[Federal Register Volume 62, Number 105 (Monday, June 2, 1997)]
[Rules and Regulations]
[Pages 30172-30184]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-13970]
[[Page 30171]]
_______________________________________________________________________
Part IV
Department of Justice
_______________________________________________________________________
28 CFR Part 58
Qualifications and Standards for Standing Trustees; Final Rule
Federal Register / Vol. 62, No. 105 / Monday, June 2, 1997 / Rules
and Regulations
[[Page 30172]]
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DEPARTMENT OF JUSTICE
28 CFR Part 58
RIN 1105-AA32
Qualifications and Standards for Standing Trustees
AGENCY: United States Trustees, Department of Justice.
ACTION: Final rule.
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SUMMARY: This final rule amends the qualifications for appointment as a
standing trustee, sets forth the continuing qualifications for
appointment and standards of conduct for standing trustees, and
corrects certain typographical errors in part 58.
The qualifications for appointment as a standing trustee are
amended to provide that certain persons who are related to standing
trustees and bankruptcy judges and clerks cannot be appointed as
standing trustee. The rule also sets forth fiduciary standards that
govern a standing trustee's operation. These fiduciary standards
address the employment of relatives, dealings with related parties, and
employment of other standing trustees. The rule will aid the Director
of the Executive Office for United States Trustees and the United
States Trustees in supervising standing trustees in the administration
of cases and in evaluating the actual, necessary expenses of standing
trustees relative to fixing appropriate percentage fees and
compensation. Adherence to the rule will help to ensure the fair,
impartial administration of the office of the standing trustee, to
maximize the efficiency of case administration, and to avoid
improprieties, whether actual or perceived, that could diminish the
integrity of the standing trustee system and the administration of
chapter 12 and chapter 13 bankruptcy cases.
EFFECTIVE DATE: This rule is effective July 2, 1997 to those standing
trustees who are appointed as of July 2, 1997, this rule will be
applicable on the first day of the next fiscal year (i.e., October 1,
1997 for chapter 13 trustees, and January 1, 1998 for chapter 12
trustees).
ADDRESSES: Office of the General Counsel, Executive Office for United
States Trustees, 901 E Street, N.W., Room 740, Washington, D.C. 20530.
FOR FURTHER INFORMATION CONTACT: Martha L. Davis, General Counsel, or
Jeanne M. Crouse, Attorney, (202) 307-1399. This is not a toll-free
number.
SUPPLEMENTARY INFORMATION: This final rule amends the qualifications
for appointment as standing trustee and establishes standards for
standing trustees appointed and supervised by United States Trustees.
Finally, it corrects typographical errors in part 58. A proposed rule
on these subjects was published in the Federal Register on July 18,
1996 (61 FR 37426) (the ``proposed rule''). A summary of background
information, public comment, and agency response follows.
I. Background and Rulemaking History
Chapter 13 makes bankruptcy relief available to individuals with
regular income and limited debt. Chapter 13 debtors propose plans to
repay their creditors over a three-year period, unless the court, for
cause, approves a longer period that cannot exceed five years. The
plans must meet certain requirements and must be confirmed by the
court. 11 U.S.C. 1322, 1325. Cases are administered by a private
trustee appointed by the United States Trustee.
Chapter 12 of the Bankruptcy Code provides for the adjustment of
debts of a family farmer with regular income. Like chapter 13, chapter
12 enables debtors to devote their disposable income to a repayment
plan over a three-year period, unless the court, for cause, approves a
longer period that cannot exceed five years. As in chapter 13, debtors'
payments in chapter 12 are collected and disbursed by a private trustee
appointed by the United States Trustee.
When the Bankruptcy Code was adopted pursuant to the Bankruptcy
Reform Act of 1978, Public Law 95-598, 92 Stat. 2549 (1978), Congress
established a pilot United States Trustee Program in 18 districts.
Congress created this system to assume administrative tasks that the
bankruptcy courts had performed previously. Congress' review of the
prior bankruptcy system had led it to conclude that court oversight did
not work well and created the appearance of bias. See H.R. Rep. No.
595, 95th Cong., 1st Sess. 88-109 (1977), reprinted in 1978
U.S.C.C.A.N. 5787, 6049-71.
The success of the pilot Program led Congress in 1986 to expand it
nationwide as a permanent component of the Department of Justice.
Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy
Act of 1986, Public Law 99-554, 100 Stat. 3088 (1986). Today, United
States Trustees are appointed by the Attorney General to serve in 21
regions defined in 28 U.S.C. 581. The Attorney General provides general
supervision, coordination and assistance to the United States Trustees,
28 U.S.C. 586(a)(5)-(6), (c), and is assisted by the Director of the
Executive Office for United States Trustees (``Director''). 28 CFR
0.38. Throughout this Preamble, the Department will refer to the
Director and the United States Trustees collectively as the
``Program.''
With regard to the administration of chapter 12 and 13 cases, the
United States Trustee is authorized to appoint one or more standing
trustees, subject to the Attorney General's approval, if ``the number
of cases * * * commenced in a particular region so warrants * * *'' 28
U.S.C. 586(b). Once appointed, the standing trustee administers all
chapter 12 or 13 cases filed in a designated geographic area unless a
conflict exists. The United States Trustees supervise ``any such
individual appointed as standing trustee in the performance of the
duties of standing trustee.'' 28 U.S.C. 586(b). If a standing trustee
has not been appointed or has a conflict of interest, the United States
Trustees appoint individuals to serve as trustees on a case-by-case
basis pursuant to 11 U.S.C. 1202(a) or 1302(a) or will themselves serve
as trustee.
Standing trustees appointed under 28 U.S.C. 586(b) serve the same
function in administering cases as trustees appointed under 11 U.S.C.
1202(a) or 1302(a) to handle a particular case, but the method by which
standing trustees receive compensation and reimbursement of expenses is
entirely different. Trustees appointed on a case-by-case basis are
awarded compensation and reimbursement of expenses from each specific
estate by order of the bankruptcy court, after application, notice and
hearing. See 11 U.S.C. 326(b), 330 (authorizing bankruptcy courts to
award compensation to trustees appointed on a case-by-case basis under
sections 1202(a), 1302(a)). In contrast, standing trustees collect a
flat percentage of plan payments made by debtors in all cases that they
administer to fund their compensation and expenses. 28 U.S.C. 586(e);
see also 11 U.S.C. 326(b) (prohibiting courts from awarding
compensation or reimbursement of expenses to standing trustees
appointed under 28 U.S.C. 586(b)).
The percentage fee that each standing trustee collects is set by
the Director as the Attorney General's delegatee, in consultation with
the United States Trustee for the region in which the standing trustee
operates. 28 U.S.C. 586(e)(1)(B). The Attorney General also has
authorized the Director to set the maximum annual compensation of each
standing trustee at an amount not to exceed the highest annual rate of
basic pay in effect for level V of the Executive Schedule and the
comparable cash value of employment benefits. 28 U.S.C. 586(e)(1)(A).
[[Page 30173]]
To determine which expenses are actual and necessary, the Director
and the United States Trustee have adopted certain procedures. Before
each fiscal year, standing trustees submit proposed budgets with
projected revenues and expenses to the United States Trustee in their
region. Program employees analyze the budgets and supplemental
documents that are submitted and request additional information when
appropriate. The Director ultimately determines which expenses appear
to be ``actual'' and ``necessary.'' The Director, in consultation with
the appropriate United States Trustee, also establishes the annual
compensation for each standing trustee. Once compensation and expenses
are determined, a percentage fee for each standing trustee is
calculated and memorialized.
In a chapter 13 case, the fee may not exceed ten percent of
payments received under the plan. 28 U.S.C. 586(e)(1)(B)(i). In a
chapter 12 case, the fee may not exceed 10 percent of all payments made
by the debtor up to $450,000 and three percent of all payments over
$450,000. 28 U.S.C. 586(e)(1)(B)(ii). The funds collected pursuant to
the percentage fee can be used only to pay the standing trustee's
compensation and ``actual, necessary expenses.'' 28 U.S.C. 586(e)(1).
If excess funds are collected, they must be turned over to the United
States Trustee System Fund. 28 U.S.C. 586(e)(2).
Therefore, regardless of the number of cases that a standing
trustee administers, the trustee's maximum annual compensation cannot
exceed the statutory limit, nor can the total amount of compensation
and expenses exceed 10% of total plan payments (or whatever lesser
percentage has been fixed by the Attorney General). The legislative
history notes that this system was enacted ``to encourage the standing
trustees to keep costs low at the risk of reduced compensation.'' H.R.
Rep. No. 595, 95th Cong., 1st Sess. 107 (1977), reprinted in 1978
U.S.C.C.A.N. 6068.
The need for adequate safeguards has become increasingly important
in chapter 13 standing trustee operations given the numbers of cases
and the sums of monies entrusted to standing trustees. According to
information published by the Administrative Office of the United States
Courts in 1983, ``Chapter XIII flourished under the Bankruptcy Act[,]
increasing from 3,260 cases in 1940 to 39,442 cases in 1979.'' V-A
Administrative Office of U.S. Courts, Guide to Judiciary Policies and
Procedures, Bankruptcy Manual, Ch. III, app. 1 at 2 (Jan. 17, 1983).
For the year ending September 30, 1996, annual national filings climbed
to 336,615 new chapter 13 cases and more than $2 billion was
administered. In FY 96, the entire chapter 13 system was managed by
approximately 170 individuals who served as standing trustees. Their
use of trust funds requires adequate safeguards to ensure the debtors'
monies are expended appropriately.
