Author: A.J. Webb, Articles Editor, University of Cincinnati Law Review
In November 2011, W. Steve Smith traveled to New Orleans, Louisiana, to attend a bankruptcy hearing for IFS Financial, for which he served as a bankruptcy trustee in a chapter seven liquidation. While the hearing lasted only one day, Smith extended his stay by three additional days. This decision ultimately cost him his job as a trustee on all of his bankruptcy cases. The Bankruptcy Court for the Southern District of Texas removed Smith as a trustee under Bankruptcy Code (Code) § 324, a provision that allows the court to remove a trustee for cause after notice and a hearing. The District Court for the Southern District of Texas recently affirmed this decision. The decision by the district court highlights three important issues with regard to bankruptcy trustees. First, it demonstrates the willingness of courts to remove trustees for relatively minor improprieties. Second, it demonstrates the fundamental principle of a trustee’s job in bankruptcy: to protect estate assets and ensure their distribution to creditors. Finally, it raises the question as to whether trustees have a “right” to their job under the Code or the United States Constitution.