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NOT FOR PUBLICATION

UNITED STATES BANKRUPTCY APPELLATE PANEL

OF THE NINTH CIRCUIT

In re: ) BAP No. CC-13-1252-TaDKi

)

MALCOLM D. OWENS, ) Bk. No. 13-14740-WJ

)

Debtor. )

______________________________)

)

MALCOLM D. OWENS, )

)

Appellant, )

)

v. ) MEMORANDUM*

)

UNITED STATES TRUSTEE, )

)

Appellee. )

 )

Argued and Submitted on June 26, 2014 

at Pasadena, California

Filed – August 6, 2014

Appeal from the United States Bankruptcy Court

for the Central District of California

Honorable Wayne E. Johnson, Bankruptcy Judge, Presiding

 

Appearances: David Akindele Akintimoye for Appellant Malcolm D.

Owens; Noah M. Schottenstein of the Executive

Office for U.S. Trustees for Appellee United

States Trustee.

 

Before: TAYLOR, DUNN, and KIRSCHER, Bankruptcy Judges.

FILED

AUG 06 2014

SUSAN M. SPRAUL, CLERK

U.S. BKCY. APP. PANEL

OF THE NINTH CIRCUIT

* This disposition is not appropriate for publication.

Although it may be cited for whatever persuasive value it may

have (see Fed. R. App. P. 32.1), it has no precedential value.

See 9th Cir. BAP Rule 8013-1.

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Debtor Malcolm Owens retained David Akintimoye as bankruptcy

counsel in a chapter 111 case that culminated in case dismissal. 

Debtor filed a second chapter 11 case and again sought court

approval of Akintimoye’s employment. The bankruptcy court denied

the employment application without prejudice; Akintimoye,

facially on behalf of Debtor, appealed.

We determine that the bankruptcy court did not abuse its

discretion in denying the employment application without

prejudice; we, thus, AFFIRM.

FACTS

The Debtor filed a chapter 11 bankruptcy petition; it was

his second chapter 11 case in approximately eight months.2 The

Debtor previously retained Akintimoye as counsel in his first

case. In his second case, he again moved for an order approving

Akintimoye’s employment. In support of the employment

application, he submitted Akintimoye’s declaration and statement

of disinterestedness.

The United States Trustee (“UST”) objected, arguing that

Akintimoye was not disinterested as he appeared to hold a claim

against the Debtor for unpaid legal fees owing from the first

case. The UST also asserted that the oral retention agreement

between the parties precluded approval of the employment based on

§ 528 and § 526 and that notice of the application failed to

1 Unless otherwise indicated, all chapter and section

references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532.

2 We exercised our discretion to take judicial notice of the

Debtor’s first chapter 11 case and documents electronically filed

in that case. See Atwood v. Chase Manhattan Mortg. Co.

(In re Atwood), 293 B.R. 227, 233 n.9 (9th Cir. BAP 2003).

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clearly state whether Akintimoye sought compensation under § 328

or § 330.

Akintimoye, facially on behalf of the Debtor, contested the

UST’s objection. He argued that the UST incorrectly assumed that

he held a prepetition claim for “post-petition services rendered

in the [first] case even though the [employment] application []

state[d] otherwise.” ECF No. 34 at 5. Akintimoye pointed out

that both his declaration and statement of disinterestedness

expressly provided that neither he nor his firm held a

prepetition claim against the Debtor or the estate for fees

incurred in the first case. As a result, he argued that it was

reasonable to infer his intent not to seek compensation in

connection with the first case, based on both his declaration and

statement of disinterestedness and the fact that he did not file

a compensation application in the first case.

At the hearing on the matter, Akintimoye clarified that the

Debtor sought approval to employ him as chapter 11 general

counsel under § 328. The bankruptcy court then indicated that it

likely would require additional briefing on the § 328 issue and,

accordingly, it was not inclined to rule on the employment

application that day. In response, Akintimoye expressed

reluctance to continue to work on the case if the issue of his

employment was “dicey” and stated that he was not prepared to

continue working “in vain.” Hr’g Tr. (May 14, 2013) at 10:17-18,

24-25; 11:1-2. The bankruptcy court then denied the application

without prejudice and expressly allowed Akintimoye to file

another and better supported employment application. 