Beginning in late 1994, the United States Trustee and the Director
considered the standing trustees' practices of hiring relatives,
engaging in related-party transactions, and allocating expenses between
related parties. They also considered revising the qualifications for
appointment. A subcommittee of United States Trustee analyzed these
issues. The United States Trustee and the Director concluded that
promulgation of a rule would provide standards, achieve greater
consistency in the application of Program policies, and open the
bankruptcy system.
Before the rule was published, the Program engaged in wide-ranging
consultation on the issues to be addressed by the rulemaking. Various
United States Trustee, the Director, the Deputy Directory, and other
Program employees met with standing trustees and representatives from
the National Association of Chapter 13 Trustees and the Association of
Chapter 12 Trustees. On August 1, 1995, the United States Trustees
distributed draft standards to all standing trustees and solicited
written comments.
Upon consideration of the submitted comments, the standards were
revised. Throughout the revision period, members of the subcommittee
and the Executive Office continued to meet with standing trustees,
their associations, bankruptcy judges, and other interested parties at
meetings across the country to discuss the proposed standards and
obtain additional comments. The result of this lengthy process
culminated in the publication of a proposed rule in the Federal
Register for notice and comment. See 61 FR 37426 (July 18, 1996) (to be
codified at 28 CFR 58.4).
II. Purpose of the Rule
Through this rulemaking, the Program is adopting a prophylactic
rule to prohibit standing trustees from hiring relatives and from
engaging in dealings with themselves and related parties. Under the
compensation mechanism set forth in 28 U.S.C. 586, standing trustees
collect a percentage of all payments made by debtors to fund their
operations. These monies are used, first, to pay all actual and
necessary expenses of the trustee, and, second, to pay the trustee's
compensation.
When the Code was first adopted in 1978, standing trustee
operations were much smaller than they are today. At that time,
substantial economic incentive existed for standing trustees to
minimize their expenses because every dollar that funded expenses meant
one less dollar was available to pay the standing trustee's
compensation.
This built-in incentive to minimize costs has largely vanished.
Chapter 13 case filings have surged without a corresponding increase in
the total number of standing trustees appointed. Standing trustees now
administer significantly greater numbers of cases and handle vastly
larger sums of money.
Trustee operations have grown so large and handle so much money
that, in FY 97, 83 percent of chapter 13 standing trustees are eligible
to earn maximum compensation (which the Attorney General has fixed at
$126,473). With larger operations, however, comes a potential for
misuse of trust funds and an opportunity for standing trustees to
augment their personal or family's income by using trust funds to hire
relatives or otherwise engage in self-dealing. These situations may
also tempt standing trustees to expand the concept of necessary
personnel benefits. For example, one commenter stated that standing
trustees should be permitted to use trust funds to purchase such items
as flowers, alcohol, food, party supplies, and gifts for their staff
members. The Program believes that such items are not normally
necessary to the administration of bankruptcy cases. When the items are
purchased to benefit relatives of the trustee, it becomes even more
difficult to determine whether the items are actually necessary for the
administration of the trust or whether the trustee's relationship with
relatives played a role in the decision to purchase the items.
Because the use of trust funds in connection with related parties
raises similar issues that are far more difficult to identify and
evaluate, the Program is adopting a rule prohibiting future employment
of relatives and future contracts or expense allocations between
related parties. A prophylactic rule avoids situations in which United
States Trustees have to micromanage daily or monthly expenditures by
the standing trustees and bolsters public confidence that the
bankruptcy system is not being operated to benefit the standing
trustees at the expense of the debtors and creditors they are appointed
to serve.
However, application of this rule change current operations in some
standing trustee offices and, thus, certain provisions of the rule
minimize possible disruption and allow a gradual transition. All
spouses who were hired
[[Page 30174]]
prior to August 1, 1995, are excepted from the rule prohibiting the
hiring of relatives. Standing trustees also may seek two-year waivers
from their United States Trustees to allow them to retain other
currently employed relatives if the trustees can demonstrate that the
relative's continued employment is necessary to the trust and the cost
of the relative's compensation is reasonable.
The differing treatment of existing spouses and non-spousal
relatives is attributable to several concerns that standing trustees
raised during the informal consultation period. Some trustees located
in rural areas have come to rely on their spouses to provide necessary
office support; if spouses can no longer serve this function, the local
employment base may make it difficult for the standing trustees to find
replacements with comparable skills and experience. To require their
replacement may visit a unique disruption on the standing trustees'
operations. Standing trustees also argued that spouses generally played
a vital role in starting their operations and thus acquired knowledge
about the standing trustee operation that cannot be easily replaced.
To minimize possible disruption and allow a gradual transition to
implement the rule governing related-party transactions, standing
trustees may also seek an extension of time for compliance, not to
exceed specified deadlines. The rule prohibiting all related-party
transactions also gives United States Trustees the discretion to grant
a waiver in situations involving a newly-appointed trustee who is
starting operations. Finally, the rule prohibiting allocations among
related parties gives the United States Trustees discretion to grant a
limited waiver in appropriate circumstances, such as when a standing
trustee is not able to earn compensation or when a standing chapter 13
trustee also serves as a chapter 12 trustee.
III. Summary of Major Changes in Final Rule
The final rule differs from the proposed rule in the following
ways: First, the Program has modified the rule's effective date. The
final rule will be effective 30 days after publication except as to
current standing trustees. With respect to existing chapter 13 standing
trustees, the rule is effective on October 1, 1997, the first day of
their next fiscal year. As to current chapter 12 standing trustees, the
rule is effective January 1, 1998, the first day of their fiscal year.
Second, the final rule changes the definition of ``relative'' by
identifying the relatives so as to provide clearer guidance to those
who must abide by and implement the rule.
The final rule also incorporates certain technical changes to
clarify that, to obtain a waiver, a standing trustee must demonstrate
that the expense is being used to purchase a good or service that is
necessary to the administration of the bankruptcy cases and that the
price is reasonable. This clarification comports with the statutory
requirement that expenses be ``actual'' and ``necessary.'' The Program
believes that an expense is an ``actual, necessary expense'' if it is
actually used to purchase a good or service that is necessary for the
administration of the bankruptcy cases, and the amount of the expense
is reasonable for that particular good or service. Other technical
changes clarify the definition of ``region'' and clarify that the rule
applies to individuals only in their capacity as standing trustees.
IV. Discussion of Public Comments
The Program received 20 comments on the proposed rule. Although
four comments were submitted late, the Program noted that the late
submissions either reflected concerns that had been raised in timely
comments or reflected amendments to earlier comments. The Program chose
to consider these submissions even though they were untimely. One
comment was submitted by an attorney who represents standing trustees;
one comment was submitted by a bankruptcy judge; and two comments were
submitted by trustee organizations. The remaining comments were
submitted by standing trustees. The Program has considered each comment
carefully and appreciates the time taken to provide them. The Program's
responses to the comments are discussed below, either in the ``General
Comments'' section or in the ``Section-by-Section Analysis''.
A. General Comments
1. A number of commenters questioned whether the Department has the
authority to promulgate the rule. One commenter added that only the
Attorney General has the authority to issue the proposed regulation.
The Program has determined that it possesses ample statutory
authority to promulgate this regulation pursuant to these sources: 5
U.S.C. 301, which enables the Attorney General to issue regulations
governing the conduct of Department employees and the performance of
agency business; 28 U.S.C. 509, which vests in the Attorney General all
functions of her employees; 28 U.S.C. 586, which authorizes the
Attorney General and the United States Trustees to appoint and
supervise standing trustees, to fix compensation and the percentage fee
of standing trustees based on their actual, necessary expenses, and to
prescribe by rule the qualifications for appointment of standing
trustees; and 28 U.S.C. 586(c), which obligates the Attorney General to
supervise United States Trustees and provide them with general
coordination and assistance. The Attorney General has delegated her
authority to issue this rule to the Director. Order No. 2041-96 (July
5, 1996). See also 28 U.S.C. 510.
2. Several commenters stated that the promulgation of the rule
exceeds the authority that Congress granted to the Program in that
Congress did not intend the United States Trustees to supervise the
conduct of standing trustees. This position is not supported by either
the statute or its legislative history.
Section 586 confers broad powers on the United States Trustees to
review the conduct of standing trustees that they have appointed. Each
United States Trustee ``shall * * * supervise the administration of
cases and trustees in cases under chapter * * * 12 or 13.'' 28 U.S.C.
586(a)(3). Moreover, ``[t]he United States Trustee * * * shall
supervise any such individual appointed as standing trustee in the
performance of the duties of standing trustee.'' 28 U.S.C. 586(b).
Finally, the Program is authorized to set both the compensation of the
standing trustee and the fee that may be collected from cases to cover
the standing trustee's compensation and ``actual, necessary expenses.''
28 U.S.C. 586(e)(1). The legislative history supports this conclusion:
The nature of the duties of the United States trustees makes
them the administrative officers of the bankruptcy system * * *. The
United States trustees will, * * * be responsible for the day-to-day
operations of the bankruptcy system. They will supervise trustees,
assist them in the performance of their duties, oversee their
actions, and see to it that the bankruptcy laws are properly
executed * * *.
* * * [The United States trustees] will be responsible for
determining the needs of the chapter 13 system, and whether a
particular judicial district is best served by a private standing
trustee or an assistant United States trustee. They will enforce the
qualifications prescribed by the Attorney General for service as a
chapter 13 trustee, and will supervise the performance of chapter 13
trustees. They will consult with the Attorney General to fix the
fees that a private standing chapter 13 trustee may charge, and the
salary that the private trustee may receive.
