FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In re: JOHN ALAN HARBIN, 

Debtor.

JEFFREY SHERMAN,

Plaintiff-Appellee, No. 04-56799

v.  D.C. No.

JOHN ALAN HARBIN, 04-CV-0209-BTM

Defendant-Appellant,

and

INDYMAC BANK FSB,

Defendant. 

In re: JOHN ALAN HARBIN, 

Debtor.

No. 04-56865

JEFFREY SHERMAN,

D.C. No. Plaintiff-Appellant,  04-CV-0209-BTM

v. OPINION

JOHN ALAN HARBIN; INDYMAC

BANK FSB,

Defendants-Appellees. 

Appeals from the United States District Court

for the Southern District of California

Barry T. Moskowitz, District Judge, Presiding

Argued and Submitted

November 17, 2006—Pasadena, California

4551
Filed April 25, 2007

Before: Richard D. Cudahy,* Susan P. Graber, and

Sandra S. Ikuta, Circuit Judges.

Opinion by Judge Ikuta;

Partial Concurrence and Partial Dissent by Judge Cudahy

*The Honorable Richard D. Cudahy, Senior United States Circuit Judge

for the Seventh Circuit, sitting by designation. 

4552 IN RE: HARBIN
COUNSEL

John L. Morrell and Paul J. Leeds, Higgs, Fletcher & Mack

LLP, San Diego, California, for defendant-appellant John A.

Harbin. 

IN RE: HARBIN 4555
Lon B. Isaacson and Larry D. Johnson, Lon B. Isaacson Associates, Los Angeles, California, for plaintiff-appellee/crossappellant Jeffrey Sherman. 

David R. Zaro and Jeanne M. Jorgensen, Allen Matkins Leck

Gamble & Mallory LLP, Irvine, California, for defendantappellee IndyMac Bank, F.S.B. 

OPINION

IKUTA, Circuit Judge: 

In this case we resolve two questions of first impression in

our bankruptcy jurisprudence. First, we hold that a bankruptcy

court considering the feasibility of a plan of reorganization

under 11 U.S.C. § 1129(a)(11) must evaluate the possible

effect of a debtor’s ongoing civil case with a potential creditor, whether that litigation is pending at the trial level or on

appeal. Second, we conclude that under limited circumstances, a bankruptcy court may exercise its equitable powers

to grant retroactive approval of a post-petition financing transaction pursuant to 11 U.S.C. § 364(c)(2). 

FACTUAL AND PROCEDURAL BACKGROUND

In 1996, Jeffrey Sherman sold his law practice to Harbin

APC (the professional corporation of John Harbin) through an

asset purchase and consulting agreement. The terms of the

agreement are not part of the record on this appeal. However,

it is undisputed that as part of the deal, Harbin APC agreed

to pay Sherman $5,000 a month for ten years in exchange for

his consulting services. In 2000, Harbin APC stopped making

the consulting payments to Sherman. 

A.

Sherman sued Harbin, Harbin APC, and others in California state court for breach of contract (among other things).

4556 IN RE: HARBIN
Harbin filed a cross-complaint for a declaratory determination

that he was not personally liable for any breach of the consulting agreement. Following the first phase of the trial, the jury

rendered a special verdict holding both Harbin and Harbin

APC liable for breach of contract in the amount of

$414,003.87 (plus interest, costs, and attorneys’ fees). While

the trial court’s ruling on Harbin’s declaratory judgment

motion was still pending, Harbin filed a voluntary Chapter 7

bankruptcy petition, triggering the automatic stay provision of

11 U.S.C. § 362. 

In June 2002, the trial court set aside the jury’s original verdict and held that Harbin was not personally liable for breach

of the consulting agreement. Harbin then moved to dismiss

his Chapter 7 petition. When the bankruptcy court denied the

motion, Harbin converted the case to Chapter 11. In the meantime, Sherman appealed the trial court’s ruling holding Harbin

not personally liable.1

B.

While his state appeal was pending, Sherman filed both an

adversary action for breach of contract and a proof of claim

in the amount of $716,092.65 (the jury’s original state court

verdict, plus interest, costs, and attorneys’ fees) in Harbin’s

bankruptcy case. In the adversary action, the bankruptcy court

granted Harbin’s summary adjudication motion and dismissed

Sherman’s claims for relief based on collateral estoppel.

While dismissing the adversary action, the bankruptcy court

ruled that Sherman could seek to reinstate that action if the

state appellate court ruled in his favor. The bankruptcy court

also sustained Harbin’s objection to Sherman’s proof of

claim, again noting that Sherman could seek to reinstate his

claim should he prevail on his state court appeal. 

1The bankruptcy court granted Sherman’s request for relief from the

automatic stay so he could pursue this appeal to the California Court of

Appeal. See 11 U.S.C. § 362(d). 

IN RE: HARBIN 4557
On December 11, 2003, before the state appellate court

decided Sherman’s appeal, the bankruptcy court confirmed

Harbin’s Second Amended Plan of Reorganization. The plan

required Harbin to pay his listed creditors 100 percent of their

claims following confirmation. The bankruptcy court found

the plan feasible under 11 U.S.C. § 1129(a)(11) because Harbin’s allowed creditors were to be paid in full.2

 Sherman, as

a party in interest, objected to the confirmation. Sherman

argued that Harbin’s plan was not feasible under section

1129(a)(11) because it did not reserve an allowance for Sherman’s claim should he prevail on appeal. In such event, Sherman argued, Harbin would not have sufficient assets to cover

Sherman’s claim and would be forced into further liquidation

or reorganization. 

