Court Opinion

ID: 4018398
Source: CourtListenerOpinion
Date Created: 2016-07-22 23:01:17.636276+00
Date Added: 2024-06-11T14:07:50.273063
License: Public Domain

FILED
                                                                 JUL 22 2016
 1                         NOT FOR PUBLICATION
                                                            SUSAN M. SPRAUL, CLERK
                                                               U.S. BKCY. APP. PANEL
 2                                                             OF THE NINTH CIRCUIT

 3                  UNITED STATES BANKRUPTCY APPELLATE PANEL
 4                            OF THE NINTH CIRCUIT
 5   In re:                        )        BAP No. NC-15-1143-WJuKu
                                   )
 6   WOODCRAFT STUDIOS, INC.,      )        Bk. No. 4:10-bk-74611
                                   )
 7                  Debtor.        )
     ______________________________)
 8                                 )
     ALBERT M. KUN,                )
 9                                 )
                    Appellant,     )
10                                 )
     v.                            )        M E M O R A N D U M*
11                                 )
     PAUL J. MANSDORF, Chapter 7   )
12   Trustee,                      )
                                   )
13                  Appellee.      )
     ______________________________)
14
                    Argued and Submitted on January 21, 2016
15                        at San Francisco, California
16                           Filed - July 22, 2016
17             Appeal from the United States Bankruptcy Court
                   for the Northern District of California
18
         Honorable Roger L. Efremsky, Bankruptcy Judge, Presiding
19                       _________________________
20   Appearances:     Appellant Albert M. Kun argued pro se; Jeremy W.
                      Katz of Shierkatz RLLP argued for appellee Paul
21                    J. Mansdorf, Chapter 7 Trustee.
                           _________________________
22
     Before:   WANSLEE,** JURY, and KURTZ, Bankruptcy Judges.
23
24
        *
           This disposition is not appropriate for publication.
25 Although it may be cited for whatever persuasive value it may
26 have (see Fed. R. App. P. 32.1), it has no precedential value.
   See 9th Cir. BAP Rule 8024-1.
27
        **
           Hon. Madeleine C. Wanslee, United States Bankruptcy Judge
28 for the District of Arizona, sitting by designation.

                                      -1-
 1                                INTRODUCTION
 2           Albert M. Kun (“Kun”) appeals from an order granting the
 3   motion of chapter 71 trustee Paul J. Mansdorf (“Trustee”) to
 4   vacate the order employing Kun as counsel for the debtor-in-
 5   possession, Woodcraft Studios, Inc.       Kun also appeals from an
 6   order disallowing the proofs of claim he filed for attorneys
 7   fees related to services provided during the chapter 11 portion
 8   of the case.     We AFFIRM both orders.
 9                                   FACTS
10   Debtor’s Bankruptcy Case and Kun’s Employment
11           On December 22, 2010 Kun filed a voluntary chapter 11
12   petition for debtor.2    Debtor paid Kun a $5,000.00 retainer to
13   represent the debtor-in-possession and the estate.3      The
14   bankruptcy court signed an order employing Kun and approved a
15   “general retainer;” the employment order notes that “[r]eceipt
16   of any compensation is subject to prior court approval.”
17
18
19
20       Unless specified otherwise, all chapter and section
         1

   references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532, and
21
   all “Rule” references are to the Federal Rules of Bankruptcy
22 Procedure, Rules 1001-9037.
23       We have taken judicial notice of the bankruptcy court
         2

   docket and various documents filed through the electronic
24 docketing system. See O’Rourke v. Seaboard Sur. Co. (In re E.R.
   Fegert, Inc.), 887 F.2d 955, 957-58 (9th Cir. 1989); Atwood v.
25 Chase Manhattan Mort. Co. (In re Atwood), 293 B.R. 227, 233 n.9
26 (9th Cir. BAP 2003).
27       The early factual background for this case is found in a
         3

   related district court decision. See Kun v. Mansdorf
28 (In re Woodcraft Studios, Inc.), 464 B.R. 1 (N.D. Cal. 2011).

