Case Name: In re: William ENGEL, Debtor. FERRARA & HANTMAN; Robert J. Hantman, Appellants, v. Jesus Antonio ALVAREZ; Theodore J. Liscinski, Jr., Trustee; United States Trustee
Court: United States Court of Appeals for the Third Circuit
Jurisdiction: United States
Decision Date: 1997-09-03
Citations: 124 F.3d 567
Docket Number: No. 96-5256
Parties: In re: William ENGEL, Debtor. FERRARA & HANTMAN; Robert J. Hantman, Appellants, v. Jesus Antonio ALVAREZ; Theodore J. Liscinski, Jr., Trustee; United States Trustee.
Judges: Before: BECKER, McKEE and GARTH, Circuit Judges.
Reporter: West's Bankruptcy Reporter
Volume: 213
Pages: 567–590

Head Matter:
In re: William ENGEL, Debtor. FERRARA & HANTMAN; Robert J. Hantman, Appellants, v. Jesus Antonio ALVAREZ; Theodore J. Liscinski, Jr., Trustee; United States Trustee.
No. 96-5256.
United States Court of Appeals, Third Circuit.
Argued Nov. 7, 1996.
Decided Sept. 3, 1997.
Michael R. Perle (argued), Michael R. Perle, P.C., New York City.
Robert J. Hantman, Hantman & Associates, New York City, for Appellants.
David A. Nicolette (argued), Jeanette A. Odynski, Nicolette & Perkins, Oradell, NJ, for Appellee, Jesus Antonio Alvarez, as Administrator ad Prosequendum and as Administrator of the Estate of Xiomara Alvarez, also known as Xiomara Engel, Deceased.
Theodore J. Liscinski, Jr., Lanfrit, Liscin-ski & Rosenwasser, P.C., Somerset, NJ, for Appellee, Trustee, Theodore J. Liscinski.
Before: BECKER, McKEE and GARTH, Circuit Judges.

Opinion:
OPINION OF THE COURT
GARTH, Circuit Judge:
The question we must answer on this appeal is whether an appointment of special counsel under § 327(e) of the Bankruptcy Code requires that compensation for special counsel's services be paid from estate funds where no benefit to the bankruptcy estate has been achieved. We hold that § 330 of the Bankruptcy Code requires that services rendered by special counsel benefit the estate before payment from estate funds may be authorized. Hence, we affirm the district court's order, which had affirmed the bankruptcy court's order denying compensation to special counsel.
I.
In 1985 William Engel was convicted of the murder of his former wife, Xiomara Alvarez. The New Jersey Superior Court upheld his conviction, noting that "the voluminous trial record fairly reeks of defendants' guilt." In 1986, Jesus Antonio Alvarez, the Administrator of the estate of Xiomara Alvarez, filed a wrongful death action against Engel.
In 1992, Engel settled a dispute over his interest in a partnership with another brother, Richard. Pursuant to that settlement, William Engel is to be paid more than $5 million, payable in monthly installments of approximately $43,000, with a balloon payment of $4.2 million in the year 2004. He is also to receive $1 million in monthly installments of $16,666.66.
Engel's liability in the wrongful death action was established in April 1993.
Late in 1993, in the hopes of securing post-conviction relief from his conviction for murder, Engel sought the services of Robert Hantman, of the law firm Ferrara & Hant-man. On January 6, 1994, Engel filed for Chapter 11 bankruptcy, retaining the firm of Wasserman, Jurista & Stolz (Wasserman) as counsel for Engel as debtor-in-possession.
On March 21, 1994, when the issue of Hantman's retention was first raised by Jur-ista of the Wasserman firm, the bankruptcy court warned that criminal defense services would not be payable from the estate.
On April 13,1994, debtor-in-possession En-gel applied through Wasserman, for bankruptcy court approval of his retention of Hantman as special counsel. On April 14, 1994, David A. Nicolette, attorney for the Alvarez estate, wrote to the bankruptcy court objecting to Hantman's proposed retention. He argued that the criminal defense services that Hantman would perform would benefit Engel personally, but not the bankruptcy estate. He contended that estate" funds could not be used to pay for such criminal defense services. He also reminded the bankruptcy court of the warning given on March 21,1994.
On April 19, 1994, Hantman reviewed Ni-colette's objections.
On May 16, 1994, the bankruptcy court held a telephone conference to discuss the proposed retention of Hantman and the objections raised by Nicolette. Yablonsky of the Wasserman firm, and Nicolette, on behalf of the Alvarez estate, participated in the conference call.
The next day,- on May 17, 1994, the bankruptcy court issued an order approving of the retention of Hantman as special counsel. The May 17 Order reads in pertinent part:
It is, on this 17th day of May, 1994, Ordered, that the Debtor's proposed retention of the law firm of Ferrara and Hant-man, 920 Bergen Avenue, Trust Company Building, Suite 806, Jersey City, New Jersey, as special counsel herein, be and the same is hereby approved; and it is further Ordered, that compensation to such special counsel shall be determined by this Court upon proper application.