The bankruptcy court rejected this argument on several

grounds. The bankruptcy court reasoned that because it had

previously disallowed Sherman’s claim, it could not make any

provision for the claim or consider the claim in its feasibility

evaluation. Additionally, the court concluded that the RookerFeldman doctrine precluded it from considering the likely

outcome of Sherman’s state court appeal. However, the bankruptcy court stated that it would not discharge Sherman’s

claim. The court’s confirmation order provided that if Sherman prevailed on his state court appeal, he could file a motion

for reconsideration in the bankruptcy court pursuant to Cobe

v. Smith (In re Cobe), 229 B.R. 15, 18 (B.A.P. 9th Cir. 1998).3

2Section 1129(a)(11) requires, as a condition of confirmation, that the

bankruptcy court find: “Confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization,

of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan.” 

3Cobe approved a bankruptcy court’s summary judgment in favor of a

creditor who had won a judgment against the debtor in state court, but held

that the debtor could seek reconsideration under Rule 60(b)(5) of the Federal Rules of Civil Procedure, as incorporated by Rule 9024 of the Federal

Rules of Bankruptcy Procedure, if the state trial court’s judgment in favor

of the creditor was later overturned on appeal. 229 B.R. at 18. 

4558 IN RE: HARBIN
C.

At the time it confirmed Harbin’s plan, the bankruptcy

court also granted nunc pro tunc approval of a previously

unauthorized, post-petition refinancing of Harbin’s home.4 In

January 2003, Harbin’s wife applied for a loan to refinance

the above-market mortgage on their Coronado residence.

Although Harbin’s interest in the residence was an asset of the

bankruptcy estate, his wife’s loan application listed her as the

sole borrower. To facilitate the loan transaction, Harbin executed a quitclaim deed granting his interest in the residence to

his wife, so that his wife would appear on the title to the residence as the sole owner. After the refinancing lender, IndyMac Bank, F.S.B. (“IndyMac”), funded the loan, Harbin’s

wife quitclaimed her interest in the residence back to herself

and Harbin, as joint tenants, thereby returning Harbin’s interest in the residence back to the bankruptcy estate. 

4Use of the phrase “nunc pro tunc” approval in this context is a misnomer: 

Nunc pro tunc amendments are permitted primarily so that errors

in the record may be corrected. The power to amend nunc pro

tunc is a limited one, and may be used only where necessary to

correct a clear mistake and prevent injustice. It does not imply the

ability to alter the substance of that which actually transpired or

to backdate events to serve some other purpose. Rather, its use

is limited to making the record reflect what the . . . court actually

intended to do at an earlier date, but which it did not sufficiently

express or did not accomplish due to some error or inadvertence.

United States v. Sumner, 226 F.3d 1005, 1009-10 (9th Cir. 2000) (internal

quotation marks and citations omitted); see also In re Singson, 41 F.3d

316, 318 (7th Cir. 1994) (observing that the Latin phrase, “nunc pro tunc”

authorization, literally “now for then,” refers to situations in which the

court, after discovering that its records do not accurately reflect its actions,

corrects the records to show what actually happened). Therefore, it is more

accurate to refer to the bankruptcy court’s approval of the post-petition

refinancing of Harbin’s residence as “retroactive approval.” 

Nevertheless, given the prevalent use of “nunc pro tunc” in the bankruptcy context to refer to retroactive authorization, we will continue to use

this customary formulation here. 

IN RE: HARBIN 4559
Harbin filed with the bankruptcy court a motion for nunc

pro tunc approval of the refinancing after it was completed.

In a declaration supporting his motion, Harbin stated, “I am

aware that I should have obtained court approval prior to conducting this refinancing transaction.” 

IndyMac joined Harbin’s motion for nunc pro tunc

approval and filed its own motion seeking the same. IndyMac’s declarations submitted to the court stated it had not

been aware that Harbin’s interest in the residence was an asset

of his bankruptcy estate and had inadvertently overlooked the

title report notation indicating that Harbin was in bankruptcy

at the time he conveyed his interest in the residence to his

wife. 

IndyMac argued that the completed refinancing benefitted

the bankruptcy estate. The Harbins used the $707,000 loan

from IndyMac to retire the $647,000 above-market mortgage

on the Coronado residence, thus reducing Harbin’s mortgage

payments by more than $300 per month. The Harbins also

paid off outstanding property taxes of $3,934. Finally, the

refinancing provided $53,896.05 to fund Harbin’s Second

Amended Plan of Reorganization which, if confirmed, would

have paid all of Harbin’s creditors in full. 

Sherman objected to both parties’ motions for nunc pro

tunc approval. Sherman argued that Harbin and his wife acted

in bad faith and that IndyMac had constructive knowledge of

the bankruptcy proceedings through the title report. Moreover, Sherman claimed that the refinancing did not benefit the

bankruptcy estate because it merely lowered Harbin’s

monthly mortgage payments which were paid out of Harbin’s

post-petition earnings. 

Applying a test similar to that set forth in Atkins v. Wain,

Samuel & Co. (In re Atkins), 69 F.3d 970, 976 (9th Cir. 1995),

the bankruptcy court granted nunc pro tunc approval of the

refinancing transaction. Specifically, the bankruptcy court

4560 IN RE: HARBIN
ruled: (1) it would have approved the refinancing had Harbin

made a timely prior application; (2) the refinancing benefitted

the bankruptcy estate; (3) IndyMac had a good faith belief

that it could enter into the refinancing transaction; and

(4) “[c]ompelling equities and the absence of prejudice to

interested parties” supported the grant of nunc pro tunc

approval.5

D.