The bankruptcy court subsequently entered an order denying

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the employment application. This appeal followed.

JURISDICTION

The bankruptcy court had jurisdiction pursuant to 28 U.S.C.

§§ 1334 and 157(b). We have jurisdiction under 28 U.S.C. § 158.3

ISSUE

Did the bankruptcy court err in denying the application to

employ Akintimoye as bankruptcy counsel?

STANDARD OF REVIEW

We review a decision regarding an application for the

employment of a professional for an abuse of discretion. Elias

v. Lisowski Law Firm, Chtd. (In re Elias), 215 B.R. 600, 603 (9th

Cir. BAP 1997), aff’d, 188 F.3d 1160 (9th Cir. 1999). A review

of an abuse of discretion determination involves a two-pronged

test; first, we determine de novo whether the bankruptcy court

identified the correct legal rule for application. See United

States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009) (en

banc). If not, then the bankruptcy court necessarily abused its

discretion. See id. at 1262. Otherwise, we next review whether

the bankruptcy court’s application of the correct legal rule was

clearly erroneous; we will affirm unless its findings were

3 The UST moved to dismiss the appeal based on the fact that

the order denying the employment application was interlocutory. 

A BAP motions panel denied that motion as the chapter 11 case had

been dismissed; thus, the order became final.

Apparently, the case was subsequently reopened in order to

“fully administrate” the case. Other than an order for stay

relief, the case has remained dormant. While it is unclear why

the case was reopened (and the entry of a stay relief order in a

dismissed case is slightly mystifying), the order to reopen did

not vacate the dismissal order. The case, thus, remains

dismissed and the order denying the employment application

remains a final order subject to review.

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illogical, implausible, or without support in inferences that may

be drawn from the facts in the record. See id.

DISCUSSION

In an individual chapter 11 case, the employment or

retention of general bankruptcy counsel is governed by § 327. 

Section 327(a) provides that, with the bankruptcy court’s

approval, a debtor-in-possession (pursuant to § 1107(a)) may

employ, among other professionals, an attorney to represent the

debtor-in-possession in carrying out statutory duties under the

Code. As a condition to approval, the attorney: (1) may not hold

or represent an interest adverse to the bankruptcy estate; and

(2) must be disinterested. Id.; see also Tevis v. Wilke, Fleury,

Hoffelt, Gould & Birney, LLP (In re Tevis), 347 B.R. 679, 687

(9th Cir. BAP 2006).

When so employed, an attorney is generally entitled to

compensation for services rendered to a debtor. The Code

addresses attorney compensation in various provisions, including

§ 328. Employment under § 327 is, however, a condition precedent

to compensation under § 328(a). See Michel v. Federated Dep’t

Stores, Inc. (In re Federated Dep’t Stores, Inc.), 44 F.3d 1310,

1319 (6th Cir. 1995).

Importantly, § 328(a) permits a professional to seek

pre-approval from the bankruptcy court as to terms and conditions

of employment, including compensation, “such that the bankruptcy

court may alter the agreed-upon compensation only ‘if such terms

and conditions prove to have been improvident in light of

developments not capable of being anticipated at the time of the

fixing of such terms and conditions.’” Circle K Corp. v.

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Houlihan, Lokey, Howard & Zukin, Inc. (In re Circle K Corp.),

279 F.3d 669, 671 (9th Cir. 2002) (quoting 11 U.S.C. § 328(a));

see also Friedman Enters. v. B.U.M. Int’l, Inc. (In re B.U.M.

Int’l, Inc.), 229 F.3d 824, 829 (9th Cir. 2000) (“There is no

question that a bankruptcy court may not conduct a § 330 inquiry

into the reasonableness of the fees and their benefit to the

estate if the court already has approved the professional’s

employment under [] § 328.”). Pre-approval of an attorney’s

compensation, thus, is not lightly permitted.

To obtain § 328(a) compensation in the Ninth Circuit, the

employment application must unambiguously specify that

compensation pre-approval is sought under § 328. See

In re Circle K Corp., 279 F.3d at 671. Otherwise, an attorney’s

right to payment of fees, by default, is governed by § 330 and

subject to § 330 review. See id.

