In re Yeater

NOT FOR PUBLICATION

CHAPTER 12

MEMORANDUM OF OPINION

Russ Kendig, United States Bankruptcy Judge

On September 14, 2021, Debtors sought to employ Real Estate Showcase Auction Company, LLC ("RESA") to auction real property. No objections were filed. For the reasons set forth below, the court cannot approve the application.

The court has subject matter jurisdiction of this case under 28 U.S.C. § 1334 and the general order of reference issued by the United States District Court for the Northern District of Ohio. General Order 2012-7. This is a statutorily core matter under 28 U.S.C. § 157(b)(2)(A) and the court has authority to enter final orders in this matter. Pursuant to 28 U.S.C. § 1409, venue in this court is proper.

This opinion is not intended for publication or citation. The availability of this opinion, in electronic or printed form, is not the result of a direct submission by the court.

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DISCUSSION

Debtors filed a chapter 12 case on June 20, 2021 and continue to operate their farm as debtors-in-possession. One of their assets is a 40 acre parcel of land in Ashland County, Ohio to be sold by public auction. They seek to employ Andrew White of RESA as the auctioneer and propose to pay him a 10% buyer's premium to cover his commission and expenses.

Pursuant to 11 U.S.C. §§ 1203 and 327(a), a debtor-in-possession can hire professionals, including auctioneers, to assist in administration of the estate. Professionals are entitled to compensation "on any reasonable terms and conditions of employment, including on a retainer; on an hourly basis, on a fixed or percentage basis, or on a contingent fee basis." 11 U.S.C. § 328(a). Under § 330(a)(1), the court is instructed to award:

(A)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; and

(B)reimbursement for actual, necessary expenses

The applicant bears the burden of proof that a fee request is reasonable. In re Kieffer, 306 B.R. 197, 206 (Bankr.N.D.Ohio 2004) (citing In re Mansfield Tire & Rubber Co., 65 B.R. 446, 455 (Bankr.N.D.Ohio 1986)).

"The customary compensation charged by comparably skilled practitioners in cases other than cases under this title" is one consideration for determining reasonableness. 11 U.S.C. § 330(a)(3)(F). "The unambiguous policy inspiring § 330(a), expressed most clearly in the House Report accompanying House Bill 8200, H.R. 8200, 95th Cong., 1st Sess. (1977), is that professionals and paraprofessionals in bankruptcy cases should earn the same income as their non-bankruptcy counterparts." In re Busy Beaver Bldg. Ctrs., Inc., 19 F.3d 833, 849 (3^rd Cir. 1994) (citing H.R.REP. No. 595, 95th Cong., 1st Sess. 330 (1977), reprinted in 1978 U.S.C.C.A.N. 5787, 5963, 6286.22) (footnote omitted). Thus, courts often look at the market rates for non-bankruptcy professionals. In re Hosp. Partners of Am., Inc., 597 B.R. 763 (Bankr. D. Del. 2019) (finding accountants' services were performed at market rates); In re Comput. Learning Ctrs., Inc., 285 B.R. 191 (Bankr. E.D. Va. 2002) (using prevailing market rates in the relevant community). Applicant must therefore show the fee request is customary for the auction industry in this area.

Based on the court's knowledge and experience, the compensation scheme proposed is not customary. While buyer's premiums are not uncommon, the structure of this buyer's premium is unconventional. It creates a sliding fee, not a straight commission, based on the amount of expenses incurred. If the auction results are poor, and expenses are high, the compensation paid to RESA may be unreasonably low. If the auction brings a higher than expected amount, and expenses are low, RESA's fee may exceed a typical fee. "While the sense

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of Congress was certainly to bring professionals up to rates charged by non-bankruptcy professionals for comparable services, it is questionable whether...