Sherman appealed both the bankruptcy court’s confirmation of the plan and its grant of nunc pro tunc approval to the

district court. While this appeal was pending, the California

Court of Appeal resolved Sherman’s state court appeal by

reinstating Harbin’s personal liability on the original jury verdict. The district court took judicial notice of the Court of

Appeal’s decision and held that in light of this “changed circumstance,” the plan proposed by Harbin was no longer feasible. The district court thus vacated the bankruptcy court order

confirming the plan and remanded the case to the bankruptcy

court for further proceedings. The district court also affirmed

the bankruptcy court’s grant of the nunc pro tunc approval of

the refinancing. 

Harbin now appeals the district court’s decision holding

that his plan is not feasible. Sherman cross-appeals the district

court’s affirmance of the bankruptcy court’s grant of nunc pro

tunc approval of the refinancing transaction. IndyMac

responds to Sherman’s cross-appeal. 

JURISDICTION AND STANDARDS OF REVIEW

We have jurisdiction over the final order of the district

court reviewing the final order of the bankruptcy court. 28

U.S.C. § 158(d). 

5Before granting nunc pro tunc approval, the bankruptcy court ordered

Harbin to reimburse the bankruptcy estate for all transaction costs relating

to the refinancing transaction. 

IN RE: HARBIN 4561
“Because we are in as good a position as the district court

to review the findings of the bankruptcy court, we independently review the bankruptcy court’s decision.” Pizza of

Hawaii, Inc. v. Shakey’s, Inc. (In re Pizza of Hawaii, Inc.),

761 F.2d 1374, 1377 (9th Cir. 1985). “The issue whether a

plan is feasible—is not likely to be followed by liquidation or

further reorganization—is one of fact, which we review under

the clearly erroneous standard.” Id. The bankruptcy court’s

application of the Rooker-Feldman doctrine is a question of

law, which we review de novo. See id. We review the bankruptcy court’s decision to grant nunc pro tunc approval for

abuse of discretion or erroneous application of the law.

Atkins, 69 F.3d at 973.

DISCUSSION

A.

We first address the question whether the bankruptcy court

erred in confirming Harbin’s Second Amended Plan of Reorganization. To confirm a plan, a bankruptcy court must find

that the plan is feasible, meaning that “[c]onfirmation of the

plan is not likely to be followed by the liquidation, or the need

for further financial reorganization, of the debtor.” 11 U.S.C.

§ 1129(a)(11). 

[1] To be feasible for purposes of section 1129(a)(11), a

plan must take into account the possibility that a potential

creditor may, following confirmation, recover a large judgment against the debtor. Pizza of Hawaii, 761 F.2d 1374. In

Pizza of Hawaii, Pizza, the debtor in the bankruptcy proceedings, was embroiled in contractual and trademark litigation

with Shakey’s, a national franchiser of fast-food outlets. Id. at

1375. Before the extent of Pizza’s potential liability to

Shakey’s was resolved in the civil action, the bankruptcy

court confirmed Pizza’s plan of reorganization, expressly

finding the plan feasible notwithstanding the fact that it failed

to provide for the possibility that Shakey’s would recover a

4562 IN RE: HARBIN
large judgment. Id. at 1376, 1382. As approved, the plan provided only that should the civil action be decided in Shakey’s

favor, “there shall be no further distributions to claimants in

the class to which [Shakey’s] claim belongs, or to junior

classes of claimants, until [Shakey’s] has received the money

or property to which it would have been entitled from the date

of confirmation of this Plan, had its claim initially been

allowed in the amount finally determined.” Id. at 1382 (quoting the confirmed plan) (alteration in Pizza of Hawaii). 

The district court ruled that “the bankruptcy court’s finding

of feasibility was clearly erroneous because the plan failed to

provide for the possibility that Shakey’s would recover a large

judgment in the civil case.” Id. Therefore, the district court

vacated the plan and remanded to the bankruptcy court “to

reconsider the plan’s feasibility in light of its estimate of

Shakey’s claim.” Id. We agreed, noting that if Shakey’s prevailed in the civil action and attempted to collect under the

plan, “Pizza would be unable to pay one-fourth of its claims.”

Id. Alternatively, if Shakey’s prevailed in the civil action after

Pizza had paid all its claims, Shakey’s efforts to collect its

claim could likely force Pizza into Chapter 7. Id. 

[2] Under Pizza of Hawaii, a bankruptcy court cannot adequately determine a plan’s feasibility for purposes of section

1129(a)(11) without evaluating whether a potential future

judgment may affect the debtor’s ability to implement its

plan. Id. A bankruptcy court’s failure to consider such a possibility in discharging its duties under section 1129(a)(11) is

clear error. Id.; see also Brutoco Eng’g & Constr. Co. v. Dennis Ponte, Inc. (In re Dennis Ponte, Inc.), 61 B.R. 296, 300

(B.A.P. 9th Cir. 1986). 

Here, the bankruptcy court concluded that it could not consider the effect of Sherman’s pending appeal in its feasibility

analysis for several reasons. We find none of them persuasive.

