UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF KENTUCKY
JUDY K. PARRIMAN
DEBTOR CASE NO. 95-60191
The trustee herein, Maxie Higgason, has applied for compensation in the form of attorney=s fees and expenses for legal work he did on behalf of the estate. Unfortunately, the trustee failed to seek this Court=s approval of his employment as attorney for the estate as required by 11 U.S.C. '327. Consequently, there is now before the Court an Application and Notice by Trustee to Retain Himself and Firm as Attorney Nunc Pro Tunc. A creditor of the debtor, James E. Stone (AStone@), has objected to the trustee=s application for fees and commission, and these questions are now ripe for decision.
A review of the record in this case shows that the debtor filed her Chapter 7 petition in this Court on April 5, 1995. Stone filed an adversary proceeding on June 26, 1995, alleging that he had an Ohio state court judgment against the debtor which he sought to have declared nondischargeable pursuant to 11 U.S.C.'523(a)(2). On September 27, 1995, Stone filed a Motion for Relief from Stay in order to continue to prosecute another case in Ohio to set aside a fraudulent conveyance from the debtor to her son. Stone was granted relief from the stay by Order of this Court entered on October 18, 1995.
The Court of Common Pleas of Hamilton County, Ohio granted Stone a default judgment against the debtor by an Entry dated July 28, 1996. The Entry noted that the debtor=s son had entered into an Agreed Settlement whereby he would purchase the debtor=s real property; it further noted that the trustee had an interest in the unsecured proceeds arising from the sale of the property. On November 5, 1996, the trustee filed his Notice of Trustee=s Intent to Sell Property Free and Clear of Liens, evidencing his intention to sell the real property to the debtor=s son for $92,000.00. Stone filed an Objection to Trustee=s Notice of Proposed Sale on November 25, 1996.
By Order entered on January 15, 1997, this Court overruled Stone=s Objection and approved the sale of the debtor=s property for $92,000.00. The Order also directed the trustee to pay the first mortgage holder, and then pay Stone on his secured claim or object to his claim as secured within thirty days of receipt of the sale proceeds. The trustee filed an Objection to Claim of James Stone on February 25, 1997. A briefing schedule was set, and the trustee and Stone filed memoranda. The trustee=s objection was rendered moot, however, when it became apparent that Stone was the debtor=s only creditor. The only other creditor listed on the debtor=s schedules was a law firm which did not file a claim.
The trustee then filed an Application for Allowance of Compensation for Professional Services Rendered as Attorney for Trustee on October 10, 1997. He had never sought the Court=s approval for his retention or that of his firm as attorneys for the trustee. Stone objected to the trustee=s Application for Allowance of Compensation on the grounds that Athe Trustee ha[d] been nothing but an impediment to said creditor=s collection of the sums due him as a result of his own efforts of bringing a fraudulent conveyance action in Ohio and in settling that case with the debtor.@ However there is no evidence before the Court that the trustee did anything other than faithfully perform his statutory obligations to marshall the assets of the estate and administer and distribute them in accordance with the Bankruptcy Code. On October 29, 1997, the trustee filed an Application and Notice by Trustee to Retain Himself and Firm as Attorney Nunc Pro Tunc. Stone also objected to this application.
Stone has not objected to the trustee=s attempt to have his application for employment approved on a nunc pro tunc basis, but this Court must rule on that application before addressing the question of the amount of the trustee=s fees as attorney, if any. The trustee has stated therein that he did not make application to be employed as attorney for the trustee before undertaking any legal representation through Aoversight@ and Ainadvertence.@ Courts are uniform in holding that while bankruptcy courts have the authority to consider such applications under '327(a), oversight and inadvertence are not sufficient justification for granting a nunc pro tunc application for employment. In In re Jarvis, 53 F.3d 416 (1st Cir. 1995), the court considered what it termed a post facto application for employment, having decided that this was a more appropriate term than nunc pro tunc. The court stated at 420-421:
A bankruptcy court confronted by a post facto application for the employment of a professional should begin by inquiring into suitability; .... In other words, the bankruptcy court must satisfy itself that, had the application been filed on time, the court would have authorized the professional
Assuming that the application clears this first hurdle, the bankruptcy court must next, in the exercise of its informed discretion, decide whether the particular circumstances attendant to the application are sufficiently extraordinary to warrant after-the-fact approval. ....
.... A virtually unbroken skein of federal appellate cases have determined that
Factors which may be considered in deciding whetherAextraordinary circumstances@ are present were set out in Matter of Arkansas Co., Inc., 798 F.2d 645 (3rd Cir. 1986):
[I]n exercising its discretion, the bankruptcy court must consider whether the particular circumstances in the case adequately excuse the failure to have sought prior approval. This will require consideration of factors such as whether the applicant or some other person bore responsibility for applying for approval; whether the applicant was under time pressure to begin service without approval; the amount of delay after the applicant learned that initial approval had not been granted; the extent to which compensation will prejudice innocent third parties; and other relevant factors.
. . . . . .
The [district] court correctly reasoned that retroactive approval should be limited to cases where the hardship is not of counsel
At 650. See also In re Land, 943 F.2d 1265, 1267-68 (10th Cir. 1991); In re Luchka, 152 B.R. 18, 20 (Bkrtcy.D.R.I. 1993).
This Court, inAIn re White Cloud Mining Co., Inc.,@ Case No. 92-10195, (E.D.Ky. November 10, 1997), considered a nunc pro tunc application for appointment of attorneys who had represented the debtor. After engaging in the analysis set out above, the Court concluded that the application should be granted in light of the fact that the attorneys were not experienced in bankruptcy matters, and the only objector was the creditor against whom they had obtained an excellent result for the debtor.
By contrast, the trustee in this matter is an experienced practitioner before this Court; he has applied for approval of his employment or the employment of his firm as attorney for the trustee many times. He is fully aware of the proper procedure and has offered no justification for his failure to obtain prior approval except forAoversight@ and Ainadvertence.@ As the cases cited above make clear, these factors do not constitute the Aextraordinary circumstances@ required to justify after-the-fact approval of his application.
In view of the fact that the trustee did not, and may not now, receive approval of an application to be employed as attorney for the trustee, the Court may not allow him compensation for legal fees and expenses. The trustee=s compensation in this matter will be limited to his trustee=s commission at the statutory maximum rate. Stone=s objection to the amount of the trustee=s claimed fees and expenses as trustee will be overruled. An order in conformity with this opinion will be entered separately.
By the Court -
Maxie Higgason, Esq., Trustee
Marcia A. Smith, Esq.