                                      -2-
 1   Order Disallowing All Fees and Directing
     Disgorgement of Retainer
 2
 3        The bankruptcy case was converted to chapter 7 on May 4,
 4   2011, and Paul J. Mansdorf was appointed the chapter 7 trustee.
 5   Kun filed an interim application for attorneys fees of $8,250.00
 6   and reimbursement of expenses of $56.10.    The application and
 7   attached time sheet revealed that Kun was still owed money for
 8   prepetition services because he had not drawn down on a retainer
 9   before filing the case.   The Trustee and the United States
10   trustee each filed objections to the fee application arguing
11   that Kun was a prepetition creditor who was not disinterested.
12        On June 8, 2011, the bankruptcy court held a hearing on the
13   fee application and the objections.    At the conclusion of the
14   hearing, the bankruptcy court found that Kun had failed to
15   adequately disclose his connection to the debtor, as required by
16   § 327 and Rule 2014, and that Kun was not disinterested because
17   he continued to hold a prepetition claim for work completed
18   prepetition.   Accordingly, the court denied all fees and ordered
19   disgorgement of the $5,000.00 retainer.
20        At that hearing, Kun indicated to the bankruptcy judge that
21   he was unable to return the $5,000.00 retainer because he had
22   already spent it.   Following colloquy with Kun, the bankruptcy
23   court concluded that Kun should still have the retainer because
24   he did not draw it down prepetition.    Further, once the
25   bankruptcy petition was filed, absent court approval, which Kun
26   had not previously sought, no fees were approved and no
27   postpetition order was entered by the bankruptcy court approving
28

                                    -3-
 1   payment of any portion of the retainer to Kun.4
 2           Kun filed an appeal of the order denying the interim fee
 3   application and for disgorgement of the retainer.     The appeal
 4   was heard by the United States District Court for the District
 5   of California.
 6   Kun Files Proofs of Claim After Appealing the Fee Denial and
     Disgorgement Order
 7
 8           After the notice of appeal had been filed, but before the
 9   district court ruled on the appeal, on September 8, 2011, Kun
10   filed two proofs of claim, claims 14-1 and 15-1.     The separate
11   proofs of claim appear to be identical and they each claim that
12   Kun has an $8,306.10 claim for attorneys fees secured by a
13   prepetition retainer and lien.     Additionally, without stating a
14   basis, Kun asserts that each of the alleged secured claims for
15   attorneys fees are a priority claim.     Attached to each of the
16   proofs of claim is a copy of the same time sheet dated May 4,
17   2011, that Kun had attached to the fee application the
18   bankruptcy court denied.
19   District Court and Ninth Circuit Rulings
20           The district court’s published opinion affirmed both the
21   bankruptcy court’s ruling and its rationale, noting Kun’s
22   failure to disclose, his lack of eligibility to be employed
23   under § 327, and his lack of compliance with the Bankruptcy Code
24
25       According to the Trustee, as of the date the Trustee filed
         4

26 his brief in this appeal, Kun has failed or refused to disgorge
   the retainer. At oral argument, Kun did not dispute the
27 Trustee’s renewed statement that Kun has not yet complied with
   the bankruptcy court order from June 2011 to disgorge the
28 retainer.

                                      -4-
 1   and Rules 2014 and 2016(b).    Based on Kun’s disclosure
 2   violations, the district court determined that the bankruptcy
 3   court was well within its discretion to deny all fees to Kun and
 4   to order disgorgement of his retainer.    The district court
 5   specified that all retainer agreements, and all fee agreements
 6   in general, are subject to the bankruptcy court’s approval and
 7   modification, regardless of how they are treated or created
 8   under state law.    Further, even though it was proper for the
 9   bankruptcy court to deny fees based solely on the disclosure
10   violations, the bankruptcy court’s finding that Kun was not
11   disinterested under § 327 and was in fact a prepetition creditor
12   of the debtor was not clearly erroneous, and this finding was a
13   separate basis under § 328(c) to deny compensation.    The
14   district court concluded that the bankruptcy court did not abuse
15   its discretion, nor did it mis-apply the law in denying the
16   entire fee application and ordering disgorgement of the
17   retainer.
18        Kun appealed to the Ninth Circuit, which affirmed the
19   district court in an unpublished memorandum decision.      The Ninth
20   Circuit held that failing to disclose prepetition work for a
21   debtor “constitutes a statutory violation of both the Bankruptcy
22   Code and the Federal Rules of Bankruptcy Procedure.”    Kun v.
23   Mansdorf, 558 Fed. Appx. 755 (9th Cir. 2014).    The Bankruptcy
24   Code and Rules “create strict disclosure rules which are
25   intended to ensure that an applicant attorney is not, inter
26   alia, an interested party with a claim on the estate entering
27   into bankruptcy.”    Id. at 755-56.   “A bankruptcy court also ‘has
28   broad and inherent authority to deny any and all compensation

