Court Opinion

ID: 9940962
Source: CourtListenerOpinion
Date Created: 2024-02-15 18:02:43.404478+00
Date Added: 2024-06-11T13:46:04.832067
License: Public Domain

UNITED STATES BANKRUPTCY APPELLATE PANEL
            FOR THE FIRST CIRCUIT
                        ___________________________________

                                BAP NO. MB 99-025
                        ___________________________________

                             IN RE HAROLD A. MEYER,
                                      Debtor.
                        ___________________________________

                  STEPHEN E. SHAMBAN, CHAPTER 7 TRUSTEE,
                                 Appellant,

                                           v.

          HAROLD A. MEYER, HONORABLE ARMAND FERNANDES, JR.,
              BISIO & DUPONT and ROBERT DIGIANTOMMASO,
                               Appellees.

                        ___________________________________

                    Appeal from the United States Bankruptcy Court
                            for the District of Massachusetts
                   [Hon. William C. Hillman, U.S. Bankruptcy Judge]

                       ____________________________________

                                         Before

              DE JESÚS, VAUGHN and CARLO, U.S. Bankruptcy Judges.

                        ___________________________________

Stephen E. Shamban, Esq. was on brief for appellant.

                        ___________________________________

                                  September 9, 1999
                        ___________________________________
Per Curiam.

     Stephen    E.   Shamban   (“Shamban”),   the    Chapter    7   trustee,

challenges an Order issued by the United States Bankruptcy Court

denying his motion for the post facto employment of the Stephen E.

Shamban Law Offices, P.C. as counsel for the estate.           We reverse.

                               JURISDICTION

     The Bankruptcy Appellate Panel has jurisdiction to review

final decisions from the United States Bankruptcy Court pursuant to

28 U.S.C. § 158.       See also Sanford Institution for Savings v.

Gallo, 156 F.3d 71, 74 (1st Cir. 1998).         The bankruptcy court’s

legal conclusions are reviewed de novo. Palmacci v. Umpierrez, 121

F.3d 781, 785 (1st Cir. 1997).      A bankruptcy court’s ruling on a

motion to approve employment of a professional post facto is

reviewed under an abuse of discretion standard.         In re Jarvis, 53

F.3d 416, 420 (1st Cir. 1995).

                               BACKGROUND

     Harold A. Meyer (“Meyer”) filed a voluntary petition for

relief under Chapter 7 on October 29, 1991.         Shamban was appointed

as the Chapter 7 trustee.       Only three creditors filed proofs of

claim. On February 28, 1992, Shamban filed an adversary proceeding

against the debtor’s ex-wife seeking turnover of certain assets of

the estate.    Shamban sought approval of Attorney Roger Stanford

(“Stanford”)    as   special   counsel   to   prosecute   the       adversary

proceeding.    The bankruptcy court approved Stanford’s appointment.

                                    2
Meyer died intestate on September 27, 1992.              Stanford developed a

conflict of interest in the adversary proceeding and Shamban

replaced Stanford with Attorney Frederick Watson (“Watson”) of

Shamban’s law offices.      Watson initiated two additional adversary

proceedings involving the administrator of Meyer’s estate and his

ex-wife.    At that time, Shamban failed to file an application to

employ his law offices or Watson as special counsel.

     The adversaries were ultimately concluded through a settlement

agreement, which was executed by Shamban, the administrator of

Meyer’s    probate    estate,    Meyer’s       three   creditors    and    other

interested parties.       The bankruptcy court approved the settlement

agreement and compromise on November 18, 1997.                 The agreement

provided for    payment     to   the   three    creditors,    the   payment   of

Shamban’s trustee fees and Watson’s fees.                After payment to the

three creditors, the sum of $21,131.27 remained in the estate.

Shamban’s final report contained a fee application for Watson’s

services, consisting of attorney’s fees in the amount of $19,459.00

and expenses of $264.54.