Order May 17,1994 (emphasis added).
In May 1994 Engel paid a retainer of $30,000 from the estate to Hantman. In September 1994, after discovering that the payment had been made, the Alvarez estate filed a motion to compel Hantman to disgorge the retainer. Subsequent to an October 13, 1994 hearing on the disgorgement motion, the bankruptcy court ordered Hant-man to disgorge the retainer on October 31, 1994. Engel appealed the order to the district court, and the district court affirmed the order of the bankruptcy court.
On May 31, 1995, Hantman filed his first interim fee application for services provided as special counsel in Engel's criminal case. The application sought fees in the amount of $258,667.00, and costs in the amount of $32,-791.33.
In July 1995, more than one year after Hantman sought to be retained as special counsel for Engel, Engel's liability in the wrongful death action was established at $5.154 million. On March 15, 1996, the New Jersey Superior Court denied Engel's petition for post-conviction relief and his motion for a new trial.
After holding a hearing on September 6, 1995 on Hantman's fee application, the bankruptcy court found that the services which Hantman had provided in Engel's criminal case had provided no benefit to the bankruptcy estate, and could not, therefore, be paid from estate funds. Hantman filed a motion for reconsideration, which was like wise denied by the bankruptcy court. On December 20, 1995, the bankruptcy court issued opinions on the denial of fees and the motion for reconsideration, and on the following day, December 21,1995, entered an order denying Hantman's fee request. Hantman appealed that denial to the district court, which affirmed the December 21, 1995 order of the bankruptcy court on April 17, 1996.
Hantman appeals from the April 17, 1996 order of the district court. This court has jurisdiction over the appeal pursuant to 28 U.S.C. § 158(d).
Our review of the district court's disposition is plenary. The bankruptcy court's legal interpretations are subject to plenary review, the factual findings of the bankruptcy court are reviewed for clear error, and the bankruptcy court's decisions regarding the awarding of fees are reviewed for abuse of discretion. Zolfo, Cooper & Co. v. Sunbeam-Oster Co., 50 F.3d 253, 257 (3d Cir.1995).
II.
A.
The essence of Hantman's argument on appeal is that "an order under § 327(e) establishes a legal right to be paid from the estate." He argues that it is implicit in the appointment of special counsel that there is a "benefit-to-the-estate."
We reject Hantman's argument, and hold that an order approving of a professional's retention under § 327 does not establish a right to be paid from the bankruptcy estate under § 330. Approval under § 327 establishes only that an attorney may be employed by the debtor in-possession, and not that his employment will therefore or thereafter be compensated from estate funds. Compensation from the estate, as we discuss infra, depends on the second look taken by the bankruptcy court as mandated by § 330, for a determination of "benefit-to-the-estate."
Any debtor-in-possession — in this case Engel — must receive court approval in order to employ an attorney or other professional. Otherwise he is not permitted or authorized to retain counsel. This is true regardless of the source of compensation for the attorney so engaged. An attorney whose employment is approved under § 327 enjoys no presumption that his compensation will be paid from the estate under § 330. Even if compensation is to come from some source other than the estate, employment of an attorney by the debtor-in-possession must still be approved by the bankruptcy court. An attorney whose employment has not been approved under § 327 can be required to return compensation for the services provided to the debtor-in-possession, even though they were paid by third parties and not by the estate.
A bankruptcy court, even though it has approved employment under § 327, must once again review any application for compensation. The text of the statute makes this clear. This review must be made under § 330, when the estate has been benefited and is to pay for the beneficial services, and under § 329 when compensation is to come from some source outside the estate. Section 330 provides that after "notice to any parties in interest and to the United States trustee and a hearing . the court may award . to a professional person employed under section 327 . reasonable compensation for actual, necessary services rendered," and which benefit the estate. In the case of compensation which is to come fi-om some non- estate source, the determination would be made solely under § 329, which empowers the court to review any compensation arrangement between a debtor and an attorney.
We have consistently rejected the contention that compensation from the estate under § 330 and approval under § 327 can be compressed into one step, and we have upheld scrutiny under § 330 as the mandatory second part of a two-step process. Thus, in In re Arkansas Company, Inc., 798 F.2d 645, 648-49 (3d Cir.1986), we rejected "the notion that a complete and thorough post-application review may substitute for prior approval in most cases. This approach [i.e., such a substitution] would render meaningless the structure of the Bankruptcy Code and Rules which contain provisions requiring both approval of employment and after the fact approval of compensation. 11 U.S.C. § 327(a), 1103(a), 330; Bankruptcy Rules 2014(a) [pertaining to disclosure requirements imposed on trustee or debtor-in-possession seeking § 327 approval], 2016 [pertaining to application for compensation from the estate under § 330], 2017 [pertaining to bankruptcy court's examination under § 329 of payments made by debtor to attorney]." This concept was best expressed by the court writing in In re Johns-Manville Corp., 32 B.R. 728 (S.D.N.Y.1983): "The fact that the Bankruptcy Court, in the later Section 330 proceeding, may choose to award no fees to the five law firms for the services rendered means that the Section 327 approvals are merely preliminary 'go aheads' rather than conclusive determinations." Id. at 731.