[3] First, the bankruptcy court distinguished Pizza of

Hawaii because the creditor’s claim in that case had not been

IN RE: HARBIN 4563
reduced to judgment in state court. This distinction is irrelevant. Our reasoning in Pizza of Hawaii was not based on the

fact that the claim was pending in the state trial court. Instead,

we held generally “that the bankruptcy court’s finding of feasibility was clearly erroneous because the plan failed to provide for the possibility that Shakey’s would recover a large

judgment in the civil case.” 761 F.2d at 1382 (emphasis

added). Under Pizza of Hawaii, the bankruptcy court’s obligation to evaluate the effect of a pending claim on the feasibility

of a plan does not hinge on whether the claim is pending in

the state trial court rather than in the state appellate court. 

[4] Second, the bankruptcy court reasoned that it could not

consider the effect of Sherman’s claim on the plan because it

had previously conditionally disallowed this claim, whereas

the bankruptcy court had not disallowed Shakey’s claim in

Pizza of Hawaii. However, under the bankruptcy court’s rulings, Sherman’s claim could significantly affect the plan’s

feasibility in the future. For example, the bankruptcy court

held that Sherman’s claim was not being discharged, and

Sherman could move to have his claim reinstated if he prevailed on appeal. As in Pizza of Hawaii, if Sherman prevailed

on appeal before Harbin’s cash reserves were paid out, and

Sherman successfully reinstated his bankruptcy claim, Harbin

could not satisfy the plan’s obligations to other creditors. See

id. If Sherman prevailed on appeal after Harbin’s cash

reserves had been paid out, Sherman could force Harbin into

liquidation or further reorganization. See id. Because Sherman’s claim could affect the feasibility of Harbin’s plan notwithstanding the bankruptcy court’s conditional disallowance

of the claim, the bankruptcy court was still obliged to consider the claim under section 1129(a)(11). 

Third, the bankruptcy court concluded that the RookerFeldman doctrine precluded the court from taking into consideration the possibility that Sherman could prevail on appeal.

The bankruptcy court deemed Sherman’s challenge to the feasibility of Harbin’s plan to be a “collateral attack on the litiga4564 IN RE: HARBIN
tion pending in state court,” because it would, in effect,

nullify the state trial court’s determination that Sherman had

no claim. 

[5] The bankruptcy court’s conclusion on this point reflects

a misunderstanding of the scope of the Rooker-Feldman doctrine. The Rooker-Feldman doctrine arises from the “unremarkable” observation that Congress has not given district

courts general appellate jurisdiction over state court judgments. Gruntz v. County of Los Angeles (In re Gruntz), 202

F.3d 1074, 1078 (9th Cir. 2000) (en banc). Briefly stated, the

Rooker-Feldman doctrine bars a losing party in state court

“from seeking what in substance would be appellate review of

the state judgment in a United States district court, based on

the losing party’s claim that the state judgment itself violates

the loser’s federal rights.” Johnson v. De Grandy, 512 U.S.

997, 1005-06 (1994). Accordingly, the Rooker-Feldman doctrine “is confined to . . . cases brought by state-court losers

complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and

inviting district court review and rejection of those judgments.” Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544

U.S. 280, 284 (2005). 

[6] Sherman’s challenge to the feasibility of Harbin’s plan

did not implicate the “narrow ground occupied by Rooker

Feldman,” id., because Sherman was asking the bankruptcy

court only to consider the possibility that the state appellate

court would reinstate the original jury verdict, not to make

any substantive state-law ruling or to review and reject the

state trial court’s judgment. Congress has explicitly given the

bankruptcy court jurisdiction to consider questions concerning

confirmation of a debtor’s plan, and in doing so to estimate

the various claims and interests against the debtor’s estate.

See 28 U.S.C. § 157(b)(2)(B) & (L); see also Gruntz, 202

F.3d at 1079 (when Congress gives a federal court express

jurisdiction over state court matters, for example, by giving

the bankruptcy court authority to void, modify, or discharge

IN RE: HARBIN 4565
state court judgments, the Rooker-Feldman doctrine has no

application). The bankruptcy court thus erred in concluding

that the Rooker-Feldman doctrine prevented it from considering the consequences of Sherman’s appeal.6

[7] Because the bankruptcy court failed to consider the consequences of Sherman’s potential success on appeal, it clearly

erred in failing to discharge its obligations under section

1129(a)(11). See Pizza of Hawaii, 761 F.2d at 1382; In re

Dennis Ponte, 61 B.R. at 300 (B.A.P. 9th Cir. 1986). Therefore, we affirm the district court’s ruling vacating the bankruptcy court’s confirmation of Harbin’s Second Amended

Plan. In doing so, we emphasize the limited reach of our holding. Under the plain language of section 1129(a)(11) and our

6Harbin relies on the Bankruptcy Appellate Panel’s decision in Audre,

Inc. v. Casey (In re Audre, Inc.), 216 B.R. 19 (B.A.P. 9th Cir. 1997), and

the district court’s decision in In re Keenan, 201 B.R. 263 (Bankr. S.D.

Cal. 1996), to advance a broader reading of the Rooker-Feldman doctrine.