Here, Akintimoye’s continued reference to approval of

employment pursuant to § 328 is inapt. It may be a term drawn

from the bankruptcy lexicon, but the Code is clear that an

attorney’s retention is governed by § 327 while his or her

compensation is subject to either § 328 or § 330. Thus, while

Akintimoye’s stated goal was § 328 employment, what he really

sought was retention under § 327 and compensation under § 328, as

opposed to § 330.4

4 The confusion relating to § 328 is exacerbated by a local

Central District of California bankruptcy form. See F2081-1.5

Order RE Motion in Individual Chapter 11 Case For Order Employing

Professional, available at

http://www.cacb.uscourts.gov/forms/local_bankruptcy_rules_forms

continue...

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A. The bankruptcy court did not abuse its discretion in denying

the employment application.

Akintimoye argues that the bankruptcy court erred in

determining that: the Debtor could not employ Akintimoye if his

compensation was based on an hourly fee rate; §§ 528 or 526

provided appropriate grounds for denial of employment; and

Akintimoye held a prepetition claim against the Debtor. He also

contends error in the bankruptcy court’s judicial notice of

events in his first case.

We conclude that the bankruptcy court did not abuse its

discretion in denying retention under § 327 without prejudice

based on questions regarding Akintimoye’s lack of

disinterestedness. There was also no error in its discussion of

the first case as it related to prospective compensation under

§ 328.

1. Denial of the application was not based on §§ 528 and

526 or Akintimoye’s request for hourly compensation.

As a preliminary matter, we dispense with Akintimoye’s

assertions of error based on §§ 528 and 526 and his request for

hourly compensation. The record belies Akintimoye’s arguments. 

At the hearing, the bankruptcy court expressly stated that

it was not addressing the § 528 issue (and, by extension, the

§ 526 issue) unless and until other case status issues were first

resolved. The bankruptcy court’s denial of the employment

4...continue

(last visited Aug. 6, 2014). In particular, the form provides

for only two options as to a debtor’s request to employ a

professional: § 327 or § 328.

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application, thus, was not based on the UST’s §§ 526 and 528

objections. Nor does the record reflect that the bankruptcy

court made any determination as to Akintimoye’s proposed hourly

compensation structure, let alone that it denied the employment

application for that reason. As a result, we disregard these

arguments and do not consider this issue.

2. The bankruptcy court did not err in determining that

Akintimoye was not disinterested for § 327(a) purposes.

The Code defines a “disinterested person” as a person that

is not a creditor and “does not have an interest materially

adverse to the interest of the estate . . . by reason of any

direct or indirect relationship to, connection with, or interest

in, the debtor, or for any other reason.” 11 U.S.C. § 101(14);

see also First Interstate Bank of Nev., N.A. v. CIC Inv. Corp.

(In re CIC Inv. Corp.), 192 B.R. 549, 553 (9th Cir. BAP 1996).

Akintimoye alleges error in the bankruptcy court’s

determination that he held a prepetition claim against the Debtor

and, thus, that he was a creditor of the Debtor. He reiterates,

verbatim, his response to the UST’s opposition before the

bankruptcy court: that the UST erroneously assumed that he held a

prepetition claim and that, based on his declaration and

statement of disinterestedness, it was reasonable to infer that

he did not intend to claim the unpaid legal fees from the first

case. 

The bankruptcy court correctly determined that Akintimoye

was a prepetition creditor. Akintimoye does not dispute that

there remained unpaid legal fees from the first case. As a

result, he was a prepetition creditor. See 11 U.S.C.

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§ 101(10)(A) (creditor is an “entity that has a claim against the

debtor that arose at the time of or before the order for relief

concerning the debtor.”); § 101(5)(A) (claim is a right to

payment). And, therefore, Akintimoye was not disinterested for

the purposes of § 327(a). See In re Kings River Resorts, Inc.,

342 B.R. 76, 88 (Bankr. E.D. Cal. 2006) (“A professional holding

a potential prepetition claim against a debtor . . . is a

creditor of the estate and therefore not ‘disinterested’

. . . .”). On this record, the bankruptcy court’s finding was

not clearly erroneous.