     The U.S. Trustee opposed the final report, arguing that

Shamban    failed    to   file   and    obtain     the    bankruptcy      court’s

authorization to employ his law offices as special counsel.                    In

response, Shamban filed an application for employment of his law

offices and each of the debtor’s three creditors filed motions

assenting to the granting of Shamban’s motion.             On March 23, 1999,

                                       3
the bankruptcy court denied the motion, without a hearing, by

margin order stating simply “denied”.           At the March 25, 1999

hearing on the final report, the bankruptcy court again denied

Shamban’s request.    Shamban filed a timely notice of appeal.

                               DISCUSSION

       A bankruptcy court may approve a professional’s post facto

application for employment if the professional can demonstrate that

“(1) the employment satisfies the statutory requirements, and 2)

that    the   delay   in   seeking    court   approval   resulted   from

extraordinary circumstances.”        In re Jarvis, 53 F.3d 416, 418 (1st

Cir. 1995).     In Jarvis, the First Circuit held that “tardiness

occasioned merely by oversight cannot qualify as an extraordinary

circumstance under the second prong of the aforesaid test.”         Id.

       In explaining the first prong of the two part test, the First

Circuit stated:

       A bankruptcy court confronted by a post facto application
       for the employment of a professional should begin by
       inquiring into suitability; the timing of the application
       does not matter unless the court makes a supportable
       finding that the services were reasonably necessary for
       the due performance of the trustee's duties, that the
       professional is licensed or otherwise qualified to render
       such   services,    and   that   the    disinterestedness
       requirements of section 327(a) are not at risk. In other
       words, the bankruptcy court must satisfy itself that, had
       the application been filed on time, the court would have
       authorized the professional's employment then and there.

Id. at 420.

       At the hearing held on the final report, the bankruptcy court

did not discuss Shamban’s suitability for employment.         The court

                                      4
did state that Shamban “did a great job.”                 Hearing Transcript,

March 25, 1999 at 2.             The court went on to base its denial of

Shamban’s motion for post facto approval of his law offices as

counsel for the estate, on a conclusion that In re Jarvis “tied”

the court’s hands.         Id.

     Normally, this Panel would remand this case to the bankruptcy

court    for    findings    of    fact   as   to   Shamban’s   suitability   for

employment.      But, since the facts regarding Shamban’s suitability

for employment are undisputed, and appear in the record before us

on appeal, remand is unnecessary and this Panel may pass upon the

facts.    See In re LaRouche, 131 B.R. 253, 257 (D.R.I. 1991), aff’d

969 F.2d 1299 (1st Cir. 1992); Betancourt v. Garcia, 49 B.R. 620,

622 (D.P.R. 1985).      See also Texas Co. v. R.O’Brien & Co., 242 F.2d

526, 529 (1st Cir. 1957); In re Legal, Braswell Gov’t Sec. Corp.,

648 F.2d 321, 326 n. 8 (5th Cir. 1981); King v. Comm’r of Internal

Revenue, 458 F.2d 245, 249 (6th Cir. 1972); In re Belle-Moc, Inc.,

182 F.Supp. 429, 431 n. 2 (D.Me. 1960).

     The uncontested facts show that at the time of Shamban’s

appointment as trustee for the estate, Shamban filed an Interim

Trustee’s Acceptance and Declaration, in which he certified that he

did not have a conflict of interest with the estate and that he was

a disinterested person. Shamban’s motion for post facto employment

of his law offices as counsel for the estate is signed by the

trustee.       The motion includes the facts showing the necessity for

                                          5
employment; the name of person to be employed; the reasons for

selection; the professional services rendered; and the proposed

arrangement for compensation.   Shamban included an affidavit which

attests that Shamban is licensed or otherwise qualified to render

the services rendered.   The affidavit further attests that neither

Shamban, nor any attorney employed by his office, has an interest

adverse to the estate, and that they are disinterested.          The

affidavit also attests that neither Shamban nor any attorney in

this office represents any creditor, entity or case related to this

case.     Having satisfied the requirements of 11 U.S.C. § 327 and

Fed.R.Bankr.P. 2014, this Panel concludes that Shamban and his law

offices are suitable to be employed as counsel for the estate.   The

Panel also concludes that had the application been filed on time,

the bankruptcy court would have authorized Shamban’s employment.