Audre and Keenan considered a debtor’s motion to disallow or estimate

at a low value a judgment obtained by a creditor in state trial court, and

concluded that the Rooker-Feldman doctrine prevented the bankruptcy

court from granting such a motion. Audre, 216 B.R. at 23-30; Keenan, 201

B.R. at 266-67. The continuing viability of these decisions is highly questionable in light of the Supreme Court’s recent clarification of the narrow

ground occupied by the Rooker-Feldman doctrine, as well as our recent

jurisprudence in this area. See Exxon Mobil, 544 U.S. 280, Gruntz, 202

F.3d 1074, Noel v. Hall, 341 F.3d 1148 (9th Cir. 2003); Sasson v. Sokoloff

(In re Sasson), 424 F.3d 864 (9th Cir. 2005) (as amended), cert. denied,

126 S. Ct. 2890 (2006). Moreover, Audre and Keenan are distinguishable

from the situation before us. A debtor’s request to a bankruptcy court to

reject or reduce a creditor’s valid state court judgment against the debtor

on the basis of alleged errors in the state court decision bears some relation to the situation contemplated by the Rooker-Feldman doctrine, i.e., a

state court loser inviting federal court “review and rejection” of a state

court judgment. However, a creditor’s request that a bankruptcy court simply evaluate the feasibility of a debtor’s plan in light of the creditor’s

potential success on appeal (the situation in this case) does not fall within

the Rooker-Feldman framework. For these reasons, Audre and Keenan do

not apply to our analysis of the applicability of the Rooker-Feldman doctrine here. 

4566 IN RE: HARBIN
decision in Pizza of Hawaii, a bankruptcy court must evaluate

the possible impact of the debtor’s ongoing civil litigation on

the feasibility of the proposed plan. However, our decision

today does not dictate the conclusion a bankruptcy court

should reach after conducting such an evaluation; rather, the

bankruptcy court must exercise its sound discretion in considering how such litigation may affect the feasibility of any specific plan.7

[8] We thus affirm the district court’s vacature of the bankruptcy court’s order of confirmation without reaching the

7The dissent contends that “the majority seems to be announcing a rule

that the bankruptcy court must always wait, no matter how long, for the

resolution of an appeal to be decided before confirming a plan.” Dissent

at 4575. This mischaracterizes our holding. Although the bankruptcy court

here could have elected to delay confirming Harbin’s plan in light of Sherman’s pending civil litigation, it had no obligation to do so. However, section 1129(a)(11) did impose an obligation on the bankruptcy court to

consider the likelihood of Sherman’s success on appeal and the impact of

such potential success on the feasibility of Harbin’s plan. Due to its misunderstanding of Pizza of Hawaii and the Rooker-Feldman doctrine, the

bankruptcy court erroneously failed to discharge its obligations under this

section. 

The dissent would have us approve the bankruptcy court’s decision to

value Sherman’s claim at zero, because the state trial court’s ruling “was

the law at that time.” Dissent at 4577. This repeats the error made by the

bankruptcy court, which considered itself bound by the state trial court’s

ruling under the Rooker-Feldman doctrine. While our decision would not

have prevented the bankruptcy court from valuing Sherman’s claim at

zero, the bankruptcy court had the duty to exercise its own judgment in

reaching such a conclusion, taking into account the possibility that the

state appellate court would reinstate the jury’s original verdict. 

We also disagree with the dissent’s contention that our ruling “undermines the importance of finality in the bankruptcy proceeding.” Dissent at

4577. Rather, the application of Pizza of Hawaii to this case furthers the

interests of finality by requiring the bankruptcy court to take into account

all likely future events that could impact the feasibility of a plan, including

pending litigation, in determining whether a proposed plan is likely to be

final and not followed by liquidation, or the need for further financial reorganization. 

IN RE: HARBIN 4567
question whether a plan that was feasible when confirmed

may, due to changed circumstances on appeal, subsequently

become infeasible. See Padilla v. Terhune, 309 F.3d 614, 618

(9th Cir. 2002) (this court “may affirm the district court on

any ground supported by the record, even if it differs from the

reasoning of the district court”). Although we hold that the

bankruptcy court failed to comply fully with the requirements

of section 1129(a)(11), we cannot conclude, without the benefit of the bankruptcy court’s analysis of the issue, whether the

plan was in fact feasible when confirmed. The bankruptcy

court is best situated to evaluate, in the first instance, how the

potential outcome of Sherman’s state appeal might affect the

feasibility of Harbin’s plan. Therefore, we affirm the district

court’s ruling vacating the bankruptcy court’s confirmation of

the plan and remand for further proceedings consistent with

this opinion.8

B.

We next turn to the bankruptcy court’s nunc pro tunc

approval of the secured post-petition refinancing of Harbin’s

residence pursuant to section 364(c)(2). On appeal, Sherman

contends that the bankruptcy court abused its discretion in

granting nunc pro tunc approval and seeks to set aside that ruling.9

8The reality of the changed circumstances at this stage in the litigation

is not lost on us: the California Court of Appeal has reinstated Sherman’s

jury verdict, Sherman v. Harbin, No. B164417, 2004 Cal. App. Unpub.

LEXIS 7608 (Aug. 18, 2004), review denied, 2004 Cal. LEXIS 10877

(Nov. 10, 2004) (No. S128088), and we have little doubt that, on remand,

Sherman will move for reconsideration pursuant to the bankruptcy court’s

August 6, 2003 order and Rule 9024 of the Federal Rules of Bankruptcy

Procedure. See In re Cobe, 229 B.R. at 18. We thus recognize that, on

remand, the bankruptcy court will not need to address the feasibility of

Harbin’s plan in light of a pending state judgment. 

9Sherman’s appeal of the bankruptcy court’s nunc pro tunc ruling is not

moot under 11 U.S.C. § 364(e), which provides, in pertinent part: 

4568 IN RE: HARBIN
We begin with the underlying rule that Chapter 11 debtors

in possession are required to obtain the approval of the bankruptcy court when they wish to incur secured debt. See 11

U.S.C. § 364(c)(2), 364(c)(3);10 Thompson v. Margen (In re

McConville), 110 F.3d 47, 50 (9th Cir. 1997). This obligation

stems from section 362 of the Bankruptcy Code, which prohibits post-petition encumbrances on the bankruptcy estate.