                                     -5-
 1   when an attorney fails to meet the requirements’ of the
 2   Bankruptcy Code and [Rules].”   Id. at 756 (citation omitted)
 3   (emphasis added).   The Ninth Circuit concluded that Kun had
 4   failed to disclose material facts to the bankruptcy court in
 5   connection with his employment application and that the
 6   bankruptcy court acted within its discretion by denying his
 7   application for attorney’s fees and by ordering disgorgement of
 8   the retainer.
 9
     Request to Vacate Employment Order and Objection to Proofs of
10   Claim
11        On November 15, 2011, the Trustee filed a motion to vacate
12   the order allowing Kun’s employment combined with an objection
13   to his proofs of claim.   The Trustee argued that the employment
14   order should be vacated because of the finding that Kun was
15   ineligible to represent the debtor-in-possession.   The Trustee
16   also claimed that vacating the employment order would vacate any
17   alleged “true retainer” or security interest that Kun might have
18   in the $5,000.00 retainer he received from the debtor, as well
19   as any attorney’s lien Kun may assert.   The Trustee objected to
20   the secured/priority status alleged in the proofs of claim on
21   the grounds that Kun has no security interest in any property of
22   the estate, including the $5,000.00 retainer, that all of the
23   requested fees had been disallowed, and that Kun failed to
24   comply with the bankruptcy court’s order to return the $5,000.00
25   retainer to the bankruptcy estate.
26        On November 29, 2011, Kun filed a response to the Trustee’s
27   motion to vacate the employment order and objection to proofs of
28   claim.   According to Kun, being a creditor of the estate at the

                                     -6-
 1   time that the chapter 11 petition was filed does not preclude
 2   him from serving as counsel for the debtor.    Kun argued that the
 3   order disallowing his fee application said nothing about a
 4   future proof of claim and that he was able to file a proof of
 5   claim for the fees owed to him as of May 4, 2011, which was when
 6   the case was converted.    The bankruptcy court held these matters
 7   in abeyance until 2015 when the district court and Ninth Circuit
 8   appeals were concluded.
 9        On March 4, 2015, the bankruptcy court held a hearing on
10   the motion to vacate the employment order and the objection to
11   Kun’s proofs of claim.    At the hearing, Kun argued that there
12   was no basis to vacate or terminate his employment agreement
13   with the debtor.   Kun again argued that he did not know he was a
14   creditor, so he made no misrepresentation about being a
15   creditor.   Regarding the proofs of claim, Kun argued that the
16   Ninth Circuit’s order only dealt with the prepetition claims,
17   $3,950.00, so there is still some $1,050.00 in postpetition fees
18   that the Ninth Circuit did not consider.    Kun reiterated that he
19   was concerned only about the postpetition fees in the amount of
20   $1,050.00, and any fees associated with the defense of fees,
21   obtaining the fees, or maintaining and keeping the fees.
22   Employment Order Vacated
23        The bankruptcy court made findings of fact and conclusions
24   of law on the record at the March 4, 2015 hearing.    The court
25   vacated the order employing Kun as counsel for the debtor-in-
26   possession and the bankruptcy estate.    The court summarized the
27   previous findings and noted that Kun’s compensation had already
28   been denied in a prior order and that the appropriate remedy was

                                     -7-
 1   to vacate the employment order at that time.   Further, the court
 2   commented that to the extent the employment order may have been
 3   construed to have approved Kun’s alleged $5,000.00 lien in his
 4   retainer, vacating the employment order also vacates any alleged
 5   lien.   The court stated that the employment order was being
 6   vacated because, if Kun had made proper disclosure that he was
 7   not disinterested, the court would never have approved the
 8   employment.   Vacating the employment order fixes the problem and
 9   the court found there was nothing in the Bankruptcy Code or
10   Rules, or in the cases cited by Kun, that prohibits the court
11   from vacating the employment order when there was no basis to
12   enter that order, in light of the information later revealed
13   that Kun was not disinterested.
14   Kun’s Proofs of Claim Disallowed
15        Regarding the proofs of claim, the court commented that
16   even if Kun did have a lien, the disallowance of the fees means
17   that the lien attaches to nothing because an attorney’s lien
18   simply secures the amount of the underlying debt as determined
19   by the bankruptcy court.   The court noted that the order
20   allowing the employment was drafted by Kun and it did not
21   provide for a non-refundable retainer or a security retainer.
22   Instead, the order only referred to a general retainer.     The
23   bankruptcy court explained that vacating the employment order
24   and addressing the objection to the proofs of claim were new
25   issues that had not been addressed in the previous order and
26   appeals.
27        The court found that the proofs of claim should be
28   disallowed because there was no basis for the claims.   Kun’s

