Opinion ID: 3151618
Heading Depth: 2
Heading Rank: 2

Heading: Post Facto Approval of Employment

Text: With court approval, a bankruptcy trustee or debtor-in-possession may employ professional persons, including attorneys, to assist them in their duties. 11 U.S.C. § 327(a).6 Where an attorney has been “employed under section 327,” a bankruptcy court is empowered to award him compensation from the estate. Id. § 330(a)(1). But “any professional not obtaining approval is simply considered a volunteer if [he] 6 Section 327(a) refers to employment by a bankruptcy trustee. A debtor-in-possession has the rights and responsibilities of a trustee, including the ability to employ professional persons. 11 U.S.C. § 1107(a). -7- seeks payment from the estate.” Interwest Bus. Equip., Inc. v. U.S. Tr. (In re Interwest Bus. Equip., Inc.), 23 F.3d 311, 318 (10th Cir. 1994). Although neither § 327(a) nor Fed. R. Bank. P. 2014—which implements that statute—expressly requires that the approval must precede the attorney’s engagement, courts have generally read such a requirement into the statute as a matter of judicial administration. See, e.g., Matter of Singson, 41 F.3d 316, 319 (7th Cir. 1994) (“Prior approval is strongly preferred because it permits close supervision of the administration of an estate, wards off ‘volunteers’ attracted to the kitty, and avoids duplication of effort.”). Moreover, D. Kan. Local Bankruptcy Rule 2014.1(a) expressly requires that in order to employ an attorney under § 327 to conduct a Chapter 11 case, the debtor-in-possession “must file with the petition an application to employ [the] attorney[].” We have assumed that a bankruptcy court may approve an attorney’s employment post facto, thereby entitling him to seek fees for work performed prior to approval. See In re Albrecht, 233 F.3d 1258, 1260 (10th Cir. 2000) (collecting cases); Land v. First Nat’l Bank of Alamosa (In re Land), 943 F.2d 1265, 1267 (10th Cir. 1991). But Mr. Lazzo argues that we have not yet adopted a standard for evaluating whether such a post facto application should be approved. He contends that the appropriate standard for such an application is “excusable neglect.” In Land, we stated that retroactive approval of an attorney’s employment “is only appropriate in the most extraordinary circumstances” and that “[s]imple neglect -8- will not justify nunc pro tunc approval.” Land, 943 F.2d at 1267-68. Mr. Lazzo argues that our statements in Land were dicta. We disagree. The appellants in Land challenged the bankruptcy court’s order requiring their attorney to return certain fees he had received from third parties. They argued that this result was incorrect because the bankruptcy court did not conduct an evidentiary hearing and did not determine that the fees were excessive. See id. at 1267. But we rejected this articulation of the issue on appeal, observing that the bankruptcy court ordered the attorney to return the fees not because they were excessive, but because the attorney “had never obtained the bankruptcy court’s approval of his employment by the debtors.” Id. After stating the extraordinary circumstances standard, we noted that “[t]his appeal does not present any extraordinary circumstances,” and determined that the appellants had therefore not shown that the bankruptcy court abused its discretion in denying post facto approval to hire the attorney. Id. at 1268. Our statement concerning the need to show extraordinary circumstances therefore was not dicta (i.e., a statement not necessarily involved or essential to the resolution of the appeal, see Rohrbaugh v. Celotex Corp., 53 F.3d 1181, 1184 (10th Cir. 1995)), but instead provided a reason to affirm the bankruptcy court’s denial of post facto approval for the disputed fees. But even if our statement in Land were dicta, we would still apply the extraordinary circumstances test here, because it is the appropriate standard and represents the prevailing approach in the circuits. See 3 Collier on Bankruptcy ¶ 327.03[3], at p. 327-25 (Alan N. Resnick & Henry J. -9- Sommer, eds., Jun. 2015) (“The prevailing approach is that a bankruptcy court should grant retroactive retention orders [only] in extraordinary or exceptional circumstances to deter attorneys and other professionals from general nonobservance of section 327.”). In arguing for a lesser, “excusable neglect” standard, Mr. Lazzo primarily cites the minority viewpoint expressed by the Seventh Circuit in Singson, 41 F.3d at 319-20. We note that the Singson court expressly rejected our approach in Land. See id. at 319 (“We are not persuaded by, and do not follow, cases such as [Land] . . . , that adopt an ‘extraordinary circumstance’ requirement.”).7 Even if we found the minority approach in Singson persuasive (which we do not), we would not repudiate Land in its favor, as a panel of this court generally cannot overrule the judgment of a prior panel. United States v. White, 782 F.3d 1118, 1126-27 (10th Cir. 2015). Having determined that the bankruptcy court applied an improper, “substantial compliance” standard rather than the appropriate “extraordinary circumstances” test, and that the “excusable neglect” standard contended for by Mr. Lazzo is not the proper standard, we are left to determine the appropriate remedy. Mr. Lazzo argues that we should remand to the bankruptcy court for application of the “extraordinary circumstances” standard in the first instance. We decline to do so. Although we 7 The Seventh Circuit’s express rejection of the test it found we adopted in Land provides further evidence that the use of the “extraordinary circumstances” test in Land was not dicta. - 10 - recognize that as a general matter the bankruptcy court is vested with discretion in determining whether an applicant has shown extraordinary circumstances, see Land, 943 F.2d at 1268, here the BAP’s conclusion that Mr. “Lazzo’s inadvertent neglect in failing to timely file his employment application is not an extraordinary circumstance,” BAP Opinion at 19, is correct as a matter of law. See, e.g., Ibbetson v. U.S. Tr., 100 B.R. 548, 551 (D. Kan. 1989) (affirming bankruptcy court’s order denying post facto retention where attorney asserted that his failure to seek initial approval of employment was due to a combination of factors including the “farm financial crisis” and “other pressures” along with the necessity of relying on “inexperienced, underpaid, and overworked young associates for details not affecting the welfare of clients” and the “confusion surrounding the departure of the young associate handling the details of the case,” determining that such factors merely showed inadvertence or neglect and did not constitute extraordinary circumstances); In re Lillian Lawrence, Ltd., 136 B.R. 1, 3-4 (Bankr. D.C. 1992) (stating law firm’s belief that its application was “either misplaced or returned by the clerk’s office for some reason” did not constitute extraordinary circumstances warranting post facto employment); and see generally 3 Collier on Bankruptcy ¶ 327.03[3], at p. 327-26 n.40 (collecting cases applying extraordinary circumstances standard). We therefore affirm the BAP’s decision reversing the bankruptcy court’s allowance of post facto employment and fees. - 11 -