To accept Hantman's claim that § 327 approval creates a legal entitlement to payment from estate funds would be to subvert the clear and express intent of § 330. That section of the Code requires a finding of "benefit-to-the-estate" before estate compensation may be paid to appointed special counsel. This two-step process — i.e., appointment under § 327 and then compensation under § 330, if and only if, "benefit-to-the-estate" is found — was adopted by Congress to eliminate "abuses and detrimental practices" attributable to "attorney control of bankruptcy cases." Such a policy, moreover, comports with the purposes of allowing the bankruptcy court the broad power under § 329, see n. 11 supra, to review payments made by debtors to attorneys, even when those payments are made prior to the filing of a bankruptcy petition. The Revision Notes and Legislative Reports to § 329 explain that "Payments to a debtor's attorney provide serious potential for evasion of creditor protection provisions of the bankruptcy laws, and serious potential for overreaching by the debtor's attorney, and should be subject to careful scrutiny."
The scrutiny mandated by § 329 is stricter still under § 330. The attorney — • such as Hantman — whose employment is approved under § 327 and who seeks fees from the estate under § 330 must show that his services were necessary and benefited the estate, see n. 10 supra, despite the approval of his retention under § 327(e). See In re Arkansas, supra; In re Johns-Manville, supra. .
Indeed, although Hantman argues on appeal that the issue of whether his services were in the interest of the estate was decided when he was approved as special counsel under § 327, in the proceedings before the bankruptcy and district courts, members of the Wasserman firm agreed that the question of whether Hantman's services actually benefited the estate would ultimately determine the issue of compensation from the estate.
Thus, at the June 5, 1995 hearing on disgorgement of Hantman's $30,000 retainer, in district court, Wasserman conceded that the initial § 327 approval did not guarantee that Hantman would be paid from the estate: "We are not arguing before you this morning that [the bankruptcy judge] might not, at some point in the proceedings, have the power and the jurisdiction to say that the $30,000 retainer should be disgorged should he find that the retention was inappropriate or that the services performed were not in the best interest of the estate." As Wasserman further explained to the district court, Hantman had just filed his interim fee application with the bankruptcy court, and that court would "have an opportunity then, to pass upon the work performed and make a determination with respect to what I believe is the only real issue, and that is, best interests of the estate."
In a similar vein, Wasserman's brief in opposition to the motion to disgorge the $30,-000 retainer explained that the bankruptcy court had made plain that the ultimate decision on entitlement to fees from the estate would not be made until later in the case: "In ruling on the initial objection raised by Alvarez to the retention of special criminal counsel, this Court made clear that, as with the retention of any counsel, the ultimate issue of the allowance of fees are [sic] reserved by the Court until the conclusion of the case." In arguing that Hantman should not be required to return the $30,000 retainer, Wasserman — far from contending that the "best interest" determination had already been made in the court's decision to grant § 327 approval — maintained that the issue of compensation was "not yet ripe for adjudication."
Hantman made a similar argument in support of his motion for reconsideration of the denial of the fee application: "[I]t would be premature to enter an order denying Fer-rara and Hantman's Fee Application based in part on the assumption that Judge Harris [of the New Jersey Superior Court] will deny the motion for a new trial in the [post-conviction relief] criminal case."
Thus, the argument urged upon the bankruptcy court by Hantman at that point was not that it had been determined once and for all that the estate had been benefited, at the time of the order granting Hantman. § ' -327 approval, and that Hantman would be paid from the estate. Rather, Hantman was contending that the bankruptcy court did not yet have enough information regarding the outcome of the criminal case to deny fees.
In the instant case, the bankruptcy court was clearly correct in holding that Hantman, regardless of how he was to be paid, required § 327 approval before he could be employed by Engel as debtor-in-possession, and in holding that fees could not be awarded pursuant to § 330, absent a showing of benefit to the estate. In fact, the bankruptcy court specifically referred to our Arkansas decision in explaining the necessity of § 327 approval before Hantman could perform any services on Engel's behalf:
I felt—and in ease it's not clear on the record, and I think it is, and I—in every hearing that this issue has come up. But I have felt that it was inappropriate to use estate funds to defend or to affirmatively try to prove a—a criminal matter. And yet I have consistently said, look, to the extent that Section 327, and following, of the Bankruptcy Code, says you can't do any work without being authorized. And I think there's good law that that is at least to be considered in—in Arkansas—the Arkansas ease. To that extent, I'll allow them to work. I'm just not going to allow them the money.
Questions as to who would pay Hantman— Engel individually or the estate—how much Hantman would be paid, and when, were appropriately deferred by the bankruptcy court until Hantman's fee application was reviewed. We hold that the bankruptcy court did not err in holding that § 327 approval established only that Engel was permitted to retain Hantman, and not that Hantman would be paid from estate funds for criminal defense services to be provided to Engel.
