Trustee Rightly Removed for Billing Big Easy Trip

HOUSTON (CN) - A bankruptcy trustee who billed an estate for his family's New Orleans vacation was rightly removed from all his cases, a federal judge ruled.

Houston attorney W. Steve Smith served as trustee in IFS Financial Corp.'s Chapter 7 bankruptcy from 2002 until his removal in 2013.

After IFS Financial's estate recovered $1.5 million in an adversarial proceeding the judgment was appealed to the 5th Circuit in New Orleans, and Smith hired his wife and law partner, Blanche Smith, to represent the estate before the 5th Circuit.

A creditor's objection to $3,486 in travel and lodging fees Smith billed the estate for the New Orleans trip led U.S. Bankruptcy Judge Marvin Isgur to remove Smith as trustee for IFS Financial, and 11 other cases which Smith had been appointed.

At first, Smith defended the bills, claiming he needed to arrive in New Orleans three days before the hearing to help his wife prepare, and that he took his two kids because one of them has behavioral problems.

But Smith later admitted that he had billed the estate for personal expenses, according to court records.

Smith is still on the panel for Ch. 7 trustees in the Southern District of Texas, but United States Trustee Judy A. Robbins, the administrator charged with overseeing bankruptcy cases in southern Texas, suspended him from taking cases pending his appeal of his removal.

U.S. District Judge Lynn Hughes denied Smith's appeal Monday, which Hughes says will likely mean Smith will be asked to resign as a Ch. 7 trustee.

In his appeal Smith argued that his removal is an extreme remedy, unjustified by a mere instance of poor judgment.

But Hughes had some harsh words for Smith in the 6-page ruling.

"Staying in an expensive hotel might be poor judgment, but staying in an expensive one in a vacation town when you are not needed is categorically worse ... The bankruptcy court removed Smith for a compelling reason. During a hearing on April 25, 2013, he admitted that his fees were improper. He conceded that he billed the estate for personal expenses. Whether his billing was sloppy, reckless, or intentional, he cannot be trusted," Hughes wrote.

He added: "Four nights in New Orleans with his family cannot rationally be portrayed as legal preparation."

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