H.R. Rep. No. 595, 95th Cong., 1st Sess. 109 (1977), reprinted in 1978
U.S.C.C.A.N. 6070-71. See also H.R. Rep. No. 595, 95th Cong., 1st Sess.
102
[[Page 30175]]
(1977), reprinted in 1978 U.S.C.C.A.N. 6063 (``United States trustees
will also monitor the performance of panel members and standing chapter
13 trustees in order to determine whether they should be continued in
or removed from panel membership or office.'').
The Program's authority over the compensation and expenses of
standing trustees is further necessitated by the express lack of court
authority over these matters. Section 326(b) of title 11, U.S. Code,
prohibits a court from awarding compensation and expenses to a standing
trustee appointed under 28 U.S.C. 586(b). Thus, unless the Program
exerts supervision in this critical area, standing trustees would be
unsupervised in their use of debtors' funds for the expenses of their
trust operations.
Several standing trustees also averred in their comments that the
standards run contrary to Congressional intent in that Congress did not
expect a centralized office to run the Program and that the rule
eliminates the flexibility that Congress intended to build into the
system. These comments reflect a misunderstanding of the statute and
mistake the genesis of the rule. As noted above, Congress gave the
Attorney General the authority to prescribe the qualifications for
appointment as standing trustee, establish the compensation of standing
trustees, determine the ``actual, necessary expenses'' that may be
compensated from chapter 12 and 13 estates, and set the percentage fee
to be charged to each bankruptcy case. 28 U.S.C. 586 (d), (e)(1). The
Attorney General also established the Executive Office for United
States Trustees to fulfill her responsibility of providing ``general
coordination and assistance to the United States Trustees'' who
supervise the standing trustees. 28 U.S.C. 586(c).
The rule was proposed by the United States Trustees after they
considered the problems caused when standing trustees hire relatives
and engage in related-party transactions. The proposed rule was then
considered and issued by the Director, pursuant to the authority
delegated to him by the Attorney General. Thus, promulgation of the
rule does not contravene the administrative scheme that Congress
envisioned in 1978.
On the contrary, the rule helps fulfill Congress' original intent
to create a standing trustee fee system that provided an incentive to
minimize administrative expenses: ``The fee system [for standing
trustees] is designed to encourage the standing trustees to keep costs
low at the risk of reduced compensation.'' H.R. Rep. No. 595, 95th
Cong., 1st Sess. 107 (1977), reprinted in 1978 U.S.C.C.A.N. 6068. When
limited funds are available, a standing trustee theoretically will
minimize costs to maximize the funds available to pay compensation.
As we explain in Section II of this preamble, the concept of the
limited funds no longer exists. Standing trustees who receive maximum
compensation, as most do today, have no institutional incentive to
minimize costs. Without a profit motive to hold down expenses and with
compensation set at maximum levels, the potential exists to augment
compensation through expenses that accrue to the benefit of the
standing trustee or a related party. As one commenter candidly
admitted, ``This [rule] is an attempt to prohibit a non government
employee from achieving additional income at no detriment to the
debtors and/or taxpayers.'' This attitude ignores the fact that
unnecessary costs hurt creditors by diminishing the amounts they
receive on their claims or hurt debtors by requiring them to make
larger payments under confirmed plans. Furthermore, when those costs
are paid to the standing trustee or a related entity, they are
perceived to compromise the standing trustee's fiduciary obligations.
3. Several commenters stated that the Program is improperly issuing
retroactive rules. These commenters misapprehend the concept of
retroactivity.
As discussed previously, the rule will be implemented
prospectively. Generally, the rule will go into effect 30 days after
the date of publication. With respect to current standing trustees, the
rule will not be effective until the first day of the trustees' next
fiscal year. That date is October 1, 1997, for standing trustees who
serve in chapter 13 cases and January 1, 1998, for standing trustees
who serve in chapter 12 cases. All budgeted expenses that have been
submitted and approved for the current fiscal year will be unaffected
by this rule. Moreover, certain standards, such as those prohibiting
the hiring of relatives and prohibiting related-party transactions,
provide for limited waivers in appropriate circumstances. Thus,
provisions of the rule will be applied prospectively and are not
retroactive rulemaking.
4. One commenter argued that the rulemaking is unconstitutional
because the final rule will not apply to bankruptcy cases in two states
(Alabama and North Carolina) and, thus, will violate the Uniformity
Clause of the U.S. Constitution, art. I, Section 8, cl. 4 (``The
Congress shall have Power * * * [t]o establish * * * uniform Laws on
the subject of Bankruptcies throughout the United States; * * *'').
The Program disagrees with this legal conclusion. Congress
initially established the Program in 1978 as a pilot program in 18
federal judicial districts. Bankruptcy Reform Act of 1978, Public Law
95-598, Sec. 1501, 92 Stat. 2652 (1978). After evaluating the pilot
program, Congress in 1986 made the Program permanent in all federal
judicial districts but decided to phase in implementation, bringing
some federal districts in later than others. Bankruptcy Judges, United
States Trustees, and Family Farmer Bankruptcy Act of 1986, Public Law
99-554, 100 Stat. 3118-24, Sections 301-02 (1986). The last six
judicial districts, which covered the states of Alabama and North
Carolina, were scheduled to come into the Program no later than October
1, 1992. In 1990, Congress extended the deadline for the final six
districts to October 1, 2002. Judicial Improvements Act of 1990, Public
Law 101-650, 104 Stat. 5115, Section 317(a) (1990). It is the statute,
not this rulemaking, that creates the distinction between cases in
Alabama and North Carolina and those in the rest of the country.
These rules are promulgated in furtherance of the Program's
statutory obligations to oversee the administration of bankruptcy cases
and standing trustees. The statute does not alter substantitive
bankruptcy law but simply authorizes the United States Trustees to
further the efficient administration of bankruptcy matters. The United
States Trustees' statutory duties are described in terms such as
``supervise,'' ``monitor,'' ``appoint,'' and ``make * * * reports.'' 28
U.S.C. 586. The organic statute creating the Program leaves the
substantive debtor-creditor relationship unchanged; it simply provides
for an administrative watchdog, the Program, to ensure the fairness and
efficacy of the process through which debtors and creditors resolve
their rights and obligations under substantive bankruptcy law. This
does not violate the Uniformity Clause.
Furthermore, Congress' decision to implement the Program gradually
was rational. Congress has applied the statute in all federal
districts; it has simply phased in its application. The Uniformity
Clause does not preclude such a phase-in. Cf. City of New Orleans v.
Dukes, 427 U.S. 297, 303 (1976) (per curiam) (``Legislatures may
implement their program step by step''). Accordingly, the Program finds
no merit to this constitutional concern.
5. A few commenters implied that many actual abuses had to exist
before the Program had a right to promulgate
[[Page 30176]]
standards. One stated, ``A few instances of abuse cannot in any
reasonable mind be considered as grounds for national standards * *
*.'' Another asserted that the United States Trustees presently have
all the tools they need to combat fraud and abuses within the standing
trustee system.
The Department of Justice, through the Program, is responsible for
supervising standing trustees and establishing their compensation and
percentage fees. Congress established and then expanded the Program to
improve and strengthen the integrity of the bankruptcy system and
eliminate the problems that arose when the system was administered by
the courts.
Based on the United States Trustees' expertise and experience in
supervising standing trustees, a prophylactic rule is desirable and
necessary, particularly in the area of related-party dealings. These
dealings foster recurring problems such as hiring relatives at above
market rates, hiring relatives where the United States Trustee could
not verify that the relatives performed services, renting office space
to trustee operations at above the market rate to cover mortgage
payments and taxes, and using bankruptcy trust funds to subsidize
another business in which the trustee is involved.
When the trustee decides to hire a relative as a new employee,
establishes a salary for that employee, and ultimately analyzes the
relative's advancement within the trustee's organization, the trustee
as decisionmaker has a conflict of interest. For similar reasons,
nepotism is prohibited within the Federal government and in many
private sector organizations. When trustees employ relatives, it is
difficult for the supervising United States Trustees to review the
trustees' employment decisions and to assess whether the expense is
``actual'' and ``necessary'' without micromanaging the trustees'
operations. A prophylactic rule is needed to prevent the problems
widely associated with nepotism and related-party dealings.
Experience has taught that the overall impact of a relative's
hiring cannot be easily evaluated or discovered through any review or
other documentary process. Nor can such problems be identified through
personal interviews with the trustees' employees. Employees are
understandably reluctant to critize the trustee's relative or to
describe the deleterious effects on office morale.
Standing trustees who contract or otherwise do business with
related parties face a similar conflict of interest that is exacerbated
because the trustee derives income or other financial benefits from
these transactions. The current system, in which more than three-
fourths of the standing trustees earn maximum compensation, offers no
economic incentive to minimize or reduce expenses. Related-party
arrangements increase a trustee's personal or family income and are
paid for by the bankruptcy estates. Yet chapter 12 or 13 debtors cannot
challenge these expenses; nor can they select a trustee through a
competitive process. The bankruptcy system does not allow a debtor to
retain the service provider (standing trustee) whose expenses are lower
or less questionable.
Because of the difficulties inherent in related-party transactions,
other agencies have promulgated prophylactic rules in similar
circumstances: 42 CFR 413.153(b), (c) (Medicare regulation prohibiting
reimbursements for interest expenses on loans between related parties);
29 CFR 2550.408b-2 (Department of Labor regulations prohibiting self-
dealing of ERISA trustees).
Bankruptcy trustees under the common law are held to the highest
fiduciary standards of loyalty, which standards have been implemented
and applied with ``[u]ncompromising rigidity.'' Meinhard v. Salmon, 249
N.Y. 458, 464, 164 N.E. 545, 546 (1928) (Cardozo, C.J.). In Woods v.