                                    -8-
 1   fees were previously disallowed in full and the bankruptcy court
 2   previously ordered disgorgement of the retainer.   Any lien that
 3   may have been created is gone, and even if there was an
 4   enforceable lien, it does not attach to anything because Kun’s
 5   compensation was denied in full.
 6        On March 10, 2015, the bankruptcy court entered the order
 7   vacating the employment order and disallowing Kun’s proofs of
 8   claim.
 9        On April 23, 2015, Kun filed a timely notice of appeal
10   pursuant to an extension granted by the bankruptcy court.
11                           PREFATORY COMMENT
12        This is the second appeal concerning payment of Kun’s
13   attorneys fees.   As stated above, Kun filed a fee application
14   requesting an award of attorneys fees.   It was through this
15   application and the attached time sheet that Kun first revealed
16   that he was a prepetition creditor and had undisclosed
17   connections with the debtor.
18        The bankruptcy court denied all fees and costs represented
19   in the fee application and ordered Kun to disgorge the $5,000.00
20   retainer.   Two appellate courts held that the bankruptcy court
21   properly found that Kun had violated his requirement to make
22   full and proper disclosures to be employed as a professional of
23   the bankruptcy estate and that he was not disinterested.    Either
24   finding by the bankruptcy court was an independent basis for
25   denying all fees and costs and ordering disgorgement.
26        This Panel is not reviewing any matter that was the subject
27   of the first series of appeals, viz: whether Kun violated the
28   disclosure requirements; whether he was not disinterested, and

                                    -9-
 1   therefore ineligible to be employed as a professional of the
 2   bankruptcy estate under § 327; or the propriety of the
 3   bankruptcy court’s disallowance of all fees and costs identified
 4   in the fee application, plus disgorgement of the $5,000.00
 5   retainer.
 6        Further the Panel notes that the fees disallowed in full
 7   were all of the fees identified in the fee application, both
 8   prepetition and postpetition, plus the claimed expenses.      There
 9   is no indication in the rulings by either the district or
10   circuit court that the bankruptcy court order denying all fees
11   and costs and ordering disgorgement of the retainer was limited
12   in any fashion.   The Panel thus finds that the order denying
13   fees applies to the entire amount of fees represented by the fee
14   application, not the net amount that Kun stated was still owing.
15   This conclusion is based on the language used by the bankruptcy
16   court in denying the fees in total, and because the order
17   requires disgorgement of the full $5,000.00 retainer the debtor
18   paid to Kun.
19        On this second appeal, the Panel will rely on the findings
20   of fact and conclusions of law that have been already
21   established and that are the law of the case.
22                                JURISDICTION
23        The bankruptcy court had jurisdiction under 28 U.S.C.
24   §§ 1334 and 157(b)(2)(A) and (B).       This Panel has jurisdiction
25   under 28 U.S.C. § 158.
26                                   ISSUES
27   1.   Did the bankruptcy court abuse its discretion in vacating
28        the employment order?

                                      -10-
 1   2.   Did the bankruptcy court abuse its discretion in
 2        disallowing Kun’s proofs of claim?
 3                         STANDARDS OF REVIEW
 4        We review a decision regarding the employment of a
 5   professional for an abuse of discretion.    Elias v. Lisowski Law
 6   Firm, Chtd. (In re Elias), 215 B.R. 600, 603 (9th Cir. BAP
 7   1997).
 8        “An order overruling a claim objection can raise legal
 9   issues (such as the proper construction of statutes and rules)
10   which we review de novo, as well as factual issues (such as
11   whether the facts establish compliance with particular statutes
12   or rules), which we review for clear error.”   Allen v. U.S.
13   Bank, N.A. (In re Allen), 472 B.R. 559, 564 (9th Cir. BAP 2012)
14   (quoting Veal v. Am. Home Mortg. Serv., Inc. (In re Veal),
15   450 B.R. 897, 918 (9th Cir. BAP 2011)).
16        We review a bankruptcy court’s decision to allow or
17   disallow a proof of claim for an abuse of discretion.   Green v.
18   Brotman Med. Ctr., Inc. (In re Brotman Med. Ctr., Inc), 2012 WL
19   603709, at *6 (9th Cir. BAP Jan. 20, 2012).
20        To determine whether the bankruptcy court abused its
21   discretion, we conduct a two-step inquiry: (1) we review de novo
22   whether the bankruptcy court “identified the correct legal rule
23   to apply to the relief requested” and (2) if it did, whether the
24   bankruptcy court‘s application of the legal standard was
25   “(1) ‘illogical,’ (2) ‘implausible,’ or (3) without ‘support in
26   inferences that may be drawn from the facts in the record.’”
27   United States v. Hinkson, 585 F.3d 1247, 1261-62 (9th Cir. 2009)
28   (en banc)(citation omitted).