B.
Thus, Hantman cannot successfully maintain- that the denial of his fee application under § 330 was inconsistent with his retention as special counsel under § 327. Nor can he contend that the bankruptcy court's finding that Hantman's services had provided no benefit to the estate, was clearly erroneous.
1.
First, we reject Hantman's argument that the bankruptcy court's denial of compensation under § 330 was inconsistent with the § 327 order approving his retention. Apart frqm the fact that reexamination of Hantman's services for "benefit-to-the-estate" was required under § 330, the bankruptcy court made clear that it was not, in denying fees under § 330, also revoking its § 327 order of retention.
The circumstances under which the bankruptcy court approved of Hantman's retention, in addition, reveal that the May 17, 1994 order was well within the discretion of the court, even though the court might later deny an application for.fees under § 330. The bankruptcy court had been advised by Wasserman and Hantman that there were sufficient funds to pay all Engel's creditors and obligations, including the fees to be sought by Hantman. Under the circumstances of this case the action of the bankruptcy court did not exceed its discretion.
2.
Second, the bankruptcy court did not' clearly err' in finding that Hantmah's services in Engel's criminal case produced no benefit to the estate.
On March 15, 1996,' Judge Harris denied Engel's motion for a new trial, as well as his untimely petition for postconviction relief, in terms that show that there had never been any chance of post-conviction relief. The issue of "benefit-to-the-estate" has thus been püt to rest. The view that Engel would obtain a new trial, given Judge Harris's decision, was obviously fanciful:
[B]ecause both Brady [v. Maryland, 373 U.S. 83, 83 S.Ct. 1194, 10 L.Ed.2d 215 (1963) ] and Strickland, [v. Washington, 466 U.S. 668, 104 S.Ct. 2052, 80 L.Ed.2d 674 (1984) ] analyses inquire into probable effects on trial outcomes, I begin by emphasizing this conclusion: my complete reading of the record . demonstrates that Engel faced overwhelming evidence of guilt.
The court concluded, that "Engel received a superior defense in a trial environment that scrupulously honored his rights." The bankruptcy court properly anticipated such a result in finding that Hantman's services in the criminal matter had not benefited the estate.
Nor did the bankruptcy court reach its conclusion, that Hantman was not entitled to estate monies, casually. In its December opinions'the court carefully and meticulously analyzed the three-part standard which evolved from In re Duque, 48 B.R. 965 (S.D.Fla.1984), In re French, 139 B.R. 485 (Bankr.D.S.D.1992), and In re United Church of the Ministers of God, 84 B.R. 50 (Bankr.E.D.Pa.1988), before holding that the services of Hantman in representing Engel as criminal counsel, did not benefit the estate.
The standard to which the bankruptcy court referred, provided:
1. The attorney's employment must be in the best interest of the estate, which means property of estate is threatened and the need for services is real. Employment cannot be based on some 'hypothetical or speculative benefit.'
2. Special counsel must provide a benefit to the estate, not merely a personal benefit to the debtor. The benefit is gauged by needs of estate and whether • it, is directly related to the debtor in possession's performance of duties under the bankruptcy code.
3. Issues regarding debtor's constitutional right to counsel are of concern to the criminal forum and not the bankruptcy court.
Application of that standard to Engel's situation led inexorably to the bankruptcy court's denial of Hantman's fee application.
The bankruptcy court's finding that Hant-man's services did not benefit the estate, in short, was not clearly erroneous.
III.
Hantman argues that he was not warned at any time prior to the May 17,1994 retention order that the bankruptcy court would not allow payment from the bankruptcy estate for the criminal defense services he was providing to Engel, and that he has suffered harm as a consequence. He argues that he had been given no effective notice of the court's reservations concerning payment from estate funds, and that the equities of the situation thus require that he be paid from the estate.
Hantman made this argument before both the bankruptcy and district courts. Both courts rejected this argument, as do we.
At the outset, we observe that the denial of fees by the bankruptcy court was correct: the bankruptcy judge did not have the authority to disregard the "benefit-to-the-estate" requirement of § 330. Thus, as- the bankruptcy court responded to Hantman, "I am sympathetic to your plight, but I am bound by the law." -
Even if we were to assume that the Bankruptcy Code permitted the bankruptcy court to take account of Hantman's arguments of reliance and prejudice, we could not, on this record, hold that the bankruptcy court abused its discretion in rejecting those arguments.
To begin with, it was not unreasonable for the bankruptcy court to conclude, as it did, that Hantman had received effective notice that estate funds would not pay for criminal defense services which did not benefit the, estate; No one disputes that such a warning' was issued in the course of the March 21, 1994 colloquy, and the bankruptcy court specifically recalled giving still another warning in the May 16, 1994 telephone conference:
This Court held a telephonic hearing on the objection of the estate of Ciamara [sic] Engel on May 16, 1994. The Court stated that Ferrara & Hantman could not be paid from estate funds. The Court entered an order which held that the debtor could retain special counsel, but,, and I quote, "Compensation for such special counsel shall be determined by this Court upon proper application."