City National Bank & Trust Co., 312 U.S. 262, 278, reh'g denied, 312
U.S. 716 (1941), the Supreme Court held that trustees who violated the
duty of loyalty are not entitled to any compensation for services to
the bankruptcy estate regardless of whether the estate had been harmed.
Woods, 312 U.S. at 268.
The Court reemphasized this principle in Mosser v. Darrow, 341 U.S.
26 (1951), when it found that a bankruptcy trustee could be surcharged
for $40,000 in profits he permitted his employees to earn using
fiduciary monies. The Court rejected the trustee's argument that his
actions had not damaged the estate:
Equity tolerates in bankruptcy trustees no interest adverse to
the trust. This is not because such interest are always corrupt but
because they are always corrupting. By its exclusion of the trustee
from any personal interest, it seeks to avoid such delicate
inquiries as we have here into the conduct of its own appointees by
exacting from them forbearance of all opportunities by exacting from
them forbearings of all opportunities to advance self-interest that
might bring the disinterestedness of their administration into
question.
These strict prohibitions would serve little purpose if the
trustee were free to authorize others to do what he is forbidden.
While there is no charge of it here, it is obvious that this would
open up opportunities for devious dealings in the name of others
that the trustee could not conduct in his own. The motives of man
are too complex for equity to separate in the case of its trustees
the motive of acquiring efficient help from motives of favoring
help, for any reason at all or from anticipation of counterfavors
later to come. We think that which the trustee had no right to do he
had no right to authorize, and that the transactions were as
forbidden for benefit of others as they would have been on behalf of
the trustee himself.
Id. at 271-72. These principles remain viable today. See, e.g., United
States Trustee v. Bloom (In re Palm Coast, Matanza Shores Ltd.
Partnership), 101 F.3d 253, 257-58 (2d Cir. 1996) (applying common law
of trusts).
A prophylactic rule is needed to address the standing trustees'
current practices of hiring relatives and engaging in other related-
party transactions. Promulgation of the rule will provide direction to
standing trustees about permissible uses of fiduciary funds and will
prevent abuses, thereby benefitting creditors and debtors. The rule
also will assist the United States Trustees' supervision of standing
trustees by providing direction on these important issues. This rule
will bolster public confidence in a bankruptcy system that is operated
fairly and impartially and not for the financial benefit of the
professionals involved.
6. One commenter asked whether the Program intended through the
rule to make standing trustees employees of the United States Trustees.
By promulgating this rule, the Program does not make standing trustees
federal employees.
7. Several commenters submitted their thoughts on handbook
provisions that the United States Trustees implemented in 1996. The
revisions to the handbooks were not published in the Federal Register
and are not within the scope of this rulemaking.
8. One commenter noted that the proposed rule contains no protocol
for starting a chapter 13 office or for the transfer of an existing
office. With respect to related-party allocations, the final rule
provides that United States trustees may, in appropriate circumstances,
permit a newly-appointed standing trustee to contract with or allocate
expenses between related parties. To the extent that this commenter
seeks detailed procedures for starting a standing trustee operation,
that matter is beyond the scope of this rulemaking.
9. One standing trustee described the rule as inequitable because
it ``clearly'' restricts the standing trustees' discretion but does not
decrease their liability.
[[Page 30177]]
The Program believes that this comment misapprehends the scope of
the rule. Section 586 of title 28 requires the United States Trustees
to appoint and supervise the conduct and expenses of standing trustees.
The Program is promulgating the rule in furtherance of these
responsibilities and pursuant to statute.
10. One commenter amended its earlier objections to suggest
detailed factors for the United States trustees to analyze when
considering whether to grant a waiver from the rule's application in
limited situations. The Program has not incorporated the precise
factors suggested because the standard set forth in the rule provides
sufficient flexibility to United States Trustees to consider waiver
requests in light of local or unique circumstances. However, the
Program has made a few technical changes to the standard for waiver by
deleting the requirement of ``extraordinary'' and by clarifying that
waivers may be granted if the standing trustees can demonstrate a
compelling need to the trustee operation and the necessity and
reasonableness of the expense. These technical changes will bolster the
United States Trustees' discretion in these matters and cause the rule
to track more closely the statute's requirements that expenses be
``actual'' and ``necessary.''
B. Comments on Specific Subsections of the Proposed Rule
1. Definition of Relative
Comment: In connection with the initial qualifications for
appointment and the prohibition on hiring of relatives, several
standing trustees commented that they were unclear as to which
relatives were encompassed by the proposed rule.
Response: In response to this comment, the Program has revised the
definition of ``relative'' in 58.4(a)(2) to list each specific
relationship that is subject to the rule. The definition of
``relative'' set forth in the proposed rule was derived from 11 U.S.C.
101(45), which defines ``relative'' as an ``individual related by
affinity or consanguinity within the third degree as determined by the
common law, or individual in a step or adoptive relationship within
such third degree''.
The final rule lists the specific relationships encompassed within
the word ``relative'' to provide clearer guidance to those who must
implement or abide by the rule. Furthermore, the adoption of this
definition will establish a uniform, national standard. Although the
final definition excludes certain relationships that were covered by
the definition in the proposed rule as applied in some jurisdictions
(e.g., great-grandparents, great-aunts, great-uncles, second cousins),
the goal of prohibiting favored treatment and any appearance of
impropriety will be better attained through this more specific
approach.
The language in the final rule is derived from the definition of
``relative'' that applies to United States Trustees with respect to
their hiring, promotion and salary practices. The Civil Service Reform
Act makes nepotism a prohibited personnel practice. 5 U.S.C.
2302(b)(7). Section 3110(b) also prevents a United States Trustee from
appointing, employing, promoting, or in any way advancing one of their
relatives. 5 U.S.C. 3110(b). The term ``relative'' is defined for both
statutory subsections in 5 U.S.C. 3110(a)(3).
In the final rule, the definition of ``relative'' expands the
language in 5 U.S.C. 3110(a)(3) to include ``an individual whose close
association is the equivalent of a spousal relationship.'' This
additional definitional category comports with those courts that have
extended the Bankruptcy Code provisions restricting pre-petition
transfers to insiders or relatives to include those persons living with
debtors in the equivalent of spousal relationships. See, e.g., Gennet
v. Docktor (In re Levy), 185 B.R. 378, 384-85 (Bankr. S.D. Fla. 1995);
Freund v. Heath (In re McIver), 177 B.R. 366, 370-71 (Bankr. M.D. Fla.
1994); Wiswall v. Tanner (In re Tanner), 145 B.R. 672, 677-78 (Bankr.
W.D. Wash. 1992); Loftis v. Minar (Matter of Montanino), 15 B.R. 307,
310-11 (Bankr. D.N.J. 1981).
The definition of ``relatives'' in the final rule is consistent
with federal law and rationally relates to the legitimate governmental
goal of reducing potential or actual improprieties within the standing
trustee employment system. The rest of the definitions in 58.4(a)
remain unchanged.
2. Qualifications for Appointment
Comment: One standing trustee commented that the qualifications for
appointment should be stated in the positive rather than the negative.
Response: The qualifications for appointment are intended to
restrict the United States Trustees' discretion to appoint individuals
as standing trustees. It would be awkward and unclear to express these
restrictions in a positive manner. Accordingly, we reject this comment.
Comment: Several standing trustees commented that the proposed
qualifications for initial appointment of standing trustees are too
narrow and should be expanded. These standing trustees did not agree,
however, as to the scope of expansion. Several standing trustees
believed that the qualifications should prohibit the appointment of
individuals who are relatives of district court and circuit court of
appeals judges; one even suggested that relatives of Supreme Court
justices should not be deemed qualified for appointment.
Response: The Program does not find it necessary to expand the
restriction beyond the bankruptcy judges and clerks in the region where
the standing trustee serves. Through this regulation, the Program seeks
to strengthen the integrity of the bankruptcy administrative process by
circumscribing the United States Trustees' discretion to appoint
certain individuals who are related to standing trustees and other
frequent participants in the federal bankruptcy system. As previously
discussed, the Program was created to remove administrative functions
from the bankruptcy courts and to remedy the existence and perceptions
of cronyism that existed within the prior administrative system. The
rule will promote an appointment process that is based on merit,
untainted by perceptions that appointments are restricted to insiders.
Moreover, it will enhance the integrity of the current system by
reducing--if not eliminating--the opportunities for a bankruptcy court
to be faced with real or perceived conflicts of interest that arise if
the court were to rule on bankruptcy cases in which a relative was the
case trustee.
Finally, promulgation of this rule is consistent with the policies
codified in Fed. R. Bankr. P. 5002, which prohibits nepotism in
bankruptcy court appointments and employment. See 18 U.S.C. 1910
(making it a criminal offense for a judge to appoint a relative as
trustee); 28 U.S.C. 458 (prohibiting judicial appointments or
employment in court offices of relatives of judges).
Comment: One standing trustee commented that the standards for
appointment of United States Trustees and standing trustees should be
the same.
Response: The Program does not find this comment to be apposite.
United States Trustees are senior officials of the Department of
Justice who serve at the pleasure of the Attorney General. United
States Trustees are appointed to a five-year term pursuant to 28 U.S.C.
581 and their obligations to supervise bankruptcy administration and
trustees encompass a wide range of matters detailed in 28 U.S.C. 586.
Their duties cover all chapters of the Bankruptcy Code and include the
duty to assist the
[[Page 30178]]
United States Attorney, upon request, to carry out the prosecution of
federal criminal actions. Because United States Trustees have the
responsibility under 11 U.S.C. 307 to appear in court, the Attorney
General appoints attorneys to these positions. United States Trustees
also serve as policy-making, policy-advocating officers.