After a debtor files for bankruptcy, an automatic stay goes

into effect prohibiting, among other actions, “any act to

create, perfect, or enforce any lien against property of the

estate.” 11 U.S.C. § 362(a)(4); see also Schwartz v. United

States (In re Schwartz), 954 F.2d 569, 571 (9th Cir. 1992). 

The reversal or modification on appeal of an authorization under

this section to obtain credit or incur debt . . . does not affect the

validity of any debt so incurred . . . to an entity that extended

such credit in good faith . . . unless such authorization and the

incurring of such debt . . . were stayed pending appeal. 

11 U.S.C. § 364(e). Here, the bankruptcy court did not give Harbin “authorization . . . to obtain credit or incur debt” pursuant to section 364.

Rather, IndyMac extended credit purportedly secured by a lien on property

of the bankruptcy estate without any such authorization. By its plain language, section 364(e) is not applicable to debt incurred without bankruptcy court authorization, even if the bankruptcy court subsequently

approves the financing transaction retroactively. This interpretation is consistent with the policy goals of section 364(e) “to overcome a good faith

lender’s reluctance to extend financing in a bankruptcy context by permitting reliance on a bankruptcy judge’s authorization.” Burchinal v. Central

Wash. Bank (In re Adams Apple, Inc.), 829 F.2d 1484, 1488 (9th Cir.

1987) (acknowledging the “Congressional intent of fostering private

investment in failing companies by promoting reliance on a bankruptcy

court’s authorization”). Obviously, IndyMac did not insist on bankruptcy

court authorization as a condition to extending financing in this case. 

10Although section 364(c) refers to a trustee obtaining credit, it applies

with equal force to debtors in possession prior to the appointment of a

trustee. McConville, 110 F.3d at 50. This is consistent with 11 U.S.C.

§ 1107(a), under which a debtor in possession has all of the rights and

powers of a trustee. Cukierman v. Uecker (In re Cukierman), 265 F.3d

846, 849 (9th Cir. 2001). 

IN RE: HARBIN 4569
Section 364(c)(2) provides an exception to this prohibition

against creating a lien on property of the bankruptcy estate.

Specifically, section 364(c)(2) provides that “the court, after

notice and a hearing, may authorize the obtaining of credit or

the incurring of debt — . . . (2) secured by a lien on property

of the estate that is not otherwise subject to a lien.” 11 U.S.C.

§ 364(c)(2). 

[9] We have interpreted section 364(c)(2) as requiring a

debtor to obtain the bankruptcy court’s authorization before

incurring secured debt. McConville, 110 F.3d at 50. McConville held that if the debtor fails to obtain prior authorization,

the bankruptcy court may exercise its corrective power to

rescind the transaction. Id. However, McConville also stressed

that “[t]he exercise of this corrective power . . . should not

occur without regard to the equities of the situation.” Id.

Where the debtor incurs debt without first obtaining court

authorization, the bankruptcy court may exercise its equitable

discretion to develop an appropriate remedy, provided, of

course, that the chosen remedy is consistent with the provisions of the Bankruptcy Code. Id.

[10] Nunc pro tunc authorization with concurrent relief

from the automatic stay is one such available remedy. Applying principles of equity, we have recognized the bankruptcy

court’s equitable discretion to grant retroactive authorization

in other contexts where such relief was necessary or appropriate to carry out the provisions of the Code. See, e.g., Atkins,

69 F.3d at 973-74; Pac. Shores Dev., LLC v. At Home Corp.

(In re At Home Corp.), 392 F.3d 1064, 1070-72 (9th Cir.

2004); see also 11 U.S.C. § 105(a) (granting bankruptcy

courts the equitable power to issue any order “that is necessary or appropriate to carry out the provisions of [the Bankruptcy Code]”). Under the right circumstances, retroactive

validation of a post-petition refinancing transaction will further the provisions of the Code. The bankruptcy court’s grant

of retroactive approval may provide a significant benefit to

4570 IN RE: HARBIN
the debtor’s estate, or otherwise assist the debtor in funding

a successful plan for reorganization. 

[11] Moreover, nothing in the language of the Bankruptcy

Code precludes the court from considering nunc pro tunc

authorization of the refinancing as one possible remedy in

response to the “equities of the situation” before it. See Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206 (1988)

(“whatever equitable powers remain in the bankruptcy courts

must and can only be exercised within the confines of the

Bankruptcy Code”). Section 364(c)(2) does not, by its express

terms, require the bankruptcy court to authorize the financing

transaction before the debt is incurred. Therefore, should a

debtor improperly obtain secured financing without prior

court authorization, a bankruptcy court’s exercise of its equitable discretion in granting nunc pro tunc approval pursuant

to section 364(c)(2) will not be “inconsistent” with the

express provisions of the Bankruptcy Code. 

In this case, although the post-petition refinancing transaction of Harbin’s residence did not comply with the prior

authorization requirement imposed on section 364(c)(2) by

our case law, McConville, 110 F.3d at 50, the bankruptcy

court elected to exercise its equitable discretion to grant nunc

pro tunc approval of the transaction. In doing so, the bankruptcy court applied the standards set forth in Atkins, 69 F.3d

at 976. 

