- Groth Brothers Oldsmobile, Inc. v. Kendall et al. (In re Groth Brothers Oldsmobile, Inc.), Case No. NC-12-1482-DJuPa (9th Cir. B.A.P. Oct. 3, 2013)
- The Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals (the "Panel") affirmed the holding of the United States Bankruptcy Court for the Northern District of California (the "Bankruptcy Court"), finding that the bankruptcy court did not abuse its discretion in (1) declining to consider the bankruptcy counsel's employment application until local co-counsel was employed, pursuant to the applicable local rules, (2) denying the appellants' employment nunc pro tunc as co-chapter 11 counsel, and (3) denying compensation and reimbursement of expenses to chapter 11 counsel. The Panel determined that, as the applicable local rules require corporations (including the debtor in this case) to appear at least through local counsel, the Bankruptcy Court did not err in setting the hearing on the retention application of chapter 11 counsel (who was not admitted before the Bankruptcy Court) until local counsel's retention application was approved either before or contemporaneously with the application of chapter 11 counsel. Regarding nunc pro tunc retention, the Panel applied the standard of "exceptional circumstances" set forth in In re Atkins, 69 F.3d 970 (9th Cir. 1995), holding that, at a minimum, two standards must be satisfied to establish the "exceptional circumstances" required to allow nunc pro tunc retention: (1) a satisfactory explanation for the failure to receive prior judicial approval of such retention and (2) a demonstration that the services provided "benefited the bankruptcy estate in a significant manner." The Panel held that a determination as to whether a benefit is "significant" is based on a relative rather than a fixed standard, requiring a case-by-case analysis. Specifically, the Panel concluded that the only service local counsel provided was that he signed the bankruptcy petition, regarding chapter 11 counsel's services, "reasonable minds could differ as to the significance and benefit of those services" and, because the Bankruptcy Court found that such services from both local counsel and chapter 11 counsel did not confer a significant benefit on the debtor's estate, the Panel need not second-guess such fact finding or address the second factor of "exceptional circumstances" to affirm the Bankruptcy Court's denial of chapter 11 counsel's nunc pro tunc retention. Regarding the request for compensation, the Panel concluded that, as 11 U.S.C. § 330(a)(1) only permits compensation after such professionals have been employed pursuant to 11 U.S.C. §§ 327 or 1103, and the debtor's local counsel and chapter 11 counsel were not retained, the Bankruptcy Court did not err in denying chapter 11 counsel's application for compensation.
- Procedural context:
- Appeal to the Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals from a decision by the United States Bankruptcy Court for the Northern District of California, denying with prejudice the applications for nunc pro tunc employment of two attorneys as chapter 11 counsel and the application for allowance and compensation of one of the two professionals' fees and expenses.
- General chapter 11 bankruptcy counsel for the debtor filed its application for employment weeks prior to submitting the application to employ local counsel. The Bankruptcy Court twice refused to approve the chapter 11 counsel's application until local counsel was employed and, upon further objection from the United States Trustee, suggested that chapter 11 counsel needed to resolve their issues with the United States Trustee prior to hearing on the applications. The debtor's bankruptcy case was converted to chapter 7 the day prior to the hearing on both applications for employment of chapter 11 counsel and local counsel and, thus, removed from the calendar. Shortly after conversion, chapter 11 counsel filed a motion to reconsider the cancellation of the hearing on the retention applications, which was opposed by the United States Trustee. The Bankruptcy Court denied the reconsideration motion without prejudice, asserting that there was no order to reconsider, and directing the chapter 11 counsel and local counsel set their applications for hearing. Chapter 11 counsel subsequently filed a fee application and motion for rehearing on both chapter 11 counsel and local counsel's retention applications. In the motion for rehearing, chapter 11 counsel addressed arguments under the Atkins factors for nunc pro tunc retention. The chapter 7 trustee opposed the rehearing motion. The Bankruptcy Court held a preliminary hearing, whereby it denied without prejudice the rehearing motion, stating that the two Atkins prongs had not been met and that the compensation application was denied (without prejudice) as premature. Five months later, chapter 11 counsel filed a further motion for a rehearing on the nunc pro tunc retention of chapter 11 counsel and local counsel, relying on his prior motion. Upon renewed objection from the chapter 7 trustee and at the final hearing on the nunc pro tunc applications and the chapter 11 counsel's compensation application, the Bankruptcy Court found that the counsels had not met the "exceptional circumstances" required by Atkins to justify nunc pro tunc retention, denying the further rehearing motion, the retention applications, and the fee application with prejudice. Chapter 11 counsel and local counsel appealed.
- Dunn, Jury and Pappas, Bankruptcy Judges
Joseph Hill v. Raquel King
Summarizing by J Newman
3048 in the system
3 Being Processed