Standing trustees are private individuals appointed pursuant to 28
U.S.C. 586(b) to serve as fiduciaries in cases commenced under chapter
12 or chapter 13 of the Bankruptcy Code. Standing trustees must honor
the administrative duties that are outlined in 11 U.S.C. 1202 and 1302;
and the law specifically states that they need not be attorneys. 28
U.S.C. 586(d). Given these differences, we do not find any comparison
between the two positions to be relevant for purposes of analyzing the
rule. We note, however, that applicable law prohibits a United States
Trustee from hiring relatives or taking official actions that affect
their personal or their family's financial interests. 5 U.S.C.
2302(b)(7), 3110(b); 18 U.S.C. 208.
Comment: One standing trustee asked why the initial qualifications
for appointment were being revised.
Response: The rule updates current appointment policy and informs
all prospective applicants of the restrictions applicable to the United
States Trustees' appointment authority. Moreover, as explained above,
the rule avoids many of the actual or perceived conflicts of interest
that arise when a standing trustee is related to other frequent
participants in the bankruptcy system. It therefore promotes the fair
and efficient administration of chapter 12 and chapter 13 estates.
Comment: One standing trustee raised questions concerning the legal
basis for a United States Trustee's refusal to reappoint a standing
trustee. This standing trustee also asked how section 324 of the
Bankruptcy Code affects the United States Trustee's authority to refuse
to reappoint a standing trustee.
Response: Currently there is no reappointment process for standing
trustees once they are appointed. Standing trustees are appointed and
serve until they retire or resign, the Untied States Trustee stops
assigning cases to them, or the bankruptcy court removes them from
their existing cases for cause under 11 U.S.C. 324. See generally
Richman v. Straley, 48 F.3d 1139, 1143-44 (10th Cir. 1995) (discussing
the distinction between removal under section 324 and termination of
future case assignments).
Comment: One standing trustee contended (without discussion) that
the imposition of initial qualifications for appointment violates the
equal protection guarantees in the Federal Constitution.
Response: The Program has the authority under 28 U.S.C. 586 to
promulgate regulations governing the initial qualifications for
appointment. The qualifications contained within this final rule do not
violate the Equal Protection guarantees in the Fifth Amendment to the
Constitution because they do not classify individuals based on
impermissible criteria; nor do they improperly deny applicants a
fundamental constitutional right.
The qualifications promulgated here advance the legitimate
governmental goal of appointing standing trustees who can perform their
fiduciary and statutory obligations free from any actual bias or
potential conflict of interest. The qualifications also further the
legitimate governmental goal of ensuring that its programs, here the
appointment of standing trustees, are administered in a fair and open
manner. The legislative history for the 1978 Bankruptcy Reform Act
chronicled the problems inherent in a closed bankruptcy network run by
insiders. See, e.g., H.R. Rep. No. 595, 95th Cong. 1st Sess. 88-99
(1977). Accordingly, we do not agree with this comment.
Comment: One standing trustee stated that there is no rational
basis for the prohibition against appointing a standing trustee who is
related to another standing trustee.
Response: The Program is a young agency that does not have the
regulatory history of other agencies; however, it does have the benefit
of a century of history of bankruptcy administration and repeated
studies of pre-existing abuses. See, e.g., H.R. Rep. No. 595, 95th
Cong. 1st Sess. (1977), reprinted in 1978 U.S.C.C.A.N. 5963; Report of
the Commission of Bankruptcy Laws of the United States, H.R. Doc. No.
137, 93d Cong. 1st Sess. (1973); Report to the President on the
Bankruptcy Act and its Administration in the Courts of the United
States dated December 5, 1931, reprinted in S. Doc. No. 65, 72d Cong.
1st Sess. (1932); William J. Donovan, House Committee on the Judiciary,
Administration of Bankrupt Estates, 71st Cong. 3d Sess. (Comm. Print
1931). In the past, United States Trustees have appointed individuals
as standing trustees who were related to other standing trustees, but,
based on this experience, they have concluded that such appointments do
not create an optimal situation. For example, certain standing trustees
have indicated that they believed one of their relatives should be
appointed as their successor. These circumstances tend to perpetuate
the perception, if not the existence, of a closed bankruptcy network.
The rule prohibiting appointments of individuals who are relatives of
standing trustees fosters the congressional policy of encouraging an
open bankruptcy system, untainted by cronyism in any form.
3. Hiring of Relatives
Comment: Two standing trustees asserted that the restriction on
their hiring of relatives was unconstitutional. One of these standing
trustees argued that this restriction discriminates against a suspect
class, that of women over the age of 40. The other stated that the
Program is discriminating against a class created by birth or marriage.
Finally, a third standing trustee contended that any individuals
terminated after this rule is promulgated would be denied their rights
to due process. In a variation on this theme, a different standing
trustee argued that, if he is forced to fire his daughter, she will
have a difficult time obtaining comparable employment because her
skills are so specialized.
Response: The prohibition against hiring relatives is intended to
ensure that standing trustees comply with the fiduciary duty of loyalty
and to minimize any incentive or opportunity for standing trustees to
incur unreasonable or unnecessary expenses at the expense of bankruptcy
debtors and creditors. That prohibition does not discriminate against
my suspect class. The rule does not impinge any fundamental rights; and
it does not employ any improper characteristics (such as race, national
origin, citizenship, or sex) to define the affected persons. Indeed,
non-spousal relatives who will be affected by the rule include men and
women.
Second, promulgation of the rule does not violate the Due Process
Clause, U.S. Const. amend. V. The rule does not deprive the affected
relatives of any liberty or property interest; and it rationally
relates to the legitimate governmental interest in the fair, impartial,
and efficient administration of chapter 12 and chapter 13 bankruptcy
estates. Nor do standing trustees have any such liberty or property
interest because expenses are budgeted and approved on a year-to-year
basis. There is no guarantee that a standing trustee will get new cases
or a similar number of cases every year, that the same expenses will be
approved from year to year, or that the percentage fee will be
sufficient each year to cover long-term expenses that the standing
trustee has incurred. Thus, a standing trustee has
[[Page 30179]]
no entitlement to have future expenses compensated in precisely the
same manner that they were compensated in the past.
Finally, the affected relatives are employed in jobs requiring
legal, clerical, administrative, accounting or computer skills that can
be transferred to other positions within the public or private sectors.
Since the relatives are presumed to be paid market salaries (or even
less than market rates, as some commenters suggest), these relatives
should be able to obtain other similar positions during the transition
period provided.
Comment: One standing trustee asserted without evidentiary support
that the prohibition on employment of relatives is not necessary
because situations in which standing trustees employ relatives are more
the exception than the rule. This standing trustee also contended,
again without evidence, that relatives in smaller offices are paid less
than market rate and bear more responsibility than the average
employee.
Response: In FY 1996, 50 of the 170 appointed chapter 13 trustees
had hired relatives to work for them as employees. This represents 30
percent of all chapter 13 trustees, not an insignificant percentage.
With respect to salaries, the Program has no evidence--and the
standing trustees presented no evidence--to support the position that
relatives in smaller offices currently receive less than market rate
and bear more responsibility than their counterparts in larger offices.
Moreover, the relationship between the standing trustee and his or her
relatives may affect the exercise of the standing trustee's judgment
and may make it difficult, if not impossible, for the standing trustee
to make a fair and unbiased assessment of the work performed by his or
her relative.
Comment: Several standing trustees and their associations
criticized the application of this rule to relatives other than
spouses. These commenters argue that imposition of the rule on non-
spousal relatives will lead to unfair and inappropriate results; that
there is no rational distinction between spouses and other relatives;
and that the implementation of this standard will cause standing
trustees to lose experienced and valuable personnel who they cannot
quickly replace. One standing trustee argued that the rule should be
modified to address nepotism issues on a case-by-case basis. Others
contended that all relatives currently employed by standing trustees
should be exempted from the rule's application.
Response: The Program does not find these arguments persuasive. The
rule proscribes the employment of all relatives in the future, spouses
and non-spousal relatives alike. This comment is addressed to
subsection (d)(1)(iii) of the rule in which the Program exempted those
spouses employed as of August 1, 1995, from the rule's application.
With respect to relatives who are not spouses, the Program has delayed
implementation until October 1, 1998 to provide a transition period.
A prophylactic rule is needed to address the employment of
relatives because, in the Program's experience, abuses within the
system are not readily discovered or easily remedied. When the standing
trustee decides to add a new employee to the payroll, selects an
applicant for the job, establishes compensation, and determines an
employee's advancement, the standing trustee's objectivity inevitably
is called into question when the decision involves the trustee's
relative. It is also difficult for the United States Trustee to
evaluate the necessity of the expense without inquiring into the
standing trustee's motives or at least the determination that the
relative was hired on the basis of merit, that the employed relative
was performing duties commensurate with the relative's salary, or that
an employed relative deserved a raise or promotion. The United States
Trustees do not have the resources to conduct such examinations every
time a standing trustee wants to hire, promote, or increase the salary
of a relative; and, even if resources were available, such examinations
would likely be perceived as micromanagement of the standing trustee
operations.
We also note that employees in offices where relatives have left
the trustees' employ have commented on the improvement in office morale
after the relative no longer worked in the office. Such comments
support our conclusion that the implementation of this rule will help
ensure that chapter 12 and chapter 13 cases are administered fairly and
efficiently and solely for the benefit of the debtors and creditors who
have an interest in the property of the estates.
