4-5.1 OVERVIEW
The United States Trustee's supervision of a standing trustee carries with it the responsibility to take appropriate action when problems arise.
In selecting an appropriate enforcement action to address trustee misconduct, the United States Trustee, in consultation with the Deputy Director, must consider factors including the nature of the problem, the resources to be committed, and the benefit the enforcement action will have on case administration. If the nature of a trustee's misconduct reflects dishonesty, deceit, fraud, or the serious mishandling of estate funds, a single substantiated incident justifies immediate action by the United States Trustee. Remedies include ceasing to assign cases to the trustee, moving to seek the removal of the trustee, temporary restraining orders, orders to turnover books and records, and referral to the United States Attorney. Any decision to take an enforcement action must consider the available evidence, including documentation of efforts and communications between the United States Trustee and the standing trustee.
Enforcement actions with regard to a standing trustee may involve circumstances unique to the standing trustee. The large number of cases typically assigned to a standing trustee heightens the need to pursue appropriate remedies as expeditiously as possible due to the substantial monies at stake, as well as the number of parties affected. Any enforcement action that precludes the assignment of future cases, even for a short period of time, however, presupposes that a capable individual to administer those cases must first be appointed.
Whenever the United States Trustee seeks to remove a standing trustee from existing cases under 11 U.S.C. § 324 or to terminate a trustee's receipt of future case assignments, the United States Trustee must be prepared to have a successor trustee appointed who can respond to the exigencies of the circumstances. The alternative of having an Assistant United States Trustee serve must be considered in the context of the resources available to adequately administer cases. The United States
Trustee may designate one or more Assistant United States Trustees to serve in cases under chapters 12 and 13.
This chapter describes the range of enforcement actions to be taken to ensure prompt, honest, and effective case administration by chapters 12 and 13 standing trustees. These enforcement actions include administrative, civil, and criminal proceedings. It is critical that enforcement actions be exercised in a manner that is justified by the facts and the law and that is in keeping with the standards of the Department of Justice.
4-5.2 GENERAL FACTORS AFFECTING CHOICE OF ENFORCEMENT ACTIONS
In selecting the appropriate enforcement action to address a standing trustee's deficiencies, the United States Trustee must consider the type of remedy, the timing of the remedy, the resources to be committed, and the impact the enforcement action will have on case administration. Enforcement actions must be related to the nature and extent of a standing trustee's misconduct. If the nature of a standing trustee's misconduct reflects dishonesty, deceitfulness, fraud, or serious mishandling of funds, a single substantiated incident justifies immediate action by the United States Trustee. Remedies include removal, temporary restraining orders, orders to turn over books and records, and referral to the United States Attorney.
Misconduct below dishonesty or fraud includes inadequacies in reporting, bonding, internal controls, and overall administration. Such conduct may call for the use of cumulative remedies or may be so serious as to warrant seeking removal of a standing trustee and/or injunctive relief. Identifying and documenting deficiencies is an important element in supervision. Information developed must envision further enforcement remedies. Well documented information emanating from credible witnesses, including employees of the United States Trustee, where appropriate, will provide the testimonial and documentary evidence to be used in court. Beyond establishing a record, this process provides for a continuing review of a standing trustee's administration.
4-5.3 POSSIBLE CRIMINAL CONDUCT
Any allegation about a standing trustee or an employee or professional retained by a trustee that involves the loss of estate funds or possible criminal conduct is to be addressed in accordance with the procedures set forth in Volume 5 of this Manual.
4-5.4 ENFORCEMENT ACTIONS
4-5.4.1 Suspension from Case Assignments
Where cause exists, a trustee may be suspended from the assignment of future cases. The suspension of a trustee must be effected pursuant to 28 C.F.R. § 58.6. See Appendix 4-5 for the form of the notice to the trustee.
4-5.4.2 Removal
A standing trustee's inability to administer cases may result in the United States Trustee filing a motion under 11 U.S.C. § 324 to remove the trustee from all existing cases. The decision to seek removal must be based on evidence that demonstrates that the standing trustee has failed to carry out the responsibilities of the office or has failed to comply with applicable law or policy. The clearest case for removal is the discovery of fraud or embezzlement; however, other kinds of financial mismanagement may form the basis for removal. The United States Trustee must consult with the General Counsel and the Assistant Director for Review and Oversight prior to taking any formal action, and the Director must approve the final decision.
The removal of a trustee is governed by 11 U.S.C. § 324 which states:
(a) The court, after notice and a hearing, may remove a trustee, other than the United States trustee, or an examiner, for cause.
(b) Whenever the court removes a trustee or examiner under subsection (a) in a case under this title, such trustee or examiner shall thereby be removed in all other cases under this title in which such trustee or examiner is then serving unless the court orders otherwise.
Absent extraordinary circumstances, the United States Trustee shall also terminate the assignment of future cases to the standing trustee prior to, or simultaneous with, the filing of a motion to remove.
4-5.4.3 Recovery of Unauthorized Expenses or Excess Compensation
If a standing trustee takes excess compensation in violation of a compensation order, takes all compensation prior to the end of the year, improperly receives compensation by some other means, or makes unauthorized expenditures, the United States Trustee shall demand that the funds be returned. If the standing trustee fails to repay the sums demanded, the United States Trustee shall inform the Director and make a recommendation for further action, including the reduction of compensation, termination of future case assignments, or the bringing of a removal action or a suit against the trustee and the trustee's surety.
4-5.4.4 Zero or Reduced Compensation Order
With respect to budget disputes, zero or reduced compensation orders will be issued when a standing trustee expends trust funds without prior approval of the United States Trustee or prior to the final resolution of any disputed budget amount. In the event that there is an unresolved dispute between a standing trustee and the United States Trustee concerning a particular budget item, the parties will explore resolution of the dispute by informal means or utilize applicable formal dispute resolution procedures. Pending final resolution of the dispute, the standing trustee may not expend trust funds for any disputed portion of a line item. In the event trust funds are expended without final approval, the expense fund may be reimbursed by deduction from the standing trustee's future compensation.
The United States Trustee may request that the compensation level be set at zero if a standing trustee fails to undertake satisfactory efforts to correct deficiencies, other than budget disputes, that have been noted by the United States Trustee. The request must be forwarded to the Assistant Director for Review and Oversight for final decision by the Director. A zero compensation order may be used until the deficiencies are corrected. Once corrected, a new order should be issued that permits the standing trustee to receive compensation retroactively.