In the opinion which he filed on December 20, 1995, the bankruptcy judge repeated that "[t]his court held a telephonic hearing on the objection of the. Estate of Xiomara Alvarez on May 16, 1994. The court stated that F & H could not be paid from estate funds." Attorney Nicolette, who represented the Administrator of Xiomara's estate, supported the judge's recollection fully, although Ya-blonsky of the Wasserman firm did not recall the court's statement. '
Hantman claims that the May 17, 1994 retention order was imprecise and ambiguous. Even if we were to agree, and we do not, we would not accept Hantman's assertion that because of an imprecision in an order of the bankruptcy court, he should be paid from estate funds. To accept his claim would be to ignore Zolfo Cooper & Co. v. Sunbeam-Oster Co., 50 F.3d 253 (3d Cir.1995), in which we held that the burden rests "on the applicant[for fees] to ensure that the court notes explicitly the terms and conditions if the applicant expects them to be established at that early point." We stated that an order that refers to documents supplied in support of the application for retention does not implicitly adopt any terms set forth in the supporting documents, and that the court is not bound to "particular terms and conditions of compensation" unless those terms are explicitly stated in the relevant order.
Even if the bankruptcy court could ignore the express mandate of "benefit-to-the-estate" imposed by § 330, and thereby give credit to Hantman's claim of prejudice, it was not unreasonable for the bankruptcy court to infer, despite the fact that Hantman was neither present at the March 21,1994 discussion, nor a party to the May 16,1994 conference call, that Wasserman attorneys — who were acting as Hantman's de facto representatives — were informing Hantman of all relevant developments concerning his proposed retention by Engel.
Indeed, Hantman's detailed fee application shows that he engaged frequently in telephone and written correspondence with Was-serman attorneys on the very subject of retention, and that one of these calls took place on March 22, 1994, the day after the first warning was given. His application also shows that on April 19,1994, he reviewed the objections that Nicolette had made in a letter of April 14, a letter containing an explicit reminder of the March 21 warning.
Hantman thus had direct access to at least one document which reflected the bankruptcy court's March 21, 1994 warning, and considerable contact with the attorneys who were representing his interests, and who were present when those warnings were issued. Under these circumstances, we would be hard-pressed to conclude that the bankruptcy court abused its discretion in rejecting Hantman's claim that he should be paid under § 330 because he had not received effective notice of the bankruptcy' court's warnings.
Finally, we note that although Hant-man's § 330 fee application was properly denied, our affirmance of the district court's order of April 17, 1996 does not impact on any claim Hantman may make against En-gel's personal funds, as distinct from estate funds. Although he has labored in a losing cause, when viewed through the lens of the New Jersey Superior Court Judge who denied Engel's petition for post-conviction relief, Hantman can still look to Engel — though not to the estate — for payment.
We hold that the bankruptcy court did not abuse its discretion in denying Hantman's fee application. •
IV.
Judge McKee's thoughtful dissent charges us with having given no consideration to Hantman's reliance on the bankruptcy court's order of May 17, 1994. He is also persuaded by Hantman's argument that the bankruptcy court revoked its May 17th order when it denied Hantman's compensation, some sixteen (16) months later. Judge McKee finds it "obvious that the bankruptcy court determined that the services Hantman was to offer . were 'in the best interest of the estate' " and that "Hantman began his efforts to seek post-conviction relief pursuant to that determination." Dissent at 582 (emphasis added).
The dissent's arguments, however, fail to take into account or to explain that Hantman applied for fees for more than one hundred hours of services rendered prior to the entry of the May 17, 1994 order. These services outlined in Hantman's fee application evidence the fact that Hantman did not rely on that order before performing substantial services for Engel. Hantman was working for Engel — without approval — long before the May 17,1994 order was ever entered.
More importantly, however, the numerous telephone conferences which have been detailed in note 33, supra, and in the Appendix to this opinion, establish that Hantman was in constant telephone communication with the Wasserman firm concerning the status of his retention months before the May 17th order was entered.
Those facts, together with Hantman's admitted review of Nicolette's objections to his retention, satisfy us that Hantman's claimed reliance on the May 17th order and Hant-man's purported lack of knowledge that he would not be paid from estate funds, cannot carry the day. Certainly, in view of this record, we cannot agree with Judge McKee that the bankruptcy court abused its discretion in denying Hantman's fee application, once it found that Hantman had provided no benefit to the estate — a finding supported by the evidence of record and, thus, not clearly erroneous. Indeed, the dissent offers no explanation as to how Hantman's purported reliance on the May 17th order can trump the unequivocal and express mandate of § 330 that "benefit to the estate" must be found as a requisite to payment from estate funds.
