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Summarizing by Amir Shachmurove

Rose Hill Bank v. Lazzo (In re Schupbach Investments, LLC)

No. KS-13-077 (10th Cir. B.A.P. Nov. 25, 2014)
In accordance with Tenth Circuit precedent, a chapter 11 debtor’s untimely application to employ counsel pursuant to § 327 may only be granted retroactively to the petition date upon a showing of “extraordinary circumstances;” mere inadvertence or neglect in making the filing timely was insufficient as a matter of law. Accordingly, fees earned during the “gap” period before the application was filed were disallowed. Additional fees requested for services relating to the administration of the estate are allowable, notwithstanding that such services may also have benefited the debtor’s principals. Finally, fees for services rendered after confirmation of the plan do not constitute an obligation of the estate.
Procedural context:
Creditors’ appeal of bankruptcy court orders (i) authorizing employment of debtor’s counsel effective as of the petition date and (ii) allowing fees requested for services rendered from the petition date through and after the confirmation of the debtor’s plan of reorganization.
Although local bankruptcy rules stipulate that employment applications must be filed “with the petition, debtor’s counsel filed his application for employment in this case approximately one month postpetition, requesting approval retroactive to the petition date. Concluding that counsel had substantially complied with the requirements, the bankruptcy court approved the application retroactive to the petition date. Counsel thereafter filed a series of applications requesting allowance of fees for services rendered from the petition date through and after confirmation of the plan, which the bankruptcy court allowed. Certain creditors objected to portions of the fee requests pertaining to (i) services rendered in the “gap” period, (ii) services that allegedly benefitted the debtor’s principals (who were themselves in bankruptcy), and (iii) services rendered after confirmation of the debtor’s plan. The bankruptcy court allowed all requested fees. Reversing the bankruptcy court’s rulings in part, the Panel concluded that fees incurred during the “gap” period and after confirmation of the plan were not compensable by the estate, but other fees were allowable to the extent they provided a benefit to the estate (as determined as of the time the services were provided) regardless of whether such services may also have benefitted the debtor’s principals in their pending bankruptcy cases.
Michael, Romero, and Jacobvitz.

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