In re Hokulani Square, Inc.

A trustee cannot include the amount of a credit bid in the calculation of total compensation under 11 U.S.C. §§ 326(a) and 363(k).

Hokulani Square, Inc. (“Hokulani”) filed for chapter 7 bankruptcy in May 2007. One of its main assets was a set of condominiums. There were two secured creditors to the condominiums, who jointly submitted the winning bid at the condominiums’ auction of $1.5 million. These two creditors chose to be paid under 11 U.S.C. § 363(k), which allows for a credit bid (i.e., using money Hokulani already owed), rather than cash. Under 11 U.S.C. § 326(a), the trustee in bankruptcy receives an award based on a percentage of ". . . all moneys disbursed or turned over in the case . . .." Hokulani’s trustee, Bradley Tamm, included the $1.5 million in his petition to the bankruptcy court for compensation. While the bankruptcy court agreed with the inclusion of the credit bid, the Bankruptcy Appellate Panel reversed the decision. Here, the Ninth Circuit affirmed, finding that the inclusion of credit bids in a trustee’s petition for compensation is improper based on a plain reading and the legislative history of Section 363(k) of the Bankruptcy Code. The panel determined that the trustee does not disperse or turn over moneys in a credit bid. He or she turns over property, which is not a “medium of exchange.” This ruling may “turn on trivialities,” meaning a third party winning an auction over a secured creditor could create a difference of thousands of dollars for a trustee in compensation, but its wording and history are clear. AFFIRMED.