     Because Shamban is qualified for employment as counsel for the

estate:

     the bankruptcy court must next, in the exercise of its
     informed discretion, decide whether the particular
     circumstances    attendant   to   the   application   are
     sufficiently extraordinary to warrant after-the-fact
     approval. See [In re] F/S Airlease II, [Inc.], 844 F.2d
     at 105 [(3rd Cir.), cert. denied, 488 U.S. 852 (1988)] .
     In   fleshing   out   the  extraordinary    circumstances
     requirement, the Third Circuit has indicated that
     bankruptcy courts may consider several factors, including

            whether the applicant or some other person
            bore responsibility for applying for approval;
            whether the applicant was under time pressure
            to begin service without approval; the amount
            of delay after the applicant learned that
            initial approval had not been granted; [and]

                                  6
          the extent to which compensation to the
          applicant   will prejudice innocent third
          parties....

     Id. at 105-06 (quoting [In re] Arkansas [Co.], 798 F.2d
     at 650 [(3rd Cir. 1986)].

Jarvis, 53 F.3d at 420-21.

     In this case, the bankruptcy court failed to consider the

factors outlined    in   Jarvis.    The   court   initially     denied   the

application for employment without a hearing.        When the matter was

again raised at the hearing on the final report, the court merely

stated that Jarvis “tied” its hands and that it did not have the

authority to authorize the employment.         Hearing Transcript, March

25, 1999 at 2.      This Panel concludes that the First Circuit’s

opinion in Jarvis authorizes the bankruptcy court to exercise its

discretion   in   determining   whether   to   approve    the   post   facto

employment of counsel for the estate.

     Moreover, the First Circuit in Jarvis stated that its list of

considerations is not exhaustive.      Id. at 421.       Other courts have

enumerated considerations based upon the decision in In re Twinton

Properties Partnership, 27 B.R. 817 (Bankr.M.D.Tenn. 1983), in

which the court held that an applicant for nunc pro tunc, or post

facto, employment of a professional must demonstrate the following:

          (1) The debtor, trustee or committee expressly
     contracted with the professional person to perform the
     services which were thereafter rendered;
          (2) The party for whom the work was performed
     approves the entry of the nunc pro tunc order;
          (3) The applicant has provided notice of the
     application to creditors and parties in interest and has

                                   7
     provided an opportunity for filing objections;
          (4) No creditor or party in interest offers
     reasonable objection to the entry of the nunc pro tunc
     order;
          (5) The professional satisfied all criteria for
     employment pursuant to 11 U.S.C.A. § 327 (West 1979) and
     Rule 215 of the Federal Rules of Bankruptcy Procedure at
     or before the time services were actually commenced and
     remained qualified during the period for which services
     were provided;
          (6) The work was performed properly, efficiently,
     and to a high standard of quality;
          (7) No actual or potential prejudice will inure to
     the estate or other parties in interest;
          (8) The applicant's failure to seek pre-employment
     approval is satisfactorily explained; and
          (9) The applicant exhibits no pattern of inattention
     or negligence in soliciting judicial approval for the
     employment of professionals.

Id. at    819-820.    See   also   In       re   Martin,   102   B.R.   653,   657

(Bankr.W.D.Tenn. 1989). But see In re Doctors Hospital, Inc. d/b/a

Doctors   Hospital,   117   B.R.   38       (Bankr.D.P.R.    1990)(pre-Jarvis

decision holding that the nine factor test for determining whether

to approve a nunc pro tunc application for employment is not

applicable in the First Circuit).