                                    -11-
 1                                  DISCUSSION
 2   A.       The Bankruptcy Court Did Not Abuse its Discretion When it
              Vacated Kun’s Employment Order.
 3
 4            Section 327(a) requires that any professional employed by
 5   the estate be disinterested.5     In prior proceedings, the
 6   bankruptcy court found that Kun was not eligible to be counsel
 7   for the debtor under § 327 because he was a prepetition creditor
 8   and thus not disinterested.      Accordingly, all requested fees
 9   were denied and Kun was ordered to disgorge his retainer.       The
10   bankruptcy court’s findings were affirmed on appeals to the
11   district court and to the Ninth Circuit.
12            Bankruptcy courts have inherent power to enforce their own
13   orders and to take corrective action when necessary.
14   Section 105(a) vests bankruptcy courts with powers “necessary or
15   appropriate to carry out the provisions of” the Bankruptcy Code.
16   11 U.S.C. § 105(a).      Thus, a bankruptcy court has the
17   discretionary power under § 105(a) to reconsider, modify, or
18   vacate previous orders.      See Zurich Am. Ins. Co. V. Int’l
19   Fibercom, Inc. (In re Int’l Fibercom, Inc.), 503 F.3d 933, 940
20   (9th Cir. 2007).
21            In this appeal, Kun argues that neither § 327 nor any other
22   section of the Bankruptcy Code expressly authorizes the
23   revocation of the “attorney’s fee contract.”      Kun further argues
24
25       Section 327(a) provides: “Except as otherwise provided in
          5

26 this section, the trustee, with the court’s approval, may employ
   one or more attorneys, accountants, appraisers, auctioneers, or
27 other professional persons, that do not hold or represent an
   interest adverse to the estate, and that are disinterested
28 persons. . . .” (emphasis added).

                                       -12-
 1   that neither Rule 2014 nor any other rule addresses revocation
 2   of the “attorney’s fee contract.”      Kun contends that the
 3   bankruptcy court apparently assumed, but did not find, that his
 4   representation about being disinterested was sufficiently
 5   fraudulent to vacate the employment contract.      Kun’s position is
 6   that the word “disinterested” is an opinion, not a fact, and
 7   that an opinion cannot be the basis of a fraudulent
 8   representation.    Kun also argues that the employment agreement
 9   is governed by state law, not federal law, and that the Trustee
10   alleges no ground to vacate under California law.      Further,
11   there was no fraud in this case because there was no scienter –
12   more specifically, Kun did not make a knowing misrepresentation
13   because he did not understand that he was a creditor.      Finally,
14   Kun concludes that there is no precedent in bankruptcy law to
15   set aside an employment contract for negligent
16   misrepresentation.
17        Kun’s arguments fail to appreciate the procedural and
18   appellate history of this case as well as the law and process
19   for employing a professional to represent the debtor-in-
20   possession and the bankruptcy estate in a chapter 11 case.
21   Kun’s arguments are focused on the power of the bankruptcy court
22   to revoke his employment contract with the debtor and whether
23   the bankruptcy court made a finding of fraud, or if fraud could
24   have been found.   However, the bankruptcy court made clear that
25   it was not revoking Kun’s employment contract with the debtor.
26   Instead, using its inherent § 105 power, the bankruptcy court
27   vacated its previous order approving the employment application
28   filed in the bankruptcy case.

