee compensation requests at
18   or below the § 326 commission level be approved in “the vast
19   majority of cases.”8
20        This does not mean, of course, that the relationship
21   between trustee compensation and distributions to unsecured
22   creditors is irrelevant to a finding of extraordinary
23   circumstances.   We do not adopt, as the Trustee urges us to do,
24   a rule allowing chapter 7 trustees to receive the statutory
25   commission in all cases unless the trustee’s performance of his
26
          8
27          The Trustee notes, correctly, that the per se rule would
     require a finding of extraordinary circumstances in such cases
28   even if all creditors are paid 100 cents on the dollar.

                                     -9-
 1   or her duties has been deficient.     But see Mohns, Inc. v.
 2   Lanser, 522 B.R. 594, 601-02 (E.D. Wis. 2015) (holding chapter 7
 3   trustees are entitled to statutory commission in “nearly every
 4   case” and rejecting any consideration of disproportionateness of
 5   compensation).   We decline to give “extraordinary circumstances”
 6   the narrow and categorical definition the Trustee espouses.     We
 7   do hold, however, that trustee compensation exceeding
 8   distributions to unsecured creditors is not per se an
 9   extraordinary circumstance.
10        The fact that the Trustee’s requested compensation exceeded
11   the proposed distribution to unsecured creditors was not
12   sufficient, standing alone, to establish extraordinary
13   circumstances.   By holding that it was, the bankruptcy court
14   applied an incorrect legal standard and thus abused its
15   discretion.
16                            VI.   CONCLUSION
17        Based upon the foregoing, we conclude that the bankruptcy
18   court abused its discretion by applying an incorrect legal
19   standard in reviewing the Trustee’s Application.    Accordingly,
20   we VACATE the Hearing Order and the Compensation Order and
21   REMAND the matter to the bankruptcy court for further
22   proceedings consistent with this Opinion.
23
24
25
26                    Concurrence begins on next page.
27
28

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 1   JURY, Bankruptcy Judge, Concurring:
 2
 3        I have no disagreement with the majority Opinion on this
 4   matter.   Without question the adoption by the bankruptcy judge
 5   of a per se rule that an extraordinary circumstance exists any
 6   time a trustee’s requested compensation, as measured by § 326,
 7   exceeds the proposed distribution to unsecured creditors is
 8   inconsistent with our holding in Salgado-Nava.   However, I would
 9   take our disagreement with the practices in the Eastern District
10   of California somewhat further.
11        Although not the articulated basis for the bankruptcy
12   judge’s request for detailed time records in this case and his
13   per se determination that a hearing on the reasonableness of the
14   requested fees was required, as the Trustee points out in his
15   brief, the procedure followed by the judge was consistent with
16   the recently adopted Local Bankruptcy Rule 2016-21 in the
17   Eastern District of California, which states:
18                   Compensation of Chapter 7 Trustees
19        (a) Motion Procedure. Every application for
          compensation of a Chapter 7 trustee in the categories
20        set forth in paragraph (b) shall be presented by
          motion noticed and set for hearing pursuant to LBR
21        9014-1. Such motion shall be supported by time
          records and a narrative statement of the trustee’s
22        services.
23        (b) Categories. The procedure specified in paragraph
          (a) shall be followed for requests that satisfy any of
24        the following criteria:
               (1) Fee requests seeking $10,000.00, or more;
25             (2) Cases in which the trustee seeks fees
               exceeding the amount remaining to pay unsecured
26
27
          1
            New LBR 2016-2 was adopted in May 2015, after the
28   bankruptcy judge here set the hearing and ruled on this case.

                                    -1-
 1               priority and general claims;
                 (3) Cases in which there is a “carve out” for the
 2               estate or a “short sale”;
                 (4) Cases where the trustee has operated the
 3               business of the debtor; or
                 (5) Cases in which the court specifically orders
 4               such a fee application.
 5          This rule was adopted in apparent response to In re
 6   Scoggins, 517 B.R. 206 (Bankr. E.D. Cal. 2014), a published
 7   opinion joined by all the Eastern District bankruptcy judges,
 8   who called for the new local rule in their concurrence.      Id. at
 9   227.
10          This rule and the reason it was enacted, as described in
11   Scoggins, is inconsistent with our holding in Salgado-Nava.
12   I submit that LBR 2016-2 stands on its head the presumption of
13   reasonableness of the § 326 commission as called for in
14   § 330(a)(7).
15          After bemoaning the fact that the U.S. Trustee and
16   creditors offered little help to a reviewing bankruptcy court
17   when it considers a chapter 7 trustee’s fee application,
18   Scoggins adopts a bright line requirement that detailed fee
19   applications, supported by time records kept by the trustee,
20   must be filed in a list of predetermined circumstances (which
21   are articulated as #’s (b) 1-5 in LBR 2016-2) to “sort wheat
22   from chaff” because the “categories suggest themselves.”     Id. at
23   222.    Therefore, like the bankruptcy judge’s decision in this
24   case about when a per se extraordinary circumstance exists, the
25   local rule requires detailed time records every time a trustee
26   requests compensation which exceeds the dollars returned to
27   unsecured creditors and in the other four predetermined
28   categories of cases.

                                     -2-
 1        Such requirement flies in the face of Salgado-Nava and the
 2   presumption that the commission is reasonable.     Our case
 3   suggests that even when a bankruptcy court makes an independent,
 4   discretionary determination that extraordinary circumstances
 5   exist, measuring the worth of the trustee’s service by time
 6   billings is error:
 7        But bankruptcy courts still must keep in mind that
          tallying trustee time expended in performing services
 8        and multiplying that time by a reasonable hourly rate
          ordinarily is beyond the scope of a reasonableness
 9        inquiry involving commissions. Simply put, a
          bankruptcy court that diminishes a trustee’s
10        compensation from the statutorily-set rate errs if the
          only basis offered for this diminution is a lodestar
11        analysis.
12   Salgado-Nava, 473 B.R. at 921.
13        This statement is preceded by a discussion of the
14   impropriety of using a lodestar measure in a commission-based
15   compensation calculation.    Id. at 920.   Yet, the new Eastern
16   District rule does not just suggest that time records might be
17   requested in some individually screened cases; instead it
18   requires them in every case which falls within the predetermined
19   list.   Where did the presumption of reasonableness go?
20        I do not suggest that this rule mandates the judge to only
21   consider a lodestar approach.    However, by inserting it into the
22   middle of the review process every time, it strongly suggests
23   the time expended cannot be ignored, knocking the props out from
24   under the presumption of reasonableness of the commission.
25        It is not my place to suggest that this new rule be
26   stricken from the books.    However, it is fundamentally
27   inconsistent with the holding and reasoning of Salgado-Nava and
28   teeters on unstable ground in light of that opinion.

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