Although decided in a different context, Atkins provides

useful guidance on the circumstances that warrant an equitable exception to the prior authorization requirement. Atkins

involved a violation of 11 U.S.C. § 327(a), which we interpreted as requiring prior court authorization of professional

services rendered to the bankruptcy estate. 69 F.3d at 973. We

noted that “bankruptcy courts . . . possess the equitable power

to approve retroactively a professional’s valuable but unauthorized services,” but limited that retroactive approval “to

situations in which ‘exceptional circumstances’ exist.” Id. at

IN RE: HARBIN 4571
973-74; see also Okamoto v. THC Fin. Corp. (In re THC Fin.

Corp.), 837 F.2d 389, 392 (9th Cir. 1988); Fanelli v. Hensley

(In re Triangle Chems., Inc.), 697 F.2d 1280, 1289 (5th Cir.

1983) (cautioning that the availability of an equitable exception should not invite the general non-observance of the prior

authorization requirement, and that nunc pro tunc approval

should be limited to “exceptional circumstances”). We held

that “[t]o establish the presence of exceptional circumstances,

professionals seeking retroactive approval must satisfy two

requirements: they must (1) satisfactorily explain their failure

to receive prior judicial approval; and (2) demonstrate that

their services benefitted the bankrupt estate in a significant

manner.” Atkins, 69 F.3d at 974. In addition, we held that

retroactive authorization may be granted only where the

untimely request otherwise satisfies the express requirements

for such approval prescribed by the Code. Id. at 976. 

The criteria for retroactive approval set forth in Atkins are

generally consistent with the equitable principles identified in

McConville. McConville, like the case before us, addressed a

lender’s failure to obtain prior authorization under section

364(c)(2). 110 F.3d at 50. McConville noted that in tailoring

an appropriate equitable remedy for a violation of section

364(c)(2), a court should consider whether the lender has adequately explained its failure to seek prior authorization (thus

demonstrating its good faith) and whether the loan transaction

provided a benefit to the bankruptcy estate. Id. 

[12] From our decisions in McConville and Atkins, we distill four factors that the bankruptcy court should consider in

determining whether to exercise its equitable discretion to

grant nunc pro tunc approval of post-petition financing under

section 364(c)(2): (1) whether the financing transaction benefits the bankruptcy estate; (2) whether the creditor has adequately explained its failure to seek prior authorization or

otherwise established that it acted in good faith when it failed

to seek prior authorization; (3) whether there is full compliance with the requirements of section 364(c)(2); and (4)

4572 IN RE: HARBIN
whether the circumstances of the case present one of those

rare situations in which retroactive authorization is appropriate. See McConville, 110 F.3d at 50; Atkins, 69 F.3d at 974.

Provided that these criteria are met, the bankruptcy court may,

but need not, grant an application for nunc pro tunc authorization. 

[13] Under this standard, the bankruptcy court did not

abuse its discretion in granting nunc pro tunc approval of Harbin’s refinancing transaction. First, on the record before us,

the bankruptcy court’s finding that the refinancing benefitted

the bankruptcy estate was not clearly erroneous. The refinancing benefitted Harbin’s bankruptcy estate by providing the

necessary cash infusion to fund Harbin’s Second Amended

Plan of Reorganization. This was a substantial benefit to the

estate because, as originally intended, the cash infusion was

sufficient to pay Harbin’s allowed creditors in full, without

requiring further delay or subsequent liquidation. 

Second, the bankruptcy court’s conclusion that IndyMac

offered a satisfactory explanation for its failure to seek prior

court approval is not clearly erroneous. Although IndyMac

was indisputably negligent in overlooking the title report

showing Harbin’s status in bankruptcy proceedings at the time

he quitclaimed his interest in the residence to his wife, the

bankruptcy court acted within its discretion in concluding that

IndyMac acted in good faith and would not have proceeded

with the refinancing transaction had it been aware of the need

to obtain prior court approval. 

Third, we note that the bankruptcy court complied with the

requirements of section 364(c)(2). Prior to filing his motion

for nunc pro tunc approval, Harbin and his wife used the proceeds of the IndyMac loan to pay off Washington Mutual’s

lien on the residence. Accordingly, on Harbin’s and IndyMac’s subsequent motions for retroactive approval under section 364(c)(2), the bankruptcy court authorized IndyMac to

take a security interest “on property of the estate that [was]

IN RE: HARBIN 4573
not otherwise subject to a lien.” 11 U.S.C. § 364(c)(2). The

bankruptcy court granted this authorization only after ensuring that the requisite notice and hearing requirements were

satisfied. See id.; 11 U.S.C. § 102(1); Fed. R. Bankr. P. 2002.

Finally, the bankruptcy court did not abuse its discretion in

determining that the circumstances of this case presented one

of those rare situations where retroactive authorization should

be granted. The bankruptcy court ruled that “[c]ompelling

equities and the absence of prejudice to interested parties”

favored the grant of IndyMac’s nunc pro tunc motion. Given

the competitive terms of the loan, the fact that the loan, as

approved, was intended to fund Harbin’s plan of reorganization, and the fact that all transaction costs incurred in the refinancing were returned by Harbin to the bankruptcy estate, we

cannot conclude that the bankruptcy court erred. 

Accordingly, we hold that the bankruptcy court did not

abuse its discretion in granting nunc pro tunc approval of the

refinancing transaction.11

C.

