The Ninth Circuit Bankruptcy Appellate Panel (“Panel”) recently held that a Chapter 7 trustee and his professionals receiving “more money than unsecured creditors does not necessarily justify a reduction of a . . . trustee’s statutory commission or the professionals’ fees.” HAR-BD, LLC v. Leslie (In re TBH19, LLC), 2025 Bankr. LEXIS 1110, *2 (9th Cir. B.A.P. May 7, 2025). In addition, the Panel held that “a trustee’s professionals are under no obligation to guarantee any particular result for unsecured creditors.” Id. at *22.
This is a huge win for trustees and their professionals.
After several years of multiple intercreditor litigation in state court, TBH19, LLC filed Chapter 11 bankruptcy. Despite being in Chapter 11 for over a year, the debtor was unable to sell the subject property for the over $125 million listing price. In the subsequent Chapter 7 case, the trustee conducted a $63.1 million “short sale” of the property for the Chapter 7 bankruptcy estate. The senior lienholder consented to a 6.25% “carve-out” of the sale proceeds that otherwise would have satisfied its secured claim. This carve-out resulted in $3.75 million for the bankruptcy estate. From this amount, the trustee and his professionals set aside $700,000 from their allowed fees to pay unsecured creditors. The Panel noted that “the trustee and his professionals went above and beyond the call of duty” to carve out at least $700,000 for unsecured creditors.
In response, a group of creditors holding the largest claim against the estate appealed and contended that the statutory fees were unreasonable and should be reduced for the trustee and his professionals. If reduced, the pro-rata distribution would increase, and unsecured creditors may receive more.
The bankruptcy court rejected this argument, and the Panel affirmed.
First, the Panel affirmed that so long as the trustee used the formula under Section 326(a) of the Bankruptcy Code to calculate his statutory fee, the amounts are presumed to be reasonable. Consistent with the statute, trustees and their professionals may receive “reasonable compensation for actual, necessary services rendered” and “reimbursement for actual, necessary expenses under §§ 330(a)(1)(A)–(B).”
Second, the Panel acknowledged that although this presumption of reasonableness could be rebutted, it could only be overcome by a showing of extraordinary circumstances surrounding the fee arrangement. Where extraordinary circumstance is present, the trustee must show that a rational relationship exists between the trustee fees and actual work performed. However, absent extraordinary circumstances, no fee reduction is warranted.
Finally, and key to this case is the following holding: a disproportionate fee request is not “per se, an extraordinary circumstance. Put differently, a trustee receiving more compensation than what unsecured creditors receive is not extraordinary by nature and thus does not warrant judicial scrutiny to reduce the fees.”