Finally, the dissent has offered no good reason why analysis should proceed under Swietlowich v. County of Bucks, 610 F.2d 1157 (3d Cir.1979), a non-bankruptcy ease, rather than under the relevant § 328 of the Bankruptcy Code itself. Section 328(a) allows the court to modify and even deny previously approved terms and conditions of employment "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". 11 U.S.C. § 328(a) (West 1993).
Here the bankruptcy court appropriately based the denial of fees on its finding that Hantman's services had not benefited the estate. Thus, there was no reason for the court to engage in a § 328 analysis.
As a matter of Congressional fiat, § 328 and 330 operate together even after an attorney has been approved under § 327 to permit the court to alter or deny fees if it is determined that no benefit to the estate resulted from the retention.
Y.
We will affirm the April 17, 1996 order of the district court, which affirmed the December 21, 1995 order of the bankruptcy court denying Hantman's fee application.
Appendix
The significant events leading to this instant appeal may be enumerated by date as follows:
—January 6, 1994. Engel filed for Chapter 11 bankruptcy.
—February 23, 1994. Hantman had a telephone conference with Daniel J. Ya-blonsky of Wasserman re: retention.
—-February 24, 1994. Hantman had a telephone conference with Yablonsky re: retention.
—February 26, 1994. Hantman reviewed a letter from Yablonsky re: retention.
—March 3, 1994. Hantman had a telephone conference with Yablonsky re: retention.
—March 7, 1994. Hantman wrote a letter to Yablonsky re: retention.
—March 10, 1994. Hantman wrote to Yablonsky of Wasserman re: retention, and discussing his research into Engel's criminal case.
—March 15, 1994. Hantman had a telephone conference with Yablonsky re: retention.
—March 21, 1994. In a discussion with Engel's attorney, Steven Jurista of Was-serman, Jurista & Stolz, regarding the possibility of approving of Ferrara & Hantman to be employed as special counsel to do criminal work, the bankruptcy court cautioned that criminal services would not be payable out of the estate.
—March 22, 1994. Hantman had a telephone conference with Yablonsky re: retention.
—March 28, 1994. Hantman had a telephone conference with Yablonsky re: retention, and a 40 minute conference with Engel to "discuss case.".
—March 29, 1994. Hantman had a 24 minute telephone conference with Ya-blonsky re: retention.
—March 30,1994. Hantman had another 24 minute telephone conference with Yablonsky re: retention.
—April 7, 1994. Hantman reviewed a letter from Yablonsky re: retention.
—April 13, 1994. Engel, through Was-serman, applied under 11 U.S.C. § 327 to retain Ferrara & Hantman. Hant-man had a telephone conference with Yablonsky re: retention.
—April 14, 1994. David A Nicolette, attorney for the Alvarez estate, wrote to the bankruptcy court to object to Hant-man's proposed retention on ground that criminal services were not in the interest of the estate, and to remind the court of its March 21,1994, caution to that effect.
—April 19, 1994. Hantman reviewed Nicolette's objections to retention.
—-April 22, 1994. Hantman reviewed a letter from Yablonsky to the bankruptcy court.
—April 25, 1994. Hantman had a telephone conference with Yablonsky re: status of his retention.
—May 9, 1994. Hantman reviewed a letter from Yablonsky re: retention.
—May 12, 1994. Hantman reviewed a letter from Yablonsky re: retention, and Hantman had a telephone conference with Yablonsky on the same subject.
• — May 13, 1994. Hantman had a telephone conference with Yablonsky re: retention.
—May 16, 1994. Telephone hearing with Yablonsky of the Wasserman firm and Nicolette, attorney for Alvarez, at which the bankruptcy court warned that payment for criminal defense funds was not payable from the estate.
—May 17, 1994. Order approved of retention of Ferrara & Hantman as special counsel, providing that "compensation to such special counsel shall be determined by this [bankruptcy] Court upon proper application."
—May 27, 1994. Engel paid $30,000 retainer to Ferrara & Hantman from estate funds.
—October 13, 1994. Hearing on motion by Alvarez to disgorge retainer. At this hearing, which occurred after Engel's liability for Alvarez's wrongful death had been established, Wasserman maintained that the estate had sufficient funds to pay all creditors. However, the court would not allow payment of counsel fees in the criminal matter as an administrative priority.
—October 31, 1994. Bankruptcy court ordered disgorgement and repayment of $30,000.
—May 31,1995. First interim fee application of Ferrara & Hantman.
—June 5, 1995. The district court af.firmed the bankruptcy court's order re quiring disgorgement of $30,000 by Hantman.
—June 28, 1995. The United States Trustee objected to that portion of fee application seeking reimbursement for services provided before May 17, 1994 approval of retention.
Denial of fee application in its entirety mooted objection.
—July, 1995. Engel's liability in wrongful death action established at $5,154 million.