                                     -13-
 1        Under provisions of the Bankruptcy Code and Rules,
 2   specifically §§ 327, 328, 329, 330, 331, and Rules 2014 and
 3   2016, before a professional such as an attorney may be employed
 4   by, and paid from, the bankruptcy estate, he must meet certain
 5   criteria, and the court must approve the employment.    A
 6   professional who fails to comply with the requirements of the
 7   Bankruptcy Code or Rules relating to the employment may forfeit
 8   the right to be paid and the person performing these
 9   professional services may be considered an “officious
10   intermeddler or gratuitous volunteer.”   3 Collier on Bankruptcy
11   ¶ 327.03[2][c] (Alan N. Resnik & Henry J. Sommer, eds., 16th ed.
12   2015).   Simply put, Congress made it abundantly clear that
13   § 327(a) requires court approval for a professional to be
14   employed by the estate, and a professional who is not employed
15   by the estate is not entitled to be paid by the estate.
16        However, even if the professional obtains an order allowing
17   employment under § 327(a), that does not establish a right to be
18   compensated as fees must be granted under § 330.   3 Collier at
19   ¶327.03[2][d] (citing Ferrara & Hantman v. Alvarez, 124 F.3d
20   567, 571 (3d Cir. 1997), and noting that compensation from
21   estate funds is subject to a second look by the bankruptcy court
22   under § 330).   The bankruptcy court clearly retains the
23   authority to deny allowance of fees and reimbursement of
24   expenses if the professional is not disinterested, or if the
25   professional holds or represents an adverse interest to the
26   estate with respect to the matter on which the professional is
27
28

                                    -14-
 1   employed.6
 2           In this case, the bankruptcy court determined that Kun
 3   failed to comply with the disclosure requirements regarding his
 4   proposed employment as a professional of the estate and that Kun
 5   was not disinterested.     Those findings were upheld on appeal to
 6   the district court and to the Ninth Circuit.     Accordingly, Kun
 7   did not meet the requirements to be employed by the estate, and
 8   the bankruptcy court concluded it would not have granted the
 9   employment if Kun had properly disclosed that he was a
10   prepetition creditor.
11           In re Coastal Equities, Inc., 39 B.R. 304 (Bankr. S.D. Cal.
12   1984), is a case that is factually similar to this one.     In
13   Coastal Equities, the bankruptcy court for the Southern District
14   of California vacated an employment order based on the failure
15   of the professional to make full and complete disclosure.     Id.
16   at 309.     Kun seeks to distinguish Coastal Equities on grounds
17   that the court found the law firm representing the debtor to
18   have had a materially adverse interest.     Kun states that in this
19   case, no such finding was made and that the bankruptcy court
20
21       6
             Section 328(c) states:
                 Except as provided in section 327(c), 327(e),
22
                 or 1107(b) of this title, the court may deny
23               allowance of compensation for services and
                 reimbursement of expenses of a professional
24               person employed under section 327 or 1103 of
                 this title if, at any time during such
25               professional person’s employment under 327 or
26               1103 of this title, such professional person
                 is not a disinterested person, or represents
27               or holds an interest adverse to the interest
                 of the estate with respect to the matter on
28               which such professional person is employed.

                                      -15-
 1   instead found that debtor’s counsel’s representation was not
 2   disinterested.   Kun states that the word disinterested is an
 3   opinion, not a fact and an opinion cannot be the basis of a
 4   fraudulent representation.
 5        We disagree with Kun’s analysis.     The bankruptcy court made
 6   a finding of fact that Kun was a prepetition creditor of the
 7   debtor and thus not disinterested – this is not simply an
 8   opinion; it is a finding.    Moreover, fraudulent representation
 9   is not the reason that Kun’s fee application was denied in full
10   or the reason that he was not eligible under § 327(a) to
11   represent the debtor-in-possession or the bankruptcy estate.
12   Because Kun was appointed without full disclosure of his
13   disqualifying status as a creditor, vacatur of the employment
14   order was the court’s chosen and most effective method of
15   terminating the improper representation.     As Judge Meyers held
16   in Coastal Equities:
17        The requisite showing for approval of employment was
          not properly made by this Applicant. Had the Court
18        been fully and properly informed, it would have held
          that this Applicant could not represent the debtor-in-
19        possession due to the conflicting interests present
          and because it would not have been in the best
20        interest of the estate. A debtor-in-possession, as
          well as its counsel, owe an undivided loyalty to the
21        estate. . . . Accordingly, the Order appointing [the
          professional] as attorney for debtor is vacated and
22        cannot form the basis for any fee request for fees
          incurred while representing the debtor-in-possession.
23
24 39 B.R. at 309.    Because he was a creditor of the estate, Kun
25   was not disinterested and he was not eligible to be employed as
26   an estate professional under § 327(a).     Kun held an interest
27   materially adverse to the estate.      The court in Coastal Equities
28   determined that the failure of the attorneys to make proper