For the foregoing reasons, we affirm the district court’s

vacatur of the order confirming Harbin’s plan and remand to

the bankruptcy court for further proceedings. We also affirm

the district court’s conclusion that the bankruptcy court did

not abuse its discretion in granting nunc pro tunc approval of

Harbin’s post-petition refinancing. 

11In so holding, we do not consider the effect, if any, of the November

17, 2003 stipulation whereby the United States Trustee agreed not to

oppose IndyMac’s motion for nunc pro tunc authorization of its loan conditioned on Harbin’s reorganization plan being confirmed with full payment to all unsecured creditors. The United States Trustee reserved the

right to file an opposition to the motion for nunc pro tunc authorization

if the reorganization plan were modified. If Harbin’s reorganization plan

is modified on remand, the bankruptcy court should exercise its discretion

in considering any renewed objections of the United States Trustee to the

nunc pro tunc authorization. 

4574 IN RE: HARBIN
The judgment of the district court is AFFIRMED. 

CUDAHY, Circuit Judge, concurring in part, dissenting in

part: 

I concur in Part B of the majority’s opinion which affirms

the district court’s determination that the bankruptcy court did

not abuse its discretion in granting nunc pro tunc approval. I

respectfully dissent, however, as to Part A of the majority

opinion. I believe this court should reverse the district court’s

decision to vacate the bankruptcy court’s order confirming

Harbin’s plan and that the discretion of the bankruptcy court

should be sustained in its finding of feasibility. 

Although the issue of feasibility is certainly close under the

circumstances, I do not agree that the bankruptcy court’s

judgment of the matter here was clearly erroneous. There is

an important element of discretion in reaching a practical

judgment here, and the majority seems to be announcing a

rule that the bankruptcy court must always wait, no matter

how long, for the resolution of an appeal to be decided before

confirming a plan.1 Depending on how long the matter has

already been left open for a decision on appeal and on the

bankruptcy court’s estimate of the chances of reversal on

appeal (and other factors), the totality of the circumstances

may favor an earlier confirmation of the plan or they may not.

To postpone confirmation until the result on appeal is finally

known is to lose all account of finality, which is generally a

consideration of importance in bankruptcy. Here the fact that

the judgment was actually reversed on appeal makes this an

1The majority requires a bankruptcy court to “evaluate the possible

effect of a debtor’s ongoing civil case with a potential creditor.” (Op. at

4556.) Given that the bankruptcy court already provided for relief pursuant to Cobe v. Smith (In re Cobe), 229 B.R. 15, 18 (B.A.P. 9th Cir. 1998),

practically speaking the only option available to the bankruptcy court

appears to be to delay confirmation. 

IN RE: HARBIN 4575
unusual case, since only a small fraction of trial court judgments are reversed.2

 That possibility, it seems to me, should

not provide the pattern for dealing with this problem. 

In fact, the bankruptcy court considered the impact of Sherman’s request to delay confirmation on finality and rejected

this request finding it unreasonable to delay distributions until

Sherman’s appeal ran its course. In making this decision, the

court considered not only Sherman’s interests but those of all

parties involved in the bankruptcy proceeding: “He has other

creditors to deal with. . . . There are professionals out there.

There’s a Chapter 7 trustee out there.” (ER at 175.) 

The real basis for the majority’s decision seems to me to be

the bankruptcy court’s reliance on the Rooker-Feldman

doctrine—a reliance which I also believe to be erroneous.

However, I see Rooker-Feldman to be a make-weight and its

invocation harmless error in the context of a basic finding of

infeasibility. The bankruptcy court’s finding on RookerFeldman is simply not necessary to the outcome. The bankruptcy court was aware of the likely amount of the judgment

if successful on appeal and of Sherman’s concern that Harbin

would not preserve his house to be available for distribution.

The court factored these concerns into the decision to confirm

the plan and provided Sherman with relief if successful on

appeal. 

I am also troubled by the majority’s application of Pizza of

Hawaii, Inc. v. Shakey’s Inc. (In re Pizza of Hawaii, Inc.), 761

F.2d 1374 (9th Cir. 1985). This case is clearly distinguishable

from the present case. Unlike in Pizza of Hawaii, the state

trial court issued a judgment at the time the bankruptcy court

confirmed Harbin’s plan. The state court had valued Sher2Title 11 U.S.C. § 1129 (a)(11) defines feasible as “confirmation of the

plan is not likely to be followed by the liquidation, or the need for further

financial reorganization, of the debtor . . . .” Most appeals are not successful, and therefore not “likely” to render a plan infeasible. 

4576 IN RE: HARBIN
man’s judgment at $0. Accordingly, the bankruptcy court had

disallowed Sherman’s claim. The state court judgment was

the law at that time. In Pizza of Hawaii, there was not yet a

judgment at the state trial level, nor was there a claim in the

bankruptcy court. To expand the rule in Pizza of Hawaii to the

present case undermines the importance of finality in the

bankruptcy proceeding. 

The majority also seems to have lost sight of the specific

arrangements the bankruptcy court made for a reversal on

appeal, namely allowing Sherman to return to the court to

reopen his disallowed claim pursuant to Cobe v. Smith (In re

Cobe), 229 B.R. 15, 18 (B.A.P. 9th Cir. 1998). The majority

derogates this provision by suggesting the funds will not be

available to satisfy Sherman’s claim if distribution has been

made to other creditors. This is a possibility—but not a

certainty—but a contrary solution ignores the rights of other

creditors, who must wait indefinitely for satisfaction until

Sherman’s appeal is decided. 

IN RE: HARBIN 4577