May A Subchapter V Trustee Utilize (And Be Compensated For) Services Of An In-House Paralegal?

Question:

May a Subchapter V trustee utilize the services of a paralegal employed by the trustee’s law firm:

without a separate application for approval of the paralegal’s employment; and
with the paralegal’s services being compensated as part of the Subchapter V trustee’s fee application under § 330(a)(1)?

Answer:

The answer appears to be a qualified, “Yes.”

The qualification is that the paralegal’s services, (i) must create actual value and efficiencies in performance of the trustee’s duties, and (ii) must not be used as a mere excuse for recovering overhead or similar costs.

Authorities

Here are two authorities on the subject.

–Handbook for Subchapter V Trustees

The “Handbook” for Subchapter V trustees [Fn. 1] says:

“Case-by-case trustees are compensated through § 330(a)(1)(A) which allows for ‘reasonable compensation for actual, necessary services rendered by the trustee … and by any paraprofessional person employed by any such person’” (at 3-21, emphasis added).

–Bankruptcy Statute

11 U.S.C § 330(a)(1)(A) distinguishes between a paraprofessional employed by the trustee and “a professional person employed under section 327 or 1103.” Here is the operative language (emphasis added):

“(a) (1) . . . the court may award to a trustee, . . . or a professional person employed under section 327 or 1103—(A) reasonable compensation for actual, necessary services rendered by the trustee, . . . professional person, . . . and by any paraprofessional person employed by any such person.”

Such statutory language makes this distinction:

It requires that a “professional” employed by a trustee file a separate application for employment, and have it approved by the Court, before compensation can even be considered for that professional; but
It allows for compensation of an in-house “paraprofessional” as part of the trustee’s own services and fee application.

A Caution

The Subchapter V Handbook encourages trustees to “keep in mind . . . Congress’ stated intent that subchapter V cases not be burdened with excessive administrative expenses when planning their work and submitting their fee applications” (at 3-22).

Accordingly, the rule appears to be that:

services of an in-house paralegal are compensable as part of the Subchapter V trustee’s fee application, when actual efficiencies and value are added by the paralegal; but
such services must, (i) assist in the trustee’s efforts to satisfy his/her statutory duties, and (ii) be more than an excuse or effort to recover overhead or similar costs.

Conclusion

Services of a Subchapter V trustee’s in-house paralegal are permitted and can be compensated, as part of the Subchapter V trustee’s fee application under 11 U.S.C. § 330; provided the paralegal’s services provide actual efficiencies and value in fulfilling the trustee’s statutory duties.

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Footnote 1. Handbook for Small Business Chapter 11 Subchapter V Trustees, prepared and published by the U.S. Department of Justice’s Executive Office for United States Trustees (Feb. 2020).

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