                                     -16-
 1   disclosure, which is the same issue presented by this case, was
 2   the basis to vacate the order employing the professionals.       The
 3   bankruptcy court properly vacated an order it would not have
 4   entered if all requisite disclosures had been made.
 5        The bankruptcy court acted within its discretion to
 6   reconsider and vacate the employment order based on the newly
 7   disclosed fact that Kun was not disinterested and therefore not
 8   employable because he held a prepetition claim against the
 9   debtor.   The decision to vacate the employment order is hereby
10   AFFIRMED.
11   B.   The Bankruptcy Court Did Not Abuse its Discretion When it
          Disallowed the Proofs of Claim.
12
13        Kun also complains that the bankruptcy court abused its
14   discretion in disallowing the two proofs of claim.    Kun filed
15   what appear to be two identical proofs of claim in the period
16   after the bankruptcy court had denied all fees and expenses in
17   the fee application and ordered disgorgement of the $5,000.00
18   retainer, but before the district court ruled on his appeal of
19   the bankruptcy court’s order.
20        Each proof of claim was filed as a secured, priority claim
21   in the amount of $8,306.10.   The basis for the secured claim is
22   stated as a prepetition retainer and lien.   Kun does not
23   identify any basis to give the claim priority under § 507(a).
24   Attached to each proof of claim is the same time sheet dated
25   May 4, 2011 that was attached to Kun’s fee application.     No
26   other documentation was attached to the proofs of claim.
27        Kun points out that once a proof of claim is executed under
28   penalty of perjury and filed with the court, it is prima facie

                                     -17-
 1   evidence of the validity and amount of the claim under
 2   Rule 3001(f).   Kun then argues that the only grounds for
 3   disallowing a claim are listed in § 502.     Kun states that the
 4   bankruptcy court never held that the claim is not enforceable
 5   against the debtor under state law.     Instead, the bankruptcy
 6   court merely disallowed the claim.      Kun argues that the claim is
 7   still enforceable against the debtor’s property.     Finally, Kun
 8   asserts the bankruptcy court clearly erred when it found that
 9   the reasonable value of Mr. Kun’s services was zero because
10   there was no question that the debtor needed to file bankruptcy
11   or that the bankruptcy petition had been filed, and anyone who
12   is familiar with bankruptcy work knows the amount of time and
13   effort these cases take.
14        Kun’s argument is nonsense.    The only way a professional
15   can be paid from the bankruptcy estate for professional services
16   provided to the estate is when the professional has been
17   properly employed under § 327.    See § 330(a)(1).   As repeatedly
18   held: “[c]ourt approval of the employment of counsel for a
19   debtor in possession is sine qua non to counsel getting paid.
20   Failure to receive court approval for the employment of a
21   professional in accordance with § 327 and Rule 2014 precludes
22   the payment of fees.”   DeRonde v. Shirley (In re Shirley),
23   134 B.R. 940, 943-44 (9th Cir. BAP 1991); see also Shapiro
24   Buchman LLP v. Gore Bros. (In re Monument Auto Detail, Inc.),
25   226 B.R. 219, 224 (9th Cir. BAP 1998); and McCutchen, Doyle,
26   Brown & Enersen v. Official Comm. Unsecured Creditors
27   (In re Weibel), 176 B.R. 209, 211 (9th Cir. BAP 1994).
28        There is no dispute that Kun was not properly employed

                                      -18-
 1   under § 327.   The bankruptcy court and two appellate courts
 2   confirmed that Kun violated his disclosure obligations because
 3   he did not fully disclose his connections to the debtor.
 4   Further, Kun was not disinterested because he was a prepetition
 5   creditor of the estate.
 6        This Panel has stated that it will not reopen the findings
 7   or analysis from the first set of appeals, but we note that the
 8   law is clear that under § 328(c), if at any time during the
 9   professional’s employment under § 327, the professional is not
10   disinterested, or holds an interest adverse to the estate with
11   respect to the matter on which the professional is employed, the
12   bankruptcy court may deny allowance of all compensation and
13   expenses.   Further, the requirement to make full and accurate
14   disclosure by a professional seeking employment or fees from the
15   estate is an independent responsibility.   Neben & Starrett, Inc.
16   v. Chartwell Fin. Corp. (In re Park-Helena Corp.), 63 F.3d 877,
17   880 (9th Cir. 1995).   “The disclosure rules are applied
18   literally, even if the results are harsh.”   Id. at 881.
19   “Negligent or inadvertent omissions ‘do not vitiate the failure
20   to disclose.’”   Id. (citation omitted).
21        Kun’s argument that he may pursue his fees under a state
22   law theory is also misplaced.   Kun may only recover fees related
23   to his representation in the bankruptcy case in accordance with
24   the provisions allowing fee awards provided in the Bankruptcy
25   Code.   “[T]he Code and Rules preclude fee awards for services
26   performed on behalf of a bankruptcy estate based on state law
27   theories not provided for by the Code.”    Monument Auto, 226 B.R.
28   at 224 (citing Weibel, 176 B.R. at 212 and Shirley, 134 B.R. at