The rule recognizes, however, that to impose this regulation
immediately on all relatives may cause some disruption to the
operations of standing trustees. Standing trustees argued that the
local employment base in rural areas may make it difficult for those
standing trustees to find personnel with comparable skills and
experience to replace their spouses. Moreover, because many spouses are
employed in supervisory or management positions and because spouses
generally helped the standing trustees to start their operations, the
rule excepts all spouses employed by the standing trustees as of August
1, 1995, the date on which the Program first distributed draft
standards prohibiting the employment of relatives. To minimize any
disruption with respect to non-spousal relatives, the Program has
delayed implementation of this rule concerning those relatives until
October 1, 1998. This period will give standing trustees time to hire
and train other employees and has the added benefit of enabling
affected relatives to find alternative employment in an orderly
fashion. Finally, in situations where standing trustees can demonstrate
the existence of compelling circumstances for the trustee operations
and can show that the employees are being paid no greater than market
rates, the rule gives the United States Trustees the discretion to
grant a two-year waiver for those standing trustees to continue to
employ a non-spousal relative. This waiver can be renewed if the
standing trustee continues to satisfy the waiver requirements in the
rule.
Comment: One standing trustee contended that the rule prohibiting
nepotism should not be applied because no government funds are involved
in a chapter 13 trustee operation and, thus, the Program is interfering
in what is essentially a private enterprise.
Response: The Program disagrees with this analysis. A standing
trustee operation differs dramatically from a private enterprise in
that it is funded entirely from debtor receipts and is not subject to a
competitive market. Debtors are not allowed to choose their standing
trustee. Most areas have only one standing trustee and chapter 13 or
chapter 12 debtors are forced to use the standing trustee in their
area, regardless of the debtor's satisfaction with services rendered.
Even in the minority of areas where more than one standing trustee
serves, a debtor is assigned to a specific trustee and there is no
administrative mechanism to transfer the case if a debtor is unhappy
with the trustee's performance or expenditures, short of asking the
court to remove the trustee under 11 U.S.C. 324. Indeed, the standing
trustee system is the only system within the Bankruptcy Code that does
not permit election of case trustees. Cf. 11 U.S.C. 702, 1104. In
conclusion, competition, which helps keep private enterprises' expenses
low, does not operate in the standing trustee system.
Moreover, as fiduciaries, the standing trustees owe their
allegiance to the bankruptcy estates they administer, not to third
parties such as their relatives. The Program has a statutory
[[Page 30180]]
responsibility to establish the maximum annual compensation of standing
trustees and to establish a percentage fee that will cover the standing
trustees' compensation and ``actual, necessary expenses incurred by''
the standing trustees. 28 U.S.C. 586(e)(1). The Program is promulgating
this rule to ensure that the percentage fees collected from chapter 12
and chapter 13 cases are used to pay only those expenses that are
``actual'' and ``necessary'' and that standing trustees fulfill their
fiduciary duties undistracted by their own self-interests or familial
interests.
Comment: Several standing trustees asserted that the imposition of
this standard will interfere unnecessarily with employment
relationships. One standing trustee commented that if employees are
receiving market rates as salaries, their hiring should not be
prohibited merely because they are related to the standing trustee.
Response: The rule does not unduly interfere with the standing
trustee's employment relationships. A standing trustee who hires
relatives has dual and perhaps competing loyalties: loyalties to his or
her family members and loyalties to debtors and creditors in bankruptcy
cases. As noted above, such conflicts of interest are inconsistent with
the standing trustee's duty of undivided loyalty to the trust.
Moreover, because debtors do not choose their trustee, there are no
market forces to ensure that the standing trustee minimizes the costs
to the estate. Although the United States Trustees supervise standing
trustees and review the appropriateness of all expenses, they do not
have the resources to examine the day-to-day expenses of each standing
trustee to make sure that each payment to the standing trustee's
relative is, indeed, an ``actual, necessary expense'' that is properly
charged to the estate.
Comment: One standing trustee argued that he should be permitted to
hire his children at minimum wage for a limited number of hours per
quarter ``to accomplish tasks around the office that would be too
expensive or inefficient to contract for and too far outside the job
descriptions of staff members to assign to them.'' He cited as an
example the task of stuffing envelopes.
Response: The Program does not question the standing trustee's
purported need to stuff envelopes or perform other ministerial tasks.
It is unclear why a relative is better suited than other regular
employees to perform these tasks or why regularly employed clerical
staff do not already perform these duties. The rule does not interfere
with a standing trustee's ability to hire necessary staff, whether
temporary, part-time or full-time; it prohibits only the employment of
relatives.
Comment: One association asserted that the rule does not account
for local considerations or the economic detriment to bankruptcy
estates that will be caused if trustees can no longer employ relatives.
Response: The rule prohibiting employment of non-spousal relatives
will not be enforced until October 1, 1998, which should give the
standing trustee time to hire a suitable replacement. After that date,
the Program has accounted for local considerations and economic factors
by permitting a standing trustee to seek a wavier of the rule
prohibiting employment of non-spousal relatives in situations where
compelling circumstances exist.
4. Related Party Transactions
Comment: Several standing trustees and their organizations contend
that it is unfair to forbid related party transactions and allocations
when certain transactions and allocations have been permitted in the
past. These commenters also assert that implementation of this standard
will violate and interfere with vested contract rights of related
parties. Finally, one association characterizes the rule as unfair
because it terminates contracts for no legal or valid basis.
Response: The Program has concluded that, in the future, it should
not permit contracts or allocations between standing trustees and
related third parties except in narrow circumstances. A prophylactic
rule is desirable because, when a trustee purchases or leases goods or
services from himself or a related party, it is difficult to detect or
remedy circumstances in which estate funds are being used
inappropriately.
The rule will go into effect with respect to existing standing
trustees on the first day of their next fiscal year. However, because
some standing trustees have contractual relationships with related
parties, and, in some cases, it would pose an undue hardship to end
those contractual relationships by the first day of the next fiscal
year, the rule provides for delayed implementation in appropriate
situations. For instance, the rule permits a United States Trustee to
grant a reasonable extension to a standing trustee who needs additional
time to comply with this rule. To obtain an extension, the standing
trustee must submit written evidence, satisfactory to the United States
Trustee, to demonstrate that the expense is necessary and at or below
market rate.
The rule also provides for waiver in certain limited situations
where the standing trustee has a natural incentive to conserve
expenses. For instance, a newly-appointed trustee can apply for a
waiver from the prohibition on related-party transactions and
allocations if the standing trustee can demonstrate in writing that the
waiver is necessary for the trustee operation and the cost for which
the trustee seeks permission is at or below market rate. United States
Trustees are given the flexibility to permit an exception in these
circumstances because trustees who are starting their operations and
are not receiving maximum compensation have an inherent incentive to
keep their expenses low. This flexibility also will assist new trustees
in starting their operations.
The rule also permits a standing trustee who has not earned maximum
compensation to seek a provisional waiver from the prohibition on
related-party allocations. Economic reality requires distinguishing in
appropriate circumstances between standing trustees who are earning
maximum compensation and those who are not. Under the fee structure
established in 28 U.S.C. 586, a standing trustee must pay expenses
first, his or her compensation second, and any excess monies to the
United States Trustee System Fund. When a standing trustee is earning
less than maximum allowable compensation, every dollar used to pay for
expenses is one less dollar that is available to fund compensation. The
incentive to minimize expenses because the standing trustee otherwise
will receive reduced compensation is lacking for the approximately 80
percent of chapter 13 trustees who in FY 96 received maximum
compensation of $124,333, plus all expenses.
Once standing trustees are earning maximum compensation, the only
way they can increase their compensation is indirectly. A standing
trustee who is also a practicing attorney could offer a justification
to acquire a law library payable out of the trustee expense funds when,
in fact, the library is intended to benefit the law firm primarily,
thereby subsidizing the law firm's expenses and increasing the profit
to the firm's members. One standing trustee justified unfettered
expenses by asserting that the system does ``not cost taxpayers a
penny.'' Although the costs of operating the standing trustee system
are not paid by a direct appropriation from Congress, they are borne by
debtors' payments under the financing mechanism in 28 U.S.C. 586.
Because the economic pressures to minimize expenses cease to exist
once
[[Page 30181]]
standing trustees are earning maximum compensation, there is a rational
basis to permit trustees who are not earning maximum compensation to
allocate certain expenses while simultaneously prohibiting trustees who
receive maximum compensation from allocating expenses.
Finally, the United States Trustee has the power to grant a
provisional waiver of the allocation prohibition to a standing trustee
who serves in both chapter 12 and chapter 13 cases. These circumstances
do not involve a trustee who is contracting or allocating with a
related party. Trustees in these situations are sharing or allocating
expenses between two trusts. Thus, the conflicts of interest inherent
when a standing trustee contracts or allocates with himself or a
related party do not exist.
Comment: One standing trustee commented that the rule as to
related-party transactions is unreasonable when applied to standing
trustees who are also attorneys. This standing trustee asserted,
without evidence, that if he is forced to move the trustee operations
from his law office, the trustee will incur larger rent expenses.
Another standing trustee argued that the present policy allowing
allocations permits standing trustees to ``effect economies not
otherwise available.''
Response: Whether a standing trustee administers 1,000 cases or
10,000 cases, the trustee's maximum annual compensation cannot exceed
the statutory limit, nor can the total amount of compensation and
expenses exceed 10% of the total plan payments. Although the numbers of
cases being administered certainly allows standing trustees to achieve
economies of scale, the Program has not found that allocation of
expenses among related parties, itself, has permitted ``economies of
scale not otherwise available.'' To the contrary, the Program has found
that this is a very difficult and troubling area to monitor.