—September 6, 1995. Hearing on fee application of May 31,1995 before bankruptcy court, at which the court emphasized that only services that benefit the estate, as opposed to services that benefit Engel personally, are compensable from the estate. The judge noted that in the telephone conference of May 16, 1994 he had warned that the estate would not pay for services performed in the criminal case. In considering a motion to appoint a trustee in place of debtor-in-possession Engel, the judge expressed the belief that Engel was squandering estate monies. At this hearing Wasserman again represented that the estate would be able to pay all creditors.
—December 20, 1995. Opinions filed on denial of fee application, and on motion for reconsideration. The bankruptcy court observed that it had given early and consistent warnings that criminal defense services were not compensable from the estate.
. . William and his brother Herbert were arrested and charged with the contract murder of Xiom-ara. Both were subsequently tried, convicted, and sentenced to life imprisonment. Herbert died in prison.
. State v. Engel, 249 N.J.Super. 336, 592 A.2d 572, 577 (App.Div.), cert. denied, 130 N.J. 393, 614 A.2d 616 (1991).
. When the notice of appeal was filed, Robert J. Hantman was a principal in the law firm of Ferrara & Hantman. However, the law firm no longer exists. Appellants' Br. at 4.
. Appellant's Br. at 39.
. Section 327(e) provides that the "trustee, with the court's approval, may employ, for a specified special purpose, other than to represent the trustee in conducting the case, an attorney that has represented the debtor, if in the best interest of the estate...." 11 U.S.C. § 327(e) (West 1993).
. In re Peterson, 163 B.R. 665, 670 (Bankr.D.Conn.1994)(attorney representing debt- or must receive court approval under § 327, even though not seeking compensation from estate; attorney must file employment application even if not required to file fee application); Land v. First Nat'l Bank (In re Land), 116 B.R. 798, 804-05 (D.Colo.1990)(rejeeling claim "that court approval of an attorney's employment [by debtor-in-possession] is not required when his fees are paid by third parties and do not come from funds belonging to the estate."), aff'd, 943 F.2d 1265 (10th Cir.1991); In re Rheuban, 121 B.R. 368, 385 (Bankr.C.D.Cal.1990)(attomey providing legal services to debtor as debtor-in-possession, even if he does not intend to seek compensation from the estate, must obtain court approval under § 327).
. In re Prime Foods of St. Croix, Inc., 80 B.R. 758, 761 (D.V.I.1987); Willis v. Cruse (In re Samford), 125 B.R. 230, 233 (E.D.Mo.1991).
. Land v. First Nat'l Bank (In re Land), 943 F.2d 1265, 1267 (10th Cir.1991)(relurn of compensation received from debtor-in-possession's family members appropriate remedy for failure to obtain court approval of employment).
. 11 U.S.C. § 330 (emphasis added).
. The 1994 amendments to § 330, which require benefit to the estate before compensation may be awarded from the estate, codified the standard already established by caselaw.
. Section 329(a) provides that "[a]ny attorney representing a debtor in a case under this title, or in connection with such a case, whether or not such attorney applies for compensation under this title, shall file with the court a statement of the compensation paid or agreed to be paid, if such payment or agreement was made after one year before the date of the filing of the petition, for services rendered or to be rendered in contemplation of or in connection with the case by such attorney, and the source of such compensation." Section 329(b) provides, in pertinent part, that "[i]f such compensation exceeds the reasonable value of any such services, the court may cancel any such agreement, or order the return of any such payment, to the extent excessive...." 11 U.S.C. § 329 (emphasis added).
. In In re Arkansas, 798 F.2d 645 (3d Cir.1986), an attorney had failed to obtain court approval of its employment as Committee counsel. Upon discovering this failure, it applied for nunc pro tunc approval after some thirteen months of acting as such counsel. This court allowed for the possibility of nunc pro tunc approval, but only in exceptional circumstances, which it did not find in the Arkansas case. Hence, it rejected counsel's application for nunc pro tunc approval, and in doing so, also rejected the argument that after-the-fact control over special counsel's compensation could remedy the failure of counsel to seek timely approval.
. Arkansas, 798 F.2d at 649. The close communication between Wasserman and Hantman regarding the subject of Hantman's employment by Engel, which is reflected in Hantman's fee application and noted in the Appendix to this opinion, coupled with Hantman's questionable claims that he was never alerted to the warnings given by the bankruptcy court, demonstrates the wisdom of the Congressional policy.
. R., Tr. of Hr'g, June 5, 1995, at 6 (emphasis added).
. Id. at 7 (emphasis added).
. R., Ex. 6, at 11 (Brief in Opposition to Motion to Require Ferrara & Hantman to Return Retainer Paid by the Debtor)(emphasis added).
. Id.
. R., Ex. 3, at 7 (Memorandum of Law in Support of Motion for Reconsideration of Court's Denial of Ferrara and Hantman's Interim Fee Application)(emphasis added).
Indeed, § 330(a)(4) as amended in 1994 may have anticipated such occasions in prohibiting payment from estate funds unless services were "reasonably likely to benefit the debtor's estate." Section 330(a)(4) provides in pertinent part: "[T]he court shall not allow compensation for . services that were not . reasonably likely to benefit the debtor's estate." 11 U.S.C. § 330(a)(4)(A)(1994)(emphasis added).