                                     -19-
 1   944). See also Law Offices of Ivan W. Halperin v. Occidental
 2   Fin. Grp., Inc. (In re Occidental Fin. Grp., Inc.), 40 F.3d
3   1059, 1063 (9th Cir. 1994)(“As a general rule the equitable
 4   remedy of quantum meruit cannot be available where the fees are
 5   barred by law under the bankruptcy rules,” citing In re Shirley,
 6 134 B.R. at 944-45, noting that allowing recovery under quantum
 7   meruit and other state law theories would void the Bankruptcy
 8   Code and Rule provisions requiring approval of employment).
 9        Kun apparently fails to understand four key points in this
10   case.   First, it is a requirement under § 330(a) that he must be
11   properly employed under § 327 to receive compensation as a
12   professional of the estate.    Second, he failed to make full and
13   accurate disclosure about being a prepetition creditor.     Third,
14   by holding a claim for prepetition services he was not
15   disinterested.   Finally, the fact that he was not disinterested
16   meant that he was not employable.      Thus, the order (1) denying
17   all fees and costs represented in Kun’s fee application and
18   (2) directing disgorgement of the $5,000.00 retainer meant that
19   all of the fees and costs incurred in connection with the case
20   were completely disallowed by the bankruptcy court.
21        Kun’s position that he still has a claim under state law or
22   that the claim remains enforceable against property of the
23   bankruptcy estate is not supported by the applicable law.     Kun’s
24   claims for attorneys fees and costs represented in the two
25   proofs of claim were not denied based on an equitable
26   disallowance theory.    The claims for fees and costs were denied
27   under § 502(b)(1) as unenforceable because they had already been
28   disallowed in full.    They were also denied under § 502(b)(4)

                                     -20-
 1   based on a finding by the bankruptcy court that the claims
 2   exceeded the reasonable value to the bankruptcy estate.    There
 3   is no basis for the allowance of attorneys fees that have been
 4   previously disallowed by the bankruptcy court.   The fees and
 5   costs represented in the proofs of claim are the same fees and
 6   costs which the court previously denied.
 7        The Panel finds that the bankruptcy court did not abuse its
 8   discretion in disallowing Kun’s two proofs of claim that
 9   represented the exact same fees and costs that the court
10   previously disallowed in full based on Kun’s violations of the
11   disclosure rules and because Kun was not disinterested.    Once a
12   determination has been made to deny fees and costs of a
13   professional of the estate, there is no legal basis to revive
14   those same claims.   The order sustaining the objections to the
15   proofs of claim is AFFIRMED.
16        The Panel notes that Kun raised a third point on appeal:
17   whether the bankruptcy court erred in finding that the
18   reasonable value of his services was zero.   The Panel finds that
19   the issue is moot, and it need not decide the matter based on
20   the holdings in the first series of appeals that the bankruptcy
21   court properly exercised its discretion when it denied the
22   attorney fee application in its entirety based on Kun’s
23   disclosure violations and that his prepetition claim rendered
24   him not disinterested and therefore ineligible to be employed
25   under § 327(a).
26                               CONCLUSION
27        This appeal confirms that if an attorney is not properly
28   employed by the estate, the bankruptcy court does not abuse its

                                    -21-
 1   discretion in later vacating an employment order.   Additionally,
 2   once attorneys fees have been denied, the same attorneys fees
 3   and costs may not be recovered through the filing of subsequent
 4   proofs of claim or based on alternative, state law theories.
 5   Under the facts of this case, with the attorneys fees and costs
 6   disallowed in full and our determination that the bankruptcy
 7   court did not abuse its discretion in disallowing the subsequent
 8   proofs of claim, it does not matter what, if any, benefit or
 9   value counsel may have provided to the estate.
10   For the foregoing reasons, we AFFIRM.
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