Many trustees engage in other occupations, particularly as
attorneys. The desire to keep both the standing trustee office and the
law firm operating under the same roof is understandable, because the
situation is convenient, and likely well-intentioned. Once the standing
trustee operations grow to the point that they are able to support
maximum compensation for the trustee and all the trustee's costs, the
trustee can increase his or her compensation by having the trustee
operation enter into a contract with a person or entity who is related
to the trustee. For example, the trustee could have his or her law
partnership lease office space or equipment to the trustee operation.
The trustee would then receive compensation and the income derived from
the lease, a situation too easily susceptible to manipulation and
difficult to detect. Accordingly, related-party transactions and
allocations in the future will be permitted only in limited
circumstances that are amenable to adequate supervision or where the
incentive ``to keep costs low at the risk of reduced compensation''
still exists.
Comment: A standing trustee and one association stated that,
although standing trustees should not profit from the trust, neither
should they incur a loss. These commenters hypothesized that it might
not be practical for smaller standing trustees to purchase separate
equipment, computers, furniture, etc. for the exclusive use of the
trustee's office and argued that the United States Trustee should
permit some reasonable allocation of cost sharing. Finally, the
association stated that the United States Trustee has offered standing
trustees no real opportunity to try to refute the conclusion that
allocations are inappropriate.
Response: As discussed above, under the rule, a standing trustee
who is not earning maximum compensation may seek a provisional waiver
from the supervising United States Trustee. A provisional waiver also
may be requested if the standing trustee serves in chapter 13 and
chapter 12 cases and the trustee wishes to allocate between these two
operations. Therefore, the Program has provided for allocations in
warranted circumstances.
Regarding the comment that trustees should not be forced to operate
at a loss, all actual and necessary expenses are funded by debtors'
payments under the statutory scheme set out in 28 U.S.C. 586. Standing
trustees do not personally pay expenses. All expenses are paid out of
the trust fund, including any monies that the standing trustee advanced
for expenses during the start-up phase of a new trustee operation.
Trustees who administer a large number of cases will be able to absorb
any cost differential in operational and overhead expenses. The Program
cannot assess the economic impact on the standing trustee's personal
interests in related entities, however.
The Program has made a policy decision, based on its experience, to
prohibit future transactions and expense allocations between related
parties. This decision will provide clearer direction to those who must
abide by and those who must administer the strictures of 28 U.S.C.
586(e).
Comment: Several standing trustees and an association commented
that this rule violates the Bankruptcy Code because United States
Trustees do not have the jurisdiction to decide whether expenses are
``actual and necessary''. Pursuant to this perspective, the United
States Trustees can only rubber-stamp the expenses submitted by the
standing trustees; if there is any dispute about these expenses, only
the bankruptcy courts have the authority to decide the question. The
association added that the standing trustee's role is to seek a court
ruling on any items that the United States Trustee disputes as
unnecessary.
Response: These comments do not comport with the compensation
scheme outlined in 28 U.S.C. 586(e), which both empowers and obligates
the Attorney General, in consultation with the United States Trustees,
to establish compensation and a percentage fee for standing trustees.
As discussed in the General Comments above, the Attorney General--
not bankruptcy courts--is empowered to establish compensation for each
standing trustee. Once compensation has been set, the statute then
requires the Attorney General to establish a percentage fee sufficient
to pay the trustee's compensation and all actual, necessary expenses.
28 U.S.C. 586(e)(1).
The language ``actual, necessary'' is language of limitation that
modifies the noun ``expenses.'' Thus, Congress did not want to permit
standing trustees to recoup every expense no matter how remotely
related to the trustee operation. Moreover, Congress did not define the
words ``actual'' and ``necessary.'' Cf. 11 U.S.C. 330 (where Congress
engrafted various factors for the bankruptcy courts to consider when
awarding fees to trustees in chapter 7 and 11 cases and other
professionals). See also Patterson v. Shumate, 504 U.S. 753, 758 (1992)
(use of broad language supports more expansive reading especially when
Congress has used narrower language in other subsections of statute).
Instead, Congress authorized the Attorney General to decide which
expenses are ``actual'' and ``necessary'' and thus are appropriately
factored into the percentage fees charged to the bankruptcy cases. At
the same time, Congress mandated in section 326(b) that ``[i]n a case
under chapter 12 or 13 of this title, the court may not allow
compensation for services or reimbursement of expenses of the United
States trustee or of a standing trustee appointed under section 586(b)
of title 28, * * *'' Congress entrusted the administration of the
standing trustee system, including the calculation of compensation and
percentage fees, to
[[Page 30182]]
the Attorney General, not the bankruptcy courts.
Comment: One standing trustee argued that the need to prohibit
related-party transactions is undercut by the fact that this standard
is not to be implemented until 2005 in certain situations. This
standing trustee concluded that the United States Trustees must not
believe that related-party transactions are really a problem.
Response: The delayed implementation of this rule in limited
situations involving real estate is not a reflection of the need for
the rule. Instead, it reflects the Program's desire to minimize the
disruption in the administration of chapter 12 and chapter 13 estates
that might otherwise result from immediate implementation.
Comment: Two standing trustees asserted there is no rational
justification for the distinction in treatment between smaller trustees
and those who earn maximum compensation. A variation on this assertion
was the comment that existing budgeting and auditing procedures should
be sufficient to prevent improper expenditures.
Response: As explained in detail earlier in this subsection, there
are valid economic reasons to distinguish between standing trustees who
are earning maximum compensation and those who are not. Those standing
trustees who are earning less than maximum allowable compensation have
an incentive to minimize expenses because every dollar that is used on
expenses means one less dollar is available to pay for the trustee's
compensation.
Comment: One commenter stated that the rule with respect to
allocations is unfair because chapter 7 trustees are permitted to
allocate costs among their individual chapter 7 cases.
Response: There are different methods for allocating costs and
expenses in chapter 7 cases and chapter 12 or 13 cases. As noted above,
section 586(e) directs the Attorney General to establish a percentage
fee that is collected from all plan payments received by the standing
trustee. The monies generated by these fees are then used to pay the
compensation of the standing trustee and the ``actual, necessary
expenses incurred by such individual as standing trustee'' in
administering all chapter 12 or chapter 13 cases. 28 U.S.C. 586(e)(1).
In contrast, the compensation and reimbursement of expenses of
chapter 7 trustees are determined on a case-by-case basis after an
application, notice, a hearing, and a court order. Courts generally
allow a chapter 7 trustee to be reimbursed for expenses that he or she
incurs to administer a discrete and identifiable chapter 7 estate. The
chapter 7 trustee is prohibited from recovering overhead or ``general
`stay in business' costs''. See, e.g., Sousa v. Miguel (In re United
States Trustee), 32 F.3d 1370, 1376-77 (9th Cir. 1994). As the Ninth
Circuit has observed, standing trustees operate under a different
mechanism, which makes their compensation and expenses inapposite to
the analysis required to award compensation in chapter 7 cases. Id. at
n. 5. See also Dunivent v. Schollett (In re Schollett), 980 F.2d 639,
643-45 (10th Cir. 1992); In re Savage. 67 B.R. 700, 706-07 (D.R.I.
1986) (Selya, J.).
Comment: One standing trustee asserted, without proof, that the
commercial reasonableness of contractual relationships, including those
between related parties, is ``easily and objectively measurable'' and,
therefore, should be permitted.
Response: As discussed in other responses to this subsection,
contractual relationships between related parties are not ``easily and
objectively measurable.'' Moreover, when standing trustees use
fiduciary funds to lease property from themselves or related parties,
the trustees are using fiduciary funds for their own personal or
family's benefit, and are abrogating their fiduciary duty of loyalty.
Even where these dealings are well-intentioned and not motivated by a
desire for personal profit, standing trustees in these circumstances
have created an irreconcilable conflict and, at the very least, an
appearance of impropriety.
5. Employment of Other Standing Trustees
Comment: One standing trustee questioned the basis for this
standard.
Response: This rule simply memorializes current practice pursuant
to which the Program prohibits one standing trustee from hiring
another. The rationale behind this policy is to eliminate any conflicts
of interest or dual loyalties and to prevent a reoccurrence of the
closed bankruptcy network that existed prior to the Program's creation.
Comment: Two commenters asserted that imposition of this standard
has the potential to restrict standing trustees from hiring their most
effective or cost-efficient counsel. One of these commenters cited as
an example his use of another standing trustee as an expert witness in
a bankruptcy case. The commenter noted that the standing trustee who
served as the expert witness received no fee.
Response: The imposition of this rule should not create additional
costs. Indeed, the standing trustee and the association who made this
comment conceded no existing attorney-client relationships were
affected by the rule. Furthermore, the promulgation of the rule will
not prevent a standing trustee from serving as an expert witness in the
circumstances that one commenter described because the testifying
trustee did not receive a fee. The rule permits one standing trustee to
assist another provided no compensation is paid. Expenses for the
assisting standing trustee can be reimbursed provided that the United
States Trustee has pre-approved this expenditure.
Comment: One standing trustee argued against the imposition of this
standard, alleging that the Department of Justice currently has a
conflict of interest in that the Department represents major federal
claimants in bankruptcy and the United States Trustees. Alternatively,
this commenter contended that this dual representation by the
Department should be banned.
Response: Congress has determined as a matter of public policy that
the Program most appropriately resides in the Department of Justice.