      Concluding that the factors outlined in Jarvis are not

exhaustive, and as we previously concluded, that the facts are

undisputed, we believe that the best approach is to consider the

Jarvis factors as well as the additional factors outlined in

Twinton and Martin. Shamban was the person who bore responsibility

for applying for the approval of his law offices as counsel for the

estate.   Shamban did properly seek and obtain court approval for

the employment of the former counsel, who subsequently resigned.

                                        8
Shamban was not under time pressure to begin service without

approval. Shamban has not given a justification for his failure to

seek to employ his law firm in a timely manner.        Shamban indicated

that he was not aware that an application to employ his firm was

not filed until he sought approval of the fees.        Thus, it appears

that Shamban’s failure to seek employment was due to what could be

called oversight.     Shamban took corrective measures and sought to

employ his law offices as soon as he realized that he had not

previously sought the bankruptcy court’s approval.

      As a general rule, in most Chapter 7 cases, payment of

administrative expenses, including compensation to professionals

and     other   priorities,   prejudices   “innocent   third       parties.”

Usually, unsecured creditors will receive a smaller distribution on

their claims.     In the present case, the estate has a surplus.         The

three    unsecured   creditors,   representing   all   of    the    estate’s

creditors, were paid the full amount of their negotiated claims.

Thus, the Panel concludes that there is no prejudice to any

innocent third parties.

      Shamban expressly contracted with Watson and the Shamban Law

Offices to perform the services which were rendered. The creditors

stipulated in the settlement agreement that Watson’s counsel fees

would be paid from the proceeds of the settlement.          The bankruptcy

court approved the settlement agreement. The U.S. Trustee objected

to the final report premised solely on the fact that Shamban did

                                    9
not   seek    the   bankruptcy   court’s    approval    prior   to   providing

services.      Shamban thereafter filed the motion for post facto

employment of his law offices.              All creditors and parties in

interest were given the opportunity to object to the motion.               All

of the creditors of the estate explicitly approved entry of the

post facto order as demonstrated by the fact that they went as far

as to file motions with the bankruptcy court assenting to the post

facto employment of Shamban’s law offices. In the alternative, the

creditors indicated that they were assenting to the disbursement of

the   funds    requested   by    the   trustee   in    the   application   for

professional fees.

      Substantially all of the funds of the estate were generated as

a result of the settlement agreement negotiated by Watson.                 The

bankruptcy court found that Shamban did a great job.                   Hearing

Transcript, March 25, 1999 at 2.        Based on all of the circumstances

of this case, this Panel finds that extraordinary circumstances

exist that justify approval of Shamban’s application for employment

under the Jarvis and Twinton criteria.            Furthermore, since all

creditors have affirmatively consented to the fees requested by

Shamban, which are to be paid from surplus funds, and because the

U.S. Trustee did not question the reasonableness of the fees, we

will approve Shamban’s application for fees and expenses.

                                       10
                                    CONCLUSION

      The bankruptcy court erred in concluding that it did not have

the authority to authorize Shamban’s employment and the bankruptcy

court abused its discretion by failing to outline the criteria

pursuant to which it denied Shamban’s motion. The bankruptcy court

failed to consider whether Shamban’s law offices were qualified to

obtain post facto approval as special counsel for the estate and

whether     extraordinary     circumstances          existed      to    justify      the

employment.        Because    the   uncontested       facts     demonstrate       that

Shamban’s    law    offices   satisfy      the    statutory     requirements         for

employment    as    special    counsel         for   the   estate       and    because

extraordinary circumstances exist which warrant post facto approval

of   Shamban’s     law   offices    as    special    counsel,      we   reverse      the

bankruptcy    court’s     order     denying      Shamban’s     motion     to    employ

Shamban’s law offices as special counsel.                    Finally, we hereby

approve   Shamban’s      request    for    attorney’s      fees    in   the    sum    of

$19,459.00 and $264.54 in expenses, for a total of $19,723.54.

      SO ORDERED.

                                          11