. R., Ex. 1, l-H, Tr. of Proceedings, Apr. 6, 1995, at 21.
. At the time Hantman sought to be retained, the amount of Engel's liability to the estate of Alvarez had yet to be determined. Hence, although the fact of liability had been established, it was not yet known how much of Engel's bankruptcy estate might be exposed to the wrongful death judgment. Indeed, Hantman himself—and Wasserman, who prepared and presented En-gel's application for retention of Hantman—rep-resented then and later that Engel himself had ample funds to discharge all obligations. See text infra, and n. 22.
.Thus, during the October 13, 1994 hearing on the disgorgement of the $30,000 retainer, Was-serman asked, "Is the Court reversing the Order of Retention?" The bankruptcy court responded, "No. The Order of Retention says he can do the work. The Order of Retention says he makes an application when it's all done." J.A. 127.
. Hantman has maintained consistently that the estate will be sufficient to pay all its obligations, and that payment of his fees will have no adverse impact on the creditors. See, e.g., his Certification of Oct. 10, 1995, at J.A. 52.
. The issue of when that benefit should be measured, i.e., after the services have been performed or at the time they are undertaken, need not concern us in this case. Section 330, as amended in 1994, provides that services, in order to be compensable from the estate, must be "reasonably likely to benefit the estate." 11 U.S.C. § 330(a)(4)(A)(ii)(I). Cases have held that services, to be compensated from the estate, must have provided actual benefit to the estate. See, e.g., Rubner & Kutner, P.C. v. United States Trustee (In re Ledemian Enter. Inc.), 997 F.2d 1321 (10th Cir.1993); Canatella v. Towers (In re Alcala), 918 F.2d 99 (9th Cir.1990).
In the instant case, it is clear that there was neither actual benefit to the estate, nor a reasonable likelihood of benefit to the estate, to he gained by criminal defense services provided by Hantman to Engel.
. State v. Engel, Order and Opinion, Indictment No. S-570-85-01 (N.J.Super. Ct. Law Div., March 15, 1996).
As Judge Harris noted, "Engel filed his petition for post-conviction relief almost nine years after the judgment of conviction" — four years after the deadline for filing. Id. at 46-47.
. Id. at 2.
. Id. at 51.
.The bankruptcy court explained that Engel's criminal conviction had been extensively reviewed through and including the Supreme Court of New Jersey; that before any benefit could possibly accrue to the bankruptcy estate, Engel's criminal conviction would have to be overturned; Engel would then have to be acquitted at a new criminal trial and the civil judgment against him would also have to be overturned. Finally, the bankruptcy court applied the Duque analysis and determined that employing criminal counsel for Engel was not in the best interest of the estate, concluding, "[s]uch a determination is an extremely fact sensitive decision and is one that is within the discretion of the bankruptcy court." Op. Bankruptcy Ct., Dec. 20, 1995 (Appellant's Br. at A14).
. J.A. 169.
. J.A. 202.
. J.A. 19.
. J.A. 71.
. Zolfo, 50 F.3d at 262 (emphasis added).
. From February 23, 1994 through May 13, 1994, Hantman's fee application reveals numerous telephone conversations with Yablonsky concerning retention and the terms of retention:
2/23/94 (telephone conference with Yablonsky)
2/24/94 (telephone conference with Yablonsky)
2/26/94 (review of letter from Yablonsky)
3/3/94 (telephone conference with Yablonsky)
3/7/94 (letter to Yablonsky)
3/15/94 (telephone conference with Yablonsky)
3/22/94 (telephone conference with Yablonsky)
3/28/94 (telephone conference with Yablonsky)
3/29/94 (telephone conference with Yablonsky)
3/30/94 (telephone conference with Yablonsky)
4/7/94 (review of letter from Yablonsky)
4/13/94 (telephone conference with Yablonsky)
4/19/94 (review of Nicolette's objections to retention)
4/22/94 (review of letter from Yablonsky to bankruptcy court)
4/25/94 (telephone conference with Yablonsky)
5/9/94 (review of letter from Yablonsky)
5/12/94 (review of letter from Yablonsky; telephone conference with Yablonsky)
5/13/94 (telephone conference with Yablonsky).
See also Appendix to this opinion.
.Thus, Hantman's argument that the rulings of the bankruptcy court have placed him in the position of representing Engel on a contingency basis, in violation of ethical rules, is also misplaced. The bankruptcy court, again, has decided only that Hantman will not be paid from the estate for services that did not benefit the estate. See § 330.
. Section 328(a) provides that the trustee or the debtor in possession (such as Engel)
with the court's approval may employ . a professional person under section . 327 . on any reasonable terms and conditions of employment . Notwithstanding such terms and conditions, the court may allow compensation different from the compensation prQvid-ed under such terms and conditions after the conclusion of such employment, 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.
11 U.S.C. § 328(a)(West 1993).