The legislative history for the Bankruptcy Reform Act of 1978
demonstrates that ``[t]he decision to place the United States trustee
system in the Department of Justice was reached as a result of thorough
deliberations'', including careful consideration of the same conflicts
of interest raised by these commenters. H.R. Rep. No. 595, 95th Cong.,
1st Sess. 111 (1977), reprinted in 1978 U.S.C.C.A.N. 6072-73. After
analyzing this issue, Congress rejected the concern about such
conflicts of interest as being ``theoretical, not real.'' H.R. Rep. No.
595, 95th Cong., 1st Sess. 114 (1977), reprinted in 1978 U.S.C.C.A.N.
6075. This issue was raised and again rejected when Congress expanded
the Program nationwide in 1986. See, e.g., The United States Trustee
System: Hearing Before the Subcomm. on Courts of the Senate Comm. on
the Judiciary, 99th Cong., 2d Sess. (1986). Thus, in deciding to place
the Program within the Department, Congress considered and rejected the
very argument this standing trustee raised in objection to the rule.
Certifications
Executive Order 12866
This rule has been drafted and reviewed in accordance with
Executive Order 12866, section 1(b), Principles of Regulation. The
Director, Executive Office for United States Trustees, (``Director'')
has determined that this rule is not a ``significant regulatory
action'' under Executive Order 12866,
[[Page 30183]]
section 3(f), Regulatory Planning and Review, and, accordingly, this
rule has not been reviewed by the Office of Management and Budget.
Regulatory Flexibility Act
In accordance with the Regulatory Flexibility Act (5 U.S.C.
Sec. 605(b)), the Director has reviewed this rule and by approving it
certifies that it will not have a significant impact on a substantial
number of small entities. The only parties affected are the
approximately 200 individuals who serve as standing trustees. Moreover,
the rule provides direction to standing trustees in the performance of
their fiduciary duties and, thus, will not have a significant economic
impact.
Paperwork Reduction Act
This rule contains no new information collection or recordkeeping
requirements under the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.).
Unfunded Mandates Reform Act of 1995
This rule will not result in the expenditure by State, local and
tribal governments, in the aggregate, or by the private sector, of
$100,000,000 or more in any one year, and it will not significantly or
uniquely affect small governments. Therefore, no actions were deemed
necessary under the provisions of the Unfunded Mandates Reform Act of
1995.
Small Business Regulatory Enforcement Fairness Act of 1996
This rule is not a major rule as defined by Sec. 804 of the Small
Business Regulatory Enforcement Fairness Act of 1996. This rule will
not result in an annual effect on the economy of $100,000,000 or more;
a major increase in costs or prices; or significant adverse effects on
competition, employment, investment, productivity, innovation, or on
the ability of United States-based companies to compete with foreign-
based companies in domestic and export markets.
List of Subjects in 28 CFR Part 58
Bankruptcy, Trusts and trustees.
For the reasons set forth in the preamble, the Department of
Justice proposes to amend 28 CFR part 58 as follows:
PART 58--REGULATIONS RELATING TO THE BANKRUPTCY REFORM ACTS OF 1978
AND 1994
1. The authority citation for part 58 is revised to read as
follows:
Authority: 28 U.S.C. 509, 510, 586, 5 U.S.C. 301.
2. In Sec. 58.1, paragraph (a) is revised to read as follows:
Sec. 58.1 Authorization to establish panels of private trustees.
(a) Each U.S. Trustee is authorized to establish a panel of private
trustees (the ``panel'') pursuant to 28 U.S.C. 586(a)(1).
* * * * *
3. Section 58.4 is revised to read as follows:
Sec. 58.4 Qualifications for appointment as standing trustee and
fiduciary standards.
(a) As used in this section--
(1) The term standing trustee means an individual appointed
pursuant to 28 U.S.C. 586(b).
(2) The term relative means an individual who is related to the
standing trustee as father, mother, son, daughter, brother, sister,
uncle, aunt, first cousin, nephew, niece, husband, wife, father-in-law,
mother-in-law, son-in-law, daughter-in-law, brother-in-law, sister-in-
law, stepfather, stepmother, stepson, stepdaughter, stepbrother,
stepsister, half brother, half sister, or an individual whose close
association to the standing trustee is the equivalent of a spousal
relationship.
(3) The term financial or ownership interest excludes ownership of
stock in a publicly-traded company if the ownership interest in not
controlling.
(4) The word region means the geographical area defined in 28
U.S.C. 581.
(b) To be eligible for appointment as a standing trustee, an
individual must have the qualifications for membership on a private
panel of trustees set forth in Secs. 58.3 (b)(1)-(4), (6)-(8). An
individual need not be an attorney to be eligible for appointment as a
standing trustee. A corporation or partnership may be appointed as
standing trustee only with the approval of the Director.
(c) The United States Trustee shall not appoint as a standing
trustee any individuals who, at the time of appointment, is:
(1) A relative of another standing trustee in the region in which
the standing trustee is to be appointed;
(2) A relative of a standing trustee (in the region in which the
standing trustee is to be appointed), who, within the preceding one-
year period, died, resigned, or was removed as a standing trustee from
a case;
(3) A relative of a bankruptcy judge or a clerk of the bankruptcy
court in the region in which the standing trustee is to be appointed;
(4) An employee of the Department of Justice within the preceding
one-year period; or
(5) A relative of a United States Trustee or an Assistant United
States Trustee, a relative of an employee in any of the offices of the
United States Trustee in the region in which the standing trustee is to
be appointed, or a relative of an employee in the Executive Office for
United States Trustees.
(d) A standing trustee must, at a minimum, adhere to the following
fiduciary standards:
(1) Employment of Relatives. (i) A standing trustee shall not
employ a relative of the standing trustee.
(ii) A standing trustee shall also not employ a relative of the
United States Trustee or of an Assistant United States Trustee in the
region in which the trustee has been appointed or a relative of a
bankruptcy court judge or of the clerk of the bankruptcy court in the
judicial district in which the trustee has been appointed.
(iii)(A) Paragraphs (d)(1) (i) and (ii) of this section shall not
apply to a spouse of a standing trustee who was employed by the
standing trustee as of August 1, 1995.
(B) For all other relatives employed by a standing trustee as of
August 1, 1995, paragraphs (d)(1) (i) and (ii) of this section shall be
fully implemented by October 1, 1998, unless specifically provided
below:
(1) The United States Trustee shall have the discretion to grant a
written waiver for a period of time not to exceed 2 years upon a
written showing by the standing trustee of compelling circumstances
that make the continued employment of a relative necessary for a
standing trustee's performance of his or her duties and written
evidence that the salary to be paid is at or below market rate.
(2) Additional waivers, not to exceed a period of two years each,
may be granted under paragraph (d)(1)(iii)(B)(1) of this section
provided the standing trustee makes a similar written showing within 90
days prior to the expiration of a present waiver and the United States
Trustee determines that the circumstances for waiver are met.
(3) No waivers will be granted for a relative of the United States
Trustee or of an Assistant United States Trustee.
(2) Related Party Transactions. (i) A standing trustee shall not
direct debtors or creditors of a bankruptcy case administered by the
standing trustee to an individual or entity that provides products or
services, such as insurance or financial counseling, if a standing
trustee is a relative of that individual or if the standing trustee or
relative has a financial or ownership interest in the entity.
[[Page 30184]]
(ii) A standing trustee shall not, on behalf of the trust, contract
or allocate expenses with himself or herself, with a relative, or with
any entity in which the standing trustee or a relative of the standing
trustee has a financial or ownership interest if the costs are to be
paid as an expense out of the fiduciary expense fund.
(iii) (A) The United States Trustee may grant a waiver from
compliance with paragraph (d)(2)(ii) of this section for up to three
years following the appointment of a standing trustee if the newly-
appointed standing trustee can demonstrate in writing that a waiver is
necessary and the cost is at or below market.
(B) The United States Trustee may grant a provisional waiver from
compliance with the allocation prohibition contained in paragraph
(d)(2)(ii) of this section if one of the following conditions is
present:
(1) A standing trustee has insufficient receipts to earn maximum
annual compensation as determined by the Director during any one of the
last three fiscal years and provides the United States Trustee with an
appraisal or other written evidence that the allocation is necessary
and the allocated cost is at or below market rate for that good or
service, or
(2) A Chapter 13 standing trustee also serves as a trustee in
Chapter 12 cases and provides the United States Trustee with an
appraisal or other written evidence that the allocation is necessary
and the allocated cost is at or below market rate for that good or
service.
(C) Except as otherwise provided in this paragraph, a standing
trustee may seek a reasonable extension of time from the United States
Trustee to comply with paragraph (d)(2)(ii) of this section. To obtain
an extension, a standing trustee must demonstrate by an appraisal or
other written evidence, satisfactory to the United States Trustee, that
the expense is necessary and at or below market rate. In no event shall
an extension be granted for the use and occupation of real estate
beyond October 1, 2005. For personal property and personal service
contracts, no extension shall be granted beyond October 1, 1998.
(3) Employment of Other Standing Trustees. A standing trustee shall
not employ or contract with another standing trustee to provide
personal services for compensation payable from the fiduciary expense
fund. This section does not prohibit the standing trustee from
reimbursing the actual, necessary expenses incurred by another standing
trustee who provides necessary assistance to the standing trustee
provided that the reimbursement has been pre-approved by the United
States Trustee.
(e) Paragraph (d) of this section is effective July 2, 1997. As to
those standing trustees who are appointed as of July 2, 1997, paragraph
(d) will be applicable on the first day of their next fiscal year
(i.e., October 1, 1997 for chapter 13 trustees and January 1, 1998 for
chapter 12 trustees).
Dated: May 22, 1997.
Joseph Patchan,
Director.
[FR Doc. 97-13970 Filed 5-30-97; 8:45 am]
BILLING CODE 4410-40-M