The bankruptcy court also found that, insofar as Akintimoye

purported to disavow his prepetition claim, he did not

sufficiently do so. At the hearing, the bankruptcy court stated

to Akintimoye: “I don’t see any way that you can get around the

disinterestedness requirement without unconditionally,

irrevocably waiving any claim that the Debtor or the estate owes

you from the prior case.” Hr’g Tr. (May 14, 2013) at 14:9-12

(emphasis added). Again, on this record, the bankruptcy court’s

finding was not clearly erroneous.

An attorney may rectify disqualifying creditor status by

waiver of his or her prepetition claim prior to court approval of

employment. See generally In re Pillowtex, Inc., 304 F.3d 246,

253 (3d Cir. 2002) (collecting cases). Waiver of the

prepetition claim, however, must be express, unconditional, and

unequivocal. See In re Princeton Med. Mgmt. Inc., 249 B.R. 813,

816 (Bankr. M.D. Fla. 2000); In re E. Charter Tours, Inc.,

167 B.R. 995, 997 (Bankr. M.D. Ga. 1994). 

The bankruptcy court here was well within its discretion to

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determine that inferences, all Akintimoye offered, did not

constitute an express, unconditional, and unequivocal waiver of

his prepetition claim. The bankruptcy court also had discretion

to determine that Akintimoye’s representations at the hearing

were insufficient and to require additional, formal evidence of

Akintimoye’s purported disclaimer. See generally White v. Mintz,

Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (In re CK

Liquidation Corp.), 408 B.R. 1, 7-8 (1st Cir. BAP 2009)

(“Bankruptcy courts are accorded wide discretion in determining

whether a conflict of interest exists . . . and appellate courts

should give appropriate deference to the bankruptcy court's

'front line' position, because the bankruptcy judge is in the

best position to gauge the ongoing interplay of factors and to

make what is often a very fact driven judgment call.”) (internal

citation omitted).

Based on the foregoing, the bankruptcy court did not clearly

err in finding that Akintimoye held a prepetition claim or that

he failed to clearly and unconditionally waive the claim. It is

significant that the bankruptcy court offered to continue the

matter to allow Akintimoye to supply an unconditional waiver. 

Akintimoye, however, declined this opportunity and, indeed,

affirmatively requested denial. Even then, the bankruptcy court

denied the application without prejudice and invited Akintimoye

to file a more complete employment application and express

waiver. Here, the bankruptcy court did not abuse its discretion.

3. On this record, the bankruptcy court’s reference to the

first case did not constitute error.

Akintimoye finally contends that the bankruptcy court erred

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in considering the first case (and dismissal therein) when

evaluating the employment application. We disagree. 

The record shows that the bankruptcy court emphasized

Akintimoye’s need to prove that the second chapter 11 case was

not simply a rehash of the first case, which it described as

“fruitless and only served to delay creditors.” Hr’g Tr.

(May 14, 2013) at 15:12-14. It stated to Akintimoye: 

The prior Chapter 11 case [] was not fruitful. Nothing

happened in the case except the Court had to deal with

about a dozen motions for relief from stay. There was

no plan filed. There was no disclosure statement

prepared. There were no motions that I can recall that

were filed at all.

It appears that you filed the [first] case just to park

[the Debtor] there for a year and get the benefit of

the automatic stay. That’s not what Chapter 11 is for. 

And the Court would be -- well, the Court is currently

unconvinced that we won’t have a repeat of that this

time. 

Id. at 10:3-13. 

As previously discussed, an attorney’s employment or

retention is approved by the bankruptcy court pursuant to § 327. 

Our review of the record makes clear that the bankruptcy court’s

discussion of the first case related to prospective compensation

under § 328, not proposed employment under § 327. It questioned

whether Akintimoye was competent to represent the Debtor in the

second case based on the events in the first case culminating in

case dismissal. In this respect, the bankruptcy court was

addressing the reasonableness of the terms and conditions of

Akintimoye’s prospective compensation as general bankruptcy

counsel and, in particular, the appropriateness of limiting its

ability to review compensation by allowing compensation under

§ 328, as opposed to § 330.

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Given that the bankruptcy court denied the employment

application based on lack of disinterestedness under § 327, it

was not required to address § 328 and reasonableness of

compensation. Its concerns, however, were reasonable. Further,

its comments were relevant to a future employment application

that the bankruptcy court’s denial without prejudice expressly

allowed. This discussion did not constitute error.

CONCLUSION

Based on the foregoing, we AFFIRM the bankruptcy court.

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